<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
COMMISSION REGISTRANT; STATE OF INCORPORATION; I.R.S. EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
<S> <C> <C>
1-8503 HAWAIIAN ELECTRIC INDUSTRIES, INC. 99-0208097
(A Hawaii Corporation)
900 Richards Street
Honolulu, Hawaii 96813
Telephone (808) 543-5662
1-4955 HAWAIIAN ELECTRIC COMPANY, INC. 99-0040500
(A Hawaii Corporation)
900 Richards Street
Honolulu, Hawaii 96813
Telephone (808) 543-7771
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
REGISTRANT TITLE OF EACH CLASS WHICH REGISTERED
<S> <C> <C>
Hawaiian Electric Common Stock, Without Par Value New York Stock Exchange
Industries, Inc. Pacific Stock Exchange
Hawaiian Electric First Mortgage Bonds, New York Stock Exchange
Company, Inc. Series S, 7.58%
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
REGISTRANT TITLE OF EACH CLASS
<S> <C>
Hawaiian Electric Industries, Inc. None
Hawaiian Electric Company, Inc. Cumulative Preferred Stock
</TABLE>
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
<PAGE> 2
<TABLE>
<CAPTION>
AGGREGATE MARKET
VALUES OF THE
VOTING STOCK NUMBER OF SHARES
HELD BY OF COMMON STOCK
NONAFFILIATES OF OUTSTANDING OF
THE REGISTRANTS ON THE REGISTRANTS
MARCH 21, 1994 MARCH 21, 1994
------------------ ----------------
<S> <C> <C>
Hawaiian Electric $931,627,000 27,913,931
Industries, Inc. (Without par
value)
Hawaiian Electric N/A 11,258,290
Company, Inc. ($6 2/3 par value)
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PART OF
FORM 10-K
INTO WHICH THE
DOCUMENT IS
DOCUMENT INCORPORATED
-------- --------------
<S> <C>
Portions of Annual Reports to
Stockholder(s) of the
following registrants for the
fiscal year ended December 31,
1993:
Hawaiian Electric Industries,
Inc............................ Parts I, II, and III
Hawaiian Electric Company,
Inc............................ Parts I, II, and III
Portions of Proxy Statement of
Hawaiian Electric Industries,
Inc., dated March 10, 1994,
for the Annual Meeting of
Stockholders.................... Parts I and III
</TABLE>
THIS COMBINED FORM 10-K REPRESENTS SEPARATE FILINGS BY HAWAIIAN ELECTRIC
INDUSTRIES, INC. AND HAWAIIAN ELECTRIC COMPANY, INC. INFORMATION CONTAINED
HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY EACH REGISTRANT ON
ITS OWN BEHALF. NEITHER REGISTRANT MAKES ANY REPRESENTATIONS AS TO THE
INFORMATION RELATING TO THE OTHER REGISTRANT.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Glossary of Terms................................................... ii
PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 46
Item 3. Legal Proceedings.......................................... 48
Item 4. Submission of Matters to a Vote of Security Holders........ 50
PART II
Item 5. Market for Registrants' Common Equity and
Related Stockholder Matters................................ 51
Item 6. Selected Financial Data.................................... 51
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 51
Item 8. Financial Statements and Supplementary Data................ 52
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrants........ 52
Item 11. Executive Compensation..................................... 56
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................. 61
Item 13. Certain Relationships and Related Transactions............. 63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................... 63
Independent Auditors' Report - HEI................................... 66
Independent Auditors' Report - HECO.................................. 67
Index to Exhibits.................................................... 87
Signatures........................................................... 103
</TABLE>
i
<PAGE> 4
GLOSSARY OF TERMS
Defined below are certain terms used in this report:
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<S> <C>
1935 ACT Public Utility Holding Company Act of 1935
ADA Americans with Disabilities Act
AES Applied Energy Services, Inc.
AES-BP AES Barbers Point, Inc.
AFUDC Allowance for funds used during construction
ARM Adjustable rate mortgage
ASB American Savings Bank, F.S.B., a wholly owned
subsidiary of HEI Diversified, Inc. and parent
company of American Savings Investment Services
Corp., ASB Service Corporation,
AdCommunications, Inc. and Associated Mortgage,
Inc.
BBC Bottom Biological Community
BHP BHP Petroleum Americas Refining Inc.
BHPH BHP Petroleum Americas (Hawaii) Inc.
BIF Bank Insurance Fund
BPPI Baldwin Pacific Properties, Inc., a limited
partner of Baldwin*Malama (a limited
partnership in which Malama Development Corp.
is a general partner)
BTU British thermal unit
CERCLA Comprehensive Environmental Response,
Compensation and Liability Act
COMPANY Hawaiian Electric Industries, Inc. and its
direct and indirect subsidiaries, including,
without limitation, Hawaiian Electric Company,
Inc., Maui Electric Company, Limited, Hawaii
Electric Light Company, Inc., HEI Investment
Corp., Malama Pacific Corp. and its
subsidiaries, Hawaiian Tug & Barge Corp., Young
Brothers, Limited, HEI Diversified, Inc.,
American Savings Bank, F.S.B. and its
subsidiaries, and Lalamilo Ventures, Inc.
CONSUMER Division of Consumer Advocacy, Department of
ADVOCATE Commerce and Consumer Affairs of the State of
Hawaii
CT Combustion turbine
CUSA Chevron U.S.A., Inc., a fuel oil supplier
DOH Department of Health of the State of Hawaii
DSM Demand-side management
EPA Environmental Protection Agency -- federal
EPCRA Emergency Planning and Community Right-to-Know
Act
ERL State of Hawaii Environmental Response Law
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FDICIA Federal Deposit Insurance Corporation
Improvement Act of 1991
FEDERAL U.S. Government
FEDERAL BANKING Comptroller of the Currency, Federal Reserve
AGENCIES Board, Federal Deposit Insurance Corporation and
OTS
FERC Federal Energy Regulatory Commission
FHA Federal Housing Administration
FHLB Federal Home Loan Bank
FHLBB Federal Home Loan Bank Board
FHLBB AGREEMENT Regulatory Capital Maintenance/Dividend Agreement
between Hawaiian Electric Industries, Inc., HEI
Diversified, Inc. and the Federal Savings and
Loan Insurance Corporation
FHLMC Federal Home Loan Mortgage Corporation
</TABLE>
ii
<PAGE> 5
GLOSSARY OF TERMS (continued)
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<S> <C>
FIRREA Financial Institutions Reform, Recovery, and Enforcement Act of 1989
FSLIC Federal Savings and Loan Insurance Corporation
Hawaii State of Hawaii
HCPC Hilo Coast Processing Company
HECO Hawaiian Electric Company, Inc., a wholly owned electric utility
subsidiary of Hawaiian Electric Industries, Inc. and parent company
of Maui Electric Company, Limited and Hawaii Electric Light Company,
Inc.
HEI Hawaiian Electric Industries, Inc., parent company of Hawaiian
Electric Company, Inc., HEI Investment Corp., Malama Pacific Corp.,
Hawaiian Tug & Barge Corp., Lalamilo Ventures, Inc. and HEI
Diversified, Inc.
HEIDI HEI Diversified, Inc., a wholly owned subsidiary of Hawaiian Electric
Industries, Inc., the parent company of American Savings Bank,
F.S.B. and the holder of record of the common stock of The Hawaiian
Insurance & Guaranty Company, Limited, which is currently in state
rehabilitation proceedings
HEIIC HEI Investment Corp., a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.
HELCO Hawaii Electric Light Company, Inc., a wholly owned electric utility
subsidiary of Hawaiian Electric Company, Inc.
HERS Hawaiian Electric Renewable Systems, Inc., formerly a wholly owned
subsidiary of Hawaiian Electric Industries, Inc. and formerly parent
company of Lalamilo Ventures, Inc.
HIG The Hawaiian Insurance & Guaranty Company, Limited, currently in
state rehabilitation proceedings and parent company of United
National Insurance Company, Ltd., Hawaiian Underwriters Insurance
Co., Ltd., Guardian Life Underwriters, Inc., Guardian Financial
Corporation and Independent Adjustment, Inc. HEI Diversified, Inc.
is the holder of record of HIG's common stock
HIRI Hawaiian Independent Refinery, Inc., a fuel oil refinery
HITI Hawaiian Interisland Towing, Inc.
HP Horsepower
HRRV Honolulu Resource Recovery Venture
HTB Hawaiian Tug & Barge Corp., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc. and parent company of Young Brothers,
Limited
IBEW International Brotherhood of Electrical Workers
IBU Inlandboatmen's Union of the Pacific, Marine Division, an affiliate
of the International Longshoremen's and Warehousemen's Union, Hawaii
Division
INSURED A bank or savings association, the deposits of which are insured by
DEPOSITORY the Bank Insurance Fund or the Savings Association Insurance Fund,
INSTITUTION respectively
IRP Integrated resource plan
IRR Interest rate risk
KW Kilowatt
KWH Kilowatthour
LVI Lalamilo Ventures, Inc., formerly a wholly owned subsidiary of
Hawaiian Electric Renewable Systems, Inc. and now a wholly owned
subsidiary of Hawaiian Electric Industries, Inc.
MBTU Million British thermal unit
MDC Malama Development Corp., a wholly owned subsidiary of Malama Pacific
Corp.
</TABLE>
iii
<PAGE> 6
GLOSSARY OF TERMS (continued)
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<S> <C>
MECO Maui Electric Company, Limited, a wholly owned electric utility
subsidiary of Hawaiian Electric Company, Inc.
MMO Malama Mohala Corp., a wholly owned subsidiary of Malama Pacific
Corp.
MPC Malama Pacific Corp., a wholly owned subsidiary of Hawaiian Electric
Industries, Inc. and parent company of Malama Project-I, Inc.,
ML Holdings, Ltd., Malama Waterfront Corp., Malama Property Investment
Corp., Malama Development Corp., Malama Makakilo Corp., Malama
Realty Corp., Malama Elua Corp., Malama Kolu Corp., Malama Hoaloha
Corp. and Malama Mohala Corp.
MW Megawatt
NOI Notice of intent
NPDES National Pollutant Discharge Elimination System
OPA Federal Oil Pollution Act of 1990
OTS Office of Thrift Supervision, Department of Treasury
PCB Polychlorinated biphenyl
PGV Puna Geothermal Ventures
PSD Prevention of significant deterioration
PTI Power Technologies, Inc.
PUC Public Utilities Commission of the State of Hawaii
PURPA Public Utility Regulatory Policies Act of 1978
QTL Qualified Thrift Lender
RCRA Resource Conservation and Recovery Act of 1976
REGISTRANT Hawaiian Electric Industries, Inc. or Hawaiian Electric Company, Inc.
SAIF Savings Association Insurance Fund
SARA Superfund Amendments and Reauthorization Act
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
STATE State of Hawaii
TSCA Toxic Substance Control Act of 1976
TRA Tax Reform Act of 1986
UIC Underground Injection Control
UST Underground storage tank
YB Young Brothers, Limited, a wholly owned subsidiary of
Hawaiian Tug & Barge Corp.
</TABLE>
iv
<PAGE> 7
PART I
ITEM 1. BUSINESS
HEI
HEI was incorporated in 1981 under the laws of the State of Hawaii and
is a holding company with subsidiaries engaged in the electric utility,
financial services, freight transportation, real estate development and other
businesses, in each case primarily or exclusively in the State of Hawaii. HEI's
predecessor, HECO, was incorporated under the laws of the Kingdom of Hawaii
(now the State of Hawaii) on October 13, 1891.
As a result of a 1983 corporate reorganization, HECO became an HEI subsidiary
and common shareholders of HECO became common shareholders of HEI. HECO and its
subsidiaries, MECO and HELCO, are regulated operating public utilities
providing the only public utility electric service on the islands of Oahu,
Maui, Lanai, Molokai and Hawaii. HEI also owns directly or indirectly the
following nonelectric public utility subsidiaries which comprise its diversified
companies: HEIDI and its subsidiary, ASB, and ASB's subsidiaries; HTB and its
subsidiary; MPC and its subsidiaries; HEIIC; and LVI. HEIDI is also the holder
of record of the common stock of HIG, which was acquired in 1987 and provided
property and casualty insurance primarily in Hawaii. HIG is currently in
rehabilitation proceedings and it is expected that HEIDI will relinquish all
ownership rights in HIG and its subsidiaries during 1994. See "Discontinued
operations--The Hawaiian Insurance & Guaranty Co., Limited."
ASB was acquired in 1988, is the second largest savings bank in Hawaii as
measured by total assets as of September 30, 1993, and has 45 retail branches
as of December 31, 1993. HTB was acquired in 1986 and provides ship assist and
charter towing services and owns YB, a regulated intrastate public carrier of
waterborne freight among the Hawaiian Islands. MPC was formed in 1985 and
develops and invests in real estate. HEIIC was formed in 1984 and is a passive
investment company which has sold substantially all of its investments in
marketable securities over the last few years and currently plans no new
investments. In March of 1993, pursuant to the decision made at the end of the
third quarter of 1992, the stock of HERS, formerly an HEI wind energy
subsidiary, was sold to The New World Power Corporation and LVI became a direct
subsidiary of HEI. See "Discontinued operations -- Hawaiian Electric Renewable
Systems, Inc."
The financial information about the Company's industry segments is
incorporated herein by reference to page 28 of HEI's 1993 Annual Report to
Stockholders, portions of which are filed herein as HEI Exhibit 13(a).
For additional information about the Company, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," incorporated herein by reference to pages 29 to 39 of HEI's 1993
Annual Report to Stockholders, portions of which are filed herein as HEI
Exhibit 13(a).
RATING AGENCIES' ACTIONS
On February 8, 1993, Standard & Poor's (S&P) lowered HEI's and HECO's long-
term credit ratings. S&P lowered HEI's medium-term note credit rating to BBB
from BBB+, citing HECO's reduced credit worthiness and the write-off of HEI's
investment in HIG. S&P noted that considerable political and financial
uncertainty will remain until the ultimate impact of HIG on HEI is determined.
S&P maintained a negative rating outlook reflecting downward pressure on HEI's
and HECO's earnings which could intensify in the absence of adequate rate
relief for HECO. HEI's commercial paper rating of A-2 was reaffirmed.
On February 26, 1993, Duff & Phelps Credit Rating Co. (D&P) lowered HEI's
medium-term note rating to BBB+ from A- due to the continuing uncertainty
surrounding HEI and its decision to cease operations at HIG. D&P noted that the
extent of additional financial responsibility ultimately required, if any, is
unknown, which adds risk that was not reflected in D&P's prior rating. HEI's
commercial paper rating of Duff 1- (one-minus) was reaffirmed.
On February 11, 1994, in response to HEI's announcement that it signed an
agreement to settle the lawsuit filed by the Hawaii Insurance Commissioner and
Hawaii Insurance Guaranty Association against HEI relating to losses sustained
by HIG from Hurricane Iniki, D&P stated that the settlement and additional
charge to income fit within the assumptions pertinent to D&P's current ratings
for HEI. The settlement agreement is subject to court approval. (See
"Discontinued operations -- The Hawaiian Insurance & Guaranty Co., Ltd. for a
further discussion on the settlement agreement.)
1
<PAGE> 8
On April 28, 1993, Moody's Investor Service (Moody's) confirmed the credit
ratings of HEI, citing HEI's plans to issue additional common equity in order
to rebalance its capital structure. Moody's stated that its concerns regarding a
lawsuit associated with HIG and stemming from Hurricane Iniki are partially
mitigated by the possible long period before a fully litigated decision is
reached. The confirmation concluded a review for possible downgrade initiated
on December 4, 1992.
In October 1993, S&P completed its review of the U.S. investor-owned electric
utility industry and concluded that more stringent financial risk standards are
appropriate to counter mounting business risk. "S&P believes the industry's
credit profile is threatened chiefly by intensifying competitive pressures," the
agency said in a statement. It also cited sluggish demand expectations, slow
earnings growth prospects, high dividend payouts and environmental cost
pressures. Under the new guidelines, S&P rated HECO's business position as
average.
As of February 11, 1994, HEI's and HECO's S&P, Moody's and D&P security
ratings were as follows:
<TABLE>
<CAPTION>
S&P (1) Moody's (2) D&P (3)
------- ----------- -------
<S> <C> <C> <C>
HEI
Medium-term notes BBB Baa2 BBB+
Commercial paper A-2 P-2 Duff 1-
Ratings outlook Negative N/A N/A
HECO
First mortgage bonds BBB+ A3 A
Unsecured notes BBB Baa1 A-
Cumulative preferred stock BBB baa1 BBB+
Commercial paper A-2 P-2 Duff 1-
Ratings outlook Negative N/A N/A
</TABLE>
N/A Not applicable.
(1) S&P. Debt rated BBB or BBB+ is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
The ratings may be modified by the addition of a plus or minus sign to
show relative standing within the major categories.
A commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days. Commercial paper rated A-2 indicates that capacity for timely
payment on issues is satisfactory.
(2) Moody's. Bonds which are rated Baa2 or Baa1 are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Bonds which are rated A3 possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Preferred stock rated baa1 is considered to be a medium grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over a great
length of time.
Numeric modifiers are added to debt and preferred stock ratings.
Numeric modifier 1 indicates that the security ranks in the higher end of
its generic rating category and numeric modifier 2 indicates a mid-range
ranking.
Commercial paper rated P-2 is considered to have a strong ability for
repayment of senior short-term obligations. This will normally be
evidenced by the following characteristics: a) leading market positions
in well- established industries, b) high rates of return on funds
employed, c) conservative capitalization structure with moderate reliance
on debt and ample asset protection, d) broad margins in earnings coverage
of fixed financial charges and high internal cash generation and e) well
established access to a range of financial markets and assured sources of
alternate liquidity. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
(3) Duff & Phelps. Debt rated BBB+ is regarded as having below average
protection factors, but still considered sufficient for prudent investment.
There may be considerable variability in risk during economic cycles.
2
<PAGE> 9
Debt rated A or A- is considered to have protection factors that are
average but adequate. However, risk factors are more variable and greater
in periods of economic stress.
Commercial paper rated Duff 1- indicates a high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
Each security rating listed above is not a recommendation to buy, sell or hold
securities. Each rating may be subject to revision or withdrawal at any time by
the assigning rating organization and should be evaluated independently of any
other rating.
Neither HEI nor HECO management can predict with certainty future rating
agency actions or their effects on the future cost of capital of HEI or HECO.
ELECTRIC UTILITY
HECO AND SUBSIDIARIES AND SERVICE AREAS
HECO, MECO and HELCO are regulated operating electric public utilities engaged
in the production, purchase, transmission, distribution and sale of electricity
on the islands of Oahu; Maui, Lanai and Molokai; and Hawaii, respectively.
HECO acquired MECO in 1968 and HELCO in 1970.
In 1993, the electric utilities contributed approximately 77% of HEI's
consolidated revenues from continuing operations and approximately 76% of HEI's
consolidated operating income from continuing operations, excluding unallocated
corporate expenses and eliminations. At December 31, 1993, the assets of the
electric utilities represented approximately 38% of the total assets of the
Company, excluding assets at the corporate level and eliminations. For
additional information about the electric utilities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
incorporated herein by reference to pages 29 to 39 of HEI's 1993 Annual Report
to Stockholders, portions of which are filed herein as HEI Exhibit 13(a) and
pages 3 to 9 of HECO's 1993 Annual Report to Stockholder, portions of which are
filed herein as HECO Exhibit 13(b).
The islands of Oahu, Maui, Lanai, Molokai and Hawaii have a combined
population estimated at 1,104,000, or approximately 95% of the population of
the State of Hawaii, and cover a service area of 5,766 square miles. The
principal communities served include Honolulu (on Oahu), Wailuku and Kahului
(on Maui) and Hilo and Kona (on Hawaii). The service areas also include
numerous suburban communities, resorts, U.S. Armed Forces installations and
agricultural operations.
HECO, MECO and HELCO have nonexclusive franchises from the state covering
certain areas and authorizing them to construct, operate and maintain
facilities over and under public streets and sidewalks. HECO's franchise covers
the City & County of Honolulu, MECO's franchises cover the islands of Maui,
Lanai and Molokai in the County of Maui and the small County of Kalawao on the
island of Molokai, and HELCO's franchise covers the County of Hawaii. Each of
these franchises will continue in effect for an indefinite period of time until
forfeited, altered, amended or repealed.
SALES OF ELECTRICITY
HECO, MECO and HELCO provide the only electric public utility service on the
islands they serve. The following table sets forth the numberEof their electric
customer accounts as of December 31, 1993, 1992 and 1991 and their electric
sales revenues for each of the years then ended:
<TABLE>
<CAPTION>
1993 1992 1991
-------------------- ------------------- ----------------------
Electric Electric Electric
Customer sales Customer sales Customer sales
(dollars in thousands) accounts revenues accounts revenues accounts revenues(1)
- ---------------------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
HECO.................. 263,478 $644,029 257,442 $564,574 255,176 $534,503
MECO.................. 51,064 113,018 50,263 104,149 48,519 101,002
HELCO................. 56,556 112,968 55,412 104,470 53,351 100,983
------- -------- ------- -------- ------- --------
371,098 $870,015 363,117 $773,193 357,046 $736,488
======= ======== ======= ======== ======= ========
</TABLE>
(1) Includes the effect of the change in the method of estimating unbilled
kilowatthour sales and revenues.
3
<PAGE> 10
Revenues from the sale of electricity in 1993 were from the following types of
customers in the proportions shown:
<TABLE>
<CAPTION>
HECO MECO HELCO Total
---- ---- ----- -----
<S> <C> <C> <C> <C>
Residential. . . . . . . 30% 35% 42% 33%
Commercial . . . . . . . 28 35 38 30
Large light and power. . 41 30 20 36
Other. . . . . . . . . . 1 -- -- 1
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
Total electricity sales for all three utilities in 1993 were 8,325 million
kilowatthours (KWH), a 0.1% decrease from 1992 sales. The relatively low sales
in 1993 reflect cooler weather, the slowing in the state economy and
conservation efforts.
Approximately 10% of consolidated operating revenues of HECO and its
subsidiaries was derived from the sale of electricity to various federal
government agencies in 1993, 1992 and 1991. HECO's fifth largest customer, the
Naval Base at Barbers Point, Oahu, is expected to be closed within the next
four to five years. On March 8, 1994, President Clinton signed an Executive
Order which mandates that each federal agency develop and implement a program
with the intent of reducing energy consumption by 30% by the year 2005 to the
extent that these measures are cost-effective. The 30% reductions will be
measured relative to the agency's 1985 energy use. HECO is working with various
Department of Defense installations to implement demand-side management
programs which will help them achieve their energy reduction objectives. It is
expected that several Department of Defense installations will sign a Basic
Ordering Agreement under which HECO will implement the energy conservation
projects. Neither HEI nor HECO management can predict with certainty the impact
of President Clinton's Executive Order on the Company's or consolidated HECO's
future results of operations.
4
<PAGE> 11
SELECTED CONSOLIDATED ELECTRIC UTILITY OPERATING STATISTICS
<TABLE>
<CAPTION>
1993 1992 1991** 1990 1989
----- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
KWH SALES (MILLIONS)
Residential.......................... 2,340.3 2,326.8 2,270.5 2,204.2 2,129.3
Commercial........................... 2,284.6 2,273.9 2,205.1 2,105.9 2,013.9
Large light and power................ 3,646.2 3,675.8 3,622.6 3,601.3 3,453.9
Other................................ 54.1 55.4 55.4 56.3 52.0
------- ------- ------- ------- -------
8,325.2 8,331.9 8,153.6 7,967.7 7,649.1
======= ======= ======= ======= =======
NET ENERGY GENERATED AND
PURCHASED (MILLIONS OF KWH)
Net generated....................... 5,789.6 6,555.4 6,991.1 7,746.2 7,692.1
Purchased........................... 3,101.0 2,325.0 1,599.7 713.3 448.9
------- ------- ------- ------- -------
8,890.6 8,880.4 8,590.8 8,459.5 8,141.0
======= ======= ======= ======= =======
Losses and system uses (%).......... 6.1 6.0 4.9*** 5.6 5.8
ENERGY SUPPLY (YEAREND)
Generating capability--MW........... 1,638 1,592 1,552 1,555 1,558
Firm purchased capability--MW....... 473 454 228 46 47
------- ------- ------- ------- -------
2,111 2,046 1,780 1,601 1,605
======= ======= ======= ======= =======
Gross peak demand--MW*............. 1,496 1,493 1,446 1,408 1,359
Btu per net KWH generated........... 10,846 10,870 10,768 10,692 10,685
Average fuel oil cost per
million Btu (cents)............... 340.5 317.1 367.5 400.1 324.6
CUSTOMER ACCOUNTS (YEAREND)
Residential......................... 320,987 314,185 308,770 299,473 293,568
Commercial.......................... 48,008 46,817 46,189 44,885 44,211
Large light and power............... 628 641 637 621 594
Other............................... 1,475 1,474 1,450 1,438 1,466
------- ------- ------- ------- -------
371,098 363,117 357,046 346,417 339,839
======= ======= ======= ======= =======
ELECTRIC REVENUES (THOUSANDS)
Residential......................... $283,662 $250,808 $235,295 $221,701 $193,560
Commercial.......................... 262,751 236,350 224,300 210,232 181,921
Large light and power............... 317,816 280,871 271,863 264,812 222,181
Other............................... 5,786 5,164 5,030 5,013 4,230
-------- -------- -------- -------- --------
$870,015 $773,193 $736,488 $701,758 $601,892
======== ======== ======== ======== ========
AVERAGE DREVENUE PER KWH SOLD (CENTS)
Residential......................... 12.12 10.78 10.36 10.06 9.09
Commercial.......................... 11.50 10.39 10.17 9.98 9.03
Large light and power............... 8.72 7.64 7.51 7.35 6.43
Other............................... 10.69 9.32 9.08 8.90 8.14
------- ------- ------- ------- --------
Average revenue per KWH sold........ 10.45 9.28 9.03 8.81 7.87
RESIDENTIAL STATISTICS
Average annual use per customer
account (KWH)...................... 7,367 7,460 7,427 7,416 7,318
Average annual revenue per
customer account................... $892.98 $804.09 $769.64 $745.96 $665.22
Average number of customer
accounts........................... 317,657 311,915 305,720 297,202 290,973
------- ------- ------- ------- -------
</TABLE>
* Sum of the peak demands on all islands served, noncoincident and
nonintegrated.
** Includes the effect of the change in the method of estimating unbilled KWH
sales and revenues.
*** Excluding the effect of the change in the method of estimating unbilled
KWH sales and revenues, losses and system uses would have been 5.6%.
5
<PAGE> 12
GENERATION STATISTICS
The following table contains certain generation statistics as of December 31,
1993, and for the year ended December 31, 1993. The capability available for
operation at any given time may be less than the generating capability shown
because of temporary outages for inspection, maintenance, repairs or unforeseen
circumstances.
<TABLE>
<CAPTION>
Generating
and firm
purchased KWH net
capability Gross generated
(MW) at peak Annual and
December 31, demand Reserve load purchased
Systems 1993 (1) (MW) (2) margin factor (2) (millions)
---------------------------------------------- ------------ --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ISLAND OF OAHU-HECO
Conventional oil-fired steam units............. 1,160.0
Combustion turbines (peaking units)............ 103.0
Firm contract power(3)......................... 406.0
------- ------- ------ ------ --------
1,669.0 1,174.0 42.2% 71.09% 7,029.8
------- ------- ------ ------ --------
ISLAND OF MAUI-MECO
Conventional oil-fired steam units............. 37.6
Combined-cycle unit............................ 58.0
Diesel......................................... 105.7
Firm contract power(4)......................... 16.0
------- ------- ------ ------ --------
217.3 156.7 38.7% 69.9 % 927.6
------- ------- ------ ------ --------
ISLAND OF LANAI-MECO
Diesel......................................... 9.7 4.5 115.6% 66.3 % 25.7
------- ------- ------ ------ --------
ISLAND OF MOLOKAI-HELCO
Diesel......................................... 6.5
Combustion turbine............................. 2.2
------- ------- ------ ------- --------
8.7 6.1 42.6% 64.3 % 34.0
------- ------- ------ ------- --------
ISLAND OF HAWAII-HELCO
Conventional oil-fired steam units............. 71.2
Combustion turbines............................ 45.7
Diesel......................................... 37.7
Firm contract power(4)......................... 51.0
------- ------- ------ ------- --------
205.6 155.0 32.6% 66.6 % 873.5
------- ------- ------ ------- --------
Total.......................................... 2,110.3 1,496.3 41.0% 70.5 % 8,890.6
======= ======= ====== ======= ========
</TABLE>
(1) HECO units at normal ratings less 14.0 MW due to capability restrictions,
and MECO and HELCO units at reserve ratings.
(2) Noncoincident and nonintegrated.
(3) Independent power producers - 180.0 MW (Kalaeloa), 180.0 MW (AES-BP) and
46.0 MW (HRRV).
(4) Non-utility generation-MECO: 16.0 MW (Hawaiian Commercial & Sugar
Company) and HELCO: 25.0 MW (Puna Geothermal Ventures), 18.0 MW (HCPC)
and 8.0 MW (Hamakua Sugar Company). Hamakua Sugar Company filed for
bankruptcy in 1992 and is expected to discontinue operations in 1994.
6
<PAGE> 13
REQUIREMENTS AND PLANS FOR ADDITIONAL GENERATING CAPACITY
Each of the three utilities completed its first Integrated Resource Plan (IRP)
in 1993. These plans identified and evaluated a mix of resources to meet near-
and long-term consumer energy needs in an efficient and reliable manner at the
lowest reasonable cost. The IRPs include demand-side management (DSM) programs
to reduce load and fuel consumption and consider the impact on the environment,
culture, community lifestyles and economy of the state.
On July 1, 1993, HECO filed its first Integrated Resource Plan with the
Hawaii Public Utilities Commission (PUC). This plan was subsequently modified
in January 1994 due to a change in load forecast. The decrease in the load
forecast, the inclusion of the impact of proposed DSM programs, and the
deferred retirement of Honolulu Unit Nos. 8 & 9 until 2004, allowed HECO to
defer its next generating unit addition to the year 2005. In its plan, HECO
recommended that this next generating unit be a coal-fired atmospheric
fluidized bed combustion unit to provide a fuel alternative to oil. Because of
the uncertainty of the impact of new environmental regulations and the
political pressure to remove Honolulu Power Plant from downtown Honolulu
earlier than the 2004 time frame, alternate plans are being developed to add
generating capacity earlier if necessary.
MECO completed construction of its first 58-MW dual-train combined-cycle
facility in 1993 at a cost of $78 million. On December 15, 1993, MECO filed
its first IRP with the PUC. MECO plans to add a second dual-train combined-cycle
unit with the addition of a 20-MW combustion turbine (CT) in 1996, another
20-MW CT in 1999 and the conversion of these units into a 58-MW combined-cycle
unit with the addition of an 18-MW steam turbine in 2000. MECO's Molokai
Division plans to purchase three 2.2-MW diesel units; two in 1995 and one in
1996. MECO's Lanai Division plans to add three 2.2-MW diesel units in 1996.
On October 15, 1993, HELCO filed its first IRP with the PUC. HELCO has a
power purchase agreement with Puna Geothermal Ventures (PGV) for 25 MW which
became a firm source of power on June 27, 1993. Hamakua Sugar Company filed for
bankruptcy in 1992 and ceased power production on May 7, 1993, but resumed on
July 15, 1993, under a court-approved harvest plan which is expected to
continue over a period of 10 to 16 months. It is expected that Hamakua's
capacity of 8MW will be unavailable to HELCO by the end of 1994. Hilo Coast
Processing Company (HCPC) will discontinue harvesting sugar cane in late 1994
and has indicated that it may increase its power export capability and switch
its primary fuel from bagasse (sugarcane waste) to coal. This would require a
new modified power purchase agreement, which would be subject to PUC approval.
For capacity planning, HELCO assumed that HCPC would continue to provide 18 MW
of firm power to HELCO under the existing power purchase agreement. The
installation of a phased combined-cycle unit is proceeding. The service date
for the first CT, CT-4, is scheduled for July 1, 1995 pending Conservation
District Use Application approval at the existing Keahole Power Plant site.
Although capacity after CT-4 is not required until April 1996, CT-5 is
scheduled to be installed immediately after CT-4 in September 1995 based on
economies of the earlier schedule which allows HELCO to use the same
construction contract as CT-4. In addition, the earlier schedule permits HELCO
to proceed with the planned retirements of its older, less efficient units and
to mitigate uncertainties with respect to deliveries from HELCO's power
purchase producers. Conversion of CT-4 and CT-5 to combined-cycle operation
with the addition of a steam unit, ST-7 is expected to occur by October 1997.
NONUTILITY GENERATION
The Company has supported state and federal energy policies which encourage
the development of alternate energy sources that reduce dependence on fuel oil.
Alternate energy sources range from wind, geothermal and hydroelectric power,
to energy produced by the burning of bagasse. Other nonoil projects include a
generating unit burning municipal waste and a fluidized bed unit burning coal.
HECO currently has three major power purchase agreements. In general, HECO's
payments under these power purchase agreements are based upon available
capacity and energy. Payments for capacity generally are not required if the
contracted capacity is not available, and payments are reduced, under certain
conditions, if available capacity drops below contracted levels. In general,
the payment rates for capacity have been predetermined for the terms of the
agreements. The energy charges will vary over the terms of the agreements and
HECO may pass on changes in the fuel component of the energy charges to
customers through energy cost adjustment clauses in its rate schedules. HECO
does not operate nor does it participate in the operation of any of the
facilities that provide power under the three agreements. Title to the
facilities does not pass to HECO upon expiration of the agreements, and the
agreements do not contain bargain purchase options with respect to the
facilities.
7
<PAGE> 14
In March 1988, HECO entered into a power purchase agreement with AES Barbers
Point, Inc. (AES-BP), a Hawaii-based cogeneration subsidiary of Applied Energy
Services, Inc. (AES) of Arlington, Virginia. The agreement with AES-BP, as
amended in August 1989, provides that, for a period of 30 years, HECO will
purchase 180 MW of firm capacity, under the control of HECO's system
dispatcher. The AES-BP 180-MW coal-fired cogeneration plant utilizes a "clean
coal" technology and became operational in September 1992. The facility is
designed to sell sufficient steam to qualify under the Public Utility
Regulatory Policies Act of 1978 (PURPA) as an unregulated cogenerator.
HECO entered into an agreement in October 1988 with Kalaeloa Partners, L.P.
(Kalaeloa) a limited partnership whose sole general partner is an indirect,
wholly owned subsidiary of ASEA Brown Boveri, Inc., which has guaranteed
certain of Kalaeloa's obligations and, through affiliates, has contracted to
design, build, operate and maintain the facility. The agreement with Kalaeloa,
as amended, provides that HECO will purchase 180 MW of firm capacity for a
period of 25 years. The Kalaeloa facility, which was completed in the second
quarter of 1991, is a combined-cycle operation, consisting of two oil-fired
combustion turbines and a steam turbine which utilizes waste heat from the
combustion turbines. The facility is designed to sell sufficient steam to
qualify under PURPA as an unregulated cogenerator.
HECO has also entered into a power purchase contract and a firm capacity
amendment with Honolulu Resource Recovery Venture (HRRV), which has built a 60-
MW refuse-fired plant. The HRRV unit began to provide firm energy in the second
quarter of 1990 and currently supplies HECO with 46 MW of firm capacity.
The PUC has approved and allowed rate recovery for the costs related to HECO's
three major power purchase agreements, which provide a total of 406 MW of firm
capacity, representing 24% of HECO's total generating and firm purchased
capability on the island of Oahu as of December 31, 1993. Assuming that the
three independent power producers operate at the minimum availability criteria
in the power purchase agreements, aggregate fixed capacity charges under the
three major agreements are expected to be between approximately $95 million and
$98 million annually from 1994 through 2015, $73 million in 2016, between $59
million and $62 million annually from 2017 through 2021, and $46 million in
2022.
As of December 31, 1993, HELCO and MECO had power purchase agreements for 51
MW and 16 MW of firm capacity, respectively, representing 25% and 7% of their
respective total generating and firm purchased capabilities. Assuming that the
independent power producers operate at the minimum availability criteria in the
power purchase agreements, aggregate fixed capacity charges are expected to be
approximately $9 million annually in 1994 and 1995, $8 million from 1996
through 1999, $6 million from 2000 through 2002 and $4 million annually from
2003 through 2028.
HELCO has a power purchase agreement with PGV for 25 MW of firm capacity.
PGV, an independent geothermal power producer which experienced substantial
delays in commencing commercial operations, passed an acceptance test in June
1993 and is now considered to be a firm capacity source for 25 MW.
HERS owned and operated a windfarm on the island of Oahu and sold the
electricity it generated to HECO. The windfarm consisted of 14 600-KW and one
3,200-KW wind turbines. In March 1993, HEI sold the stock of HERS to The New
World Power Corporation with the power purchase agreements between HERS and
HECO continuing in effect. The stock of LVI was transferred to HEI prior to the
sale of HERS. LVI's windfarm on the island of Hawaii consists of 54 20-KW and
34 17.5-KW wind turbines. LVI sells its electricity to HELCO and the Hawaii
County Department of Water Supply. See "Discontinued operations--Hawaiian
Electric Renewable Systems, Inc."
Hamakua Sugar Company has been operating under Federal Bankruptcy Court
protection since August 1992. Hamakua is presently in a Chapter 11 bankruptcy
proceeding and is conducting a final sugar cane harvest over a period of 10 to
16 months, which began in July 1993. During the harvest, Hamakua has agreed to
supply HELCO with 8 MW of firm capacity under an amendment to HELCO's existing
power purchase agreement.
HELCO has a power purchase agreement with Hilo Coast Processing Company (HCPC)
for 18 MW of firm capacity. On July 31, 1992, C. Brewer and Company, Limited
publicly announced that Mauna Kea Agribusiness, which is the primary supplier
of sugar cane processed by HCPC, will begin converting its acreage to macadamia
nuts, eucalyptus trees and other diversified crops as of November 1, 1992, and
will discontinue harvesting sugar cane in late 1994. The announcement also
indicated that, after the last sugar harvest, HCPC's primary fuel would be
coal, supplemented by macadamia nut husks and other biomass material. It is
HELCO's understanding that HCPC plans to continue supplying power after 1994
(and may
8
<PAGE> 15
even be in a position to supply more than 18 MW after its sugar processing
operations are discontinued), and HELCO has assumed that HCPC's commitment to
provide 18 MW of capacity will remain in effect for the current term of the
contract, which ends December 31, 2002.
BHP Petroleum Americas (Hawaii) Inc. (BHPH), formerly Pacific Resources,
Inc., stopped hauling heavy fuel oil from Oahu to the other Hawaiian
Islands at the end of May 1992. This may continue to affect the ability of the
sugar companies, which relied on the oil delivered by BHPH, to supply power to
HELCO and MECO. In light of this situation, some of the sugar companies have or
are considering conversion to alternative fuels.
Although it currently appears that heavy fuel oil will continue to be
commercially available, in the event of the unavailability of heavy fuel oil,
certain nonutility generators of electricity with contracts with HELCO and MECO
may need to use a more expensive alternative fuel such as diesel. The
legislation amending the state Environmental Response Law allows these
producers, subject to PUC approval, to charge the utilities rates for energy
purchases reflecting their higher fuel costs rather than the currently approved
rates and, in turn, permits each utility to pass on the increases to its
customers through an automatic rate adjustment clause. To minimize the rate
increase of any one utility, the legislation permits the PUC, under certain
conditions, to utilize a statewide automatic adjustment clause. In 1993, HELCO
received PUC approval for recovery of the higher fuel costs incurred by HCPC.
FUEL OIL USAGE AND SUPPLY
All rate schedules of the Company's electric utility subsidiaries contain
energy cost adjustment clauses whereby the charges for electric energy (and
consequently the revenues of the subsidiaries generally) automatically vary
with the weighted average price paid for fuel oil and certain components of
purchased energy, and the relative amounts of company-generated and purchased
power. Accordingly, changes in fuel oil and purchased energy costs are passed
on to customers. See "Electric utility -- Rates."
HECO's steam power plants burn low sulfur residual fuel oil. HECO's combustion
turbines (peaking units) on Oahu burn diesel fuel. MECO and HELCO burn medium
sulfur industrial fuel oil in their steam generating plants and diesel fuel in
their diesel engine and combustion turbine generating units.
In the second half of 1993, HECO concluded agreements with Chevron, U.S.A.,
Inc. (CUSA) and BHP Petroleum Americas Refining Inc. (BHP), formerly Hawaiian
Independent Refinery, Inc., to purchase supplies of low sulfur fuel oil for a
two-year term commencing January 1, 1994. The PUC approved these agreements and
issued a final order in December 1993 permitting inclusion of costs under the
contracts in the energy cost adjustment clause. HECO pays market-related prices
for fuel purchases made under these contracts.
HECO, MECO and HELCO have extended a contract with CUSA under which they
will purchase No. 2 diesel fuel over a period of two years beginning January
1, 1994. The Company's utility subsidiaries jointly purchase medium sulfur
residual fuel oil under this same contract and together purchase diesel fuel and
residual fuel oil under a recently extended contract with BHP. The contracts
with CUSA and BHP have been approved by the PUC which issued a final order in
December 1993 permitting inclusion of costs under the contracts in the
respective utility's energy cost adjustment clause. Diesel fuel and residual
fuel oil supplies purchased under these agreements are priced on a
market-related basis.
The diesel fuel supplied to the Lanai Division of MECO is provided under an
agreement with the CUSA jobber (i.e., wholesale merchant) on Lanai. The Molokai
Division of MECO receives diesel fuel supplies through the joint purchase
contract between HECO, MECO and HELCO and CUSA referred to above.
The low sulfur residual fuel oil burned by HECO on Oahu is derived primarily
from Indonesian and domestic crude oils. The medium sulfur residual fuel oil
burned by MECO and HELCO is generally derived from domestic crude oil.
The fuel oil commitments information in Note 11 to HECO's Consolidated
Financial Statements is incorporated herein by reference to page 24 of HECO's
1993 Annual Report to Stockholder, portions of which are filed herein as HECO
Exhibit 13(b).
9
<PAGE> 16
The following table sets forth the average costs of fuel oil used to generate
electricity in the years 1993, 1992 and 1991:
<TABLE>
<CAPTION>
HECO MECO HELCO Consolidated
------------------ ---------------- ---------------- ------------------
cents/ cents/ cents/ cents/
$/Barrel MBtu $/Barrel MBtu $/Barrel MBtu $/Barrel MBtu
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993..... 20.27 323.7 24.85 416.3 21.02 344.4 21.09 340.5
1992..... 18.71 298.4 23.90 399.4 20.68 339.0 19.69 317.1
1991..... 22.82 365.4 25.13 419.0 20.10 328.1 22.79 367.5
</TABLE>
The average cost per barrel of fuel oil used to generate electricity for
HECO, MECO and HELCO reflects the different fuel mix of each company. HECO uses
primarily low sulfur residual fuel oil, MECO uses a significant amount of diesel
fuel and HELCO uses primarily medium sulfur residual fuel oil and a lesser
amount of diesel fuel. In general, medium sulfur fuel oil is the least costly
per barrel and diesel fuel is the most expensive. During 1993, the prices of
diesel fuel and low sulfur oil declined, while the price of medium sulfur fuel
oil displayed no sustained trend.
HTB was contractually obligated to ship heavy fuel oil for HELCO and
MECO through December 1993. Effective December 31, 1993, HTB exited the
heavy fuel oil shipping business. See "Regulation and other matters --
Environmental regulation -- Water quality controls." HELCO and MECO carried out
a bidding process to determine who would ship heavy fuel oil beyond 1993.
Several bids were received and evaluated and two contracts have been signed with
Hawaiian Interisland Towing, Inc., subject to PUC approval (which has been
obtained on an interim basis). HELCO and MECO have also begun to convert their
generating plants from burning heavy fuel oil to burning either heavy fuel oil
or diesel fuel in the event heavy fuel oil is no longer available in the future.
Diesel fuel does not pose the same environmental liability concerns as heavy
fuel oil, but it is more expensive and the use of diesel fuel could
significantly increase HELCO's and MECO's electric rates. Conversion would
assure HELCO and MECO more flexibility by permitting use of another type of fuel
besides heavy fuel oil.
In 1994, it is estimated that 75% of the net energy generated and purchased
by HECO and its subsidiaries will come from oil, down from 77% in
1993. Failure by the Company's oil suppliers to provide fuel pursuant to the
supply contracts and/or extremely high fuel prices could adversely affect HECO
and its subsidiaries' and the Company's financial condition and results of
operations.
RATES
HECO, MECO and HELCO are subject to the regulatory jurisdiction of the PUC
with respect to rates, standards of service, issuance of securities, accounting
and certain other matters. See "Regulation and other matters -- Electric utility
regulation."
All rate schedules of HECO and its subsidiaries contain an energy cost
adjustment clause to reflect changes in the price paid for fuel oil and certain
components of purchased power, and the relative amounts of company-generated
and purchased power. Under current law and practices, specific and separate PUC
approval is not required for each rate change pursuant to automatic rate
adjustment clauses previously approved by the PUC. Rate increases, other than
pursuant to such automatic adjustment clauses, require the prior approval of
the PUC after public and contested case hearings. PURPA requires the PUC to
periodically review the energy cost adjustment clauses of electric and gas
utilities in the state, and such clauses, as well as the rates charged by the
utilities generally, are subject to change.
The PUC has broad discretion in its regulation of the rates charged by the
Company's utility subsidiaries. Any adverse decision by the PUC concerning the
level or method of determining electric utility rates, the authorized returns
on equity or other matters or any delay in rendering a decision in a rate
proceeding could have a material adverse effect on consolidated HECO's and the
Company's financial condition and results of operations. Upon a showing of
probable entitlement, the PUC is required to issue an interim decision in a
rate case within 10 months from the date of filing a complete application if the
evidentiary hearing is completed -- subject to extension for 30 days if the
evidentiary hearing is not completed. However, there is no time limit for
rendering a final decision.
10
<PAGE> 17
HECO
Rate increase. On July 29, 1991, HECO applied to the PUC for permission
to increase electric rates on the island of Oahu in 1992. The rates
requested would have provided approximately $138 million in annual revenues, or
approximately 26.4% over HECO's then existing rates, based on January 1, 1992
fuel oil and purchased energy prices. The request was based on a 13.5% return on
average common equity.
On June 30, 1992, HECO received a final decision and order from the PUC. The
decision and order granted an increase of $124 million in annual revenues,
based on a 13.0% return on average common equity.
The increase took effect in steps in 1992. $28 million of the $124
million increase was granted in the interim decision effective April 1,
1992. A step increase of $2.3 million in annual revenues became effective July
8, 1992. Approximately $93 million of the $124 million increase represented a
pass-through of costs when HECO began purchasing generating capacity from
independent power producer AES-BP in September 1992. The increase is subject to
possible adjustments for postretirement benefits other than pensions.
The major reason for the difference between revenues requested in HECO's
application and the revenues granted by the PUCO's final decision and order
relates to postretirement benefits other than pensions expense. HECO requested
$11 million in annual revenues to cover the additional expense required under
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The PUC has opened a separate generic docket on postretirement
benefits other than pensions and indicated that the total increase granted in
the final decision and order will be adjusted to reflect its decision in that
docket. The PUC has not yet issued a final decision and order in this generic
docket. The information on postretirement benefits other than pensions in Note
10 to HECO's Consolidated Financial Statements is incorporated herein by
reference to pages 23 to 24 of HECO's 1993 Annual Report to Stockholder,
portions of which are filed herein as HECO Exhibit 13(b).
Pending rate requests. On July 26, 1993, HECO applied to the PUC for
permission to increase electric rates, using a 1994 test year and requesting
rates designed to produce an increase of approximately $62 million in annual
revenues over the revenues provided by rates currently in effect. HECO
subsequently revised its rate request from $62 million to approximately $54
million by the close of the evidentiary hearings held in March 1994. The
revision resulted primarily from rescheduling certain capital projects from 1994
to 1995, and agreements among the parties with respect to certain issues. The
requested increase, as revised, is based on a 12.75% return on average common
equity and is needed to cover rising operating costs and the cost of new capital
projects to maintain and improve service reliability. In addition, the requested
increase includes approximately $9 million for costs arising out of the change
to accrual accounting for postretirement benefits other than pensions, and the
amount of the required increase will be reduced to the extent that rate relief
for these costs is received in another proceeding. The information on
postretirement benefits other than pensions in Note 10 to HECO's Consolidated
Financial Statements is incorporated herein by reference to pages 23 to 24 of
HECO's 1993 Annual Report to Stockholder, portions of which are filed herein as
HECO Exhibit 13(b). HECO has requested an interim increase of approximately $39
million by April 1994, and the remainder of the requested increase in steps in
1994.
On December 27, 1993, HECO applied to the PUC for permission to increase
electric rates, using a 1995 test year and requesting rates designed to produce
an increase of approximately $44 million in annual revenues over revenues
provided by the initially proposed 1994 rates. As a result of revisions to the
rate increase requested in 1994, the requested increase would be approximately
$52 million over revenues provided by proposed 1994 rates. The increase
requested by HECO is based on a 12.3% return on average common equity. The rate
request based on a 1995 test year is in addition to HECO's pending $54 million
rate increase requested for 1994. Both requests combined represent a 16.7%
increase, or $106 million, over present rates.
Revenue from the proposed increase would be used in part to cover the costs of
major transmission and distribution projects on Oahu, including an important
transmission corridor to connect power plants on the island's west side with
customers throughout Oahu.
The 1995 application includes requests for approximately $15 million for
additional expenses associated with proposed changes in depreciation rates and
methods and $7 million to establish a self-insured property damage reserve for
transmission and distribution property in the event of catastrophic disasters.
HECO seeks to establish the requested reserve because HECO is self-insured for
damage to its transmission and distribution property, except substations.
(HECO's subsidiaries are similarly self-insured.) Also, a
11
<PAGE> 18
heightened concern for the risk of loss of this property has grown out
of the loss of virtually the entire transmission and distribution system of the
unaffiliated electric utility serving the island of Kauai as a result of
Hurricane Iniki in September 1992. HECO anticipates that evidentiary hearings
on the 1995 application will be held in late 1994.
HELCO
Rate increase. On July 31, 1991, HELCO asked the PUC to increase rates by $7.5
million a year, or 7.5%. The request was based on a 13.5% return on average
common equity and a 1992 test year. On October 2, 1992, HELCO received a final
decision and order from the PUC authorizing a total increase of $3.9 million in
annual revenues, based on a 13.0% return on average common equity.
HELCO's original request for rate increase included approximately $1.9 million
to cover the increased cost of postretirement benefits other than pensions, and
this request will be considered in a separate generic docket. The PUC has not
yet issued a final decision and order in this generic docket. The information on
postretirement benefits other than pensions in Note 10 to HECO's Consolidated
Financial Statements is incorporated herein by reference to pages 23 to 24 of
HECO's 1993 Annual Report to Stockholder, portions of which are filed herein as
HECO Exhibit 13(b). Other rate adjustments could be made based on the results
of the PUC's study of HELCO's service reliability. See "Item 3. Legal
Proceedings--HELCO reliability investigation."
Pending rate request. On November 30, 1993, HELCO applied to the PUC for
permission to increase electric rates, using a 1994 test year and requesting
rates designed to produce an increase of approximately $15.8 million in annual
revenues, or 13.4%, over revenues provided by rates currently in effect. The
requested increase is based on a 12.4% return on average common equity and is
needed to cover plant, equipment and operating costs to maintain and improve
service and provide reliable power for its customers. HELCO anticipates that
evidentiary hearings will be held later this year.
MECO
Pending rate request. In November 1991, MECO filed a request to increase
rates by approximately $18.3 million annually, or approximately 17% above the
rates in effect at the time of the filing, in several steps. Most of the
proposed increase reflected the costs of adding a 58-MW combined-cycle
generating unit on Maui in three phases and the costs related to the change in
the method of accounting for postretirement benefits other than pensions.
Evidentiary hearings were held in January 1993. At the conclusion of the
hearings, MECO's final requested increase was adjusted to approximately $11.4
million annually, or approximately 10%, in several steps in 1993. The decrease
in the requested rate increase resulted primarily from a reduced cost of
capital, lower administrative and general expenses and other revisions to MECO's
estimated revenue requirements for the 1993 test year used in the rate case.
MECO's revised request reflected a return on average common equity of 13.0%.
On January 29, 1993, MECO received an initial interim decision authorizing an
annual increase of $2.8 million, or 2.4%, effective February 1, 1993. This
interim decision covered, among other things, the costs associated with the
first phase of the 58-MW combined-cycle generating unit, which had been placed
in service on May 1, 1992. In the interim decision the PUC used a rate of
return on average common equity of 12.75% in light of a drop in interest rates
and changes in economic conditions since HECO's and HELCO's most recent rate
case decisions and orders. The PUC also stated that MECO is less dependent on
purchased power than HECO or HELCO, and that MECO's return on average common
equity will be more extensively reviewed for purposes of the final decision and
order. On May 7, 1993, MECO received a second interim decision authorizing a
step increase of an additional $4 million in annual revenues, or 3.6%,
effective May 8, 1993. This step increase covered the estimated annual costs of
the second phase of the 58-MW combined-cycle generating unit, a combustion
turbine which was placed into service on May 1, 1993. On October 21, 1993, MECO
received a third interim decision authorizing a step increase of an additional
$1 million in annual revenues, or 0.9%, effective October 21, 1993. This step
increase covered the estimated annual costs of the third and final phase of the
combined-cycle generating unit, which was placed into service on October 1,
1993. On December 9, 1993, MECO received a fourth interim decision authorizing
a step increase of an additional $0.4 million in annual revenues, effective
December 10, 1993, to cover wage increases that became effective on November 1,
1993. These interim increases are subject to refund with interest, pending the
final outcome of the case. MECO's management cannot predict with certainty when
a final decision in MECO's rate case will be rendered or the amount of the
final rate increase that will be granted.
12
<PAGE> 19
SAVINGS BANK -- AMERICAN SAVINGS BANK, F.S.B.
GENERAL
ASB was granted a charter as a federal savings bank in January 1987. Prior to
that time, ASB operated as the Hawaii division of American Savings & Loan
Association of Salt Lake City, Utah since 1925. At September 30, 1993, ASB's
total assets were $2.5 billion and it was the second largest savings and loan
institution in Hawaii based on total assets.
ASB was acquired by the Company for approximately $115 million on May
26, 1988. The acquisition was accounted for using the purchase method of
accounting. Accordingly, tangible assets and liabilities were recorded at their
estimated fair values at the acquisition date. The acquisition was approved by
the Federal Home Loan Bank Board (FHLBB) which required HEI to enter into a
Regulatory Capital Maintenance/Dividend Agreement (the FHLBB Agreement). Under
the FHLBB Agreement, HEI agreed that ASB's regulatory capital would be
maintained at a level of at least 6% of ASB's total liabilities, or at such
greater amount as may be required from time to time by regulation. Under the
FHLBB Agreement, HEI's obligation to contribute additional capital was limited
to a maximum aggregate amount of approximately $65.1 million. HEI elected to
contribute additional capital of $0.8 million and $24.0 million to ASB during
1993 and 1992, respectively. The FHLBB Agreement also included limitations on
ASB's ability to pay dividends. Under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA), the regulations of the FHLBB and
the FHLBB Agreement were transferred to the Office of Thrift Supervision (OTS).
Effective December 23, 1992, ASB was granted a release from the dividend
limitations imposed under the FHLBB Agreement. ASB is subject to the OTS
regulations for dividends and other distributions applicable to financial
institutions regulated by the OTS.
ASB acquired First Nationwide Bank's Hawaii branches and deposits on
October 6, 1990. The acquisition increased ASB's statewide retail branch
network from 36 to 45 branches and its deposit base by $247 million, and
provided approximately $239 million in cash.
ASB's earnings depend primarily on its net interest income -- the
difference between the interest income earned on interest-earning assets
(loans receivable, mortgage-backed securities and investments) and the interest
expense incurred on interest-bearing liabilities (deposit liabilities and
borrowings). Deposits traditionally have been the principal source of ASB's
funds for use in lending, meeting liquidity requirements and making
investments. ASB also derives funds from receipt of interest and principal on
outstanding loans receivable, borrowings from the Federal Home Loan Bank (FHLB)
of Seattle, securities sold under agreements to repurchase and other sources,
including collateralized medium-term notes.
For additional information about ASB, reference is made to Note 5 to HEI's
Consolidated Financial Statements, incorporated herein by reference to pages 53
through 57 of HEI's 1993 Annual Report to Stockholders, portions of which are
filed herein as HEI Exhibit 13(a).
The following table sets forth selected data for ASB for the periods
indicated:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1993 1992(2) 1991
---- ------- ----
<S> <C> <C> <C>
Return on assets
Net income divided by average
total assets (1).................. 1.00% 0.78% 0.72%
Return on equity
Net income divided by average
equity (1)........................ 14.18% 12.10% 11.18%
Equity to assets ratio
Average equity divided by average
total assets...................... 7.03% 6.46% 6.48%
</TABLE>
(1) Net income includes amortization of goodwill and core deposit intangibles.
(2) Reflects allocation of corporate-level expenses for segment reporting
purposes, which were not billed to ASB. In the second quarter of 1992, HEI
changed its method of billing corporate-level expenses to ASB. Under the
new billing procedure, only certain direct charges, rather than
fully-allocated costs, are billed to ASB. However, no change was made by
HEI in the manner in which corporate-level expenses were allocated for
segment reporting purposes.
13
<PAGE> 20
CONSOLIDATED AVERAGE BALANCE SHEET
The following table sets forth average balances of major balance sheet
categories for the periods indicated. Average balances for each period have
been calculated using the average month-end balances during the period.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
(in thousands) 1993 1992 1991
---------- --------- ----------
<S> <C> <C> <C>
Assets
Investment securities........................ $ 136,987 $ 102,490 $ 95,125
Mortgage-backed securities................... 647,973 793,248 793,021
Loans receivable, net........................ 1,570,751 1,311,367 1,029,009
Other........................................ 183,151 173,585 152,135
---------- ---------- ----------
$2,538,862 $2,380,690 $2,069,290
========== ========== ==========
Liabilities and stockholder's equity
Deposit liabilities.......................... $2,076,192 $1,882,523 $1,557,301
Other borrowings............................. 230,101 288,862 340,562
Other........................................ 54,212 55,586 37,318
Stockholder's equity......................... 178,357 153,719 134,109
---------- ---------- ----------
$2,538,862 $2,380,690 $2,069,290
========== ========== ==========
</TABLE>
ASSET/LIABILITY MANAGEMENT
Interest rate sensitivity refers to the relationship between market
interest rates and net interest income resulting from the repricing of
interest-earning assets and interest-bearing liabilities. Interest rate risk
arises when an interest-earning asset matures or when its interest rate changes
in a time frame different from that of the supporting interest-bearing
liability. Maintaining an equilibrium between rate sensitive interest-earning
assets and interest-bearing liabilities will reduce some interest rate risk but
it will not guarantee a stable net interest spread because yields and rates may
change simultaneously or at different times and such changes may occur in
differing increments. Market rate fluctuations could materially affect the
overall net interest spread even if interest-earning assets and
interest-bearing liabilities were perfectly matched. The difference between the
amounts of interest-earning assets and interest-bearing liabilities that
reprice during a given period is called "gap." An asset-sensitive position or
"positive gap" exists when more assets than liabilities reprice within a given
period; a liability-sensitive position or "negative gap" exists when more
liabilities than assets reprice within a given period. A positive gap generally
produces more net interest income in periods of rising interest rates and a
negative gap generally produces more net interest income in periods of falling
interest rates.
As rates in 1993 have remained at low levels, the gap in the near term
(0-6 months) was a negative 4.1% of total assets as compared to a cumulative
one-year positive gap position of 3.2% of total assets as of December 31, 1993.
The negative near-term gap position reflects customers moving more interest
sensitive funds into liquid passbook deposits. The cumulative one-year 1993
"positive gap" was primarily due to a very low interest rate environment that
led to faster prepayments of fixed rate loans with high interest rates coupled
with the increase of noninterest rate sensitive passbook deposits with a life
expectancy of greater than a year.
14
<PAGE> 21
The following table shows ASB's interest rate sensitivity at December 31,
1993:
<TABLE>
<CAPTION>
Cumulative volumes at December 31, 1993
subject to repricing within
------------------------------------------
1 year 1-5 Over 5
(dollars in thousands) or less years years Total (1)
- ---------------------- ------- ----- ------ ---------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Real estate loans and mortgage-
backed securities
Balloon and adjustable rate............. $ 759,062 $ 15,859 $ -- $ 774,921
Fixed rate 1-4 unit residential......... 256,668 615,208 400,434 1,272,310
Other................................... 59,171 64,413 29,650 153,234
Consumer and other loans.................. 114,684 19,676 9,556 143,916
Commercial loans.......................... 9,102 6,574 5,197 20,873
Other interest earning.................... 30,630 4,699 35,160 70,489
---------- -------- -------- ----------
Total interest-earning assets............. 1,229,317 726,429 479,997 2,435,743
---------- -------- -------- ----------
INTEREST-BEARING LIABILITIES
Certificate accounts...................... 321,191 136,170 43,287 500,648
Money market accounts..................... 106,362 -- -- 106,362
Commercial checking and "Negotiable
Order of Withdrawal" accounts............ 273,243 -- -- 273,243
Passbook accounts......................... 372,654 403,906 434,770 1,211,330
FHLB advances............................. 73,000 185,374 31,300 289,674
---------- -------- -------- ----------
Total interest-bearing liabilities........ 1,146,450 725,450 509,357 2,381,257
---------- -------- -------- ----------
Interest rate sensitivity gap (2)......... $ 82,867 $ 979 $ (29,360) $ 54,486
========== ========= ========= ==========
Cumulative interest rate sensitivity gap.. $ 82,867 $ 83,846 $ 54,486
========== ========= =========
Cumulative interest rate sensitivity gap
over total assets....................... 3.16% 3.20% 2.08%
========== ========= =========
</TABLE>
(1) The table does not include $183 million of noninterest-earning assets and
$53 million of noninterest-bearing liabilities.
(2) The difference between the total interest-earning assets and the total
interest-bearing liabilities.
15
<PAGE> 22
INTEREST INCOME AND INTEREST EXPENSE
The following table sets forth average balances, interest and dividend income,
interest expense and weighted average yields earned and rates paid, for certain
categories of interest-earning assets and interest-bearing liabilities for the
periods indicated. Average balances for each period have been calculated using
the average month-end balances during the period.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
(dollars in thousands) 1993 1992 1991
- ---------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Loans
Average balances..................... $1,570,751 $1,311,367 $1,029,009
Interest income...................... $135,778 $124,714 $109,187 (2)
Weighted average yield............... 8.64% 9.51% 10.61%
Mortgage-backed securities
Average balances..................... $647,973 $793,248 $793,021
Interest income...................... $43,397 $60,774 $72,282 (2)
Weighted average yield............... 6.70% 7.66% 9.11%
Investments (1)
Average balances..................... $136,987 $102,490 $95,125
Interest and dividend income......... $9,444 $7,156 $7,149
Weighted average yield............... 6.89% 6.98% 7.52%
Total interest-earning assets
Average balances..................... $2,355,711 $2,207,105 $1,917,155
Interest and dividend income......... $188,619 $192,644 $188,618 (2)
Weighted average yield............... 8.01% 8.73% 9.84%
Deposits
Average balances..................... $2,076,192 $1,882,523 $1,557,301
Interest expense..................... $77,651 $94,339 $99,042
Weighted average rate................ 3.74% 5.01% 6.36%
Borrowings
Average balances..................... $230,101 $288,862 $340,562
Interest expense..................... $15,050 $20,409 $25,798
Weighted average rate................ 6.54% 7.07% 7.58%
Total interest-bearing liabilities
Average balances..................... $2,306,293 $2,171,385 $1,897,863
Interest expense..................... $92,701 $114,748 $124,840
Weighted average rate................ 4.02% 5.28% 6.58%
Net balance, net interest income
and interest rate spread
Net balance........................... $49,418 $35,720 $19,292
Net interest income................... $95,918 $77,896 $63,778
Interest rate spread.................. 3.99% 3.45% 3.26%
</TABLE>
(1) ASB has no material amount of tax-exempt investments for periods shown.
(2) Excludes nonrecurring items.
16
<PAGE> 23
The following table shows the effect on net interest income of (1) changes in
interest rates (change in weighted average interest rate multiplied by prior
period average portfolio balance) and (2) changes in volume (change in average
portfolio balance multiplied by prior period rate). Any remaining change is
allocated to the above two categories on a pro rata basis.
<TABLE>
<CAPTION>
Increase (decrease) due to
--------------------------------------------------
(in thousands) Rate Volume Total
- -------------- ------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993 VS. 1992
Income from interest-earning assets
Loan portfolio.................................. $(12,101) $23,165 $11,064
Mortgage-backed securities...................... (7,060) (10,317) (17,377)
Investments..................................... (93) 2,381 2,288
--------- -------- --------
(19,254) 15,229 (4,025)
--------- -------- --------
Expense from interest-bearing liabilities
Deposits........................................ (25,675) 8,987 (16,688)
FHLB advances and other borrowings.............. (1,443) (3,916) (5,359)
--------- -------- --------
(27,118) 5,071 (22,047)
--------- -------- --------
Net interest income............................... $7,864 $10,158 $18,022
========= ======== ========
YEAR ENDED DECEMBER 31, 1992 VS. 1991
Income from interest-earning assets
Loan portfolio.................................. $(12,173) $27,700 $15,527
Mortgage-backed securities...................... (11,529) 21 (11,508)
Investments..................................... (530) 537 7
--------- -------- --------
(24,232) 28,258 4,026
--------- -------- --------
Expense from interest-bearing liabilities
Deposits........................................ (23,222) 18,519 (4,703)
FHLB advances and other borrowings.............. (1,655) (3,734) (5,389)
--------- -------- --------
(24,877) 14,785 (10,092)
--------- -------- --------
Net interest income............................... $ 645 $13,473 $14,118
========= ======= ========
</TABLE>
OTHER INCOME
In addition to net interest income, ASB has various sources of other income,
including fee income from servicing loans, fees on deposit accounts, rental
income from premises and other income. Other income totaled approximately $11.1
million in 1993, compared to $10.4 million in 1992 and $9.7 million in 1991.
17
<PAGE> 24
LENDING ACTIVITIES
General. ASB's net loan and mortgage-backed securities portfolio totaled
approximately $2.4 billion at December 31, 1993, representing 90.3% of its
total assets, compared to $2.2 billion, or 88.3%, and $2.0 billion, or 89.7%, at
December 31, 1992 and 1991, respectively. ASB's loan portfolio consists
primarily of conventional residential mortgage loans which are not insured by
the Federal Housing Administration (FHA) nor guaranteed by the Veterans
Administration. At December 31, 1993, mortgage-backed securities represented
26.7% of the loan and mortgage-backed securities portfolio, compared to 32.7%
at December 31, 1992 and 41.1% at December 31, 1991.
The following tables set forth the composition of ASB's loan and mortgage-
backed securities portfolio:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ -------------------------
Balance % of total Balance % of total Balance % of total
(dollars in thousands) ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS (1)
Conventional...................... $1,584,218 66.98% $1,294,769 59.59% $ 976,004 50.02%
Construction and
development..................... 26,526 1.12 33,123 1.53 24,978 1.28
Troubled debt
restructuring................... 3,397 0.14 8,945 0.41 180 0.01
----------- ------- ----------- ------- ----------- -------
1,614,141 68.24 1,336,837 61.53 1,001,162 51.31
Less
Unearned fees and discounts....... (26,728) (1.13) (20,422) (0.94) (16,106) (0.82)
Undisbursed loan funds............ (13,142) (0.55) (16,203) (0.74) (11,854) (0.61)
Allowance for losses.............. (3,962) (0.17) (3,626) (0.17) (2,678) (0.14)
----------- ------- ----------- ------- ----------- -------
Total real estate loans, net........ 1,570,309 66.39 1,296,586 59.68 970,524 49.74
----------- ------- ----------- ------- ----------- -------
OTHER LOANS
Loans on deposits................... 15,015 0.63 15,013 0.69 15,528 0.80
Consumer and other loans............ 129,961 5.49 134,943 6.21 144,356 7.40
Commercial loans.................... 24,494 1.04 21,830 1.01 22,998 1.18
----------- ------- ----------- ------- ----------- -------
169,470 7.16 171,786 7.91 182,882 9.38
Less
Unearned fees and discounts....... (156) (0.01) (148) (0.01) (204) (0.01)
Undisbursed loan funds............ (3,173) (0.13) (3,805) (0.18) (3,436) (0.18)
Allowance for losses.............. (1,352) (0.06) (1,531) (0.07) (1,140) (0.06)
----------- ------- ----------- ------- ----------- -------
Total other loans, net.............. 164,789 6.96 166,302 7.65 178,102 9.13
----------- ------- ----------- ------- ----------- -------
MORTGAGE-BACKED SECURITIES,
NET OF DISCOUNTS.................. 630,156 26.65 709,891 32.67 802,430 41.13
----------- ------- ----------- ------- ----------- -------
TOTAL LOANS AND MORTGAGE-
BACKED SECURITIES, NET............ $2,365,254 100.00% $2,172,779 100.00% $1,951,056 100.00%
=========== ======= =========== ======= =========== =======
</TABLE>
(1) Includes renegotiated loans.
18
<PAGE> 25
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1990 1989
--------------------------- ------------------------------
(dollars in thousands) Balance % of total Balance % of total
- ---------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
REAL ESTATE LOANS (1)
Conventional................. $ 792,197 44.95% $ 669,737 47.04%
Construction and development. 7,186 0.41 15,077 1.06
Troubled debt restructuring.. 220 0.01 708 0.04
Other real estate loans...... 130 0.01 130 0.01
----------- --------- ------------ ---------
799,733 45.38 685,652 48.15
Less
Unearned fees and discounts (14,356) (0.82) (13,544) (0.95)
Undisbursed loan funds..... (6,279) (0.36) (9,088) (0.64)
Allowance for losses....... (2,371) (0.13) (2,042) (0.14)
----------- --------- ------------ ---------
Total real estate loans, net 776,727 44.07 660,978 46.42
----------- --------- ------------ ---------
OTHER LOANS
Loans on deposits............ 16,968 0.96 15,299 1.07
Consumer and other loans..... 128,387 7.29 105,131 7.38
Commercial loans............. 19,591 1.11 14,314 1.01
----------- --------- ------------ ---------
164,946 9.36 134,744 9.46
Less
Unearned fees and discounts (252) (0.01) (309) (0.02)
Undisbursed loan funds..... (3,355) (0.19) (2,912) (0.20)
Allowance for losses....... (1,016) (0.06) (869) (0.06)
----------- --------- ------------ ---------
Total other loans, net....... 160,323 9.10 130,654 9.18
----------- --------- ------------ ---------
MORTGAGE-BACKED SECURITIES,
NET OF DISCOUNTS........... 825,292 46.83 632,249 44.40
----------- --------- ------------ ---------
TOTAL LOANS AND MORTGAGE-
BACKED SECURITIES, NET..... $1,762,342 100.00% $1,423,881 100.00%
=========== ========== ============ ==========
</TABLE>
(1) Includes renegotiated loans.
Origination, purchase and sale of loans. Generally, loans originated and
purchased by ASB are secured by real estate located in Hawaii. As of
December 31, 1993, approximately $11.9 million of loans which were purchased
from other lenders were secured by properties located in the continental United
States. For additional information, including information concerning the
geographic distribution of ASB's mortgage-backed securities portfolio,
reference is made to Note 20 to HEI's Consolidated Financial Statements,
incorporated herein by reference to page 67 of HEI's 1993 Annual Report to
Stockholders, portions of which are filed herein as HEI Exhibit 13(a).
The following table shows the amount of loans originated for the years
indicated:
<TABLE>
<CAPTION>
Amount of
loans
(dollars in millions) originated
--------------------- ----------
<S> <C>
1993................................. $564
1992................................. 601
1991................................. 387
1990................................. 366
1989................................. 318
</TABLE>
19
<PAGE> 26
Residential mortgage lending. During 1993, the demand for adjustable rate
mortgage (ARM) loans over fixed rate loans decreased compared with 1992. ARM
loans carry adjustable interest rates which are typically set according to a
short-term index. Payment amounts may be adjusted periodically based on changes
in interest rates. ARM loans represented approximately 24.7% of the total
originations of first mortgage loans in 1993, compared to 34.0% and 27.4% in
1992 and 1991, respectively. ASB intends to continue to emphasize the
origination and purchase of ARM loans to further improve its asset/liability
management.
ASB is permitted to lend up to 100% of the appraised value of the real
property securing a loan. Its general policy is to require private mortgage
insurance when the loan-to-value ratio of owner-occupied property exceeds 80%
of the lower of the appraised value or purchase price. On nonowner-occupied
residential properties, the loan-to-value ratio may not exceed 80% of the lower
of the appraised value or purchase price.
Construction and development lending. ASB provides both fixed and adjustable
rate loans for the construction of one-to-four residential unit and commercial
properties. Construction and development financing generally involves a higher
degree of credit risk than long-term financing on improved, occupied real
estate. Accordingly, all construction and development loans are priced higher
than loans secured by completed structures. ASB's underwriting, monitoring and
disbursement practices with respect to construction and development financing
are designed to ensure sufficient funds are available to complete construction
projects. As of December 31, 1993, 1992 and 1991, construction and development
loans represented 1.5%, 2.2% and 2.1%, respectively, of ASB's gross loan
portfolio. See "Loan portfolio risk elements."
Multi-family residential and commercial real estate lending. Permanent loans
secured by multi-family properties (generally apartment buildings), as well as
commercial and industrial properties (including office buildings, shopping
centers and warehouses), are originated by ASB for its own portfolio as well as
for participation with other lenders. In 1993, 1992 and 1991, loans on these
types of properties accounted for approximately 6.0%, 8.2% and 7.5%,
respectively, of ASB's total mortgage loan originations. The objective of
commercial real estate lending is to diversify ASB's loan portfolio to include
sound, income-producing properties.
Consumer lending. ASB offers a variety of secured and unsecured consumer
loans. Loans secured by deposits are limited to 90% of the available account
balance. ASB also offers VISA cards, automobile loans, general purpose consumer
loans, second mortgage loans, home equity lines of credit, checking account
overdraft protection and unsecured lines of credit. In 1993, 1992 and 1991,
loans of these types accounted for approximately 4.3%, 4.9% and 11.1%,
respectively, of ASB's total loan originations.
Corporate banking/commercial lending. ASB is authorized to make both secured
and unsecured corporate banking loans to business entities. This lending
activity is designed to diversify ASB's asset structure, shorten maturities,
provide rate sensitivity to the loan portfolio and attract business checking
deposits. As of December 31, 1993, 1992 and 1991, corporate banking loans
represented 1.2%, 1.2% and 1.67%, respectively, of ASB's total net loan
portfolio.
Loan origination fee and servicing income. In addition to interest earned on
loans, ASB receives income from servicing of loans, for late payments and from
other related services. Servicing fees are received on loans originated and
subsequently sold by ASB and also on loans for which ASB acts as collection
agent on behalf of third-party purchasers.
ASB generally charges the borrower at loan settlement a loan origination fee
ranging from 2% to 3% of the amount borrowed. Loan origination fees (net of
direct loan origination costs) are deferred and recognized as an adjustment of
yield over the life of the loan. Nonrefundable commitment fees (net of direct
loan origination costs, if applicable) to originate or purchase loans are
deferred. The nonrefundable commitment fees are recognized as an adjustment of
yield over the life of the loan if the commitment is exercised. If the
commitment expires unexercised, nonrefundable commitment fees are recognized in
income upon expiration of the commitment.
Loan portfolio risk elements. When a borrower fails to make a required
payment on a loan and does not cure the delinquency promptly, the loan is
classified as delinquent. If delinquencies are not cured promptly, ASB normally
commences a collection action, including foreclosure proceedings in the case of
secured loans. In a foreclosure action, the property securing the delinquent
debt is sold at a public auction in which ASB may participate as a bidder to
protect its interest. If ASB is the successful bidder, the property is
classified
20
<PAGE> 27
in a real estate owned account until it is sold. At December 31,
1993, there was only one real estate property, a residential property, acquired
in settlement of a loan totaling $0.2 million, or 0.01% of total assets. At
December 31, 1992 there was only one real estate property, a commercial
property, acquired in settlement of a loan totaling $2.0 million, or 0.08% of
total assets. There was no real estate owned at December 31, 1991, 1990 and
1989.
In addition to delinquent loans, other significant lending risk elements
include: (1) accruing loans which are over 90 days past due as to principal or
interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and
(3) loans on which various concessions are made with respect to interest rate,
maturity, or other terms due to the inability of the borrower to service the
obligation under the original terms of the agreement (renegotiated loans). ASB
has no loans which are over 90 days past due on which interest is being accrued
for the years presented in the table below. The level of nonaccrual and
renegotiated loans represented 0.5%, 1.0%, 0.1%, 0.1% and 0.2%, of ASB's total
net loans outstanding at December 31, 1993, 1992, 1991, 1990 and 1989,
respectively. The following table sets forth certain information with respect
to nonaccrual and renegotiated loans for the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
(in thousands) 1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans--
Real estate
1-4 unit residential........ $5,006 $12,526 $556 $704 $ 445
Income property............. 220 395 -- -- 356
Construction................ -- -- -- -- 82
Other....................... -- -- -- -- 45
------ ------- ---- ---- ------
Total real estate............. 5,226 12,921 556 704 928
Commercial.................... 38 1,059 -- 25 32
Consumer...................... 460 181 439 269 202
------ ------- ---- ---- ------
Total nonaccrual loans........ $5,724 $14,161 $995 $998 $1,162
====== ======= ==== ==== ======
Renegotiated loans not
included above-
Real estate
1-4 unit residential........ $ 381 $ -- $ -- $ -- $ --
Income property............. 1,486 -- 180 220 270
Commercial.................. 324 -- -- -- --
------ ------- ---- ---- ------
Total renegotiated loans...... $2,191 $ -- $180 $220 $ 270
====== ======= ==== ==== ======
</TABLE>
ASB's policy generally is to place mortgage loans on a nonaccrual status
(interest accrual is suspended) when the loan becomes more than 90 days past
due or on an earlier basis when there is a reasonable doubt as to its
collectability. Loans on nonaccrual status amounted to $5.7 million (0.32% of
total loans) at December 31, 1993, $14.2 million (0.94% of total loans) at
December 31, 1992, $1.0 million (0.08% of total loans) at December 31, 1991,
$1.0 million (0.10% of total loans) at December 31, 1990 and $1.2 million
(0.14% of total loans) at December 31, 1989. The significant increase in loans
on nonaccrual status from year-end 1991 to 1992 was primarily due to the
effects of Hurricane Iniki on the island of Kauai, such as higher unemployment.
As of December 31, 1992, real estate loans with remaining principal balances of
$8.9 million were restructured to defer monthly contractual principal and
interest payments for three months with repayments of the entire deferred
amounts due at the end of the three-month period. These loans had been
classified as nonaccrual loans as of December 31, 1992. Substantially all of
these loans have resumed their normal repayment schedule and are classified as
performing loans as of December 31, 1993. For additional information, see
"Potential problem loans."
There were no loan loss provisions with respect to renegotiated loans in 1993,
1992, 1991, 1990 and 1989 because the estimated net realizable value of the
collateral for such loans was determined to be in excess of the outstanding
principal amounts of these loans. For additional information, see "Potential
problem loans."
Potential problem loans. A loan is classified as a potential problem loan
when the ability of the borrower to comply with present loan covenants is in
doubt. In September 1992, the island of Kauai suffered
21
<PAGE> 28
substantial property damage from Hurricane Iniki. The high unemployment rate on
Kauai due to Hurricane Iniki resulted in loan payment defaults or deferrals
requiring such loans to be placed on a nonaccrual status. As of December 31,
1992, delinquencies of ASB's Kauai loans were $2.2 million, $2.5 million, $3.1
million and $0.4 million for 1-29 days, 30-59 days, 60-89 days and 90 days and
over delinquent, respectively. In anticipation of additional loans falling into
the 90 days and over category, ASB added reserves during 1992 of $0.6 million
for Kauai loans. As of December 31, 1993, substantially all of these loans have
resumed their normal repayment schedule improving delinquencies of ASB's Kauai
loans to $2.1 million, $0.5 million, $0.3 million and $0.7 million for 1-29
days, 30-59 days, 60-89 days and 90 days and over delinquent, respectively.
Due to the losses created by Hurricane Iniki, several insurance
companies have discontinued the sale and/or renewal of homeowners' insurance on
real estate in Hawaii. If a borrower is unable to obtain insurance, ASB has
procedures to "force place" insurance coverage. The "force place" policies are
underwritten by two U.S. insurance companies and would protect ASB, as lender,
for loans secured by real estate covered by such policies. The cost of the
policy is charged to the borrower. Based on the current circumstances,
management believes that the current shortage of homeowners' insurance in
Hawaii and the effect of Hurricane Iniki on ASB's future earnings will not be
material to the Company's financial condition or results of operations.
Allowance for loan losses. The provision for loan losses is dependent upon
management's evaluation as to the amount needed to maintain the allowance for
loan losses at a level considered appropriate in relation to the risk of future
losses inherent in the loan portfolio. While management attempts to use the
best information available to make evaluations, future adjustments may be
necessary as circumstances change and additional information becomes available.
The following table presents the changes in the allowance for loan losses for
the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------
(dollars in thousands) 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of
year.................................. $5,157 $3,818 $3,387 $2,911 $2,685
ADDITIONS TO PROVISIONS FOR LOSSES ---------- ---------- ---------- ---------- ---------
Real estate loans....................... 336 945 296 329 100
Other loans............................. 443 549 345 299 306
---------- ---------- ---------- ---------- ----------
Total additions......................... 779 1,494 641 628 406
---------- ---------- ---------- ---------- ----------
NET (RECOVERY) CHARGE-OFFS
Real estate loans....................... -- (3) (12) -- --
Other loans............................. 622 158 222 152 180
---------- ---------- ---------- ---------- ----------
Total net charge-offs................... 622 155 210 152 180
---------- ---------- ---------- ---------- ----------
Allowance for loan losses, end of year.. $5,314 $5,157 $3,818 $3,387 $2,911
========== ========== ========== ========== ==========
Ratio of net charge-offs during the
period to average loans outstanding... 0.04% 0.01% 0.02% 0.02% 0.02%
========== ========== ========== ========== ==========
</TABLE>
ASB's ratio of provisions for loan losses during the period to average
loans outstanding was 0.05%, 0.11%, 0.06%, 0.07% and 0.06% for the years ended
December 31, 1993, 1992, 1991, 1990 and 1989, respectively. The increase in
provisions for loan losses during 1992 was primarily due to the 27% increase in
average loans outstanding and a $0.6 million additional provision for Kauai
loans anticipated to be affected by Hurricane Iniki. See "Potential problem
loans." Without the additional $0.6 million provision on Kauai loans, the ratio
of provision for loan losses to average loans outstanding for the year ended
December 31, 1992 would have been 0.07%, which would be consistent with prior
years. The allowance for loan losses for the year ended December 31, 1993
includes the additional provision and charge-off of a single commercial loan of
$0.3 million, offset by the reversal of $0.6 million in provisions for Kauai
loans reclassified as performing. The ratio of provision for loan losses to
average loans outstanding for the year ended December 31, 1993 would have been
0.07%, if the reversal of the $0.6 million in provisions for Kauai loans and the
additional provision of $0.3 million for the commercial loan were excluded.
22
<PAGE> 29
INVESTMENT ACTIVITIES
In recent years, ASB's investment portfolio has consisted primarily of
mortgage-backed securities, federal agency obligations and stock of the FHLB of
Seattle.
The following table sets forth the composition of ASB's investment portfolio,
excluding mortgage-backed securities to be held-to-maturity, at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------
(dollars in thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Marketable securities
Federal agency obligations............. $ -- $15,293 $27,606
Other securities held for trading...... 45,396 23,037 13,876
--------- ---------- ---------
Total marketable securities.............. 45,396 38,330 41,482
Investments in regulatory agencies-FHLB
stock.................................. 23,203 20,194 17,932
--------- ---------- ---------
Total investments........................ $68,599 $58,524 $59,414
========= ========== =========
Weighted average rate on investments (1). 9.75% 9.38% 8.76%
========= ========== =========
</TABLE>
(1) On investments during the year ended December 31.
DEPOSITS AND OTHER SOURCES OF FUNDS
General. Deposits traditionally have been the principal source of ASB's funds
for use in lending and other investments. ASB also derives funds from receipt
of interest and principal on outstanding loans, borrowings from the FHLB of
Seattle, securities sold under agreements to repurchase and other sources. ASB
borrows on a short-term basis to compensate for seasonal or other reductions in
deposit flows. ASB also may borrow on a longer-term basis to support expanded
lending or investment activities.
Deposits. ASB's deposits are obtained primarily from residents of Hawaii. In
1993, ASB had average deposits aggregating $2.1 billion. Savings outflow for
1993 was approximately $9 million excluding interest credited to deposit
accounts. Savings inflows for 1992 and 1991 were approximately $343 million and
$31 million, respectively, excluding interest credited to deposit accounts. The
substantial decrease in savings flow for 1993 was due primarily to the low
interest rate environment and the withdrawal of a trust company deposit account
of $92 million. The trust company was recently acquired by another financial
institution. The substantial increase in savings inflow for 1992 was due to
ASB's strategy to increase its retail market by paying higher rates of interest
on savings accounts than most of its competitors in Hawaii during this period.
The weighted average rate paid on deposits during 1993 decreased to 3.74%,
compared to 5.01% and 6.36% in 1992 and 1991, respectively. In the three years
ended December 31, 1993, ASB had no deposits placed by or through a broker.
23
<PAGE> 30
The following table shows the distribution of ASB's average deposits
and average daily rates by type of deposit for the years indicated. Average
balances for a period have been calculated using the average of month-end
balances during the period.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ------------------------------------- ---------------------------------
% of % of % of
(dollars in Average total Average Average total Average Average total Average
thousands) balance deposits rate % balance deposits rate % balance deposits rate %
------------------------------ ------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook
accounts....... $1,126,880 54.28% 3.73% $ 738,692 39.24% 4.69% $ 376,399 24.17% 5.38%
Negotiable
Order of
Withdrawal
(NOW)
accounts....... 268,227 12.92 2.49 242,682 12.89 4.11 173,348 11.13 4.95
Money market
accounts....... 119,238 5.74 3.15 149,811 7.96 4.30 161,034 10.34 6.11
Certificate
accounts....... 561,847 27.06 4.48 751,338 39.91 5.76 846,520 54.36 7.13
------------------------------ ------------------------------------- ---------------------------------
Total deposits. $2,076,192 100.00% 3.74% $1,882,523 100.00% 5.01% $1,557,301 100.00% 6.36%
============================== ===================================== =================================
</TABLE>
At December 31, 1993, ASB had $166 million in certificate accounts of $100,000
or more maturing as follows:
<TABLE>
<CAPTION>
(in thousands) Amount
--------
<S> <C>
Three months or less............................... $ 83,984
Greater than three months through six months....... 16,471
Greater than six months through twelve months...... 33,527
Greater than twelve months......................... 32,296
--------
$166,278
========
</TABLE>
Borrowings. ASB obtains advances from the FHLB of Seattle, provided
certain standards related to credit-worthiness have been met. Advances are
secured under a blanket pledge of the common stock ASB owns in the FHLB of
Seattle and each note or other instrument held by ASB and the mortgage securing
it. FHLB advances generally are available to meet seasonal and other withdrawals
of deposit accounts, to expand lending and to assist in the effort to improve
asset and liability management. FHLB advances are made pursuant to several
different credit programs offered from time to time by the FHLB of Seattle.
At December 31, 1993, 1992 and 1991, advances from the FHLB amounted to
$290 million, $194 million and $259 million, respectively. The weighted average
rate on the advances from the FHLB outstanding at December 31, 1993, 1992 and
1991 were 6.24%, 7.39% and 7.60%, respectively. The maximum amount outstanding
at any month-end during 1993, 1992 and 1991 was $290 million, $259 million and
$259 million, respectively. Advances from the FHLB averaged $210 million, $221
million and $203 million during 1993, 1992 and 1991, respectively, and the
approximate weighted average rate thereon was 6.84%, 7.65% and 7.99%,
respectively.
At December 31, 1992 and 1991, securities sold under agreements to
repurchase consisted of mortgage-backed securities sold to brokers/dealers under
fixed- coupon agreements. The agreements are treated as financings and the
obligations to repurchase securities sold are reflected as a liability in the
consolidated balance sheets. The dollar amount of securities underlying the
agreements remains in the asset accounts. There were no outstanding securities
sold under agreements to repurchase as of December 31, 1993. At December 31,
1992 and 1991, $27.2 million (including accrued interest of $0.2 million) and
$131.0 million (including accrued interest of $1.8 million), respectively, of
the agreements were to repurchase identical securities. The weighted average
rates on securities sold under agreements to repurchase outstanding at
December 31, 1992 and 1991 were 3.34% and 5.78%, respectively. The maximum
amount outstanding at any month-end during 1993, 1992 and 1991 was $27 million,
$125 million and $136 million, respectively.
24
<PAGE> 31
Securities sold under agreements to repurchase averaged $20 million, $66 million
and $124 million during 1993, 1992 and 1991, respectively, and the approximate
weighted average interest rate thereon was 3.39%, 5.15% and 6.67%, respectively.
Subject to obtaining certain approvals from the FHLB of Seattle, ASB
may offer collateralized medium-term notes due from nine months to 30 years
from the date of issue and bearing interest at a fixed or floating rate
established at the time of issue. At December 31, 1993, 1992 and 1991, ASB had
no outstanding collateralized medium-term notes.
The following table sets forth information concerning ASB's advances
from FHLB and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------
(dollars in thousands) 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Advances from FHLB.......... $289,674 $194,099 $258,593
Securities sold under
agreements to repurchase -- 27,223 131,018
Other borrowings............ -- -- 43
-------- -------- --------
Total borrowings............ $289,674 $221,322 $389,654
======== ======== ========
Weighted average rate (1)... 6.24% 6.89% 6.99%
</TABLE>
(1) On borrowings at December 31.
COMPETITION
The primary factors in competing for deposits are interest rates, the
quality and range of services offered, marketing, convenience of office
locations, office hours and perceptions of the institution's financial
soundness and safety. Competition for deposits comes primarily from other
savings institutions, commercial banks, credit unions, money market and mutual
funds and other investment alternatives. Additional competition for deposits
comes from various types of corporate and government borrowers, including
insurance companies. To meet the competition, ASB offers a variety of savings
and checking accounts at competitive rates, convenient business hours,
convenient branch locations with interbranch deposit and withdrawal privileges
at each office and conducts advertising and promotional campaigns.
The primary factors in competing for first mortgage and other loans are
interest rates, loan origination fees and the quality and range of lending
services offered. Competition for origination of first mortgage loans comes
primarily from other savings institutions, mortgage banking firms, commercial
banks, insurance companies and real estate investment trusts. ASB believes that
it is able to compete for such loans primarily through the interest rates and
loan fees it charges, the type of mortgage loan programs it offers and the
efficiency and quality of the services it provides its borrowers and the real
estate business community.
OTHER
FREIGHT TRANSPORTATION -- HAWAIIAN TUG & BARGE CORP.
AND YOUNG BROTHERS, LIMITED
GENERAL
HTB and its wholly owned subsidiary, YB, were acquired from Dillingham
Corporation in 1986 for $18.7 million. HTB provides interisland marine
transportation services in Hawaii and the Pacific area, including charter tug
and barge and harbor tug operations. YB, which is a regulated interisland cargo
carrier, transports general freight and containerized cargo by barge on a
regular schedule between all major ports in Hawaii. YB moved 3.1 million
revenue tons of cargo between the islands in 1993, compared to 3.2 million tons
of cargo in 1992.
A substantial portion of the state's commodities are imported, and
almost all of Hawaii's overseas inbound and outbound cargo moves through
Honolulu. Cargo destined for the neighbor islands is trans-shipped through the
Honolulu gateway. Access to the interisland freight transportation market is
generally subject to state or federal regulation, and HTB and YB have active
competitors, such as interstate common carriers and, in certain instances,
unregulated contract carriers.
25
<PAGE> 32
YB has a nonexclusive Certificate of Public Convenience and Necessity from the
PUC to operate as an intrastate common carrier by water. The Certificate will
remain in effect for an indefinite period unless suspended or terminated by the
PUC. Although YB encounters competition from, among others, interstate carriers
and unregulated contract carriers, YB is the only authorized common carrier
under the Hawaii Water Carrier Act.
YB RATES
YB generally must accept for transport all cargo offered. YB rates and
charges must be approved by the PUC and the PUC has broad discretion in its
regulation of the rates charged by YB.
In June 1987, the PUC commenced a proceeding to determine whether YB's
rates and charges should be reduced to reflect the effect of the Tax Reform Act
of 1986 (TRA). During the period from January 1, 1988 through June 30, 1993,
several rate reductions were imposed by the PUC as well as YB voluntarily
reducing its rates for selected commodities. On February 13, 1992, YB filed a
motion to rescind a 1.1% interim rate reduction which was implemented on
January 1, 1989. On June 30, 1993, the PUC approved YB's motion to rescind the
1.1% interim rate reduction, effective July 8, 1993, and in January 1994, the
PUC rendered a decision to close the TRA docket.
In September 1992, YB filed an application for a tariff change in its
minimum bill of lading from $10.43 to $21.03 (later increased to $21.62). This
application was suspended on October 7, 1992. On November 5, 1992, YB filed a
general rate increase application with the PUC for a 17.1% across the board
increase in rates effective December 20, 1992. On December 18, 1992, the PUC
ordered that the two applications be consolidated and that the consolidated
application be suspended for a period of six months to and including June 19,
1993. On February 12, 1993, YB reduced its general rate increase request to
15.7% from the 17.1% originally requested. The decrease in the request was
primarily due to a decrease in rate base resulting from the change in the test
year period and an adjustment to YB's capital structure to reflect more
leverage. The revised request was based on a rate of return of 16.7% on an
imputed equity of 55%. Hearings for this general rate increase and the tariff
change were held in May 1993. On June 30, 1993, the PUC issued a decision
granting an $18.00 minimum bill of lading charge and a 4.3% general rate
increase on all rates excluding the Minimum Bill of Lading and Marine Cargo
Insurance rates. The new rates and charges became effective on July 8, 1993.
This decision was based on a rate of return of 15.15% on an imputed equity of
55%. YB is also participating in the PUC's generic docket to determine whether
SFAS No. 106 should be adopted for rate-making purposes. The information on
postretirement benefits other than pensions in Note 18 to HEI's Consolidated
Financial Statements is incorporated herein by reference to pages 64 to 66 of
HEI's 1993 Annual Report to Stockholders, portions of which are filed herein as
HEI Exhibit 13(a).
On March 15, 1994, YB filed a Notice of Intent with the PUC informing
them that YB will be filing an application for a general rate increase.
REAL ESTATE-MALAMA PACIFIC CORP.
GENERAL
MPC was incorporated in 1985 and engages in real estate development
activities, either directly or through joint ventures.
MPC's real estate development investments in residential projects are
targeted for Hawaii's owner-occupant market. MPC's subsidiaries are currently
involved in the active development of five residential projects (Kipona Hills,
Kua' Aina Ridge, Westpark, Piilani Village Phase 1 and Sunrise Estates
Phase 1) on the islands of Oahu, Maui and Hawaii encompassing approximately
500 homes or lots, of which more than 260 have been completed and sold.
Either directly or through its joint ventures, MPC's subsidiaries have access
to nearly 450 acres of land for future residential development.
Residential development generally requires long lead time to obtain
necessary zoning changes, building permits and other required approvals. MPC's
projects are subject to the usual risks of real estate development, including
fluctuations in interest rates, the receipt of timely and appropriate state
and local zoning and other necessary approvals, possible cost overruns and
construction delays, adverse changes in general commerce and local market
conditions, compliance with applicable environmental and other regulations,
and potential competition from other new projects and resales of existing
residences.
In 1993, Malama's real estate development activities continued to be
impacted by the economic conditions affecting the entire nation. Although
interest rates remained low, the real estate market experienced slowdowns due
to the weakness in the U.S. and Hawaii economies and lack of consumer
26
<PAGE> 33
confidence. Sales prices and velocities are expected to remain relatively flat
through most of 1994, with improvement anticipated in late 1994 or 1995.
For a discussion of MPC's transactions with related parties, pages 21 to 23 of
HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 19, 1994 and filed herein as HEI Exhibit 22,
are incorporated herein by reference.
JOINT VENTURE DEVELOPMENTS
Makakilo Cliffs. In 1990, MDC and JGL Enterprises Inc. formed Makakilo Cliffs
Joint Venture for the development of a 280-unit multi-family residential
project on approximately 26 acres in Makakilo, Hawaii (island of Oahu). MDC's
partnership interest was assigned to Malama Makakilo Corp., another wholly
owned subsidiary of MPC, in August 1990. Sales of the first 81 units closed in
1991 and all remaining units closed in 1992. The joint venture was dissolved in
December 1993.
Sunrise Estates. In 1990, MDC and HSC, Inc. formed Sunrise Estates Joint
Venture to develop and sell 165 one-acre house lots in Hilo, Hawaii (island of
Hawaii). In 1993 and 1992, sales of three lots and 153Elots closed,
respectively. Sales of the remaining nine lots are expected in 1994.
In 1991, HSC, Inc. and Malama Elua Corp., a wholly owned subsidiary of MPC,
formed Sunrise Estates II Joint Venture to develop and sell approximately 140
one-acre house lots in Hilo, Hawaii, adjacent to the Sunrise Estates Joint
Venture project. Rezoning was completed in 1993 and site work is expected to
commence in late 1994 or early 1995.
Ainalani Associates. In 1990, MDC and MDT-BF Limited Partnership (MDT) formed
a joint venture known as Ainalani Associates for the acquisition and
development of five residential projects on the islands of Kauai, Maui and
Hawaii. In 1990, the project on the island of Kauai was completed and sold. In
1992, the land for a project on the island of Maui was sold in bulk. Ainalani
Associates also acquired a 50% interest in Palailai Associates, a partnership
for the development of residential housing on Oahu. The five projects and
partnership interest originally (i.e., before sales) encompassed approximately
270 acres of land. During 1990, MDC assigned its interest in Ainalani
Associates to MMO, another wholly owned subsidiary of MPC.
On August 17, 1992, MMO acquired MDT's 50% interest in Ainalani Associates.
Upon closing of the purchase, Ainalani Associates was dissolved. The amount of
consideration for the transfer, which was not material to the Company's
financial condition, was determined by arbitration which ended on March 31,
1993 and was based primarily on the net present value of MDT's partnership
interest in Ainalani Associates as of June 30, 1992. MMO plans to complete the
development and sale of Ainalani Associates three projects on the islands of
Maui and Hawaii, described below under "MMO projects," and has assumed Ainalani
Associates' 50% partnership interest in Palailai Associates, a partnership with
Palailai Holdings, Inc.
Baldwin*Malama. In 1990, MDC acquired a 50% general partnership interest in
Baldwin*Malama, a partnership with Baldwin Pacific Properties, Inc. (BPPI)
established to acquire about 172 acres of land for potential development of
about 780 single and multi-family residential units in Kihei on the island of
Maui. The project has completed site work for the first phase of single family
units. At December 31, 1993, 23 homes were completed and sold, four homes were
under construction and six completed units were available for sale.
In May 1993, Baldwin*Malama was reorganized as a limited partnership in which
MDC is the sole general partner and BPPI is the sole limited partner. In
conjunction with the dissolution of the Baldwin*Malama general partnership and
formation of the limited partnership, MPC agreed to loan $1.6 million to BPPI
and up to $15 million to the limited partnership, and beginning in May 1993,
MDC consolidated the accounts of Baldwin*Malama. Previously, MDC accounted for
its investment in Baldwin*Malama under the equity method. At December 31, 1993,
the outstanding balance on MPC's loan to BPPI was $1.6 million.
Palailai Associates. MMO assumed Ainalani Associates' interest in Palailai
Associates on August 17, 1992 upon acquiring MDT's 50% interest in Ainalani
Associates. In 1993, Palailai Associates completed the development and sale of
the first increment of 107 homes and lots and completed the bulk sale of its
38.8 acres of multi-family zoned land in Makakilo, Oahu. The second increment
of 69 single family homes is currently in progress, with 35 homes completed and
sold as of December 31, 1993. Palailai Associates owns approximately 62 acres
of adjacent land zoned for residential development.
27
<PAGE> 34
MMO PROJECTS
On August 17, 1992, MMO acquired the Kipona Hills, Kua' Aina Ridge and
Hanohano projects of Ainalani as a result of MMO's acquisition of MDT's 50%
interest in Ainalani Associates and Ainalani Associates' subsequent
dissolution.
Kipona Hills is a 66-unit subdivision located in Waikoloa on the island of
Hawaii. Through December 31, 1993, 42 homes or lots were completed and sold,
and five completed homes and 19 lots were available for sale.
Kua' Aina Ridge is a 92-lot-only subdivision in Pukalani, Maui. Subdivision
improvements have been completed and sales closings commenced in 1993. As of
December 31, 1993, five lots were sold.
Kehaulani Place (formerly known as Hanohano), consisting of approximately 50
acres of land in Pukalani, Maui, is currently zoned for agriculture. Rezoning
and land-use reclassification will be required before development can commence.
Land planning and presentations to local community groups commenced in 1993.
PROJECT FINANCING
At December 31, 1993, MPC or its subsidiaries were directly liable for $11.5
million of outstanding construction loans and had additional construction loan
facilities of $5.8 million. In addition, at December 31, 1993, MPC or its
subsidiaries had issued (i) guaranties under which they were jointly and
severally contingently liable with their joint venture partners for $2.1
million of outstanding construction loans and (ii) payment guaranties under
which MPC or its subsidiaries were severally contingently liable for $4.6
million of outstanding construction loans and $4.7 million of additional
undrawn construction loan facilities. In total, at December 31, 1993, MPC or
its subsidiaries were liable or contingently liable for $18.2 million of
outstanding construction loans and $10.5 million in undrawn construction loan
facilities. At December 31, 1993, HEI had agreed with the lenders of
construction loans and loan facilities, of which approximately $10.5 million
was undrawn and $16.1 million was outstanding, that it will maintain ownership
of 100% of the stock of MPC and that it intends, subject to good and prudent
business practices, to keep MPC financially sound and responsible to meet its
obligations. MPC or its subsidiaries may enter into additional commitments in
connection with the financing of future phases of development of MPC's projects
and HEI may enter into similar agreements regarding the ownership and financial
condition of MPC.
MALAMA WATERFRONT CORP.
Malama Waterfront Corp., a wholly owned subsidiary of MPC, entered into an
agreement to purchase HECO's Honolulu Power Plant in a sale and leaseback
transaction. However, HECO is reconsidering the sale of the plant. See a
further discussion in "Item 2. Properties--Electric utility--HECO," beginning
on page 46.
HEI INVESTMENT CORP.
HEIIC was incorporated in May 1984 primarily to make passive, tax-advantaged
investments in corporate securities and other long-term investments. HEIIC is
not an "investment company" under the Investment Company Act of 1940 and has no
direct employees.
HEIIC has sold substantially all of its investments in marketable debt and
equity securities over the last few years.
HEIIC's long-term investments presently consist primarily of investments in
leveraged leases. HEIIC has a 25.3% lessor interest in a leveraged lease
agreement entered into in December 1985, under which 60% of an 818-MW
coal-fired generating unit in Georgia was leased until 2013. The lessee has
options to renew the lease at fixed rentals for at least 8.5 additional years
and thereafter at fair market rentals. In the fall of 1987, HEIIC purchased
commercial buildings on leasehold properties located in the continental United
States, along with the related lease rights and obligations. These leveraged,
purchase-leaseback investments included two major buildings housing operations
of Hershey Foods in Pennsylvania and six supermarkets leased to Kroger Company
in California, Pennsylvania, Louisiana, Alabama and Illinois. HEIIC's
investments in leveraged leases amounted to $53.1 million and $51.2 million at
December 31, 1993 and 1992, respectively. Note 8 to HEI's Consolidated
Financial Statements is incorporated herein by reference to page 59 of HEI's
1993 Annual Report to Stockholders, portions or which are filed herein as HEI
Exhibit 13(a). No new investments are currently planned by HEIIC.
28
<PAGE> 35
DISCONTINUED OPERATIONS
Note 2 to HEI's Consolidated Financial Statements is incorporated herein by
reference to pages 46 to 48 of HEI's 1993 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13(a).
HAWAIIAN ELECTRIC RENEWABLE SYSTEMS, INC.
On October 6, 1992, the Board of Directors of HEI ratified management's
September 30, 1992 plan to exit the nonutility wind energy business because of
chronic mechanical problems with its wind turbines and continuing losses from
operations. In March 1993, HEI sold the stock of HERS to The New World Power
Corporation for an amount which was not material. Prior to the closing of the
sale, LVI was transferred to HEI. HEI is attempting to transfer LVI's windfarm
to HELCO, at no cost to electric customers.
THE HAWAIIAN INSURANCE & GUARANTY CO., LIMITED
HIG and its subsidiaries (the HIG Group) are property and casualty insurance
companies in the State of Hawaii. HEIDI, a subsidiary of HEI, is the holder of
record of all the common stock of HIG. On December 2, 1992, the Board of
Directors of HEI concluded that it would not contribute additional capital to
HIG and HEI/HEIDI's remaining investment in the HIG Group was written off in
the fourth quarter of 1992. The decision resulted from an increase in the
estimate of policyholder claims from Hurricane Iniki (which hit the Hawaiian
Islands on September 11, 1992) from $200 million to more than $300 million. At
that level of claims, it was estimated that the shortfall in the assets of the
HIG Group available to pay claims would be in excess of $80 million, and that
at least an additional $112 million in capital contributions from HEI would be
required if the HIG Group were to continue to write insurance as in the
past--$80 million to cover the shortfall plus $32 million of new capital.
On December 24, 1992, with the consent of the HIG Group, a formal
rehabilitation order (the Rehabilitation Order) was entered by the First
Circuit Court of the State of Hawaii, vesting full control over the HIG Group
in the Insurance Commissioner and her deputies. On January 7, 1993, the Deputy
Rehabilitator sent a letter to HEIDI, the holder of record of the outstanding
shares of HIG stock, purporting to assess the stock of HIG for $115 million.
HEIDI responded to the letter contesting the validity of the assessment and
denying its enforceability.
On April 12, 1993, the Rehabilitator filed her proposed rehabilitation plan
for approval by the First Circuit Court of the State of Hawaii. The plan
contemplates that HIG will be rehabilitated and capitalized through a
combination of retaining $20 million of HIG's assets and assigning all of HIG's
remaining assets and liabilities to its insurance company subsidiaries, United
National Insurance Company, Ltd. (UNICO) and Hawaiian Underwriters Insurance
Company, Ltd. (HUI), with UNICO and HUI being liquidated. The memorandum filed
in support of the plan stated that the shortfall in the assets of the HIG Group
available to satisfy their liabilities was estimated at $68 million as of
December 20, 1992, or $88 million taking into account the $20 million of HIG
assets proposed to be retained to capitalize the rehabilitated HIG. The
Rehabilitator stated that she hopes to reduce or eliminate the shortfall
through (a) a sale of HIG after its rehabilitation for a price in excess of the
$20 million of HIG assets to be retained to capitalize HIG plus its future
earnings, and/or (b) any net recoveries she is able to achieve through a
lawsuit (described below) filed on the same date against HEI, HEIDI and certain
current and former officers and directors of HIG, HEI and HEIDI. The plan,
after minor technical modifications, was approved by the Court in May 1993.
On April 12, 1993, the Rehabilitator, HIG, UNICO and HUI filed a complaint
against HEI, HEIDI and certain current and former officers and directors of
HEI, HEIDI and the HIG Group in state court on the island of Kauai, and
demanded a jury trial. The complaint sets forth several separate counts,
including claims to the effect that HEI and/or HEIDI should be held liable for
HIG's obligations based on allegations, among others, that HIG was held out to
be part of an HEI family of companies (and not as a separate enterprise) and
that HEIDI is liable for an assessment levied by the Rehabilitator. The
complaint also alleges, among other things, that HEI and HEIDI had
misrepresented that they would stand behind and support HIG in the event it
required a capital contribution, and that HEI and HEIDI are indirectly
responsible for alleged breaches of fiduciary duties by the officers and
directors. The complaint alleges that the officers and directors of HIG, HEIDI
and HEI have breached their fiduciary duties to HIG by reason of alleged excess
intercompany charges for administrative services, inadequate loss adjustment
reserves, inadequate underwriting guidelines, inadequate reinsurance procedures
and inadequate capitalization, among others. The complaint seeks declaratory
relief and compensatory, general, special and punitive damages, together with
costs and attorneys' fees.
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On July 12, 1993 the Rehabilitator filed a first amended complaint. The first
amended complaint repeats the claims asserted in the original complaint but
adds Hawaii Insurance Guaranty Association (HIGA) as a plaintiff and asserts
certain additional claims. One of the additional claims is HIGA's request for
the imposition, for the benefit of HIGA and its members, of a constructive
trust on funds of the defendants to cover alleged damages relating to the
staffing of HIGA and its claims handling efforts, loss of use of funds paid by
HIGA's members in the form of assessments and loss of business to HIGA's
members resulting from the assessments. This claim is based on the allegation
that HEI's decision to exit the insurance business was an attempt to shift
responsibility for payment of claims to HIGA. The first amended complaint also
asserts a new claim for negligence and a statutory claim for unfair and
deceptive trade practices under Chapter 480 of the Hawaii Revised Statutes,
which permits the recovery of treble damages in certain cases.
Although the damages requested were not specified in the complaint or
amended complaint and were reserved for proof at trial, by demand letter dated
February 26, 1993 the Rehabilitator had demanded (1) from HEI and/or HEIDI, the
amount required to cure HIG's deficit, estimated by the Rehabilitator in the
letter at $68 million, and (2) $55 million for alleged breaches of duties and
other obligations owed to HIG by the officers and directors of HEI, HEIDI and
HIG. These demands were based on alternative theories of liability and the
amounts claimed are believed by management to be duplicative and not
cumulative.
On October 13, 1993, HEI and HEIDI filed their answers to the First Amended
Complaint, denying the material allegations thereof and asserting various
affirmative defenses. The officer and director defendants have filed similar
answers, together with a counterclaim against the Rehabilitator for
indemnification. On November 2, 1993, defendants HEI and HEIDI filed
counterclaims against the Rehabilitator and HIGA alleging that the
Rehabilitator and HIGA have not acted in accordance with their statutory duties
and that the Rehabilitator has wrongfully used HEI's logo since taking control
of HIG. Discovery proceedings were initiated beginning in late 1993.
Earlier, in February 1993, a complaint was filed by an individual against HEI,
HECO, HEIDI, HIGA and the Insurance Commissioner in the state court on the
island of Oahu seeking damages in an unspecified amount for an alleged class of
all direct purchasers of home and automobile insurance in the State of Hawaii
under various theories, including the theory that the alleged acts of the
Company with respect to the HIG Group constitute unfair or deceptive acts or
practices for which treble damages are requested. The complaint also asserted
claims against HEI and HEIDI on alleged "alter ego" and mismanagement theories.
Based on assurances from HECO that it could not pass on to electric utility
ratepayers any losses that HEI or HEIDI might suffer by reason of the insurance
business of the HIG Group, the plaintiff agreed to dismiss without prejudice
the case against HECO, and HECO was dismissed from the suit on September 13,
1993. Later, based on assurances from the Insurance Commissioner that plaintiff
would receive notice of any proposed settlement of her suit against HEI and
HEIDI and others before any such settlement would be submitted for court
approval, plaintiff agreed to dismiss without prejudice his entire complaint.
In November 1993, the entire complaint was dismissed without prejudice pursuant
to a stipulation signed by the parties and approved by the court.
In early 1994, HEI, HEIDI, certain officers and directors, the
Rehabilitator/Liquidator and HIGA signed an agreement to settle the lawsuit
related to the April 12, 1993 complaint, as amended. Under the agreement, which
is subject to court approval, HEI will pay $32.0 million to the
Rehabilitator/Liquidator in return for a dismissal of the lawsuit and a release
of claims against HEI, its affiliates and their past and present officers and
directors. A motion to approve the settlement was filed in early March 1994 and
a hearing on the motion was held on March 15, 1994.
The $32.0 million settlement amount, less income tax benefits and certain
amounts in previously established reserves, resulted in a $15.0 million after-
tax charge to discontinued operations in 1993. HEI will fund the settlement out
of available cash and/or borrowings. HEI is seeking reimbursement from certain
of its insurance carriers. HEI's claims against its insurance carriers will
require resolution of several insurance coverage and other policy issues and
the outcome of such claims cannot be predicted at this time. One of HEI's
insurance carriers has filed a declaratory relief action in the U.S. District
Court for the District of Hawaii seeking resolution of these issues. Recoveries
from HEI's insurance carriers, if any, will be recognized when realized.
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REGULATION AND OTHER MATTERS
HOLDING COMPANY REGULATION
HEI and HECO are holding companies within the meaning of the Public Utility
Holding Company Act of 1935 (1935 Act). However, under current rules and
regulations, they are exempt from the comprehensive regulation of the
Securities and Exchange Commission (SEC) under the 1935 Act except for Section
9(a)(2) (relating to the acquisition of securities of other public utility
companies) through compliance with certain annual filing requirements under the
1935 Act for holding companies which own utility businesses that are primarily
intrastate in character. The exemption afforded HEI and HECO may be revoked if
the SEC finds that such exemption "may be detrimental to the public interest or
the interest of investors or consumers."
In February 1989 the SEC requested comments on a proposed Rule 17 regarding
the conditions under which public utility holding companies, which have
diversified their lines of business outside the utility area, may retain their
intrastate exemption under section 3(a)(1) of the 1935 Act. Under the proposed
rule, a public utility holding company which had diversified its activities
into nonutility businesses would be entitled to retain its Section 3(a)(1)
exemption only if it comes within a proposed federal or state safe-harbor
provision following a grace period of three years after adoption of the rule.
HEI does not satisfy the provisions of the federal safe-harbor provision in its
currently proposed form, and may not necessarily satisfy the provisions of the
state safe-harbor provision. If the rule were adopted in its proposed form and
HEI does not satisfy the state safe-harbor provision, HEI might be required to
register as a holding company under the Act and/or divest itself of certain of
its nonutility subsidiaries. If a rule were adopted in some form requiring
action on HEI's part to come within a state safe-harbor provision, the
Company's present intention is to take all such action as is reasonable and
appropriate to bring itself within the state safe-harbor provision. Even though
the SEC has taken no action on the proposal for several years, HEI cannot
predict whether a rule relating to diversification will be adopted in the
proposed form or in a modified form, or the ultimate effects of any such rule
on it or its subsidiaries if adopted.
HEI is subject to an agreement entered into with the PUC (the PUC Agreement)
when HECO became a wholly owned subsidiary of HEI. The PUC Agreement, among
other things, requires HEI to provide the PUC with periodic financial
information and other reports concerning intercompany transactions and other
matters. It prohibits the electric utilities from loaning funds to HEI or its
nonutility subsidiaries and from redeeming common stock of the electric utility
subsidiaries without PUC approval. Further, the PUC could limit the ability of
the electric utility subsidiaries to pay dividends on their common stock. See
"Restrictions on dividends and other distributions" and "Electric utility
regulation" (regarding the PUC review of the relationship between HEI and
HECO).
As a result of the acquisition of ASB, HEI and HEIDI are subject to OTS
registration, supervision and reporting requirements as savings and loan
holding companies.
In the event the OTS has reasonable cause to believe that the continuation by
HEI or HEIDI of any activity constitutes a serious risk to the financial
safety, soundness, or stability of ASB, the OTS is authorized under the Home
Owners' Loan Act of 1933, as amended, to impose certain restrictions in the
form of a directive to HEI and any of its subsidiaries, or HEIDI and any of its
subsidiaries. Such possible restrictions include limiting (i) the payment of
dividends by ASB; (ii) transactions between ASB, HEI or HEIDI, and the
subsidiaries or affiliates of ASB, HEI or HEIDI; and (iii) the activities of
ASB that might create a serious risk that the liabilities of HEI and its other
affiliates, or HEIDI and its other affiliates, may be imposed on ASB.
Theoretically, this authority would allow the OTS to prohibit dividends, limit
affiliate transactions or otherwise restrict activities as a result of losses
suffered by HEI, HEIDI or their other subsidiaries, and thus conceivably may be
an indirect means of limiting affiliations between ASB and affiliates engaged
in nonfinancial activities. See "Restrictions on dividends and other
distributions."
OTS regulations also generally prohibit savings and loan holding
companies and their nonthrift subsidiaries from engaging in activities other
than those which are specifically enumerated in the regulations. Such
restrictions, if applicable to HEI and HEIDI, would significantly limit the
kinds of activities in which HEI and HEIDI and their subsidiaries may engage.
However, the OTS regulations provide for an exemption which is available to HEI
and HEIDI if ASB satisfies the "qualified thrift lender" test discussed below.
See "FDIC Improvement Act of 1991 and Implementing Regulations." ASB currently
meets the qualified thrift lender test and must continue to meet the test in
order to avoid restrictions on the activities of HEI and HEIDI and their
subsidiaries which could result in a need to divest ASB.
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HEI and HEIDI are prohibited, directly or indirectly, or through one or more
subsidiaries, from (i) acquiring control of, or acquiring by merger or purchase
of assets, another insured institution or holding company thereof, without
prior written OTS approval; (ii) acquiring more than 5% of the voting shares of
another savings association or savings and loan holding company which is not a
subsidiary; or (iii) acquiring or retaining control of a savings association
not insured by the FDIC. No director or officer of HEI or HEIDI, or person
beneficially owning more than 25% of such holding company's voting shares, may,
except with the prior approval of the OTS, (a) also serve as director, officer,
or employee of any insured institution or (b) acquire control of any savings
association not a subsidiary of such holding company.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
HEI is a legal entity separate and distinct from its various subsidiaries. As
a holding company with no significant operations of its own, the principal
sources of its funds are dividends or other distributions from its operating
subsidiaries, borrowings and sales of equity. The rights of HEI and,
consequently, its shareholders, to participate in any distribution of the
assets of any of its subsidiaries is subject to the prior claims of the
creditors and preferred stockholders of such subsidiary, except to the extent
that claims of HEI in its capacity as a creditor are recognized.
The ability of certain of HEIOs subsidiaries to pay dividends or make other
distributions to HEI is subject to contractual and regulatory restrictions. By
agreement with the PUC, in the event that the consolidated common stock equity
of the electric utility subsidiaries falls below 35% of total electric utility
capitalization, these companies would be restricted, unless they obtained PUC
approval, in their payment of cash dividends to 80% of the earnings available
for the payment of dividends in the current fiscal year and preceding five
years, less the amount of dividends paid during that period. The PUC Agreement
also provides that the foregoing dividend restriction shall not be construed to
relinquish any right the PUC may have to review the dividend policies of the
electric utility subsidiaries. The consolidated common stock equity of HEI's
electric utility subsidiaries was 50% of their total capitalization (including
the current maturities of long-term debt and preferred stock sinking fund
requirements due within one year but excluding short-term borrowings) as of
December 31, 1993. At December 31, 1993, HECO and its subsidiaries had net
assets of $571 million, of which approximately $313 million were not available
for transfer to HEI without regulatory approval.
The ability of ASB to make capital distributions to HEI and other affiliates
is restricted under federal law. Subject to a limited exception for stock
redemptions that do not result in any decrease in ASB's capital and would
improve ASB's financial condition, ASB is prohibited from declaring any
dividends, making any other capital distribution, or paying a management fee to
a controlling person if, following the distribution or payment, ASB would be
deemed to be under-capitalized, significantly under-capitalized or critically
under-capitalized. See "Savings bank regulation--FDIC Improvement Act of 1991
and Implementing Regulations--Prompt corrective action."
ASB is subject to the provisions of the FHLBB Agreement (see "Savings
bank--American Savings Bank, F.S.B."). In December 1992, however, the OTS
released ASB and its holding companies from certain dividend provisions of the
FHLBB Agreement which were more stringent than the OTS capital distribution
regulations. All other provisions of the FHLBB Agreement remain in effect.
Accordingly, ASB is subject only to the capital distribution limitations under
applicable OTS regulations for its applicable tier designation at any given
time.
As a Tier-1 institution (one that meets its fully phased-in capital
requirements and has not been notified by the OTS that it is in need of more
than normal supervision), ASB may make capital distributions without OTS
approval in amounts up to one-half of ASB's surplus capital ratio (the amount
of its capital in excess of its fully phased-in capital requirement) at the
beginning of a calendar year, plus its net income for that calendar year to
date. The term Ofully phased-in capital requirementsO means the institutionOs
capital requirements under the statutory and regulatory standards to be
applicable on December 31, 1994, as modified by any individual minimum capital
requirements applicable to the institution. ASB, as a Tier-1 institution, may
exceed the foregoing limits if ASB provides a thirty-day advance notice to the
OTS and receives no objection within thirty days. Even in the case of
distributions within the permissible limits, however, a thirty day advance
notice to the OTS is required.
HEI and its subsidiaries are also subject to debt covenants, preferred stock
resolutions and guaranties that could limit their respective abilities to pay
dividends. The Company does not expect that the regulatory and contractual
restrictions applicable to HEI or its direct and indirect subsidiaries will
significantly affect the operations of HEI or its ability to pay dividends on
its common stock.
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ELECTRIC UTILITY REGULATION
The PUC regulates the rates, standards of service, issuance of
securities, accounting and certain other aspects of the operations of HEI's
electric utility subsidiaries. See "Electric Utility--Rates." Any adverse
decision or policy made or adopted by the PUC could have a material adverse
effect on consolidated HECOOs and the Company's financial condition or results
of operations.
As a result of a proceeding initiated in January 1990, the PUC issued
an order in March 1992 (as revised in May 1992) requiring that the energy
utilities in Hawaii develop IRPs in accordance with a PUC-approved framework.
The goal of integrated resource planning is the identification of the
demand-side and supply-side resources and the integration of these resources
for meeting near- and long-term consumer energy needs in an efficient and
reliable manner at the lowest reasonable cost. In the first phase of the IRP
proceeding, the PUC adopted a "framework" for IRP, which established both the
process for developing integrated resource plans and guidelines for the
development of such plans. The PUC's framework is the standard practice manual
for each energy utility in the state to follow. The PUCOs framework directs
that each plan cover a 20-year planning horizon with a five-year action period
and states that the planning cycle will be repeated every three years. HECO,
HELCO and MECO each filed its initial IRP in July 1993, October 1993 and
December 1993, respectively.
The framework states that utilities are entitled to recover all appropriate
and reasonable IRP and implementation costs, including the costs of planning
and implementing demand-side management (DSM) programs. Under appropriate
circumstances, the utilities may recover net lost revenues resulting from DSM
programs and shareholder incentives. The PUC will determine the appropriate
cost recovery mechanism when a specific DSM program application is filed.
In rate cases completed in 1991, the PUC approved IRP cost recovery provisions
(IRP Clauses) for HECO and HELCO. Pursuant to the IRP Clauses, HECO and HELCO
may recover through a surcharge the costs for approved DSM programs, and other
IRP costs incurred and approved by the PUC, to the extent the costs are not
included in their base rates. MECO has requested approval of an IRP Clause in
its pending rate case.
Each energy utility has been assigned an individual IRP docket in which the
specific issues relative to each company's IRP can be addressed. The PUC
provides for public participation in the planning process by requiring each
utility to form an advisory group and by holding hearings to review each plan.
Any IRP developed will require PUC approval prior to implementation. Management
cannot predict, until the completion and approval of the IRPs, what effect, if
any, integrated resource planning may eventually have on HECO, MECO and HELCO.
See "Electric utility--Requirements and plans for additional generating
capacity."
Certain transactions between HEI's public utility subsidiaries (HECO,
MECO and HELCO) and HEI and affiliated interests, are subject to regulation by
the PUC. Under the law, all contracts (including summaries of unwritten
agreements), made on or after July 1, 1988 of $300,000 or more in a calendar
year for management, supervisory, construction, engineering, accounting, legal,
financial and similar services and for the sale, lease or transfer of property
between a public utility and affiliated interests must be filed with the PUC to
be effective, and the PUC may issue cease and desist orders if such contracts
are not filed. All such affiliated contracts for capital expenditures (except
for real property) must be accompanied by comparative price quotations from two
nonaffiliates, unless the quotations cannot be obtained without substantial
expense. Moreover, all transfers of $300,000 or more of real property between a
public utility and affiliated interests require the prior approval of the PUC
and proof that the transfer is in the best interest of the public utility and
its customers. If the PUC, in its discretion, determines that an affiliated
contract was unreasonable or otherwise contrary to the public interest, the
utility must either revise the contract or risk disallowance of the payments
for rate-making purposes. In rate-making proceedings, a utility must also prove
the reasonableness of payments made to affiliated interests under any
affiliated contracts of $300,000 or more by clear and convincing evidence. An
"affiliated interest" is defined by statute and includes officers and directors
of a public utility, every person owning or holding, directly or indirectly,
10% or more of the voting securities of a public utility, and corporations
which have in common with a public utility more than one-third of the directors
of that public utility.
In order to address community concerns, HECO proposed by letter dated
January 25, 1993, that the PUC initiate a review of the relationship between
HEI and HECO and the effects of that relationship on the operations of HECO. By
an order dated January 26, 1993, the PUC initiated such a review to determine
whether the HEI-HECO relationship, HEI's diversified activities, and HEIOs
policies, operations and practices have resulted in or are having any negative
effects on HECO and its electric utility subsidiaries.
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The PUC further ordered that HECO pay for the costs of the review and
acknowledged HECO's willingness to do so. The PUC completed its specifications
and instructions for a study of the relationship of HEI with its subsidiaries
in February 1994 and is soliciting proposals from consultants to conduct the
study. According to the specifications and instructions, the study shall
determine (1) the actions and steps needed to be taken to insulate the regulated
utilities from any losses and liabilities of the non-utility subsidiaries,
(2) the changes required in the existing HEI policies and practices to ensure
the viability of the regulated utilities, and (3) the amendments required to the
Conditions of Merger and Restructuring to ensure the viability of the regulated
utilities and to enable the PUC to exercise its full statutory responsibilities
over the regulated utilities. At this time, no time period has been specified
for completion of the study. See also "Holding company regulation."
HECO and its subsidiaries are not subject to regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act, except under Sections
210 through 212 (added by Title II of PURPA), which permit the FERC to order
electric utilities to interconnect with qualifying cogenerators and small power
producers, and to wheel power to other electric utilities. Title I of PURPA,
which relates to retail regulatory policies for electric utilities, also
applies to HECO and its subsidiaries. Title VII of the Energy Policy Act of
1992, which creates "exempt wholesale generators" (EWGs) as a category that is
exempt from the 1935 Act and which addresses transmission access, also applies
to HECO and its subsidiaries. The Company cannot predict the extent to which
cogeneration, EWGs, or transmission access, will reduce its electrical loads,
reduce its current and future generating and transmission capability
requirements, or affect its financial condition or results of operations.
Because they are located in the State of Hawaii, HECO and its subsidiaries are
exempt by statute from limitations set forth in the Powerplant and Industrial
Fuel Act of 1978 on the use of petroleum as a primary energy source.
SAVINGS BANK REGULATION
American Savings Bank, F.S.B., is a federally-chartered savings bank
whose deposit accounts are insured by the Savings Association Insurance Fund
(SAIF) administered by the Federal Deposit Insurance Corporation (FDIC). In
addition, ASB must comply with Federal Reserve Board reserve requirements. The
OTS and the FDIC are jointly responsible for the supervision, examination and
regulation of savings associations such as ASB.
Deposit Insurance
Deposit Insurance Assessments. The FDIC administers a separately funded and
maintained deposit insurance fund for savings associations. SAIF generally
insures the deposits of savings associations, which were insured by the FSLIC
prior to the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA). In recent years, the deposit insurance
assessment rates for the SAIF have increased substantially above historical
levels. However, the OTS in 1994 decided not to increase the assessment rates
savings associations are required to set aside on January 31, 1994 and July 31,
1994. It is uncertain as to what extent rates may be raised in the future.
As required by the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA), the FDIC amended its rule on assessments to establish a new
risk-based assessment system. The final rule became effective October 1, 1993.
The new system, which was implemented beginning with the assessment period
commencing January 1, 1994, makes limited changes to the previously existing
"transitional" risk-based assessment system adopted for the two semiannual
assessment periods for 1993.
Under the new risk-based assessment system, the assessments (or premiums) paid
by a savings association for FDIC insurance are to be based on the risk posed
by the savings association to the SAIF. The current annual assessment rates
applicable to SAIF members range from 23 to 31 cents per $100 of domestic
deposits, depending on the institutionOs risk classification. Savings
associations classified as strongest by the FDIC are subject to the lowest
assessment rates. ASB paid an assessment of 23 cents per $100 of domestic
deposits for the semiannual period beginning January 1, 1994.
Deposit Insurance Coverage. The FDICIA amended various provisions of the
Federal Deposit Insurance Act governing deposit insurance coverage. FDICIA, as
further implemented by amendments to the FDIC's deposit insurance regulations,
made certain significant changes relating to pro rata or "pass through"
insurance coverage for employee benefit plan participants and beneficiaries,
and insurance coverage for
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certain retirement accounts and trust funds. Although the vast majority of the
FDIC's deposit insurance regulations, such as the basic rules providing that
individual accounts are insured to $100,000 separately from qualifying joint
accounts, remain unchanged, several important changes were made.
Effective December 19, 1993, an individual's interest in deposits at the same
institution in any combination of certain retirement accounts will be added
together and insured up to $100,000 in the aggregate. This is a reduction from
the maximum of $400,000 in insurance coverage formerly provided if deposits
were made in four different types of retirement plan accounts.
"Pass-through" insurance coverage for the deposits of most employee benefit
plans (i.e., $100,000 per individual participating, not $100,000 per plan)
generally continues for institutions that are "well-capitalized" under the
FDIC's prompt corrective action regulations. As of December 31, 1993, ASB was
well-capitalized. (The term "pass-through" insurance means that the insurance
coverage passes through to each owner/beneficiary of the applicable deposit.)
In December 1993, the FDIC proposed to amend its deposit insurance
regulations to require that, upon request, an insured institution disclose in
writing to existing and prospective depositors of employee benefit plan funds
certain capital information, including its "prompt corrective action" capital
category and whether employee benefit plan deposits would be eligible for
"pass-through" insurance coverage. The purpose of the proposed rule on
"pass-through" deposit insurance is to reduce the uncertainty about whether
employee benefit plan deposits are eligible for "pass-through" deposit
insurance coverage and to require insured depository institutions to provide
timely disclosure to employee benefit plan depositors when "pass-through"
deposit insurance coverage is no longer available. The proposed rule would
increase the chance that prospective and existing employee benefit plan
depositors are provided with the information necessary to make an informed
decision about where to place their funds. If adopted in its present form, the
proposed rule is not expected to have an adverse effect on ASB so long as ASB's
capital structure continues to permit "pass-through" insurance coverage for
employee benefit plan deposits.
Federal Home Loan Bank System
ASB is a member of the FHLB System which consists of 12 regional FHLBs. The
FHLB System provides a central credit facility for member institutions. ASB, as
a member of the FHLB of Seattle, is required to own shares of capital stock in
the FHLB of Seattle in an amount equal to the greater of 1% of ASB's aggregate
unpaid residential loan principal at the beginning of each year, 0.3% of total
assets or 5% of FHLB advances outstanding.
OTS Liquidity Requirements
The OTS requires each savings association to maintain an average daily
balance of liquid assets equal to a monthly average of at least a specified
percentage (currently 5%) of the average daily balance of its net withdrawable
deposits plus short-term borrowings. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%. OTS
regulations also require each savings association to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1%) of
the average daily balance of its net withdrawable deposits and borrowings
payable in one year or less. Fines may be imposed for failure to meet liquidity
requirements. As of December 31, 1993, ASB was in compliance with OTS liquidity
requirements.
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
Implementing Regulations
Under FIRREA, the FHLBB was abolished and its various functions reassigned to
existing and new government agencies. The OTS was established as an office in
the Department of the Treasury subject to the general oversight of the
Secretary of the Treasury. The OTS has responsibility to charter federal savings
associations, serve as the primary federal examiner and regulator of savings
associations and administer laws governing savings and loan holding companies.
Capital requirements. Under FIRREA, the OTS set three capital
standards for thrifts, each of which must be no less stringent than those
applicable to national banks. The three standards provide: (1) a leverage limit
which requires a savings association to maintain core capital in an amount of
not less than 3% of the association's adjusted total assets; (2) a tangible
capital requirement of not less than 1.5% of an association's adjusted total
assets; and (3) an 8% risk-based capital requirement, which may deviate from
national bank standards to reflect interest rate risk or other risks, but such
deviations may not result in materially lower levels of capital than would be
required under risk-based capital standards applicable to national banks.
Generally, the OTS must restrict the asset growth of an association that fails
to meet the
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capital requirements. As of December 31, 1993, ASB was in compliance with all
of the minimum standards with a core capital ratio of 5.6%, a tangible capital
ratio of 5.2% and risk- based capital of $151.0 million, $46.2 million in
excess of the requirement.
The OTS adopted a new rule that adds an interest rate risk (IRR) component to
the existing risk-based capital requirement. Although the rule became effective
January 1, 1994, the first time ASB will be required to incorporate IRR into
its risk-based capital calculations will be July 1, 1994, based on Thrift
Financial Report data as of December 31, 1993. Institutions with an "above
normal" level of IRR exposure will be required to hold additional capital.
"Above normal" IRR is defined as any decline in market value of an
institution"s portfolio equity in excess of 2% of the market value of its
assets, which would result from an immediate 200 basis point change in interest
rates. The "TS rule requires a savings association with an "above normal" level
of IRR exposure to hold one-half of the "above normal" IRR times the market
value of its assets as capital, in addition to its existing 8% risk-based
capital requirement. Based on Thrift Financial Report data as of December 31,
1993, ASB would not have been required to hold additional capital if the new
rule had been in effect at that time.
The OTS is currently considering proposed regulations which will increase
capital requirements. One of the proposed regulations includes increasing core
capital requirements to either 4% or 5% for many savings associations. Under
the proposed regulations, ASB believes it would be required to comply with a 4%
requirement. As of December 31, 1993, ASB would have been in compliance with
the proposed regulations with a core capital ratio of 5.6%.
FHLB advances. The FHLBs serve as the central liquidity facilities for
savings associations and resources of long-term funds for financing housing.
Long-term advances may only be made for the purpose of providing funds for
financing residential housing. Additionally, at such time as an advance is made
or renewed, it must be secured by collateral from one of the following
categories: (1) fully disbursed, whole first mortgages on improved residential
property, or securities representing a whole interest in such mortgages;
(2) securities issued, insured or guaranteed by the U.S. Government or any
agency thereof; (3) FHLB deposits; and (4) other real estate-related collateral
that has a readily ascertainable value and with respect to which a security
interest can be perfected. The aggregate amount of outstanding advances secured
by such other real estate-related collateral may not exceed 30% of the member's
capital.
Affiliate transactions. Significant restrictions apply to certain
transactions between ASB and its affiliates, including HEI and its direct and
indirect subsidiaries. FIRREA significantly altered both the scope and
substance of such limitations on transactions with affiliates and provides for
thrift affiliate rules similar to, but more restrictive than, those applicable
to banks. For example, ASB is prohibited from making any loan or other
extension of credit to an entity affiliated with ASB unless the affiliate is
engaged exclusively in activities which the Federal Reserve Board has
determined to be permissible for bank holding companies. There are also various
other restrictions which apply to loans and other transactions between ASB and
certain executive officers, directors and "affiliated persons" of ASB. ASB is
also barred from making a purchase of or any investment in securities issued by
an affiliate, other than with respect to shares of a subsidiary of ASB.
FDIC proposed rule: contracts adverse to safety and soundness. Pursuant to
FIRREA, the FDIC in April 1991 issued a proposed rule which would prevent any
depository institution (including ASB) from contracting for goods, products or
services in a way that would adversely affect its safety or soundness. An
"adverse contract" means any contract that "violates any law or regulation,
breaches a fiduciary duty, adversely affects or misrepresents the institution's
safety or soundness, or is likely to have any such result, including any such
contract that does not derive from an arms-length relationship."
Until the rule is adopted in its final form, it is difficult to assess the
possible impact of the proposed rule on ASB's operations.
Crime Control Act of 1990 and Implementing Regulations
The Crime Control Act of 1990, Title XXV of which comprises the Comprehensive
Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990,
strengthens the authority of the OTS and other regulatory agencies to enforce
criminal penalties for offenses committed against financial institutions,
including savings associations.
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FDIC Improvement Act of 1991 and Implementing Regulations
The FDICIA, enacted on December 19, 1991, subjects the banking and thrift
industries to heightened regulation and supervision. The FDICIA makes a number
of reforms addressing the safety and soundness of the deposit insurance system,
supervision of domestic and foreign depository institutions and improvement of
accounting standards. The FDICIA also limits deposit insurance coverage,
implements changes in consumer protection laws and calls for least-cost
resolution and prompt corrective action with regard to troubled institutions.
Pursuant to FDICIA, the federal banking agencies have promulgated, or are in
the process of promulgating, regulations which may significantly affect the
operations of ASB and its holding companies. Such regulations address, for
example, standards for safety and soundness, real estate lending, accounting
and reporting, transactions with affiliates, and loans to insiders. See also
"Deposit Insurance."
Prompt corrective action. FDICIA establishes a new statutory framework that
is triggered by the capital level of a savings association and subjects it to
progressively more stringent restrictions and supervision as capital levels
decline. The OTS adopted final rules to implement the system of prompt
corrective action, which became effective on December 19, 1992. In particular,
the final rules define the relevant capital measures for the categories of
well-capitalized, adequately capitalized, under-capitalized, significantly
under- capitalized and critically under-capitalized.
A savings association that is under-capitalized or significantly under-
capitalized is subject to additional mandatory supervisory actions and a number
of discretionary actions if the OTS determines that any of the actions is
necessary to resolve the problems of the association at the least possible
long-term cost to the SAIF. A savings association that is critically under-
capitalized must be placed in conservatorship or receivership within 90 days,
unless the OTS and the FDIC concur that other action would be more appropriate.
Interest rates. FDIC regulations, which 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, became final in June 1992. To be a "well-capitalized" institution
not subject to these interest rate restrictions, an institution must have a
"leverage ratio" of 5.0%, a "Tier-1 risk-based ratio" of 6%, a "total
risk-based ratio" of 10% and not be in a "troubled condition." As of December
31, 1993, ASB believes that, based on OTS capital standards, it would have been
classified as "well-capitalized" with a leverage ratio of 5.6%, a Tier-1
risk-based ratio of 11.1% and a total risk-based ratio of 11.5%.
Qualified thrift lender test. The FDICIA amends the qualified thrift lender
(QTL) test provisions of FIRREA by reducing the percentage of assets thrifts
must maintain in housing-related loans and investments from 70% to 65%, and
changing the computation period to require that the percentage be reached for
nine out of the previous 12 months. Previous provisions of law measured a
savings association's QTL ratio on a daily or weekly basis. Under the QTL
regulations adopted by the OTS in May, 1993, the nine out of 12 month period is
a "rolling" calculation period, rather than a static three out of four annual
quarters measurement. Savings associations that fail to satisfy the QTL test by
not holding the required percentage of housing-related investments are subject
to various penalties, including limitations on the types of activities they may
conduct and restrictions on their FHLB advances. Failure to satisfy the QTL
test would also bring into operation restrictions on the activities that may be
engaged in by HEI, HEIDI and their other subsidiaries and could effectively
result in the required divestiture of ASB. See "Holding company regulation."
At all times during 1993, ASB was in compliance with the QTL test.
Standards for Safety and Soundness. As required by the FDICIA, the OTS in
November 1993, proposed regulations for savings associations and their holding
companies which would establish safety and soundness standards in three
areas:operations and management; asset quality and earnings; and compensation.
Under the proposed rules, failure to adhere to any of the standards would
require a savings association or its holding company to submit to the OTS a
plan to achieve compliance. Until compliance is achieved, the OTS could restrict
asset growth, require an increased ratio of tangible equity to assets, restrict
interest rates, or take any other action that would better carry out the
purpose of prompt corrective action.
Among other things, the OTS is proposing regulations for savings and loan
holding companies that focus on savings and loan holding company activities
most likely to cause losses at a holding company's subsidiary savings
association. The OTS is proposing that each saving and loan holding company
(1) ensure that
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transactions and relationships between the holding company and its subsidiary
savings association satisfy applicable fiduciary standards and do not have a
detrimental effect on the savings association's safe and sound operation;
(2) not engage in any activity, or cause its subsidiary savings association to
engage in any activity, that might create a serious risk that the liabilities
of the holding company and its other affiliates may be imposed on the savings
association; (3) not take any action that would impede the ability of its
subsidiary savings association to comply with the requirements of FDICIA or
fully implement any safety and soundness compliance plan required of the
savings association; and (4) take any corporate action necessary to enable the
subsidiary savings association to take actions required by a safety and
soundness compliance plan.
Until the regulations are adopted in final form, it is difficult to assess the
possible impact of the proposed regulations upon ASB's operations.
Federal Reserve Board Reserve Regulations
Pursuant to the Depository Institutions Deregulation Act of 1980, the
Federal Reserve Board adopted regulations that require ASB to maintain reserves
against its transaction accounts, nonpersonal time deposits and Eurocurrency
liabilities. The effect of these reserve requirements is to increase ASB's cost
of funds. Depending upon the type of deposit, maturity and amount, such reserve
requirements range between zero and 12%. Like other depository institutions
with offices in Hawaii on August 1, 1978 that were not members of the Federal
Reserve System, ASB was previously subject to a reduction in reserves required
by the Federal Reserve Board, which reduction was phased out gradually over the
period January 1, 1986 through January 6, 1993. Beginning January 7, 1993,
however, ASB and other Hawaii depository institutions became subject to the
full reserve requirements. For the calculation period including December 31,
1993, ASB was in compliance with the reserve requirements.
Other laws, regulations and proposed legislation
Other laws. ASB is subject to federal and state consumer protection laws
which affect lending activities, such as the Federal Truth-in-Lending Law, the
Federal Truth in Savings Act, the Federal Equal Credit Opportunity Act, the
Real Estate Settlement Procedures Act and several federal and state financial
privacy acts. These laws may provide for substantial penalties in the event of
noncompliance. Management of ASB believes that its lending activities are in
compliance with these laws and regulations.
OTS final rule: Nationwide branches. The OTS amended its rule on branching by
federal savings associations. The amendment deletes regulatory restrictions on
the branching authority of federal savings associations and permits nationwide
branching to the extent allowed by federal statute. The final rule took effect
on May 11, 1992, and pre-empts any Hawaii law or regulation purporting to
address the subject of branching by a federal savings association. The rule is
likely to stimulate and increase competition that ASB faces in Hawaii because
it reduces many previously existing barriers to entry into the Hawaii market by
federal savings associations.
CRA Reform. Acting at the request of President Clinton, the OTS and other
federal financial supervisory agencies are jointly proposing new regulations to
implement the Community Reinvestment Act (CRA). The proposed regulations would
replace the existing regulations in their entirety.
The CRA is designed to promote affirmative and ongoing efforts by regulated
financial institutions to help meet the credit needs of their entire
communities, including low-and moderate-income areas, consistent with safe and
sound operations, and to provide guidance on how the agencies assess the
performance of institutions in meeting that obligation.
The proposed regulations would provide clearer guidance to financial
institutions as to the nature and extent of their CRA obligation and the
methods by which the obligation would be assessed and enforced. Currently, CRA
assessments of financial institutions are based on 12 separate factors. Under
the proposal, assessment standards would be based on performance in three
specific areas: lending, service and investment. Based on these three
separate assessments, the OTS will assign ASB one of four overall composite
ratings: outstanding, satisfactory, needs to improve and substantial
noncompliance.
The lending test would evaluate direct lending to lower-income areas
and indirect lending through loan pools, lending consortia, subsidiaries and
funded nonchartered affiliates, and community development or affordable housing
lenders in which the thrift has made investments. The service test would
evaluate whether the financial institution is offering services to low-and
moderate-income areas in the form of branch offices and customer services,
such as low-cost check cashing and credit counseling for lower-income
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customers. The investment test would evaluate a thrift's record of investing in
programs beneficial to low-income areas. These investments include community
development organizations, state and local and housing agency bonds, and small
and minority-owned business developments.
Although the proposed regulations call for revised data collection and
reporting procedures to go into effect July 1, 1994, evaluation under the new
CRA standards would not become mandatory until July 1995. During the interim
period, thrifts could elect to be evaluated under either the current CRA
regulations or the new CRA regulations.
ASB received a CRA rating of "outstanding" as a result of its last OTS
examination. ASB believes that, if adopted, the proposed data requirements may
impose greater costs in administrative and legal areas.
Pending legislation. Bills are now pending or expected to be introduced
in the United States Congress that contain proposals for altering
the structure, regulation and competitive relationships of the nation's
financial institutions. If enacted into law, these pending bills could have the
effect of increasing or decreasing the cost of doing business, limiting or
expanding permissible activities, or affecting the competitive balance among
banks, thrifts and other financial institutions. Some of these bills would
realign the structure and jurisdiction of various financial institution
regulatory agencies and modify interstate branching restrictions applicable to
banks. Whether or in what form any such legislation may be adopted or the
extent to which the business of the Company or ASB might be affected thereby
cannot be predicted.
FREIGHT TRANSPORTATION REGULATION
The PUC has broad authority in its regulation of the intrastate business and
operations of YB. See "Other--Freight Transportation--Hawaiian Tug & Barge
Corp. and Young Brothers, Limited." In particular, the PUC has the authority to
review and modify YB's intrastate rates and charges under the Hawaii Water
Carrier Act. In all rate proceedings under such act, YB has the burden of
proving the reasonableness of expenditures, contracts, leases, or other
transactions. An adverse decision or policy adopted by the PUC could have a
material effect on the financial condition or results of operations of YB.
INSURANCE COMPANY REGULATION
HIG and its subsidiaries are in rehabilitation proceedings in Hawaii
and it is expected that HEIDI will relinquish all ownership rights in HIG and
its subsidiaries during 1994. HIG and its subsidiaries will remain subject to
regulation and supervision in the states, if any, in which they conduct
business. Such regulation and supervision involve, among other things, the
licensing of the insurance company and its agents, periodic examination of the
affairs and financial condition of the insurer and review of annual and other
mandatory reports on the financial condition and operations of the insurer.
State insurance commissioners also generally set mandatory capital and solvency
standards and regulate the types and amounts of investments and deposits of
securities for the benefit of the policyholders and may also regulate rates for
various coverages, policy contents and the scope of insurance policies.
HIG principally has done business in Hawaii, where it is extensively
regulated by the Insurance Division of the Department of Commerce and Consumer
Affairs pursuant to the Hawaii Insurance Code and regulations thereunder, which
include regulatory and supervisory provisions of the type discussed above. If
and to the extent that HIG continues to conduct an insurance business, it will
be doing so under the direction and control of the Insurance Commissioner as
the Rehabilitator of HIG. See the discussion under "Discontinued
operations--The Hawaiian Insurance & Guaranty Co., Limited."
The Hawaii Insurance Code contains additional provisions regulating
insurance companies and their affiliates and these provisions may continue to
apply to HEI and its affiliates so long as HEIDI continues to be the holder of
record of the stock of HIG. For example, the Insurance Code contains provisions
which require a party seeking to acquire control of an insurance company to
obtain the approval of such acquisition from the Hawaii Insurance Commissioner.
The Insurance Code also contains provisions regulating transactions within and
activities of an insurance holding company system and requires special
registration by each insurer that is within an insurance holding company
system.
ENVIRONMENTAL REGULATION
HEI and its subsidiaries are subject to federal and state statutes and
governmental regulations pertaining to water quality, air quality and other
environmental factors.
Water quality controls. As part of the process of generating electricity,
water used for condenser cooling of the electric utility subsidiaries' steam
electric generating stations is discharged into ocean waters or into
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underground injection wells. The subsidiaries are required periodically to
obtain permits from the Hawaii Department of Health (DOH) in order to be
allowed to discharge the water.
The electric utility subsidiaries must periodically obtain National Pollutant
Discharge Elimination System (NPDES) permits from the DOH to allow wastewater
discharges into ocean waters for each of the five generating stations (three at
HECO and one each at MECO and HELCO). Underground Injection Control (UIC)
permits for wastewater discharge to underground injection wells must be
obtained periodically for several HELCO facilities and one MECO facility.
During 1993, applications were submitted to the DOH for the renewal of
NPDES permits at HECO's Kahe and Honolulu generating stations, MECO's Kahului
generating station and HELCO's Shipman generating station. An application to
renew the Waiau generating station NPDES permit was submitted to the DOH in
January 1994. The existing NPDES permits for the Kahului and Honolulu
facilities expired on November 30, 1993 and January 31, 1994, respectively.
Because the DOH was not able to process the applications prior to the
expiration dates, administrative extensions of the permits were granted until
such time as new permits can be issued. The Kahului and Honolulu facilities
will continue to operate in compliance with existing permit requirements until
new NPDES permits are issued. All facilities are in compliance with existing
NPDES permit requirements for discharge and receiving water monitoring and
reporting.
To date, attempts to remove annual bottom biological community (BBC)
monitoring as NPDES permit conditions at the Honolulu and Kahului facilities
have been unsuccessful. A fourth year report for the Honolulu facility was
submitted to the DOH on January 17, 1994. The BBC monitoring report showed no
adverse effects from the Honolulu facility discharges. The January 17, 1994
letter to the DOH requested that HECO be relieved of BBC monitoring at the
Honolulu facility. The letter also requested an extension of the annual report
submittal for the Kahului facility because persistently adverse sea and weather
conditions had precluded monitoring activities. The BBC monitoring plan for the
Waiau generating station, submitted to the DOH for approval on November 16,
1992, was approved by the DOH on October 19, 1993. Monitoring was completed in
December 1993 and the first annual report was submitted to the DOH on January
27, 1994. The data collected during this first year survey will be used as the
baseline against which future surveys will be compared.
A new demineralizer system is to be installed at the Kahe Generating Station
to replace the existing flash evaporator system and provide the facility with a
more reliable and higher capacity source of high quality boiler makeup water.
Operation was originally scheduled for late December 1993, but has been
rescheduled for late August 1994. An application to revise the existing NPDES
permit to include demineralizer system wastewater was submitted to the DOH on
May 17, 1993. The DOH has not processed the application and recently indicated
the application review will be consolidated with their review of the Kahe NPDES
permit renewal application submitted on December 27, 1993.
The EPA promulgated new NPDES storm water discharge regulations in
November 1990 and the DOH finalized their administrative rules on October 29,
1992. New storm water discharge permits are required for electric utility storm
water that is discharged to: existing NPDES-permitted outfalls, separate storm
water conveyances that discharge directly to navigable waters and municipal
storm sewer systems. Facilities with storm water discharges to existing NPDES-
permitted outfalls were not required to reapply for a new NPDES permit until
existing permits expire. Three HECO generating stations (Kahe, Honolulu and
Waiau) and one MECO generating station (Kahului) discharge storm water to
NPDES-permitted outfalls. These four facilities have included required storm
water information in the most recent NPDES permit renewal application. For
storm water discharged to separate storm water conveyances, Notice of Intent
(NOI) Applications for General Permits were submitted to the DOH on April 14,
1993 for the Kahe, Waiau and Honolulu facilities. MECO and HELCO generating
stations were not required to submit NOIs. The DOH also promulgated regulations
that require storm water runoff and dewatering permits for construction-related
projects. These new construction-related permits require discharge monitoring
and implementation of best management practices during construction activities
to comply with state water quality standards. HECO recently submitted a NOI for
a construction storm water discharge permit for a substation project and a NOI
for a dewatering permit for a ductline project. HECO is also working
cooperatively with the City & County Department of Public Works to obtain a
blanket NPDES permit to discharge water removed from utility manholes into
municipal storm drain systems.
In February 1990, HELCO reapplied for UIC permits at four affected facilities
and applied for new UIC permits for five existing but previously unregistered
wells (three at Kanoelehua Baseyard and one each at
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the Hill Tank Yard and Waimea Baseyard). Additional UIC permit applications
were submitted in July 1991 for two unregistered wells (Kanoelehua and Waimea
baseyards). To date, the DOH has issued new UIC permits for all dry wells
located at the Hill Tank Yard, Kanoelehua baseyard and Waimea baseyard. On
April 9, 1992, the DOH issued a UIC permit for one of Hill's reinjection wells
(No. 6). However, the permit was misplaced by HELCO upon receipt. The DOH
issued another copy of the permit in August 1993, and monitoring and reporting
requirements have been implemented in compliance with permit conditions. While,
as a result of the delay, HELCO was approximately one year behind in commencing
its monitoring program, no regulatory sanctions are anticipated. Administrative
extensions of all other HELCO UIC permits were granted by the DOH on December
3, 1991, and subsequently on February 5, 1993 and August 31, 1993. Existing
permits remain in effect until new permits are issued. Administrative
extensions stipulate that operations continue in compliance with former permit
requirements. On April 6 and 16, 1993, HELCO received DOH approvals to
construct an injection well and backup well, respectively, at its Keahole power
plant. Well construction and testing were completed in December 1993. A
consultant is preparing a well certification report which will be submitted to
the DOH with the final application for a UIC permit to operate. MECO received a
UIC permit to operate an injection well system at the Maalaea Generating
Station on February 20, 1992. The injection well system is designed to handle
low volume wastewater and sanitary wastewater discharges from Units 14 to 16. A
wastewater effluent monitoring program commenced at Maalaea in October 1992 and
is currently in compliance with monitoring and reporting requirements. Due to
the proposed addition of generating units at Maalaea, there are plans to
upgrade the wastewater treatment system to accommodate additional wastestreams
that might be generated.
In August 1993, MECO and HELCO were informed by the EPA that federal UIC
permits would be required for all existing and proposed injection wells. Under
the most recent agreement between the EPA and DOH, the EPA will allow the DOH
to continue operation of its state UIC permit program. Hence, all affected
injection wells (including dry wells) will be regulated by both federal and
state UIC permits. The EPA issued UIC permit applications to MECO and HELCO
facilities on January 25, 1994. The facilities have until May 25, 1994 to
submit the completed applications to the EPA.
The Federal Oil Pollution Act of 1990 (OPA) governs actual or threatened oil
releases in navigable U.S. waters (inland waters and up to three miles
offshore) and waters of the U.S.' exclusive economic zone (up to 200 miles to
sea from the shoreline). Responsible parties under OPA are jointly, severally
and strictly liable for oil removal costs incurred by the federal government or
the state and damages to natural resources and real or personal property.
Responsible parties include vessel owners and operators. OPA imposes fines and
jail terms ranging in severity depending on how the release was caused. OPA
also requires that responsible parties submit certificates of financial
responsibility sufficient to meet the responsible party's maximum limited
liability. Protection and Indemnity Insurance Clubs (mutual insurance pools)
have refused to issue these certificates because OPA provides for direct
liability against guarantors. The Coast Guard is in the process of addressing
this particular issue and adopting regulations implementing OPA. However, the
Coast Guard did issue interim guidelines on September 15, 1992, which included
the requirement that a spill response plan be submitted by February 18, 1993,
and be finalized by August 18, 1993. The EPA and Department of Transportation
(DOT) also have similar requirements for submission of spill response plans.
The EPA issued its proposed rules and guidelines on this matter on February 17,
1993. With HTB exiting the fuel transportation business at the end of 1993, the
Company's freight transportation operations subject the Company to
significantly lessened environmental risks. HTB's fuel and lubricating oil and
the other cargo carried in their barges may be accidentally discharged into
ocean waters causing a pollution hazard, but the quantities carried do not pose
a major environmental hazard. HTB and YB employees are trained to respond to
oil or other spills that occur. The utilities filed preliminary plans on
February 18, 1993 with regard to the following facilities: to the Coast Guard
for the Kahului Harbor terminaling facility and pipeline; to the EPA for the
Honolulu, Waiau, Kahe, Shipman and Kahului power plants, the Iwilei Tank Farm,
and the Ward Avenue facility; and to the DOT for the pipeline between Honolulu
power plant and the Iwilei Tank Farm and between the Chevron Tank Farm in Hilo
and the Shipman and Hill power plants, respectively.
Air quality controls. The generation stations of the utility subsidiaries
operate under air pollution control permits issued by the DOH and, in a limited
number of cases, by the EPA. The entire electric utility industry is being
affected by the 1990 Amendments to the Clean Air Act. Hawaii utilities may be
affected by the air toxics provisions (Title III) when the Maximum Allowable
Control Technology (MACT) emission standards are proposed for generation units
in the year 2000. Hawaii utilities are affected by the operating permit
provisions (Title V). The DOH adopted implementing regulations on November 26,
1993 which require submission of permit applications for existing sources by
July 26, 1994. Results of air quality
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analyses could trigger requirements to mitigate emission impacts. Reports on
emissions of air toxics could trigger requirements to conduct risk assessments.
Hawaii utilities are also affected by the enforcement provisions (Title VII)
which require EPA to promulgate new regulations which mandate "enhanced
monitoring" of emissions from many generation units. In response, EPA submitted
proposals on October 1, 1993 which allows for cost effective alternatives to
costly continuous emission monitoring systems. EPA may finalize the proposal in
1994.
On November 1, 1989, the DOH issued a Notice and Finding of Violation and
Order indicating that Maalaea units X-1 and X-2 had exceeded operating
limitations of 12 hours per day at various times in 1988. These incidents
resulted from unscheduled unit outages and resulted in no net increase in
emissions by MECO. Subsequently, MECO took both structural and procedural steps
to preclude future violations. An application for a permit modification was
submitted to the EPA, revising the operating hour limitation to annual rather
than daily. Approval was received from the EPA in July 1992. However, HEC's
proposal (on behalf of MECO) to the DOH for settlement based on an already-
completed work plan and a penalty of $10,000 was rejected. DOH is now expected
to set a hearing on the Notice of Violation. Units X-1 and X-2 continue to
operate in compliance with the revised permit.
Initial source tests for HELCO's CT-2 generating unit in December 1989
indicated particulate emissions above permitted levels. Subsequent retesting
confirmed earlier results. Following analysis, HECO (on behalf of HELCO)
proposed in November 1990 that the permitted particulate limit be increased. By
letter dated April 13, 1992, the EPA concurred that revision is warranted. HECO
and HELCO are working with the DOH, the manufacturer and a consultant to
determine an appropriate new emission limit for particulates as well as oxides
of nitrogen. A comprehensive emission test program has been completed and in
March 1994, the results were disclosed to DOH. A final report is now being
prepared and will be submitted to DOH for their review. HECO anticipates a July
1994 submittal of an application for revision of the permit. DOH had issued a
notice of violation on August 17, 1992 for the non-complying emissions. In
accordance with a draft consent order, CT-2 continues to operate pending
application and issuance of the revised permit.
Emission tests conducted by MECO in January 1992 on the six diesel units at
Miki Basin, Lanai were consistent with earlier indications that emissions were
above permit limits. Those tests results were submitted to DOH. After unit
adjustments and improvements in measurements of hourly fuel usage, additional
tests were conducted in July and September 1993 which indicated that all six
units are in compliance with permit limits. A report on these tests was
submitted to DOH. After reviewing the report, DOH concluded in a letter dated
December 13, 1993 that all six units are operating in compliance with permit
limits. DOH will determine what action, if any, would be appropriate for the
previous indications of violation.
On May 1, 1993, MECO completed the purchase of four diesel generators owned by
Palaau Corporation located at MECO's Palaau, Molokai facility. This increase in
size of MECO's facility triggered the immediate need to have a prevention of
significant deterioration (PSD) permit in order to operate the newly purchased
units. In accordance with requirements in a draft consent order negotiated with
DOH prior to acquisition of the units, MECO filed a complete application for a
PSD permit on May 7, 1993. Permit processing by DOH is on schedule. The four
units continue to operate pending issuance of a PSD permit.
A Notice and Finding of Violation and Order was issued by DOH to HELCO
on July 8, 1993 for excessive visible emissions from Shipman Unit 1 on
September 23, 1991 and on January 31, 1992. The DOH ordered HELCO to come into
compliance. HELCO's written response to DOH dated July 29, 1993 stated that
HELCO had come into compliance and identified the cause of the problem as
corroded air heater tubes that were replaced in February 1993. The repairs were
necessarily delayed for approximately one year until there was sufficient
island wide generation to allow Unit 1 to be shutdown. DOH has not responded to
HELCO's letter and HELCO believes that a penalty in this matter is
inappropriate. No further action has been required by DOH.
Hazardous waste and toxic substance controls. The operations of the electric
utility and freight transportation subsidiaries are subject to regulations
promulgated by the EPA to implement the provisions of the Resource Conservation
and Recovery Act of 1976 (RCRA), the Superfund Amendments and Reauthorization
Act (SARA) and the Toxic Substances Control Act of 1976 (TSCA). The DOH has
been working towards obtaining primacy to operate state authorized RCRA
(hazardous waste) and SARA (superfund) programs. On January 11, 1993 the DOH
issued draft administrative rules for a state RCRA program. Public hearings
were held in February and March 1994, and HECO is awaiting feedback as to
whether any significant comments were received. The draft RCRA rules are being
reviewed to determine the
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potential impact on utility operations. At this time, it appears
unlikely that the rules would impose any requirements beyond existing EPA
standards. The DOH also anticipates the issuance of draft superfund rules in
early 1994, but a release date has not been set.
Whether on a federal or state level, RCRA provisions identify certain
wastes as hazardous and set forth measures that must be taken in the
transportation, storage, treatment and disposal of these wastes. Some of the
wastes generated at steam electric generating stations possess characteristics
which make them subject to these EPA regulations. Since October 1986, all HECO
generating stations (Honolulu, Kahe and Waiau) have operated RCRA-exempt
wastewater treatment units to treat potentially regulated wastes from
occasional boiler waterside and fireside cleaning operations. Steam generating
stations at MECO and HELCO also operate similar RCRA-exempt wastewater
management systems. In March 1990, the EPA changed RCRA testing requirements
used to characterize a waste as hazardous which potentially affected the
hazardous waste generating status of all facilities. A new and more stringent
Toxicity Characteristic Leaching Procedure (TCLP) replaced the former
Extraction Procedure toxicity test and included additional testing requirements
for 25 organic compounds. HECO's continuing program to recharacterize all HECO,
MECO and HELCO wastestreams using the TCLP test has demonstrated the adequacy
of the existing treatment systems and identified other potential compliance
requirements. Waste recharacterization studies clearly indicate that treatment
facility wastestreams are nonhazardous and no change in the RCRA generator
status is required.
MECO reported that the Maui County landfills will no longer accept wet
sludge from their wastewater treatment operations at the Kahului power plant.
Because MECO needed to remove sludge from the wastewater ponds to make room for
a forthcoming unit overhaul, arrangements were made with the county to have the
nonhazardous sludge accepted at the county's composting station. On January 28,
1994, a MECO contractor removed the sludge from the wastewater ponds for
transport to the county's composting station. The composting station was closed
upon arrival and the contractor was instructed to return to the Kahului plant
to wait until the composting station reopened. Through a series of verbal
contacts, the contractor made arrangements to discharge the loads to the
county's sewage treatment plant in Kahului. Upon learning of the contractor's
action, MECO management contacted the Maui County Wastewater Treatment Branch
to notify them of the discharge to the sewage treatment facility. Maui County
is conducting an investigation of the sludge discharge.
RCRA still regulates most generating stations as RCRA small quantity
generators. All HECO and subsidiaries' facilities listed with the DOH and EPA
are small quantity generators and are in compliance with RCRA requirements.
RCRA Biennial Hazardous Waste Reports for all HECO, MECO and HELCO facilities
were submitted to the EPA and DOH in March 1994 in compliance with reporting
requirements.
RCRA underground storage tank (UST) regulations require all facilities
with USTs (including those used to store petroleum products) to comply with
costly leak detection, spill prevention and new tank standard retrofit
requirements within a specified compliance period based on tank age. HECO and
MECO initiated tank replacement programs in 1989 due to the age of their
existing tanks. MECO currently operates a single UST in compliance with DOH and
EPA standards. HECO completed tank removal and replacement projects at all its
facilities in 1992. HELCO initiated and completed tank upgrades in 1992. All
HECO, MECO and HELCO USTs are in compliance with mandatory leak detection
requirements, with the exception of a used oil UST located at Ward Avenue.
Efforts are underway to find an acceptable detection method for this UST. While
replacing four USTs at the Ward Avenue complex in February 1992, a product
release was confirmed and reported to the DOH as required by law. Contaminated
soils were excavated and transported to a soil management unit located at Waiau
power plant, where the contaminated soils were treated with a bioremediation
process. Tests in February 1993 indicated that the constituents in the removed
soils were below DOH monitoring levels. In September 1993, HECO received a
final consultant report on the Ward Avenue cleanup site. The report indicated
that all subsurface contamination resulting from the Ward Avenue UST release
had been removed to acceptable DOH levels, but that some residual contamination
remained in the subsurface from possible offsite contamination. HECO is
awaiting the submittal of the consultant's report on the soil treatment unit
results. Both reports will be submitted to the DOH with a request that the
treated soils be allowed for use as construction fill material.
The Emergency Planning and Community Right-to-Know Act (EPCRA) under SARA
Title III requires HECO, MECO and HELCO to report hazardous chemicals present
in their facilities in order to provide the public with information on these
chemicals so that emergency procedures can be established to protect the public
in the event of hazardous chemical releases. HECO has six facilities, MECO has
five facilities and HELCO has seven facilities that qualify as "reporting
facilities" under EPCRA. All HECO, MECO and
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HELCO facilities are in compliance with applicable reporting requirements,
which are made annually to the State Emergency Planning Commission, the
Local Emergency Planning Committee and local fire departments. On January 18,
1994, the DOH issued a notice that EPCRA reporting requirements were revised
during the 1993 state legislative session. Revisions include a requirement
to complete additional chemical information forms and submit a $100 per
facility filing fee.
The TSCA regulations specify procedures for the handling and disposal of
polychlorinated biphenyl (PCB), a compound found in transformer and capacitor
dielectric fluids. HECO and its subsidiaries have instituted procedures to
monitor compliance with these regulations. In addition, HECO has implemented a
program to identify and replace PCB transformers and capacitors in the HECO
system. All HECO, MECO and HELCO facilities are currently believed to be in
compliance with PCB regulations.
By letter dated August 21, 1992, the EPA provided MECO with a notice of
potential liability and request for information relating to a federal superfund
closure investigation at the North American Environmental, Inc. (NAE) storage
facility in Clearfield, Utah. MECO was identified by the EPA as a potentially
responsible party for three PCB capacitors originally contracted for disposal
by Westinghouse. Although Westinghouse has already disposed of the capacitors,
MECO was obligated to comply with the information requests attached to the EPA
notice. A preliminary response to the EPA's information request was submitted
to the EPA on October 5, 1992. MECO has since received confirmation from
Westinghouse that the three capacitors were removed from the NAE facility and
incinerated at Aptus (an EPA-approved facility in Kansas) on September 16,
1992. By letter dated December 2, 1992, the EPA notified MECO that a draft
Administrative order on Consent for the cleanup of the NAE facility had been
sent to potentially responsible parties that have waste remaining at the NAE
site and to parties that have expressed a desire to participate in the cleanup.
MECO did not receive a draft Administrative Order on Consent because the three
PCB transformers were removed from the NAE facility and incinerated. However,
the EPA has not made final determinations regarding individual liability for
cleanup of the NAE facility. By letter dated February 8, 1993, Westinghouse
confirmed that it would indemnify MECO pursuant to its contract for this
matter.
The state Environmental Response Law (ERL), with amendments effective
on June 17, 1991, governs releases of hazardous substances, including oil, in
areas within the states jurisdiction. Responsible parties under the state ERL
are jointly, severally and strictly liable for a release of a hazardous
substance into the environment. Responsible parties include owners or operators
of a facility where a hazardous substance comes to be located and any person
who at the time of disposal of the hazardous substance owned or operated any
facility at which such hazardous substance was disposed. The state Department
of Health is in the process of drafting regulations implementing the state ERL.
An area of potential exposure to liability under the state ERL is the release
of oil from fuel storage tanks.
Both HTB and YB generate small quantities of hazardous wastes as a result
of operations and equipment maintenance activities and have contracted
with a firm to dispose of these wastes in compliance with the EPA regulations
and the RCRA provisions. YB, as a public carrier, also moves hazardous wastes
and explosives for customers. Employees are trained in the applicable handling
methods to assist in the safe movement of these cargoes. Both HTB and YB are
subject to the jurisdiction of the U.S. Coast Guard which monitors ocean
activities to ensure compliance with federal regulations.
Finally, ASB may be subject to the provisions of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) and regulations
promulgated thereunder. CERCLA imposes liability for environmental cleanup
costs on certain categories of responsible parties, including the current owner
and operator of a facility and prior owners or operators who owned or operated
the facility at the time the hazardous substances were released or disposed.
CERCLA exempts persons whose indicia of ownership in a facility are held
primarily to protect a security interest, provided that they do not participate
in the management of the facility.
The EPA promulgated a final rule, effective as of April 29, 1992, to clarify
circumstances under which lenders are exempt from liability under CERCLA. The
EPA final rule addresses the activities of the holder of a security interest
that will and will not trigger liability as "participation in management."
However, the U.S. Court of Appeals for the District of Columbia Circuit vacated
the EPA final rule in February 1994, finding that the EPA had no authority to
issue a rule defining the scope of the CERCLA exemption from liability for
secured creditors. It is possible that a petition for rehearing may be filed,
or that the U.S. Congress may enact legislation addressing this matter. Although
there may be some danger for ASB of liability for environmental cleanup costs,
the Company believes the danger is not as great for ASB, which
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specializes in residential lending, as it may be for other depository
institutions which have a larger portfolio of commercial loans.
AMERICANS WITH DISABILITIES ACT
HEI and its subsidiaries are subject to the Americans with Disabilities Act
(ADA), a comprehensive federal law intended to eliminate discrimination against
individuals with disabilities. Several titles of the ADA are applicable to the
Company including Title I, Employment, and Title III, Public Accommodations and
Services Operated by Private Entities.
HEI and its subsidiaries believe they are in compliance or in the process
of complying with both Title I and Title III of the ADA. The eventual cost of
such compliance activities is not expected to have a material effect on the
financial condition or results of operations of the Company or HECO and its
subsidiaries.
RESEARCH AND DEVELOPMENT
HECO and its subsidiaries spent approximately $2.3 million, $2.3 million and
$2.2 million in 1993, 1992 and 1991, respectively, on research and development
Contributions to the Electric Power Research Institute accounted for most of
the expenditures. Expenditures were also made in the areas of energy
conservation, environmental control, emissions control and for other similar
studies relative to technologies with the potential of being specifically
applicable to HECO and its subsidiaries.
EMPLOYEE RELATIONS
At December 31, 1993, the Company's continuing operations had 3,399 full-time
and part-time employees, compared with 3,291 at December 31, 1992.
HECO
At December 31, 1993, HECO and its subsidiaries had 2,226 employees, compared
with 2,118 employees at December 31, 1992.
The current collective bargaining agreement between the International
Brotherhood of Electrical Workers (IBEW), Local 1260, and HECO, MECO and HELCO,
covering approximately 63% of the total employees of these companies, cover a
four-year period from November 1, 1992 through October 31, 1996. The contract
provides for noncompounded wage increases of 4.25% on November 1 of each year
during the term of the agreement. The "Flexible Work Hours/Week Schedule" was
the major work rule added to the new contract.
The benefits agreement between IBEW Local 1260 and HECO, MECO and HELCO was
modified, and the current agreement will be in effect until October 31, 1996.
Revisions were made to the medical plans and postretirement benefits.
HTB
HTB has a collective bargaining agreement with the Inlandboatmen's Union of
the Pacific (IBU) effective from July 26, 1990 through July 25, 1995. An 8%
across-the-board wage increase (with further adjustments for licensed seamen
and journeymen craftsmen) was effective for the first year. From July 26, 1991
through July 25, 1995, the agreement specifies annual increases of 4%. The
agreement covers all employees of HTB employed on ocean and harbor tugs and all
dispatchers and tankermen, but excludes office clerical employees, confidential
employees, professional and management employees, guards and watchmen.
YB has a collective bargaining agreement covering the period of July 1, 1990
through June 30, 1993 with the International Longshoremen's and Warehousemen's
Union, Hawaii Division (ILWU), Local 142. The agreement has been mutually
extended by both parties until formal negotiation of the next agreement. The
agreement covers all full-time receiving and delivery clerks working on the
docks, full-time and regular part-time employees loading or discharging
vessels, all maintenance personnel, documentation clerks and customer service
representatives employed by YB in the state. The agreement excludes
confidential employees, professional employees, supervisory employees, guards
and other clerical personnel. The agreement provided for a per hour across-
the-board wage increase of 33 1/2 cents in July 1990 and March 1991, a 39-cent
increase in July 1991 and January 1992, and a 35-cent increase in July 1992
and January 1993.
On June 1, 1991, HTB transferred four tugs and vessel personnel to YB. YB
has a Letter of Understanding with the IBU, dated September 17, 1991, which
agrees to honor the appropriate provisions
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agreed upon in HTB's collective bargaining agreement, which runs through
July 25, 1995, as to the transferred personnel.
OTHER
The employees of HEI and its direct and indirect subsidiaries are not
covered by any collective bargaining agreement, except as identified above.
EMPLOYEE BENEFIT PLANS
NONDISCRIMINATION RULES OF THE INTERNAL REVENUE CODE OF 1986
The Company's welfare benefit plans are subject to nondiscrimination
rules under the Internal Revenue Code of 1986. Specifically, these include
Section 79 (group term life insurance), Section 105 (accident and health
plans), Section 125 (cafeteria plans) and Section 129 (dependent care
assistance plans), which cover types of plans that the Company makes available
to employees, as well as Section 117(d) (qualified tuition reduction programs),
Section 501 (c)(9) (voluntary employee benefit associations) and Section 120
(qualified group legal services plans), which cover types of plans that the
Company does not presently maintain.
STOCK OPTION AND INCENTIVE PLAN
During 1993, 123,000 HEI Common Stock options were granted under the 1987
Stock Option and Incentive Plan, as amended, of which 73,000 shares included
dividend equivalents. HEI Common Stock issued under that plan in 1993 included
20,573 option shares exercised, including dividend equivalents, plus 559 shares
issued in lieu of a cash payout under the Long-Term Incentive Plan and 4,144
shares issued in lieu of a cash payout under the Executive Incentive Plan. As
of March 21, 1994, there were 45 participants in the Stock Option and Incentive
Plan. Information concerning the options and other awards granted under this
Plan is incorporated herein by reference to Note 17 to HEI's Consolidated
Financial Statements on page 64 of HEI's 1993 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13(a) and pages 10 to 12 of
HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 19, 1994 and filed herein as HEI ExhibiT 22.
ITEM 2. PROPERTIES
HEI leases 17,612 square feet of office space in downtown Honolulu. The leases
expire at various dates from March 31, 1996 to April 30, 1999 (with an option
for HEI to extend one of the leases on most of the office space to March 31,
2001). The properties of HEI's subsidiaries are as follows:
ELECTRIC UTILITY
HECO owns and operates three generating plants on the island of Oahu at
Honolulu, Waiau and Kahe, with an aggregate generating capability of 1,263 MW
at December 31, 1993. The three plants are situated on HECO-owned land having a
combined area of 535 acres. In addition, HECO owns a total of 114 acres of land
on which are located substations, transformer vault sites, distribution base
yards and the Kalaeloa cogeneration facility site.
Electric lines are located over or under public and nonpublic properties. Most
of HECO's leases, easements and licenses have been recorded.
At December 31, 1993, HECO owned approximately 828 miles of overhead
transmission lines, 1,171 miles of overhead distribution lines, 2,007 miles of
underground cables, 70,395 fully-owned or jointly-owned poles and 194 steel or
aluminum high voltage transmission towers. The transmission system operates at
46,000 and 138,000 volts. The total capacity of HECO's transmission and
distribution substations was 5,414,000 kilovoltamperes at December 31, 1993.
HECO owns a building and approximately 11.5 acres of land located in Honolulu
which houses its operating, engineering and information services departments
and a warehousing center. It also leases an office building and certain office
spaces in Honolulu. The lease for the office building expires in November 2002,
with an option to further extend the lease to November 2012. The leases for
certain office spaces expire on December 31, 1996 with options to extend to
December 31, 2001.
HECO owns 19.2 acres of land at Barbers Point used to situate fuel oil
storage facilities with a combined capacity of 970,700 barrels. HECO also owns
fuel oil tanks at each plant site with a total maximum usable capacity of
915,400 barrels.
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The properties of HECO are subject to a first mortgage securing HECO's
outstanding first mortgage bonds.
On December 20, 1989, HECO applied to the PUC for the approval of the
sale to Malama Waterfront Corp. and leaseback of the Honolulu power plant and
Iwilei tank farm, the approval of the transfer values and the approval of the
accounting and rate-making treatments thereof. Prior to the PUC rendering a
decision on this application, HECO determined that changing conditions altered
the economics of the proposed sale such that a later retirement of the Honolulu
power plant may be more favorable. As such, HECO withdrew its application for
the sale and leaseback of the plant in July 1993.
A brief description of the properties of HECO's two electric utility
subsidiaries follows:
MECO owns and operates two generating plants on the island of Maui, at Kahului
and Maalaea, with an aggregate capability of 201.3 MW. The plants are situated
on MECO-owned land having a combined area of 28.6 acres. MECO also owns fuel
oil storage facilities at these sites with an aggregate maximum usable storage
capacity of 145,300 barrels.
MECO's administrative offices and engineering and distribution departments
are located on 9.1 acres of MECO-owned land in Kahului.
MECO also owns and operates smaller distribution and generation systems on
the islands of Lanai and Molokai.
The properties of MECO are subject to a first mortgage securing MECO's
outstanding first mortgage bonds.
HELCO owns and operates five generating plants on the island of Hawaii. These
plants at Hilo (2), Waimea, Kona and Puna have an aggregate generating
capability of 154.6 MW (excluding two small run-of-river hydro units). The
plants are situated on HELCO-owned land having a combined area of approximately
43 acres. HELCO owns 6.0 acres of land in Kona, which are used for a baseyard,
and it leases 4.0 acres of land for its baseyard in Hilo. The lease expires in
2030. The deeds to the sites located in Hilo contain certain restrictions which
do not materially interfere with the use of the sites for public utility
purposes.
The properties of HELCO are subject to a first mortgage securing HELCO's
outstanding first mortgage bonds.
SAVINGS BANK
ASB owns its executive office building located in downtown Honolulu.
The following table sets forth certain information with respect to offices
owned and leased by ASB and its subsidiaries at December 31, 1993.
<TABLE>
<CAPTION>
Number of offices
-------------------------------------------------
Owned Leased Total
----- ------ -----
<S> <C> <C> <C>
Oahu...... 5 24 29
Maui...... 3 2 5
Kauai..... 3 1 4
Hawaii.... 2 4 6
Molokai... -- 1 1
-- -- --
13 32 45
== == ==
</TABLE>
The net book value of office facilities is approximately $31 million. Of this
amount, $25 million represents the net book value of the land and improvements
for the 13 offices owned by ASB. The remaining $6 million represents the net
book value of ASB's leasehold improvements.
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OTHER
FREIGHT TRANSPORTATION
HTB, currently owns seven tugboats ranging from 1,430 to 2,668 HP, two tenders
of 500 HP and three flatdecked barges.
HTB owns no real property, but rents on a month-to-month basis or leases its
pier property used in its operations from the State of Hawaii under a revocable
permit and two-year lease. It is expected that expiring leases will be renewed
as necessary.
YB, HTB's subsidiary, currently owns four charter tugs, two doubledecked and
six flatdecked barges and most of its shoreside equipment, including 20-foot
containers, chassis, refrigerated containers, container vans, hi-lifts,
flatracks, automobile racks and other related equipment.
YB has three- and four-year leases expiring at various dates in 1994 through
1995 for shoreside equipment (containers, flatracks and chassis) at a monthly
cost of approximately $8,500.
YB owns no real property, but rents on a month-to-month basis or leases
various pier property and warehouse facilities from the State of Hawaii under a
revocable permit, or under a two-year or five-year lease. All lease terms began
on January 1, 1992. It is expected that expiring leases will be renewed as
necessary.
REAL ESTATE DEVELOPMENT
MPC. See Item 1, "Business--Other--Real estate--Malama Pacific Corp."
OTHER
HEIIC. See Item 1, "Business--Other--HEI Investment Corp."
LVI operates a windfarm on the island of Hawaii with a generating capability
of 1.7 MW. LVI leases 78 acres of land for its windfarm.
ITEM 3. LEGAL PROCEEDINGS
Except as provided for below and in "Item 1. Business," there are no known
pending legal proceedings, other than ordinary routine litigation incidental to
their respective businesses, to which HEI or any of its subsidiaries is a party
or of which any of their property is the subject.
HECO POWER OUTAGE
On April 9, 1991, HECO experienced a power outage that affected all customers
on the island of Oahu. One major transmission line was de-energized for routine
maintenance when two major transmission lines tripped, causing another major
transmission line to become overloaded and automatically trip. An island-wide
power outage resulted. Power was restored over the next twelve hours.
The PUC initiated an investigation of the outage by its order dated April 16,
1991. This investigation was consolidated with a pending investigation of an
outage that occurred in 1988. The PUC held an initial hearing on the April 9,
1991 outage in May 1991. In July 1991, HECO filed a report of its internal
investigative task force with the PUC. The report indicated that the results of
the investigation were inconclusive with respect to why one of the major lines
tripped and recommended actions to strengthen system reliability. The parties
to the investigation (HECO, Consumer Advocate and U.S. Department of Defense)
agreed that HECO should retain an independent consultant to investigate the
cause of the line trip. By an order dated October 23, 1991, the PUC approved
HECO's retention of Power Technologies, Inc. (PTI) and directed that the
objectives of the study be to assess the reliability and overall stability of
HECO's electric power system, to identify possible weaknesses, deficiencies and
conditions within the system that contributed to the island-wide power outage,
and to recommend a plan to increase the reliability of HECO's system and
minimize the occurrence of future island-wide outages. In its order, the PUC
also stated that: "[n]either the [PUC] nor HECO nor any of the other parties to
this docket is bound by PTI's report or analysis or is precluded from retaining
other consultants."
In August 1993, PTI's report was submitted to the PUC. In its report, PTI made
more than 100 recommendations for HECO to improve reliability, including
selective use of herbicides to control the growth of trees under power lines.
PTI said some recommendations are for implementation, some are for further
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study and possible implementation and some are for consideration. Some of the
recommendations relate to the 1991 outage and some do not.
PTI identified four recommendations as deserving immediate attention: (1)
perform a detailed inspection of 138-kilovolt overhead transmission lines to
ensure that present clearance distances to trees, wire crossings and other
conductive objects are sufficient for at least one year; (2) determine
relationships between tree clearances and "line sag" changes that result from
lines carrying different amounts of electricity; (3) build the Waiau-Campbell
Industrial Park 138-kilovolt transmission line as soon as possible and consider
building the line to operate at higher voltage in the future; and (4) increase
the number of "live-line" overhead transmission linemen and engineering and
management personnel to support line and right-of-way functions. Regarding the
outage, PTI concluded that the fault on the third of four transmission lines
was the result of tree contact. This conclusion conflicts with the finding of
another consultant who found that certain evidence favored a fault in the line
over a pineapple field with no trees. Other PTI recommendations include (1)
reviewing reporting systems used by co-generators and independent power
producers from whom HECO buys power to be sure they are adequate to reveal
problems that could affect system reliability, and (2) keeping in service the
downtown Honolulu power plant previously scheduled for retirement in 1996.
HECO filed its comments on the PTI recommendations with the PUC in November
1993. Further proceedings have not been scheduled at this time. Management
cannot predict the timing and outcome of any decision and order to be issued by
the PUC with respect to the outages or with respect to the recommendations made
by PTI.
HECO's PUC-approved tariff rule states that "[t]he Company will not be
liable for interruption or insufficiency of supply or any loss, cost, damage or
expense of any nature whatsoever, occasioned thereby if caused by accident,
storm, fire, strikes, riots, war or any cause not within the Company's control
through the exercise of reasonable diligence and care." Under the rule,
customers had 30 days from the date of the power outage to file claims. HECO
received approximately 2,900 customer claims which totaled approximately $7
million. Of the 2,900 claims, approximately 1,450 are for property damage. As
of December 31, 1993, HECO had settled approximately 542 of these property
damage claims, had settlement offers outstanding with respect to approximately
119 more of these claims and anticipates making settlement offers with respect
to the remaining property claims upon receipt and review of appropriate
supporting documentation. The settlement offers are being made for purposes of
settlement and compromise only, and without any admission by HECO of liability
for the outage. Not covered in the settlement offers and requests for
documentation are approximately 1,450 claims involving alleged personal injury
or economic losses, such as lost profits.
On April 19, 1991, seven direct or indirect business customers on the island
of Oahu filed a lawsuit against HECO on behalf of themselves and an alleged
class, claiming $75 million in compensatory damages and additional unspecified
amounts for punitive damages because of the April 9, 1991 outage. The lawsuit
was dismissed without prejudice in March 1993 and subsequently refiled by the
plaintiffs. HECO has filed an answer which denies the principal allegations in
the complaint, sets forth affirmative defenses, and asserts that the suit
should not be maintained as a class action. Discovery proceedings have been
initiated. No trial date has been set. A motion for an order denying class
certification of the lawsuit has been filed and is set for hearing in March
1994.
A reserve equal to the deductible limits with respect to HECO's insurance
coverage has been recorded with respect to claims arising out of the April 1991
outage. In the opinion of management, losses (if any), net of estimated
insurance recoveries, resulting from the ultimate outcome of the lawsuit and
claims related to the April 9, 1991 outage will not have a material adverse
effect on the Company or consolidated HECO.
HELCO RELIABILITY INVESTIGATION
In July 1991, following service interruptions and rolling blackouts instituted
on the island of Hawaii, the PUC issued an order calling for an investigation
into the reliability of HELCO's system.
An evidentiary hearing was held in September 1991 and public hearings
were held in October 1991. In light of approximately 20 subsequent incidents of
rolling blackouts and service interruptions resulting from insufficient
generation margin, further evidentiary hearings were held in July 1992. With
the input from an independent consultant and the parties to the proceedings,
the PUC may formulate minimum reliability standards for HELCO, use the
standards to assess HELCO's system reliability, and re-examine the rate
increase approved in October 1992 to see whether any adjustments are
appropriate.
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HELCO's generation margin has improved with the addition of a 20-MW
combustion turbine in August 1992, PGV's commencement of commercial operations
and Hamakua's temporary return to commercial operation (see "Item 1.
Business--Electric utility-Nonutility generation"). HELCO is proceeding with
plans to install two 20-MW combustion turbines in 1995, followed by an 18-MW
heat steam recovery generator in 1997, at which time these units will be
converted to a combined-cycle unit, subject in each case to obtaining necessary
permits.
In the opinion of management, the PUC's adjustment, if any, resulting
from the reliability investigation will not have a material adverse effect on
the Company's or HECO's consolidated financial condition or results of
operations.
HECO POWER PURCHASE AGREEMENTS DISPUTES
HECO is disputing certain amounts billed each month under its power
purchase agreements with Kalaeloa Partners, L.P. (Kalaeloa) and AES Barbers
Point, Inc. (AES-BP) and has withheld payment of some of the disputed amounts
pending resolution. With respect to the billings from Kalaeloa, HECO believes
that it has counterclaims which would mitigate, if not more than offset, the
disputed amounts billed by Kalaeloa. Disputed amounts billed by Kalaeloa and
AES-BP through December 31, 1993 totaled approximately $2.1 million and $1.5
million, respectively. Approximately $0.5 million of the total disputed
amounts, if paid, are includable in HECO's energy cost adjustment clause, and
would be passed through to customers.
HECO has not recognized any portion of the disputed amounts as an
expense or liability in its financial statements. Discussions between HECO and
Kalaeloa, and HECO and AES-BP to resolve the disputed billing amounts are
continuing. In the event the parties are unable to settle the disputes, both
the Kalaeloa and AES-BP power purchase agreements contain provisions whereby
either party to the agreement may cause the dispute to be submitted to binding
arbitration. Kalaeloa has requested that its dispute with HECO be arbitrated
and this arbitration process has commenced. Based on information currently
available, HECO's management believes that the ultimate outcome of these
disputes will not have a material adverse effect on the Company's or HECO's
consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
HEI and HECO:
During the fourth quarter of 1993, no matters were submitted to a vote of
security holders of the Registrants.
50
<PAGE> 57
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
HEI:
The information required by this item is incorporated herein by reference to
pages 67 and 69 (Note 19, "Regulatory restrictions on net assets" and Note 22,
"Quarterly information (unaudited)," of the Notes to HEI's Consolidated
Financial Statements) and page 27 of HEI's 1993 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13(a). Certain restrictions
on dividends and other distributions of HEI are described in "Item 1.
Business--Regulation and other matters--Restrictions on dividends and other
distributions." The total number of holders of record of HEI common stock as of
March 21, 1994, was 24,672.
HECO:
Market information and holders--not applicable. Since the corporate
restructuring on July 1, 1983, all the common stock of HECO has been held
solely by its parent, HEI, and is not publicly traded.
The dividends declared and paid on HECO's common stock for the four
quarters of 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
Quarter ended 1993 1992
-------------------------------------------------
<S> <C> <C>
March 31........ $6,649,000 $5,118,000
June 30......... 3,731,000 5,254,000
September 30.... 8,233,000 5,742,000
December 31 .... 7,274,000 6,934,000
</TABLE>
The regulatory restrictions on net assets are incorporated herein by
reference to page 27 (Note 12 to HECO's Consolidated Financial Statements,
"Regulatory restrictions on distributions to parent") of HECO's 1993 Annual
Report to Stockholder, portions of which are filed herein as HECO Exhibit
13(b).
ITEM 6. SELECTED FINANCIAL DATA
HEI:
The information required by this item is incorporated herein by reference to
page 27 of HEI's 1993 Annual Report to Stockholders, portions of which are
filed herein as HEI Exhibit 13(a).
HECO:
The information required by this item is incorporated herein by reference to
page 2 of HECO's 1993 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13(b).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HEI:
The information required by this item is incorporated herein by reference to
pages 29 to 39 of HEI's 1993 Annual Report to Stockholders, portions of which
are filed herein as HEI Exhibit 13(a).
HECO:
The information required by this item is incorporated herein by reference to
pages 3 to 9 of HECO's 1993 Annual Report to Stockholder, portions of which are
filed herein as HECO Exhibit 13(b).
51
<PAGE> 58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEI:
The information required by this item is incorporated herein by reference
to the section entitled "Segment financial information" on page 28 and to
pages 41 to 69 of HEI's 1993 Annual Report to Stockholders, portions of
which are filed herein as HEI Exhibit 13(a).
HECO:
The information required by this item is incorporated herein by reference to
pages 10 to 29 and to the section entitled "Consolidated quarterly financial
information (unaudited)" on page 31 of HECO's 1993 Annual Report to
Stockholder, portions of which are filed herein as HECO Exhibit 13(b).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
HEI AND HECO:
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
HEI:
The following persons are, or may be deemed, executive officers of HEI. Their
ages are given as of March 10, 1994. Officers are appointed to serve until the
meeting of the Board of Directors following the next Annual Meeting of
Stockholders (which shall occur on April 19, 1994) and/or until their
successors have been appointed and qualified (or until their earlier
resignation or removal). Company service includes service with an HEI
subsidiary.
<TABLE>
<CAPTION>
Business
experience
for past
HEI Executive Officers five years
- -----------------------------------------------------------------------
<S> <C>
Robert F. Clarke, age 51
President and Chief Executive Officer ................ 1/91 to date
Group Vice President - Diversified Companies ......... 5/88 to 12/90
Director ............................................. 4/89 to date
(Company service: 7 years)
Edward J. Blackburn, age 63
Group Vice President - Diversified Companies ......... 1/91 to date
President, HIG ....................................... 10/87 to 12/90
(Company service: 6 years)
Harwood D. Williamson, age 62
Group Vice President - Utility Companies ............. 5/88 to date
Director.............................................. 4/85 to date
(Company service: 37 years)
Robert F. Mougeot, age 51
Financial Vice President and Chief Financial Officer.. 4/89 to date
Auditor............................................... 10/88 to 4/89
(Company service: 5 years)
</TABLE>
52
<PAGE> 59
<TABLE>
<CAPTION>
Business
experience
for past
HEI Executive Officers (continued) five years
- ---------------------------------------------------------------------------------
<S> <C>
Peter C. Lewis, age 59
Vice President - Administration.............................. 10/89 to date
Vice President - Administration, HECO........................ 4/86 to 1/91
Vice President - Administration and Secretary................ 4/89 to 9/89
Vice President and Secretary................................. 7/81 to 4/89
(Company service: 26 years)
Charles F. Wall, age 54
Vice President and Corporate Information Officer............. 7/90 to date
(Company service: 3 years)
Charles F. Wall, prior to joining the Company,
served as Director of Information Management of
GTE Hawaiian Tel from 1981 to 1990.
Andrew I. T. Chang, age 54
Vice President - Government Relations........................ 4/91 to date
Manager, Government Relations................................ 8/90 to 3/91
Manager, Government Relations, HECO.......................... 1/85 to 7/90
(Company service: 9 years)
Constance H. Lau, age 41
Treasurer.................................................... 4/89 to date
Treasurer, HECO.............................................. 12/87 to 4/89
Assistant Treasurer, MECO.................................... 12/87 to 4/89
Assistant Treasurer, HELCO................................... 12/87 to 4/89
(Company service: 9 years)
Curtis Y. Harada, age 38
Controller................................................... 1/91 to date
Auditor, HECO................................................ 7/89 to 1/91
(Company service: 4 years)
Curtis Y. Harada, prior to joining the Company,
served as Controller/Manager of Financial
Assurance of PacTel Corporation from 1987 to 1989.
Betty Ann M. Splinter, age 48
Secretary.................................................... 10/89 to date
Secretary, HECO.............................................. 4/86 to 9/89
(Company service: 19 years)
</TABLE>
HEI's executive officers, with the exception of Peter C. Lewis, Charles F.
Wall and Andrew I. T. Chang, are officers and/or directors of one or more of
HEI's subsidiaries.
There are no family relationships between any executive officer or director
of HEI and any other executive officer or director of HEI.
The list of current directors of HEI is incorporated herein by reference to
page 70 of HEI's 1993 Annual Report to Stockholders, portions of which are
filed herein as HEI Exhibit 13(a). Information on their business experience and
directorships is incorporated herein by reference to pages 3 to 5 of the
registrant's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 19, 1994, and filed herein as HEI Exhibit 22.
Thurston Twigg-Smith (who is not standing for reelection as a Director) is
President, Chief Executive Officer and Director of Persis Corporation;
Chairman, Chief Executive Officer and Director of Northwest Media, Inc., and
Maryville Alcoa Daily Times; Chairman of the Board of The Honolulu Advertiser;
Director of HECO, ASB and The Museum of Contemporary Art (Los Angles); Trustee
of the McInerny Foundation, Punahou School, Honolulu Academy of Arts, The
Contemporary Museum (Honolulu), Old Sturbridge Village (Massachusetts), The
Skowhegan School (Maine) and The Philatelic Foundation, N.Y.; and member of the
Governing Board of The Yale Art Gallery (Connecticut).
53
<PAGE> 60
HECO:
The following table sets forth certain information concerning the executive
officers of HECO. Their ages are given as of March 10, 1994. Officers are
appointed to serve until the meeting of the Board of Directors following the
next Annual Meeting and/or until their respective successors have been
appointed and qualified. Company service includes service with HECO affiliates.
<TABLE>
<CAPTION>
Business
experience
for past
HECO Executive Officers five years
- ------------------------------------------------------------------------------
<S> <C>
Robert F. Clarke, age 51
Chairman of the Board.................................. 1/91 to date
(Company service: 7 years)
Harwood D. Williamson, age 62
President and Chief Executive Officer.................. 1/91 to date
President and Chief Operating Officer ................. 2/85 to 12/90
Director .............................................. 4/85 to date
Chairman of the Board, HELCO and MECO.................. 3/85 to date
(Company service: 37 years)
T. Michael May, age 47
Senior Vice President.................................. 2/92 to date
(Company service: 2 years)
T. Michael May, prior to joining HECO, was a principal
partner in Management Assets Group from 9/89 to 1/92.
He was president of Caterpillar Capital Company, Inc.
from 6/85 to 4/89
Joan M. Diamond, age 43
Vice President - Human Resources....................... 2/91 to date
Manager, Human Resources............................... 5/89 to 1/91
Manager, Organizational Development.................... 1/88 to 4/89
(Company service: 9 years)
Jackie Mahi Erickson, age 53
Vice President - General Counsel........................ 2/91 to date
Corporate Counsel....................................... 1/81 to 1/91
(Company service: 13 years)
Charles M. Freedman, age 47
Vice President - Corporate Relations.................... 5/92 to date
(Company service: 1 year)
Charles Freedman, prior to joining HECO, was Director of
Communications in the Office of the Governor of
Hawaii from 1986 to 4/92.
Edward Y. Hirata, age 60
Vice President - Planning............................... 12/91 to date
Vice President, HELCO and MECO.......................... 12/91 to date
(Company service: 7 years)
Edward Y. Hirata, prior to rejoining HECO on 12/91,
served as Director of Department of Transportation
for the State of Hawaii, from 12/86 to 11/91.
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
Business
experience
for past
HECO Executive Officers five years
- -------------------------------------------------------------------------------------
<S> <C>
George T. Iwahiro, age 56
Vice President - Engineering................................... 2/91 to date
Vice President - Consumer, Regulatory and Public
Affairs....................................................... 2/85 to 1/91
Vice President, HELCO and MECO................................. 3/85 to 12/91
(Company service: 34 years)
Richard L. O'Connell, age 64
Vice President - Customer Relations............................ 2/91 to date
Vice President - Facilities.................................... 6/88 to 1/91
(Company service: 13 years)
Paul A. Oyer, age 53
Financial Vice President and Treasurer......................... 4/89 to date
Financial Vice President and Controller........................ 2/85 to 4/89
Director....................................................... 4/85 to date
Financial Vice President and Treasurer,
HELCO and MECO............................................... 6/85 to date
(Company service: 28 years)
David M. Rodrigues, age 58
Vice President - Corporate Excellence.......................... 11/93 to date
Vice President - Operations.................................... 5/89 to 10/93
Executive Assistant............................................ 7/88 to 4/89
(Company service: 23 years)
Ernest T. Shiraki, age 46
Controller..................................................... 4/89 to date
Manager, Budgets & Corporate Accounting........................ 5/85 to 4/89
(Company service: 24 years)
Molly M. Egged, age 43
Secretary...................................................... 10/89 to date
Secretary, HELCO and MECO...................................... 10/89 to date
Assistant Secretary............................................ 4/86 to 9/89
Executive Secretary............................................ 12/83 to 12/92
(Company service: 13 years)
</TABLE>
HECO's executive officers, Robert F. Clarke, Harwood D. Williamson, Edward
Y. Hirata, Paul A. Oyer and Molly M. Egged, are officers of one or more of the
affiliated HEI companies.
There are no family relationships between any executive officer or director
of HECO and any other executive officer or director of HECO.
The list of current directors of HECO is incorporated herein by reference to
page 33 of HECO's 1993 Annual Report to Stockholder, portions of which are
filed herein as HECO Exhibit 13(b). Information on the business experience and
directorships of directors of HECO who are also directors of HEI is
incorporated herein by reference to pages 3 through 5 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on
April 19, 1994, and filed herein as HEI Exhibit 22.
55
<PAGE> 62
Mildred D. Kosaki, age 69, and Paul C. Yuen, age 65, as of March 10, 1994,
are the only outside directors of HECO who are not directors of HEI. Mrs.
Kosaki has been a Director of HECO from 1973 to the present. She resigned from
the HEI Board in 1987. She was also a Director of the International Pacific
University from 1989 to 1991 and a Director on the Board of The Honolulu
Advertiser from 1983 to 1989. She is a specialist in education research. Dr.
Yuen, who was elected a Director of HECO in April 1993, is Senior Vice
President for the University of Hawaii and Executive Vice Chancellor for the
University of Hawaii-Manoa. In the past five years, he has had various
administrative positions at the University of Hawaii-Manoa. He also serves on
the Boards of Cyanotech Corporation, the Pacific International Center for High
Technology Research and Hawaii Cultured Pearls, Inc. Information on Mr. Oyer's
business experience and directorship is indicated above.
The information required under this item by Item 405 of Regulation S-K is
incorporated by reference to page 9 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 19, 1994,
and filed herein as HEI Exhibit 22.
ITEM 11. EXECUTIVE COMPENSATION
HEI:
The information required under this item for HEI is incorporated by reference
to pages 6 to 7 and 9 to 22 of HEI's Definitive Proxy Statement, prepared for
the Annual Meeting of Stockholders to be held on April 19, 1994, and filed
herein as HEI Exhibit 22.
HECO:
The following tables set forth the information required for the chief
executive officer of HECO and the four other most highly compensated HECO
executive officers serving at the end of 1993. All executive compensation
amounts presented for Harwood D. Williamson are duplicative of the amounts
presented in HEI's Definitive Proxy Statement, prepared for the Annual Meeting
of Stockholders to be held on April 19, 1994, and filed herein as HEI Exhibit
22.
56
<PAGE> 63
SUMMARY COMPENSATION TABLE
The following is the summary compensation table which sets forth the annual
and long-term compensation of the chief executive officer of HECO and the four
other most highly compensated executive officers of HECO serving at the end of
1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------- -----------------------
Awards Payouts
Other ---------- ------- All
Annual Securities Other
Compen- Underlying LTIP Compen-
Name and Principal Salary Bonus sation Options Payouts sation
Position Year ($) (1) ($) (2) ($) (3) (#) (4) ($) (5) ($) (6)
- ------------------------------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Harwood D. Williamson..... 1993 $341,333 $ -- $68,544 8,000 $ -- $18,843
President and CEO 1992 316,666 37,288 62,750 48,000 -- --
1991 264,669 -- 8,000 55,951
T. Michael May(7)......... 1993 191,000 -- -- 4,000 -- 4,796
Senior Vice President 1992 168,336 29,100 -- -- -- 78,577
Paul A. Oyer.............. 1993 175,100 -- 10,806 3,000 -- 6,339
Financial Vice President 1992 166,031 21,373 9,790 -- -- --
and Treasurer 1991 152,002 -- 3,000 19,843
David M. Rodrigues........ 1993 134,833 -- -- 3,000 -- 6,864
Vice President-Corporate 1992 126,833 21,373 -- -- -- --
Excellence 1991 114,664 -- 3,000 --
George Iwahiro............ 1993 133,833 -- -- 2,000 -- 6,548
Vice President-Engineering 1992 127,169 17,762 -- -- -- --
1991 120,164 -- 2,000 --
</TABLE>
(1) Includes directors' fees of $28,000 in 1993 and $25,000 in 1992 for Mr.
Williamson and directors' fees of $5,600 in 1993 and $4,700 in 1992 for
Mr. Oyer.
(2) The named executive officers are eligible for an incentive award under the
Company's annual Executive Incentive Compensation Plan (EICP). A decision
on EICP bonus payouts is made at the beginning of each year for the
previous year's performance period.
(3) Covers interest earned on deferred compensation and includes above-market
earnings in the amount of $63,467 for 1993 and $57,498 for 1992 on
deferred annual and Long-Term Incentive Plan (LTIP) payouts for Mr.
Williamson. Also includes above-market earnings in the amount of $10,806
for 1993 and $9,790 for 1992 on deferred annual payouts for Mr. Oyer.
(4) Includes a special one-time, premium-priced grant of 40,000 shares without
dividend equivalents for Mr. Williamson in 1992. Other options granted in
each of the three years for Mr. Williamson included dividend equivalents.
For each of the other named executive officers, options granted in 1993
and 1991 did not include dividend equivalents.
(5) LTIP payouts are determined in April each year for the three-year cycle
ending on December 31 of the previous calendar year. In 1993, only Mr.
Williamson was eligible to receive a LTIP payout; however, no LTIP payout
was received for the 1990-1992 performance cycle because none of the
minimum earnings threshold levels were achieved. The determination of
whether there will be a payout for Mr. Williamson under the 1991-1993 LTIP
will not be made until April 1994.
(6) Represents amounts accrued by the Company in 1993 for certain death
benefits provided to the named executive officers. In 1992 and 1991, the
Company did not accrue for these benefits. Additional information is
incorporated by reference to page 19 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 19,
1994, and filed herein as HEI Exhibit 22. Covers reimbursement of
moving expenses for Mr. May in 1992.
(7) Mr. May joined HECO as the Senior Vice President on February 1, 1992.
57
<PAGE> 64
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows the HEI stock options which were granted in 1993 to
the executives named in the HECO Summary Compensation Table, all of which are
nonqualified stock options. The practice of granting stock options, which may
include dividend equivalent shares, has been followed each year since 1987.
<TABLE>
<CAPTION>
Number of
Securities Percent of
Underlying Total Options
Options Granted to Exercise Grant Date
Granted Employees in Price Expiration Present
(#) (1) Fiscal Year ($/share) Date Value ($) (2)
----------- -------------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Harwood D. Williamson..... 8,000 7% $38.27 April 12, 2003 $77,280
T. Michael May............. 4,000 3 38.27 April 12, 2003 20,120
Paul A. Oyer............... 3,000 2 38.27 April 12, 2003 15,090
David M. Rodrigues......... 3,000 2 38.27 April 12, 2003 15,090
George Iwahiro............. 2,000 2 38.27 April 12, 2003 10,060
</TABLE>
(1) For the 20,000 option shares granted with an exercise price of $38.27
per share, additional dividend equivalent shares are granted to
Mr. Williamson at no additional cost throughout the four-year vesting
period (vesting in equal installments) which begins on the date of grant.
Dividend equivalents are computed, as of each dividend record date, both
with respect to the number of shares under the option and with respect to
the number of dividend equivalent shares previously credited to the
participant and not issued during the period prior to the dividend record
date. Accelerated vesting is provided in the event a Change-in-Control
occurs. No stock appreciation rights have been granted under the Company's
current benefit plans.
(2) Based on a Binomial Option Pricing Model which is a variation of the
Black-Scholes Option Pricing Model. For the stock options granted with a
10-year option period, an exercise price of $38.27, and with additional
dividend equivalent shares granted for the first four years of the option,
the Binomial Value is $9.66 per share. The following assumptions were used
in the model: Stock Price: $38.27; Exercise Price: $38.27; Term: 10 years;
Volatility: .55; Interest Rate: 6.0%; and Dividend Rate: 6.4%. The
following were the valuation results: Binomial Option Value: $5.03;
Dividend Credit Value: $4.63; and Total Value: $9.66.
58
<PAGE> 65
AGGREGATED OPTION EXERCISES AND FISCAL YEAREND OPTION VALUE TABLE
The following table shows the HEI stock options, including dividend
equivalents, exercised in 1993 by the named executive officers in the HECO
Summary Compensation Table. Also shown is the number and value of unexercised
options and dividend equivalents at the end of 1993. Under the Stock Option and
Incentive Plan, dividend equivalents were granted to Mr. Williamson as part of
the stock option award, except for the one-time, premium-priced grant in May
1992. For each of the other named executive officers, options granted in 1993
and 1991 did not include dividend equivalents.
Dividend equivalents permit a participant who exercises a stock option to
obtain at no additional cost, in addition to the option shares, the amount of
dividends declared on the number of shares of common stock with respect to
which the option is exercised during the period between the grant and the
exercise of the option. Dividend equivalents are computed, as of each dividend
record date throughout the four-year vesting period (vesting in equal
installments), which begins on date of grant, both with respect to the number
of shares underlying the option and with respect to the number of dividend
equivalent shares previously credited to the executive officer and not issued
during the period prior to the dividend record date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAREND OPTION VALUES
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In the Money
Unexercised Options
Options (Including
(Including Dividend
Dividend Equivalents)
Dividend Equivalents) at Fiscal
Shares Equivalents Value at Fiscal Yearend Yearend (1)
Acquired Acquired Value Realized on ----------------- ----------------
on on Realized on Divideds Exercisable/ Exercisable/
Exercise(#) Exercise(#) Options($) Equivalents($) Unexercisable(#) Unexercisable($)
----------- ----------- ---------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Harwood D. Williamson. . -- -- $ -- $ -- 58,117/21,379 $117,711/38,916
T. Michael May . . . . . -- -- -- -- -- /4,000 --/--
Paul A. Oyer . . . . . . 542 158 2,846 6,024 4,678/4,500 37,937/4,733
David M. Rodrigues . . . -- -- -- -- 1,500/4,500 4,733/4,733
George Iwahiro . . . . . 1,000 -- 3,470 -- --/3,000 --/3,155
</TABLE>
(1) Includes dividend equivalents of $79,916 exercisable and $26,296
unexercisable for Mr. Williamson and dividend equivalents of $25,830
exercisable for Mr. Oyer. All options were in the money (where the option
price is less than the closing price on December 31, 1993) except the 1990
stock option grant at $36.01 per share, the 1992 stock option grant at
$35.94 per share, and the 1993 stock option grant at $38.27 per share and
the 1992 premium-priced grant at $41.00 per share. Value based on closing
price of $35.875 per share on the New York Stock Exchange on December 31,
1993.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
A Long-Term Incentive Plan award was made to one of the named executive
officers in the HECO Summary Compensation Table, Mr. Williamson. Additional
information required under this item is incorporated by reference to page 13 of
HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 19, 1994, and filed herein as HEI Exhibit 22.
59
<PAGE> 66
PENSION PLAN
The Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and
Participating Subsidiaries (the Retirement Plan) provides a monthly retirement
pension for life. Additional information required under this item is
incorporated by reference to pages 14 to 15 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
19, 1994, and filed herein as HEI Exhibit 22. As of December 31, 1993, the
named executive officers in the HECO Summary Compensation Table had the
following number of years of credited service under the Retirement Plan: Mr.
Williamson, 37 years; Mr. May, 1 year; Mr. Oyer, 27 years; Mr. Rodrigues, 23
years; and Mr. Iwahiro, 34 years.
CHANGE-IN-CONTROL AGREEMENT
Messrs. Williamson and May are the only named executive officers in the HECO
Summary Compensation Table in which HEI has entered into a
Change-in-Control Agreement. Additional information required under this item is
incorporated by reference to page 15 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 19, 1994,
and filed herein as HEI Exhibit 22.
Based on W-2 earnings for the five most recent years (1989-1993) or the
portion of such period during which the executive performed personal service for
HEI and its subsidiaries, the lump sum severance would be as follows: Mr.
Williamson - $1,035,551 and Mr. May - $869,890.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
Decisions on executive compensation for the named executive officers are
made by the Compensation Committee of the HEI Board of Directors which is
composed of six independent nonemployee directors. All decisions by the
Compensation Committee are reviewed by the full HEI Board except for decisions
about HEI's stock based plans, which must be made solely by the Committee in
order to satisfy Securities Exchange Act Rule 16b-3.
The Committee has retained the services of an independent compensation
consulting firm to assist in executive compensation matters.
Except for specific compensation decisions regarding Mr. Williamson
which are discussed below, additional information required under this item is
incorporated by reference to pages 16 through 19 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on
April 19, 1994, and filed herein as HEI Exhibit 22.
BASE SALARY
Mr. Williamson's base salary is determined based on the recommendation of
Robert F. Clarke, President and Chief Executive Officer of HEI and Chairman of
the Board of HECO, within the recommended salary range and the Committee's
approval. Mr. Clarke's recommendation is based on an overall evaluation of
Mr. Williamson's performance during the preceding year. This evaluation is
subjective in nature and takes into account all aspects of Mr. Williamson's
responsibilities at the discretion of Mr. Clarke. Mr. Williamson's base salary
was raised from an annual rate of $300,000 to an annual rate of $320,000,
effective May 1, 1993. This action by the Committee was subsequently ratified
by the HECO Board of Directors.
STOCK OPTIONS
The 1993 stock option award to Mr. Williamson of 8,000 shares of HEI Common
Stock plus dividend equivalents was based on the consultant's recommendation
and the independent evaluation of an appropriate award level by Mr. Clarke and
the HEI Compensation Committee. In this evaluation, the Committee took into
account prior awards to Mr. Williamson and an overall subjective evaluation of
Mr. Williamson's job performance.
60
<PAGE> 67
HECO BOARD OF DIRECTORS
COMMITTEES OF THE HECO BOARD
The Board of Directors of HECO has only one standing committee, the
Audit Committee, which is comprised of three nonemployee directors: Ben F.
Kaito, Chairman, and Mildred D. Kosaki and Diane J. Plotts. In 1993, the Audit
Committee held four meetings to review with management, the internal auditor
and HECO's independent auditors the activities of the internal auditor, the
results of the annual audit by the independent auditor and the financial
statements which are included in HECO's 1992 Annual Report to Stockholder. The
Audit Committee holds such meetings as it deems advisable to review the
financial operations of HECO.
REMUNERATION OF THE HECO DIRECTORS AND ATTENDANCE AT MEETINGS
In 1993, William G. Foster (who passed away in October 1993), Mildred
D. Kosaki and Paul C. Yuen were the only nonemployee directors of HECO who were
not also directors of HEI. They were paid a retainer of $12,000, one-half of
which was distributed in the common stock of HEI pursuant to the HEI
Nonemployee Director Stock Plan and one-half of which was distributed in cash.
The number of shares of stock distributed was based on a price of $38.27 per
share, which is equal to the average of the daily high and low sales prices of
HEI common stock for all trading days in March 1993, divided into $6,000, with
a cash payment made in lieu of any fractional share. In addition, a fee of $700
was paid in cash to each director for each Board and Committee meeting attended
by the director. The Chairman of the Audit Committee was paid an additional
$100 for each Committee meeting attended.
In 1993, there were six regular bi-monthly meetings and one special
meeting of the Board of Directors. All incumbent directors, except William G.
Foster, attended at least 75% of the total number of meetings of the Board and
Committee on which they served.
HECO participates in the Nonemployee Director Retirement Plan described on
page 7 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 19, 1994, and filed herein as HEI Exhibit 22.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
HEI:
The information required under this item is incorporated by reference to
pages 8 and 9 of HEI's Definitive Proxy Statement, prepared for the Annual
Meeting of Stockholders to be held on April 19, 1994, and filed herein as HEI
Exhibit 22.
61
<PAGE> 68
HECO:
HEI owns all of the common stock of HECO, which is HECO's only class of
voting securities. HECO has also issued and has outstanding various series of
preferred stock, the holders of which, upon certain defaults in dividend
payments, have the right to elect a majority of the directors of HECO.
The following table shows the shares of HEI common stock beneficially
owned by each HECO director, named HECO executive officers as listed in the
Summary Compensation Table on page 57 and by HECO directors and officers as a
group, as of February 10, 1994, based on information furnished by the
respective individuals.
<TABLE>
<CAPTION>
Name of Individual or Title of Amount and Nature of
Group Class Beneficial Ownership
- -----------------------------------------------------------------------------
Directors Total
- ----------- -----
<S> <C> <C> <C>
Mildred D. Kosaki Common 1,308(2) 1,308
Paul A. Oyer* Common 2,163(1)
4,678(4) 6,841
Paul C. Yuen Common 456(2) 456
Named executive officers
- ------------------------
T. Michael May Common 514(2) 514
George T. Iwahiro Common 5,586(1)
144(2) 5,730
David M. Rodrigues Common 2,187(1)
394(2)
1,500(4) 4,081
Common Stock Beneficially 18,523(1)
Owned by Directors and Officers 6,411(2)
as a Group (13 persons**) 83(3)
8,553(4) 33,570***
</TABLE>
* Also a named executive officer listed in the Summary Compensation Table on
page 57.
** Excludes HECO directors Messrs. Clarke, Henderson, Kaito, and Williamson
and Ms. Plotts, who also serve on the HEI Board of Directors. The
information required is incorporated by reference to pages 8 and 9 of HEI's
Definitive Proxy Statement, prepared for the Annual Meeting of Stockholders
to be held on April 19, 1994, and filed herein as HEI Exhibit 22. Messrs.
Clarke and Williamson are also named executive officers listed in the
Summary Compensation Table on page 10 of the above-referenced Definitive
Proxy Statement of HEI.
***The number of shares of common stock beneficially owned by any HECO
director or by all HECO directors and officers as a group does not exceed
1% of the outstanding common stock of HEI.
(1) Sole voting and investment power.
(2) Shared voting and investment power (shares registered in name of respective
individual and spouse).
(3) Shares owned by spouse, children or other relatives sharing the home of the
director or an officer in the group and in which personal interest of the
director or officer is disclaimed.
(4) Stock options exercisable within 60 days after February 10, 1994, under the
1987 Stock Option and Incentive Plan, as amended. Shares for Mr. Oyer
include accompanying dividend equivalents (720 shares) for stock options
awarded in 1988 only.
62
<PAGE> 69
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HEI:
The information required under this item is incorporated by reference to pages
21 to 23 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting
of Stockholders to be held on April 19, 1994, and filed herein as HEI Exhibit
22.
HECO:
As of December 31, 1992, T. Michael May, Senior Vice President of HECO, was
indebted to HECO in the amount of $290,000 by reason of loans made to him by
HECO in 1992 for relocation purposes. The noninterest-bearing notes were due in
1993. In 1993, $110,000 of Mr. May's indebtedness was paid and the remaining
$180,000 was converted to a 15-year note bearing interest at 6.28%. The note is
due in 2008 or upon demand, if Mr. May ceases to be employed by HECO, and is
secured by a second mortgage on real estate. As of December 31, 1993, Mr. May
was indebted to HECO in the amount of $180,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements contained in HEI's 1993 Annual Report to
Stockholders and HECO's 1993 Annual Report to Stockholder, portions of which
are filed by HEI as Exhibit 13(a) and, portions of which are filed by HECO as
Exhibit 13(b), respectively, are incorporated by reference in Part II, Item 8,
of this Form 10-K:
<TABLE>
<CAPTION>
1993 Annual Report to
Stockholder(s)
(Page/s)
-----------------------
HEI HECO
--- ----
<S> <C> <C>
Independent Auditors' Reports ......... 40 30
Consolidated Statements of Income,
Years Ended December 31, 1993, 1992
and 1991 .............................. 41 10
Consolidated Statements of Retained
Earnings, Years Ended December 31,
1993, 1992 and 1991 ................... 41 10
Consolidated Balance Sheets,
December 31, 1993 and 1992 ............ 42 11
Consolidated Statements of
Capitalization, December 31, 1993 and
1992 .................................. N/A 12-13
Consolidated Statements of Cash Flows,
Years Ended December 31, 1993, 1992
and 1991 .............................. 43 14
Notes to Consolidated Financial
Statements ............................ 44-69 16-29
</TABLE>
63
<PAGE> 70
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules for HEI and HECO are included in
this Report on the pages indicated below:
<TABLE>
<CAPTION>
Page/s in
Form 10-K
----------------
HEI HECO
----- ------
<S> <C> <C>
Independent auditors' report ......................... 66 67
Schedule I Marketable securities--other
investments, December 31, 1993......... 68 N/A
Schedule II Amounts receivable from related parties
and underwriters, promoters and
employees other than related parties,
December 31, 1993, 1992 and 1991....... 69-71 69-70
Schedule III Condensed financial information of
registrant, Hawaiian Electric
Industries, Inc. (Parent Company) as
of December 31, 1993 and 1992 and
years ended December 31, 1993, 1992,
and 1991 .............................. 72-74 N/A
Schedule V Property, plant and equipment, year
ended December 31, 1993................ 75 77
Schedule V Property, plant and equipment, December
31, 1992 and 1991...................... 76 N/A
Schedule V Property, plant and equipment, year
ended December 31, 1992................ N/A 78
Schedule V Property, plant and equipment,
December 31, 1991 ..................... N/A 79
Schedule VI Accumulated depreciation, depletion and
amortization of property, plant and
equipment, years ended December 31, 1993,
1992 and 1991 ......................... 80-82 80-82
Schedule VIII Valuation and qualifying accounts,
years ended December 31, 1993, 1992
and 1991............................... 83 83
Schedule IX Short-term borrowings, years ended
December 31, 1993, 1992 and 1991 ...... 84 85
Schedule X Supplementary income statement
information, years ended December 31,
1993, 1992 and 1991 ................... 86 86
</TABLE>
Certain Schedules, other than those listed, are omitted because they are not
required, or are not applicable, or the required information is shown in the
consolidated financial statements or notes included in HEI's 1993 Annual Report
to Stockholders and HECO's 1993 Annual Report to Stockholder, which financial
statements are incorporated herein by reference.
64
<PAGE> 71
(a)(3) EXHIBITS
Exhibits for HEI and HECO and their subsidiaries are listed in the
"Index to Exhibits" found on pages 87 through 94 of this Form 10-K. The
exhibits listed for HEI and HECO are listed in the index under the headings
"HEI" and "HECO," respectively, except that the exhibits listed under "HECO"
are also considered exhibits for HEI.
(b) REPORTS ON FORM 8-K
HEI AND HECO:
During the fourth quarter of 1993, HEI and HECO filed three Current Reports,
Forms 8-K, with the SEC. In the Form 8-K dated October 5, 1993, HEI and HECO
filed information under Item 5 regarding HECO and its subsidiaries kilowatthour
sales forecast, PTI's report on HECO's power outage, and income taxes. In the
Form 8-K dated November 17, 1993, HEI and HECO filed information under Item 5
regarding the HELCO rate case filed in November 1993, MECO rate case filed in
November 1991, HECO's comments on PTI's report on HECO's power outage, HELCO
and MECO transportation of heavy fuel oil, liquidity and capital resources-
electric utility, Kalaeloa Partners, L.P. and AES Barbers Point, Inc. and
discontinued operations-insurance companies. In the Form 8-K dated December 27,
1993, HEI and HECO filed information under Item 5 regarding HECO filing its
1995 rate case.
65
<PAGE> 72
(KPMG Peat Marwick Letterhead)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Shareholders
Hawaiian Electric Industries, Inc.:
Under date of February 11, 1994, we reported on the consolidated balance
sheets of Hawaiian Electric Industries, Inc. and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year
period ended December 31, 1993, as contained in the 1993 annual report to
shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1993. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in note 15 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes. Additionally, as discussed in note 18 to the consolidated financial
statements, effective January 1, 1993, the Company changed its method of
accounting for postretirement benefits other than pensions.
/s/ KPMG Peat Marwick
Honolulu, Hawaii
February 11, 1994
66
<PAGE> 73
[KPMG Peat Marwick letterhead]
The Board of Directors
and Shareholder
Hawaiian Electric Company, Inc.:
Under date of February 11, 1994, we reported on the consolidated balance sheets
and consolidated statements of capitalization of Hawaiian Electric Company,
Inc. (a wholly-owned subsidiary of Hawaiian Electric Industries, Inc.) and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, retained earnings and cash flows for each of the years in
the three-year period ended December 31, 1993, as contained in the 1993 annual
report to shareholder. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1993. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in note 7 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Additionally, as discussed in note 10 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions.
/s/ KPMG Peat Marwick
Honolulu, Hawaii
February 11, 1994
67
<PAGE> 74
Hawaiian Electric Industries, Inc.
SCHEDULE I -- MARKETABLE SECURITIES - OTHER INVESTMENTS
December 31, 1993
<TABLE>
<CAPTION>
========================================================================================================
Col. A Col. B Col. C Col. D Col. E
- --------------------------------------------------------------------------------------------------------
Amount at
which each
portfolio
Number of equity
of shares security
or units- Market issues and
principal value of each other
amount each security issue
of Cost issue at carried
bonds of balance in the
Name of issuer and title of and each sheet balance
each issue notes issue* date sheet
- --------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
MARKETABLE SECURTIES
ASB
Stock in Federal Home Loan Bank
of Seattle...................... 232,034 $ 23,203 $ 23,203 $ 23,203
Other securities held for
trading......................... $ 44,049 45,396 45,396 45,396
Mortgage-backed securities **
Federal Home Loan Mortgage
Corporation................... $118,469 117,803 125,827 117,803
Private-issue mortgage-backed
securities.................... $461,778 465,373 468,272 465,373
Other........................... $ 46,575 46,980 47,671 46,980
-------- -------- --------
630,156 641,770 630,156
-------- -------- --------
TOTAL MARKETABLE SECURITIES..... $698,755 $710,369 $698,755
======== ======== ========
OTHER INVESTMENTS
HEIIC
Common stock.................... 9 $ 5,000 *** $ 5,517
Leveraged leases................ N/A 53,115 *** 53,115
------ --------
Subtotal...................... 58,115 58,632
------ --------
HEI, MPC and HTB
Preferred stock - HECO
(Series H).................... 100,000 808 *** 808
Real estate partnerships........ N/A 17,494 *** 17,494
Other........................... N/A 172 *** 172
------- --------
Subtotal...................... 18,474 18,474
------- --------
TOTAL OTHER INVESTMENTS......... $76,589 $ 77,106
======= ========
</TABLE>
* Represents cost of each issue, except for: ASB's other securities held for
trading, which are stated at market, and mortgage-backed securities,
which are stated at amortized cost; and MPC's investment in real estate
partnerships, which are stated in accordance with the equity method of
accounting.
** Secured by residential property.
*** Not actively traded. Fair value considered to equal cost basis or
amount at which security is carried in the balance sheet.
68
<PAGE> 75
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
December 31, 1993
<TABLE>
<CAPTION>
================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- ----------------------------------------------------------------------------------------------------------------
Deductions
Balance at ---------- Balance at end of Period
beginning Amounts ------------------------
Name of debtor of period Additions collected Current Noncurrent
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Baldwin*Malama Joint Venture (a)(b).. $1,347 $780 $2,127 $ -- $ --
HECO Executive Officer (c)........... 290 -- 290 -- --
HELCO Executive Officer (d).......... 120 -- -- -- 120
------- ------ ------ ------ -----
$1,757 $780 $2,417 $ -- $120
======= ====== ======= ====== =====
</TABLE>
(a) Two unsecured promissory notes payable. Interest rate is based on Bank of
Hawaii's prime rate plus 2% for the first note and Bank of Hawaii's prime
rate plus 0.75% for the second note.
(b) In May 1993, Baldwin*Malama (B*M) was reorganized as a limited partnership
in which Malama Development Corp. (MDC) is the sole general partner and
Baldwin Pacific Properties, Inc. (BPPI) is the sole limited partner. In
conjunction with the dissolution of the B*M general partnership and
formation of the limited partnership, MPC agreed to loan $1.6 million to
BPPI and up to $15 million to the limited partnership, and beginning in May
1993, MDC consolidated the accounts of B*M. Previously, MDC accounted for
its investment in B*M under the equity method. At December 31, 1993, the
outstanding balances on MPC's loan to B*M was $10.6 million, which was
eliminated in consolidation as an intercompany account. The interest rate
is based on one-half of Bank of Hawaii's prime plus 8.5%. The loan matures
in May 1995 and is secured by security interest in real property, option to
purchase land, and assignments of BPPI and MDC's partnership interests.
(c) Two unsecured noninterest-bearing notes payable from T. Michael May, Senior
Vice President of Hawaiian Electric Company, Inc. (HECO), due and collected
in 1993.
(d) Unsecured noninterest-bearing note payable from Warren H. W. Lee, President
of Hawaii Electric Light Co., Inc. (HELCO), which note was extended and is
currently due in 1995 or upon demand, if he ceases to be employed by HELCO.
69
<PAGE> 76
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
December 31, 1992
<TABLE>
<CAPTION>
================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- ----------------------------------------------------------------------------------------------------------------
Deductions
Balance at ---------- Balance at end of period
beginning Amounts ------------------------
Name of debtor of period Additions collected Current Noncurrent
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Ainalani Associates (a).............. $20,101 $ 397 $20,498 $ -- $ --
Baldwin*Malama Joint Venture (b)..... 302 1,395 350 1,347 --
HECO Executive Officer (c) .......... -- 290 -- 290 --
HELCO Executive Officer (d) ......... -- 120 -- 120 --
------- ------- ------- ------ ------
$20,403 $ 2,202 $20,848 $1,757 $ --
======= ======= ======= ====== ======
</TABLE>
(a) On August 17, 1992, Malama Mohala Corp. (MMO), a wholly owned subsidiary
of Malama Pacific Corp. (MPC), acquired MDT BF Limited Partnership's
(MDT) 50% interest in Ainalani Associates (Ainalani), a joint venture
between MMO and MDT. Prior to the acquisition of MDT's interest in
Ainalani, MMO accounted for its investment in Ainalani under the equity
method. Subsequent to the acquisition, MMO consolidated all of Ainalani's
assets and liabilities. Consequently, $19,497,000 of accounts
receivable from Ainalani was eliminated as a result of the acquisition.
Thus, only $1,001,000 of cash was actually collected.
(b) Two unsecured promissory notes payable, due December 31, 1992, extension of
maturity dates are being arranged. Interest rate is based on Bank of
Hawaii's prime rate plus 2% for the first note and Bank of Hawaii's prime
rate plus 0.75% for the second note.
(c) Two unsecured noninterest-bearing notes payable from T. Michael May, Senior
Vice President of Hawaiian Electric Company, Inc. (HECO), due in 1993 or
upon demand, if he ceases to be employed by HECO.
(d) Unsecured noninterest-bearing note payable from Warren H. W. Lee, President
of Hawaii Electric Light Co., Inc. (HELCO), due in 1993 or upon demand, if
he ceases to be employed by HELCO.
70
<PAGE> 77
Hawaiian Electric Industries, Inc.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
December 31, 1991
<TABLE>
<CAPTION>
================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- ----------------------------------------------------------------------------------------------------------------
Deductions
Balance at ----------- Balance at end of period
beginning Amounts -------------------------
Name of debtor of period Additions collected Current Noncurrent
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Ainalani Associates ............... $20,403 $7,803 $8,105 $5,133(a) $14,968(b)
Sunrise Estates Joint Venture ..... 100 193 293 -- --
Baldwin*Malama Joint Venture (c) .. -- 368 66 302 --
Makakilo Cliffs Joint Venture ...... 827 226 1,053 -- --
-------- ------ ------ ------ -------
$21,330 $8,590 $9,517 $5,435 $14,968
======= ====== ======= ====== =======
</TABLE>
(a) Promissory note payable, due July 1992 with an option to extend to July
1993. Interest rate is based on Bank of Hawaii's prime rate plus 3.5%.
Promissory note is secured by real estate, the joint venture's interest in
a partnership and contract rights.
(b) Promissory note payable, due in 1995, except certain events may trigger
earlier partial repayment. Interest rate is based on Bank of Hawaii's
prime rate plus 2%. Promissory note is secured by real estate, the joint
venture's interest in a partnership and contract rights.
(c) Unsecured promissory note payable, due December 1992. Interest rate is
based on Bank of Hawaii's prime rate plus 2%.
71
<PAGE> 78
Hawaiian Electric Industries, Inc.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
(in thousands) 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents.......................... $ 32,383 $ 5,999
Short-term notes receivable from subsidiaries. 28,455 37,211
Accounts receivable........................... 12,559 3,239
Other investments............................. 809 809
Property, plant and equipment, net............ 2,874 3,250
Other assets.................................. 2,191 24,618
Investment in wholly owned subsidiaries,
at equity................................... 825,066 734,508
-------- --------
$904,337 $809,634
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.............................. $ 14,741 28,138
Short-term borrowings......................... -- 36,185
Long-term debt, net........................... 200,500 186,000
Deferred income taxes......................... 5,106 3,692
Unamortized tax credits....................... 36 39
Other......................................... 40,926 7,839
-------- --------
261,309 261,893
-------- --------
Stockholders' equity
Common stock.................................. 514,710 409,257
Retained earnings............................. 128,318 138,484
-------- --------
643,028 547,741
-------- --------
$904,337 $809,634
======== ========
Note to Balance Sheets
Long-term debt, net, consisted of the
following:
Promissory notes, 6.3% - 7.6%, due in
variuos years through 2003.................. $113,000 $ 76,000
Promissory notes, 8.2% - 9.9%, due in
various years through 2011.................. 87,500 108,500
Promissory note, 5.3%, due 1993.............. -- 1,500
-------- --------
$200,500 $186,000
======== ========
</TABLE>
As of December 31, 1993, HEI guaranteed debt of its subsidiaries and affiliates
amounting to $13 million. In addition, in connection with the acquisition of
HIG, HEI has agreed to indemnify HIG with respect to 1985 and 1986 claims that
exceed an aggregate of $10.8 million up to $12.8 million and 50% of the claims
that exceed an aggregate of $12.8 million up to $13.8 million. HEIDI has made a
provision for the estimated liability related to these claims. Pursuant to the
settlement agreement with the Rehabilitator of HIG entered into in early 1994,
which agreement is subject to court approval, HEI will be relieved of all
obligations with respect to the indemnification of HIG.
The aggregate payments of principal required on long-term debt subsequent to
December 31, 1993 are $26 million in 1994, $1 million in 1995, $37 million in
1996, $51 million in 1997, $21 million in 1998 and $65 million thereafter.
72
<PAGE> 79
Hawaiian Electric Industries, Inc.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES.......................................... $ 3,353 $ 1,884 $ 3,491
Equity in income from continuing
operations of subsidiaries...................... 74,764 68,156 58,409
-------- -------- ---------
78,117 70,040 61,900
-------- -------- ---------
EXPENSES:
Operating, administrative and general............. 6,897 1,637 573
Taxes, other than income taxes.................... 226 193 196
Depreciation and amortization of property,
plant and equipment............................. 569 660 383
-------- --------- ---------
7,692 2,490 1,152
-------- --------- ---------
70,425 67,550 60,748
Interest expense.................................. 18,355 12,641 9,943
-------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT........................ 52,070 54,909 50,805
Income tax benefit................................ 9,614 6,806 4,815
-------- --------- ---------
Income from continuing operations................. 61,684 61,715 55,620
Loss from discontinued operations................. (13,025) (73,297) (794)
-------- --------- ---------
NET INCOME (LOSS)................................. $48,659 $(11,582) $54,826
======== ========= =========
</TABLE>
73
<PAGE> 80
Hawaiian Electric Industries, Inc.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations............................ $61,684 $61,715 $55,620
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities
Equity in income from continuing operations of subsidiaries (74,764) (68,156) (58,409)
Common stock dividends received from subsidiaries........... 53,305 33,884 36,873
Depreciation and amortization of property, plant and
equipment................................................. 569 660 383
Other amortization.......................................... 294 282 238
Deferred income taxes and tax credits, net.................. 232 825 3,144
Changes in assets and liabilities
Decrease (increase) in accounts receivable............... (9,320) (1,787) 92
Increase (decrease) in accounts payable.................. (13,397) 25,268 1,292
Changes in other assets and liabilities.................. 39,783 (15,447) (4,475)
-------- ------- -------
58,386 37,244 34,758
Cash flows from discontinued operations ...................... (2,525) -- 750
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 55,861 37,244 35,508
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in short-term notes receivable from
subsidiaries................................................ 8,756 1,024 (4,590)
Capital expenditures.......................................... (193) (535) (2,912)
Additional investments in subsidiaries........................ (65,000) (56,967) (61,000)
Other......................................................... 50 -- 16
-------- ------- -------
(56,387) (56,478) (68,486)
Net investment in discontinued operations..................... -- (24,751) (6,750)
-------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES......................... (56,387) (81,229) (75,236)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in short-term borrowings with original maturities
of three months or less...................................... (185) (15,463) (42,935)
Proceeds from other short-term borrowings..................... -- 36,000 --
Repayment of other short-term borrowings...................... (36,000) -- --
Proceeds from issuance of long-term debt...................... 37,000 50,000 85,000
Repayment of long-term debt................................... (22,500) -- (17,000)
Net proceeds from issuance of common stock.................... 88,658 18,248 51,415
Common stock dividends........................................ (42,012) (39,214) (36,877)
Other......................................................... 1,949 413 125
-------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................... 26,910 49,984 39,728
-------- ------- -------
Net increase in cash and equivalents.......................... 26,384 5,999 --
Cash and equivalents, beginning of year....................... 5,999 -- --
-------- ------- -------
CASH AND EQUIVALENTS, END OF YEAR............................. $ 32,383 $ 5,999 $ --
======== ======= =======
</TABLE>
Supplemental disclosures of noncash activities:
In December 1992, the Board of Directors of HEI adopted a resolution which
converted $9.5 million of long-term debt of HERS to equity. HEI assumed the
$9.5 million of HERS' long-term debt in a noncash transaction.
Common stock dividends reinvested by stockholders in HEI common stock in
noncash transactions amounted to $17 million in 1993, $15 million in 1992 and
$14 million in 1991.
74
<PAGE> 81
Hawaiian Electric Industries, Inc.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 1993
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------
Other
changes,
Balance at net Balance at
beginning of Additions Retire- add end of
(in thousands) period at Cost(a) ments (deduct)(b) period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HAWAIIAN ELECTRIC COMPANY,
INC. AND SUBSIDIARIES
ELECTRIC PLANT IN SERVICE
Land............................ $ 23,256 $ 289 $ 776 $ (167) $ 22,602
Production...................... 543,212 58,292 277 (1) 601,226
Transmission and distribution... 1,100,144 113,843 5,330 23,164 (c) 1,231,821
General......................... 98,361 18,573 1,633 (161) 115,140
---------- -------- ------- -------- ----------
1,764,973 190,997 8,016 22,835 1,970,789
Plant acquisition adjustment.... 823 -- -- (52) 771
Construction work in progress... 107,030 24,704 -- (5,391) 126,343
Property held for future use.... 4,578 53 -- -- 4,631
---------- -------- ------- -------- ----------
1,877,404 215,754 8,016 17,392 2,102,534
OTHER COMPANIES................... 125,508 7,741 13,875 (729) 118,645
---------- -------- ------- -------- ----------
TOTAL HAWAIIAN ELECTRIC
INDUSTRIES, INC. AND
SUBSIDIARIES..................... $2,002,912 $223,495 $21,891 $16,663 $2,221,179
========== ======== ======= ======== ==========
</TABLE>
(a) Additions at cost include a $7.0 million allowance for equity funds
used during construction and noncash contributions in aid of
construction received in 1993 with an estimated fair value of $2.8
million.
(b) Includes transfers, adjustments and other charges and credits.
(c) Includes the estimated fair value of noncash contributions in aid of
construction of $23 million received in prior years, but recognized
in 1993.
75
<PAGE> 82
Hawaiian Electric Industries, Inc.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
December 31, 1992 and 1991
<TABLE>
<CAPTION>
============================================================================
Col. A Col. F(a) Col. F(a)
- ----------------------------------------------------------------------------
Balance at Balance at
December 31, December 31,
(in thousands) 1992(b) 1991(c)
- ----------------------------------------------------------------------------
<S> <C> <C>
HAWAIIAN ELECTRIC COMPANY, INC. AND
SUBSIDIARIES
ELECTRIC PLANT IN SERVICE
Land................................ $ 23,256 $ 24,071
Production.......................... 543,212 478,270
Transmission and distribution....... 1,100,144 995,989
General............................. 98,361 85,688
---------- ----------
1,764,973 1,584,018
Plant acquisition adjustment....... 823 910
Construction work in progress...... 107,030 114,974
Property held for future use....... 4,578 1,316
---------- ----------
1,877,404 1,701,218
OTHER COMPANIES......................... 125,508 118,563
---------- ----------
TOTAL HAWAIIAN ELECTRIC INDUSTRIES, INC.
AND SUBSIDIARIES...................... $2,002,912 $1,819,781
========== ==========
</TABLE>
(a) Neither additions nor retirements in 1992 and 1991 amounted to more
than 10% of the ending balance as of the end of each of those respective
years.
(b) Additions at cost and retirements amounted to $197.4 million and $13.4
million, respectively, in 1992. The additions include a $6.8 million
allowance for equity funds used during construction.
(c) Additions at cost and retirements amounted to $161.5 million and $6.9
million respectively, in 1991. The additions include a $4.0 million
allowance for equity funds used during construction.
76
<PAGE> 83
Hawaiian Electric Company, Inc.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 1993
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------
Other
changes,
Balance at net Balance at
beginning Additions Retire- add end of
(in thousands) of period at Cost(a) ments (deduct)(b) period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ELECTRIC PLANT IN SERVICE
Land............................. $ 23,256 $ 289 $ 776 $ (167) $ 22,602
Production....................... 543,212 58,292 277 (1) 601,226
Transmission and distribution.... 1,100,144 113,843 5,330 23,164(c) 1,231,821
General.......................... 98,361 18,573 1,633 (161) 115,140
---------- -------- ------- ------- ----------
1,764,973 190,997 8,016 22,835 1,970,789
Plant acquisition adjustment..... 823 -- -- (52) 771
Construction work in progress.... 107,030 24,704 -- (5,391) 126,343
Property held for future use..... 4,578 53 -- -- 4,631
---------- -------- ------- ------- ----------
$1,877,404 $215,754 $ 8,016 $17,392 $2,102,534
========== ======== ======= ======= ==========
</TABLE>
(a) Additions at cost include a $7.0 million allowance for equity funds
used during construction and noncash contributions in aid of construction
received in 1993 with an estimated fair value of $2.8 million.
(b) Includes transfers, adjustments and other charges and credits.
(c) Includes the estimated fair value of noncash contributions in aid of
construction of $23 million received in prior years, but recognized in
1993.
77
<PAGE> 84
Hawaiian Electric Company, Inc.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 1992
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------
Other
changes,
Balance at net Balance at
beginning Additions Retire- add end of
(in thousands) of period at Cost(a) ments (deduct)(b) period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ELECTRIC PLANT IN SERVICE
Land............................. $ 24,071 $ 131 $ 1,202 $ 256 $ 23,256
Production....................... 478,270 66,476 1,475 (59) 543,212
Transmission and distribution.... 995,989 111,048 6,659 (234) 1,100,144
General.......................... 85,688 14,701 1,951 (77) 98,361
---------- -------- ------- ------- ----------
1,584,018 192,356 11,287 (114) 1,764,973
Plant acquisition adjustment..... 910 -- -- (87) 823
Construction work in progress.... 114,974 (8,057) -- 113 107,030
Property held for future use..... 1,316 4,024 -- (762) 4,578
---------- -------- ------- ------- ----------
$1,701,218 $188,323 $11,287 $(850) $1,877,404
========== ======== ======= ======= ==========
</TABLE>
(a) Additions at cost include a $6.8 million allowance for equity funds
used during construction.
(b) Includes transfers, adjustments and other charges and credits.
78
<PAGE> 85
Hawaiian Electric Company, Inc.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
December 31, 1991
<TABLE>
<CAPTION>
================================================================
Col. A Col. F(a)
- ----------------------------------------------------------------
Balance at
December 31,
(in thousands) 1991(b)
- ----------------------------------------------------------------
<S> <C>
ELECTRIC PLANT IN SERVICE
Land..................................... $ 24,071
Production............................... 478,270
Transmission and distribution............ 995,989
General.................................. 85,688
----------
1,584,018
Plant acquisition adjustment............. 910
Construction work in progress............ 114,974
Property held for future use............. 1,316
----------
$1,701,218
==========
</TABLE>
(a) Neither additions nor retirements in 1991 amounted to more than 10% of
the ending balance as of December 31, 1991.
(b) Additions at cost and retirements amounted to $145.9 million and $4.9
million, respectively, in 1991. The additions include a $4.0 million
allowance for equity funds used during construction.
79
<PAGE> 86
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 1993
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------
Additions Other
Balance at charged to changes Balance at
beginning of costs and Retire- add end of
(in thousands) period expenses ments (deduct)(a) period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HAWAIIAN ELECTRIC COMPANY,
INC. AND SUBSIDIARIES
ELECTRIC PLANT IN SERVICE
Production........................ $224,726 $19,645 $ 463 $ (71) $243,837
Transmission and distribution..... 324,010 44,357 5,348 (2,867) 360,152
General........................... 36,430 5,140 1,632 145 40,083
-------- ------- ------- ------- --------
585,166 69,142 7,443 (2,793) 644,072
Less--retirement work in progress. 2,135 -- -- 707 2,842
-------- ------- ------- ------- --------
583,031 69,142 7,443 (3,500) 641,230
-------- ------- ------- ------- --------
OTHER COMPANIES..................... 32,053 8,354 3,447 -- 36,960
-------- ------- ------- ------- --------
TOTAL HAWAIIAN ELECTRIC INDUSTRIES,
INC. AND SUBSIDIARIES............. $615,084 $77,496 $10,890 $(3,500) $678,190
======== ======= ======= ======= ========
</TABLE>
(a) Gross salvage on plant retired, cost of removal, transfers and
adjustments.
80
<PAGE> 87
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 1992
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------
Additions
charged Other
Balance at to costs changes Balance at
beginning of and Retire- add end of
(in thousands) period expenses ents (deduct)(a) period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HAWAIIAN ELECTRIC COMPANY,
INC. AND SUBSIDIARIES
ELECTRIC PLANT IN SERVICE
Production........................ $209,957 $16,625 $ 1,475 $ (381) $224,726
Transmission and distribution..... 295,078 38,566 6,659 (2,975) 324,010
General........................... 33,665 4,646 1,951 70 36,430
-------- ------- ------- ------- --------
538,700 59,837 10,085 (3,286) 585,166
Less--retirement work in progress. 2,148 -- -- (13) 2,135
-------- ------- ------- ------- --------
536,552 59,837 10,085 (3,273) 583,031
-------- ------- ------- ------- --------
OTHER COMPANIES..................... 25,086 8,072 1,114 9 32,053
-------- ------- ------- ------- --------
TOTAL HAWAIIAN ELECTRIC INDUSTRIES,
INC. AND SUBSIDIARIES............. $561,638 $67,909 $11,199 $(3,264) $615,084
======== ======= ======= ======= ========
</TABLE>
(a) Gross salvage on plant retired, cost of removal, transfers and
adjustments.
81
<PAGE> 88
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 1991
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------
Additions Other
Balance at charged to changes Balance at
beginning costs and Retire- add end of
(in thousands) of period expenses ments (deduct)(a) period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HAWAIIAN ELECTRIC COMPANY, INC.
AND SUBSIDIARIES
ELECTRIC PLANT IN SERVICE
Production........................ $194,527 $15,738 $ 167 $ (141) $209,957
Transmission and distribution..... 266,352 34,348 3,415 (2,207) 295,078
General........................... 30,535 4,355 1,289 64 33,665
-------- ------- ------- ------- --------
491,414 54,441 4,871 (2,284) 538,700
Less--retirement work in progress. 1,457 -- -- 691 2,148
-------- ------- ------- ------- --------
489,957 54,441 4,871 (2,975) 536,552
-------- ------- ------- ------- --------
OTHER COMPANIES..................... 18,346 7,271 525 (6) 25,086
-------- ------- ------- ------- --------
TOTAL HAWAIIAN ELECTRIC INDUSTRIES,
INC. AND SUBSIDIARIES............. $508,803 $61,712 $ 5,396 $(2,981) $561,638
======== ======= ======= ======= ========
</TABLE>
(a) Gross salvage on plant retired, cost of removal, transfers and
adjustments.
82
<PAGE> 89
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
=============================================================================================================
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------
Additions
------------------------
Charged
Balance to costs
at begin- and Charged Balance
ning of other to at end of
(in thousands) period expenses accounts Deductions period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Allowance for uncollectible
accounts
Hawaiian Electric Company, Inc.
and subsidiaries................ $1,120 $1,521 $815 $2,099 $1,357
Other companies.................. 172 155 1 108 220
------ ------ ---- ------ ------
$1,292 $1,676 $816(a) $2,207(b) $1,577
====== ====== ==== ====== ======
Allowance for uncollectible
interest (ASB).................. $ 482 $ -- $ -- $ 141 $ 341
====== ====== ==== ====== ======
Allowance for losses for
loans receivable (ASB).......... $5,157 $ 779 $ -- $ 622(c) $5,314
====== ====== ==== ====== ======
1992
Allowance for uncollectible
accounts
Hawaiian Electric Company, Inc.
and subsidiaries............... $1,032 $1,246 $820 $1,978 $1,120
Other companies................. 214 104 2 148 172
------ ------ ---- ------ ------
$1,246 $1,350 $822(a) $2,126(b) $1,292
====== ====== ==== ====== ======
Allowance for uncollectible
interest (ASB).................. $ 45 $ 437 $ -- $ -- $ 482
====== ====== ==== ====== ======
Allowance for losses for loans
receivable (ASB)................ $3,818 $1,494 $ -- $ 155(c) $5,157
====== ====== ==== ====== ======
1991
Allowance for uncollectible
accounts
Hawaiian Electric Company, Inc.
and subsidiaries .............. $ 250 $3,019 $769 $3,006 $1,032
Other companies................ 148 95 2 31 214
------ ------ ---- ------ ------
$ 398 $3,114 $771(a) $3,037(b) $1,246
====== ====== ==== ====== ======
Allowance for uncollectible
interest (ASB)................. $ 43 $ 2 $ -- $ -- $ 45
====== ====== ==== ====== ======
Allowance for losses for
loans receivable (ASB)......... $3,387 $ 641 $ -- $ 210(c) $3,818
====== ====== ==== ====== ======
</TABLE>
(a) Primarily bad debts recovered.
(b) Bad debts charged off.
(c) Net charge-offs.
83
<PAGE> 90
Hawaiian Electric Industries, Inc.
SCHEDULE IX--SHORT-TERM BORROWINGS
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
===================================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------------
Maximum
Weighted amount Average Weighted
average outstanding amount average
interest rate during the outstanding interest rate
Balance at at end of period during the during the
(dollars in thousands) end of period period (month end) period (d) period (e)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Commercial paper (a).............. $28,928 3.62% $185,264 $110,748 3.44%
Bank loan-HEI (b)................. -- -- 43,600 18,063 4.41
Bank loans-MPC (c)................ 11,488 7.35 15,494 12,062 7.33
1992
Commercial paper (a).............. 122,176 4.11 165,775 79,107 4.03
Bank loan-HEI (b)................. 36,000 4.56 36,000 197 4.56
Bank loan-MPC (c)................. 2,035 7.50 4,076 2,903 7.83
1991
Commercial paper (a).............. 29,420 5.26 123,172 67,218 6.78
</TABLE>
(a) Unsecured promissory notes sold through dealers with a term of three
months or less.
(b) Borrowed under a formal credit arrangement with a bank with a term of
six months.
(c) Borrowed under formal credit agreements which, as of yearend, had
maturities of less than twelve months.
(d) Computed by multiplying the principal amounts of short-term borrowings
by the number of days during which those borrowings were outstanding and
dividing the sum of the products by the number of days in the year.
(e) Computed by dividing interest expense on short-term borrowings for the
period by the average amount of short-term borrowings outstanding during
the period.
84
<PAGE> 91
Hawaiian Electric Company, Inc.
SCHEDULE IX--SHORT-TERM BORROWINGS
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
===================================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- -------------------------------------------------------------------------------------------------------------------
Maximum
Weighted amount Average Weighted
average outstanding amount average
interest rate during the outstanding interest rate
Balance at at end of period during the during the
(dollars in thousands) end of period period (month end) period (b) period (c)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Commercial paper (a).............. $ 28,928 3.62% $146,069 $101,914 3.44%
1992
Commercial paper (a).............. 122,176 4.11 133,275 76,152 4.04
1991
Commercial paper (a).............. 29,420 5.26 78,817 54,688 6.55
</TABLE>
(a) Unsecured promissory notes sold through dealers with a term of three
months or less.
(b) Computed by multiplying the principal amounts of short-term borrowings
by the number of days during which those borrowings were outstanding and
dividing the sum of the products by the number of days in the year.
(c) Computed by dividing interest expense on short-term borrowings for the
period by the average amount of short-term borrowings outstanding during
the period.
85
<PAGE> 92
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Col. A Col. B
- ---------------------------------------------------------------------------------------
Charged to costs and expenses
-----------------------------------
(in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAINTENANCE AND REPAIRS
Hawaiian Electric Company, Inc. and subsidiaries... $44,281 $44,653 $39,463
Other companies.................................... 7,395 7,709 7,103
------- ------- -------
$51,676 $52,362 $46,566
======= ======= =======
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property, plant
and equipment
Hawaiian Electric Company, Inc. and subsidiaries
Electric utility plant and equipment............ $69,142 $59,837 $54,441
Less
Vehicle depreciation (charged to overhead
clearing accounts)........................... 1,316 1,112 1,062
Amortization of contributions in aid of
construction................................. 7,565 4,875 4,342
Amortization of regulatory assets............. 4,260 -- --
Depreciation charged to others................ 39 (9) 30
Other......................................... 2 3 2
------- ------- -------
55,960 53,856 49,005
Other companies................................. 8,354 8,072 7,271
------- ------- -------
Total depreciation and amortization of property,
plant and equipment............................ 64,314 61,928 56,276
------- ------- -------
Other amortization
ASB goodwill and other intangibles............. 4,210 3,677 3,681
Other ASB acquisition adjustments.............. (1,981) (2,129) (1,696)
Net discounts on loans receivable and mortgage-
backed securities............................. (6,256) (2,516) (1,695)
Net discounts and premiums on investments...... 293 317 288
Other, net
Hawaiian Electric Company, Inc. and
subsidiaries.............................. 803 955 1,204
Other companies ............................ 308 298 251
------- ------- -------
Total other amortization...................... (2,623) 602 2,033
------- ------- -------
$61,691 $62,530 $58,309
======= ======= =======
TAXES, OTHER THAN PAYROLL AND INCOME TAXES
Hawaiian Electric Company, Inc. and subsidiaries
Public service company tax.................... $51,527 $45,781 $42,793
Franchise tax................................. 21,725 18,919 18,561
Public utility commission fee................. 2,189 1,916 1,854
------- ------- -------
75,441 66,616 63,208
Other companies.................................. 5,582 4,742 4,320
------- ------- -------
$81,023 $71,358 $67,528
======= ======= =======
</TABLE>
86
<PAGE> 93
INDEX TO EXHIBITS
The exhibits designated by an asterisk (*) are filed herein. The exhibits
not so designated are incorporated by reference to the indicated filing. A copy
of any exhibit may be obtained upon written request for a $0.20 per page charge
from the HEI Stock Transfer Division, P.O. Box 730, Honolulu, Hawaii 96808-0730.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
HEI:
- ---
<S> <C>
3(i).1 HEI's Restated Articles of Incorporation (Exhibit 4(b) to
Registration No. 33-7895).
3(i).2 Articles of Amendment of HEI filed June 30, 1990 (Exhibit
4(b) to Registration No. 33-40813).
3(ii) HEI's By-Laws (Exhibit 4(c) to Registration No. 33-21761).
4.1 Agreement to provide the SEC with instruments which define
the rights of holders of certain long-term debt of HEI and
its subsidiaries (Exhibit 4.1 to HEI's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, File No.
1-8503).
4.2 Indenture, dated as of October 15, 1988, between HEI and
Citibank, N.A., as Trustee (Exhibit 4 to Registration
No. 33-25216).
4.3 First Supplemental Indenture dated as of June 1, 1993 between
HEI and Citibank, N.A., as Trustee, to Indenture dated as of
October 15, 1988 between HEI and Citibank, N.A., as Trustee
(Exhibit 4(a) to HEI's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No.1-8503).
4.4 Officers' Certificate dated as of November 9, 1988, pursuant
to Sections 102 and 301 of the Indenture, dated as of October
15, 1988, between HEI and Citibank, N.A., as Trustee,
establishing Medium-Term Notes, Series A (Exhibit 4.2 to
HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No.1-8503).
4.5 Pricing Supplements Nos. 1 through 11 to the Registration
Statement on Form S-3 of HEI (Registration No. 33-25216)
filed in connection with the sale of Medium-Term Notes,
Series A (filed under Rule 424(b) in connection with
Registration No. 33-25216).
4.6 Pricing Supplements Nos. 1 through 9 to the Registration
Statement on Form S-3 of HEI (Registration No. 33-58820)
filed in connection with the sale of Medium-Term Notes,
Series B (Exhibit 4(b) to HEI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, File No. 1-8503).
4.7 Indenture, dated as of May 1, 1989, from ASB to Citibank,
N.A., as Trustee (Exhibit 4 to HEI's Quarterly Report on Form
10-Q for the quarter ended June 30, 1989, File No. 1-8503).
4.8 Purchase Agreement dated March 7, 1991 among HEI and the
Purchasers named therein, together with the Notes issued to
such Purchasers, each dated March 7, 1991, pursuant to the
Purchase Agreement (Exhibit 4.5 to HEI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-8503).
4.9 Composite conformed copy of the Note Purchase Agreement dated
as of December 16, 1991 among HEI and the Purchasers named
therein (Exhibit 4.6 to HEI's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, File No.
1-8503).
10.1 PUC Order Nos. 7070, 7153, 7203 and 7256 in Docket No. 4337,
including copy of "Conditions for the Merger and Corporate
Restructuring of Hawaiian Electric Company, Inc." dated
September 23, 1982 (Exhibit 10 to Amendment No. 1 to Form
U-1).
87
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.2 Agreement to Purchase Assets and Assume Liabilities between
ASB and First Nationwide Bank dated May 24, 1990 (Exhibit
10(d) to HEI's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, File No. 1-8503).
10.3 Regulatory Capital Maintenance/Dividend Agreement dated May
26, 1988, between HEI, HEIDI and the Federal Savings and Loan
Insurance Corporation (by the Federal Home Loan Bank of
Seattle) (Exhibit (28)-2 to HEI's Current Report on Form 8-K
dated May 26, 1988, File No. 1-8503).
10.3(a) OTS letter regarding release from Part II.B. of the
Regulatory Capital Maintenance/Dividend Agreement dated May
26, 1988 (Exhibit 10.3(a) to HEI's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, File No. 1-8503).
10.4 Executive Incentive Compensation Plan (Exhibit 10(a) to HEI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, File No. 1-8503).
10.5 HEI Executives' Deferred Compensation Plan (Exhibit 10.5 to
HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-8503).
10.6 Retirement Benefit Agreement--Andrew T. F. Ing and HEI
(Exhibit 10(b) to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, File No. 1-8503).
10.7 1987 Stock Option and Incentive Plan of HEI as amended and
restated effective April 21, 1992 (Exhibit A to Proxy
Statement of HEI, dated March 6, 1992, for the Annual Meeting
of Stockholders, File No. 1-8503).
10.8 HEI Long-Term Incentive Plan (Exhibit 10.11 to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988, File No. 1-8503).
10.9 HEI Supplemental Executive Retirement Plan effective
January 1, 1990 (Exhibit 10.9 to HEI's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990,
File No. 1-8503).
10.10 HEI Excess Benefit Plan (Exhibit 10.13 (Exhibit A) to HEI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-8503).
10.11 Change-in-Control Agreement (Exhibit 10.14 to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989, File No. 1-8503).
10.12 Non-employee Director Retirement Plan, effective as of
October 1, 1989 (Exhibit 10.15 to HEI's Annual Report on Form
10-K for the fiscal year ended December 31, 1989,
File No. 1-8503).
10.13 HEI 1990 Non-employee Director Stock Plan (Exhibit 10(a) to
HEI's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990, File No. 1-8503).
10.14 HEI Non-employee Directors' Deferred Compensation Plan
(Exhibit 10.14 to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, File No. 1-8503).
10.15 HEI and HECO Executives' Deferred Compensation Agreement. The
agreement pertains to and is substantially identical for all
the HEI and HECO executive officers (Exhibit 10.15 to HEI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-8503).
</TABLE>
88
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.16 Contract of Sale between HECO and Malama Waterfront Corp.,
dated December 20, 1989, for the sale and purchase of the
Honolulu Power Plant Parcels, Iwilei Tank Farm Parcel and the
buildings, structures and other improvements (Exhibit 10.18
to HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-8503).
10.16(a) First Amendment to Contract of Sale by and between HECO and
Malama Waterfront Corp., dated September 25, 1990, amending
the Contract of Sale between HECO and Malama Waterfront
Corp., dated December 20, 1989, for the sale and purchase of
the Honolulu Power Plant Parcels, Iwilei Tank Farm Parcel and
the buildings, structures and other improvements (Exhibit
10(d) to HEI's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, File No. 1-8503).
10.17 Agreement among HIG, Hawaiian Underwriters Insurance Company,
Limited and United National Insurance Company, Limited and
Zenith Insurance Company dated June 3, 1987 (Exhibit 10.12 to
HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-8503).
10.18 Agreement by and among HIG, Hawaiian Insurance Company, Ltd.,
and United National Insurance Company, Ltd. and Zenith
Insurance Company dated December 31, 1986 (Exhibit 10.13 to
HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-8503).
10.18(a) Letter of Interpretation dated February 24, 1987, to
Agreement by and among HIG, Hawaiian Insurance Company, Ltd.,
and United National Insurance Company, Ltd. and Zenith
Insurance Company dated December 31, 1986 (Exhibit 10.13(a)
to HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-8503).
10.19 Acquisition Agreement among HEI, IU International
Corporation, and C. Brewer, Ltd. dated as of June 5, 1987
(Exhibit 2 to HEI's Current Report on Form 8-K dated June 8,
1987, File No. 1-8503).
*10.20 Settlement Agreement and General Release made and entered
into on February 10, 1994, by and between the Insurance
Commissioner as Rehabilitator/Liquidator, the HIG Group,
HIGA, HEI, HEIDI and others.
*11 Computation of Earnings Per Share of Common Stock. Filed
herein as page 95.
*12(a) Computation of Ratio of Earnings to Fixed Charges. Filed
herein as pages 96 and 97.
*13(a) Pages 27 to 70 of HEI's 1993 Annual Report to Stockholders
(with the exception of the data incorporated by reference in
Part I, Part II and Part III, no other data appearing in the
1993 Annual Report to Stockholders is to be deemed filed as
part of this Form 10-K Annual Report).
*21(a) List of Subsidiaries of HEI. Filed herein as page 99.
*22 HEI's Definitive Proxy Statement, File No. 1-8503, prepared
for the April 19, 1994 Annual Meeting of Stockholders (with
the exception of the data incorporated by reference in Part I
and Part III, no other data appearing in the Proxy Statement
is to be deemed filed as part of this Form 10-K Annual Report).
*23 Consent of Independent Auditors. Filed herein as page 101.
*99(a) Annual Report on Form 11-K for the HEI 401-K Retirement
Savings Plan for the year ended December 31, 1993.
</TABLE>
89
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
HECO:
3.1 HECO's Certificate of Amendment of Articles of Incorporation
(filed June 30, 1987) (Exhibit 3.1 to HECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988,
File No. 1-4955).
3.1(a) Statement of Issuance of Shares of Preferred or Special
Classes in Series for HECO Series R Preferred Stock filed
December 15, 1989 (Exhibit 3.1(a) to HECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989,
File No. 1-4955).
3.1(b) Articles of Amendment to HECO's Amended Articles of
Incorporation filed December 21, 1989 (Exhibit 3.1(b) to
HECO's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No 1-4955).
3.2 HECO's By-Laws (Exhibit 3.2 to HECO's Annual Report on Form
10-K for the fiscal year ended December 31, 1988,
File No. 1-4955).
4.1 Agreement to provide the SEC with instruments which define
the rights of holders of certain long-term debt of HECO,
HELCO and MECO (Exhibit 4 to HECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988,
File No. 1-4955).
4.2 Indenture dated as of December 1, 1993 between HECO and The
Bank of New York, as Trustee (Exhibit 4(a) to Registration
No. 33-51025).
4.3 Indenture dated as of December 1, 1993 among MECO, HECO, as
guarantor, and The Bank of New York, as Trustee (Exhibit 4(b)
to Registration No. 33-51025).
4.4 Indenture dated as of December 1, 1993 among HELCO, HECO, as
guarantor, and The Bank of New York, as Trustee (Exhibit 4(c)
to Registration No. 33-51025).
*4.5 Officers' Certificate dated as of December 22, 1993, pursuant
to Sections 102 and 301 of the Indenture dated as of
December 1, 1993 between HECO and The Bank of New York, as Trustee,
establishing the $20,000,000 Notes, 5.15% Series Due 1996.
*4.6 Officers' Certificate dated as of December 22, 1993, pursuant
to Sections 102 and 301 of the Indenture dated as of
December 1, 1993 between HECO and The Bank of New York, as Trustee,
establishing the $30,000,000 Notes, 5.83% Series Due 1998.
*4.7 Officers' Certificate dated as of December 22, 1993, pursuant
to Sections 102 and 301 of the Indenture dated as of
December 1, 1993 among MECO, HECO, as guarantor, and The
Bank of New York, as Trustee, establishing the $10,000,000 Notes,
5.15% Series Due 1996.
*4.8 Officers' Certificate dated as of December 22, 1993, pursuant
to Sections 102 and 301 of the Indenture dated as of
December 1, 1993 among HELCO, HECO, as guarantor, and The
Bank of New York, as Trustee, establishing the $10,000,000 Notes,
4.85% Series Due 1995.
10.1(a) Contract between HECO and the United States of America, dated
January 31, 1945, with respect to the use of the then-owned
lands of HECO at Waiau, island of Oahu (Exhibit 13(c) to
Registration No. 2-23986).
10.1(b) Contract between HECO and the United States of America, dated
January 31, 1945, with respect to the use of certain lands at
Waiau, island of Oahu, acquired or to be acquired, subsequent
to January 31, 1945 (Exhibit 13(d) to Registration
No. 2-23986).
90
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.2 Power Purchase Agreement between Kalaeloa Partners, L.P., and
HECO dated October 14, 1988 (Exhibit 10(a) to HECO's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, File No. 1-4955).
10.2(a) Amendment No. 1 to Power Purchase Agreement between HECO and
Kalaeloa Partners, L.P., dated June 15, 1989 (Exhibit 10(c)
to HECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989, File No. 1-4955).
10.2(b) Lease Agreement between Kalaeloa Partners, L.P., as Lessor,
and HECO, as Lessee, dated February 27, 1989 (Exhibit 10(d)
to HECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989, File No. 1-4955).
10.2(c) Restated and Amended Amendment No. 2 to Power Purchase
Agreement between HECO and Kalaeloa Partners, L.P., dated
February 9, 1990 (Exhibit 10.2(c) to HECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, File
No. 1-4955).
10.2(d) Agreement to Extend the "Cancellation Window" in the Kalaeloa
Power Purchase Agreement dated June 21, 1990 (Exhibit 10(e)
to HECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990, File No. 1-4955).
10.2(e) Amendment No. 3 to Power Purchase Agreement between HECO and
Kalaeloa Partners, L.P., dated December 10, 1991 (Exhibit
10.2(e) to HECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, File No. 1-4955).
10.3 Purchase Power Agreement between AES Barbers Point, Inc. and
HECO, entered into on March 25, 1988 (Exhibit 10(a) to HECO's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1988, File No. 1-4955).
10.3(a) Agreement between HECO and AES Barbers Point, Inc., pursuant
to letters dated May 10, 1988 and April 20, 1988 (Exhibit
10.4 to HECO's Annual Report on Form 10-K for fiscal year
ended December 31, 1988, File No. 1-4955).
10.3(b) Amendment No. 1 to the Purchase Power Agreement between AES
Barbers Point, Inc. and HECO (Exhibit 10 to HECO's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1989,
File No. 1-4955).
10.3(c) HECO's Conditional Notice of Acceptance to AES Barbers Point,
Inc. dated January 15, 1990 (Exhibit 10.3(c) to HECO's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989, File No. 1-4955).
10.4 Power Purchase Agreement between HELCO and Davies Hamakua
Sugar Company, dated October 15, 1981 (Exhibit 10.6 to HECO's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-4955).
10.4(a) Letter agreement between HELCO and Hamakua Sugar Company,
Inc. dated May 18, 1987, amending the Power Purchase
Agreement between HELCO and Davies Hamakua Sugar Company
dated October 15, 1981 (Exhibit 10.6(a) to HECO's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988, File No. 1-4955).
*10.4(b) Revised and restated amendment No. 2 to Power Purchase
Agreement between HELCO and Hamakua Sugar Company, Inc. dated
June 17, 1993, amending the Power Purchase Agreement between
HELCO and Davies Hamakua Sugar Company dated October 15,
1981.
</TABLE>
91
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.5 Power Purchase Agreement between HELCO and Hilo Coast
Processing Company dated May 31, 1988 (included in Exhibit 10
to HECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988, File No. 1-4955).
10.6 Agreement between MECO and Hawaiian Commercial & Sugar
Company pursuant to letters dated November 29, 1988 and
November 1, 1988 (Exhibit 10.8 to HECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988, File
No. 1-4955).
10.6(a) Amended and Restated Power Purchase Agreement by and between
A&B-Hawaii, Inc., through its division, Hawaiian Commercial &
Sugar Company, and MECO, dated November 30, 1989 (Exhibit
10(e) to HECO's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, File No. 1-4955).
10.6(b) First Amendment to Amended and Restated Power Purchase
Agreement by and between A&B-Hawaii, Inc., through its
division, Hawaiian Commercial & Sugar Company, and MECO,
dated November 1, 1990, amending the Amended and Restated
Power Purchase Agreement dated November 30, 1989 (Exhibit
10(f) to HECO'S Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, File No. 1-4955).
10.7 Purchase Power Contract between HELCO and Thermal Power
Company, dated March 24, 1986 (Exhibit 10(a) to HECO's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1989, File No. 1-4955).
10.7(a) Firm Capacity Amendment between HELCO and Puna Geothermal
Venture (assignee of AMOR VIII, who is the assignee of
Thermal Power Company), dated July 28, 1989, amending
Purchase Power Contract between HELCO and Thermal Power
Company, dated March 24, 1986 (Exhibit 10(b) to HECO's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1989, File No. 1-4955).
10.8 Purchase Power Contract between HECO and the City and County
of Honolulu dated March 10, 1986 (HRRV Agreement)
(Exhibit 10.9 to HECO'S Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, File No. 1-4955).
10.8(a) Firm capacity amendment, dated April 8, 1991, to purchase
power contract, dated March 10, 1986, by and between HECO and
City & County of Honolulu (Exhibit 10 to HECO's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1991,
File No. 1-4955).
10.9 Purchase Power Contract between MECO and Zond Pacific, Inc.,
dated May 24, 1991 (Exhibit 10 to HECO's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, File No.
1-4955).
10.10 Low Sulfur Fuel Oil Supply Contract by and between CUSA and
HECO dated May 29, 1990 (Exhibit 10(a) to HECO's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1990, File
No. 1-4955).
10.10(a) Second amendment, dated September 9, 1993, to Low Sulfur Fuel
Oil Supply Contract, dated May 29, 1990, by and between CUSA
and HECO (Exhibit 10(a) to HECO's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993, File No. 1-4955).
10.10(b) Inter-Island Industrial Fuel Oil and Diesel Fuel Contract by
and between CUSA and HECO, MECO, HELCO, HTB and YB dated as
of September 23, 1991 (Exhibit 10(a) to HECO's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1991,
File No. 1-4955).
92
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.10(c) Third amendment, dated October 1, 1993, to Inter-Island
Industrial Fuel Oil and Diesel Fuel Contract dated September
23, 1991, by and between CUSA and HECO, MECO, HELCO, HTB and
YB (Exhibit 10(b) to HECO's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993, File No. 1-4955).
10.10(d) Facilities and Operating Contract by and between CUSA and
HECO dated as of May 29, 1990 (Exhibit 10.10(b) to HECO's
Annual Report Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-4955).
10.10(e) Second amendment, dated September 21, 1993, to the Facilities
and Operating Contract dated May 29, 1990, by and between
CUSA and HECO (Exhibit 10(c) to HECO's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993,
File No. 1-4955).
10.11 Low Sulfur Fuel Oil Supply Contract between HIRI (succeeded
by BHP) and HECO dated April 25, 1990 (Exhibit 10(b) to
HECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990, File No. 1-4955).
10.11(a) First amendment, dated October 1, 1993, to Low Sulfur Fuel
Oil Supply Contract, dated April 25, 1990, between BHP and
HECO (Exhibit 10(d) to HECO's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, File No. 1-4955).
10.11(b) Inter-Island Industrial Fuel Oil and Diesel Fuel Contract by
and between HIRI (succeeded by BHP) and HECO, MECO and HELCO
dated September 23, 1991 (Exhibit 10(b) to HECO's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1991,
File No. 1-4955).
10.11(c) Second amendment, dated October 7, 1993, to Inter-Island
Industrial Fuel Oil and Diesel Fuel Contract, dated
September 23, 1991 by and between BHP and HECO, MECO and HELCO
(Exhibit 10(e) to HECO's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-4955).
10.12 Low Sulfur Fuel Oil Sale/Purchase Contract between HECO and
C. Itoh & Co. (America), Inc. dated June 7, 1990 (Exhibit
10(c) to HECO'S Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, File No. 1-4955).
*10.13 Contract of private carriage by and between HITI and HELCO
dated November 10, 1993.
*10.14 Contract of private carriage by and between HITI and MECO
dated November 12, 1993.
10.15 U.S.A. v. HECO Civil No. 88-00730 ACK: (1) Complaint for
Injunctive Relief and Civil Penalties (Clean Air Act, 42
U.S.C. Section 7401 et seq.); (2) Notice of Lodging of
Proposed Consent Decree; and (3) Consent Decree (Exhibit 10(b)
to HECO's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, File No. 1-4955).
10.16 U.S.A. v. MECO Civil No. 88-00731 DAE: (1) Complaint for
Injunctive Relief and Civil Penalties (Clean Air Act, 42
U.S.C. Section 7401 et seq.); (2) Notice of Lodging of
Proposed Consent Decree; and (3) Consent Decree (Exhibit
10(c) to HECO's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1988, File No. 1-4955).
10.17 HECO Non-employee Directors' Deferred Compensation Plan.
(Exhibit 10.16 to HECO'S Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, File No. 1-4955).
10.18 HEI and HECO Executives' Deferred Compensation Agreement. The
agreement pertains to and is substantially identical for all
the HEI and HECO executive officers (Exhibit 10.15 to HEI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-8503).
93
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.19 Contract of Sale between HECO and Malama Waterfront Corp.,
dated December 20, 1989, for the sale and purchase of the
Honolulu Power Plant Parcels, Iwilei Tank Farm Parcel and the
buildings, structures and other improvements (Exhibit 10.18
to HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-8503).
10.19(a) First Amendment to Contract of Sale by and between HECO and
Malama Waterfront Corp., dated September 25, 1990, amending
the Contract of Sale between HECO and Malama Waterfront
Corp., dated December 20, 1989, for the sale and purchase of
the Honolulu Power Plant Parcels, Iwilei Tank Farm Parcel and
the buildings, structures and other improvements (Exhibit
10(d) to HEI's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, File No. 1-8503).
*11 Computation of Earnings Per Share of Common Stock. See note
on page 2 of HECO's 1993 Annual Report to Stockholder
attached as Exhibit 13(b) hereto.
*12(b) Computation of Ratio of Earnings to Fixed Charges. Filed
herein as page 98.
*13(b) Pages 2 to 31 and 33 of HECO's 1993 Annual Report to
Stockholder (with the exception of the data incorporated by
reference in Part I, Part II and Part III, no other data
appearing in the 1993 Annual Report to Stockholder is to be
deemed filed as part of this Form 10-K Annual Report).
*21(b) List of Subsidiaries of HECO. Filed herein as page 100.
*99(b) Reconciliation of electric utility operating income per HEI
and HECO Consolidated Statements of Income. Filed herein as
page 102.
94
</TABLE>
<PAGE> 101
Hawaiian Electric Industries, Inc.
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
OF COMMON STOCK
Years ended December 31, 1993 1992,1991, 1990 AND 1989
<TABLE>
<CAPTION>
(in thousands,
except per share amounts) 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss)
Continuing operations............... $61,684 $ 61,715 $55,620 $42,895 $58,130
Discontinued operations............. (13,025) (73,297) (794) 707 5,945
-------- -------- -------- ------- -------
$48,659 $(11,582) $54,826 $43,602 $64,075
======== ======== ======== ======= =======
Weighted average number
of common shares
outstanding........................ 25,938 24,275 22,882 21,559 20,960
======== ======== ======== ======= =======
Earnings (loss) per
common share
Continuing operations............... $ 2.38 $ 2.54 $ 2.43 $ 1.99 $ 2.77
Discontinued operations............. (0.50) (3.02) (0.03) 0.03 0.29
-------- -------- -------- ------- -------
$ 1.88 $ (0.48) $ 2.40 $ 2.02 $ 3.06
======== ======== ======== ======= =======
</TABLE>
Note: The dilutive effect of stock options is not material.
95
<PAGE> 102
Hawaiian Electric Industries, Inc.
EXHIBIT 12(a) -- COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1993, 1992, 1990 AND 1989
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ----------------- -----------------
(dollars in thousands) (1) (2) (1) (2) (1) (2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3)..................... $ 68,254 $145,905 $ 67,559 $161,756 $69,957 $168,691
Proportionate share of fifty-
percent-owned persons............. 564 564 1,051 1,051 1,875 1,875
Interest component of rentals......... 3,944 3,944 3,254 3,254 2,231 2,231
Pre-tax preferred stock dividend
requirements of subsidiaries........ 11,018 11,018 9,606 9,606 10,449 10,449
--------- --------- --------- --------- --------- ---------
Total fixed charges................... $ 83,780 $161,431 $ 81,470 $175,667 $ 84,512 $183,246
========= ========= ========= ========= ========= =========
EARNINGS
Pre-tax income from continuing
operations.......................... $108,770 $108,770 $ 91,244 $ 91,244 $ 87,953 $ 87,953
Undistributed earnings from less
than fifty-percent-owned person..... -- -- (244) (244) (278) (278)
Fixed charges, as shown............... 83,780 161,431 81,470 175,667 84,512 183,246
Interest capitalized
The Company......................... (3,881) (3,881) (2,104) (2,104) (1,945) (1,945)
Proportionate share of fifty-
percent-owned persons.............. (408) (408) (803) (803) (1,875) (1,875)
--------- --------- --------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES............................. $188,261 $265,912 $169,563 $263,760 $168,367 $267,101
========= ========= ========= ========= ========= =========
RATIO OF EARNINGS TO FIXED
CHARGES............................. 2.25 1.65 2.08 1.50 1.99 1.46
========= ========= ========= ========= ========= =========
</TABLE>
(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.
96
<PAGE> 103
Hawaiian Electric Industries, Inc.
EXHIBIT 12(a) -- COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1993, 1992, 1991, 1990 and 1989--Continued
<TABLE>
<CAPTION>
1990 1989
------------------------------ -----------------------------
(dollars in thousands) (1) (2) (1) (2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3).............. $ 76,897 $162,753 $ 76,078 $145,587
Proportionate share of
fifty-percent-owned
persons.................... 406 406 -- --
Interest component of rentals.. 2,197 2,197 1,895 1,895
Pre-tax preferred stock
dividend requirements
of subsidiaries.............. 11,450 11,450 6,684 6,684
--------- ---------- --------- ---------
TOTAL FIXED CHARGES............ $ 90,950 $176,806 $ 84,657 $154,166
========= ========= ========= ========
EARNINGS
Pre-tax income from continuing
operations................... $ 74,088 $ 74,088 $ 85,968 $ 85,968
Undistributed earnings from less
than fifty-percent owned
person....................... 7 7 (66) (66)
Fixed charges, as shown........ 90,950 176,806 84,657 154,166
Interest capitalized
The Company.................. (4,360) (4,360) (1,854) (1,854)
Proportionate share of fifty-
percent-owned persons...... (406) (406) -- --
--------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES...................... $160,279 $246,135 $168,705 $238,214
========= ========= ========= =========
RATIO OF EARNINGS TO FIXED
CHARGES...................... 1.76 1.39 1.99 1.55
========= ========= ========= =========
</TABLE>
(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.
97
<PAGE> 104
Hawaiian Electric Company, Inc.
EXHIBIT 12(b) -- COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1993, 1992, 1991, 1990 and 1989
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges.............. $ 35,287 $ 33,011 $ 33,248 $ 30,874 $ 30,027
Interest component of rentals....... 970 1,070 1,130 1,341 1,189
Pretax preferred stock dividend
requirements of subsidiaries...... 3,425 3,117 3,409 3,490 2,208
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES................. $ 39,682 $ 37,198 $ 37,787 $ 35,705 $ 33,424
========= ========= ========= ========= =========
EARNINGS
Income before preferred stock
dividends of HECO................. $ 56,126 $ 53,678 $ 46,210 $ 48,484 $ 52,833*
Fixed charges, as shown............. 39,682 37,198 37,787 35,705 33,424
Income taxes (see note below)....... 36,897 23,843 23,816 23,927 23,940
Interest capitalized on AFUDC for
borrowed funds.................... (3,869) (2,095) (1,307) (1,375) (1,220)
--------- --------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES........................... $128,836 $112,624 $106,506 $106,741 $108,977
========= ========= ========= ========= =========
RATIO OF EARNINGS TO FIXED
CHARGES........................... 3.25 3.03 2.82 2.99 3.26
========= ========= ========= ========= =========
NOTE:
Income taxes is comprised of the
following
Income tax expense relating to
operating income for
regulatory purposes............. $ 37,007 $ 26,254 $ 24,137 $ 24,145 $ 26,258
Income tax benefit relating to
nonoperating income or loss..... (110) (2,411) (321) (218) (2,318)
--------- --------- --------- --------- ---------
$ 36,897 $ 23,843 $ 23,816 $ 23,927 $ 23,940
========= ========= ========= ========= =========
</TABLE>
* Does not reflect corporate-level segment cost and tax allocation policy
adjustments in 1990.
98
<PAGE> 105
Hawaiian Electric Industries, Inc.
EXHIBIT 21(a) -- LIST OF SUBSIDIARIES
The following is a list of all subsidiary corporations of the registrant as of
March 21, 1994:
<TABLE>
<CAPTION>
Name Place of incorporation
- ----------------------------------------------------------------------------------------------
<S> <C>
Hawaiian Electric Company, Inc., including
subsidiaries Maui Electric Company, Limited and
Hawaii Electric Light Company, Inc............................... State of Hawaii
HEI Investment Corp............................................... State of Hawaii
Lalamilo Ventures, Inc............................................ State of Hawaii
Malama Pacific Corp., including subsidiaries Malama Project-I,
Inc., ML Holdings, Ltd., Malama Waterfront Corp., Malama
Property Investment Corp., Malama Development Corp.,
Malama Makakilo Corp., Malama Realty Corp., Malama Elua Corp.,
Malama Kolu Corp., Malama Hoaloha Corp., Malama Mohala Corp.
and State of Hawaii Baldwin*Malama (a limited partnership in
which Malama Development Corp. is the sole general partner)....... State of Hawaii
Hawaiian Tug & Barge Corp., including subsidiary Young Brothers,
Limited........................................................... State of Hawaii
HEI Diversified, Inc., including subsidiaries:
(1) American Savings Bank, F.S.B. and its subsidiaries, State of Hawaii (except
American Savings Investment Services Corp., ASB Service American Savings Bank,
Corporation, AdCommunications, Inc. and Associated F.S.B., which is federally
Mortgage, Inc................................................. chartered)
(2) The Hawaiian Insurance & Guaranty Co., Limited and its
subsidiaries, United National Insurance Company, Ltd.,
Hawaiian Underwriters Insurance Co., Ltd., Guardian
Life Underwriters, Inc., Guardian Financial Corporation
and Independent Adjustment, Inc. (HEIDI is the holder of
record of the common stock of HIG, but HIG is currently
in rehabilitation proceedings and it is expected that
HEIDI will relinquish all ownership rights in HIG and its
subsidiaries during 1994.)..................................... State of Hawaii
</TABLE>
99
<PAGE> 106
Hawaiian Electric Company, Inc.
EXHIBIT 21(b) -- LIST OF SUBSIDIARIES
The following is a list of all subsidiary corporations of the registrant as of
March 21, 1994:
<TABLE>
<CAPTION>
Name Place of incorporation
- ------------------------------------------------------------------------------------
<S> <C>
Maui Electric Company, Limited....................... State of Hawaii
Hawaii Electric Light Company, Inc................... State of Hawaii
</TABLE>
100
<PAGE> 107
[KPMG Peat Marwick letterhead]
HEI EXHIBIT 23
The Board of Directors
Hawaiian Electric Industries, Inc.:
We consent to incorporation by reference in Registration Statement Nos.
33-52520 and 33-58820 on Form S-3 and in Registration Statement Nos. 33-65234
and 33-43892 on Form S-8 of Hawaiian Electric Industries, Inc. of our report
dated February 11, 1994, relating to the consolidated balance sheets of
Hawaiian Electric Industries, Inc. and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, retained earnings and
cash flows for each of the years in the three-year period ended December 31,
1993, which report is incorporated by reference in the 1993 annual report on
Form 10-K of Hawaiian Electric Industries, Inc. Our report refers to changes
in the method of accounting for income taxes and postretirement benefits other
than pensions effective January 1, 1993. We also consent to incorporation by
reference of our report dated February 11, 1994 relating to the financial
statement schedules of Hawaiian Electric Industries, Inc. in the aforementioned
1993 annual report on Form 10-K, which report is included in said Form 10-K.
/s/ KPMG Peat Marwick
Honolulu, Hawaii
March 22, 1994
101
<PAGE> 108
Hawaiian Electric Company, Inc.
EXHIBIT 99(b) -- RECONCILIATION OF ELECTRIC UTILITY OPERATING
INCOME PER HEI AND HECO CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income from regulated and
nonregulated activities before income
taxes (per HEI Consolidated
Statements of Income)...................... $119,565 $103,841 $100,256
Deduct:
Income taxes on regulated activities....... (37,007) (26,254) (24,137)
Revenues from nonregulated activities...... (5,100) (1,761) (996)
Add:
Expenses from nonregulated activities...... 627 1,213 804
-------- --------- ---------
Operating income from regulated activities
after income taxes (per HECO Consolidated
Statements of Income)...................... $78,085 $ 77,039 $ 75,927
======== ========= =========
</TABLE>
102
<PAGE> 109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 signatures
of the undersigned companies shall be deemed to relate only to matters having
reference to such companies and any subsidiaries thereof.
<TABLE>
<CAPTION>
<S> <C>
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ ROBERT F. MOUGEOT By /s/ PAUL A. OYER
------------------------------ ----------------------------
Robert F. Mougeot Paul A. Oyer
Financial Vice President and Financial Vice President,
Chief Financial Officer of HEI Treasurer and Director of HECO
(Principal Financial Officer of HEI) (Principal Financial Officer of HECO)
Date: March 22, 1994 Date: March 22, 1994
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in their capacities at March 22, 1994. The signature of each of
the undersigned shall be deemed to relate only to matters having reference to
the above-named companies and any subsidiaries thereof.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ ROBERT F. CLARKE President and Director of HEI
- ------------------------------ Chairman of the Board of Directors of HECO
Robert F. Clarke (Chief Executive Officer of HEI)
/s/ HARWOOD D. WILLIAMSON Group Vice President - Utility Companies and
- ------------------------------ Director of HEI
Harwood D. Williamson President and Director of HECO
(Chief Executive Officer of HECO)
/s/ EDWARD J. BLACKBURN Group Vice President - Diversified Companies
- ------------------------------ of HEI
Edward J. Blackburn
/s/ ROBERT F. MOUGEOT Financial Vice President and
- ------------------------------ Chief Financial Officer of HEI
Robert F. Mougeot (Principal Financial Officer of HEI)
/s/ CURTIS Y. HARADA Controller of HEI
- ------------------------------ (Principal Accounting Officer of HEI)
Curtis Y. Harada
/s/ PAUL A. OYER Financial Vice President, Treasurer, and
- ------------------------------ Director of HECO
Paul A. Oyer (Principal Financial Officer of HECO)
</TABLE>
103
<PAGE> 110
SIGNATURES (continued)
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ ERNEST T. SHIRAKI Controller of HECO
- ------------------------------ (Principal Accounting Officer of HECO)
Ernest T. Shiraki
/s/ EDWIN L. CARTER Director of HEI
- ------------------------------
Edwin L. Carter
/s/ JOHN D. FIELD Director of HEI
- ------------------------------
John D. Field
/s/ RICHARD HENDERSON Director of HEI and HECO
- ------------------------------
Richard Henderson
/s/ BEN F. KAITO Director of HEI and HECO
- ------------------------------
Ben F. Kaito
/s/ MILDRED D. KOSAKI Director of HECO
- ------------------------------
Mildred D. Kosaki
- ------------------------------ Director of HEI
Victor Hao Li
/s/ BILL D. MILLS Director of HEI
- -------------------------------
Bill D. Mills
- ------------------------------- Director of HEI
A. Maurice Myers
/s/ RUTH M. ONO Director of HEI
- ------------------------------
Ruth M. Ono
</TABLE>
104
<PAGE> 111
SIGNATURES (continued)
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ DIANE J. PLOTTS Director of HEI and HECO
- ------------------------------
Diane J. Plotts
/s/ OSWALD K. STENDER Director of HEI
- ------------------------------
Oswald K. Stender
- ------------------------------ Director of HEI
Kelvin H. Taketa
- ------------------------------ Director of HEI and HECO
Thurston Twigg-Smith
/s/ JEFFREY N. WATANABE Director of HEI
- ------------------------------
Jeffrey N. Watanabe
/s/ PAUL C. YUEN Director of HECO
- ------------------------------
Paul C. Yuen
</TABLE>
105
<PAGE> 1
HECO Exhibit 4.5
HAWAIIAN ELECTRIC COMPANY, INC.
Officers' Certificate Pursuant to
Sections 102 and 301 of the Indenture
Each of the undersigned hereby certifies, pursuant to the Indenture
dated as of December 1, 1993 (the "Indenture") between HAWAIIAN ELECTRIC
COMPANY, INC., a Hawaii corporation (the "Company"), and The Bank of New York,
a New York banking corporation, as Trustee (the "Trustee", which term includes
any successor trustee under the Indenture), that:
A. There has been established pursuant to resolutions duly adopted by
the Board of Directors of the Company on June 30, 1993 and December 17, 1993
(copies of such resolutions, certified by the Secretary of the Company pursuant
to the "Secretary's Certificate," are being separately delivered on the date
hereof at the closing to which this Certificate relates), a series of
Securities (as that term is defined in the Indenture) to be issued under the
Indenture, which Securities shall have the following terms (capitalized terms
defined in the Indenture but not herein shall have the meanings given to such
terms in the Indenture):
1. The title of the Securities of the series is $20,000,000 Notes,
5.15% Series Due 1996 (the "Notes");
2. The limit upon the aggregate principal amount of the Notes which
may be authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 406 or
1206 of the Indenture and except for any Notes which, pursuant to Section 303
of the Indenture, are deemed never to have been authenticated and delivered
hereunder) is $20,000,000;
3. The interest payable under the Notes shall, as provided in the
Indenture, be paid to the Person in whose name a Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall
1
<PAGE> 2
be the fifteenth day (whether or not a Business Day) next preceding such
Interest Payment Date. Notwithstanding the foregoing, (a) if the Original
Issue Date (as defined below) of a Note is after a Regular Record Date and
before the corresponding Interest Payment Date, interest so payable for the
period from and including the Original Issue Date to but excluding the second
Interest Payment Date following the Original Issue Date shall be paid on such
second Interest Payment Date to the Holder of the Note on the Regular Record
Date immediately preceding such second Interest Payment Date following the
Original Issue Date; and (b) interest payable at Maturity shall be paid to the
Person to whom principal shall be paid. Except as otherwise provided in the
Indenture, any such interest which is payable but is not punctually paid or
duly provided for on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the related Regular Record Date and shall be paid to
the Person in whose name the Note is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee in accordance with the Indenture;
4. The date on which the principal of each Note is payable shall be
December 1, 1996, or, if such date is not a Business Day, the next succeeding
Business Day;
5. Each Note shall bear interest at a fixed rate of 5.15% per annum.
Interest so payable shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Each Note shall be dated as of the date of its
authentication (the "Original Issue Date") and, unless otherwise provided,
shall bear interest from the Original Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
Interest shall be paid semiannually in arrears on and in each year on each June
1 and December 1 and at Stated Maturity (each an "Interest Payment Date"),
commencing (except as provided in paragraph 3 above) with the Interest Payment
Date next succeeding the Original Issue Date, until the principal of such Note
is paid or duly provided for and at the rate per annum equal to the above rate
plus 1% per annum on any overdue principal and (to the extent legally
enforceable) on any overdue installment of interest.
If, with respect to any Note, any Interest Payment Date or Stated
Maturity is not a Business Day (as defined below), payment of amounts due on
such Note on such date may be made on the next succeeding Business Day, as if
such payment were made on the Interest Payment Date or Stated Maturity and if
such payment is made or duly provided for on such Business Day, then no
interest shall accrue on such amounts for the period from and after such
Interest Payment Date or Stated Maturity, as the case may be, to such Business
Day.
2
<PAGE> 3
"Business Day", when used with respect to a Place of Payment or any
other particular location specified in a Note or the Indenture, means any day,
other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of Payment or other location are
generally authorized or required by law, regulation or executive order to
remain closed;
6. Payment of principal of a Note at Maturity shall be paid by wire
transfer in immediately available funds (except that payment on Notes issued in
certificated form shall be paid by check) upon presentation of the Note at the
offices of The Bank of New York in New York, New York or at such other office
or agency as may be designated for such purpose by the Company from time to
time. Payment of interest, if any, on a Note shall be made by wire transfer in
immediately available funds (except that payment on Notes in certificated form
shall be paid by check) to the Person entitled thereto as indicated in the
Security Register. As provided in the Indenture and subject to the limitations
specified therein, upon surrender of a Note for registration of transfer or for
exchange at the offices of The Bank of New York, in New York, New York or such
other office or agency as may be designated by the Company from time to time,
and in the case of a transfer duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar or any transfer agent duly executed by, the Holder of the Note or his
attorney duly authorized in writing, one or more new Notes of authorized
denominations and of like tenor and aggregate principal amount will be issued
to the designated transferee or transferees or to the Holder in the case of an
exchange. Any notice or demand to or upon the Company in respect of the Notes
and the Indenture shall be sufficient (unless otherwise expressly provided in
the Indenture) if in writing and mailed, first-class postage prepaid, to the
Company addressed to the attention of its Treasurer, at 900 Richards Street,
Honolulu, Hawaii 96813, or at any other address previously furnished in writing
to the Trustee by the Company;
7. The Notes are not redeemable by the Company prior to Maturity;
8. There is no obligation of the Company to redeem or purchase the
Notes pursuant to any sinking fund or analogous provisions, or at the option of
a Holder thereof;
9. The denominations in which the Notes shall be issuable are $1,000
or any amount in excess thereof which is an integral multiple of $1,000;
3
<PAGE> 4
10. The principal of and interest on the Notes shall not be payable in
coin or currency other than that in which the Notes are stated to be payable;
11. The principal and interest on the Notes shall be made in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts;
12. The amount of payments of principal of or interest on the Notes
shall not be determined by reference to an index;
13. The entire principal amount of a Note shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 802 of
the Indenture;
14. There are no Events of Default, with respect to the Notes, in
addition to those specified in Section 801 of the Indenture or any covenants of
the Company for the benefit of the Holders of the Notes in addition to those
set forth in the Indenture;
15. There are no terms pursuant to which the Notes may be converted
into or exchanged for shares of capital stock or other securities of the
Company or any other Person;
16. There are no obligations or instruments which shall be considered
to be Eligible Obligations in respect of the Notes denominated in a currency
other than United States Dollars or in a composite currency, or any additional
or alternative provisions for the reinstatement of the Company's indebtedness
in respect of the Notes after satisfaction and discharge thereof as provided in
Section 701 of the Indenture;
17. There is no service charge for any registration of transfer or
exchange of any Note, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of a Note, other than exchanges
pursuant to Section 304, 306 or 1206 of the Indenture not involving any
transfer;
18. There are no exceptions to Section 113 of the Indenture or any
variation in the definition of Business Day with respect to the Notes; and
19. There are no other terms of the Notes other than those set forth
in the Notes, in the Indenture and in this Certificate.
4
<PAGE> 5
B. Each of the undersigned has read the Indenture, including the
provisions of Sections 102 and 301 and the definitions relating thereto. The
statements and opinions stated in this Certificate are based on each of the
undesigned's review of the Indenture and of the resolutions adopted by the
Board of Directors of the Company referred to above. In the opinion of each of
the undersigned, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not all
conditions precedent provided in the Indenture relating to the establishment of
the title and terms of a series of Securities under the Indenture, designated
as the Notes in this Certificate, and to the authentication and delivery by the
Trustee of such Notes, have been complied with. In the opinion of the
undersigned, all such conditions precedent have been complied with.
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Officers' Certificate as of the 22nd day of December, 1993.
/s/ Paul Oyer
- ------------------------------
Paul A. Oyer
Financial Vice President and
Treasurer
/s/ Marvin A. Hawthorne
- ------------------------------
Marvin A. Hawthorne
Assistant Treasurer
5
<PAGE> 1
HECO Exhibit 4.6
HAWAIIAN ELECTRIC COMPANY, INC.
Officers' Certificate Pursuant to
Sections 102 and 301 of the Indenture
Each of the undersigned hereby certifies, pursuant to the Indenture
dated as of December 1, 1993 (the "Indenture") between HAWAIIAN ELECTRIC
COMPANY, INC., a Hawaii corporation (the "Company"), and The Bank of New York,
a New York banking corporation, as Trustee (the "Trustee", which term includes
any successor trustee under the Indenture), that:
A. There has been established pursuant to resolutions duly adopted by the
Board of Directors of the Company on June 30, 1993 and December 17, 1993
(copies of such resolutions, certified by the Secretary of the Company pursuant
to the "Secretary's Certificate," are being separately delivered on the date
hereof at the closing to which this Certificate relates), a series of
Securities (as that term is defined in the Indenture) to be issued under the
Indenture, which Securities shall have the following terms (capitalized terms
defined in the Indenture but not herein shall have the meanings given to such
terms in the Indenture):
1. The title of the Securities of the series is $30,000,000 Notes, 5.83%
Series Due 1998 (the "Notes");
2. The limit upon the aggregate principal amount of the Notes which may
be authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 406 or
1206 of the Indenture and except for any Notes which, pursuant to Section 303
of the Indenture, are deemed never to have been authenticated and delivered
hereunder) is $30,000,000;
3. The interest payable under the Notes shall, as provided in the
Indenture, be paid to the Person in whose name a Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall
1
<PAGE> 2
be the fifteenth day (whether or not a Business Day) next preceding such
Interest Payment Date. Notwithstanding the foregoing, (a) if the Original
Issue Date (as defined below) of a Note is after a Regular Record Date and
before the corresponding Interest Payment Date, interest so payable for the
period from and including the Original Issue Date to but excluding the second
Interest Payment Date following the Original Issue Date shall be paid on such
second Interest Payment Date to the Holder of the Note on the Regular Record
Date immediately preceding such second Interest Payment Date following the
Original Issue Date; and (b) interest payable at Maturity shall be paid to the
Person to whom principal shall be paid. Except as otherwise provided in the
Indenture, any such interest which is payable but is not punctually paid or
duly provided for on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the related Regular Record Date and shall be paid to
the Person in whose name the Note is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee in accordance with the Indenture;
4. The date on which the principal of each Note is payable shall be
December 1, 1998, or, if such date is not a Business Day, the next succeeding
Business Day;
5. Each Note shall bear interest at a fixed rate of 5.83% per annum.
Interest so payable shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Each Note shall be dated as of the date of its
authentication (the "Original Issue Date") and, unless otherwise provided,
shall bear interest from the Original Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
Interest shall be paid semiannually in arrears on and in each year on each June
1 and December 1 and at Stated Maturity (each an "Interest Payment Date"),
commencing (except as provided in paragraph 3 above) with the Interest Payment
Date next succeeding the Original Issue Date, until the principal of such Note
is paid or duly provided for and at the rate per annum equal to the above rate
plus 1% per annum on any overdue principal and (to the extent legally
enforceable) on any overdue installment of interest.
If, with respect to any Note, any Interest Payment Date or Stated
Maturity is not a Business Day (as defined below), payment of amounts due on
such Note on such date may be made on the next succeeding Business Day, as if
such payment were made on the Interest Payment Date or Stated Maturity and if
such payment is made or duly provided for on such Business Day, then no
interest shall accrue on such amounts for the period from and after such
Interest Payment Date or Stated Maturity, as the case may be, to such Business
Day.
2
<PAGE> 3
"Business Day", when used with respect to a Place of Payment or any
other particular location specified in a Note or the Indenture, means any day,
other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of Payment or other location are
generally authorized or required by law, regulation or executive order to
remain closed;
6. Payment of principal of a Note at Maturity shall be paid by wire
transfer in immediately available funds (except that payment on Notes issued in
certificated form shall be paid by check) upon presentation of the Note at the
offices of The Bank of New York in New York, New York or at such other office
or agency as may be designated for such purpose by the Company from time to
time. Payment of interest, if any, on a Note shall be made by wire transfer in
immediately available funds (except that payment on Notes in certificated form
shall be paid by check) to the Person entitled thereto as indicated in the
Security Register. As provided in the Indenture and subject to the limitations
specified therein, upon surrender of a Note for registration of transfer or for
exchange at the offices of The Bank of New York, in New York, New York or such
other office or agency as may be designated by the Company from time to time,
and in the case of a transfer duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar or any transfer agent duly executed by, the Holder of the Note or his
attorney duly authorized in writing, one or more new Notes of authorized
denominations and of like tenor and aggregate principal amount will be issued
to the designated transferee or transferees or to the Holder in the case of an
exchange. Any notice or demand to or upon the Company in respect of the Notes
and the Indenture shall be sufficient (unless otherwise expressly provided in
the Indenture) if in writing and mailed, first-class postage prepaid, to the
Company addressed to the attention of its Treasurer, at 900 Richards Street,
Honolulu, Hawaii 96813, or at any other address previously furnished in writing
to the Trustee by the Company;
7. The Notes are not redeemable by the Company prior to Maturity;
8. There is no obligation of the Company to redeem or purchase the Notes
pursuant to any sinking fund or analogous provisions, or at the option of a
Holder thereof;
9. The denominations in which the Notes shall be issuable are $1,000 or
any amount in excess thereof which is an integral multiple of $1,000;
3
<PAGE> 4
10. The principal of and interest on the Notes shall not be payable in
coin or currency other than that in which the Notes are stated to be payable;
11. The principal and interest on the Notes shall be made in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts;
12. The amount of payments of principal of or interest on the Notes shall
not be determined by reference to an index;
13. The entire principal amount of a Note shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 802 of
the Indenture;
14. There are no Events of Default, with respect to the Notes, in addition
to those specified in Section 801 of the Indenture or any covenants of the
Company for the benefit of the Holders of the Notes in addition to those set
forth in the Indenture;
15. There are no terms pursuant to which the Notes may be converted into
or exchanged for shares of capital stock or other securities of the Company or
any other Person;
16. There are no obligations or instruments which shall be considered to
be Eligible Obligations in respect of the Notes denominated in a currency other
than United States Dollars or in a composite currency, or any additional or
alternative provisions for the reinstatement of the Company's indebtedness in
respect of the Notes after satisfaction and discharge thereof as provided in
Section 701 of the Indenture;
17. There is no service charge for any registration of transfer or
exchange of any Note, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of a Note, other than exchanges
pursuant to Section 304, 306 or 1206 of the Indenture not involving any
transfer;
18. There are no exceptions to Section 113 of the Indenture or any
variation in the definition of Business Day with respect to the Notes; and
19. There are no other terms of the Notes other than those set forth in
the Notes, in the Indenture and in this Certificate.
4
<PAGE> 5
B. Each of the undersigned has read the Indenture, including the
provisions of Sections 102 and 301 and the definitions relating thereto. The
statements and opinions stated in this Certificate are based on each of the
undesigned's review of the Indenture and of the resolutions adopted by the
Board of Directors of the Company referred to above. In the opinion of each of
the undersigned, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not all
conditions precedent provided in the Indenture relating to the establishment of
the title and terms of a series of Securities under the Indenture, designated
as the Notes in this Certificate, and to the authentication and delivery by the
Trustee of such Notes, have been complied with. In the opinion of the
undersigned, all such conditions precedent have been complied with.
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Officers' Certificate as of the 22nd day of December, 1993.
/s/ Paul Oyer
- ------------------------------
Paul A. Oyer
Financial Vice President and
Treasurer
/s/ Marvin A. Hawthorne
- ------------------------------
Marvin A. Hawthorne
Assistant Treasurer
5
<PAGE> 1
HECO Exhibit 4.7
MAUI ELECTRIC COMPANY, LIMITED
Officers' Certificate Pursuant to
Sections 102 and 301 of the Indenture
Each of the undersigned hereby certifies, pursuant to the Indenture
dated as of December 1, 1993 (the "Indenture") between MAUI ELECTRIC COMPANY,
LIMITED, a Hawaii corporation (the "Company"), and The Bank of New York, a New
York banking corporation, as Trustee (the "Trustee", which term includes any
successor trustee under the Indenture), that:
A. There has been established pursuant to resolutions duly adopted by
the Board of Directors of the Company on June 17, 1993 and December 15, 1993
(copies of such resolutions, certified by the Secretary of the Company pursuant
to the "Secretary's Certificate," are being separately delivered on the date
hereof at the closing to which this Certificate relates), a series of
Securities (as that term is defined in the Indenture) to be issued under the
Indenture, which Securities shall have the following terms (capitalized terms
defined in the Indenture but not herein shall have the meanings given to such
terms in the Indenture):
1. The title of the Securities of the series is $10,000,000 Notes,
5.15% Series Due 1996 (the "Notes");
2. The limit upon the aggregate principal amount of the Notes which
may be authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 406 or
1206 of the Indenture and except for any Notes which, pursuant to Section 303
of the Indenture, are deemed never to have been authenticated and delivered
hereunder) is $10,000,000;
3. The interest payable under the Notes shall, as provided in the
Indenture, be paid to the Person in whose name a Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall
1
<PAGE> 2
be the fifteenth day (whether or not a Business Day) next preceding such
Interest Payment Date. Notwithstanding the foregoing, (a) if the Original
Issue Date (as defined below) of a Note is after a Regular Record Date and
before the corresponding Interest Payment Date, interest so payable for the
period from and including the Original Issue Date to but excluding the second
Interest Payment Date following the Original Issue Date shall be paid on such
second Interest Payment Date to the Holder of the Note on the Regular Record
Date immediately preceding such second Interest Payment Date following the
Original Issue Date; and (b) interest payable at Maturity shall be paid to the
Person to whom principal shall be paid. Except as otherwise provided in the
Indenture, any such interest which is payable but is not punctually paid or
duly provided for on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the related Regular Record Date and shall be paid to
the Person in whose name the Note is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee in accordance with the Indenture;
4. The date on which the principal of each Note is payable shall be
December 1, 1996, or, if such date is not a Business Day, the next succeeding
Business Day;
5. Each Note shall bear interest at a fixed rate of 5.15% per annum.
Interest so payable shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Each Note shall be dated as of the date of its
authentication (the "Original Issue Date") and, unless otherwise provided,
shall bear interest from the Original Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
Interest shall be paid semiannually in arrears on and in each year on each June
1 and December 1 and at Stated Maturity (each an "Interest Payment Date"),
commencing (except as provided in paragraph 3 above) with the Interest Payment
Date next succeeding the Original Issue Date, until the principal of such Note
is paid or duly provided for and at the rate per annum equal to the above rate
plus 1% per annum on any overdue principal and (to the extent legally
enforceable) on any overdue installment of interest.
If, with respect to any Note, any Interest Payment Date or Stated
Maturity is not a Business Day (as defined below), payment of amounts due on
such Note on such date may be made on the next succeeding Business Day, as if
such payment were made on the Interest Payment Date or Stated Maturity and if
such payment is made or duly provided for on such Business Day, then no
interest shall accrue on such amounts for the period from and after such
Interest Payment Date or Stated Maturity, as the case may be, to such Business
Day.
2
<PAGE> 3
"Business Day", when used with respect to a Place of Payment or any
other particular location specified in a Note or the Indenture, means any day,
other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of Payment or other location are
generally authorized or required by law, regulation or executive order to
remain closed;
6. Payment of principal of a Note at Maturity shall be paid by wire
transfer in immediately available funds (except that payment on Notes issued in
certificated form shall be paid by check) upon presentation of the Note at the
offices of The Bank of New York in New York, New York or at such other office
or agency as may be designated for such purpose by the Company from time to
time. Payment of interest, if any, on a Note shall be made by wire transfer in
immediately available funds (except that payment on Notes in certificated form
shall be paid by check) to the Person entitled thereto as indicated in the
Security Register. As provided in the Indenture and subject to the limitations
specified therein, upon surrender of a Note for registration of transfer or for
exchange at the offices of The Bank of New York, in New York, New York or such
other office or agency as may be designated by the Company from time to time,
and in the case of a transfer duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar or any transfer agent duly executed by, the Holder of the Note or his
attorney duly authorized in writing, one or more new Notes of authorized
denominations and of like tenor and aggregate principal amount will be issued
to the designated transferee or transferees or to the Holder in the case of an
exchange. Any notice or demand to or upon the Company in respect of the Notes
and the Indenture shall be sufficient (unless otherwise expressly provided in
the Indenture) if in writing and mailed, first-class postage prepaid, to the
Company addressed to the attention of its Treasurer, at 210 Kamehameha Avenue,
Kahului, Maui, Hawaii, or at any other address previously furnished in writing
to the Trustee by the Company;
7. The Notes are not redeemable by the Company prior to Maturity;
8. There is no obligation of the Company to redeem or purchase the
Notes pursuant to any sinking fund or analogous provisions, or at the option of
a Holder thereof;
9. The denominations in which the Notes shall be issuable are $1,000
or any amount in excess thereof which is an integral multiple of $1,000;
3
<PAGE> 4
10. The principal of and interest on the Notes shall not be payable in
coin or currency other than that in which the Notes are stated to be payable;
11. The principal and interest on the Notes shall be made in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts;
12. The amount of payments of principal of or interest on the Notes
shall not be determined by reference to an index;
13. The entire principal amount of a Note shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 802 of
the Indenture;
14. There are no Events of Default, with respect to the Notes, in
addition to those specified in Section 801 of the Indenture or any covenants of
the Company for the benefit of the Holders of the Notes in addition to those
set forth in the Indenture;
15. There are no terms pursuant to which the Notes may be converted
into or exchanged for shares of capital stock or other securities of the
Company or any other Person;
16. There are no obligations or instruments which shall be considered
to be Eligible Obligations in respect of the Notes denominated in a currency
other than United States Dollars or in a composite currency, or any additional
or alternative provisions for the reinstatement of the Company's indebtedness
in respect of the Notes after satisfaction and discharge thereof as provided in
Section 701 of the Indenture;
17. There is no service charge for any registration of transfer or
exchange of any Note, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of a Note, other than exchanges
pursuant to Section 304, 306 or 1206 of the Indenture not involving any
transfer;
18. There are no exceptions to Section 113 of the Indenture or any
variation in the definition of Business Day with respect to the Notes; and
19. There are no other terms of the Notes other than those set forth
in the Notes, in the Indenture and in this Certificate.
4
<PAGE> 5
B. Each of the undersigned has read the Indenture, including the
provisions of Sections 102 and 301 and the definitions relating thereto. The
statements and opinions stated in this Certificate are based on each of the
undersigned's review of the Indenture and of the resolutions adopted by the
Board of Directors of the Company referred to above. In the opinion of each of
the undersigned, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not all
conditions precedent provided in the Indenture relating to the establishment of
the title and terms of a series of Securities under the Indenture, designated
as the Notes in this Certificate, and to the authentication and delivery by the
Trustee of such Notes, have been complied with. In the opinion of the
undersigned, all such conditions precedent have been complied with.
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Officers' Certificate as of the 22nd day of December, 1993.
/s/ Paul Oyer
- ------------------------------
Paul A. Oyer
Financial Vice President and
Treasurer
/s/ Marvin A. Hawthorne
- ------------------------------
Marvin A. Hawthorne
Assistant Treasurer
5
<PAGE> 1
HECO Exhibit 4.8
HAWAII ELECTRIC LIGHT COMPANY, INC.
Officers' Certificate Pursuant to
Sections 102 and 301 of the Indenture
Each of the undersigned hereby certifies, pursuant to the Indenture
dated as of December 1, 1993 (the "Indenture") between HAWAII ELECTRIC LIGHT
COMPANY, INC., a Hawaii corporation (the "Company"), and The Bank of New York,
a New York banking corporation, as Trustee (the "Trustee", which term includes
any successor trustee under the Indenture), that:
A. There has been established pursuant to resolutions duly adopted by
the Board of Directors of the Company on June 18, 1993 and December 16, 1993
(copies of such resolutions, certified by the Secretary of the Company pursuant
to the "Secretary's Certificate," are being separately delivered on the date
hereof at the closing to which this Certificate relates), a series of
Securities (as that term is defined in the Indenture) to be issued under the
Indenture, which Securities shall have the following terms (capitalized terms
defined in the Indenture but not herein shall have the meanings given to such
terms in the Indenture):
1. The title of the Securities of the series is $10,000,000 Notes,
4.85% Series Due 1995 (the "Notes");
2. The limit upon the aggregate principal amount of the Notes which may
be authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 406 or
1206 of the Indenture and except for any Notes which, pursuant to Section 303
of the Indenture, are deemed never to have been authenticated and delivered
hereunder) is $10,000,000;
3. The interest payable under the Notes shall, as provided in the
Indenture, be paid to the Person in whose name a Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall
1
<PAGE> 2
be the fifteenth day (whether or not a Business Day) next preceding such
Interest Payment Date. Notwithstanding the foregoing, (a) if the Original
Issue Date (as defined below) of a Note is after a Regular Record Date and
before the corresponding Interest Payment Date, interest so payable for the
period from and including the Original Issue Date to but excluding the second
Interest Payment Date following the Original Issue Date shall be paid on such
second Interest Payment Date to the Holder of the Note on the Regular Record
Date immediately preceding such second Interest Payment Date following the
Original Issue Date; and (b) interest payable at Maturity shall be paid to the
Person to whom principal shall be paid. Except as otherwise provided in the
Indenture, any such interest which is payable but is not punctually paid or
duly provided for on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the related Regular Record Date and shall be paid to
the Person in whose name the Note is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee in accordance with the Indenture;
4. The date on which the principal of each Note is payable shall be
December 1, 1995, or, if such date is not a Business Day, the next succeeding
Business Day;
5. Each Note shall bear interest at a fixed rate of 4.85% per annum.
Interest so payable shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Each Note shall be dated as of the date of its
authentication (the "Original Issue Date") and, unless otherwise provided,
shall bear interest from the Original Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
Interest shall be paid semiannually in arrears on and in each year on each June
1 and December 1 and at Stated Maturity (each an "Interest Payment Date"),
commencing (except as provided in paragraph 3 above) with the Interest Payment
Date next succeeding the Original Issue Date, until the principal of such Note
is paid or duly provided for and at the rate per annum equal to the above rate
plus 1% per annum on any overdue principal and (to the extent legally
enforceable) on any overdue installment of interest.
If, with respect to any Note, any Interest Payment Date or Stated
Maturity is not a Business Day (as defined below), payment of amounts due on
such Note on such date may be made on the next succeeding Business Day, as if
such payment were made on the Interest Payment Date or Stated Maturity and if
such payment is made or duly provided for on such Business Day, then no
interest shall accrue on such amounts for the period from and after such
Interest Payment Date or Stated Maturity, as the case may be, to such Business
Day.
2
<PAGE> 3
"Business Day", when used with respect to a Place of Payment or any
other particular location specified in a Note or the Indenture, means any day,
other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of Payment or other location are
generally authorized or required by law, regulation or executive order to
remain closed;
6. Payment of principal of a Note at Maturity shall be paid by wire
transfer in immediately available funds (except that payment on Notes issued in
certificated form shall be paid by check) upon presentation of the Note at the
offices of The Bank of New York in New York, New York or at such other office
or agency as may be designated for such purpose by the Company from time to
time. Payment of interest, if any, on a Note shall be made by wire transfer in
immediately available funds (except that payment on Notes in certificated form
shall be paid by check) to the Person entitled thereto as indicated in the
Security Register. As provided in the Indenture and subject to the limitations
specified therein, upon surrender of a Note for registration of transfer or for
exchange at the offices of The Bank of New York, in New York, New York or such
other office or agency as may be designated by the Company from time to time,
and in the case of a transfer duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar or any transfer agent duly executed by, the Holder of the Note or his
attorney duly authorized in writing, one or more new Notes of authorized
denominations and of like tenor and aggregate principal amount will be issued
to the designated transferee or transferees or to the Holder in the case of an
exchange. Any notice or demand to or upon the Company in respect of the Notes
and the Indenture shall be sufficient (unless otherwise expressly provided in
the Indenture) if in writing and mailed, first-class postage prepaid, to the
Company addressed to the attention of its Treasurer, at 1200 Kilauea Avenue,
Hilo, Hawaii, or at any other address previously furnished in writing to the
Trustee by the Company;
7. The Notes are not redeemable by the Company prior to Maturity;
8. There is no obligation of the Company to redeem or purchase the
Notes pursuant to any sinking fund or analogous provisions, or at the option of
a Holder thereof;
9. The denominations in which the Notes shall be issuable are $1,000
or any amount in excess thereof which is an integral multiple of $1,000;
3
<PAGE> 4
10. The principal of and interest on the Notes shall not be payable in
coin or currency other than that in which the Notes are stated to be payable;
11. The principal and interest on the Notes shall be made in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts;
12. The amount of payments of principal of or interest on the Notes
shall not be determined by reference to an index;
13. The entire principal amount of a Note shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 802 of
the Indenture;
14. There are no Events of Default, with respect to the Notes, in
addition to those specified in Section 801 of the Indenture or any covenants of
the Company for the benefit of the Holders of the Notes in addition to those
set forth in the Indenture;
15. There are no terms pursuant to which the Notes may be converted
into or exchanged for shares of capital stock or other securities of the
Company or any other Person;
16. There are no obligations or instruments which shall be considered
to be Eligible Obligations in respect of the Notes denominated in a currency
other than United States Dollars or in a composite currency, or any additional
or alternative provisions for the reinstatement of the Company's indebtedness
in respect of the Notes after satisfaction and discharge thereof as provided in
Section 701 of the Indenture;
17. There is no service charge for any registration of transfer or
exchange of any Note, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of a Note, other than exchanges
pursuant to Section 304, 306 or 1206 of the Indenture not involving any
transfer;
18. There are no exceptions to Section 113 of the Indenture or any
variation in the definition of Business Day with respect to the Notes; and
19. There are no other terms of the Notes other than those set forth
in the Notes, in the Indenture and in this Certificate.
4
<PAGE> 5
B. Each of the undersigned has read the Indenture, including the
provisions of Sections 102 and 301 and the definitions relating thereto. The
statements and opinions stated in this Certificate are based on each of the
undesigned's review of the Indenture and of the resolutions adopted by the
Board of Directors of the Company referred to above. In the opinion of each of
the undersigned, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not all
conditions precedent provided in the Indenture relating to the establishment of
the title and terms of a series of Securities under the Indenture, designated
as the Notes in this Certificate, and to the authentication and delivery by the
Trustee of such Notes, have been complied with. In the opinion of the
undersigned, all such conditions precedent have been complied with.
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Officers' Certificate as of the 22nd day of December, 1993.
/s/ Paul Oyer
- ------------------------------
Paul A. Oyer
Financial Vice President and
Treasurer
/s/ Marvin A. Hawthorne
- ------------------------------
Marvin A. Hawthorne
Assistant Treasurer
5
<PAGE> 1
HECO EXHIBIT 10.4(B)
REVISED AND RESTATED AMENDMENT NO. 2 TO POWER PURCHASE AGREEMENT
BETWEEN
HAWAII ELECTRIC LIGHT COMPANY, INC.
AND
HAMAKUA SUGAR COMPANY, INC.
This Revised and Restated Amendment No. 2 to the Power Purchase
Agreement is made and entered into on June 17, 1993, by and between HAWAII
ELECTRIC LIGHT COMPANY, INC. ("HELCO") and JOHN T. GOSS, AS TRUSTEE OF HAMAKUA
SUGAR COMPANY, INC., AND NOT INDIVIDUALLY ("HAMAKUA").
WHEREAS, HELCO entered into a Power Purchase Agreement dated October
15, 1981 with Davies Hamakua Sugar Company ("Davies") for the provision of firm
capacity and energy; and
WHEREAS, Davies assigned its interest in such Power Purchase Agreement
to Hamakua in 1984; and
WHEREAS, the Power Purchase Agreement dated October 15, 1981 was
amended by letter agreement dated May 18, 1987 ("Amendment No. 1" and together,
the "Original Contract"); and
WHEREAS, Hamakua filed Chapter 11 bankruptcy on August 14, 1992; and
WHEREAS, Hamakua suspended its sugar cane harvesting operations and
shut down its sugar mill on or about March 31, 1993; and
WHEREAS, HELCO and Paul S. Sakuda ("Sakuda"), as trustee for Hamakua,
entered into the Memorandum of Understanding Re: Interim Purchase of Power
dated March 31, 1993 (the "Interim Agreement") which superseded the Original
Contract on a temporary, interim basis until the Interim Agreement was
terminated; and
WHEREAS, Sakuda's resignation as trustee was accepted by the
Bankruptcy Court on April 20, 1993 and John T. Goss (the "Trustee") was
appointed the new trustee by the Bankruptcy Court on April 30, 1993; and
WHEREAS, the Trustee recommended and the Bankruptcy Court approved
termination of the Interim Agreement and shutdown of the power plant as of May
7, 1993; and
WHEREAS, the Trustee filed a motion seeking Bankruptcy Court approval
of Hamakua's Harvest Plan (which, for purposes of this Amendment No. 2, shall
mean that plan developed by the Hamakua trustee and approved by the Bankruptcy
Court to continue Hamakua's
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<PAGE> 2
operations and complete harvesting and processing of Hamakua's existing sugar
cane crops), which Harvest Plan is anticipated to commence by July 1, 1993 for
an estimated period of sixteen (16) months; and
WHEREAS, with the resumption of such sugar operations HELCO and
Hamakua have agreed to operate under the terms and conditions of the Original
Contract, with modifications as set forth in Amendment No. 2, as executed on
June 4, 1993 and as revised and restated herein (the Original Contract, as
modified by this Amendment No. 2, to be hereinafter referred to as the "Revised
Contract") during the period in which the Harvest Plan is in effect; and
WHEREAS, the motion seeking approval of the Harvest Plan was approved
by the Bankruptcy Court on June 8, 1993, and the related motion approving the
Revised Contract was also approved, subject to certain revisions and
clarifications to Amendment No. 2 agreed to by HELCO and Hamakua and disclosed
to the court on that date; and
WHEREAS, the revisions and clarifications referenced above are: (i) a
deletion of Paragraph 13 of Amendment No. 2, regarding Section 16(h) of the
Revised Contract, concerning a guaranty by the State of any repayment of
advances made by HELCO to Hamakua; (ii) a clarification that HELCO's only
recourse to repayment of any advances is through proceeds of the Harvest Plan;
and (iii) a clarification that harvest costs are deemed to include repayment of
such advances.
NOW, THEREFORE, in consideration of the mutual promises and
obligations set forth herein, the sufficiency of which is hereby mutually
acknowledged, the parties hereto agree that the terms of the Original Contract
shall be revised as follows:
1. The term of Amendment No. 2 shall commence upon delivery of
energy to HELCO pursuant to the Harvest Plan and shall cease upon the earlier
to occur of (i) the date upon which the production of energy pursuant to the
Harvest Plan shall cease, or (ii) April 1, 1995, unless otherwise provided by
mutual agreement of the parties; provided, however, that should production of
power under the Harvest Plan not commence by July 1, 1993, this Amendment No. 2
shall terminate or not become effective. Notwithstanding the foregoing, at
HELCO's option the term of Amendment No. 2 may commence at an earlier date if
mutually agreed upon by the parties, subject to HELCO's provision of the
necessary #6 fuel oil and/or diesel fuel in accordance with Section D.2 of the
Revised Contract.
2. Section A.3 of the Original Contract, as modified by Paragraph
4 of Amendment No. 1, is amended to read: "The term 'surplus energy' as used
herein means energy offered by Hamakua at
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<PAGE> 3
HELCO dispatch in an amount per Contract Week above 1,305,000 kwh."
3. Section B.1(a) of the Original Contract, as modified by
Paragraph 1.a of Amendment No. 1, shall be amended to read as follows:
(a) (i) As of the effective date of the Revised
Contract, Hamakua shall make available at HELCO dispatch on a seven day per
week basis, during each Contract Week other than those Contract Weeks falling
within the agreed upon overhaul period, firm energy equal to at least: (i)
153,600 kwh times the number of "grinding days" in such week, plus (ii)
115,200 kwh times the number of "non-grinding days" in such week, plus (iii)
zero (0) kwh times the number of "non-bagasse days" in such week.
(ii) For this purpose a "non-grinding day" means any
day on which Hamakua is burning bagasse but not operating its sugar mill or
boiling house facility for twelve (12) or more hours. A "non-bagasse day"
means any day on which Hamakua is not burning bagasse as fuel for twelve (12)
or more hours. Any other day shall be considered a "grinding day."
(iii) Hamakua shall provide HELCO with twenty-four
(24) hours notice before a "non-grinding day" or "non-bagasse day."
4. Section B.1(b)(i) is amended by revising the first sentence
thereof to read as follows:
Should there be a failure for any reason to deliver at least
ninety percent (90%) of the firm energy specified for any particular contract
week, Hamakua will have the right to make up the shortfall for such contract
week (hereinafter called the "Hamakua shortfall contract week") in the
following sixteen (16) contract weeks (or, if less, such shorter period as may
be remaining in the term of Amendment No. 2) by delivering energy in excess of
one hundred percent (100%) of the firm energy scheduled for those weeks at
times and in amounts to be agreed to and upon by Hamakua and HELCO, with such
make-up firm energy deliveries being paid for at the firm energy rate in effect
at the time of the Hamakua shortfall contract week; provided, however, that
Hamakua shall incur no penalties under this Section B.1(b)(i) for any
shortfalls occurring during the last eight (8) contract weeks of the term of
Amendment No. 2.
5. Section B.2(a) of the Original Contract, as modified by
Paragraph 1.b of Amendment No. 1, shall be amended to read as follows:
"(a) As of the effective date of the Revised Contract,
Hamakua shall make available at HELCO dispatch on a seven day per week basis
8,000 kw of firm capacity during each Contract Week
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<PAGE> 4
other than those Contract Weeks falling within the agreed-upon overhaul period;
provided, however, that HELCO shall not dispatch Hamakua in excess of 6,000 kw
of firm capacity on non-grinding days unless HELCO determines that doing so is
reasonably necessary in order to meet HELCO's system load."
6. Section C.2 of the Original Contract, as modified by Paragraph
6 of Amendment No. 1, shall be replaced in full by amending it to read as
follows:
(a) During the term of this Revised Contract, the firm
energy rate shall be calculated as provided in Section C.2(b) hereof with 57.20
mills per kwh as the base rate.
(b) The firm energy rate shall be redetermined for each
calendar quarter during the term hereof as follows:
firm energy rate = 57.20 (0.25 Factor A + 0.75 Factor B)
(mills per kwh)
(i) Factor A is determined for each calendar quarter
by dividing the posted Port of Hilo price (on the last day of the previous
calendar quarter) for Chevron Fuel Oil No. 6 or, if HELCO is not using the said
Chevron Fuel Oil No. 6, the posted Port of Hilo price (on the last day of the
previous calendar quarter) for such fuel oil as HELCO uses in its boilers on
the last day of the previous calendar quarter, by the posted price for Chevron
Fuel Oil No. 6 on March 31, 1981, which is $30.07 per barrel.
(ii) Factor B is determined for each calendar
quarter by dividing the unadjusted Bureau of Labor Statistics "U.S. City
Average Consumer Price Index for all Urban Consumers" ("CPI-U") for the second
month of the previous calendar quarter by this said Index for March 1981, which
is 265.1.
(iii) The Factors described shall be calculated to
five (5) decimal points and the resulting firm energy rate shall be rounded off
to the nearest one-tenth (1/10) mill.
(iv) An illustration of the energy rate calculation
is provided in Exhibit A attached hereto.
(c) In the event Chevron does not continue with posted
prices for the Port of Hilo, the parties shall select, to the extent possible,
a posted price system similar in content and concept, and make a proper
transition consistent with the intent hereof. In the event the CPI-U referred
to herein is discontinued, then the parties shall select, to the extent
possible, a new index similar to the CPI-U in content and concept, and make a
proper transition consistent with the intent hereof.
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<PAGE> 5
(d) When Hamakua determines that it will be able to
supply surplus energy for a contract week, whether in conjunction with an
increase in capacity or by extending maximum delivery periods or otherwise, and
gives HELCO forty-eight (48) hours' notice thereof, HELCO shall use its best
efforts, giving due consideration only to other contractual agreements and
other legally enforceable obligations in existence now or in the future between
HELCO and third parties requiring HELCO to accept firm energy and to the
economic and operational factors involved in varying the amount of energy
produced by its own generating facilities, to arrange for the acceptance of
such energy, and if such energy is accepted, HELCO will pay for such energy at
the surplus energy rate at the time of acceptance, calculated as provided in
Section C.2(e) hereof.
(e) During the term of Amendment No. 2, the rate paid by
HELCO to Hamakua for all surplus energy purchased by HELCO from Hamakua shall
be eighty-five percent (85%) of the firm energy rate as adjusted from time to
time as provided in Section C.2(b) hereof.
(f) If #6 fuel oil and/or #2 diesel fuel is required to
generate energy and capacity pursuant to Section D.2 of the Revised Contract,
such #6 fuel oil and/or #2 diesel fuel shall be provided by HELCO at HELCO's
expense F.O.B. Hamakua. The furnishing of fuel at HELCO's expense shall
constitute HELCO's energy payments to Hamakua under this Revised Contract with
regard to energy derived from such fuel.
7. Section C.3 of the Original Contract shall be amended by
deleting subsections (a), (b) and (d) thereof and amending subsection (c), as
modified by Paragraph 5 of Amendment No. 1, to read as follows: "The firm
capacity charge under the Revised Contract shall be $1,068,300 per year,
payable in equal monthly installments in arrears on the 20th day of each month,
as provided in Section C.5."
8. Section D.2 of the Original Contract shall be replaced in full
by amending it to read as follows: "If Hamakua is not able to fully meet its
contractual obligations to supply HELCO with energy and capacity solely with
the available supply of bagasse, Hamakua shall notify HELCO forty-eight (48)
hours in advance. In such event, HELCO may, in its discretion and upon eight
(8) hours notice, require that Hamakua produce up to 8,000 kw of power (or
more, if mutually agreed upon by the parties) by burning #6 fuel oil and/or #2
diesel fuel as an alternative or supplementary fuel, provided that HELCO
provides such fuel at its cost pursuant to Section C.2 (f); and further
provided that Hamakua may burn such fuel without violating any restrictions on
burning fuel oil in its applicable air quality permits. So long as HELCO so
provides the fuel, Hamakua shall not be relieved of its contractual obligations
to HELCO under this Revised Contract."
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<PAGE> 6
9. Section D.4 of the Original Contract shall be amended to: (a)
add after the word "neglect" in subsection (a): "or insufficient supplies of
bagasse (unless Hamakua has taken action contrary to good harvesting practices
to avoid or prevent the availability or the use of Hamakua processed bagasse as
a boiler fuel)..." and (b) add a new subsection (c) to read as follows: "HELCO
may offset any penalties accruing from the effective date of this Revised
Contract against payments due to Hamakua hereunder."
10. Paragraph 2 of Amendment No. 1 shall be amended to provide for
a planned maintenance period of up to four (4) consecutive weeks which may be
required to repair and maintain the facility. Hamakua and HELCO shall mutually
agree on the timing of such planned maintenance period, which shall take place
during the period from August 1, 1993 to October 31, 1993. There shall be only
one overhaul period during the term of this Revised Contract.
11. This Amendment No. 2 shall not be effective until receipt of:
(a) the approval of the Hawaii Public Utilities Commission of Amendment No. 2
by appropriate final or interim decision and order deemed to be satisfactory to
HELCO and authorizing the purchased energy charges in the Revised Contract to
be included in HELCO's energy cost adjustment clause and authorizing the
additional firm capacity charges resulting from Amendment No. 2 to be included
in HELCO's firm capacity surcharge and (b) if applicable, the approval of the
Bankruptcy Court.
12. The parties agree that it is not anticipated that any capacity
or energy to be provided under this Revised Contract will be derived from any
of the six Cummins diesel engines currently under lease to Hamakua, nor from
any replacements thereof.
13. Section D of the Original Contract shall be amended to add the
following Section 16:
16.(a) Amount of Advance/Guaranty. HELCO shall make available to
Hamakua, by way of an advance or -- at HELCO's discretion or upon Hamakua's
request if reasonably acceptable to HELCO -- a guaranty or a combination of the
two, up to the aggregate sum of $1,000,000 ("Advance/Guaranty") subject to the
following conditions: (i) Hamakua produces to HELCO reasonably sufficient
documentation that Hamakua has reached the limits of its $8,000,000 revolving
line of credit with First Hawaiian Bank ("Loan") and is in compliance with all
terms and conditions of the Loan; (ii) Hamakua certifies that Hamakua is not in
breach of any terms or conditions of the Revised Contract; (iii) Hamakua
produces to HELCO reasonably sufficient evidence of its ability and intent to
continue harvest operations until at least March 31, 1994; (iv) the
Advance/Guaranty is for the purpose set forth in Section 16(c), Application of
Advance/Guaranty; (v) HELCO will not
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<PAGE> 7
make any guarantees or advances after November 30, 1993, and any exercise of
HELCO's guaranty by any Hamakua creditor must be made by November 30, 1993.
(b) Disbursement Procedure. Disbursements of the
Advance/Guaranty shall be made to Hamakua on or before the close of business on
the seventh business day following receipt of an application for disbursement
or a written exercise of guaranty, including supporting certifications and
documentations, made by Hamakua's trustee in bankruptcy, receiver, or other
responsible operator appointed by the Court in the Hamakua bankruptcy
proceedings pertaining to Hamakua ("Responsible Operator"), and endorsed by an
authorized officer of the State of Hawaii ("State Authorized Officer"), showing
that the Advance/Guaranty will be used for purposes set forth in "Application
of the Advance/Guaranty", Section 16(c) below.
(c) Application of the Advance/Guaranty. The
Advance/Guaranty shall be used for purposes of permitting the Responsible
Operator of Hamakua to continue Hamakua's operations and complete harvesting
and processing of Hamakua's existing sugar cane crops and the sale of sugar,
molasses, and other products of such crops, strictly in accordance with the
Harvest Plan.
(d) Accounting for the Advance/Guaranty. (i) The amounts
advanced shall be segregated and deposited in a separate bank account and shall
not be commingled with funds from any other source. So long as a balance
remains in the account, Hamakua shall make a written report to HELCO every 30
days, beginning 30 days after the first Advance/Guaranty, on the account
balance and on the nature of all disbursements from or debits against the
account. (ii) In addition, Hamakua shall make a biweekly written report on all
account balances guaranteed by HELCO. Hamakua shall pay such balances on a
better or equal basis with the balances owed by it to all other creditors.
Hamakua shall provide all documentation requested by HELCO for any amount
guaranteed by HELCO. (iii) HELCO shall have the right to audit Hamakua's
books, records and accounts upon reasonable advance notice and at reasonable
times with respect to the Advance/Guaranty balance and all disbursements
thereof, and with respect to the guaranteed accounts.
(e) Exercise of Guaranty. HELCO shall give Hamakua
written notice of any exercise of HELCO's guaranty by any creditor. Hamakua
shall owe all amounts paid by HELCO under a guaranty irrespective of any
defenses Hamakua may have against the guaranteed party. All amounts paid by
HELCO under a guaranty shall be repaid, with interest, as provided below.
(f) Interest Rate. Any amounts advanced shall bear
interest at a fluctuating rate per annum equal to the Prime Interest Rate (as
hereinafter defined) in effect from time to time
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<PAGE> 8
until the advance is repaid in full. Each change in such fluctuating rate
shall take effect simultaneously with the corresponding change in the Prime
Interest Rate. As used herein, "Prime Interest Rate" shall mean the lending
rate of interest per annum announced publicly by First Hawaiian Bank from time
to time as its "Prime Interest Rate", which rate shall not necessarily be the
best or lowest rate charged by the Bank from time to time. Interest shall be
computed on the basis of a year of 365 days, and the actual number of days
elapsed.
(g) Repayment of the Advance/Guaranty. Each installment
of any amounts advanced shall be repaid together with accrued interest in three
equal installments by way of HELCO's taking a set-off against the three
successive monthly firm capacity and energy payments under this Revised
Contract next coming due. If, for any such monthly payment, the set-off is
insufficient to repay the one-third installment then due, then the balance of
the repayment for that month shall be in cash. The parties acknowledge and
agree that any such obligation to repay the advance from cash shall be deemed
to be a cost or expense of the harvest, as that term is used in Paragraph 34 of
the Memorandum of Agreement, dated May 28, 1993, between Western Farm Credit
Bank, the State of Hawaii and Hamakua, or any successor or supplemental
agreement. The repayment shall first be applied against accrued interest, then
the principal balance. If Hamakua ceases harvest operations before the
Advance/Guaranty and accrued interest are fully repaid and if undisbursed
amounts remain in the segregated account upon cessation of harvest operations,
those amounts necessary to repay the Advance/Guaranty and accrued interest in
full shall immediately be reimbursed to HELCO. The parties further acknowledge
that the only recourse for repayment of the advance shall be to proceeds of the
Harvest Plan.
14. In addition to the Sections modified by this Amendment No. 2,
the following Sections of the Original Contract shall no longer be applicable
during the term of this Amendment No. 2: A.7, A.8, A.13, A.15, A.16, A.17,
A.18, B.1(b)(ii), B.3, D.1, D.6, D.8, D.9, D.10, D.13, D.14. To the extent not
inconsistent with the provisions of the Revised Contract and this Amendment No.
2, the other provisions of the Original Contract shall remain in full force and
effect.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned have cause these presents
to be executed as of the day and year first above written.
HAWAII ELECTRIC LIGHT COMPANY, INC.
By /s/ Warren H.W. Lee
--------------------------------
Its President
By /s/ Edward Y. Hirata
--------------------------------
Its Vice President
JOHN T. GOSS, TRUSTEE AFORESAID
/s/ John T. Goss
-----------------------------------
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<PAGE> 10
EXHIBIT A
ENERGY RATE CALCULATIONS
Firm energy rate = 57.2 x (0.25 x Factor A + 0.75 x Factor B)
Note: Rate is mills per kwh rounded off to nearest one tenth (1/10)
mill. Base rate has been mutually agreed to be 57.2 mills
per kwh.
Factor A = New oil price (S/bbl)
-------- ----------------------
Base oil price ($/bbl)
"Base oil price" = $30.07
"New oil price" is HELCO's total Chevron contract fuel price
(which includes taxes, ocean transportation, land
transportation, storage and wharfage) per barrel for
industrial fuel to Hill Plant on the first day of the current
calendar quarter -- i.e., either January 1, April 1, July 1 or
October 1.
Factor B = New CPI-U
-------- ----------
Base CPI-U
"CPI-U" is the unadjusted "U.S. City Average Consumer Price
Index for all Urban Consumers" as reported by the Bureau of
Labor Statistics, U.S. Department of Labor.
"Base CPI-U" is the CPI-U for March, 1981, which is 265.1.
"New CPI-U" is the CPI-U for the second month of the previous
calendar quarter as follows:
For first calendar quarter - use CPI-U for November of
previous year
For second calendar quarter - use CPI-U for February of same
year
For third calendar quarter - use CPI-U for May of same year
For fourth calendar quarter - use CPI-U for August of same year
Note: Factor A and Factor B shall be calculated to five (5)
decimal points.
Example: As of April 1, 1993, the "new oil price" is $16.44, the "New
CPI-U" is 428.7, and the firm energy rate is:
57.2 (0.25 x 16.44 + 0.75 x 428.7) = 77.2 mills per kwh
----- -----
30.07 265.1
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<PAGE> 1
HECO EXHIBIT 10.13
CONTRACT OF PRIVATE CARRIAGE
BY AND BETWEEN HAWAIIAN INTERISLAND TOWING, INC. AND
HAWAII ELECTRIC LIGHT COMPANY, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Option to Extend Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Early Termination for Material-Breach . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Final Voyage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. SPECIALIZED EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Tow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Tug . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Vessel Clarification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Seaworthiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Tank Calibration and Gauging . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Cargo Transfer Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
III. VESSEL PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Complement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Tankermen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Employee Responsibility and Training . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Master's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Mooring Master . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Drug and Alcohol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 Equal Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Documented Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 Safety Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
IV. CARRIAGE, LOADING AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Alternate Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Vessel Berth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Marine Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Tow Makeup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Pumping In and Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 Cargo Hose Markings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Cargo and Bunker Sample and Survey . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Cleaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Tow Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Sailing Delays, Loading Port . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.12 Voyage Course and Speed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.13 Dry Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.14 Other Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.15 Joint Voyages With MECO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
V. SERVICES AND RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Freight Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Freight Reduction On Shipments Made In Conjunction
With Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Cargo Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<TABLE>
<S> <C> <C>
5.4 Laytime Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Laytime Loading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Laytime Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Demurrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Tankermen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Heating of Fuel Oil Aboard the Tow . . . . . . . . . . . . . . . . . . . . . . . 17
5.10 Diesel Fuel Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Additional Berths/Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Port, Dues, Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . 18
5.13 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.14 Freight Earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.15 Billing, Payment and Disputes . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.16 Waiver Of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
VI. SCHEDULING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Shipper to Have First Priority . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Notice of Cancellation or Delay . . . . . . . . . . . . . . . . . . . . . . . . 20
VII. MAINTENANCE SERVICES AND OTHER REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Maintenance of the Tug and Tow . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Other Required Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Shipper's Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
VIII. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Carrier's Required Insurance Coverage . . . . . . . . . . . . . . . . . . . . . 21
8.2 Shipper's Required Insurance Coverage . . . . . . . . . . . . . . . . . . . . . 23
8.3 Deductibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.4 Continuation of Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
IX. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Indemnity For Tugs and Pilots . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2 Shipper's Indemnification of Carrier . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Carrier's Indemnification of Shipper . . . . . . . . . . . . . . . . . . . . . . 25
X. LIBERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Deviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
XI. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.1 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.2 Carrier's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.3 Shipper's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.4 Notice of Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.5 Total Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
XII. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.1 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2 Not A Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
XIII. GENERAL AVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.1 General Average Sacrifice . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
XIV. POLLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.1 Compliance With Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.2 Oil Spill Response Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.3 Pollution Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
14.4 Liability to Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.5 Liability For Transport Of Hazardous Material . . . . . . . . . . . . . . . . . 31
XV. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.1 Business Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.3 Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.4 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.6 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.7 Limitations Applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.8 Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.9 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.11 Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.12 Barrel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
15.13 Master . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
15.14 Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
XVI. RENEGOTIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.1 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
EXHIBIT E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
EXHIBIT F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
EXHIBIT G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
EXHIBIT H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXHIBIT J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
<PAGE> 4
CONTRACT OF PRIVATE CARRIAGE
This Contract is made on November 10, 1993 by and between HAWAIIAN
INTERISLAND TOWING, INC., (hereinafter called "Carrier"), a Hawaii corporation,
whose principal place of business and address is Dillingham Transportation
Building Suite 312, 735 Bishop Street, Honolulu, Hawaii 96813 and HAWAII
ELECTRIC LIGHT COMPANY, INC., (hereinafter called "Shipper" or "HELCO"), a
Hawaii corporation, whose principal place of business and address is P. O. Box
1027, HILO, Hawaii 96721-1027.
W I T N E S S E T H
WHEREAS, Shipper is in the business of generation, distribution,
purchase and sale of electrical power on the Island of Hawaii; and
WHEREAS, Shipper utilizes large quantities of diesel and residual fuel
oils in its generation process; and
WHEREAS, Shipper is in need of acquiring reliable and economical
transportation of such diesel and residual fuel oils between Oahu and the
Island of Hawaii; and
WHEREAS, Shipper's needs can best be met by the use of specialized
equipment dedicated primarily to serving Shipper's needs; and
WHEREAS, Carrier is in the business of hauling liquid petroleum
products in bulk among and between the Hawaiian Islands; and
WHEREAS, Carrier has acquired specialized equipment that can
effectively meet Shipper's needs;
NOW THEREFORE, in consideration of these premises and of the mutual
promises herein contained, Shipper and Carrier hereby agree that under the
terms and conditions stated below: (1) Shipper will ship and Carrier will
transport all liquid petroleum products in bulk (hereinafter "Cargo") shipped
by inter-island barge to Hilo and used by Shipper in its power generation
operations; and (2) Shipper may ship and Carrier will transport Cargo by
inter-island barge to Kawaihae on the Island of Hawaii and used by Shipper in
its power generation operations.
I. TERM
1.1 Initial Term The initial term of this Contract shall be for a
period of two (2) years, commencing on January 1, 1994 ("Initial Term").
Carrier will have the equipment necessary for service under this Contract ready
on the 1st day of January, 1994. Carrier warrants that as of the date of
commencement of this Contract, the Tug and Tow shall fulfill the descriptions,
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particulars and capabilities in this Contract such as set forth in Article II
and Exhibits A, B and C. In the event such equipment is not in all respects
ready and in complete compliance with the requirements set forth herein as of
the commencement, then Carrier shall provide substitute comparable equipment
pursuant to Section 2.4.
1.2 Option to Extend Term The term of this Contract may continue
after the expiration of the Initial Term set in Section 1.1 for up to three (3)
additional two (2) year periods (each two year period being an "Extension")
beginning January 1, 1996 unless Carrier or Shipper gives written notice of
termination at least 270 days before the beginning of an Extension. If neither
party makes a written declaration to terminate this Contract as provided
herein, then the Contract shall continue in effect without modification except
that the freight rates in Sections 5.1 and 5.2 ("Freight Rates") and demurrage
rates in Section 5.7 ("Demurrage Rates"), exclusive of the effect of any
adjustment to either the Freight Rates or the Demurrage Rates pursuant to
Section 5.10 or Article XVI, shall be subject to an annual escalation effective
as of January 1, 1996, and each January 1 thereafter, on the basis of the
arithmetic average of two components each weighted equally. One component is
the arithmetic average of the Producer Price Index for Industrial Commodities
("PPI") as published by the U.S. Department of Labor, Bureau of Labor
Statistics for the period July through September preceding every January 1 in
which service is rendered by Carrier hereunder commencing January 1, 1996,
divided by the arithmetic average of the PPI for the three months, July through
September, 1993. The second component is the arithmetic average of the hourly
earnings in dollars per hour for the water transportation services industry as
reported in "Employment and Earnings" published by the U.S. Department of
Labor, Bureau of Labor Statistics ("EE") for the period July through September
preceding every January 1 in which service is rendered by Carrier hereunder
commencing January 1, 1996, divided by the arithmetic average of the EE for the
three months, July through September, 1993. Such Freight Rates and Demurrage
Rates shall continue, subject to the provisions of Article XVI, during any
Extension.
1.3 Early Termination for Material-Breach A material breach of
performance or observation of any requirement, covenant, warranty,
representation, or condition under this Contract shall be grounds for early
termination of this Contract if such breach continues for 30 days after written
notice thereof is given to the breaching party. However, nothing in this
section should be construed to waive any legal or equitable rights of either of
the parties concerning such breach.
1.4 Final Voyage Should the Vessel be on a voyage laden with
Shipper's Cargo upon the expiry of the period of this Contract, Carrier's
obligation to provide the service contracted for herein
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shall continue at the same rate and conditions for such extended time as may be
necessary for the completion of the delivery of Shipper's Cargo.
II. SPECIALIZED EQUIPMENT
2.1 Tow A barge specially outfitted to carry liquid petroleum
products in bulk including, but not limited to, No. 6 Industrial Fuel Oil and
No. 2 Diesel Fuel Oil (called "Tow" herein) shall be used by Carrier to perform
transport services under this Contract. The Tow will be a seagoing barge of
all steel construction documented and licensed under the laws of the United
States, currently known as "HA'AHEO", Official Number 649 722, which vessel
shall bear the following certificates, classifications and registrations, to
wit: United States Coast Guard (hereinafter "USCG") Certificate of
Documentation; USCG Certificate of Inspection; International Loadline
Certificate; and American Bureau of Shipping Certificate of Classification for
Hull, Maltese Cross A-1 Fuel Oil Barge, being of the following approximate
specifications: Length: 340 feet; Breadth: 78 feet; Depth: 19 feet; Gross
Tons: 4185. In addition to the foregoing, the Tow shall be outfitted in
accordance with Exhibits A and C herein, or the equivalent. Such description,
particulars and capabilities of the Tow shall be maintained by Carrier
throughout the period of this Contract so far as possible by the exercise of
due diligence. Shipper shall, during the term of this Contract, have the first
call on the use of this Vessel, subject to the conditions stated in Sections
2.4, 4.14, 5.2 and 6.2 of this Contract.
2.2 Tug The Tug shall be a seagoing tug owned by Carrier (called
"Tug" herein) suitable and sufficient to tow, shift, and assist the Tow or any
substitute Tow which shall be used by Carrier to perform transport services
under this Contract. The Tug shall be licensed, certified and registered under
all applicable local, State and Federal laws, rules and regulations and be
certified in compliance with all applicable USCG and classification society
requirements, and is currently known as the "HOKULELE," Official Number 653612.
The Tug has the following approximate specifications: Shaft Horsepower: 3,900;
Length: 117 feet; Breadth: 34 feet; Depth: 17 feet; Gross Tons: 98.2. In
addition to the foregoing, the Tug shall be outfitted in accordance with
Exhibits B and C herein, or its equivalent. Such description, particulars and
capabilities of the Tug shall be maintained by Carrier throughout the period of
this Contract so far as possible by the exercise of due diligence. Shipper
shall, during the term of this Contract, have the first call on the use of this
Vessel, subject to the conditions stated in Sections 2.4, 4.14, 5.2 and 6.2 of
this contract.
2.3 Vessel Clarification For purposes of clarification, it is
understood that both the Tug and Tow described in this Contract, and any
substitute Tow and substitute Tug provided in accordance
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with Section 2.4 herein, shall be individually or collectively referred to by
the term "Vessel" in this Contract.
2.4 Substitutions It is the intent of this Contract to provide
Shipper with complete assurance that Carrier's Tug and Tow will be available as
required by the Shipper during the term of this Contract. In this connection,
Carrier covenants that during any period in which the Vessel is out of service,
regardless of the duration of such service suspension or whether or not the
suspension of service was scheduled or anticipated except as provided in
Section 7.1, that a suitable substitute service, including but not limited to
the substitution of another Vessel of generally similar capability and capacity
and acceptable to Shipper, shall be employed by Carrier for service hereunder
at no additional cost to Shipper. All provisions of this Contract shall apply
to such suitable substitute service.
As confirmation of its ability to perform in accordance with
the preceding, Carrier warrants that during the period of this Contract it will
maintain an effective agreement acceptable to Shipper with an owner, bareboat
charterer or time charterer of a suitable substitute Tow, for the use of such
vessel pursuant to Carrier's responsibility to provide suitable substitute
service hereunder. Carrier agrees to provide documentary evidence of such
arrangement for a substitute Tow to Shipper on or before January 1, 1994.
Carrier shall notify Shipper at least sixty (60) days prior to the expiration
of any such agreement the steps it has undertaken to extend or replace said
agreement with an alternative arrangement acceptable to Shipper.
Carrier warrants that any substitute Tow shall be fully
capable and ready to transport dirty petroleum products and is in all other
respects able to perform in accordance with the requirements set forth in this
Contract including but not limited to valid coverage under Carrier's oil spill
liability and other insurance policies and can lawfully operate under a USCG
Certificate of Financial Responsibility and USCG-approved oil spill response
plan (hereinafter "Plan") consistent with the Cargo, ports and facilities
characteristic of the service provided Shipper. It is further understood and
agreed that such substitute Tow must be regularly stationed at a port or place
in the Hawaiian Islands and thus be readily accessible to Carrier in the event
it shall be needed.
2.5 Seaworthiness With respect to any Vessel supplied by Carrier
under this Contract, the Carrier shall be bound, before and at the beginning of
each voyage to exercise due diligence to: (a) make the Vessel seaworthy, tight,
staunch, strong, fit and in a thoroughly efficient state, order and condition
for ocean service in the Hawaiian Islands; (b) properly man the Vessel in
accordance with Section III and Exhibit D attached hereto; (c) make the tanks
and all other parts of the Vessel in which Cargo is carried, fit and safe for
the Cargo's reception, carriage, discharge and
<PAGE> 8
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preservation; (d) equip the Tow (or any substitutes) in accordance with the
provisions of Exhibits A and C which are attached hereto; (e) equip the Tug (or
any substitutes) in accordance with the provisions of Exhibits B and C which
are attached hereto; (f) warrant that the Vessel is fully in class and rigged
with appropriate towing gear, fenders, hoses, reducers and all other necessary
and appropriate equipment for the safe, efficient and proper loading of Cargo
at Honolulu Harbor, Barbers Point Harbor or BHP Petroleum Americas Refining
Inc. Single Point Mooring and Sea Berth off-shore Barbers Point (hereinafter
"BHP SPM") in accordance with Exhibit C attached hereto, and for the
discharging of Cargoes at ports or places on the Island of Hawaii; and (g)
ensure that the Plan is approved and filed with all of the appropriate
governmental authorities as required and is in accordance with the Vessel's
configuration and equipment, nature and amount of Cargo carried on board the
Vessel; that the Plan provides for adequate response capability at the ports,
places and marine facilities called and for seas and places of transit; that a
copy of the Plan is carried on board the Vessel; and that the Vessel's Master,
crew and tankermen are familiar and experienced with the Plan's implementation.
2.6 Tank Calibration and Gauging All cargo tanks of the Tow shall
have been calibrated and ullage tables prepared in accordance with applicable
API/ASTM standards by a reputable independent inspector. The Tow shall have
clearly legible draft markings both fore and aft. The ullage tables shall
provide trim corrections. Wedge volume tables shall also be provided. The
reference point for gauging the striking height at the gauging point, and the
compartment number shall be clearly indicated on the gauging hatch of each
cargo tank. Copies of the above mentioned ullage tables shall be provided to
the Shipper and a legible copy shall be available on the Tow during loading and
discharge.
2.7 Cargo Transfer Equipment Carrier will supply all necessary
hoses, fittings, reducers and couplings (American and Metric) required for the
USCG approved transfer of Cargo to any and all of Shipper's loading and
discharge headers and will ensure that such hoses, fittings and couplings will
be available on a timely basis so as to meet Shipper's delivery schedule. All
manifold valves and fittings, outboard of the last fixed support to the Tow's
deck, that are used in the transfer of Cargo and ballast shall be made of
steel, malleable iron or other suitable material. Cast iron valves or fittings
are not acceptable.
Carrier shall provide a sufficient number of cargo hoses of
sufficient length and diameter, of a type appropriate for the nature of
Shipper's Cargo, and suitable for the Cargo's efficient loading and
discharging. Any and all cargo hoses used by the Vessel in performance of this
Contract shall be appropriately inspected, hydrotested and marked no earlier
than 12 months
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preceding their use hereunder. Further, Carrier warrants that any and all
cargo hoses used in service to Shippers shall be inspected and hydrotested at
intervals not to exceed 12 months.
III. VESSEL PERSONNEL
3.1 Complement Carrier warrants that during the period of this
Contract, the Vessel shall have a full and efficient complement of Master,
officers and crew, with adequate training and experience in operating all of
the Vessel's equipment; that the Master, officers, mates and crew shall possess
valid and current certificates/documents issued and approved by the USCG as
required; and that the Carrier's personnel shall be trained, experienced,
certificated and proficient in accordance with Exhibit D as attached hereto.
3.2 Tankermen Carrier will furnish the necessary personnel for
loading and discharging the Tow, including providing or arranging for a minimum
of two trained, licensed and certificated tankermen to attend the Vessel at all
times when the Vessel is arriving and departing the berth of Cargo loading and
discharge, during Cargo operations and at all times when the Vessel is at berth
in a laden condition.
3.3 Employee Responsibility and Training Carrier warrants that
the Vessel's Master, officers and tankermen have formal job descriptions which
include all duties and responsibilities. Carrier also warrants that such
responsibilities and duties of the Master, officers and tankermen in such areas
as seaworthiness of Vessel, safe navigation, weather and sea conditions, tow
wires, preventing leakage, towing and deck machinery, condition of tanks,
training and readiness, compliance with laws and regulations, including manning
laws and regulations, and display of documents are spelled out and known by
them. Carrier further warrants that all personnel have received as of the date
of the commencement of this Contract, and will continue to receive throughout
the term of this Contract, formal instruction and informal training in
conformity with the requirements of Shipper and Shipper's Cargo suppliers'
terminal facilities in such areas as: general safety practices and procedures;
fire fighting, oil spill control and other emergency procedures; health hazards
including hazardous materials handling; and tank barge operations for
tankermen.
3.4 Master's Duties Carrier shall provide to Shipper professional
histories showing tank barge towing experience of the Master and officers
serving on board the Vessel at the commencement of this Contract. Similar
histories shall be furnished for any new Master and officer assigned to the
Vessel during the period of this Contract.
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Contract of Private Carriage
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The Master shall determine whether operations requested by the
Shipper can safely be undertaken and whether the Vessel is capable of
undertaking or being employed to carry out the directions and orders of the
Shipper, provided that said Master shall not unreasonably refuse any request to
undertake operations or carry out any order or direction specified by the
Shipper. The Master, although appointed by and in the employ of the Carrier
and subject to the Carrier's direction and control, shall prosecute his voyages
with the utmost dispatch, shall render all reasonable assistance with the
Vessel's officers, crew and equipment and shall observe the orders of Shipper
in connection with Shipper's agencies and arrangements including but not
limited to Shipper's Cargo suppliers and receivers, the terminal and marine
facility personnel of Shipper's Cargo suppliers and receivers, and Cargo
inspectors. Nothing in this Contract shall be construed as vesting Shipper or
its agents with any control over the physical operation or navigation of the
Vessel.
If the Shipper shall have reason to be dissatisfied with the
conduct of the Master, officers or tankermen, the Carrier shall, on receiving
particulars of the complaint, investigate and, if necessary, make a change in
the appointments or practices required to obtain the services contracted for
herein.
3.5 Mooring Master Carrier will use and employ the nominated
mooring master (hereinafter "Mooring Master") to advise in mooring, connecting
of hoses, discharging, loading, unmooring and departing from the BHP SPM as and
if required by the SPM terminal operator. However, at all times, the Master
of the Vessel remains solely responsible for the safety of the Vessel, its
officers and crew during these operations. The Mooring Master is supplied on
the condition that in the performance of any service rended to Carrier's
Vessel, he is the servant of the Vessel and the Carrier and not the servant of
the Shipper nor any of its associated or affiliated companies, nor any of
Shipper's Cargo suppliers and receivers, nor any of the employees,
representatives, servants and agents of any of the foregoing. The Vessel and
Carrier shall indemnify and hold Shipper, its associated and affiliated
companies, Shipper's Cargo suppliers and receivers, and any of the employees,
representatives, servants and agents of any of the foregoing harmless from any
losses, damages, delays, claims and liabilities arising out of the Mooring
Master's rendering of services to the Vessel. Presence of the Mooring Master
on board in no way relieves the Master of the Vessel of any legal
responsibilities or of any of the responsibilities of the Carrier, Vessel and
Vessel Master incurred under this Contract; and final decisions remain the
Master's prerogatives.
3.6 Drug and Alcohol Carrier warrants that it has a policy on
Drug and Alcohol Abuse ("Policy") applicable to the Vessel which meets or
exceeds the standards of the USCG including but not limited to those set forth
in 46 CFR Parts 4, 16 and 40 for "Procedures for Transportation Workplace Drug
Testing Programs" and
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"Chemical Testing" which provides for testing for alcohol and drug impairments;
provides that appropriate personnel including seafarers and tankermen be
tested; and provides that the drug/alcohol testing and screening shall include
reasonable cause testing, random testing, pre-employment testing and testing
during routine medical examinations. Carrier understands and agrees that an
objective of the Policy should be that the testing act as an effective abuse
deterrent. Carrier warrants that the Policy will remain in effect during the
term of this Contract and that Carrier shall exercise due diligence to ensure
that the Policy is complied with. It is understood that an actual impairment
or any test finding of impairment shall not in and of itself mean the Carrier
has failed to exercise due diligence.
3.7 Equal Opportunity During the period of this Contract, Carrier
warrants that it shall comply with the requirements of the Federal Government
and the State of Hawaii with respect to maintenance of non-segregated
facilities, equal employment opportunity, affirmative action for veterans,
disabled veterans, minorities and handicapped workers.
3.8 Documented Procedures Carrier warrants that it has formal
written procedures governing such crew activity as work vests, hard hats,
breathing apparatus, safe access, smoking, lighting and lifesaving equipment.
Carrier also warrants that it has formalized tankermen procedures in place
which cover operational subjects such as but not limited to the following:
emergency procedures; vessel inspection checklist covering towing gear, lights,
machinery, cargo tanks, mooring gear, cargo gear, engine room and deck
fittings; vessel mooring; cargo integrity; cargo transfer equipment
connections; pre-transfer conference; cargo inspection and gauging procedures;
trim and stress; static hazard procedures; specific cargo transfer procedures;
cargo heating procedures, topping off procedures; tank stripping operations;
transfer shutdown procedures; startup transfer procedures; operating logs;
pollution control; cargo tank ventilation and tank entry hazards; and damaged
barge management. Carrier further warrants that it has an audit or review
program in place which includes provision for penalties or other disciplinary
actions to assure compliance with prescribed safety practices and operating
procedures.
3.9 Safety Program Carrier is to maintain a formal safety program
concerning all procedures including but not limited to navigation, operations,
cargo handling, tank cleaning, voyage repairs and documented monthly safety
meetings.
Carrier is also to maintain formal procedures to track and
communicate events involving serious damage to Vessel or marine facilities,
injuries, oil spills and other casualties including "near miss" incidents
involving Carrier or its affiliates, whether or not the event is related
directly to services provided Shipper under this Contract. This program is to
inform personnel and the
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Shipper as to the causes, findings and recommendations arising from an
investigation of such incidents with the objectives of reducing the likelihood
of a recurrence and improving the effectiveness and state of readiness of
casualty response activities.
IV. CARRIAGE, LOADING AND DISCHARGE
4.1 Alternate Ports The Cargo shall be loaded, transported and
discharged by Carrier at and between one or more ports and places within the
State of Hawaii as directed by Shipper.
4.2 Vessel Berth The Vessel shall not be required to proceed to
any location for loading or discharge which it cannot safely reach or at which
it cannot at all times of tide and weather safely lie afloat. Notwithstanding
anything contained in this Contract, Shipper shall not be deemed to warrant the
safety of any port or public channels, fairways, other waterways and approaches
thereto, or berth, dock, anchorage, and/or submarine line and shall not be
liable for any loss, damage, injury or delay resulting from conditions at such
ports or public channels, fairways, other waterways and approaches thereto, or
berths, docks, anchorages and/or submarine lines not caused by Shipper's fault
or neglect or which could have been avoided by the exercise of reasonable care
on the part of the Master or Carrier.
4.3 Marine Facilities Shipper shall provide a berth free of all
wharfage and dockage fees. All fees and other charges on the Vessel, including
without limitation those incurred for assist tugs, stand-by boats, pilots,
mooring masters, other port costs and taxes on services of Cargo transfer, with
the exception of such costs as are defined as being for the account of the
Shipper in Sections 5.11 and 5.12, shall be borne by the Carrier.
The Vessel shall operate in compliance with any and all
regulations including operating and safety regulations of the operator of any
marine terminal facility, wharf, berth or dock for which the Vessel is
nominated by Shipper to load or discharge Cargo hereunder when Vessel is
approaching, alongside or departing said facility, wharf, berth or dock.
Should Vessel fail to comply with such rules and regulations or should the
terminal representative determine that an unsafe condition exists with respect
to the Vessel, the terminal representative shall have the right to order the
Vessel to immediately cease loading or unloading operations and leave its place
of mooring. Any and all time lost as a result of such Vessel non-compliance
shall not count as used laytime or as demurrage if Vessel is on demurrage and
all costs and expenses that arise as a result of such non-compliance shall be
for the account of the Carrier.
Carrier shall assume full responsibility for any damage
sustained by wharves, berths or docks located at a cargo loading or discharging
facility called in the process of providing service
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hereunder which arises out of the negligent or improper operation of Vessel,
assist tug, stand-by boat or any other waterborne craft, either owned or
operated by Vessel or Carrier or being operated by an agent or subcontractor of
Vessel or Carrier. Carrier shall fully and completely indemnify Shipper, and
the owner and operator of any such facility, wharf, berth or dock for the
consequences of any such negligent or improper operation.
4.4 Tow Makeup Carrier shall be responsible for making up the Tow
and for determining the method and position in which it shall be towed.
4.5 Pumping In and Out All Cargo shall be loaded into the Tow by
shore pumps as designated by Shipper and at the expense and risk of Shipper up
to the connection to Carrier's hoses or, if Carrier's hoses are not used, to
the permanent hose connections on the Tow. All Cargo shall be discharged by
the Tow pumps and at the expense and risk of Carrier up to the connection of
Shipper's designated dock headers. Carrier shall provide all necessary and
sufficient pumps, power, hoses and hands required on board for safely mooring
and unmooring, connecting and disconnecting of hoses and loading and
discharging. Vessel shall load and/or discharge more than one grade of Cargo
simultaneously if Vessel is technically capable of doing so.
Vessel shall load at rates requested by Shipper, its agents or
terminal facility personnel having due regard for the safety of the Vessel and
the environment. Carrier warrants that Vessel shall discharge Cargo at the
rate of 3,000 barrels per hour or maintain a minimum pressure at the Vessel's
manifold of 100 psi in accordance with Exhibit A as attached hereto, provided
shore facilities permit.
All time lost as a result of Vessel being unable to discharge
its Cargo in accordance with the pumping warranty above shall not count as used
laytime or, if Vessel is on demurrage, as time on demurrage. If the terminal
or place of discharging does not allow or permit Vessel to meet the above
warranty or requires discharging grades consecutively, Master shall forthwith
issue a Letter of Protest (which should, if practical, be acknowledged in
writing) to such terminal or place. If Master fails to issue the Letter of
Protest, Carrier shall be deemed to waive any rights to contest that time was
lost as a result of Vessel's failure to comply with the above pumping warranty.
Any pumping time lost solely due to restrictions imposed by the terminal or
place of discharge shall count as used laytime or, if Vessel is on demurrage,
as time on demurrage.
4.6 Cargo Hose Markings Before making hose connections for
loading or discharging or before changing Cargo type to be transferred through
the same hose, or when two or more hoses are used simultaneously, both ends of
each hose shall be marked with
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Shipper's Cargo type and checked by Carrier's and Shipper's representative
before Cargo is moved. This is intended to avoid contamination or mixtures.
4.7 Cargo The Carrier shall properly and carefully load, handle,
stow, carry and discharge Shipper's Cargo. The types of Cargo carried under
this Contract shall be clean and dirty petroleum products, including but not
limited to aviation grade kerosine (to be used for non-aviation purposes only),
non-aviation gas turbine fuels, diesel fuel oils and residual fuel oils, with a
maximum of 2 grades within the Tow's natural segregation. It is the intention
of Shipper that Cargo transported under this Contract will include but not be
limited to No. 2 Diesel Fuel Oil and No. 6 Industrial Fuel Oil which are
approximately described in Exhibits E and F attached hereto. The Cargo shall
be considered the property of the Shipper in the custody of the Carrier from
the time that the Cargo reaches the flange between the loading terminal's
shorelines and the Carrier's Vessel's permanent hose connection (or the
Vessel's hose, if Cargo is loaded through a hose provided by the Vessel) until
the Cargo reaches the flange between the Vessel's hose and the receiving
terminal's shorelines (or between the Vessel's permanent hose connection and
the receiving terminal's hose if Cargo is discharged through a hose provided by
the receiving terminal).
No Cargo, thing or substance which, due to its composition,
size, shape, weight or any combination thereof, constitutes an unreasonable
hazard to the Vessel, its safe operation or equipment is to be shipped, nor any
voyage undertaken nor goods or Cargo loaded that would involve risk of seizure,
capture or penalty by any government or governmental authority and no
contraband of war shall be shipped. Neither Carrier, Master nor Vessel shall
be responsible for leakage, contamination or deterioration in quality of the
Cargo due to inherent vice of the Cargo. No product or quantities of products
shall be shipped which the Vessel was not designed to carry unless the same may
legally be carried onboard the Vessel and Carrier consents to the carriage
thereof; and products to be shipped shall be subject to any limitations which
may be imposed by any classification society or any regulatory authority.
4.8 Cargo and Bunker Sample and Survey Carrier agrees to allow an
independent inspector appointed by the Shipper and Shipper's representative to
survey and take samples of the cargo and bunker tanks, cofferdams, ballast and
slop tanks or any other void space on the Vessel prior to, during and after the
time of the loading and discharge of Shipper's Cargo.
4.9 Cleaning The Tow is to be presented in a condition suitable
for loading the specified Cargo. Upon the initial presentation of the Vessel to
Shipper for service hereunder and in the case where the Tow has transported
third-party cargo or been other than in dedicated service to Shipper or Maui
Electric
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Company, Ltd. ("MECO"), Shipper shall have the right to sample the residue of
prior cargo in the Tow before loading Cargo to determine the suitability of the
Tow. In such instance, Shipper's representative shall inspect the Tow and
satisfy themselves that the tanks, lines and pumps are free of any residue not
compatible with the Cargo to be loaded. The time required for such sampling
shall not count as used laytime or demurrage if Vessel is on demurrage. If as
a result of such inspection, the Tow is found to be unsuitable, Shipper may
order cleaning or if in Shipper's judgment cleaning will not make the Tow
suitable, Shipper may reject the Tow at no cost to Shipper. The cost such
cleaning shall be for Carrier's account and the time required for such initial
cleaning shall not count as used laytime or demurrage if the Vessel is on
demurrage. The cost of cleaning the Tow's cargo tanks subsequent to the
initial presentation of the Tow and provided the Tow remains in dedicated
service to Shipper and MECO shall be for the account of Shipper and the time
required for such additional cleaning shall count as used laytime or demurrage
if Vessel is on demurrage.
4.10 Tow Retention Shipper shall normally take prompt delivery of
all Cargo loaded aboard the Tow for Shipper's account. However, Shipper, at its
option, may at times retain its Cargo aboard the Tow. Retention time shall be
paid at the rates of $150.00 per hour.
4.11 Sailing Delays, Loading Port If on completion of loading of
the Tow, the Tow is delayed from sailing by more than two (2) hours due to a
change of schedule by Shipper, Shipper shall pay Carrier demurrage on the Tow
at the rate of $150.00 per hour from the time loading is completed until the
time the Tow actually sails.
4.12 Voyage Course and Speed Carrier does not guarantee any
particular speed during any voyage and does not warrant delivery of the Cargo
at destination at any particular date or time or to meet any particular market
or in time for any particular use. However, due to the critical nature of the
Cargo, Carrier shall prosecute the voyages with the utmost dispatch and to
proceed safely to designated ports of loading and discharge for any particular
voyage and will in any event other than a Force Majeure, promise to take
whatever steps may be necessary, consistent with prudent seamanship, to make
delivery of the Cargo or a replacement Cargo within 10 days of the scheduled
delivery date. Carrier shall have the sole discretion to determine the speed
and course which is prudent considering factors including but not limited to
sea and weather conditions, Vessel capacities and capabilities, crew safety,
other vessel traffic, port conditions and environmental safety.
4.13 Dry Cargo Shipper shall have the option of shipping any
lawful packaged or general dry cargo in any suitable space on board the Vessel,
including on Vessel's deck, subject to the approval of
<PAGE> 16
Contract of Private Carriage
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the Vessel's Master as to the kind, character, amount and stowage of such dry
cargo. Any and all expense for dunnage, loading, stowing and discharging of
dry cargo so incurred shall be for the account of the Shipper. The time used
loading and discharging such dry cargo shall count as used laytime or demurrage
if Vessel is on demurrage, but only to the extent that such time is not
concurrent with time used loading and/or discharging the oil Cargo.
4.14 Other Trades Carrier shall have the right to employ the Tow
in other trades so long as Shipper's requirements are met. In the event that
Shipper has a requirement for services under this Contract at a time when the
Tow is in use for other trades, Carrier will provide with reasonable advance
notice a suitable substitute service at no additional cost to Shipper.
4.15 Joint Voyages With MECO Carrier also has a contract to
transport petroleum products in bulk for MECO, the term of which is coextensive
with the term of this Contract. On occasion, Carrier may load and transport
cargo for MECO jointly on the same voyage with Cargo loaded and transported for
HELCO. In such instances, unless clearly specified or clear in the context,
the rights and responsibilities of "Shipper" under this Contract shall, as
between HELCO and MECO, and except as to the Freight Rate to be paid under
Section 5.1, accrue solely to HELCO for any portion of such voyage when Carrier
is transporting Cargo for HELCO, but no cargo for MECO, and shall be shared
with MECO as to any portion of such voyage when Carrier is loading and
transporting both HELCO's Cargo and cargo for MECO ("Joint Voyage").
V. SERVICES AND RATES
5.1 Freight Rate The following freight rates("Freight Rate")
include Tug (fully found with fuel) and Tow services as well as Tankermen
labor.
A. Freight Rate for liquid petroleum products in bulk
transported for HELCO on voyages where petroleum
products are not also transported in bulk for MECO or
another party shall be:
<TABLE>
<CAPTION>
Rate Per Barrel
----------------------- Volume Range for
No. 6 No. 2 Combined Cargo Per
Port Fuel Oil Diesel Voyage in Barrels
---- -------- ------ ------------------
<S> <C> <C> <C>
Hilo $1.76 $1.76 38,000 minimum
$0.85 $0.85 38,001 to 41,000
$0.75 $0.75 41,001 to 46,000
$0.50 $0.50 Above 46,000
</TABLE>
Exhibit G attached hereto contains sample Freight Rate
calculations for voyages to Hilo.
<PAGE> 17
Contract of Private Carriage
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B. Freight Rate for HELCO for liquid petroleum products
in bulk transported for Shipper to the port of Kawaihae. This rate is only
applicable for Cargo transported to Kawaihae in conjunction with Cargo
transported for HELCO to Hilo (where the minimum Cargo quantity rate will
apply).
<TABLE>
<CAPTION>
Rate Per Barrel
----------------------- Volume Range for
No. 6 No. 2 Combined Cargo Per
Port Fuel Oil Diesel Voyage in Barrels
---- -------- ------ ------------------
<S> <C> <C> <C>
Kawaihae n/a $1.63 7,500 minimum
</TABLE>
Exhibit H attached hereto contains sample Freight Rate
calculations for voyages to Kawaihae.
C. Freight Rate for HELCO for liquid petroleum
products in bulk transported for HELCO on voyages
where liquid petroleum products in bulk are also
transported for MECO shall be as above. Example of
freight cost calculation for MECO on cargo
transported in conjunction with HELCO is shown in
Exhibit I.
5.2 Freight Reduction On Shipments Made In Conjunction With Third
Parties HELCO shall accommodate to the extent practicable the hauling of
petroleum products in bulk for parties other than HELCO or MECO (hereinafter
"third-party cargo") on voyages performed under this Contract. For the purpose
of determining the freight cost of HELCO's Cargo when transported by Carrier in
conjunction with such third-party cargo, HELCO's Freight Rate shall be
calculated according to Section 5.1. of this Contract. Carrier shall reduce
HELCO's freight cost by an amount equal to one-half of the highest base rate in
Section 5.1 (which is one half of $1.76 per barrel, or $0.88 per barrel)
multiplied by the volume of the third-party cargo. For the purpose of
computing freight charges, amounts collected for excess laytime, movement to
additional berths and demurrage will be excluded from freight charges. Sample
Freight Rate calculations for voyages performed in conjunction with third-
party cargo are attached hereto in Exhibit J.
5.3 Cargo Volume Freight charges will be based upon net quantity
loaded into the Tow as shown by shore tank gauges or positive displacement
meter unless otherwise requested and agreed upon in advance. The quantity of
Cargo so measured shall be corrected for liquid temperature to the quantity
equivalent at 60 degrees F. in accordance with the latest edition of the
ASTM-IP Petroleum Measurement Tables.
5.4 Laytime Duration Allowable laytime limits for loading shall
be twelve (12) hours ("Standard Loading Laytime") except for Cargo shipped in
conjunction with MECO where the allowable laytime for loading both cargo
parcels shall be Standard Loading Laytime.
<PAGE> 18
Contract of Private Carriage
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The allowable loading laytime solely for HELCO for such Joint Voyage with MECO
cargo shall be that part of Standard Loading Laytime which bears the same
relationship to the total Standard Loading Laytime as the number of HELCO
barrels of Cargo bears to the total number of HELCO and MECO barrels of cargo.
Allowable laytime for discharging at the Island of Hawaii shall be twelve (12)
hours for a Cargo of 45,000 barrels or less and for a Cargo in excess of 45,000
barrels, one additional hour of laytime shall be added to the twelve (12) hours
for each 3,000 barrels, or part thereof, of Cargo above 45,000 barrels
("Standard Discharge Laytime") except for Cargo shipped in conjunction with
MECO where the allowable laytime for discharging both cargo parcels shall be
Standard Discharge Laytime. The allowable discharge laytime solely for HELCO
for such Joint Voyage with MECO cargo shall be that part of Standard Discharge
Laytime which bears the same relationship to the total Standard Discharge
Laytime as the number of HELCO barrels of Cargo bears to the total number of
HELCO and MECO barrels of cargo. Allowable laytime for Laytime for loading and
discharge operations is non-reversible.
5.5 Laytime Loading Laytime for loading shall be as follows:
Laytime shall commence at loading berths, either in Honolulu Harbor or at
Barbers Point Harbor when the Tow is alongside and secured at loading pier.
Laytime shall commence at the BHP SPM when the Vessel is all fast to the buoy
or upon three (3) hours expiration after Vessel has tendered Notice of
Readiness, whichever first occurs. Laytime shall cease when loading is
completed, and Tow is secured and ready for sea. Demurrage charges for loading
at Honolulu Harbor will apply only to Tow until loading is completed and Tow is
secured and ready for sea. Demurrage charges for loading at Barbers Point
Harbor shall accumulate on the Tug for only that time the Tug is standing by.
5.6 Laytime Discharge Laytime shall commence at discharge berth
upon the expiration of three (3) hours after Vessel has tendered Notice of
Readiness or when the Vessel is alongside and secured at discharge pier,
whichever first occurs. Laytime shall cease when the discharge of the Cargo is
complete and the Tow is secured and ready for sea. Demurrage charges at
discharge shall accumulate on the Tug and tankermen for only that time the Tug
is standing by and tankermen attending the Tow.
5.7 Demurrage
<TABLE>
<S> <C> <C>
A. Tow per hour: $150.00
B. Tug per hour: $223.00 Not Under Power
C. Tug per hour: $398.00 Under Power
D. Tankerman per manhour: $41.00
</TABLE>
<PAGE> 19
Contract of Private Carriage
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On voyages where Carrier transports liquid petroleum products
in bulk for both HELCO and MECO, HELCO shall be responsible only for that part
of demurrage for exceeding loading laytime limits as calculated in accordance
with Section 5.4.
However, all periods of delay in loading or discharging which
are caused by: (1) the Vessel in reaching or departing the berth (including
weather delays, awaiting daylight, tide, assist tugs or pilots) caused by any
reason or condition not reasonably within the Shipper's control, or (2) the
Vessel in moving from port anchorage to all fast in berth or time consumed by
the Vessel lining up, draining pumps/lines or cleaning tanks, pumps and lines,
except as in Section 4.9, or (3) any delay due to operational deficiency of the
Vessel or breakdown or inability of the Vessel's facilities to load or
discharge Cargo, or (4) prohibition of loading or discharging at any time by
the port authorities or by the terminal facilities due to a violation of an
operating and/or safety regulation due to the condition of the Vessel or act or
omission by the Vessel's Master, crew or tankermen or (5) escape or discharge
of oil or the threat of an escape or discharge of oil on or from the Vessel
whether or not due to the condition of the Vessel or any act or omission to act
of the Vessel's Master, crew or tankermen, or (6) the non-compliance with USCG
regulations or failure to obtain or maintain any and all required inspection
letters, certificates, oil spill response plan approval on the part of the
Vessel its Master, crew or tankermen, or (7) labor dispute, strike, go slow,
work to rule, lockout, stoppage or restraint of labor involving Vessel's
Master, officers, crew or tankermen or assist tugs, stand-by boats or pilots,
or (8) an event of Force Majeure as defined in this Contract, or (9) the
neglect or interference of Carrier, its agents, or employees shall not be
considered as used laytime or as demurrage if Vessel is on demurrage. Carrier
shall take any and all reasonable steps available to minimize demurrage time
and charges.
5.8 Tankermen The tankermen shall manipulate all the Tow valves
and to handle all the Tow lines and Tow connections at the place of loading and
unloading, as well as the necessary pumping facilities to effect the discharge
of the Cargo. Carrier will furnish all mooring lines for the Tow. Terminals
are responsible for hose connection to their facilities. However, the Carrier
will provide mating adapters as required. The Tow winches and booms may be
utilized as well as marine loading arms, when available.
Tankermen travel costs to and at the island of Cargo discharge
including but not limited to airfare, meals, lodging and ground transportation
shall be invoiced at cost to Shipper. Carrier's supervisory personnel shall
schedule transportation and hotels for tankermen for the Tow trips to outer
islands. Carrier's best effort will be directed toward minimizing costs to the
Shipper through prudent scheduling of flights and planned loading/ discharging
schedules. Carrier will submit monthly invoices to Shipper for the aforesaid
tankermen travel costs on a voyage by
<PAGE> 20
Contract of Private Carriage
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voyage basis. However, the above notwithstanding, in no event shall total
tankermen travel costs exceed $450.00 per discharge at Hilo and $700.00 per
discharge at both Hilo and Kawaihae.
5.9 Heating of Fuel Oil Aboard the Tow Shipper shall reimburse
Carrier for the actual documented cost of fuel consumed by the Vessel's cargo
heating system when operated in response to Shipper's express instructions.
5.10 Diesel Fuel Price Adjustment In addition to other charges
contained in Article V of this Contract, the Shipper shall pay, or receive a
credit for, a Diesel Fuel Price Adjustment ("DFPA"), reflecting month to month
changes in the cost of Tug fuel which shall be calculated on a voyage by voyage
basis, as follows:
DFPA = (AFC - BFP) x DFC x (HELCO Volume / Total Volume)
Where,
AFC = The Actual Fuel Costs paid by Carrier for No. 2 Diesel
Fuel in dollars per gallon exclusive of any and all taxes,
based on the actual price of diesel on the first day of the
month in which the voyage commences.
BFP = The base diesel fuel price, in dollars per gallon, which
shall be defined as the average of the Friday high and low
West Coast Spot prices for .5% sulfur Number 2 Diesel Fuel in
Seattle, as reported in Platt's Oilgram Price Report during
the month of December 1993, expressed in dollars per gallon,
plus $.14 per gallon. If Platt's Oilgram does not publish a
high and low price for a particular Friday during the relevant
period, the high and low prices for the closest preceding day
for which Platt's Oilgram is published will be used.
DFC = The actual diesel fuel consumed during the voyage, in
gallons, as determined by sounding the fuel tanks of the Tug,
before and after the voyage.
HELCO VOLUME = The Cargo volume in barrels being transported
for HELCO during the subject voyage.
TOTAL VOLUME = The total cargo volume in barrels being
transported on the voyage including HELCO Cargo and the cargo
of MECO and third-party cargo.
Provided, however, that no DFPA shall be due unless the absolute difference
between AFC and BFP is greater than 10% of AFC.
5.11 Additional Berths/Ports When more than one berth within a
port is required to complete the loading or discharge of Shipper's Cargo,
Shipper shall pay $500.00 to cover in full any and
<PAGE> 21
Contract of Private Carriage
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all additional expenses incurred by Carrier by reason of calling at such
additional berth. Such additional expenses shall include but not be limited to
shifting expense, dockage and pilotage.
When more than one port (for which purpose the BHP SPM shall
constitute a separate port) is called to complete the loading of Shipper's
Cargo, Shipper shall reimburse Carrier for the amount of the normal port
charges of the second port of loading. Time spent in transit commencing at the
point of passing the sea buoy outbound at the first port of loading until
passing the sea buoy (or entering the normal anchorage area) inbound at the
second port of loading shall count as used laytime or demurrage if Vessel is on
demurrage.
5.12 Port, Dues, Taxes and Other Charges Carrier shall pay for the
cost of pilotage, port entry, and dockage for the Vessel except (1) Shipper
shall reimburse Carrier for the cost of the Mooring Master and stand-by boat
incurred solely as a result of the Vessel loading Cargo at the BHP SPM; and (2)
Shipper shall pay Carrier for the services of any tug engaged to escort or
assist the Vessel while entering, while at berth and while departing Barbers
Point Harbor, provided also that such tug escort or assist is required by the
USCG or the State Harbors authority, on the basis of the rate per hour
stipulated in Section 5.7 B for the hours commencing when the Vessel is
alongside and all secure until such time as loading operations are completed
and the Vessel ready to depart. Notwithstanding the provision for payment and
reimbursement of dockage in Section 7.2, Shipper is responsible for all Cargo
related costs, including but not limited to hose watch, independent inspection
and gauging of the Cargo, wharfage, tolls, and guard services while Tow is idle
and loaded with Shipper's Cargo. Dues and local, State and Federal taxes and
other charges imposed, levied or assessed against the Vessel shall be paid by
the Carrier and local, State and Federal taxes imposed, levied or assessed
against the Cargo shall be paid by Shipper subject to Section 7.2. Vessel
shall be free of charges for the use of any place(s) when used solely for the
purpose of loading or discharging Shipper's Cargo. However, Carrier shall be
responsible for charges for any such place(s) when used solely for Vessel's
purposes, such as, but not limited to, awaiting Shipper's orders, line, pump
and tank cleaning, repairs, before, during or after loading and/or discharging.
5.13 Losses Losses of Cargo of .5% or less by volume will be
regarded as normal industry practice and Carrier will not be responsible for
such shortage. Shipper shall present claim for loss of Cargo greater than .5%
by volume to Carrier latest 90 days after the completion of discharge of the
Cargo on the voyage with respect to which said claim arises. Such claim shall
include the cost of the Cargo lost and the freight charge paid or invoiced for
such non-delivered Cargo.
<PAGE> 22
Contract of Private Carriage
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5.14 Freight Earned Full freight to destination on Shipper's Cargo
transported hereunder shall be completely earned when Cargo discharge is
complete at destination.
5.15 Billing, Payment and Disputes Payment for Tug, Tow,
tankermen, port and other charges shall be paid at Carrier's office address
first set out above within fifteen (15) days after receipt of Carrier's monthly
invoice. Invoices for charges must be accompanied by appropriate supporting
documents. In cases of dispute as to the amount of payment due, Shipper shall
not withhold any amounts due Carrier except for those amounts in dispute.
Shipper will notify Carrier in writing of any such disputed amounts within
fifteen (15) days following receipt of Carrier's invoice.
5.16 Waiver Of Claims Any claim for freight, demurrage and/or
charges or expenses under this Contract shall be deemed waived, extinguished
and absolutely barred if such claim is not received by Shipper or Carrier, as
the case may be, in writing with supporting documentation within 120 days from
the date of final discharge of the Cargo on the voyage with respect to which
said claim arises. This provision shall not apply with respect to claims for
damage, loss or shortage of Cargo, claims with respect to damage to shore
facilities, claims with respect to the injury of an employee of the Shipper,
Carrier, Shipper's Cargo suppliers and their agents, or claims arising in
connection to an escape or discharge of oil.
VI. SCHEDULING
6.1 Scheduling Carrier and Shipper understand and agree that to
meet Shipper's demands for the most efficient scheduling, loading and
discharging of the Vessel will require the general cooperation of each party.
To facilitate this objective, Shipper shall submit in writing to Carrier by the
10th of every month during the term of this Contract a proposed voyage schedule
for the following calendar month stating anticipated loading and discharging
times and location. Carrier shall make the appropriate berth reservations and
other such arrangements consistent with said schedule and as requested by
Shipper. Carrier shall confirm to Shipper the making of such reservations and
arrangements verbally or by facsimile. It is understood and agreed that this
tentative schedule is not binding on Shipper and is to be used only as a
best-efforts estimate of Shipper's requirements.
6.2 Shipper to Have First Priority Notwithstanding Sections 4.14
and 5.2 above, except as provided for in this paragraph, the Carrier shall
provide the Tug and Tow described in Article II above, always giving Shipper
first priority for use of the Tug and Tow, above and beyond any other Carrier's
customers. However, if circumstances should arise whereby Shipper and its
sister Hawaiian Electric Company, Inc. ("HECO") subsidiary (MECO), both need
and demand first priority use of the Tug and Tow at the same time, HECO will
determine the priority as between them and notify Carrier.
<PAGE> 23
Contract of Private Carriage
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Carrier will be deemed to have fulfilled its obligation under this paragraph by
following the priority established by HECO. It is understood that it is the
intent of this section to provide Shipper with complete assurance that Tug and
Tow services will be available when and as ordered by Shipper.
6.3 Notice of Cancellation or Delay Shipper will endeavor to
advise Carrier, orally or in writing, as promptly as is reasonably practicable
of the cancellation or delay of previously scheduled and confirmed Tug and Tow
service; giving at least four (4) hours notice for cancellation or delay of
previously scheduled and confirmed Tow service, and at least four (4) hours
notice for cancellation or delay of previously scheduled and confirmed Tow
shifting service. If less than four (4) hours notice of cancellation or delay
of scheduled and confirmed services is given Carrier, then Shipper will pay for
charges, if such charges are incurred, up to an amount of four (4) hours of
demurrage at rates provided in Article V. Carrier shall exercise its best
efforts to minimize these charges by employing such tankermen and crew on its
other vessels or otherwise utilizing their services in an effort to reduce
these cancellation or delay charges. In such case, Carrier shall credit
Shipper with the amount of these savings.
VII. MAINTENANCE SERVICES AND OTHER REQUIREMENTS
7.1 Maintenance of the Tug and Tow The Carrier shall be solely
responsible for maintenance of the Tug and Tow. Carrier specifically covenants
and agrees that it will maintain the Vessel, its appliances and appurtenances,
in a state of repair that will allow for safe and efficient operation during
the term of the Contract, including but without limitation, keeping said Vessel
in full unexpired classification as may be required by the USCG or other
regulatory agencies having jurisdiction. As required, Carrier shall, at its
expense, drydock the Vessel for the purpose of keeping the Vessel in full
unexpired classification and meeting all USCG inspection requirements and
drydocking, and all charges incurred in connection therewith shall be for the
Carrier's account. Shipper and Carrier agree to arrange scheduled shipments to
accommodate required maintenance periods of up to ten (10) continuous calendar
days, but not to exceed twenty (20) total calendar days annually. It is
further agreed that Carrier must notify Shipper in writing no later than 90
days prior to the first day of any period when the Vessel is expected to be out
of service and unavailable for the transport of Shipper's Cargo because of
scheduled maintenance, repair or drydocking in order to permit such an
arrangement of scheduled shipments. Failing such notification, Carrier shall
arrange such suitable substitute service as aforesaid. Carrier shall designate
a company representative to liaise with Shipper and report on the fulfillment
of Carrier's responsibility to carry out routine hull and equipment
inspections, preventative maintenance and schedule of Vessel repair,
maintenance and drydocking.
<PAGE> 24
Contract of Private Carriage
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7.2 Other Required Services Carrier shall provide the following
additional services to Shipper: coordinating with Shipper and consignees the
loading and discharge of the Tow; making arrangement for berthing and pilotage
at ports or places on neighbor islands; making follow-up arrangements when
necessary due to schedule changes, weather and other operational
considerations, whether anticipated or unanticipated; scheduling the loading
and discharge of the Tow to meet required arrival and sailing times; preparing
loading plans for the Tow; computing and advancing dockage for which amounts
the Shipper shall make timely reimbursement to Carrier; computing, advancing
and filing with the State of Hawaii, Harbors Division, all required fees and
reports with respect to pipeline fees incurred during the loading of Cargo at
Barbers Point Harbor and Cargo discharge at Hilo and Kawaihae, Hawaii, for
which advances Shipper shall make timely reimbursement to Carrier; and
performing other operational services not specified hereinabove concerning the
movement of the Tow. Charges for the aforesaid services are included in the
Freight Rates charged in Article V.
7.3 Shipper's Representative Shipper shall have the right and
privilege of having its representative(s) visit the Vessel and observe
operations while in port or at sea. Shipper's representatives shall have
access to the entire Vessel and the Master, officers and crew of the Vessel
shall cooperate with and render any reasonable assistance that Shipper's
representative may require.
VIII. INSURANCE
8.1. Carrier's Required Insurance Coverage The Carrier shall
maintain insurance as set forth below and that may be required under the
applicable laws, ordinances and regulations of any governmental authority.
Carrier shall present satisfactory evidence of the required insurance to the
Shipper prior to the commencement of this Contract including as follows:
A. Workers' Compensation and Employers' Liability
Insurance as prescribed by applicable law, including
insurance covering liability under the Longshoremen's
and Harbor Workers' Act, the Jones Act and the Outer
Continental Shelf Land Act, if applicable; and
B. Commercial General Liability Insurance including
Bodily Injury and Property Damage Insurance with a
limit not less than $1,000,000 combined single limit
per occurrence; and
C. Hull and Machinery Insurance including collision
liability on vessels engaged in towage with a limit
at least equal to the full and actual value of each
<PAGE> 25
Contract of Private Carriage
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and every vessel Carrier owns or charters which is
used in the performance of work required under this
Contract; and
D. Protection and Indemnity Insurance under one of the
two following options:
(1) Full and valid Protection and
IndemnityInsurance including but not
limited to coverage for injuries to
or death of masters, mates and crew,
and excesscollision liabilities.
The limits of such insurance shall
not be less than $25 million per
occurrence. Full and valid vessel
pollution liability insurance
including coverage for TOVALOP
liabilities and pollution
liabilities imposed by federal and
state laws in an amount not less
than $500 million per incident.
Valid Excess Pollution Liability
Insurance must cover like
liabilities for Pollution for an
amount not less than $200 million
per incident, or the maximum
available; or
(2) Protection and Indemnity Insurance
on a full entry basis with an
International Group P&I Club. Such
insurance shall include, but not be
limited to, coverage for injuries to
or death of masters, mates and crew;
excess collision liabilities and
pollution liabilities imposed by the
federal and state laws as well as
TOVALOP liabilities (if applicable).
Such insurance shall be unlimited as
per International Group, P&I Club
rules except for pollution
liabilities which shall be limited
to $500 million or the maximum
pollution limited offered by the P&I
Clubs of the International Group.
Such insurance shall also include
Excess Pollution Liability which
must cover like liability for
pollution for an amount not less
than $200 million per occurrence or
the maximum amount available.
Carrier shall have the applicable insurance policies endorsed
to include:
a. a 30-calendar day written notice to Shipper prior to the
effective date of cancellation or material change of the
insurance; and
<PAGE> 26
Contract of Private Carriage
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b. naming Shipper and Shipper's Cargo suppliers as an
additional insured in the coverage described in Sections
8.1 B, 8.1 C and 8.1 D (1); and
c. a waiver of all rights of subrogation and an assignment of
statutory lien, if applicable, against the Shipper and
Shipper's Cargo suppliers in the coverage described in
Sections 8.1 A and 8.1 C; and
d. a clause making Carrier's insurance primary in relation to any
other insurance available from Shipper; and
e. a Standard Cross Liability Endorsement or Severability of
Interest Clause, where applicable.
8.2 Shipper's Required Insurance Coverage Shipper shall procure
and maintain Cargo insurance for all Cargo loaded aboard the Tow in an amount
equal to the full actual value of the Cargo and on a form customary in the
American or London Insurance market. Such insurance shall include loading and
discharge.
8.3 Deductibles Any deductible amounts due under any of the
insurance coverage shall be paid by the Carrier or the Shipper for their own
respective required insurance coverage.
8.4 Continuation of Coverage Carrier warrants that it has
obtained the insurance coverage described in Section 8.1 and that during the
initial term of this Contract or any Extension thereof, Carrier agrees to
continue such coverage in force subject also the provisions of Article XVI
herein.
IX. INDEMNITY
9.1 Indemnity For Tugs and Pilots Neither the Shipper nor any of
its associated or affiliated companies, nor any of Shipper's Cargo suppliers
and receivers, nor any of the employees, representatives, servants and agents
of any of the foregoing shall be responsible for any losses, damages, delays or
liabilities arising from any negligence, incompetence, or incapacity of any
pilot, stevedore, longshoreman, mooring master, Master or other personnel of
any assist tug or
<PAGE> 27
Contract of Private Carriage
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stand-by boat, or line handler arising from the terms of the contract of
employment thereof which terms Carrier hereby agrees to accept and be bound by,
or arising from any unseaworthiness or insufficiency of any assist tug or
stand-by boat the services for which were arranged by Shipper on behalf of
Carrier; and Carrier agrees to indemnify and hold harmless the Shipper, its
associated or affiliated companies, Shipper's Cargo suppliers and receivers,
and any of the employees, representatives, servants and agents of any of the
foregoing from and against any and all such losses, damages, delays or
liabilities.
When any pilot, mooring master, or Master or other officer of
an assist tug or stand-by boat furnished to or engaged in the service of
supplying tug power or assistance to the Vessel, (whether or not said person is
an employee, servant or representative of Shipper, its affiliated or associated
companies, Shipper's agents or Shipper's Cargo suppliers or receivers) goes
onboard the Vessel, it is understood and agreed that such person or persons are
to be considered independent contractors and become the borrowed servant of the
Carrier and the Vessel for all purposes and in every respect and shall be
subject to the exclusive supervision and control of the Vessel and her
personnel, and neither the Shipper nor any of its associated or affiliated
companies, nor any of Shipper's Cargo suppliers and receivers, nor any of the
employees, representatives, servants and agents of any of the foregoing nor
those providing the pilots, mooring master, Master or other officers of any
assist tug or stand-by boat shall be under any liability for errors of
navigation, management of the Vessel, or other losses, damages, delays and
liabilities resulting therefrom. This shall include but not be limited to the
giving of orders to any tug or stand-by boat engaged in assisting Vessel and in
respect to the handling of the Vessel and to the order of the number and
horsepower of tugs assisting or standing by the Vessel. In respect to the
foregoing, Carrier hereby agrees to indemnify and hold harmless Shipper, any of
its associated or affiliated companies, any of Shipper's Cargo suppliers and
receivers, and any of the employees, representatives, servants and agents of
any of the foregoing from any and all losses, damages, delays and liabilities
whatsoever whether to third parties or otherwise, arising from the acts or
omissions of such pilot, mooring master, Master and other officers of any
assist tug or stand-by boat.
9.2 Shipper's Indemnification of Carrier To the fullest extent
permitted by law, Shipper shall indemnify and hold harmless the Carrier, its
affiliates and parent corporation and their respective officers, directors,
agents and employees from and against all claims, damages, losses, liabilities
or expenses (including but not limited to attorneys' fees) arising out of or in
any way connected with Shipper's performance under this Contract, excepting
only such losses as may be caused solely by the gross negligence or willful
misconduct of Carrier. Carrier, at its election, may control and defend the
proceedings or require the Shipper to defend at Carrier's direction, except
where such control is in conflict with any provisions of the Shipper's
insurance policies under which the Carrier is named as additional insured.
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In either case, all parties will fully cooperate in providing all necessary
evidence (as determined by the Carrier to be reasonably required) for defense
of the proceeding.
Notwithstanding the preceding or the provisions of Article
XII, Shipper shall indemnify, defend and hold harmless Carrier, its directors,
officers, employees and agents (including but not limited to affiliates and
contractors and their employees) from and against all liabilities, damages,
losses, penalties, claims, demands, suits, costs, expenses, and proceedings of
any nature whatsoever directly or indirectly arising out of or attributable to
the release, threatened release, discharge, disposal or presence of oil or
hazardous material related to the Cargo transported under this Contract when in
the custody of Shipper except to the extent such release, threatened release,
discharge, disposal or presence of oil or hazardous material may be
attributable to the negligence or willful action of Carrier, including without
limitation: (1) all foreseeable and unforeseeable consequential damages; (2)
the reasonable costs of any required or necessary repair, cleanup or
detoxification of an area of oil or hazardous material and the preparation and
implementation of any closure, remedial or other required plans; (3) the
reasonable costs of the investigation of any environmental claims by Carrier;
(4) the reasonable cost of Carrier's enforcement of this Contract; and (5) all
reasonable costs and expenses incurred by Carrier in connection with clauses
(1), (2), (3), and (4), including without limitation reasonable attorney's fees
and court costs.
9.3 Carrier's Indemnification of Shipper To the fullest extent
permitted by law, Carrier shall indemnify and hold harmless the Shipper, its
affiliates and parent corporation and their respective officers, directors,
agents and employees from and against all claims, damages, losses, liabilities
or expenses (including but not limited to attorneys' fees) arising out of or in
any way connected with Carrier's performance under this Contract, excepting
only such losses as may be caused solely by the gross negligence or willful
misconduct of Shipper. Shipper, at its election, may control and defend the
proceedings or require the Carrier to defend at Shipper's direction, except
where such control is in conflict with any provisions of the Carrier's
insurance policies under which the Shipper is named as additional insured. In
either case, all parties will fully cooperate in providing all necessary
evidence (as determined by the Shipper to be reasonably required) for the
defense of the proceeding.
Notwithstanding the preceding or the provisions of Article
XII, Carrier shall indemnify, defend and hold harmless Shipper, its directors,
officers, employees and agents (including but not limited to affiliates and
contractors and their employees) from and against all liabilities, damages,
losses, penalties, claims, demands, suits, costs, expenses, and proceedings of
any nature whatsoever directly or indirectly arising out of or attributable to
the release, threatened release, discharge,
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disposal or presence of oil or hazardous material related to the Cargo
transported under this Contract when in the custody of Carrier except to the
extent such release, threatened release, discharge, disposal or presence of oil
or hazardous material may be attributable to the negligence or willful action
of Shipper, including without limitation: (1) all foreseeable and unforeseeable
consequential damages; (2) the reasonable costs of any required or necessary
repair, cleanup or detoxification of an area of oil or hazardous material and
the preparation and implementation of any closure, remedial or other required
plans; (3) the reasonable costs of the investigation of any environmental
claims by Shipper; (4) the reasonable cost of Shipper's enforcement of this
Contract; and (5) all reasonable costs and expenses incurred by Shipper in
connection with clauses (1), (2), (3), and (4), including without limitation
reasonable attorney's fees and court costs.
X. LIBERTIES
10.1 Deviations The Vessel shall have liberty to sail with or
without pilots, tow or be towed, and to deviate for the purpose of assisting
vessels in distress, saving life or property, landing any ill or injured person
on board or taking on fuel, supplies or other necessaries, or for repair,
provided that if it is necessary for the Tug to leave the Tow during any such
deviation, the Tow shall be left in a position of safety and the towage service
resumed immediately upon completion of the deviation, except the Carrier may at
any time without penalty take such reasonable action as necessary for the
saving of life. No charges for services under this Contract shall be charged
Shipper during the period of any such deviation.
XI. FORCE MAJEURE
11.1 Force Majeure For purposes of this Contract, an event or act
of "Force Majeure" shall mean: acts of God and the public enemy, hostilities
or war (declared or undeclared), embargo, riots, civil unrest, revolution,
sabotage, insurrection, blockades, strikes, epidemics, landslides, lightning,
earthquakes, fires, hurricanes, tsunamis, floods, tidal waves, volcanic
eruptions, explosions, total or partial expropriation, nationalization,
confiscation, requisitioning or abrogation of a government concession, closing
of, or restriction on the use of, a port or pipeline, inability to secure
petroleum product by reason of governmental regulations or otherwise, failure
of Shipper's suppliers' or its affiliated companies' machinery or pipelines,
loss or shortage of suitable crude oil or product supply or the suspension or
termination Shipper's suppliers' crude oil or petroleum supply contracts,
suspension or termination of Shipper's petroleum product supply contracts, or
an event affecting Shipper's Cargo suppliers' production, manufacturing,
distribution, refining, delivery or receiving facilities, power generation or
power
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distribution affecting Shipper's Cargo suppliers' facilities, unavailability of
Cargo or any other cause or contingency affecting Shipper's Cargo suppliers or
otherwise not reasonably within the control of the Shipper which materially
affects the Shipper's ability to fulfill any provisions of this Contract. An
event of Force Majeure shall also be taken to mean Carrier's inability to
comply with the State of Hawaii or USCG rules or regulations with respect to
required Certificates of Financial Responsibility, or its equivalent, and any
other cause not reasonably within the control of the Carrier which materially
affect Carrier's ability to fulfill any provisions of this Contract.
11.2 Carrier's Obligation Carrier and its officers, directors, the
owners, operators, agents or charterers of Vessel shall not be liable for any
loss, damage or delay resulting from an event or act of Force Majeure.
Carrier's obligations including but not limited to rendering service under this
Contract shall be reduced or suspended for any period in which an event or act
of Force Majeure exists as to the Carrier and which can not be overcome by
Carrier through providing Shipper with a suitable substitute service as
provided in Section 2.4. In the event of any reduction or suspension of
Carrier's obligation to render service under this Contract, Shipper may obtain
towage service from another party for the period of Force Majeure.
11.3 Shipper's Obligation Shipper and its officers, directors,
employees, agents and affiliated entities shall not be liable for any loss,
damage or delay resulting from an event or act of Force Majeure. Shipper's
obligations under this Contract shall be reduced or suspended for any period in
which an event or act of Force Majeure exists as to Shipper, or Shipper's
supplier, either singularly or collectively. However, nothing in this Article
XI shall excuse Shipper from its obligation to make payments of monies due
hereunder for towage service rendered prior to said act or event of Force
Majeure.
11.4 Notice of Force Majeure The party claiming Force Majeure
shall give the other party verbal notice of such act or event of Force Majeure
within twenty-four (24) hours of the occurrence and shall also send written
confirmation of the same to the other party immediately thereafter. The party
claiming Force Majeure shall use due diligence to cure any act or event of
Force Majeure, and shall give the other party verbal notice within twenty-four
(24) hours after the act or event of Force Majeure has terminated and shall
send written confirmation of the same to the other party immediately
thereafter.
11.5 Total Loss It is understood and agreed that in the event of a
total loss or constructive total loss being declared by Vessel underwriters to
the HA'AHEO, Carrier shall supply a replacement Tow for a period of one hundred
and twenty (120) days. Within thirty (30) days following the event which caused
the declaration of total loss or constructive total loss, Carrier shall
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declare in writing to Shipper whether it will supply a Tow for service under
the Contract, meeting the requirements set forth herein. Such Tow shall be
tendered for delivery and approval of Shipper in accordance with the terms of
this Contract within ninety (90) days following such declaration, failing
which, Shipper shall have the unilateral right to terminate this Contract,
notwithstanding anything herein to the contrary.
XII. LIMITATION OF LIABILITY
12.1 Limitation of Liability Except as otherwise agreed in this
Contract, Carrier and Shipper shall be entitled to assert by way of limitation
of liability any principle of law or provision of any statute or regulation of
the United States that would afford either Carrier or Shipper, a limitation of
such liability and the provisions of any such statute or regulations limiting
liability as aforesaid are incorporated herein by reference and made applicable
hereto, as though fully set forth herein. For purposes of such limitation of
liability, Shipper and Carrier waive any claim that this is a personal contract
of the other party.
12.2 Not A Charter The parties agree that this Contract shall be
construed as a private contract for carriage and not a charter and that no
provision of this Contract shall be construed as creating a demise of the
Vessel to Shipper.
XIII. GENERAL AVERAGE
13.1 General Average Sacrifice In the event of imminent danger,
peril, disaster, damage or accident before or after the commencement of the
voyage, subjecting the Tug, Tow and Cargo to a common peril, resulting from any
cause whatsoever, whether due to negligence or not, for which, or for the
consequences of which, the Carrier is not responsible by statute, contract or
otherwise, the Shipper and the owners of the Cargo, shall contribute with the
Carrier in general average to the payment of any sacrifices, losses or expenses
of a General Average nature that may be made or incurred and shall pay salvage
and special charges incurred in respect of the Cargo. If a salving ship is
owned or operated by the Carrier or its affiliates, salvage shall be paid for
based upon the regular hourly rates hereunder.
General Average shall be adjusted, stated, and settled
according to York/Antwerp Rules of 1974 (except Rule XXII), as amended 1990,
and, as to matters not provided for by those Rules, at such port or place in
the United States as may be selected by Carrier, and as to matters not therein
provided for, according to laws and usages in the Port of New York (except that
any payment made by Carrier to Shipper pursuant to Article XIV or to the
government or to others to remove oil or a threat of oil pollution as defined
in TOVALOP and used herein, as well as any other
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payments , with respect to Vessel or Carrier's liability for oil pollution
damage, shall not be deemed to be General Average sacrifices or expenditures).
If a General Average statement is required, it shall be prepared by adjusters
appointed by Carrier, who are to attend to the settlement and collection of the
General Average, subject to customary charges. General Average Agreements
and/or security shall be furnished by Carrier and/or Shipper, if requested.
Any cash deposit being made as security to pay General Average and/or salvage
shall be remitted in a duly authorized and licensed bank at the place where the
General Average statement is prepared. For purposes of any General Average
determination, it is expressly agreed by and between the Carrier and Shipper,
that the Tow, from commencement of the voyage to its completion is under
control of the Master of the Tug.
XIV. POLLUTION
14.1 Compliance With Regulations During the period of this
Contract, Carrier and Vessel will comply with all local, State and Federal
laws, rules and regulations of whatsoever kind with respect to oil spill or
other water pollution liability or prevention applicable to the Vessel loading
at, discharging at, entering, leaving, remaining or passing through ports,
places or waters in the performance of this Contract. Carrier at its sole risk
and expense shall make all arrangements by equipping the Vessel, insurance,
bonds, securities or other evidence of financial responsibility, capability or
security, USCG approved Vessel-specific oil spill response plan and related
employee training, formal drills and exercises, and otherwise and shall obtain
all such certificates and documentary evidence and take all such other action
as may be necessary to satisfy such laws, rules and regulations including but
not limited to USCG pollution prevention regulations including but not limited
to 33 CFR parts 154, 155, 156 and 157 and the U.S. Federal Water Pollution
Control Act, as amended. Vessel shall carry onboard a current U.S. Coast Guard
Certificate of Financial Responsibility (Water Pollution). Carrier agrees to
indemnify the Shipper against any and all claims, damages, losses, liabilities,
expenses, including but not limited to reasonable attorney's fees and all other
consequences resulting from its failure to accomplish the foregoing.
14.2 Oil Spill Response Plan Carrier shall provide Shipper with
the plan approved by and on file with the USCG and other local, State and
Federal authorities having jurisdiction for the response by the Vessel and
Carrier's organization to an oil spill incident. This plan must include a
first aid response within the first thirty minutes of an incident and a
reliable source of follow-up clean up supplies (e.g. booms, skimmers, vacuum
trucks, manpower etc). As evidence of its ability to access such oil spill
response resources, Carrier warrants that it shall provide sufficient oil spill
response capability with respect to both small- and large-size oil spill events
occurring in near-shore and
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Contract of Private Carriage
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open-ocean environments by maintaining contracts for spill response service
with USCG-approved response organizations including but not limited to the
Clean Islands Council and the Marine Preservation Association/Marine Spill
Response Corporation for the term of this Contract and any Extension and
supplement thereto.
Information provided Shipper with respect to Carrier's Vessel
oil spill response plan should include but not be limited to the following:
a. Company response team format.
b. Communication flow chart including names and
24-hour contacts of participating company
personnel.
c. Procedures for assembly of response team.
d. Check list for reporting minor oil spill
events and check list which assists shore
personnel in obtaining accurate information
about major spill events from the Vessel.
e. Contact reference data for oil spill
responders contracted to provide assistance
to Carrier.
14.3 Pollution Mitigation When an escape or discharge of oil or
any polluting substance occurs from or is caused by the Vessel or marine
facility or occurs from or is caused by loading or discharging operations and
results in or threatens to cause pollution damage, or when there is the threat
of an escape or discharge of oil (e.g. a grave and imminent danger of the
escape or discharge of oil which, if it occurred, would create a serious danger
of pollution damage), Carrier or Shipper or their representatives, agents or
employees shall promptly take whatever measures are necessary and reasonable to
prevent or mitigate such environmental damage (without regard to whether or not
said discharge was caused by a negligent act or omission by the facility, by
the Vessel or Shipper or Carrier or others). Carrier hereby authorizes
Shipper, or its agent, at Shipper's option, upon notice to Carrier or Master,
to undertake such measures as are reasonable and necessary to prevent or
mitigate the pollution damage. The party undertaking such measures shall keep
the other advised of the nature and results of any measure taken by it, and, if
time permits, the nature of the measures intended to be taken by it. Any of
the aforementioned measures actually taken by Shipper shall be deemed taken on
the Carrier's authority, and shall be at Carrier's sole expense (except to the
extent such discharge was caused by the negligence or willful action of Shipper
or its agent) and prompt reimbursement shall be made as appropriate for the
costs of measures taken pursuant to this clause; provided, however, that should
Carrier or its agent give notice to Shipper to discontinue said measures (and
to the extent government authorities allow
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Contract of Private Carriage
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Shipper to discontinue said measures) the continuance of Shipper's cleanup
actions will no longer be deemed to have been taken pursuant to the provisions
of this clause. No Vessel or tankermen charges will be incurred for Shipper's
account during any lost time resulting from the events dealt within this
subparagraph if such events were caused or contributed to by Carrier.
14.4 Liability to Third Parties Notwithstanding any other
provision in this Contract, the provisions of Section 14.3 shall be applicable
only between Carrier and Shipper and shall not affect, as between Carrier and
Shipper, any liability of Carrier to any third parties, including the
government, if Carrier shall have such liability nor any liability of Shipper
to any third parties, including the State of Hawaii and the U.S. Government, if
Shipper shall have such liability.
14.5 Liability For Transport Of Hazardous Material Should Shipper
incur any liability under Chapter 128D, of the Hawaii Revised Statutes as a
result of an escape or discharge of oil from the Vessel at berth or during
transit or occurs from or is caused by loading or discharging operations,
Carrier shall indemnify and hold Shipper harmless except to the extent such
escape or discharge was caused by or contributed to by the negligence or
willful action of the Shipper or its agents or employees.
XV. GENERAL PROVISIONS
15.1 Business Policy Carrier agrees to comply with all laws and
lawful regulations applicable to any activities carried out in the name, or
otherwise on behalf, of Shipper under the provisions of this Contract. Carrier
agrees that all financial settlements, billings and reports rended by Carrier
to Shipper, as provided for in this Contract, shall, in reasonable detail,
accurately and fairly reflect the facts about all activities and transactions
handled for the account of the Shipper.
15.2 Notices Except as otherwise expressly provided herein, all
notices and communications required by the terms hereof from the Carrier to
Shipper and from Shipper to Carrier shall be made in writing, facsimile or
telex to the following addresses, or such other address as the parties may
designate by notice, and shall be deemed given upon receipt:
Carrier: President
Hawaiian Interisland Towing, Inc.
Dillingham Transportation Building
735 Bishop Street, Suite 312
Honolulu, Hawaii 96813 FAX: (808) 524-5312
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Shipper: Manager, Purchasing and Materials Management
Hawaiian Electric Company, Inc.
P.O. Box 2750
Honolulu, Hawaii 96840 FAX: (808) 543-5621
15.3 Entire Contract This instrument constitutes the entire
Contract of the parties with respect to all matters and things herein
mentioned. It is expressly acknowledged and agreed by and between the parties
that neither party is now relying upon any collateral, prior or contemporaneous
agreement, written or oral, assurance or assurances, representation or
warranty, or any kind or nature as to or respecting the condition or
capabilities of the Tug and Tow and the other matters and things, rights and
responsibilities herein fixed and described. No modifications, waiver or
discharge of any term or provision of this Contract shall be implied in law,
equity or admiralty, nor shall any alternation, modification or acquittance of
any such term or provision be effective for any purpose unless in writing
signed by or upon behalf of the party charged therewith.
15.4 Captions Captions used herein are for convenience of
reference only and shall have no force or effect or legal meaning in the
construction or enforcement of this Contract.
15.5 Assignment This Contract shall not be assigned by either
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld, provided that: This Contract may be assigned by
Hawaii Electric Light Company, Inc. to the Trustee under said Company's First
Mortgage Indenture dated May 1, 1941, as amended.
15.6 Dispute Resolution
A. Good Faith Negotiations. Before any dispute under this
Contract is subjected to the provisions of this Section 15.6
or any litigation, a representative of Shipper and a
representative of Carrier, both having full authority to
settle the dispute shall personally meet in Honolulu and
diligently attempt in good faith to resolve the dispute.
B. Voluntary Arbitration. If within thirty (30) days the parties
are unable to resolve the dispute under the procedures of
Section 15.6 A, on mutual agreement the parties may submit the
dispute to arbitration. The party initiating the arbitration
shall give to the other written notice in sufficient detail of
the existence and nature of any dispute proposed to be
arbitrated under this Section 15.6. The notice shall be
signed by an appropriate company officer and be addressed to
an appropriate company officer of the other party.
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1. Appointment of Arbitrator.
The parties shall attempt to agree on a
person with special knowledge and expertise
with respect to the hauling of petroleum
products in bulk to serve as arbitrator under
the procedures established by the rules of
the American Arbitration Association unless
other specific rules and procedures are by
mutual agreement established to apply to
disputes submitted to arbitration under
Section 15.6 B. If the parties cannot agree
on an arbitrator within ten (10) days after a
party initiates such process, each shall then
appoint one person to serve as an arbitrator
and the two thus appointed shall select a
third arbitrator with such special knowledge
and expertise to serve as chairman of the
panel of arbitrators; and such three
arbitrators shall determine all matters by
majority vote; provided, however, if the two
arbitrators appointed by the parties are
unable to agree upon the appointment of the
third arbitrator within five (5) days after
their appointment, both shall give written
notice of such failure to agree to the
parties, and, if the parties fail to agree
upon the selection of such third arbitrator
within five (5) days thereafter, then either
of the parties upon written notice to the
other may require an appointment from and
pursuant to the rules for commercial
arbitration of the American Arbitration
Association. Prior to appointment, each
arbitrator shall agree to conduct such
arbitration in accordance with the terms of
this Section 15.6. The arbitration panel may
choose legal counsel to advise it on the
remedies it may grant, procedures and such
other legal issues as the panel deems
appropriate.
2. Arbitration Procedures.
The parties shall have thirty (30) calendar
days from the completion of the appointment
process to perform discovery and present
evidence and argument to the arbitrators.
During that period, the arbitrators shall be
available to receive and consider all such
evidence as is relevant, within reasonable
limits due to the restricted time period, and
to hear as much argument as is feasible,
giving a fair allocation of time to each
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party to the arbitration. The arbitrators
shall use all reasonable means to expedite
discovery and to sanction non compliance with
reasonable discovery requests or any
discovery order. The arbitrators shall not
consider any evidence or argument not
presented during such period and shall not
extend such period except by the written
consent of both parties. At the conclusion
of such period, the arbitrators shall have
thirty (30) calendar days to reach a
determination. To the extent not in conflict
with the procedures set forth herein, such
arbitration shall be held in accordance with
the prevailing rules of the American
Arbitration Association for commercial
arbitration.
3. Arbitrator Limitations.
The arbitrators shall have the right only to
interpret and apply the terms and conditions
of this Contract in accordance with the laws
of the United States and the State of Hawaii,
as appropriate, and to order any remedy
allowed by this Contract.
4. Written Decision.
The arbitrators shall give a written decision
to the parties stating their findings of
fact, conclusions of law and final order, and
shall furnish to each party a copy thereof
signed by them within five (5) calendar days
from the date of their determination.
5. Decision Binding on the Parties.
Unless the parties agree otherwise, the
arbitrator's decision shall become binding on
the parties at such time as the decision is
confirmed by order of a court of competent
jurisdiction pursuant to Chapter 658, Hawaii
Revised Statutes, or the United States
District Court for the District of Hawaii
pursuant to 9 U.S.C. Section 9, as
appropriate.
6. Cost of Arbitration.
The parties shall each pay fifty (50) percent
of the cost of the arbitrator or arbitrators
and any legal counsel appointed pursuant to
Section 15.6A.1.
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C. Commencement of Suit. Any suit, action or proceeding
by either party in consequence of or to enforce any
term or provision of this Contract shall be commenced
in the First Circuit Court of the State of Hawaii, or
the United States District Court of the District of
Hawaii at Honolulu, Hawaii, as appropriate. The
prevailing party in any such suit, action or
proceeding shall be entitled to recover its costs of
the suit and reasonable attorneys' fees.
15.7 Limitations Applicable All limitations of and exemptions from
liabilities and entitlement to indemnity provided by law or the terms of this
Contract shall apply to Carrier and the Shipper, and affiliates of either and
all officers, directors, employees, agents thereof, and to any Vessel owned or
chartered by any of the above, and the master and crew thereof.
15.8 Notice of Claim Unless notice in writing of loss of or damage
to any Cargo carried pursuant to this Contract shall be given to Carrier within
120 days after delivery of the Cargo to the designated port, place, or vessel,
such delivery shall be deemed to be prima facie evidence of the delivery of the
Cargo in good order and condition. Carrier and the Vessel shall be discharged
from all liability in respect of loss of or damage to such Cargo unless suit or
action is brought within two (2) years after the delivery of the Cargo to the
designated port, place or vessel or after the date when the Cargo should have
been so delivered.
15.9 Choice of Law The interpretation of this Contract and of the
rights and obligations of the parties hereunder in law, equity, or admiralty
shall be governed by the substantive law of the State of Hawaii or the general
maritime law of the United States, whichever as applicable.
15.10 Severability Carrier and Shipper agree that if, and in the
event, any term or provision of this Contract shall be rendered or declared
invalid or unenforceable by reason of any existing or subsequently enacted
legislation or by decree or judgement of any court which shall have or acquire
jurisdiction over the parties and each of them or jurisdiction "in rem" of the
Vessel, the invalidation or unenforceability of such term or provision of this
Agreement shall not thereby affect the remaining terms, provisions, rights and
obligations herein contained.
15.11 Regulatory Approval This Contract is required to be filed
with the Hawaii Public Utilities Commission ("PUC") for approval. If in the
proceedings initiated as a result of the filing of this Contract, the PUC
disapproves or fails to authorize the recovery of the transportation and other
costs incurred under this contract through the Shipper's rate schedule fuel
adjustment
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clause, Shipper may terminate this Contract by 30 days written notice to
Carrier. Both parties agree to use their best good faith efforts to obtain
such approval.
15.12 Barrel For purposes of this Contract, a barrel shall mean 42
U.S. gallons at 60 degrees F.
15.13 Master This term shall include the person or persons in
charge of Vessel or any of the vessels referred to in Sections 2.3, 2.4 or
elsewhere in this Contract.
15.14 Carrier This term shall include the Vessel and other vessel
or vessels, substitute carrier or the owner, bareboat charterer, time charterer
and voyage charterer and the Master, officers, crew and tankermen of any of the
foregoing, whether any shall be acting as carrier or bailee.
XVI. RENEGOTIATION
16.1 Additional Costs The Carrier shall comply with the conditions
of the Contract including the provision of such additional certificates,
contingency plans, and P&I Club insurance as may be necessary to enable the
Vessel to trade in an among the ports and places in accordance with Article IV.
It is understood and agreed that both parties entered into the Contract in
reliance on Federal and State government laws, rules, regulations and
requirements or interpretations of implementations thereof, or P&I Club or
equivalent insurance in effect on the date of the Contract or same known, or
which should have been known, to both parties to take effect during the period
of this Contract and any supplements and Extension thereof (hereafter
"Requirements"). If at any time, any of the said Requirements change or if new
Requirements become effective, and the effect of such change or new
Requirements is/are not covered elsewhere in this Contract or has/have
significant economic effect on either party then either party shall have the
option, upon written notice to the other party, to call for renegotiation of
the Freight Rate or other terms provided for in this Contract as to the
allocation of such new costs. As regards the cost of the insurance coverage
required by the terms of this Contract, significant economic effect shall be
held to mean that the Carrier's cost of insurance coverage for protection and
indemnity, including liability for oil pollution damage, required by Section
8.1B has increased by more than 25 percent during any twelve month period of
this Contract.
Upon receiving written notice of renegotiation with cost
estimates for said items from either party, the parties shall enter into good
faith negotiations within fifteen (15) days of receiving said notice. In the
event that the parties do not agree upon a modified Freight Rate or the terms
satisfactory to both parties within thirty (30) days after such notification is
received, either party shall have the right to terminate this Contract by
giving
<PAGE> 40
Contract of Private Carriage
Page 37 of 51
written notice to that effect to the other party, such termination to be
effective 150 days after the expiration of said negotiation period.
Notwithstanding the above, Carrier shall have no right to terminate so long as
Shipper is willing to pay a fair and prorated share of such new costs. Until a
mutually satisfactory revised Freight Rate or other terms have been agreed
upon, or until this Contract is terminated as provided herein, the Freight Rate
which was in effect when the request for renegotiation was made and all other
terms and provisions shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed as of the day and year first above written.
HAWAIIAN INTERISLAND TOWING, INC.
"Carrier"
By /s/ Gordon L. Smith
-----------------------------------
Its President
HAWAII ELECTRIC LIGHT COMPANY, INC.
"Shipper"
By /s/ Warren H. W. Lee
-----------------------------------
Its President
By /s/ Edward Y. Hirata
-----------------------------------
Its Vice President
<PAGE> 41
Contract of Private Carriage
Page 38 of 51
EXHIBIT A
The following are warranted by Carrier with respect to the Tow and its
equipment and machinery employed under this Contract.
CAPACITY
25,000 bbl. No. 6 Industrial Fuel Oil minimum.
30,000 bbl. No. 2 Diesel Fuel Oil minimum.
CARGO SEGREGATION
Any Tow used in service to Shipper shall be equipped with a system of
cargo tanks and piping that will provide for the segregation of two
grades with double valve separation.
BALLAST
Any Tow used in service to Shipper shall be capable of segregating
water ballast from the cargo tank/pipeline system with a minimum
double valve interface.
DISCHARGE PUMPING RATES
No. 6 Industrial Fuel Oil: 3,000 barrels per hour (BPH) at
110 Degrees F minimum.
No. 2 Diesel Fuel Oil: 3,000 BPH minimum.
Rail pressure: 100 psi at manifold
MANIFOLDS
Any Tow used in service to Shipper shall be equipped with cargo
manifolds and piping sufficient to permit Cargo loading and/or
discharge operations on either port or starboard side.
MULTIPLE GRADES
Any Tow used in service to Shipper shall be equipped with cargo
manifolds, pumps and piping sufficient to permit the loading and
discharge of two different Cargo grades simultaneously.
<PAGE> 42
Contract of Private Carriage
Page 39 of 51
EMERGENCY SHUTDOWN
Any Tow used in service to Shipper shall be equipped to permit
emergency shutdown of the pumping system from more than one location,
of which one shall be on deck.
ECOLOGY DAM
Any Tow used in service to Shipper shall be equipped with a deck
containment coaming or ecology dam at least 4 inches high but not more
than 8 inches high to reduce the likelihood that cargo spilled from
cargo hatches, oil loading manifolds, above-deck lines and valves and
transfer connections may enter the water or land environment.
HEATING
All cargo tanks in which residual fuel oil type cargo, such as No. 6
Industrial Fuel Oil, is to be carried shall be fitted with heating
coils with heat supplied by a diesel fired retort system of 5.0
million BTU's/hr capacity.
ELECTRICITY
Diesel generator of sufficient capacity to safely provide electrical
power to all Tow equipment and machinery in any and all operations.
AIR COMPRESSOR
Any Tow used in service to Shipper shall be equipped with an air
compressor of sufficient capacity and piping to safely clear cargo
hoses of retained Cargo after completion of Cargo operations.
OIL SPILL ABATEMENT EQUIPMENT
Any Tow used in service to Shipper shall have oil spill abatement
equipment and supplies including, but not limited to, a minimum of
1200 feet of oil spill boom, spare bridles and two lines anchor/buoy
system, sweeps, sorbent sheets, transfer pumps, personal protective
clothing and gear and other related emergency oil spill cleanup
equipment consistent with the Vessel's oil spill response plan and all
USCG requirements.
<PAGE> 43
Contract of Private Carriage
Page 40 of 51
INSURANCE WIRE
Any Tow used in service to Shipper shall be rigged for towing
operations with an emergency towing pennant or insurance wire.
MOORING EQUIPMENT
Any Tow used in service to Shipper shall be equipped with appropriate
mooring bitts and sufficient forward winch/capstan and
winch/capstan-drum capacity to lift the mooring hawser and chafe chain
of the BHP SPM and shall be equipped with a crane or A-frame type
gallows, tie off bitts and manifold rail suitable for lifting and
tieing off the floating hose at that facility pursuant to the
requirements set forth in Exhibit C attached hereto.
CERTIFICATION
U.S. Coast Guard Certification of Inspection for ocean service as an
unmanned tank barge.
American Bureau of Shipping Classification.
International Load Line Certificate.
<PAGE> 44
Contract of Private Carriage
Page 41 of 51
EXHIBIT B
The following are warranted by Carrier with respect to the Tug and its
equipment and machinery employed under this Contract.
POWER PLANT CAPACITY
The minimum horsepower of any Tug used in service to Shipper shall be
3,000 bhp except that upon the express written permission of the
Shipper, a Tug having a power system of a minimum of 2,800 bhp may be
employed on a single voyage basis.
POWER PLANT CONFIGURATION
Any Tug used in service to Shipper shall be equipped with a dual power
plants in a twin-shaft/twin-screw configuration.
NAVIGATION EQUIPMENT
Any Tug used in service to Shipper shall be equipped with appropriate
VHF and SSB communication equipment, radar, fathometer, Global
Positioning System receiver or equivalent position finding equipment.
EMERGENCY TOW RETRIEVAL EQUIPMENT
Any Tug used in service to Shipper shall be equipped with an Orville
Hook or equivalent emergency tow retrieval capability.
<PAGE> 45
Contract of Private Carriage
Page 42 of 51
EXHIBIT C
The following are warranted by Carrier with respect to outfitting of any Tug
and any Tow and their respective equipment and machinery employed under this
Contract:
MINIMUM REQUIREMENTS FOR BARGES CALLING AT
BHP PETROLEUM AMERICAS REFINING INC.
OFFSHORE SINGLE POINT MOORING TERMINAL
A. The BHP Petroleum Americas Refining Inc. Single Point Mooring and sea
berth terminal facility off shore Barbers Point (hereinafter "SPM
terminal") specifies that any barge must be configured to moor
stern-to-the-buoy with the hose connections at the starboard-side
manifolds. Bow-to mooring will only be accepted on a case by case
basis with appropriate modifications to the barge layout and
procedures as determined by the SPM terminal operator.
B. Mooring equipment: winches, must be capable of heaving the end of the
76mm chafe chain on board and adjacent to the barge mooring connection
in a safe and efficient method acceptable to the SPM terminal
operator.
C. Mooring connection: The Vessel must be capable of accepting
OCIMF-standard tri-plate at the end of the mooring hawser/chafe chain
assembly. The Vessel must have appropriately positioned bitts for the
snotter connection, Smit-type towing bracket or other suitable
approved connection acceptable to the SPM terminal operator.
D. Hose handling equipment: It shall be located at the starboard side
cargo manifolds. The Safe Working Load of the hose derrick, crane or
A-frame shall be 5 tons. Manifolds and hose hang off points must be
capable of sustaining the weight of the standard 12 inch floating
cargo hose in the opinion of the SPM terminal operator.
E. A suitable mooring assist/stand-by boat must attend the Vessel at all
times when approaching, when moored and when departing the SPM
terminal.
F. The towing tug shall at all times maintain a steady pull on the barge
in order to maximize the available distance from the SPM buoy. Common
procedure is for the barge to moor stern to the buoy with the towing
tug always engaged with the tow wire.
<PAGE> 46
Contract of Private Carriage
Page 43 of 51
G. The barge shall be prohibited from mooring by the sole use of the
mooring hawser pick up line. A mooring connection utilizing the chafe
chain shall always be required.
H. A minimum of two (2) qualified tankermen shall be required to attend
the Vessel during all oil transfer operations at the SPM terminal.
I. The Carrier or barge operator shall take full responsibility in
responding to any spill originating from the Vessel. The barge shall
be equipped with an ocean oil containment boom equal in length to
twice the length of the barge and which shall be capable of being
deployed by available personnel and boats.
J. The Vessel, Master, officers, crew, tankermen and Carrier shall
operate in compliance with any and all laws, rules, regulations and
required procedures as set forth in the BHP SPM terminal Operations
Manual as submitted to the USCG and in compliance with an USCG
approved oil spill contingency plan.
K. Deviations, if any, from the preceding requirements must be expressly
granted by the BHP SPM terminal operator.
<PAGE> 47
Contract of Private Carriage
Page 44 of 51
EXHIBIT D
The following are warranted by Carrier with respect to the Vessel's Master,
officers, crew and tankermen employed under this Contract.
ALL OPERATING PERSONNEL: TRAINING/PROFICIENCY
All operating personnel including Vessel's Master, officers and crew
and tankermen and the immediate supervisors of the foregoing, are to
receive training and exhibit proficiency in such areas as including,
but not limited to, mandatory compliance with the various federal and
State laws concerning safety and hazardous materials (OSHA, USCG,
Hawaii DOH, Hawaii DOT), oil transfer procedures, fire fighting, oil
spill prevention, oil spill contingency planning, oil spill response
and other emergency operations and such proficiency and state of
readiness shall be assessed through a program of continuous planning
review, periodic exercises and drills.
TUG PERSONNEL: LICENSES/ENDORSEMENTS/QUALIFICATIONS
The Master, officers and crew of any Tug providing service to Shipper
shall have the appropriate licenses and endorsements, have received
the appropriate experience and training for the seas, ports cargo and
size and capability of the equipment employed in the performance of
this Contract. In addition, such personnel are to continue to receive
whatever further training and experience is required to ensure that
towing operations are conducted in a safe, efficient and professional
manner consistent with the highest standards in the industry.
Inasmuch as the Master shall be held responsible for the quality of
overall voyage operations, management and safety, it is a requirement
that he have the appropriate USCG license and endorsement.
The Master shall be appropriately qualified by education at a college
level or at an accredited maritime academy and/or by the equivalent
progressive experience in navigation, pilotage, engine room
operations, vessel classes, making/breaking tow, barge mooring, cargo
transfer operations and safety procedures and shall have experience
and/or the appropriate formal training in such areas as hazardous
materials operations, fire fighting, oil spill clean-up and mitigation
and other situations requiring emergency response.
<PAGE> 48
Contract of Private Carriage
Page 45 of 51
Carrier agrees and understands that a Master appointed to any Tug used in
service to Shipper under this Contract shall have demonstrated reliability,
leadership, crew management ability and evidence the very highest regard for
the safety of Vessel and its crew, Cargo and the environment.
<PAGE> 49
Contract of Private Carriage
Page 46 of 51
EXHIBIT E
The No. 2 Diesel Fuel Oil to be transported hereunder shall have the
following approximate characteristics:
<TABLE>
<CAPTION>
Specification Test
Item Units Limits Method
- ---- ----- ------ ------
<S> <C> <C> <C>
Gravity Degrees API 30.0 Min. D1298, or
@ 60 deg F. Specific Gravity .88 Max. D4052-86
Viscosity SSU 32.6-40.1 D445, or
@ 100 deg F. D2161
Pour Point Degrees F 35 Max. D97
Flash Point, PM Degrees F 150 Min. D93
Ash PPM, Wt. 100 Max. D482
Cetane Index 40 Min. D976
Carbon Residue, %, Wt. 0.35 Max. D524
10% Residuum
Sediment & Water %, Vol. 0.05 Max. D1796
Sulfur %, Wt. 0.40 Max. D1552, D2622,
or D4294
Distillation,
90% Recovered Degrees F. 540-640 D86
Sodium +
Potassium PPM, Wt. 0.5 Max. D3605
Nitrogen PPM, Wt. Report D4629
</TABLE>
<PAGE> 50
Contract of Private Carriage
Page 47 of 51
EXHIBIT F
The No. 6 Industrial Fuel Oil to be transported hereunder shall have
the following approximate characteristics:
<TABLE>
<CAPTION>
Specification Test
Item Units Limits Method
- ---- ----- ------ ------
<S> <C> <C> <C>
Gravity D1298, or
@ 60 deg F. Degrees API 6.5 Min. D4052-86
Viscosity SSU 179 Min. D445, or
@ 122 deg F. 226 Max. D2161
Pour Point Degrees F. 55 Max. D97
Flash Point, PM Degrees F. 150 Min. D93
BS & W %, Vol. 0.5 Max. D1796
Sulfur %, Wt. 2.00 Max. D1552, D2622,
or D4294
</TABLE>
<PAGE> 51
Contract of Private Carriage
Page 48 of 51
EXHIBIT G
Sample Freight Calculations
(Only HELCO Cargo on Vessel)
<TABLE>
<S> <C> <C> <C>
A. Total volume of Cargo is equal or less than 38,000 bbl:
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
+ 4.167% tax = $ 2,786.89
----------
TOTAL HELCO FREIGHT $69,666.89
B. Total volume of Cargo is 40,000 bbl:
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
($0.85/bbl x 2,000 bbl) = $ 1,700.00
+ 4.167% tax = $ 2,857.73
----------
TOTAL HELCO FREIGHT $71,437.73
C. Total volume of Cargo is 45,500 bbl:
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
($0.85/bbl x 3,000 bbl) = $ 2,550.00
($0.75/bbl x 4,500 bbl) = $ 3,375.00
+ 4.167% tax = $ 3,033.78
----------
TOTAL HELCO FREIGHT $75,838.78
D. Total volume of Cargo is 54,00 bbl:
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
($0.85/bbl x 3,000 bbl) = $ 2,550.00
($0.75/bbl x 5,000 bbl) = $ 3,750.00
($0.50/bbl x 6,000 bbl) = $ 3,000.00
+ 4.167% tax = $ 3,174.42
----------
TOTAL HELCO FREIGHT $79,354.42
</TABLE>
<PAGE> 52
Contract of Private Carriage
Page 49 of 51
EXHIBIT H
Sample Freight Calculations
(For Voyages Discharging at Hilo and Kawaihae)
(Only HELCO Cargo Onboard the Vessel)
Sample Price Calculation A, B and C below are based on 42,000 Barrels being
transported for HELCO to Hilo. HELCO freight to Hilo is calculated as follows:
<TABLE>
<S> <C> <C>
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
($0.85/bbl x 3,000 bbl) = $ 2,550.00
($0.75/bbl x 1,000 bbl) = $ 750.00
+ 4.167% tax = $ 2,924.40
----------
HELCO FREIGHT TO HILO $73,104.40
A. Total volume of cargo is 47,000 bbl with 5,000 bbl for Kawaihae:
Hilo Freight: $73,104.40
Kawaihae
Freight= ($1.63/bbl x 7,500 bbl) = $12,225.00
+ 4.167% tax = $ 509.42
----------
HELCO FREIGHT TO KAWAIHAE $12,734.42
----------
TOTAL HELCO FREIGHT $85,838.82
B. Total volume of cargo is 51,000 bbl with 9,000 bbl for Kawaihae:
Hilo Freight: $73,104.40
Kawaihae
Freight= ($1.63/bbl x 9,000 bbl) = $14,670.00
+ 4.167% tax = $ 611.30
----------
HELCO FREIGHT TO KAWAIHAE $15,281.30
----------
TOTAL HELCO FREIGHT $88,385.70
</TABLE>
<PAGE> 53
Contract of Private Carriage
Page 50 of 51
EXHIBIT I
Sample Freight Calculations
(For Joint Voyages with MECO)
Sample Price Calculation A, B and C below are based on 40,000 Barrels being
transported for HELCO. HELCO Freight is calculated as follows:
<TABLE>
<S> <C> <C>
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
($0.85/bbl x 2,000 bbl) = $ 1,700.00
+ HGET of 4.167% = $ 2,857.73
----------
= $71,437.73
A. Total volume of cargo is 54,000 bbl:
Freight Rate = (54,000 bbl x $1.55/bbl) - HELCO Freight
----------------------------------------
MECO bbl
= (54,000 bbl x $1.55/bbl) - $71,437.73
-------------------------------------
14,000 bbl
= $83,700.00 - $71,437.73
-----------------------
14,000 bbl
= $12,262.27
-------------
14,000 bbl
= $0.88/bbl
MECO Freight = ($0.88/bbl x 14,000 bbl) = $12,320.00
+ HGET of 4.167% = 513.37
----------
TOTAL MECO FREIGHT $12,833.37
</TABLE>
<PAGE> 54
Contract of Private Carriage
Page 51 of 51
EXHIBIT J
Sample Freight Calculation
(For Joint Voyages with third-party cargo)
Sample Price Calculation is based on 38,000 barrels being transported for HELCO
in conjunction with 7,000 barrels of third-party cargo. HELCO freight is
calculated as follows:
<TABLE>
<S> <C> <C>
Freight = ($1.76/bbl x 38,000 bbl) = $66,880.00
+ 4.167% tax = $ 2,786.89
----------
HELCO Base Freight $69,666.89
Less: Reduction for third-party cargo
= $0.88/bbl x 7,000 bbl = $ 6,160.00
----------
TOTAL HELCO FREIGHT $63,506.89
</TABLE>
<PAGE> 1
HECO EXHIBIT 10.14
CONTRACT OF PRIVATE CARRIAGE
BY AND BETWEEN HAWAIIAN INTERISLAND TOWING, INC. AND
MAUI ELECTRIC COMPANY, LTD.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------
1.2 Option to Extend Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------------
1.3 Early Termination for Material-Breach . . . . . . . . . . . . . . . . . . . . . . 2
-------------------------------------
1.4 Final Voyage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------
II. SPECIALIZED EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Tow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
---
2.2 Tug . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
---
2.3 Vessel Clarification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------------
2.4 Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------
2.5 Seaworthiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------
2.6 Tank Calibration and Gauging . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------------------
2.7 Cargo Transfer Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------------
III. VESSEL PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Complement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------
3.2 Tankermen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------
3.3 Employee Responsibility and Training . . . . . . . . . . . . . . . . . . . . . . . 6
------------------------------------
3.4 Master's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------
3.5 Mooring Master . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
--------------
3.6 Drug and Alcohol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
3.7 Equal Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----------------
3.8 Documented Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------
3.9 Safety Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
IV. CARRIAGE, LOADING AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Alternate Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------------
4.2 Vessel Berth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------
4.3 Marine Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------
4.4 Tow Makeup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------
4.5 Pumping In and Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------------
4.6 Cargo Hose Markings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------
4.7 Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----
4.8 Cargo and Bunker Sample and Survey . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------------------
4.9 Cleaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------
4.10 Tow Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------
4.11 Sailing Delays, Loading Port . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------------
4.12 Voyage Course and Speed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------------
4.13 Dry Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
4.14 Other Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------
4.15 Joint Voyages With HELCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------------------
V. SERVICES AND RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Freight Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------
5.2 Freight Reduction On Shipments Made In Conjunction With Third Parties . . . . . 14
---------------------------------------------------------------------
5.3 Cargo Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
5.4 Laytime Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------------
5.5 Laytime Loading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------
5.6 Laytime Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------
5.7 Demurrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---------
5.8 Tankermen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
5.9 Heating of Fuel Oil Aboard the Tow . . . . . . . . . . . . . . . . . . . . . . . 17
----------------------------------
5.10 Diesel Fuel Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------------------------
5.11 Additional Berths/Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-----------------------
5.12 Port, Dues, Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . 18
-----------------------------------
5.13 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------
5.14 Freight Earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
5.15 Billing, Payment and Disputes . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------------------
5.16 Waiver Of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------------
VI. SCHEDULING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
6.2 Shipper to Have First Priority . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------------------
6.3 Notice of Cancellation or Delay . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------------------
VII. MAINTENANCE SERVICES AND OTHER REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Maintenance of the Tug and Tow . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------------------
7.2 Other Required Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------------
7.3 Shipper's Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------------------
VIII. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Carrier's Required Insurance Coverage . . . . . . . . . . . . . . . . . . . . . 21
-------------------------------------
8.2 Shipper's Required Insurance Coverage . . . . . . . . . . . . . . . . . . . . . 23
-------------------------------------
8.3 Deductibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------
8.4 Continuation of Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------------
IX. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Indemnity For Tugs and Pilots . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------------------
9.2 Shipper's Indemnification of Carrier . . . . . . . . . . . . . . . . . . . . . . 25
------------------------------------
9.3 Carrier's Indemnification of Shipper . . . . . . . . . . . . . . . . . . . . . . 26
------------------------------------
X. LIBERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Deviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------
XI. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------
11.2 Carrier's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------
11.3 Shipper's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------------------
11.4 Notice of Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------------
11.5 Total Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------
XII. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.1 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------------
12.2 Not A Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-------------
XIII. GENERAL AVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.1 General Average Sacrifice . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-------------------------
XIV. POLLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.1 Compliance With Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------------------------
14.2 Oil Spill Response Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------------
14.3 Pollution Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
--------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
14.4 Liability to Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
--------------------------
14.5 Liability For Transport Of Hazardous Material . . . . . . . . . . . . . . . . . 31
---------------------------------------------
XV. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1 Business Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------------
15.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------
15.3 Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------------
15.4 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--------
15.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
----------
15.6 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
------------------
15.7 Limitations Applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
----------------------
15.8 Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
---------------
15.9 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------------
15.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------
15.11 Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------------------
15.12 Barrel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------
15.13 Master . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------
15.14 Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------
XVI. RENEGOTIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.1 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
----------------
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
EXHIBIT E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
EXHIBIT F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
EXHIBIT G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
EXHIBIT H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
<PAGE> 4
CONTRACT OF PRIVATE CARRIAGE
This Contract is made on November 12, 1993 by and between HAWAIIAN
INTERISLAND TOWING, INC., (hereinafter called "Carrier"), a Hawaii corporation,
whose principal place of business and address is Dillingham Transportation
Building Suite 312, 735 Bishop Street, Honolulu, Hawaii 96813 and MAUI ELECTRIC
COMPANY, LTD., (hereinafter called "Shipper" or "MECO"), a Hawaii corporation,
whose principal place of business and address is P. 0. Box 398, Kahului, Hawaii
96732-0398.
W I T N E S S E T H :
WHEREAS, Shipper is in the business of generation, distribution,
purchase and sale of electrical power on the Islands of Maui, Lanai and
Molokai; and
WHEREAS, Shipper utilizes large quantities of diesel and residual fuel
oils in its generation process; and
WHEREAS, Shipper is in need of acquiring reliable and economical
transportation of such diesel and residual fuel oils between Oahu and Maui; and
WHEREAS, Shipper's needs can best be met by the use of specialized
equipment dedicated primarily to serving Shipper's needs; and
WHEREAS, Carrier is in the business of hauling liquid petroleum
products in bulk among and between the Hawaiian Islands; and
WHEREAS, Carrier has acquired specialized equipment that can
effectively meet Shipper's needs;
NOW THEREFORE, in consideration of these premises and of the mutual
promises herein contained, Shipper and Carrier hereby agree that Shipper will
ship and Carrier will transport all liquid petroleum products in bulk
(hereinafter "Cargo") shipped by inter-island barge and used by Shipper in its
power generation operations on the Island of Maui on the following terms and
conditions:
I. TERM
1.1 Initial Term The initial term of this Contract shall be for a
period of two (2) years, commencing on January 1, 1994 ("Initial Term").
Carrier will have the equipment necessary for service under this Contract ready
on the 1st day of January, 1994. Carrier warrants that as of the date of
commencement of this Contract, the Tug and Tow shall fulfill the descriptions,
particulars and capabilities in this Contract such as set forth in Article II
and Exhibits A, B and C. In the event such equipment is not in all respects
ready and in complete compliance with the
<PAGE> 5
requirements set forth herein as of the commencement, then Carrier shall
provide substitute comparable equipment pursuant to Section 2.4.
1.2 Option to Extend Term The term of this Contract may continue
after the expiration of the Initial Term set in Section 1.1 for up to three (3)
additional two (2) year periods (each two year period being an "Extension")
beginning January 1, 1996 unless Carrier or Shipper gives written notice of
termination at least 270 days before the beginning of an Extension. If neither
party makes a written declaration to terminate this Contract as provided
herein, then the Contract shall continue in effect without modification except
that the freight rates in Sections 5.1 and 5.2 ("Freight Rates") and demurrage
rates in Section 5.7 ("Demurrage Rates"), exclusive of the effect of any
adjustment to either the Freight Rates or the Demurrage Rates pursuant to
Section 5.10 or Article XVI, shall be subject to an annual escalation effective
as of January 1, 1996, and each January 1 thereafter, on the basis of the
arithmetic average of two components each weighted equally. One component is
the arithmetic average of the Producer Price Index for Industrial Commodities
("PPI") as published by the U.S. Department of Labor, Bureau of Labor
Statistics for the period July through September preceding every January 1 in
which service is rendered by Carrier hereunder commencing January 1, 1996,
divided by the arithmetic average of the PPI for the three months, July through
September, 1993. The second component is the arithmetic average of the hourly
earnings in dollars per hour for the water transportation services industry as
reported in "Employment and Earnings" published by the U.S. Department of
Labor, Bureau of Labor Statistics ("EE") for the period July through September
preceding every January 1 in which service is rendered by Carrier hereunder
commencing January 1, 1996, divided by the arithmetic average of the EE for the
three months, July through September, 1993. Such Freight Rates and Demurrage
Rates shall continue, subject to the provisions of Article XVI, during any
Extension.
1.3 Early Termination for Material-Breach A material breach of
performance or observation of any requirement, covenant, warranty,
representation, or condition under this Contract shall be grounds for early
termination of this Contract if such breach continues for 30 days after written
notice thereof is given to the breaching party. However, nothing in this
section should be construed to waive any legal or equitable rights of either of
the parties concerning such breach.
1.4 Final Voyage Should the Vessel be on a voyage laden with
Shipper's Cargo upon the expiry of the period of this Contract, Carrier's
obligation to provide the service contracted for herein shall continue at the
same rate and conditions for such extended time as may be necessary for the
completion of the delivery of Shipper's Cargo.
- 2 -
<PAGE> 6
II. SPECIALIZED EQUIPMENT
2.1 Tow A barge specially outfitted to carry liquid petroleum
products in bulk including, but not limited to, No. 6 Industrial Fuel Oil and
No. 2 Diesel Fuel Oil (called "Tow" herein) shall be used by Carrier to perform
transport services under this Contract. The Tow will be a seagoing barge of
all steel construction documented and licensed under the laws of the United
States, currently known as "HA'AHEO", Official Number 649 722, which vessel
shall bear the following certificates, classifications and registrations, to
wit: United States Coast Guard (hereinafter "USCG") Certificate of
Documentation; USCG Certificate of Inspection; International Loadline
Certificate; and American Bureau of Shipping Certificate of Classification for
Hull, Maltese Cross A-1 Fuel Oil Barge, being of the following approximate
specifications: Length: 340 feet; Breadth: 78 feet; Depth: 19 feet; Gross
Tons: 4185. In addition to the foregoing, the Tow shall be outfitted in
accordance with Exhibits A and C herein, or the equivalent. Such description,
particulars and capabilities of the Tow shall be maintained by Carrier
throughout the period of this Contract so far as possible by the exercise of
due diligence. Shipper shall, during the term of this Contract, have the first
call on the use of this Vessel, subject to the conditions stated in Sections
2.4, 4.14, 5.2 and 6.2 of this Contract.
2.2 Tug The Tug shall be a seagoing tug owned by Carrier (called
"Tug" herein) suitable and sufficient to tow, shift, and assist the Tow or any
substitute Tow which shall be used by Carrier to perform transport services
under this Contract. The Tug shall be licensed, certified and registered under
all applicable local, State and Federal laws, rules and regulations and be
certified in compliance with all applicable USCG and classification society
requirements, and is currently known as the "HOKULELE," Official Number 653612.
The Tug has the following approximate specifications: Shaft Horsepower: 3,900;
Length: 117 feet; Breadth: 34 feet; Depth: 17 feet; Gross Tons: 98.2. In
addition to the foregoing, the Tug shall be outfitted in accordance with
Exhibits B and C herein, or its equivalent. Such description, particulars and
capabilities of the Tug shall be maintained by Carrier throughout the period of
this Contract so far as possible by the exercise of due diligence. Shipper
shall, during the term of this Contract, have the first call on the use of this
Vessel, subject to the conditions stated in Sections 2.4, 4.14, 5.2 and 6.2 of
this contract.
2.3 Vessel Clarification For purposes of clarification, it is
understood that both the Tug and Tow described in this Contract, and any
substitute Tow and substitute Tug provided in accordance with Section 2.4
herein, shall be individually or collectively referred to by the term "Vessel"
in this Contract.
- 3 -
<PAGE> 7
2.4 Substitutions It is the intent of this Contract to provide
Shipper with complete assurance that Carrier's Tug and Tow will be available as
required by the Shipper during the term of this Contract. In this connection,
Carrier covenants that during any period in which the Vessel is out of service,
regardless of the duration of such service suspension or whether or not the
suspension of service was scheduled or anticipated except as provided in
Section 7.1, that a suitable substitute service, including but not limited to
the substitution of another Vessel of generally similar capability and capacity
and acceptable to Shipper, shall be employed by Carrier for service hereunder
at no additional cost to Shipper. All provisions of this Contract shall apply
to such suitable substitute service.
As confirmation of its ability to perform in accordance with
the preceding, Carrier warrants that during the period of this Contract it will
maintain an effective agreement acceptable to Shipper with an owner, bareboat
charterer or time charterer of a suitable substitute Tow, for the use of such
Vessel pursuant to Carrier's responsibility to provide suitable substitute
service hereunder. Carrier agrees to provide documentary evidence of such
arrangement for a substitute Tow to Shipper on or before January 1, 1994.
Carrier shall notify Shipper at least sixty (60) days prior to the expiration
of any such agreement the steps it has undertaken to extend or replace said
agreement with an alternative arrangement acceptable to Shipper.
Carrier warrants that any substitute Tow shall be fully
capable and ready to transport dirty petroleum products and is in all other
respects able to perform in accordance with the requirements set forth in this
Contract including but not limited to valid coverage under Carrier's oil spill
liability and other insurance policies and can lawfully operate under a USCG
Certificate of Financial Responsibility and approved oil spill response plan
(hereinafter "Plan") consistent with the Cargo, ports and facilities
characteristic of the service provided Shipper. It is further understood and
agreed that such substitute Tow must be regularly stationed at a port or place
in the Hawaiian Islands and thus be readily accessible to Carrier in the event
it shall be needed.
2.5 Seaworthiness With respect to any Vessel supplied by Carrier
under this Contract, the Carrier shall be bound, before and at the beginning of
each voyage to exercise due diligence to: (a) make the Vessel seaworthy, tight,
staunch, strong, fit and in a thoroughly efficient state, order and condition
for ocean service in the Hawaiian Islands; (b) properly man the Vessel in
accordance with Section III and Exhibit D attached hereto; (c) make the tanks
and all other parts of the Vessel in which Cargo is carried, fit and safe for
the Cargo's reception, carriage, discharge and preservation; (d) equip the Tow
(or any substitutes) in accordance with the provisions of Exhibits A and C
which are attached hereto; (e) equip the Tug (or any substitutes) in accordance
with the
- 4 -
<PAGE> 8
provisions of Exhibits B and C which are attached hereto; (f) warrant that the
Vessel is fully in class and rigged with appropriate towing gear, fenders,
hoses, reducers and all other necessary and appropriate equipment for the safe,
efficient and proper loading of Cargo at Honolulu Harbor, Barbers Point Harbor
or BHP Petroleum Americas Refining Inc. Single Point Mooring and Sea Berth
off-shore Barbers Point (hereinafter "BHP SPM") in accordance with Exhibit C
attached hereto, and for the discharging of Cargo at ports or places on the
Island of Maui; and (g) ensure that the Plan is approved and filed with all of
the appropriate governmental authorities as required and is in accordance with
the Vessel's configuration and equipment, nature and amount of Cargo carried on
board the Vessel; that the Plan provides for adequate response capability at
the ports, places and marine facilities called and for seas and places of
transit; that a copy of the Plan is carried on board the Vessel; and that the
Vessel's Master, crew and tankermen are familiar and experienced with the
Plan's implementation.
2.6 Tank Calibration and Gauging All cargo tanks of the Tow shall
have been calibrated and ullage tables prepared in accordance with applicable
API/ASTM standards by a reputable independent inspector. The Tow shall have
clearly legible draft markings both fore and aft. The ullage tables shall
provide trim corrections. Wedge volume tables shall also be provided. The
reference point for gauging the striking height at the gauging point, and the
compartment number shall be clearly indicated on the gauging hatch of each
cargo tank. Copies of the above mentioned ullage tables shall be provided to
the Shipper and a legible copy shall be available on the Tow during loading and
discharge.
2.7 Cargo Transfer Equipment Carrier will supply all necessary
hoses, fittings, reducers and couplings (American and Metric) required for the
USCG approved transfer of Cargo to any and all of Shipper's loading and
discharge headers and will ensure that such hoses, fittings and couplings will
be available on a timely basis so as to meet Shipper's delivery schedule. All
manifold valves and fittings, outboard of the last fixed support to the Tow's
deck, that are used in the transfer of Cargo and ballast shall be made of
steel, malleable iron or other suitable material. Cast iron valves or fittings
are not acceptable.
Carrier shall provide a sufficient number of cargo hoses of
sufficient length and diameter, of a type appropriate for the nature of
Shipper's Cargo, and suitable for the Cargo's efficient loading and
discharging. Any and all cargo hoses used by the Vessel in performance of this
Contract shall be appropriately inspected, hydrotested and marked no earlier
than 12 months preceding their use hereunder. Further, Carrier warrants that
any and all cargo hoses used in service to Shippers shall be inspected and
hydrotested at intervals not to exceed 12 months.
- 5 -
<PAGE> 9
III. VESSEL PERSONNEL
3.1 Complement Carrier warrants that during the period of this
Contract, the Vessel shall have a full and efficient complement of Master,
officers and crew, with adequate training and experience in operating all of
the Vessel's equipment; that the Master, officers, mates and crew shall possess
valid and current certificates/documents issued and approved by the USCG as
required; and that the Carrier's personnel shall be trained, experienced,
certificated and proficient in accordance with Exhibit D as attached hereto.
3.2 Tankermen Carrier will furnish the necessary personnel for
loading and discharging the Tow, including providing or arranging for a minimum
of two trained, licensed and certificated tankermen to attend the Vessel at all
times when the Vessel is arriving and departing the berth of Cargo loading and
discharge, during Cargo operations and at all times when the Vessel is at berth
in a laden condition.
3.3 Employee Responsibility and Training Carrier warrants that
the Vessel's Master, officers and tankermen have formal job descriptions which
include all duties and responsibilities. Carrier also warrants that such
responsibilities and duties of the Master, officers and tankermen in such areas
as seaworthiness of Vessel, safe navigation, weather and sea conditions, tow
wires, preventing leakage, towing and deck machinery, condition of tanks,
training and readiness, compliance with laws and regulations, including manning
laws and regulations, and display of documents, are spelled out and known by
them. Carrier further warrants that all personnel have received as of the date
of the commencement of this Contract, and will continue to receive throughout
the term of this Contract, formal instruction and informal training in
conformity with the requirements of Shipper and Shipper's Cargo suppliers'
terminal facilities in such areas as: general safety practices and procedures;
fire fighting, oil spill control and other emergency procedures; health hazards
including hazardous materials handling; and tank barge operations for
tankermen.
3.4 Master's Duties Carrier shall provide to Shipper professional
histories showing tank barge towing experience of the Master and officers
serving on board the Vessel at the commencement of this Contract. Similar
histories shall be furnished for any new Master and officer assigned to the
Vessel during the period of this Contract.
The Master shall determine whether operations requested by the
Shipper can safely be undertaken and whether the Vessel is capable of
undertaking or being employed to carry out the directions and orders of the
Shipper, provided that said Master shall not unreasonably refuse any request to
undertake operations or carry out any order or direction specified by the
Shipper. The Master, although appointed by and in the employ of the Carrier
and
- 6 -
<PAGE> 10
subject to the Carrier's direction and control, shall prosecute his voyage with
the utmost dispatch, shall render all reasonable assistance with the Vessel's
officers, crew and equipment and shall observe the orders of Shipper in
connection with Shipper's agencies and arrangements including but not limited
to Shipper's Cargo suppliers and receivers, the terminal and marine facility
personnel of Shipper's Cargo suppliers and receivers, and Cargo inspectors.
Nothing in this Contract shall be construed as vesting Shipper or its agents
with any control over the physical operation or navigation of the Vessel.
If the Shipper shall have reason to be dissatisfied with the
conduct of the Master, officers or tankermen, the Carrier shall, on receiving
particulars of the complaint, investigate and, if necessary, make a change in
the appointments or practices required to obtain the services contracted for
herein.
3.5 Mooring Master Carrier will use and employ the nominated
mooring master (hereinafter "Mooring Master) to advise in mooring, connecting
of hoses, discharging, loading, unmooring and departing from the BHP SPM as and
if required by the SPM terminal operator. However, at all times, the Master
of the Vessel remains solely responsible for the safety of the Vessel, its
officers and crew during these operations. The Mooring Master is supplied on
the condition that in the performance of any service rended to Carrier's
Vessel, he is the servant of the Vessel and the Carrier and not the servant of
the Shipper nor any of its associated or affiliated companies, nor any of
Shipper's Cargo suppliers and receivers, nor any of the employees,
representatives, servants and agents of any of the foregoing. The Vessel and
Carrier shall indemnify and hold Shipper, its associated and affiliated
companies, Shipper's Cargo suppliers and receivers, and any of the employees,
representatives, servants and agents of any of the foregoing harmless from any
losses, damages, delays, claims and liabilities arising out of the Mooring
Master's rendering of services to the Vessel. Presence of the Mooring Master
on board in no way relieves the Master of the Vessel of any legal
responsibilities or of any of the responsibilities of the Carrier, Vessel and
Vessel Master incurred under this Contract; and final decisions remain the
Master's prerogatives.
3.6 Drug and Alcohol Carrier warrants that it has a policy on
Drug and Alcohol Abuse ("Policy") applicable to the Vessel which meets or
exceeds the standards of the USCG including but not limited to those set forth
in 46 CFR Parts 4, 16 and 40 for "Procedures for Transportation Workplace Drug
Testing Programs" and "Chemical Testing" which provides for testing for alcohol
and drug impairments; provides that appropriate personnel including seafarers
and tankermen be tested; and provides that the drug/alcohol testing and
screening shall include reasonable cause testing, random testing,
pre-employment testing and testing during routine medical examinations.
Carrier understands and agrees that an objective of the Policy should be that
the testing act as an
- 7 -
<PAGE> 11
effective abuse deterrent. Carrier warrants that the Policy will remain in
effect during the term of this Contract and that Carrier shall exercise due
diligence to ensure that the Policy is complied with. It is understood that an
actual impairment or any test finding of impairment shall not in and of itself
mean the Carrier has failed to exercise due diligence.
3.7 Equal Opportunity During the period of this Contract, Carrier
warrants that it shall comply with the requirements of the Federal Government
and the State of Hawaii with respect to maintenance of non-segregated
facilities, equal employment opportunity, affirmative action for veterans,
disabled veterans, minorities and handicapped workers.
3.8 Documented Procedures Carrier warrants that it has formal
written procedures governing such crew activity as work vests, hard hats,
breathing apparatus, safe access, smoking, lighting and lifesaving equipment.
Carrier also warrants that it has formalized tankermen procedures in place
which cover operational subjects such as but not limited to the following:
emergency procedures; vessel inspection checklist covering towing gear, lights,
machinery, cargo tanks, mooring gear, cargo gear, engine room and deck
fittings; vessel mooring; cargo integrity; cargo transfer equipment
connections; pre-transfer conference; cargo inspection and gauging procedures;
trim and stress; static hazard procedures; specific cargo transfer procedures;
cargo heating procedures, topping off procedures; tank stripping operations;
transfer shutdown procedures; startup transfer procedures; operating logs;
pollution control; cargo tank ventilation and tank entry hazards; and damaged
barge management. Carrier further warrants that it has an audit or review
program in place which includes provision for penalties or other disciplinary
actions to assure compliance with prescribed safety practices and operating
procedures.
3.9 Safety Program Carrier is to maintain a formal safety program
concerning all procedures including but not limited to navigation, operations,
cargo handling, tank cleaning, voyage repairs and documented monthly safety
meetings.
Carrier is also to maintain formal procedures to track and
communicate events involving serious damage to Vessel or marine facilities,
injuries, oil spills and other casualties including "near miss" incidents
involving Carrier or its affiliates, whether or not the event is related
directly to services provided Shipper under this Contract. This program is to
inform personnel and the Shipper as to the causes, findings and recommendations
arising from an investigation of such incidents with the objectives of reducing
the likelihood of a recurrence and improving the effectiveness and state of
readiness of casualty response activities.
- 8 -
<PAGE> 12
IV. CARRIAGE, LOADING AND DISCHARGE
4.1 Alternate Ports The Cargo shall be loaded, transported and
discharged by Carrier at and between one or more ports and places within the
State of Hawaii as directed by Shipper.
4.2 Vessel Berth The Vessel shall not be required to proceed to
any location for loading or discharge which it cannot safely reach or at which
it cannot at all times of tide and weather safely lie afloat. Notwithstanding
anything contained in this Contract, Shipper shall not be deemed to warrant the
safety of any port or public channels, fairways, other waterways and approaches
thereto, or berth, dock, anchorage, and/or submarine line and shall not be
liable for any loss, damage, injury or delay resulting from conditions at such
ports or public channels, fairways, other waterways and approaches thereto, or
berths, docks, anchorages and/or submarine lines not caused by Shipper's fault
or neglect or which could have been avoided by the exercise of reasonable care
on the part of the Master or Carrier.
4.3 Marine Facilities Shipper shall provide a berth free of all
wharfage and dockage fees. All fees and other charges on the Vessel, including
without limitation those incurred for assist tugs, stand-by boats, pilots,
mooring masters, other port costs and taxes on services of Cargo transfer, with
the exception of such costs as are defined as being for the account of the
Shipper in Sections 5.11 and 5.12, shall be borne by the Carrier.
The Vessel shall operate in compliance with any and all
regulations including operating and safety regulations of the operator of any
marine terminal facility, wharf, berth or dock for which the Vessel is
nominated by Shipper to load or discharge Cargo hereunder when Vessel is
approaching, alongside or departing said facility, wharf, berth or dock.
Should Vessel fail to comply with such rules and regulations or should the
terminal representative determine that an unsafe condition exists with respect
to the Vessel, the terminal representative shall have the right to order the
Vessel to immediately cease loading or discharge operations and leave its place
of mooring. Any and all time lost as a result of such Vessel non-compliance
shall not count as used laytime or as demurrage if Vessel is on demurrage and
all costs and expenses that arise as a result of such non-compliance shall be
for the account of the Carrier.
Carrier shall assume full responsibility for any damage
sustained by wharves, berths or docks located at a cargo loading or discharging
facility called in the process of providing service hereunder which arises out
of the negligent or improper operation of Vessel, assist tug, stand-by boat or
any other waterborne craft, either owned or operated by Vessel or Carrier or
being operated by an agent or subcontractor of Vessel or Carrier. Carrier
shall
- 9 -
<PAGE> 13
fully and completely indemnify Shipper, and the owner and operator of any such
facility, wharf, berth or dock for the consequences of any such negligent or
improper operation.
4.4 Tow Makeup Carrier shall be responsible for making up the Tow
and for determining the method and position in which it shall be towed.
4.5 Pumping In and Out All Cargo shall be loaded into the Tow by
shore pumps as designated by Shipper and at the expense and risk of Shipper up
to the connection to Carrier's hoses or, if Carrier's hoses are not used, to
the permanent hose connections on the Tow. All Cargo shall be discharged by
the Tow pumps and at the expense and risk of Carrier up to the connection of
Shipper's designated dock headers. Carrier shall provide all necessary and
sufficient pumps, power, hoses and hands required on board for safely mooring
and unmooring, connecting and disconnecting of hoses and loading and
discharging. Vessel shall load and/or discharge more than one grade of Cargo
simultaneously if Vessel is technically capable of doing so.
Vessel shall load at rates requested by Shipper, its agents or
terminal facility personnel having due regard for the safety of the Vessel and
the environment. Carrier warrants that Vessel shall discharge Cargo at the
rate of 3,000 barrels per hour or maintain a minimum pressure at the Vessel's
manifold of 100 psi in accordance with Exhibit A as attached hereto, provided
shore facilities permit.
All time lost as a result of Vessel being unable to discharge
its Cargo in accordance with the pumping warranty above shall not count as used
laytime or, if Vessel is on demurrage, as time on demurrage. If the terminal
or place of discharging does not allow or permit Vessel to meet the above
warranty or requires discharging grades consecutively, Master shall forthwith
issue a Letter of Protest (which should, if practical, be acknowledged in
writing) to such terminal or place. If Master fails to issue the Letter of
Protest, Carrier shall be deemed to waive any rights to contest that time was
lost as a result of Vessel's failure to comply with the above pumping warranty.
Any pumping time lost solely due to restrictions imposed by the terminal or
place of discharge shall count as used laytime or, if Vessel is on demurrage,
as time on demurrage.
4.6 Cargo Hose Markings Before making hose connections for
loading or discharging or before changing Cargo type to be transferred through
the same hose, or when two or more hoses are used simultaneously, both ends of
each hose shall be marked with Shipper's Cargo type and checked by Carrier's
and Shipper's representative before Cargo is moved. This is intended to avoid
contamination or mixtures.
- 10 -
<PAGE> 14
4.7 Cargo The Carrier shall properly and carefully load, handle,
stow, carry and discharge Shipper's Cargo. The types of Cargo carried under
this Contract shall be clean and dirty petroleum products, including but not
limited to aviation grade kerosine (to be used for non-aviation purposes only),
non-aviation gas turbine fuels, diesel fuel oils and residual fuel oils, with a
maximum of 2 grades within the Tow's natural segregation. It is the intention
of Shipper that Cargo transported under this Contract will include but not be
limited to No. 2 Diesel Fuel Oil and No. 6 Industrial Fuel Oil which are
approximately described in Exhibits E and F attached hereto. The Cargo shall
be considered the property of the Shipper in the custody of the Carrier from
the time that the Cargo reaches the flange between the loading terminal's
shorelines and the Carrier's Vessel's permanent hose connection (or the
Vessel's hose, if Cargo is loaded through a hose provided by the Vessel) until
the Cargo reaches the flange between the Vessel's hose and the receiving
terminal's shorelines (or between the Vessel's permanent hose connection and
the receiving terminal's hose if Cargo is discharged through a hose provided by
the receiving terminal).
No Cargo, thing or substance which, due to its composition,
size, shape, weight or any combination thereof, constitutes an unreasonable
hazard to the Vessel, its safe operation or equipment is to be shipped, nor any
voyage undertaken nor goods or Cargo loaded that would involve risk of seizure,
capture or penalty by any government or governmental authority and no
contraband of war shall be shipped. Neither Carrier, Master nor Vessel shall
be responsible for leakage, contamination or deterioration in quality of the
Cargo due to inherent vice of the Cargo. No product or quantities of products
shall be shipped which the Vessel is not designed to carry unless the same may
legally be carried onboard the Vessel and Carrier consents to the carriage
thereof; and products to be shipped shall be subject to any limitations which
may be imposed by any classification society or any regulatory authority.
4.8 Cargo and Bunker Sample and Survey Carrier agrees to allow an
independent inspector appointed by the Shipper and Shipper's representative to
survey and take samples of the cargo and bunker tanks, cofferdams, ballast and
slop tanks or any other void space on the Vessel prior to, during and after the
time of the loading and discharge of Shipper's Cargo.
4.9 Cleaning The Tow is to be presented in a condition suitable
for loading the specified Cargo. Upon the initial presentation of the Vessel to
Shipper for service hereunder and in the case where the Tow has transported
third-party cargo or been other than in dedicated service to Shipper or Hawaii
Electric Light Company, Inc. ("HELCO"), Shipper shall have the right to sample
the residue of prior cargo in the Tow before loading Cargo to determine the
suitability of the Tow. In such instance, Shipper's representative shall
inspect the Tow and satisfy themselves that
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<PAGE> 15
the tanks, lines and pumps are free of any residue not compatible with the
Cargo to be loaded. The time required for such sampling shall not count as used
laytime or demurrage if Vessel is on demurrage. If as a result of such
inspection, the Tow is found to be unsuitable, Shipper may order cleaning or if
in Shipper's judgment cleaning will not make the Tow suitable, Shipper may
reject the Tow at no cost to Shipper. The cost such cleaning shall be for
Carrier's account and the time required for such initial cleaning shall not
count as used laytime or demurrage if the Vessel is on demurrage. The cost of
cleaning the Tow's cargo tanks subsequent to the initial presentation of the
Tow and provided the Tow remains in Shipper's dedicated service shall be for
the account of Shipper and the time required for such additional cleaning shall
count as used laytime or demurrage if Vessel is on demurrage.
4.10 Tow Retention Shipper shall normally take prompt delivery of
all Cargo loaded aboard the Tow for Shipper's account. However, Shipper, at its
option, may at times retain its Cargo aboard the Tow. Retention time shall be
paid at the rates of $150.00 per hour.
4.11 Sailing Delays, Loading Port If on completion of loading of
the Tow, the Tow is delayed from sailing by more than two (2) hours due to a
change of schedule by Shipper, Shipper shall pay Carrier demurrage on the Tow
at the rate of $150.00 per hour from the time loading is completed until the
time the Tow actually sails.
4.12 Voyage Course and Speed Carrier does not guarantee any
particular speed during any voyage and does not warrant delivery of the Cargo
at destination at any particular date or time or to meet any particular market
or in time for any particular use. However, due to the critical nature of the
Cargo, Carrier shall prosecute the voyages with the utmost dispatch and to
proceed safely to designated ports of loading and discharge for any particular
voyage and will in any event other than a Force Majeure, promise to take
whatever steps may be necessary, consistent with prudent seamanship, to make
delivery of the Cargo or a replacement Cargo within 10 days of the scheduled
delivery date. Carrier shall have the sole discretion to determine the speed
and course which is prudent considering factors including but not limited to
sea and weather conditions, Vessel capacities and capabilities, crew safety,
other vessel traffic, port conditions and environmental safety.
4.13 Dry Cargo Shipper shall have the option of shipping any
lawful packaged or general dry cargo in any suitable space on board the Vessel,
including on Vessel's deck, subject to the approval of the Vessel's Master as
to the kind, character, amount and stowage of such dry cargo. Any and all
expense for dunnage, loading, stowing and discharging of dry cargo so incurred
shall be for the account of the Shipper. The time used loading and discharging
such dry cargo shall count as used laytime or demurrage if Vessel is on
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<PAGE> 16
demurrage, but only to the extent that such time is not concurrent with time
used loading and/or discharging the oil Cargo.
4.14 Other Trades Carrier shall have the right to employ the Tow
in other trades so long as Shipper's requirements are met. In the event that
Shipper has a requirement for services under this Contract at a time when the
Tow is in use for other trades, Carrier will provide with reasonable advance
notice a suitable substitute service at no additional cost to Shipper.
4.15 Joint Voyages With HELCO Carrier also has a contract to
transport petroleum products in bulk for HELCO, the term of which is
coextensive with the term of this Contract. On occasion, Carrier may load and
transport cargo for HELCO jointly on the same voyage with Cargo loaded and
transported for MECO. In such instances, unless clearly specified or clear in
the context, the rights and responsibilities of "Shipper" under this Contract
shall, as between MECO and HELCO, and except as to the Freight Rate to be paid
under Section 5.1, accrue solely to MECO for any portion of such voyage when
Carrier is transporting Cargo for MECO, but no cargo for HELCO, and shall be
shared with HELCO as to any portion of such voyage when Carrier is loading and
transporting both MECO's Cargo and cargo for HELCO ("Joint Voyage").
V. SERVICES AND RATES
5.1 Freight Rate The following freight rates ("Freight Rate")
include Tug (fully found with fuel) and Tow services as well as Tankermen
labor.
A. Freight Rate for liquid petroleum products in bulk
transported for MECO on voyages where petroleum
products are not also transported in bulk for HELCO
or another party shall be:
<TABLE>
<CAPTION>
Rate Per Barrel
----------------------- Volume Range for
No. 6 No. 2 Combined Cargo Per
Port Fuel Oil Diesel Voyage in Barrels
---- -------- ------ -----------------
<S> <C> <C> <C>
Kahului $1.10 $1.10 45,000 minimum
$0.75 $0.75 45,001 to 48,000
$0.66 $0.66 48,001 to 53,000
$0.50 $0.50 Above 53,000
</TABLE>
Exhibit G attached hereto contains sample freight rate
calculations for voyages to Maui.
B. Freight Rate for MECO for liquid petroleum products
in bulk transported for MECO on a Joint Voyage where
liquid petroleum products in bulk are also
transported for HELCO shall be:
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<PAGE> 17
1. For voyages on which total cargo loaded for
HELCO and MECO is less than 48,000 barrels:
Freight Rate = (48,000 x $1.55) - HELCO Freight
--------------------------------
MECO bbl.
2. For voyages on which total cargo loaded for
HELCO and MECO is between 48,000 and 53,000
barrels:
Freight Rate = (Total bbl. x $1.55) - HELCO Freight
------------------------------------
MECO bbl.
3. For voyages on which total cargo loaded for
HELCO and MECO is above 53,000 barrels:
Base Rate: $1.55 X 53,000 bbl. = $82,150
Freight Rate = $82,150 + ($0.75 x (Total bbl. - 53,000)) - HELCO Freight
---------------------------------------------------------
MECO bbl.
Where,
Freight Rate = the dollars per barrel paid by MECO
for Cargo transported on a Joint Voyage with HELCO
cargo.
HELCO Freight = the freight charges paid by HELCO on
the Joint Voyages as computed under Section 5.1 of
the Contract of Private Carriage between Hawaiian
InterIsland Towing, Inc. and HELCO referenced in
Section 4.15 of this Contract.
MECO bbl. = the volume of Cargo in barrels loaded on
the voyage which are to be delivered to MECO.
Total bbl. = the sum of cargo volumes in barrels
loaded for HELCO and MECO.
Sample freight rate calculations for Joint Voyages with HELCO are
attached hereto in Exhibit H.
5.2 Freight Reduction On Shipments Made In Conjunction With Third
Parties MECO shall accommodate to the extent practicable the hauling of
petroleum products in bulk for parties other than MECO or HELCO (hereinafter
"third-party cargo") on voyages performed under this Contract. For the purpose
of determining the freight cost of MECO's Cargo when transported by Carrier in
conjunction with such third-party cargo, MECO's Freight Rate shall be
calculated according to Section 5.1. of this Contract. Carrier shall reduce
MECO's freight cost by an amount equal to one-half of the highest base Freight
Rate in Section 5.1 (which is one half of
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<PAGE> 18
$1.10 per barrel, or $0.55 per barrel), as amended, multiplied by the volume
of the third-party cargo. For the purpose of computing freight charges,
amounts collected for excess laytime, movement to additional berths and
demurrage will be excluded from freight charges. Sample Freight Rate
calculations for voyages performed in conjunction with third-party cargo are
attached hereto in Exhibit I.
5.3 Cargo Volume Freight charges will be based upon net quantity
loaded into the Tow as shown by shore tank gauges or positive displacement
meter unless otherwise requested and agreed upon in advance. The quantity of
Cargo so measured shall be corrected for liquid temperature to the quantity
equivalent at 60 degrees F. in accordance with the latest edition of the
ASTM-IP Petroleum Measurement Tables.
5.4 Laytime Duration Allowable laytime limits for loading shall
be twelve (12) hours ("Standard Loading Laytime") except for Cargo shipped in
conjunction with HELCO where the allowable laytime for loading both cargo
parcels shall be Standard Loading Laytime. The allowable loading laytime solely
for MECO for such Joint Voyage with HELCO cargo shall be that part of Standard
Loading Laytime which bears the same relationship to the total Standard Loading
Laytime as the number of MECO barrels of Cargo bears to the total number of
MECO and HELCO barrels of cargo. Allowable laytime for discharging at Maui
shall be twelve (12) hours for a Cargo of 45,000 barrels or less and for a
Cargo in excess of 45,000 barrels, one additional hour of laytime shall be
added to the twelve (12) hours for each 3,000 barrels, or part thereof, of
Cargo above 45,000 barrels ("Standard Discharge Laytime") except for Cargo
shipped in conjunction with HELCO where the allowable laytime for discharging
both cargo parcels shall be Standard Discharge Laytime. The allowable discharge
laytime solely for MECO for such Joint Voyage with HELCO cargo shall be that
part of Standard Discharge Laytime which bears the same relationship to the
total Standard Discharge Laytime as the number of MECO barrels of Cargo bears
to the total number of MECO and HELCO barrels of cargo. Allowable laytime for
Laytime for loading and discharge operations is non-reversible.
5.5 Laytime Loading Laytime for loading shall be as follows:
Laytime shall commence at loading berths, either in Honolulu Harbor or at
Barbers Point Harbor when the Tow is alongside and secured at loading pier.
Laytime shall commence at the BHP SPM when the Vessel is all fast to the buoy
or upon three (3) hours expiration after Vessel has tendered Notice of
Readiness, whichever first occurs. Laytime shall cease when the loading is
completed and the Tow is secured and ready for sea. Demurrage charges for
loading at Honolulu Harbor will apply only to the Tow until the loading is
completed and the Tow is secured and ready for sea. Demurrage charges for
loading at Barbers Point Harbor shall accumulate on the Tug for only that time
the Tug is standing by.
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<PAGE> 19
5.6 Laytime Discharge Laytime shall commence at discharge berth
upon the expiration of three (3) hours after Vessel has tendered Notice of
Readiness or when the Vessel is alongside and secured at discharge pier,
whichever first occurs. Laytime shall cease when the discharge of the Cargo is
complete and the Tow is secured and ready for sea. Demurrage charges at
discharge shall accumulate on the Tug and tankermen for only that time the Tug
is standing by and tankermen attending the Tow.
5.7 Demurrage:
<TABLE>
<S> <C> <C>
A. Tow per hour: $150.00
B. Tug per hour: $223.00 Not Under Power
C. Tug per hour: $398.00 Under Power
D. Tankerman per manhour: $41.00
</TABLE>
On voyages where Carrier transports liquid petroleum products
in bulk for both Shipper and HELCO, Shipper shall be responsible only for that
part of demurrage for exceeding loading laytime limits as calculated in
accordance with Section 5.4.
However, all periods of delay in loading or discharging which
are caused by: (1) the Vessel in reaching or departing the berth (including
weather delays, awaiting daylight, tide, assist tugs or pilots) caused by any
reason or condition not reasonably within the Shipper's control, or (2) the
Vessel in moving from port anchorage to all fast in berth or time consumed by
the Vessel lining up, draining pumps/lines or cleaning tanks, pumps and lines,
except as in Section 4.9, or (3) any delay due to operational deficiency of the
Vessel or breakdown or inability of the Vessel's facilities to load or
discharge Cargo, or (4) prohibition of loading or discharging at any time by
the port authorities or by the terminal facilities due to a violation of an
operating and/or safety regulation due to the condition of the Vessel or act or
omission by the Vessel's Master, crew or tankermen or (5) escape or discharge
of oil or the threat of an escape or discharge of oil on or from the Vessel
whether or not due to the condition of the Vessel or any act or omission to act
of the Vessel's Master, crew or tankermen, or (6) the non-compliance with USCG
regulations or failure to obtain or maintain any and all required inspection
letters, certificates, oil spill response plan approval on the part of the
Vessel its Master, crew or tankermen, or (7) labor dispute, strike, go slow,
work to rule, lockout, stoppage or restraint of labor involving Vessel's
Master, officers, crew or tankermen or assist tugs, stand-by boats or pilots,
or (8) an event of Force Majeure as defined in this Contract, or (9) the
neglect or interference of Carrier, its agents, or employees, shall not be
considered as used laytime or as demurrage if Vessel is on demurrage. Carrier
shall take any and all reasonable steps available to minimize demurrage time
and charges.
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<PAGE> 20
5.8 Tankermen The tankermen shall manipulate all the Tow valves
and handle all the Tow lines and Tow connections at the places of loading and
unloading, as well as the necessary pumping facilities to effect the discharge
of the Cargo. Carrier will furnish all mooring lines for the Tow. Terminals
are responsible for the hose connection to their facilities. However, the
Carrier will provide mating adapters as required. The Tow winches and booms
may be utilized as well as marine loading arms, when available.
Tankermen travel costs to and at the island of Cargo discharge
including but not limited to airfare, meals, lodging and ground transportation
shall be invoiced at cost to Shipper. Carrier's supervisory personnel shall
schedule transportation and hotels for tankermen for the Tow trips to outer
islands. Carrier's best effort will be directed toward minimizing costs to the
Shipper through prudent scheduling of flights and planned loading/ discharging
schedules. Carrier will submit monthly invoices to Shipper for the aforesaid
tankermen travel costs on a voyage by voyage basis. However, the above
notwithstanding, in no event shall total tankermen travel costs exceed $450.00
per discharge port.
5.9 Heating of Fuel Oil Aboard the Tow Shipper shall reimburse
Carrier for the actual documented cost of fuel consumed by the Vessel's cargo
heating system when operated in response to Shipper's express instructions.
5.10 Diesel Fuel Price Adjustment In addition to other charges
contained in Article V of this Contract, the Shipper shall pay, or receive a
credit for, a Diesel Fuel Price Adjustment (DFPA), reflecting month to month
changes in the cost of Tug fuel which shall be calculated on a voyage by voyage
basis, as follows:
DFPA = (AFC - BFP) x DFC x (MECO Volume / Total Volume)
Where,
AFC = The Actual Fuel Costs paid by Carrier for No. 2 Diesel
Fuel in dollars per gallon exclusive of any and all taxes,
based on the actual price of diesel on the first day of the
month in which the voyage commences.
BFP = The base diesel fuel price, in dollars per gallon,
which shall be defined as the average of the Friday high and
low West Coast Spot prices for .5% sulfur Number 2 Diesel Fuel
in Seattle, as reported in Platt's Oilgram Price Report during
the month of December 1993, expressed in dollars per gallon,
plus $.14 per gallon. If Platt's Oilgram does not publish a
high and low price for a particular Friday during the relevant
period, the high and low prices for the closest preceding day
for which Platt's Oilgram is published will be used.
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<PAGE> 21
DFC = The actual diesel fuel consumed during the voyage, in gallons, as
determined by sounding the fuel tanks of the Tug, before and
after the voyage.
MECO Volume = The Cargo volume in barrels being transported
for MECO during the subject voyage.
Total Volume = The total cargo volume in barrels being
transported on the voyage including Shipper, HELCO, and others.
Provided, however, that no DFPA shall be due unless the absolute difference
between AFC and BFP is greater than 10% of AFC.
5.11 Additional Berths/Ports When more than one berth within a
port is required to complete the loading or discharge of Shipper's Cargo,
Shipper shall pay $500.00 to cover in full any and all additional expenses
incurred by Carrier by reason of calling at such additional berth. Such
additional expenses shall include but not be limited to shifting expense,
dockage and pilotage.
When more than one port (for which purpose the BHP SPM shall
constitute a separate port) is called to complete the loading of Shipper's
Cargo, Shipper shall reimburse Carrier for the amount of the normal port
charges of the second port of loading. Time spent in transit commencing at the
point of passing the sea buoy outbound at the first port of loading until
passing the sea buoy (or entering the normal anchorage area) inbound at the
second port of loading shall count as used laytime or demurrage if Vessel is on
demurrage.
5.12 Port, Dues, Taxes and Other Charges Carrier shall pay for the
cost of pilotage, port entry, and dockage for the Vessel except (1) Shipper
shall reimburse Carrier for the cost of the Mooring Master and stand-by boat
incurred solely as a result of the Vessel loading Cargo at the BHP SPM; and (2)
Shipper shall pay Carrier for the services of any tug engaged to escort or
assist the Vessel while entering, while at berth and while departing Barbers
Point Harbor, provided also that such tug escort or assist is required by the
USCG or the State Harbors authority, on the basis of the rate per hour
stipulated in Section 5.7 B for the hours commencing when the Vessel is
alongside and all secure until such time as loading operations are completed
and the Vessel ready to depart. Notwithstanding the provision for payment and
reimbursement of dockage in Section 7.2, Shipper is responsible for all Cargo
related costs, including but not limited to hose watch, independent inspection
and gauging of the Cargo, wharfage, tolls, and guard services while Tow is idle
and loaded with Shipper's Cargo. Dues and local, State and Federal taxes and
other charges imposed, levied or assessed against the Vessel shall be paid by
the Carrier and local, State and Federal taxes imposed, levied or assessed
against the Cargo shall be paid by Shipper subject to Section 7.2. Vessel
shall be free of charges for the use of any
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<PAGE> 22
place(s) when used solely for the purpose of loading or discharging Shipper's
Cargo. However, Carrier shall be responsible for charges for any such place(s)
when used solely for Vessel's purposes, such as, but not limited to, awaiting
Shipper's orders, line, pump and tank cleaning, repairs, before, during or
after loading and/or discharging.
5.13 Losses Losses of Cargo of .5% or less by volume will be
regarded as normal industry practice and Carrier will not be responsible for
such shortage. Shipper shall present claim for loss of Cargo greater than .5%
by volume to Carrier latest 90 days after the completion of discharge of the
Cargo on the voyage with respect to which said claim arises. Such claim shall
include the cost of the Cargo lost and the freight charge paid or invoiced for
such non-delivered Cargo.
5.14 Freight Earned Full freight to destination on Shipper's Cargo
transported hereunder shall be completely earned when Cargo discharge is
complete at destination.
5.15 Billing, Payment and Disputes Payment for Tug, Tow,
tankermen, port and other charges shall be paid at Carrier's office address
first set out above within fifteen (15) days after receipt of Carrier's monthly
invoice. Invoices for charges must be accompanied by appropriate supporting
documents. In cases of dispute as to the amount of payment due, Shipper shall
not withhold any amounts due Carrier except for those amounts in dispute.
Shipper will notify Carrier in writing of any such disputed amounts within
fifteen (15) days following receipt of Carrier's invoice.
5.16 Waiver Of Claims Any claim for freight, demurrage and/or
charges or expenses under this Contract shall be deemed waived, extinguished
and absolutely barred if such claim is not received by Shipper or Carrier, as
the case may be, in writing with supporting documentation within 120 days from
the date of final discharge of the Cargo on the voyage with respect to which
said claim arises. This provision shall not apply with respect to claims for
damage, loss or shortage of Cargo, claims with respect to damage to shore
facilities, claims with respect to the injury of an employee of the Shipper,
Carrier, Shipper's Cargo suppliers and their agents, or claims arising in
connection to an escape or discharge of oil.
VI. SCHEDULING
6.1 Scheduling Carrier and Shipper understand and agree that to
meet Shipper's demands for the most efficient scheduling, loading and
discharging of the Vessel will require the general cooperation of each party.
To facilitate this objective, Shipper shall submit in writing to Carrier by the
10th of every month during the term of this Contract a proposed voyage schedule
for the following calendar month stating anticipated loading and discharging
times and location. Carrier shall make the appropriate
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<PAGE> 23
berth reservations and other such arrangements consistent with said schedule
and as requested by Shipper. Carrier shall confirm to Shipper the making of
such reservations and arrangements verbally or by facsimile. It is understood
and agreed that this tentative schedule is not binding on Shipper and is to be
used only as a best-efforts estimate of Shipper's requirements.
6.2 Shipper to Have First Priority Notwithstanding Sections 4.14
and 5.2 above, except as provided for in this paragraph, the Carrier shall
provide the Tug and Tow described in Article II above, always giving Shipper
first priority for use of the Tug and Tow, above and beyond any other Carrier's
customers. However, if circumstances should arise whereby Shipper and its
sister Hawaiian Electric Company, Inc. ("HECO") subsidiary (HELCO), both need
and demand first priority use of the Tug and Tow at the same time, HECO will
determine the priority as between them and notify Carrier. Carrier will be
deemed to have fulfilled its obligation under this paragraph by following the
priority established by HECO. It is understood that it is the intent of this
section to provide Shipper with complete assurance that Tug and Tow services
will be available when and as ordered by Shipper.
6.3 Notice of Cancellation or Delay Shipper will endeavor to
advise Carrier, orally or in writing, as promptly as is reasonably practicable
of the cancellation or delay of previously scheduled and confirmed Tug and Tow
service; giving at least four (4) hours notice for cancellation or delay of
previously scheduled and confirmed Tow service, and at least four (4) hours
notice for cancellation or delay of previously scheduled and confirmed Tow
shifting service. If less than four (4) hours notice of cancellation or delay
of scheduled and confirmed services is given Carrier, then Shipper will pay for
charges, if such charges are incurred, up to an amount of four (4) hours of
demurrage at rates provided in Article V. Carrier shall exercise its best
efforts to minimize these charges by employing such tankermen and crew on its
other vessels or otherwise utilizing their services in an effort to reduce
these cancellation or delay charges. In such case, Carrier shall credit
Shipper with the amount of these savings.
VII. MAINTENANCE SERVICES AND OTHER REQUIREMENTS
7.1 Maintenance of the Tug and Tow The Carrier shall be solely
responsible for maintenance of the Tug and Tow. Carrier specifically covenants
and agrees that it will maintain the Vessel, its appliances and appurtenances,
in a state of repair that will allow for safe and efficient operation during
the term of the Contract, including but without limitation, keeping said Vessel
in full unexpired classification as may be required by the USCG or other
regulatory agencies having jurisdiction. As required, Carrier shall, at its
expense, drydock the Vessel for the purpose of keeping the Vessel in full
unexpired classification and meeting all USCG inspection requirements and
drydocking, and all charges
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incurred in connection therewith shall be for the Carrier's account. Shipper
and Carrier agree to arrange scheduled shipments to accommodate required
maintenance periods of up to ten (10) continuous calendar days, but not to
exceed twenty (20) total calendar days annually. It is further agreed that
Carrier must notify Shipper in writing no later than 90 days prior to the first
day of any period when the Vessel is expected to be out of service and
unavailable for the transport of Shipper's Cargo because of scheduled
maintenance, repair or drydocking in order to permit such an arrangement of
scheduled shipments. Failing such notification, Carrier shall arrange such
suitable substitute service as aforesaid. Carrier shall designate a company
representative to liaise with Shipper and report on the fulfillment of
Carrier's responsibility to carry out routine hull and equipment inspections,
preventative maintenance and schedule of Vessel repair, maintenance and
drydocking.
7.2 Other Required Services Carrier shall provide the following
additional services to Shipper: coordinating with Shipper and consignees the
loading and discharge of the Tow; making arrangement for berthing and pilotage
at ports or places on neighbor islands; making follow-up arrangements when
necessary due to schedule changes, weather and other operational
considerations, whether anticipated or unanticipated; scheduling the loading
and discharge of the Tow to meet required arrival and sailing times; preparing
loading plans for the Tow; computing and advancing dockage for which amounts
the Shipper shall make timely reimbursement to Carrier; computing, advancing
and filing with the State of Hawaii, Harbors Division, all required fees and
reports with respect to pipeline fees incurred during loading Cargo at Barbers
Point Harbor and Cargo discharge at Kahului, Maui, for which advances Shipper
shall make timely reimbursement to Carrier; and performing other operational
services not specified hereinabove concerning the movement of the Tow. Charges
for the aforesaid services are included in the Freight Rates charged in Article
V.
7.3 Shipper's Representative Shipper shall have the right and
privilege of having its representative(s) visit the Vessel and observe
operations while in port or at sea. Shipper's representatives shall have
access to the entire Vessel and the Master, officers and crew of the Vessel
shall cooperate with and render any reasonable assistance that Shipper's
representative may require.
VIII. INSURANCE
8.1. Carrier's Required Insurance Coverage The Carrier shall
maintain insurance as set forth below and that may be required under the
applicable laws, ordinances and regulations of any governmental authority.
Carrier shall present satisfactory evidence of the required insurance to the
Shipper prior to the commencement of this Contract including as follows:
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A. Workers' Compensation and Employers' Liability
Insurance as prescribed by applicable law, including
insurance covering liability under the Longshoremen's
and Harbor Workers' Act, the Jones Act and the Outer
Continental Shelf Land Act, if applicable; and
B. Commercial General Liability Insurance including
Bodily Injury and Property Damage Insurance with a
limit not less than $1,000,000 combined single limit
per occurrence; and
C. Hull and Machinery Insurance including collision
liability on vessels engaged in towage with a limit
at least equal to the full and actual value of each
and every Vessel Carrier owns or charters which is
used in the performance of work required under this
Contract; and
D. Protection and Indemnity Insurance under one of the
two following options:
(1) Full and valid Protection and Indemnity
Insurance including but not limited to
coverage for injuries to or death of masters,
mates and crew, and excess collision
liabilities. The limits of such insurance
shall not be less than $25 million per
occurrence. Full and valid vessel pollution
liability insurance including coverage for
TOVALOP liabilities and pollution liabilities
imposed by federal and state laws in an
amount not less than $500 million per
incident. Valid Excess Pollution Liability
Insurance must cover like liabilities for
Pollution for an amount not less than $200
million per incident, or the maximum
available; or
(2) Protection and Indemnity Insurance on a full
entry basis with an International Group P&I
Club. Such insurance shall include, but not
be limited to, coverage for injuries to or
death of masters, mates and crew; excess
collision liabilities and pollution
liabilities imposed by the federal and state
laws as well as TOVALOP liabilities (if
applicable). Such insurance shall be
unlimited as per International Group, P&I
Club rules except for pollution liabilities
which shall be limited to
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$500 million or the maximum pollution limited
offered by the P&I Clubs of the International
Group. Such insurance shall also include
Excess Pollution Liability which must cover
like liability for pollution for an amount
not less than $200 million per occurrence or
the maximum amount available.
Carrier shall have the applicable insurance policies endorsed
to include:
a. a 30-calendar day written notice to Shipper prior to the
effective date of cancellation or material change of the
insurance; and
b. naming Shipper and Shipper's Cargo suppliers as an
additional insured in the coverage described in Sections
8.1 B, 8.1 C and 8.1 D (1); and
c. a waiver of all rights of subrogation and an assignment
of statutory lien, if applicable, against the Shipper and
Shipper's Cargo suppliers in the coverage described in
Sections 8.1 A and 8.1 C; and
d. a clause making Carrier's insurance primary in relation
to any other insurance available from Shipper; and
e. a Standard Cross Liability Endorsement or Severability of
Interest Clause, where applicable.
8.2 Shipper's Required Insurance Coverage Shipper shall procure
and maintain Cargo insurance for all Cargo loaded aboard the Tow in an amount
equal to the full actual value of the Cargo and on a form customary in the
American or London Insurance market. Such insurance shall include loading and
discharge.
8.3 Deductibles Any deductible amounts due under any of the
insurance coverage shall be paid by the Carrier or the Shipper for their own
respective required insurance coverage.
8.4 Continuation of Coverage Carrier warrants that it has
obtained the insurance coverage described in Section 8.1 and that during the
initial term
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of this Contract or any Extension thereof, Carrier agrees to continue such
coverage in force subject also the provisions of Article XVI herein.
IX. INDEMNITY
9.1 Indemnity For Tugs and Pilots Neither the Shipper nor any of
its associated or affiliated companies, nor any of Shipper's Cargo suppliers
and receivers, nor any of the employees, representatives, servants and agents
of any of the foregoing shall be responsible for any losses, damages, delays or
liabilities arising from any negligence, incompetence, or incapacity of any
pilot, stevedore, longshoreman, mooring master, Master or other personnel of
any assist tug or stand-by boat, or line handler arising from the terms of the
contract of employment thereof which terms Carrier hereby agrees to accept and
be bound by, or arising from any unseaworthiness or insufficiency of any assist
tug or stand-by boat the services for which were arranged by Shipper on behalf
of Carrier; and Carrier agrees to indemnify and hold harmless the Shipper, its
associated or affiliated companies, Shipper's Cargo suppliers and receivers,
and any of the employees, representatives, servants and agents of any of the
foregoing from and against any and all such losses, damages, delays or
liabilities.
When any pilot, mooring master, or Master or other officer of
an assist tug or stand-by boat furnished to or engaged in the service of
supplying tug power or assistance to the Vessel, (whether or not said person is
an employee, servant or representative of Shipper, its affiliated or associated
companies, Shipper's agents or Shipper's Cargo suppliers or receivers) goes
onboard the Vessel, it is understood and agreed that such person or persons are
to be considered independent contractors and become the borrowed servant of the
Carrier and the Vessel for all purposes and in every respect and shall be
subject to the exclusive supervision and control of the Vessel and her
personnel, and neither the Shipper nor any of its associated or affiliated
companies, nor any of Shipper's Cargo suppliers and receivers, nor any of the
employees, representatives, servants and agents of any of the foregoing nor
those providing the pilots, mooring master, Master or other officers of any
assist tug or stand-by boat shall be under any liability for errors of
navigation, management of the Vessel, or other losses, damages, delays and
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liabilities resulting therefrom. This shall include but not be limited to the
giving of orders to any tug or stand-by boat engaged in assisting Vessel and in
respect to the handling of the Vessel and to the order of the number and
horsepower of tugs assisting or standing by the Vessel. In respect to the
foregoing, Carrier hereby agrees to indemnify and hold harmless Shipper, any of
its associated or affiliated companies, any of Shipper's Cargo suppliers and
receivers, and any of the employees, representatives, servants and agents of
any of the foregoing from any and all losses, damages, delays and liabilities
whatsoever whether to third parties or otherwise, arising from the acts or
omissions of such pilot, mooring master, Master and other officers of any
assist tug or stand-by boat.
9.2 Shipper's Indemnification of Carrier To the fullest extent
permitted by law, Shipper shall indemnify and hold harmless the Carrier, its
affiliates and parent corporation and their respective officers, directors,
agents and employees from and against all claims, damages, losses, liabilities
or expenses (including but not limited to attorneys' fees) arising out of or in
any way connected with Shipper's performance under this Contract, excepting
only such losses as may be caused solely by the gross negligence or willful
misconduct of Carrier. Carrier, at its election, may control and defend the
proceedings or require the Shipper to defend at Carrier's direction, except
where such control is in conflict with any provisions of the Shipper's
insurance policies under which the Carrier is named as additional insured. In
either case, all parties will fully cooperate in providing all necessary
evidence (as determined by the Carrier to be reasonably required) for defense
of the proceeding.
Notwithstanding the preceding or the provisions of Article
XII, Shipper shall indemnify, defend and hold harmless Carrier, its directors,
officers, employees and agents (including but not limited to affiliates and
contractors and their employees) from and against all liabilities, damages,
losses, penalties, claims, demands, suits, costs, expenses, and proceedings of
any nature whatsoever directly or indirectly arising out of or attributable to
the release, threatened release, discharge, disposal or presence of oil or
hazardous material related to the Cargo transported under this Contract when in
the custody of Shipper except to the extent such release, threatened release,
discharge, disposal or presence of oil or hazardous material may be
attributable to the negligence or willful action of Carrier, including without
limitation: (1) all foreseeable and unforeseeable consequential damages; (2)
the reasonable costs of any required or necessary repair, cleanup or
detoxification of an area of oil or hazardous material and the preparation and
implementation of any closure, remedial or other required plans; (3) the
reasonable costs of the investigation of any environmental claims by Carrier;
(4) the reasonable cost of Carrier's enforcement of this Contract; and
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<PAGE> 29
(5) all reasonable costs and expenses incurred by Carrier in connection with
clauses (1), (2), (3), and (4), including without limitation reasonable
attorney's fees and court costs.
9.3 Carrier's Indemnification of Shipper To the fullest extent
permitted by law, Carrier shall indemnify and hold harmless the Shipper, its
affiliates and parent corporation and their respective officers, directors,
agents and employees from and against all claims, damages, losses, liabilities
or expenses (including but not limited to attorneys' fees) arising out of or in
any way connected with Carrier's performance under this Contract, excepting
only such losses as may be caused solely by the gross negligence or willful
misconduct of Shipper. Shipper, at its election, may control and defend the
proceedings or require the Carrier to defend at Shipper's direction, except
where such control is in conflict with any provisions of the Carrier's
insurance policies under which the Shipper is named as additional insured. In
either case, all parties will fully cooperate in providing all necessary
evidence (as determined by the Shipper to be reasonably required) for the
defense of the proceeding.
Notwithstanding the preceding or the provisions of Article
XII, Carrier shall indemnify, defend and hold harmless Shipper, its directors,
officers, employees and agents (including but not limited to affiliates and
contractors and their employees) from and against all liabilities, damages,
losses, penalties, claims, demands, suits, costs, expenses, and proceedings of
any nature whatsoever directly or indirectly arising out of or attributable to
the release, threatened release, discharge, disposal or presence of oil or
hazardous material related to the Cargo transported under this Contract when in
the custody of Carrier except to the extent such release, threatened release,
discharge, disposal or presence of oil or hazardous material may be
attributable to the negligence or willful action of Shipper, including without
limitation: (1) all foreseeable and unforeseeable consequential damages; (2)
the reasonable costs of any required or necessary repair, cleanup or
detoxification of an area of oil or hazardous material and the preparation and
implementation of any closure, remedial or other required plans; (3) the
reasonable costs of the investigation of any environmental claims by Shipper;
(4) the reasonable cost of Shipper's enforcement of this Contract; and (5) all
reasonable costs and expenses incurred by Shipper in connection with clauses
(1), (2), (3), and (4), including without limitation reasonable attorney's fees
and court costs.
X. LIBERTIES
10.1 Deviations The Vessel shall have liberty to sail with or
without pilots, tow or be towed, and to deviate for the purpose of assisting
vessels in distress, saving life or property, landing any ill or injured person
on board or taking on fuel, supplies or other necessaries, or for repair,
provided that if it is necessary
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for the Tug to leave the Tow during any such deviation, the Tow shall be left
in a position of safety and the towage service resumed immediately upon
completion of the deviation, except the Carrier may at any time without penalty
take such reasonable action as necessary for the saving of life. No charges
for services under this Contract shall be charged Shipper during the period of
any such deviation.
XI. FORCE MAJEURE
11.1 Force Majeure For purposes of this Contract, an event or act
of "Force Majeure" shall mean: acts of God and the public enemy, hostilities
or war (declared or undeclared), embargo, riots, civil unrest, revolution,
sabotage, insurrection, blockades, strikes, epidemics, landslides, lightning,
earthquakes, fires, hurricanes, tsunamis, floods, tidal waves, volcanic
eruptions, explosions, total or partial expropriation, nationalization,
confiscation, requisitioning or abrogation of a government concession, closing
of, or restriction on the use of, a port or pipeline, inability to secure
petroleum product by reason of governmental regulations or otherwise, failure
of Shipper's suppliers' or its affiliated companies' machinery or pipelines,
loss or shortage of suitable crude oil or product supply or the suspension or
termination Shipper's suppliers' crude oil or petroleum supply contracts,
suspension or termination of Shipper's petroleum product supply contracts, or
an event affecting Shipper's Cargo suppliers' production, manufacturing,
distribution, refining, delivery or receiving facilities, power generation or
power distribution affecting Shipper's Cargo suppliers' facilities,
unavailability of Cargo or any other cause or contingency affecting Shipper's
Cargo suppliers or otherwise not reasonably within the control of the Shipper
which materially affects the Shipper's ability to fulfill any provisions of
this Contract. An event of Force Majeure shall also be taken to mean Carrier's
inability to comply with the State of Hawaii or USCG rules or regulations with
respect to required Certificates of Financial Responsibility, or its
equivalent, and any other cause not reasonably within the control of the
Carrier which materially affect Carrier's ability to fulfill any provisions of
this Contract.
11.2 Carrier's Obligation Carrier and its officers, directors, the
owners, operators, agents or charterers of Vessel shall not be liable for any
loss, damage or delay resulting from an event or act of Force Majeure.
Carrier's obligations including but not limited to rendering service under this
Contract shall be reduced or suspended for any period in which an event or act
of Force Majeure exists as to the Carrier and which can not be overcome by
Carrier through providing Shipper with a suitable substitute service as
provided in Section 2.4. In the event of any reduction or suspension of
Carrier's obligation to render service under this Contract, Shipper may obtain
towage service from another party for the period of Force Majeure.
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<PAGE> 31
11.3 Shipper's Obligation Shipper and its officers, directors,
employees, agents and affiliated entities shall not be liable for any loss,
damage or delay resulting from an event or act of Force Majeure. Shipper's
obligations under this Contract shall be reduced or suspended for any period in
which an event or act of Force Majeure exists as to Shipper, or Shipper's
supplier, either singularly or collectively. However, nothing in this Article
XI shall excuse Shipper from its obligation to make payments of monies due
hereunder for towage service rendered prior to said act or event of Force
Majeure.
11.4 Notice of Force Majeure The party claiming Force Majeure
shall give the other party verbal notice of such act or event of Force Majeure
within twenty-four (24) hours of the occurrence and shall also send written
confirmation of the same to the other party immediately thereafter. The party
claiming Force Majeure shall use due diligence to cure any act or event of
Force Majeure, and shall give the other party verbal notice within twenty-four
(24) hours after the act or event of Force Majeure has terminated and shall
send written confirmation of the same to the other party immediately
thereafter.
11.5 Total Loss It is understood and agreed that in the event of a
total loss or constructive total loss being declared by Vessel underwriters to
the HA'AHEO, Carrier shall supply a replacement Tow for a period of one hundred
and twenty (120) days. Within thirty (30) days following the event which caused
the declaration of total loss or constructive total loss, Carrier shall declare
in writing to Shipper whether it will supply a Tow for service under the
Contract, meeting the requirements set forth herein. Such Tow shall be
tendered for delivery and approval of Shipper in accordance with the terms of
this Contract within ninety (90) days following such declaration, failing
which, Shipper shall have the unilateral right to terminate this Contract,
notwithstanding anything herein to the contrary.
XII. LIMITATION OF LIABILITY
12.1 Limitation of Liability Except as otherwise agreed in this
Contract, Carrier and Shipper shall be entitled to assert by way of limitation
of liability any principle of law or provision of any statute or regulation of
the United States that would afford either Carrier or Shipper, a limitation of
such liability and the provisions of any such statute or regulations limiting
liability as aforesaid are incorporated herein by reference and made applicable
hereto, as though fully set forth herein. For purposes of such limitation of
liability, Shipper and Carrier waive any claim that this is a personal contract
of the other party.
12.2 Not A Charter The parties agree that this Contract
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<PAGE> 32
shall be construed as a private contract for carriage and not a charter and
that no provision of this Contract shall be construed as creating a demise of
the Vessel to Shipper.
XIII. GENERAL AVERAGE
13.1 General Average Sacrifice In the event of imminent danger,
peril, disaster, damage or accident before or after the commencement of the
voyage, subjecting the Tug, Tow and Cargo to a common peril, resulting from any
cause whatsoever, whether due to negligence or not, for which, or for the
consequences of which, the Carrier is not responsible by statute, contract or
otherwise, the Shipper and the owners of the Cargo, shall contribute with the
Carrier in general average to the payment of any sacrifices, losses or expenses
of a General Average nature that may be made or incurred and shall pay salvage
and special charges incurred in respect of the Cargo. If a salving ship is
owned or operated by the Carrier or its affiliates, salvage shall be paid for
based upon the regular hourly rates hereunder.
General Average shall be adjusted, stated, and settled
according to York/Antwerp Rules of 1974 (except Rule XXII), as amended 1990,
and, as to matters not provided for by those Rules, at such port or place in
the United States as may be selected by Carrier, and as to matters not therein
provided for, according to laws and usages in the Port of New York (except that
any payment made by Carrier to Shipper pursuant to Article XIV or to the
government or to others to remove oil or a threat of oil pollution as defined
in TOVALOP and used herein, as well as any other payments , with respect to
Vessel or Carrier's liability for oil pollution damage, shall not be deemed to
be General Average sacrifices or expenditures). If a General Average statement
is required, it shall be prepared by adjusters appointed by Carrier, who are to
attend to the settlement and collection of the General Average, subject to
customary charges. General Average Agreements and/or security shall be
furnished by Carrier and/or Shipper, if requested. Any cash deposit being made
as security to pay General Average and/or salvage shall be remitted in a duly
authorized and licensed bank at the place where the General Average statement
is prepared. For purposes of any General Average determination, it is
expressly agreed by and between the Carrier and Shipper, that the Tow, from
commencement of the voyage to its completion is under control of the Master of
the Tug.
XIV. POLLUTION
14.1 Compliance With Regulations During the period of this
Contract, Carrier and Vessel will comply with all local, State and Federal
laws, rules and regulations of whatsoever kind with respect to oil spill or
other water pollution liability or prevention applicable to the Vessel loading
at, discharging at, entering,
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leaving, remaining or passing through ports, places or waters in the
performance of this Contract. Carrier at its sole risk and expense shall make
all arrangements by equipping the Vessel, insurance, bonds, securities or other
evidence of financial responsibility, capability or security, USCG approved
Vessel-specific oil spill response plan and related employee training, formal
drills and exercises, and otherwise and shall obtain all such certificates and
documentary evidence and take all such other action as may be necessary to
satisfy such laws, rules and regulations including but not limited to USCG
pollution prevention regulations including but not limited to 33 CFR parts 154,
155, 156 and 157 and the U.S. Federal Water Pollution Control Act, as amended.
Vessel shall carry onboard a current USCG Certificate of Financial
Responsibility (Water Pollution). Carrier agrees to indemnify the Shipper
against any and all claims, damages, losses, liabilities, expenses, including
but not limited to reasonable attorney's fees and all other consequences
resulting from its failure to accomplish the foregoing.
14.2 Oil Spill Response Plan Carrier shall provide Shipper with
the Plan approved by and on file with the USCG and other local, State and
Federal authorities having jurisdiction for the response by the Vessel and
Carrier's organization to an oil spill incident. This Plan must include a
first aid response within the first thirty minutes of an incident and a
reliable source of follow-up clean up supplies (e.g. booms, skimmers, vacuum
trucks, manpower etc). As evidence of its ability to access such oil spill
response resources, Carrier warrants that it shall provide sufficient oil spill
response capability with respect to both small- and large-size oil spill events
occurring in near- shore and open-ocean environments by, including but not
limited to, maintaining contracts for spill response service with USCG-approved
response organizations including but not limited to the Clean Islands Council
and the Marine Preservation Association/Marine Spill Response Corporation for
the term of this Contract and any Extension and supplement thereto.
Information provided Shipper with respect to Carrier's
Vessel's oil spill response plan should include but not be limited to the
following:
a. Company response team format.
b. Communication flow chart including names and
24-hour contacts of participating company
personnel.
c. Procedures for assembly of response team.
d. Check list for reporting minor oil spill
events and check list which assists shore
personnel in obtaining accurate information
about major spill events from the Vessel.
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<PAGE> 34
e. Contact reference data for oil spill
responders contracted to provide assistance
to Carrier.
14.3 Pollution Mitigation When an escape or discharge of oil or any
polluting substance occurs from or is caused by the Vessel or marine facility
or occurs from or is caused by loading or discharging operations and results in
or threatens to cause pollution damage, or when there is the threat of an
escape or discharge of oil (e.g. a grave and imminent danger of the escape or
discharge of oil which, if it occurred, would create a serious danger of
pollution damage), Carrier or Shipper or their representatives, agents or
employees shall promptly take whatever measures are necessary and reasonable to
prevent or mitigate such environmental damage (without regard to whether or not
said discharge was caused by a negligent act or omission by the facility, by
the Vessel or Shipper or Carrier or others). Carrier hereby authorizes
Shipper, or its agent, at Shipper's option, upon notice to Carrier or Master,
to undertake such measures as are reasonable and necessary to prevent or
mitigate the pollution damage. The party undertaking such measures shall keep
the other advised of the nature and results of any measure taken by it, and, if
time permits, the nature of the measures intended to be taken by it. Any of
the aforementioned measures actually taken by Shipper shall be deemed taken on
the Carrier's authority, and shall be at Carrier's sole expense (except to the
extent such discharge was caused by the negligence or willful action of Shipper
or its agent) and prompt reimbursement shall be made as appropriate for the
costs of measures taken pursuant to this clause; provided, however, that should
Carrier or its agent give notice to Shipper to discontinue said measures (and
to the extent government authorities allow Shipper to discontinue said
measures) the continuance of Shipper's cleanup actions will no longer be deemed
to have been taken pursuant to the provisions of this clause. No Vessel or
tankermen charges will be incurred for Shipper's account during any lost time
resulting from the events dealt within this subparagraph if such events were
caused or contributed to by Carrier.
14.4 Liability to Third Parties Notwithstanding any other
provision in this Contract, the provisions of Section 14.3 shall be applicable
only between Carrier and Shipper and shall not affect, as between Carrier and
Shipper, any liability of Carrier to any third parties, including the
government, if Carrier shall have such liability nor any liability of Shipper
to any third parties, including the State of Hawaii and the U.S. Government, if
Shipper shall have such liability.
14.5 Liability For Transport Of Hazardous Material Should Shipper
incur any liability under Chapter 128D, of the Hawaii Revised Statutes as a
result of an escape or discharge of oil from the Vessel at berth or during
transit or occurs from or is caused by loading or discharging operations,
Carrier shall indemnify and
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hold Shipper harmless except to the extent such escape or discharge was caused
by or contributed to by the negligence or willful action of the Shipper or its
agents or employees.
XV. GENERAL PROVISIONS
15.1 Business Policy Carrier agrees to comply with all laws and
lawful regulations applicable to any activities carried out in the name, or
otherwise on behalf, of Shipper under the provisions of this Contract. Carrier
agrees that all financial settlements, billings and reports rended by Carrier
to Shipper, as provided for in this Contract, shall, in reasonable detail,
accurately and fairly reflect the facts about all activities and transactions
handled for the account of the Shipper.
15.2 Notices Except as otherwise expressly provided herein, all
notices and communications required by the terms hereof from the Carrier to
Shipper and from Shipper to Carrier shall be made in writing, facsimile or
telex to the following addresses, or such other address as the parties may
designate by notice, and shall be deemed given upon receipt:
Carrier: President
Hawaiian Interisland Towing, Inc.
Dillingham Transportation Building
735 Bishop Street, Suite 312
Honolulu, Hawaii 96813 FAX: (808) 524-5312
Shipper: Manager, Purchasing and Materials Management
Hawaiian Electric Company, Inc.
P.O. Box 2750
Honolulu, Hawaii 96840 FAX: (808) 543-5621
15.3 Entire Contract This instrument constitutes the entire
Contract of the parties with respect to all matters and things herein
mentioned. It is expressly acknowledged and agreed by and between the parties
that neither party is now relying upon any collateral, prior or contemporaneous
agreement, written or oral, assurance or assurances, representation or
warranty, or any kind or nature as to or respecting the condition or
capabilities of the Tug and Tow and the other matters and things, rights and
responsibilities herein fixed and described. No modifications, waiver or
discharge of any term or provision of this Contract shall be implied in law,
equity or admiralty, nor shall any alternation, modification or acquittance of
any such term or provision be effective for any purpose unless in writing
signed by or upon behalf of the party charged therewith.
15.4 Captions Captions used herein are for convenience of
reference only and shall have no force or effect or legal meaning in the
construction or enforcement of this Contract.
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15.5 Assignment This Contract shall not be assigned by either
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld, provided that: This Contract may be assigned by
Maui Electric Company, Ltd. to the Trustee under said Company's First Mortgage
Indenture dated March 1, 1948, as amended.
15.6 Dispute Resolution
A. Good Faith Negotiations Before any dispute under
this Contract is subjected to the provisions of this
Section 15.6 or any litigation, a representative of
Shipper and a representative of Carrier, both having
full authority to settle the dispute shall personally
meet in Honolulu and diligently attempt in good faith
to resolve the dispute.
B. Voluntary Arbitration If within thirty (30) days the
parties are unable to resolve the dispute under the
procedures of Section 15.6 A, on mutual agreement the
parties may submit the dispute to arbitration. The
party initiating the arbitration shall give to the
other written notice in sufficient detail of the
existence and nature of any dispute proposed to be
arbitrated under this Section 15.6. The notice shall
be signed by an appropriate company officer and be
addressed to an appropriate company officer of the
other party.
1. Appointment of Arbitrator
The parties shall attempt to agree on a
person with special knowledge and expertise
with respect to the hauling of petroleum
products in bulk to serve as arbitrator under
the procedures established by the rules of
the American Arbitration Association unless
other specific rules and procedures are by
mutual agreement established to apply to
disputes submitted to arbitration under
Section 15.6 B. If the parties cannot agree
on an arbitrator within ten (10) days after a
party initiates such process, each shall then
appoint one person to serve as an arbitrator
and the two thus appointed shall select a
third arbitrator with such special knowledge
and expertise to serve as chairman of the
panel of arbitrators; and such three
arbitrators shall determine all matters by
majority vote; provided, however, if the two
arbitrators appointed by the parties are
unable to agree upon the appointment of the
third arbitrator within
- 33 -
<PAGE> 37
five (5) days after their appointment, both
shall give written notice of such failure to
agree to the parties, and, if the parties
fail to agree upon the selection of such
third arbitrator within five (5) days
thereafter, then either of the parties upon
written notice to the other may require an
appointment from and pursuant to the rules
for commercial arbitration of the American
Arbitration Association. Prior to
appointment, each arbitrator shall agree to
conduct such arbitration in accordance with
the terms of this Section 15.6. The
arbitration panel may choose legal counsel to
advise it on the remedies it may grant,
procedures and such other legal issues as the
panel deems appropriate.
2. Arbitration Procedures
The parties shall have thirty (30) calendar
days from the completion of the appointment
process to perform discovery and present
evidence and argument to the arbitrators.
During that period, the arbitrators shall be
available to receive and consider all such
evidence as is relevant, within reasonable
limits due to the restricted time period, and
to hear as much argument as is feasible,
giving a fair allocation of time to each
party to the arbitration. The arbitrators
shall use all reasonable means to expedite
discovery and to sanction non compliance with
reasonable discovery requests or any
discovery order. The arbitrators shall not
consider any evidence or argument not
presented during such period and shall not
extend such period except by the written
consent of both parties. At the conclusion
of such period, the arbitrators shall have
thirty (30) calendar days to reach a
determination. To the extent not in conflict
with the procedures set forth herein, such
arbitration shall be held in accordance with
the prevailing rules of the American
Arbitration Association for commercial
arbitration.
3. Arbitrator Limitations
The arbitrators shall have the right only to
interpret and apply the terms and conditions
of this Contract in accordance with the laws
of the United States and the State of Hawaii,
- 34 -
<PAGE> 38
as appropriate, and to order any remedy
allowed by this Contract.
4. Written Decision
The arbitrators shall give a written decision
to the parties stating their findings of
fact, conclusions of law and final order, and
shall furnish to each party a copy thereof
signed by them within five (5) calendar days
from the date of their determination.
5. Decision Binding on the Parties
Unless the parties agree otherwise, the
arbitrator's decision shall become binding on
the parties at such time as the decision is
confirmed by order of a court of competent
jurisdiction pursuant to Chapter 658, Hawaii
Revised Statutes, or the United States
District Court for the District of Hawaii
pursuant to 9 U.S.C. Section 9, as
appropriate.
6. Cost of Arbitration
The parties shall each pay fifty (50) percent
of the cost of the arbitrator or arbitrators
and any legal counsel appointed pursuant to
Section 15.6A.1.
C. Commencement of Suit Any suit, action or proceeding
by either party in consequence of or toenforce any
term or provision of this Contract shall be commenced
in the First Circuit Court of the State of Hawaii, or
the United States District Court of the District of
Hawaii at Honolulu, Hawaii, as appropriate. The
prevailing party in any such suit, action or
proceeding shall be entitled to recover its costs of
the suit and reasonable attorneys' fees.
15.7 Limitations Applicable All limitations of and exemptions from
liabilities and entitlement to indemnity provided by law or the terms of this
Contract shall apply to Carrier and the Shipper, and affiliates of either and
all officers, directors, employees, agents thereof, and to any Vessel owned or
chartered by any of the above, and the master and crew thereof.
15.8 Notice of Claim Unless notice in writing of loss of or damage
to any Cargo carried pursuant to this Contract shall be given to Carrier within
120 days after delivery of the Cargo to the designated port, place, or vessel,
such delivery shall be deemed to be prima facie evidence of the delivery of the
Cargo in good order
- 35 -
<PAGE> 39
and condition. Carrier and the Vessel shall be discharged from all liability
in respect of loss of or damage to such Cargo unless suit or action is brought
within two (2) years after the delivery of the Cargo to the designated port,
place or vessel or after the date when the Cargo should have been so delivered.
15.9 Choice of Law The interpretation of this Contract and of the
rights and obligations of the parties hereunder in law, equity, or admiralty
shall be governed by the substantive law of the State of Hawaii or the general
maritime law of the United States, whichever as applicable.
15.10 Severability Carrier and Shipper agree that if, and in the
event, any term or provision of this Contract shall be rendered or declared
invalid or unenforceable by reason of any existing or subsequently enacted
legislation or by decree or judgement of any court which shall have or acquire
jurisdiction over the parties and each of them or jurisdiction "in rem" of the
Vessel, the invalidation or unenforceability of such term or provision of this
Agreement shall not thereby affect the remaining terms, provisions, rights and
obligations herein contained.
15.11 Regulatory Approval This Contract is required to be filed
with the Hawaii Public Utilities Commission ("PUC") for approval. If in the
proceedings initiated as a result of the filing of this Contract, the PUC
disapproves or fails to authorize the recovery of the transportation and other
costs incurred under this contract through the Shipper's rate schedule fuel
adjustment clause, Shipper may terminate this Contract by 30 days written
notice to Carrier. Both parties agree to use their best good faith efforts to
obtain such approval.
15.12 Barrel For purposes of this Contract, a barrel shall mean 42
U.S. gallons at 60 degrees F.
15.13 Master This term shall include the person or persons in
charge of Vessel or any of the vessels referred to in Sections 2.3, 2.4 or
elsewhere in this Contract.
15.14 Carrier This term shall include the Vessel and other vessel
or vessels, substitute carrier or the owner, bareboat charterer, time charterer
and voyage charterer and the Master, officers, crew and tankermen of any of the
foregoing, whether any shall be acting as carrier or bailee.
XVI. RENEGOTIATION
16.1 Additional Costs The Carrier shall comply with the conditions
of the Contract including the provision of such additional certificates,
contingency plans, and P&I Club insurance as may be necessary to enable the
Vessel to trade in an among the ports and places in accordance with Article IV.
It is understood
- 36 -
<PAGE> 40
and agreed that both parties entered into the Contract in reliance on Federal
and State government laws, rules, regulations and requirements or
interpretations of implementations thereof, or P&I Club or equivalent insurance
in effect on the date of the Contract or same known, or which should have been
known, to both parties to take effect during the period of this Contract and
any supplements and Extension thereof (hereafter "Requirements"). If at any
time, any of the said Requirements change or if new Requirements become
effective, and the effect of such change or new Requirements is/are not covered
elsewhere in this Contract or has/have significant economic effect on either
party, then either party shall have the option, upon written notice to the
other party, to call for renegotiation of the Freight Rate or other terms
provided for in this Contract as to the allocation of such new costs. As
regards the cost of the insurance coverage required by the terms of this
Contract, significant economic effect shall be held to mean that the Carrier's
cost of insurance coverage for protection and indemnity, including liability
for oil pollution damage, required by Section 8.1B has increased by more than
25 percent during any twelve month period of this Contract.
Upon receiving written notice of renegotiation with cost
estimates for said items from either party, the parties shall enter into good
faith negotiations within fifteen (15) days of receiving said notice. In the
event that the parties do not agree upon a modified Freight Rate or the terms
satisfactory to both parties within thirty (30) days after such notification is
received, either party shall have the right to terminate this Contract by
giving written notice to that effect to the other party, such termination to be
effective 150 days after the expiration of said negotiation period.
Notwithstanding the above, Carrier shall have no right to terminate so long as
Shipper is willing to pay a fair and prorated share of such new costs. Until a
mutually satisfactory revised Freight Rate or other terms have been agreed
upon, or until this Contract is terminated as provided herein, the Freight Rate
which was in effect when the request for renegotiation was made and all other
terms and provisions shall continue in full force and effect.
- 37 -
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed as of the day and year first above written.
HAWAIIAN INTERISLAND TOWING, INC.
"Carrier"
By /s/ Gordon L. Smith
----------------------------------
Its President
MAUI ELECTRIC COMPANY, LTD.
"Shipper"
By /s/ Edward Y. Hirata
----------------------------------
Its Vice President
By /s/ Molly M. Egged
----------------------------------
Its Secretary
- 38 -
<PAGE> 42
EXHIBIT A
The following are warranted by Carrier with respect to the Tow and its
equipment and machinery employed under this Contract.
CAPACITY
25,000 bbl. No. 6 Industrial Fuel Oil minimum.
30,000 bbl. No. 2 Diesel Fuel Oil minimum.
CARGO SEGREGATION
Any Tow used in service to Shipper shall be equipped with a system of
cargo tanks and piping that will provide for the segregation of two
Cargo grades with double valve separation.
BALLAST
Any Tow used in service to Shipper shall be capable of segregating
water ballast from the cargo tank/pipeline system with a minimum
double valve interface.
DISCHARGE PUMPING RATES
No. 6 Industrial Fuel Oil: 3,000 barrels per hour (BPH) at 110
Degrees F minimum.
No. 2 Diesel Fuel Oil: 3,000 BPH minimum.
Rail pressure: 100 psi at manifold
MANIFOLDS
Any Tow used in service to Shipper shall be equipped with cargo
manifolds and piping sufficient to permit Cargo loading and/or
discharge operations on either port or starboard side.
MULTIPLE GRADES
Any Tow used in service to Shipper shall be equipped with cargo
manifolds, pumps and piping sufficient to permit the loading and
discharge of two different Cargo grades simultaneously.
- 39 -
<PAGE> 43
EMERGENCY SHUTDOWN
Any Tow used in service to Shipper shall be equipped to permit
emergency shutdown of the pumping system from more than one location,
of which one shall be on deck.
ECOLOGY DAM
Any Tow used in service to Shipper shall be equipped with a deck
containment coaming or ecology dam at least 4 inches high but not more
than 8 inches high to reduce the likelihood that cargo spilled from
cargo hatches, oil loading manifolds, above-deck lines and valves and
transfer connections may enter the water or land environment.
HEATING
All cargo tanks in which residual fuel oil type cargo, such as No. 6
Industrial Fuel Oil, is to be carried shall be fitted with heating
coils with heat supplied by a diesel fired retort system of 5.0
million BTU's/hr capacity.
ELECTRICITY
Diesel generator of sufficient capacity to safely provide electrical
power to all Tow equipment and machinery in any and all operations.
AIR COMPRESSOR
Any Tow used in service to Shipper shall be equipped with an air
compressor of sufficient capacity and piping to safely clear cargo
hoses of retained Cargo after completion of Cargo operations.
OIL SPILL ABATEMENT EQUIPMENT
Any Tow used in service to Shipper shall have oil spill abatement
equipment and supplies including, but not limited to, a minimum of
1200 feet of oil spill boom, spare bridles and two lines anchor/buoy
system, sweeps, sorbent sheets, transfer pumps, personal protective
clothing and gear and other related emergency oil spill cleanup
equipment consistent with the Vessel's oil spill response plan and all
USCG requirements.
- 40 -
<PAGE> 44
INSURANCE WIRE
Any Tow used in service to Shipper shall be rigged for towing
operations with an emergency towing pennant or insurance wire.
MOORING EQUIPMENT
Any Tow used in service to Shipper shall be equipped with appropriate
mooring bitts and sufficient forward winch/capstan and
winch/capstan-drum capacity to lift the mooring hawser and chafe chain
of the BHP SPM and shall be equipped with a crane or A-frame type
gallows, tie off bitts and manifold rail suitable for lifting and
tieing off the floating hose at that facility pursuant to the
requirements set forth in Exhibit C attached hereto.
CERTIFICATION
U.S. Coast Guard Certification of Inspection for ocean service as an
unmanned tank barge.
American Bureau of Shipping Classification.
International Load Line Certificate.
- 41 -
<PAGE> 45
EXHIBIT B
The following are warranted by Carrier with respect to the Tug and its
equipment and machinery employed under this Contract.
POWER PLANT CAPACITY
The minimum horsepower of any Tug used in service to Shipper shall be
3,000 bhp except that upon the express written permission of the
Shipper, a Tug having a power system of a minimum of 2,800 bhp may be
employed on a single voyage basis.
POWER PLANT CONFIGURATION
Any Tug used in service to Shipper shall be equipped with a dual power
plants in a twin-shaft/twin-screw configuration.
NAVIGATION EQUIPMENT
Any Tug used in service to Shipper shall be equipped with appropriate
VHF and SSB communication equipment, radar, fathometer, Global
Positioning System receiver or equivalent position finding equipment.
EMERGENCY TOW RETRIEVAL EQUIPMENT
Any Tug used in service to Shipper shall be equipped with an Orville
Hook or equivalent emergency tow retrieval capability.
- 42 -
<PAGE> 46
EXHIBIT C
The following are warranted by Carrier with respect to outfitting of any Tug
and any Tow and their respective equipment and machinery employed under this
Contract:
MINIMUM REQUIREMENTS FOR BARGES CALLING AT
BHP PETROLEUM AMERICAS REFINING INC.
OFFSHORE SINGLE POINT MOORING TERMINAL
A. The BHP Petroleum Americas Refining Inc. Single Point Mooring and sea
berth terminal facility off shore Barbers Point (hereinafter "SPM
terminal") specifies that any barge must be configured to moor
stern-to-the-buoy with the hose connections at the starboard-side
manifolds. Bow-to mooring will only be accepted on a case by case
basis with appropriate modifications to the barge layout and
procedures as determined by the SPM terminal operator.
B. Mooring equipment: winches, must be capable of heaving the end of the
76mm chafe chain on board and adjacent to the barge mooring connection
in a safe and efficient method acceptable to the SPM terminal
operator.
C. Mooring connection: The Vessel must be capable of accepting
OCIMF-standard tri-plate at the end of the mooring hawser/chafe chain
assembly. The Vessel must have appropriately positioned bitts for the
snotter connection, Smit-type towing bracket or other suitable
approved connection acceptable to the SPM terminal operator.
D. Hose handling equipment: It shall be located at the starboard side
cargo manifolds. The Safe Working Load of the hose derrick, crane or
A-frame shall be 5 tons. Manifolds and hose hang off points must be
capable of sustaining the weight of the standard 12 inch floating
cargo hose in the opinion of the SPM terminal operator.
E. A suitable mooring assist/stand-by boat must attend the Vessel at all
times when approaching, when moored and when departing the SPM
terminal.
F. The towing tug shall at all times maintain a steady pull on the barge
in order to maximize the available distance from the SPM buoy. Common
procedure is for the barge to moor stern to the buoy with the towing
tug always engaged with the tow wire.
- 43 -
<PAGE> 47
G. The barge shall be prohibited from mooring by the sole use of the
mooring hawser pick up line. A mooring connection utilizing the chafe
chain shall always be required.
H. A minimum of two (2) qualified tankermen shall be required to attend
the Vessel during all oil transfer operations at the SPM terminal.
I. The Carrier or barge operator shall take full responsibility in
responding to any spill originating from the Vessel. The barge shall
be equipped with an ocean oil containment boom equal in length to
twice the length of the barge and which shall be capable of being
deployed by available personnel and boats.
J. The Vessel, Master, officers, crew, tankermen and Carrier shall
operate in compliance with any and all laws, rules, regulations and
required procedures as set forth in the BHP SPM terminal Operations
Manual as submitted to the USCG and in compliance with an USCG
approved oil spill contingency plan.
K. Deviations, if any, from the preceding requirements must be expressly
granted by the BHP SPM terminal operator.
- 44 -
<PAGE> 48
EXHIBIT D
The following are warranted by Carrier with respect to the Vessel's Master,
officers, crew and tankermen employed under this Contract.
ALL OPERATING PERSONNEL: TRAINING/PROFICIENCY
All operating personnel including Vessel's Master, officers and crew
and tankermen and the immediate supervisors of the foregoing, are to
receive training and exhibit proficiency in such areas as including,
but not limited to, mandatory compliance with the various federal and
State laws concerning safety and hazardous materials (OSHA, USCG,
Hawaii DOH, Hawaii DOT), oil transfer procedures, fire fighting, oil
spill prevention, oil spill contingency planning, oil spill response
and other emergency operations and such proficiency and state of
readiness shall be assessed through a program of continuous planning
review, periodic exercises and drills.
TUG PERSONNEL: LICENSES/ENDORSEMENTS/QUALIFICATIONS
The Master, officers and crew of any Tug providing service to Shipper
shall have the appropriate licenses and endorsements, have received
the appropriate experience and training for the seas, ports cargo and
size and capability of the equipment employed in the performance of
this Contract. In addition, such personnel are to continue to receive
whatever further training and experience is required to ensure that
towing operations are conducted in a safe, efficient and professional
manner consistent with the highest standards in the industry.
Inasmuch as the Master shall be held responsible for the quality of
overall voyage operations, management and safety, it is a requirement
that he have the appropriate USCG license and endorsement.
The Master shall be appropriately qualified by education at a college
level or at an accredited maritime academy and/or by the equivalent
progressive experience in navigation, pilotage, engine room
operations, vessel classes, making/breaking tow, barge mooring, cargo
transfer operations and safety procedures and shall have experience
and/or the appropriate formal training in such areas as hazardous
materials operations, fire fighting, oil spill clean-up and mitigation
and other situations requiring emergency response.
- 45 -
<PAGE> 49
Carrier agrees and understands that a Master appointed to any Tug used
in service to Shipper under this Contract shall have demonstrated
reliability, leadership, crew management ability and evidence the very
highest regard for the safety of Vessel and its crew, Cargo and the
environment.
- 46 -
<PAGE> 50
EXHIBIT E
The No. 2 Diesel Fuel Oil to be transported hereunder shall have the
following approximate characteristics:
<TABLE>
<CAPTION>
Specification Test
Item Units Limits Method
- ---- ----- ------ ------
<S> <C> <C> <C>
Gravity Degrees API 30.0 Min. D1298, or
@ 60 deg F. Specific Gravity .88 Max. D4052-86
Viscosity SSU 32.6-40.1 D445, or
@ 100 deg F. D2161
Pour Point Degrees F. 35 Max. D97
Flash Point, PM Degrees F. 150 Min. D93
Ash PPM, Wt. 100 Max. D482
Cetane Index 40 Min. D976
Carbon Residue, %, Wt. 0.35 Max. D524
10% Residuum
Sediment & Water %, Vol. 0.05 Max. D1796
Sulfur %, Wt. 0.40 Max. D1552, D2622,
or D4294
Distillation,
90% Recovered Degrees F. 540-640 D86
Sodium +
Potassium PPM, Wt. 0.5 Max D3605
Nitrogen PPM, Wt. Report D4629
</TABLE>
- 47 -
<PAGE> 51
EXHIBIT F
The No. 6 Industrial Fuel Oil to be transported hereunder shall have
the following approximate characteristics:
<TABLE>
<CAPTION>
Specification Test
Item Units Limits Method
- ---- ----- ------ ------
<S> <C> <C> <C>
Gravity D1298, or
@ 60 deg F. Degrees API 6.5 Min. D4052-86
Viscosity SSU 179 Min. D445, or
@ 122 deg F. 226 Max. D2161
Pour Point Degrees F. 55 Max. D-97
Flash Point, PM Degrees F. 150 Min. D93
BS & W %, Vol. 0.5 Max. D1796
Sulfur %, Wt. 2.00 Max. D1552, D2622,
or D4294
</TABLE>
- 48 -
<PAGE> 52
EXHIBIT G
Sample Freight Calculations
(Only MECO Cargo on Vessel)
<TABLE>
<S> <C> <C> <C>
A. Total volume of Cargo is equal or less than 45,000 bbl:
Freight = ($1.10/bbl x 45,000 bbl) = $49,500.00
+ 4.167% tax = $ 2,062.67
----------
TOTAL MECO FREIGHT $51,562.67
B. Total volume of Cargo is 48,000 bbl:
Freight = ($1.10/bbl x 45,000 bbl) = $49,500.00
($0.75/bbl x 3,000 bbl) = $ 2,250.00
+ 4.167% tax = $ 2,156.42
----------
TOTAL MECO FREIGHT $53,906.42
C. Total volume of Cargo is 54,00 bbl:
Freight = ($1.10/bbl x 45,000 bbl) = $49,500.00
($0.75/bbl x 3,000 bbl) = $ 2,250.00
($0.66/bbl x 5,000 bbl) = $ 3,300.00
($0.50/bbl x 1,000 bbl) = $ 500.00
+ 4.167% tax = $ 2,314.77
----------
TOTAL MECO FREIGHT $57,864.77
</TABLE>
- 49 -
<PAGE> 53
EXHIBIT H
Sample Freight Calculations
(For Joint Voyages with HELCO)
Sample Price Calculation A, B and C below are based on 30,000 Barrels being
transported for HELCO. HELCO Freight is calculated as follows:
<TABLE>
<S> <C> <C>
Freight = ($1.76/bbl x 38,000 bbl) = $ 66,880.00
+ HGET of 4.167% = $ 2,786.89
-----------
= $ 69,666.89
A. Total volume of cargo is 48,000 bbl:
Freight Rate = (48,000 bbl x $1.55/bbl) - HELCO Freight
----------------------------------------
MECO bbl
= (48,000 bbl x $1.55/bbl) - $69,666.89
-------------------------------------
18,000 bbl
= $74,400.00 - $69,666.89
-----------------------
18,000 bbl
= $4,733.11
------------
18,000 bbl
= $0.26/bbl
MECO Freight = ($0.26/bbl x 18,000 bbl) = $ 4,680.00
+ HGET of 4.167% = 195.02
----------
TOTAL MECO FREIGHT $ 4,875.02
B. Total volume of cargo is 53,000 bbl:
Freight Rate = ((Total bbl) x $1.55/bbl) - HELCO Freight
-----------------------------------------
MECO bbl
= ((53,000 bbl) x $1.55/bbl) - $69,666.89
---------------------------------------
23,000 bbl
= $82,150 - $69,666.89
--------------------
23,000 bbl
</TABLE>
- 50 -
<PAGE> 54
<TABLE>
<S> <C> <C>
= $12,483.11
------------
23,000 bbl
= $0.54/bbl
MECO Freight = ($0.54/bbl x 23,000 bbl) = $ 12,420.00
+ HGET of 4.167% = 517.54
-----------
TOTAL MECO FREIGHT $ 12,937.54
C. Total volume of cargo is 54,000 bbl:
Freight Rate =
For first 53,000 bbl:
(53,000 bbl x $1.55/bbl) = $82,150.00
$82,150 +(($0.75/bbl x (Total bbl - 53,000 Bbl)) - HELCO Freight
----------------------------------------------------------------
MECO bbl
$82,150 +(($0.75/bbl x (54,000 - 53,000 bbl) - $69,666.89
---------------------------------------------------------
24,000 bbl
= $82,150 + ($750) - $69666.89
----------------------------
24,000 bbl
= $13,233.11
----------
24,000 bbl
= $0.55/bbl
MECO Freight = ($0.55/bbl x 24,000 bbl) = $ 13,200.00
+ HGET of 4.167% = 550.04
-----------
TOTAL MECO FREIGHT $ 13,750.04
</TABLE>
- 51 -
<PAGE> 55
EXHIBIT I
Sample Freight Calculation
(For voyages with third-party cargo)
Sample Price Calculation is based on 48,000 barrels being transported for MECO
in conjunction with 7,000 barrels of third-party cargo. MECO freight is
calculated as follows:
<TABLE>
<S> <C> <C>
Freight = ($1.10/bbl x 45,000 bbl) = $49,500.00
+ ($0.75/bbl x 3,000 bbl) = 2,250.00
+ HGET of 4.167% = 2,156.42
----------
$53,906.42
Less: Reduction for third-party cargo
= $0.55/bbl x 7,000 bbl = $ 3,850.00
----------
TOTAL MECO FREIGHT = $50,056.42
</TABLE>
- 52 -
<PAGE> 1
HEI Exhibit 10.20
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This Settlement Agreement and General Release ("Settlement
Agreement") is made and entered into on the 10th day of February, 1994, by and
between (a) Linda Chu Takayama ("Takayama"), not individually, but in her
capacities as (i) the Insurance Commissioner of the State of Hawaii, and, as
such, the representative of the interests of the State of Hawaii in bringing
proceedings for relief in the interests of policyholders and creditors of
insurers and the public, (ii) the Rehabilitator of The Hawaiian Insurance &
Guaranty Company, Limited ("HIG"), (iii) the Liquidator of United National
Insurance Company, Ltd. ("UNICO") and Hawaiian Underwriters Insurance Co., Ltd.
("HUI") and of the "Estate" as that term is used in the Plan (as hereafter
defined), and (iv) in her capacity as Rehabilitator of HIG and Liquidator of
UNICO and HUI, the representative of the respective policyholders, claimants
and creditors of HIG, UNICO and HUI, (b) HIG, UNICO and HUI (collectively, the
"HIG Group"), each Hawaii corporations, (c) the Hawaii Insurance Guaranty
Association ("HIGA"), for itself and on behalf of its past, present and future
member insurers and their past, present and future policyholders, (d) Hawaiian
Electric Industries, Inc. ("HEI"), a Hawaii corporation, on behalf of itself,
its direct and indirect past, present and future
<PAGE> 2
subsidiaries (other than the HIG Group) and the past, present and future
directors, officers, employees and representatives of HEI and its direct
and indirect past, present and future subsidiaries (including the HIG
Group), (e) HEI Diversified, Inc. ("HEIDI"), a Hawaii corporation, on
behalf of itself and its past, present and future directors, officers,
employees and representatives, and (f) Robert F. Clarke ("Clarke"),
Edward J. Blackburn ("Blackburn"), Robert F. Mougeot ("Mougeot"),
Thomas S. Adams ("Adams"), Gary L. Kirby ("Kirby"), David L. Ward ("Ward")
and Neal Kunde ("Kunde"), individually and in their capacities as past or
present directors, officers and/or employees of HEI, HEIDI, HIG, HUI, and
UNICO and/or of HEI's other direct and indirect subsidiaries (collectively,
the "Individual Defendants"). Where the context and circumstances require,
the name "Takayama" as used herein shall include any of her successors as
Insurance Commissioner of the State of Hawaii and/or as
Rehabilitator/Liquidator of the HIG Group.
W I T N E S S E T H:
WHEREAS, HEI acquired substantially all of the common stock of HIG
from IU International Corporation pursuant to an Acquisition Agreement dated as
of June 5, 1987 (the "Acquisition Agreement"), and the remainder of the common
stock of HIG from the individual owners thereof pursuant to a merger completed
on June 30, 1987;
2
<PAGE> 3
WHEREAS, HIG has at all relevant times been the owner of all of
the issued and outstanding common stock of UNICO and HUI;
WHEREAS, HEI is the owner of all of the common stock of HEIDI;
WHEREAS, all of the common stock of HIG was transferred by HEI to
HEIDI in 1991 and HEIDI is currently the holder of record of all of said common
stock;
WHEREAS, from time to time, HEI and/or one or more of its direct
or indirect subsidiaries have been parties to one or more intercompany
agreements pursuant to which computer, administrative, employee and other
services were provided to the HIG Group and payments have been made by the HIG
Group (collectively, the "Intercompany Agreements"), all of which Intercompany
Agreements have expired and/or been terminated save and except for that certain
Intercompany Agreement entitled "Agreement" between HIG and Hawaiian Electric
Company, Inc. ("HECO") dated May 14, 1993 (the "Computer Services Agreement");
WHEREAS, HEI, HEIDI, HIG and other direct and indirect
subsidiaries of HEI are parties to that certain Tax Allocation Agreement dated
January 15, 1991 (the "Tax Allocation Agreement"), pursuant to which the HIG
Group is included in HEI's consolidated federal tax returns and related tax
payments and benefits are shared in accordance with the terms of the Tax
Allocation Agreement;
3
<PAGE> 4
WHEREAS, by reason of the extraordinary insurance claims resulting
from Hurricane Iniki in September of 1992, the liabilities of the HIG Group
were estimated, on or about December 1, 1992, to exceed substantially the
assets of the HIG Group and HEI decided that it would not contribute additional
capital to the HIG Group;
WHEREAS, by reason of the impaired capital of the HIG Group, the
HIG Group agreed to operate pursuant to a supervision order issued by the
Insurance Commissioner of the State of Hawaii on December 2, 1992, and the HIG
Group was placed in formal rehabilitation proceedings in the Circuit Court for
the First Circuit for the State of Hawaii (the "Rehabilitation Court") on
December 24, 1992 (the "Rehabilitation Proceedings");
WHEREAS, on April 12, 1993, a lawsuit (the "Takayama Suit") was
filed by Takayama (as Rehabilitator/Liquidator of the HIG Group) and the HIG
Group in the Circuit Court for the Fifth Circuit of the State of Hawaii, Civil
No. 930087, against HEI, HEIDI, Clarke, Blackburn, Mougeot, Adams, Kirby, Ward,
Kunde and various DOE defendants, alleging numerous theories upon which
defendants, and each of them, were allegedly liable for losses suffered by the
HIG Group, and the complaint in such suit was amended in July 1993, among other
things, to add HIGA as an additional plaintiff;
4
<PAGE> 5
WHEREAS, HEI, HEIDI and the Individual Defendants have filed
answers to the First Amended Complaint in the Takayama Suit, denying the
material allegations thereof, denying any wrongdoing or liability of any kind
whatsoever, raising various affirmative defenses and asserting counterclaims
against Takayama and HIGA;
WHEREAS, a formal rehabilitation plan (the "Plan") was approved by
the Rehabilitation Court in the Rehabilitation Proceedings on May 25, 1993;
WHEREAS, HEI and its direct or indirect subsidiaries have from
time to time been insured under policies issued by HIG or other members of the
HIG Group (the "HIG Policies"), and claims have been made which are covered
under certain of those policies (some of which claims have been paid and others
of which are pending) and additional claims may be made in the future that are
covered by the HIG Policies if such claims arise out of events occurring during
the relevant policy periods, which additional claims are subject to the Plan;
WHEREAS, pursuant to the Plan, HIG has continued to operate in
rehabilitation to sell property and automobile insurance, and UNICO and HUI are
being liquidated;
WHEREAS, the Plan contemplates that any settlement of the Takayama
Suit must be approved by the Rehabilitation Court in the Rehabilitation
Proceedings;
5
<PAGE> 6
WHEREAS, each of the parties hereto has concluded that it is in
its respective best interests, and in the respective best interests of any
constituencies or interests represented by such parties (as hereinabove set
forth) and their respective predecessors, successors and assigns, mutually,
finally and in good faith to compromise and settle the Takayama Suit and
related matters on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Settlement and Compromise; No Admission of Fault,
Wrongdoing or Liability. The parties hereto expressly acknowledge that each
party denies any wrongdoing of any kind whatsoever, denies liability for any
and all claims that were made or could have been made against such party in the
Takayama Suit and has entered into this Settlement Agreement solely in order to
compromise disputed claims and to avoid the expense, inconvenience, distraction
and risk of further protracted litigation. Each party hereto acknowledges and
represents that this settlement is entered into in good faith and that the
terms hereof are fair, reasonable and in their respective best interests and in
the respective best interests of the public, the past, present and future
policyholders and creditors of HIG, UNICO, HUI and the past, present and future
members of
6
<PAGE> 7
HIGA and their respective past, present and future policyholders. Nothing
contained in this Settlement Agreement is intended to be, or shall be
deemed to be, an admission of any liability by any party or an admission of
the existence of any facts upon which liability could be based.
2. Final Approval by Rehabilitation Court and Dismissal with
Prejudice of Takayama Suit. This Settlement Agreement is subject to and
conditioned on (a) obtaining a final order in the Rehabilitation Proceedings
approving this settlement and (b) obtaining a final dismissal with prejudice of
the Takayama Suit. The "Rehabilitation Approval Date" shall be (a) 35 days
from the date an order approving this Settlement Agreement in the form and
substance agreed to by each of the parties hereto (the "Rehabilitation Approval
Order") has been entered in the Rehabilitation Proceedings, if an appeal has
not been taken therefrom, or (b) if an appeal is taken from such order, the
date on which the Rehabilitation Approval Order is affirmed, without
modification, by a reviewing court and there are no further available rights of
appeal from the Rehabilitation Approval Order. Takayama (as
Rehabilitator/Liquidator) will promptly file a motion in the Rehabilitation
Proceedings seeking entry of the Rehabilitation Approval Order, and provide
such notice thereof as will properly advise all interested parties of the
filing and substance of such motion, including providing an advance copy of
this Settlement
7
<PAGE> 8
Agreement, on such date as Takayama and HEI shall agree, to such third parties
as Takayama shall identify. HEI agrees to bear the costs of providing such
notice up to $25,000. Each party hereto agrees to use its best efforts to
persuade the Court in the Rehabilitation Proceedings to approve this settlement
and to enter the Rehabilitation Approval Order, agrees that it will not appeal
the Rehabilitation Approval Order and agrees that it will use its best efforts
to obtain affirmance of the Rehabilitation Approval Order if appealed by a
third party.
Within three (3) business days after the deposit into escrow
required under paragraph 5 hereof, the parties hereto shall execute and present
(or cause their attorneys to execute and present) to the Circuit Court for the
Fifth Circuit of the State of Hawaii for approval and filing in the Takayama
Suit a stipulation for dismissal with prejudice of all parties and all claims
therein, including all counterclaims, in the form and substance agreed to by
each of the parties hereto (the "Final Dismissal Stipulation"), pursuant to and
in conformity with the requirements of the Hawaii Rules of Civil Procedure and
any applicable Rules of the Circuit Courts for the State of Hawaii. Each party
hereto agrees to use its best efforts to persuade the Court in the Takayama
Suit to enter the Final Dismissal Stipulation, agrees that it will not appeal
from the Final Dismissal Stipulation or take any other action to modify or set
8
<PAGE> 9
it aside and agrees that it will use its best efforts to obtain affirmance of
the Final Dismissal Stipulation in the event any third party attempts to appeal
therefrom. The "Final Approval Date" shall be (a) 35 days from the date that
the Final Dismissal Stipulation has been entered in the Takayama Suit, if an
appeal has not been taken therefrom, or (b) if an appeal is taken therefrom,
the date on which the Final Dismissal Stipulation is affirmed, without
modification, by a reviewing court and there are no further available rights of
appeal from the Final Dismissal Stipulation.
In the event this Settlement Agreement is not approved by the
Rehabilitation Court by entry of the Rehabilitation Approval Order (in form and
substance acceptable to each party hereto), or in the event the Rehabilitation
Approval Order is modified or vacated, or in the event the Rehabilitation
Approval Order is reversed or modified on appeal, or in the event that the
Final Dismissal Stipulation (in form and substance acceptable to each party
hereto) is not entered or, if entered, is modified or vacated or reversed on
appeal, then in any of such events, this Settlement Agreement shall be null and
void and of no force and effect; provided, however, that the agreements set
forth in paragraphs 19 and 20 hereof shall survive any termination of this
Settlement Agreement and remain in full force and effect.
9
<PAGE> 10
3. General Release in Favor of HEI, HEIDI, the Individual
Defendants and Others. Effective upon, and conditioned upon the occurrence of,
the Payment Date (as defined in paragraph 5 below), Takayama (in each of her
respective capacities and on behalf of each of the constituencies she
represents, as hereinabove set forth), HIGA (for itself and on behalf of each
of the constituencies it represents as hereinabove set forth), HIG (for itself
and its predecessors, successors and assigns), UNICO (for itself and its
predecessors, successors and assigns) and HUI (for itself and its predecessors,
successors and assigns) (each of the foregoing being a "Takayama-Group
Releasing Party") for and in consideration of the receipt by Takayama of the
Settlement Sum (as defined in paragraph 5 below), the sufficiency of which is
hereby acknowledged, each hereby forever releases and discharges each
"HEI-Group Released Party" (as defined below) from the "HEI-Group Released
Claims" (as defined below).
Each of the following is an "HEI-Group Released Party": (i) HEI;
(ii) HEIDI; (iii) the past, present and future direct and indirect subsidiaries
of HEI (other than the HIG Group), provided that a future direct or indirect
subsidiary of HEI shall not be an HEI-Group Released Party with respect to any
claims that any Takayama-Group Releasing Party may have against it prior to the
time it became such a subsidiary; (iv) the respective past, present and future
officers,
10
<PAGE> 11
directors and employees of HEI, HEIDI and/or any direct or indirect subsidiary
of HEI (including the HIG Group), and their heirs and personal representatives,
provided that any such future officer, director or employee shall not be an
HEI-Group Released Party with respect to any claims that any Takayama- Group
Releasing Party may have against such person prior to the time such person
became such officer, director or employee; (v) the Individual Defendants,
individually and in their capacities as present or past officers, directors
and/or employees of HEI, HEIDI, HIG, UNICO, HUI and/or any other direct or
indirect subsidiary of HEI, and the Individual Defendants' respective heirs and
personal representatives; (vi) the past, present and future stockholders of HEI
with respect to claims that might be asserted against them by reason of their
stockholder capacity, but any such stockholder shall not be an HEI-Group
Released Party with respect to claims that might be asserted against such
stockholder in any other capacity unless such other capacity (e.g., as a former
HIG director or officer) is identified as an HEI-Group Released Party; and
(vii) the past and present agents, representatives, attorneys, auditors,
actuaries and consultants of HEI, HEIDI and the Individual Defendants, provided
that no such agent, representative, attorney, auditor, actuary or consultant
shall be an HEI-Group Released Party with respect to claims that arise out of a
contract with or a duty owed directly to a Takayama-Group
11
<PAGE> 12
Releasing Party (or owed indirectly in the case of subrogated claims arising
under insurance policies) and that are not dependent upon such person's
relationship to HEI and/or HEIDI (except that this proviso shall not apply to
any such person's employment in connection with the Takayama Suit and/or in
connection with the HIG Group's insolvency).
The "HEI-Group Released Claims" include any and all claims,
demands, causes of action, obligations, damages, liabilities and all other
claims of any kind, whether known or unknown, liquidated or unliquidated,
including costs, expenses and attorneys' fees, but exclusive of the "HEI-Group
Excepted Claims" (as defined below), that each and any of the Takayama-Group
Releasing Parties, and each individual, corporation and other entity whose
interests are represented for purposes of this settlement by Takayama and HIGA,
ever had, now has or may in the future have against any HEI-Group Released
Party by reason of any cause, matter, or event whatsoever from the beginning of
the world to the Payment Date arising out of or connected in any way with the
business, operations, and/or insolvency of HIG, UNICO and/or HUI, including,
but not limited to, any and all claims relating to, based upon, arising out of
or having connection in any way whatsoever with (a) any act, omission, cause or
matter that is in whole or in part the subject of or asserted, or that could
have been asserted, in the Takayama Suit, (b) any and all claims relating to
the
12
<PAGE> 13
impact of Hurricane Iniki on the HIG Group, HEI, HEIDI and/or the Individual
Defendants, (c) any and all claims relating to the management and/or operation
of the HIG Group and the administration of claims against the HIG Group, (d)
any indemnity agreements made by HEI and/or HEIDI, (e) the Acquisition
Agreement, (f) any of the Intercompany Agreements, (g) the HIG Policies and/or
payments made thereunder, (h) the Insurance Code of the State of Hawaii, and/or
(i) any and all other claims on behalf of or liabilities owing or allegedly
owing to any Takayama-Group Releasing Party by any HEI-Group Released Party.
This general release shall not release the "HEI- Group Excepted
Claims", which are (A) claims by Takayama (as Liquidator) and/or by HIGA for
overcharging or price gouging asserted against contractors or suppliers in
connection with labor and materials supplied to policyholders of the HIG Group
in connection with repairs necessitated by Hurricane Iniki, whether or not such
person would in any other respect be an HEI-Group Released Party; (B) the
obligations of HEI and its direct and indirect subsidiaries under the Tax
Allocation Agreement, which obligations shall be governed solely by the terms
thereof and paragraph 8 hereof; (C) the Computer Services Agreement, and the
obligations arising thereunder, which agreement shall remain in force in
accordance with its terms until terminated by the parties thereto; (D) the
obligations of the
13
<PAGE> 14
HEI-Group Released Parties under this Settlement Agreement; (E) tort and/or
other claims by Takayama (as Liquidator) and/or by HIGA arising out of acts,
omissions or events occurring solely after the date of execution of this
Settlement Agreement, but not including (aa) any claims that were made or could
have been made in the Takayama Suit and/or in the Rehabilitation Proceeding or
(bb) any claims relating to or arising out of Hurricane Iniki and/or the
insolvency of the HIG Group; (F) claims asserted by Takayama (as Liquidator)
and/or by HIGA against a person identified herein as an HEI-Group Released
Party (e.g., an HEI stockholder), where such claims are of a type not released
in this paragraph 3 (e.g., a claim against a stockholder that is not based on
such person's status as a stockholder would not be released, except that such
person would be released if such person also falls within another category of
HEI- Group Released party, such as an HEI or HIG officer or director); and/or
(G) claims reserved pursuant to paragraph 21 hereof.
It is expressly understood that nothing in this Settlement
Agreement shall operate to release or abrogate in any fashion the powers or
rights of Takayama as Insurance Commissioner to regulate the business of
insurance in the State of Hawaii.
4. General Release in Favor of Takayama, HIG, UNICO, HUI and
HIGA. Effective at the same time the release
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<PAGE> 15
set forth in paragraph 3 hereof becomes effective, HEI and HEIDI, on behalf of
themselves and their direct and indirect subsidiaries, and the Individual
Defendants, on behalf of themselves and their heirs and personal
representatives (each of the foregoing being an "HEI-Group Releasing Party" for
purposes of this paragraph 4), for good and valuable consideration, the
sufficiency of which is hereby acknowledged, each hereby forever releases and
discharges the "Takayama-Group Released Parties" (as defined below) from the
"Takayama-Group Released Claims" (as defined below).
Each of the following is a "Takayama-Group Released Party": (i)
Takayama (in each of her respective capacities as set forth above); (ii) HIG;
(iii) HUI; (iv) UNICO; (v) the Estate (as defined in the Plan); (vi) HIGA (for
itself and in its representative capacities as set forth above); and (vii) the
respective present officers, directors, agents, employees, representatives and
attorneys of Takayama, HIG, HUI, UNICO and HIGA.
The "Takayama-Group Released Claims" include any and all claims,
demands, causes of action, obligations, damages, liabilities and all other
claims of any kind, whether known or unknown, liquidated or unliquidated,
including costs, expenses and attorneys' fees but exclusive of the "Takayama-
Group Excepted Claims" (as defined below), that any HEI-Group Releasing Party
ever had, now has or may have against any
15
<PAGE> 16
Takayama-Group Released Party by reason of any cause, matter, or event
whatsoever from the beginning of the world to the Payment Date arising out of
or connected in any way with the business, operations and/or insolvency of HIG,
UNICO and/or HUI, including, but not limited to, any and all claims relating
to, based upon, arising out of or having connection in any way whatsoever with
(a) any act, omission, cause or matter that was in whole or in part the subject
of or asserted, or that could have been asserted, in the Takayama Suit, (b) any
and all claims relating to the impact of Hurricane Iniki on the HIG Group, (c)
any and all claims relating to the management and/or operation of the HIG Group
and the administration of claims against the HIG Group, (d) the Plan and/or the
Rehabilitation Proceedings, (e) the Insurance Code of the State of Hawaii
and/or (f) claims by the Individual Defendants or others for indemnification
(except as provided in paragraph 6 hereof).
This general release shall not release the "Takayama-Group
Excepted Claims", which are (A) claims and/or rights of HEI and/or its
affiliates under the HIG Policies and/or the claims or rights of the Individual
Defendants or any other HEI-Group Releasing Party under any policies issued by
HIG, UNICO or HUI; (B) the obligations of HIG, UNICO and HUI under the Tax
Allocation Agreement, which obligations shall be governed solely by the terms
thereof and paragraph 8 hereof; (C) the
16
<PAGE> 17
Computer Services Agreement, and the obligations arising thereunder, which
agreement shall remain in force in accordance with its terms until terminated
by the parties thereto; (D) the obligations of the Takayama-Group Released
Parties under this Settlement Agreement; and/or (E) claims reserved pursuant to
paragraph 21 hereof.
5. Settlement Payment. On or before ten (10) business days
following entry of the Rehabilitation Approval Order in the Rehabilitation
Proceedings, HEI shall pay (or cause to be paid) to First Hawaiian Bank or such
other financial institution as HEI and Takayama shall agree (the "Escrow
Agent") the sum of Thirty- Two Million Dollars ($32,000,000; the "Settlement
Sum") by wire transfer in same-day funds, pursuant to escrow instructions
consistent with this Settlement Agreement and otherwise reasonably satisfactory
to HEI, Takayama and the Escrow Agent. The Settlement Sum shall be held by
Escrow Agent on the following terms and conditions: (a) the Settlement Sum
shall be held by the Escrow Agent in investments approved by HEI and Takayama;
(b) the Settlement Sum shall be the property of HEI and be pledged to Takayama
to secure HEI's obligation to pay the same to Takayama on the Final Approval
Date as hereinbelow provided; (c) the Settlement Sum, together with interest
earned thereon in escrow (less the fee of the Escrow Agent), shall be returned
to HEI if this Settlement Agreement shall be terminated pursuant to the last
paragraph of paragraph 2
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<PAGE> 18
hereof; and (d) the Settlement Sum, together with interest earned thereon in
escrow shall be disbursed to Takayama upon the Final Approval Date (and HEI
shall pay any fees due the Escrow Agent). Upon the Final Approval Date, HEI
and Takayama shall deliver such instruments as Escrow Agent may reasonably
require in order to direct and authorize Escrow Agent to pay the Settlement
Sum, together with interest to Takayama (as representative of the respective
policyholders, claimants and creditors of HIG, including UNICO and HUI, as
provided in the Plan) in full, final and complete settlement of the HEI-Group
Released Claims, by wire transfer in same-day funds. The date on which such
payment is made shall be referred to herein as the "Payment Date."
6. Defense and Hold Harmless Agreements. HIGA agrees to
indemnify, defend and hold harmless each HEI-Group Released Party and each
Takayama-Group Released Party with respect to any and all claims arising out of
or related in any way to the business, operations and/or insolvency of the HIG
Group and/or the impact of Hurricane Iniki brought against any such Released
Party by or on behalf of any member of HIGA.
Takayama (as Liquidator) and HIGA, respectively, each agrees to
defend and hold harmless each HEI-Group Released Party with respect to any and
all claims for indemnity, contribution, subrogation, reimbursement or the like,
however characterized, made against such HEI-Group Released Party by any person
against whom Takayama (as Liquidator) and/or HIGA asserts claims arising out of
or related in any way to the
18
<PAGE> 19
business, operations and/or insolvency of the HIG Group and/or the impact of
Hurricane Iniki; provided, however, that this obligation to defend and hold
harmless shall not apply to a claim asserted by such person against an
HEI-Group Released Party of a type that would be an HEI-Group Excepted Claim if
asserted against that HEI-Group Released Party by a Takayama-Group Releasing
Party; and provided, further, that Takayama and/or HIGA, as the case may be,
shall have the right to select counsel to defend claims covered under this
paragraph and to control the defense and settlement of such claims, provided
that no such settlement may be made without the consent of the party protected
hereunder, which consent may not be unreasonably withheld. For purposes of the
preceding proviso, it is agreed that consent may not be withheld if the
settlement will be effectuated at no cost to an HEI-Group Released Party and
will not involve any admission of liability or wrongdoing or entail
consequences that are materially adverse to an HEI-Group Released Party.
Takayama's payment obligations under this paragraph 6 shall be an
administrative expense of liquidation of UNICO, HUI and the Estate, and the
obligations of Takayama and HIGA under this paragraph 6 shall include the
obligation to reduce any judgment or recovery against such person in an amount
equal to any judgment or recovery which such person may obtain against any
HEI-Group Released Party.
19
<PAGE> 20
The agreements in this paragraph 6 to defend and hold harmless the
HEI-Group Released Parties are in addition to and not in lieu of any other
indemnity and defense rights and protections that HEI-Group Released Parties
may have under corporate articles or by-law provisions, policies of insurance,
contract, statute, common law or otherwise, all of which indemnity and defense
rights and protections are hereby expressly reserved.
7. Transfer of HIG Stock. Effective at 11:59 p.m. on the day
following the Payment Date, HEIDI will surrender to HIG all of the common stock
of HIG held by HEIDI (and any affiliate of HEI or HEIDI) and such shares shall
be cancelled. At the opening of business on the second day following the
Payment Date, HIG will issue to Takayama (as representative of the respective
policyholders, claimants and creditors of HIG, including without limitation
UNICO and HUI, as provided in the Plan) or to such third party (who shall not
be affiliated in any way with HEI or HEIDI and who shall be willing to receive
such shares) as Takayama shall designate in writing not later than the Payment
Date, shares of common stock of HIG, which shall then constitute all of the
issued and outstanding common stock of HIG. Takayama shall immediately cause
such surrender, cancellation and issuance to be recorded on the stock transfer
books of HIG. The issuance of the shares of common stock of HIG to Takayama or
such third party, as contemplated hereunder,
20
<PAGE> 21
shall be in exchange for and in full and complete discharge of HIG's
obligations under the Intercompany Reinsurance Agreements (as defined in the
Plan) and no further claims may thereafter be made against HIG by any person on
account of the Intercompany Reinsurance Agreements or the Assumed Claims (as
defined in the Plan).
8. Tax Allocation Agreement. The Tax Allocation Agreement
shall terminate as to the HIG Group at 11:59 p.m. on the day following the
Payment Date, but shall remain in full force and effect for all periods prior
thereto, and HEI shall include the HIG Group in HEI's consolidated federal tax
returns through the day following the Payment Date; provided, however, that HIG
will indemnify HEI against, and, upon written demand by HEI, pay to HEI on or
before the date such taxes (including estimated taxes) are to be paid by HEI,
any taxes paid by HEI under the Tax Allocation Agreement on account of taxable
income from insurance and investment operations in excess of $4 million earned
by HIG during the period January 1, 1994 through and including the day
following the Payment Date. Any such payment due by HIG to HEI shall be paid
in full, without offset or diminution of any type, and such payment shall be a
condition precedent to HEI's obligation to include HIG in HEI's consolidated
tax group for the period from January 1, 1994 through the day following the
Payment Date. The HIG Group and Takayama (as Rehabilitator of HIG and
Liquidator of UNICO and
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<PAGE> 22
HUI) will cooperate with HEI and provide such documents and other information
and take such steps as HEI may reasonably request in order to permit HEI to
prepare and file for the HEI consolidating group, in a timely manner, all
returns and information reports that may be required under federal tax laws,
rules and regulations.
9. Cooperation in Subsequent Litigation. In the event any
third party shall bring suit or otherwise assert a claim against any HEI-Group
Released Party or any Takayama-Group Released Party arising out of or related
to the general subject matters covered by the releases set forth in said
paragraphs 3 and 4, and/or arising out of or related to the settlement effected
hereby, Takayama, HIG, UNICO, HUI, HIGA, HEI and HEIDI, at their own expense,
agree that they will provide reasonable cooperation in the defense of such suit
or claim. Such cooperation shall include, but not be limited to, making
available documents as freely as would be the case if HEIDI continued to own
the HIG Group (with the exception of documents which constitute the work
product or privileged communications of counsel or the proprietary information
of HIG relating to the period after initiation of the Rehabilitation
Proceedings); making witnesses and potential witnesses available for
interviews, depositions and trial; and providing such other assistance as may
reasonably be requested. Nothing in this paragraph shall be construed to limit
the ability of any party
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<PAGE> 23
hereto to obtain documents or other information through any lawful process.
10. Recoupment of HIGA Assessments. Prior to January 1, 1995,
no member of HIGA shall recoup any assessments imposed by HIGA related to the
insolvency of the HIG Group; provided, however, that this provision shall not
constitute or be construed as a waiver by HIGA of its right to make assessments
against its member insurers.
11. Claims Under HIG Policies. Claims filed by HEI and/or any
of its affiliates under the HIG Policies shall be treated by Takayama (as
Rehabilitator and/or Liquidator), HIG, UNICO, HUI and HIGA without regard to
the claimants' affiliation with the HIG Group and in the same manner as the
claims of all other similarly situated insureds of the HIG Group.
12. Option to Assume Outstanding Workers' Compensation Claims.
For a period of six (6) months from the Payment Date, HEI (or its designee,
provided such designee is reasonably acceptable to Takayama) shall have an
option to assume the liability for the HIG Group's outstanding workers'
compensation claims. In the event HEI elects to exercise this option, HEI (or
its designee) is required to notify Takayama (as Liquidator) in writing within
the option period. The assumption of liability for the HIG Group's workers'
compensation claims by HEI shall be completed as soon as practicable after such
notice is provided, at which time Takayama (as
23
<PAGE> 24
Liquidator) shall concurrently pay (or cause to be paid) by wire transfer in
same-day funds to HEI (or its designee) the amount of the workers' compensation
reserves as valued by the HIG Group in its most recent statutory financial
statements adjusted to the date of assumption. The reserves shall include only
case reserves, reserves for losses incurred but not reported, allocated loss
adjustment expenses, and 50% of the pro rata share of unallocated loss
adjustment expenses. In addition, Takayama, HIG, UNICO, HUI and HIGA (as
appropriate) shall assign (and shall cooperate as reasonably necessary to
obtain all necessary consents to such assignments) to HEI (or its designee),
without recourse, all rights accruing after such assumption of liability (a) in
all retrospective rated workers' compensation policies, so that HEI (or its
designee), without recourse, may pursue recovery from insureds for any future
adverse developments and (b) in all applicable policies providing reinsurance
with respect to the assumed workers' compensation liabilities. In the event
HEI (or its designee) is unable to obtain any such consent, it may elect either
to proceed or not to proceed with the proposed assumption, but shall have no
recourse against HIG other than electing not to proceed. In the event HEI or
its designee exercises its option under this paragraph 12, HEI (or its
designee, if such designee's indemnity is acceptable to Takayama in her sole
discretion), shall agree to indemnify, defend and hold harmless Takayama (as
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<PAGE> 25
Rehabilitator and Liquidator), HIG, UNICO, HUI and HIGA from and after the date
of assumption with respect to any claims brought by reason of or arising out of
or related to the assumed claims; provided, however, that this hold harmless
agreement shall not inure to the benefit of any third party or operate in any
way to revive claims otherwise barred.
13. Covenants Not to Sue. Each Takayama-Group Releasing Party
and each HEI-Group Releasing Party covenants and agrees never to commence,
voluntarily assist in any way, prosecute, or cause, permit or advise to be
commenced or prosecuted against any person released pursuant to paragraph 3 and
4 hereof, respectively, any demand, claim, action or proceeding based in whole
or in part upon any of the matters so released; provided, however, that this
covenant shall not prohibit any party hereto from undertaking (a) any action,
including the maintenance of legal proceedings, to enforce the terms of this
Settlement Agreement or to undertake any actions against any person with
respect to claims not released hereby, or (b) any action required by court
order or judicial process.
As heretofore stated in paragraph 3 hereof, it is expressly
understood that nothing in this Settlement Agreement shall operate to release
or abrogate in any fashion the powers or rights of Takayama as Insurance
Commissioner to regulate the business of insurance in the State of Hawaii.
25
<PAGE> 26
14. Advice of Counsel; Understanding of Settlement Agreement.
Each of the parties hereto represents and agrees that it, she or he (as the
case may be) has discussed fully all aspects of this Settlement Agreement with
its, her or his respective attorneys, that each has carefully read and fully
understands all of the provisions of this Settlement Agreement and that each is
voluntarily entering into this Settlement Agreement.
15. No Reliance on Representations. Each of the parties
hereto represents and acknowledges that in executing this Settlement Agreement
it, she or he (as the case may be) does not rely and has not relied upon any
representation or statement not set forth herein made by any other party hereto
or by any of the respective directors, officers, employees, agents,
representatives or attorneys of any other party hereto with regard to the
subject matter, basis, or effect of this Settlement Agreement or otherwise.
16. Settlement Not Affected if Facts Change. The parties
fully understand that, if the facts with respect to which this Settlement
Agreement is executed are found hereafter to be different from the facts now
believed to be true, this Settlement Agreement shall remain effective
notwithstanding such difference in facts and the parties expressly agree,
accept and assume the risk of such possible difference in facts.
26
<PAGE> 27
17. Due Authority; Each Party Responsible for its Own
Attorneys' Fees. Each party hereto represents and warrants that, as of the
date of the execution of this Settlement Agreement, such party has the sole
right and authority to execute this Settlement Agreement on its behalf and on
behalf of the persons and entities represented by each party as set forth in
paragraphs 3 and 4 hereof, that the person executing this Settlement Agreement
on behalf of an entity is duly authorized and empowered to execute and deliver
this Settlement Agreement on its behalf, and that such party has not sold,
assigned, transferred, conveyed, or otherwise disposed of any claim or demand
relating to any rights released or surrendered by virtue of this Settlement
Agreement. The parties agree that they are each responsible for their own
attorneys' fees and costs, and each agrees that it will not seek from any other
person reimbursement for attorneys' fees and/or costs arising out of the
matters addressed in this Settlement Agreement, except that HEI agrees to pay
(or cause its insurers to pay) the reasonable fees and costs of attorneys for
the Individual Defendants and HEI and the Individual Defendants reserve the
right to seek recovery of their attorneys' fees and costs from their insurers.
18. No Rules of Construction Against Any Party. The parties
hereto participated jointly in the negotiation and preparation of this
Settlement Agreement, and each party has
27
<PAGE> 28
had the opportunity to obtain the advice of legal counsel and to review,
comment upon, and redraft this Settlement Agreement. Accordingly, it is agreed
that no rule of construction shall apply against any party or in favor of any
party. This Settlement Agreement shall be construed as if the parties jointly
prepared this Settlement Agreement, and any uncertainty or ambiguity shall not
be interpreted against any one party and in favor of the other.
19. Confidentiality. This Settlement Agreement and any
information furnished pursuant hereto is confidential and shall be held in
strict confidence by each of the parties hereto up to and including the time,
determined by the mutual agreement of Takayama and HEI, that a copy hereof is
delivered to any third party, or at such other time as Takayama and HEI shall
agree. Whether or not the settlement contemplated hereby is concluded, the
parties hereto confirm and agree that all drafts of this Settlement Agreement,
and all memoranda, discussions and correspondence leading up to this Settlement
Agreement, are confidential, are protected under Rule 408 of the Hawaii Rules
of Evidence and shall be maintained in strict confidence by each of the parties
hereto and its respective agents, representatives and attorneys. In the event
the settlement contemplated by this Settlement Agreement is not consummated,
the parties hereto agree that, by this agreement and pursuant to Rule 408 of
the Hawaii Rules of Evidence, this
28
<PAGE> 29
Settlement Agreement shall not be admitted in evidence or referred to in any
way in any judicial or other proceeding. Each of the parties hereto agrees
promptly to notify all other parties hereto of the receipt of, and to resist by
all lawful means, any attempt to compel the production of any drafts of this
Settlement Agreement and/or of any memoranda or correspondence leading up to
this Settlement Agreement or relating to the subject matter hereof.
Notwithstanding the foregoing, HEI reserves the right to make such public or
limited disclosures of information pertaining to this settlement and the terms
hereof, and at such times, as in its judgment are necessary or appropriate to
comply with (a) disclosure and related requirements applicable to corporations
whose securities are traded publicly and/or (b) the provisions of agreements to
which it is a party, and HEI, HEIDI and the Individual Defendants may make such
use of the Settlement Agreement and such other disclosures concerning matters
leading up to it as may be necessary in any proceedings against their insurers
as contemplated under paragraph 21 hereof. Furthermore, HIG reserves the right
to make such public or limited disclosures of information pertaining to this
settlement and the terms hereof as in its judgment are necessary or appropriate
to market HIG to prospective purchasers or investors. Insofar as this
confidentiality provision involves Takayama in her capacity as Insurance
Commissioner, it shall be construed in accordance with Chapter 92F of the
Hawaii Revised Statutes.
29
<PAGE> 30
20. Exchange of Information with Insurers. Whether or not the
settlement contemplated hereunder is consummated, Takayama, HIG, UNICO, HUI and
HIGA agree that they will not attempt to discover any documents or information
exchanged between HEI, HEIDI, the Individual Defendants and/or any of their
directors, officers, employees, agents, attorneys or other representatives and
their insurers relating to analysis of insurance coverage issues and/or any
claims or defenses pertinent to the subject matter of the Takayama Suit and/or
any of their respective litigation strategies; provided, however, that this
provision shall not operate to prevent the discovery of otherwise discoverable
pre-existing documents or information pursuant to a discovery request that does
not, in effect, call for production of documents identified by reference to
their selection for delivery to such insurers.
21. Reservation of Rights and Assignment of Claims Against
Liability Insurers. It is expressly understood and agreed by the parties
hereto that this Settlement Agreement is not intended to waive or release, and
the parties hereto do not hereby waive or release, any rights, claims or causes
of action any of them have, had, or may have against (a) any insurer which at
any time has provided director and officer liability insurance, comprehensive
general liability insurance, professional errors and omissions insurance or any
other type of insurance which may obligate it to respond to the claims
30
<PAGE> 31
asserted or that might have been asserted in the Takayama Suit and/or (b) any
company owned in whole or in part by any such insurer or affiliated with any
such insurer, all of which rights, claims and causes of action are hereby
expressly reserved. Takayama, the HIG Group and HIGA hereby (a) assign to HEI
any and all rights, claims and causes of action which they may have arising
under the above-described insurance policies, (b) covenant to cooperate with
HEI, in the same manner as described in paragraph 9 hereof, in any proceeding
in which HEI seeks to enforce any such rights, claims and causes of action and
(c) agree to execute such further documents as may be necessary to permit HEI
to enforce or resolve such claims, including an appropriate release thereof in
favor of such insurers.
22. Discontinuance of All Affiliation References. As soon as
practicable after the date hereof, and in any event not later than three (3)
business days after the Rehabilitation Approval Date, Takayama, HIG, UNICO, HUI
and HIGA, and their respective directors, officers, agents, employees,
attorneys and representatives, shall (at no expense to HEI, HEIDI and/or the
Individual Defendants) cease making any further reference to HEI, HEIDI, the
Individual Defendants or any of their affiliates as being affiliated with,
related to or in any way connected with HIG, UNICO or HUI, or any of their
predecessors or successors, including without limitation (a) discontinuing
31
<PAGE> 32
all use of the HEI logo and name, (b) removing and destroying all signs that
make any reference to HEI, HEIDI or any of their affiliates and (c) destroying
all letterhead, brochures, envelopes, insurance policy forms, note pads and
documents and/or stationery of any other kind which names or makes reference to
HEI, HEIDI, the Individual Defendants and/or any of their affiliates.
23. Return of Documents. On the Payment Date, or at such
other time as the parties shall agree, Takayama, HIG, UNICO, HUI and HIGA, and
their respective counsel, shall deliver to counsel for the party producing the
same, without retaining any copies thereof, all documents (and all copies
thereof) which were produced in the Takayama Suit by HEI, HEIDI and/or each of
the Individual Defendants.
24. Modifications and Amendments. This Settlement Agreement
may be modified or amended only by a writing signed by each of the parties
hereto, or their successors in interest.
25. Governing Law. This Settlement Agreement shall be
governed by and construed in accordance with the laws of the State of Hawaii.
26. Other Documents; Financial Statements. Each of the
parties hereto agrees to execute and deliver such other documents and
instruments as the other parties hereto may reasonably request in order to
carry out and effectuate the
32
<PAGE> 33
purposes and intent of this Settlement Agreement. By June 30, 1994, HIG shall
prepare and provide to HEI the consolidated tax balance sheet and related
statements of income and notes, together with supporting consolidating
financial information ("Consolidated Financial Statements"), as of and for the
year ended December 31, 1993 for HIG, UNICO, HUI and other HIG subsidiaries,
together with a review report prepared by HIG's independent auditor.
Consolidated Financial Statements for the period from January 1, 1994 up to and
including the day following the Payment Date shall also be prepared by HIG and
provided to HEI within 180 days after the Payment Date. All such Consolidated
Financial Statements will be prepared in accordance with the income tax basis
of accounting and in a manner consistent with the provisions of the Plan, past
practices and the terms of this Settlement Agreement, and all such Consolidated
Financial Statements, as well as any financial statements prepared while HIG is
within the Rehabilitator's control and which are intended to be filed with any
public agency covering HIG's continuing operations that includes any period
prior to the second day following the Payment Date, will be subject to review
and comment by HEI prior to issuance.
27. Entire Agreement. This Settlement Agreement sets forth
the entire agreement between the parties hereto and fully supersedes any and
all prior agreements, promises, representations, or inducements, no matter what
its or their form,
33
<PAGE> 34
concerning the subject matter hereof, except that (a) all prior agreements
pertaining to the confidentiality of settlement discussions shall remain in
full force and effect, and (b) this Settlement Agreement shall not modify or
supersede any indemnity or other agreements that the HEI-Group Released Parties
may have among themselves. No promises or agreements made contemporaneously or
subsequent to the execution of this Settlement Agreement by the parties hereto
shall be binding unless reduced to writing and signed by the parties or their
authorized representatives.
28. Counterparts. This Settlement Agreement may be executed
in counterparts, but shall be effective only after it has been signed on behalf
of each and all of the parties listed below. Facsimile signatures shall be
acceptable so long as original signatures are substituted as soon as reasonably
possible.
IN WITNESS WHEREOF, each of the parties hereto has personally
executed this Agreement or has caused its duly authorized officer to execute
this Agreement.
34
<PAGE> 35
PLEASE READ CAREFULLY. THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE INCLUDES
A GENERAL RELEASE OF KNOWN AND UNKNOWN CLAIMS.
Approved as to Form: LINDA CHU TAKAYAMA, as
ROBERT A. MARKS, ATTORNEY Insurance Commissioner for
GENERAL OF THE STATE the State of Hawaii
OF HAWAII
By /s/ Rodney J. Tam /s/ Linda Chu Takayama
---------------------------- ----------------------------
John W. Anderson, Esq.
David A. Webber, Esq.
Rodney J. Tam, Esq.
Attorneys for Linda Chu
Takayama, as Insurance
Commissioner for the State
of Hawaii
Approved as to Form: LINDA CHU TAKAYAMA, as
MCCORRISTON MIHO MILLER Rehabilitator of The Hawaiian
MUKAI Insurance & Guaranty Company,
Limited, and as Liquidator of
United National Insurance
By /s/ William McCorriston Company, Limited and
---------------------------- Hawaiian Underwriters
Attorneys for Linda Chu Insurance Co., Ltd.
Takayama, as Rehabilitator
of The Hawaiian Insurance &
Guaranty Company, Limited, /s/ Linda Chu Takayama
and as Liquidator of ----------------------------
United National Insurance
Company, Limited and
Hawaiian Underwriters
Insurance Co., Ltd.
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
35
<PAGE> 36
Approved as to Form: THE HAWAIIAN INSURANCE &
MCCORRISTON MIHO MILLER GUARANTY COMPANY, LIMITED
MUKAI
By /s/ R. H. Whitehead
By /s/ William McCorriston ----------------------------
---------------------------- Its President
Attorneys for The Hawaiian
Insurance & Guaranty
Company, Limited; Hawaiian By /s/ Ann T. Nakagawa
Underwriters Insurance Co., ----------------------------
Ltd.; and United National Its Asst. Vice President
Insurance Company, Limited
HAWAIIAN UNDERWRITERS INSURANCE
CO., LTD.
Approved as to Form:
MATSUI CHUNG & SUMIDA By /s/ Ann T. Nakagawa
----------------------------
Its Controller
By /s/ Clyde W. Matsui
----------------------------
Attorneys for Hawaii By /s/ Doris Ohara
Insurance Guaranty ----------------------------
Association Its Vice President
UNITED NATIONAL INSURANCE
COMPANY, LIMITED
By /s/ Ann T. Nakagawa
----------------------------
Its Controller
By /s/ Doris Ohara
----------------------------
Its Vice President
HAWAII INSURANCE GUARANTY
ASSOCIATION
By /s/ Milton Tanora
----------------------------
Its Chairman
By /s/ Blake Obata
----------------------------
Its Administrator
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
36
<PAGE> 37
Approved as to Form:
GOODSILL ANDERSON QUINN
& STIFEL
By /s/ David J. Reber HAWAIIAN ELECTRIC
---------------------------- INDUSTRIES, INC.
Attorneys for Hawaiian
Electric Industries, Inc.
By /s/ Robert F. Clarke
----------------------------
Approved as to Form: Its President
FUJIYAMA DUFFY & FUJIYAMA
By /s/ Constance H. Lau
By /s/ Glen K. Sato ----------------------------
---------------------------- Its Treasurer
Attorneys for
HEI Diversified, Inc.
HEI DIVERSIFIED, INC.
Approved as to Form:
CADES SCHUTTE FLEMING By /s/ Edward J. Blackburn
& WRIGHT ----------------------------
Its President
By /s/ Jeffrey S. Portnoy
---------------------------- By /s/ Robert F. Mougeot
Attorneys for Individual ----------------------------
Defendants Robert F. Its Financial Vice President
Clarke, Edward J.
Blackburn and Robert F.
Mougeot INDIVIDUAL DEFENDANTS
/s/ Robert F. Clarke
------------------------------
ROBERT F. CLARKE
/s/ Edward J. Blackburn
------------------------------
EDWARD J. BLACKBURN
/s/ Robert F. Mougeot
------------------------------
ROBERT F. MOUGEOT
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
37
<PAGE> 38
Approved as to Form: INDIVIDUAL DEFENDANTS
REINWALD O'CONNOR MARRACK
HOSKINS & PLAYDON
/s/ Thomas S. Adams
------------------------------
By /s/ Mario A. Roberti THOMAS S. ADAMS
----------------------------
Attorneys for Individual
Defendants Thomas S. /s/ Gary L. Kirby
Adams, Gary L. Kirby, ------------------------------
David L. Ward and GARY L. KIRBY
Neal Kunde
/s/ David L. Ward
------------------------------
DAVID L. WARD
/s/ Neal Kunde
------------------------------
NEAL KUNDE
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
38
<PAGE> 1
HEI Exhibit 13(a)
SELECTED FINANCIAL DATA
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991 1990 1989
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share amounts)
RESULTS OF OPERATIONS
Revenues. . . . . . . . . . . . . . . . . . . . . $1,142,170 $1,031,383 $993,242 $928,702 $810,828
Net income (loss)
Continuing operations . . . . . . . . . . . . $ 61,684 $ 61,715 $55,620 $42,895 $58,130
Discontinued operations. . . . . . . . . . . (13,025) (73,297) (794) 707 5,945
---------- ---------- ---------- -------- --------
$48,659 $(11,582) $54,826 $43,602 $64,075
========== ========== ========== ======== ========
Earnings (loss) per common share
Continuing operations . . . . . . . . . . . . $ 2.38 $ 2.54 $ 2.43 $ 1.99 $ 2.77
Discontinued operations. . . . . . . . . . . (0.50) (3.02) (0.03) 0.03 0.29
---------- ---------- ---------- -------- --------
$ 1.88 $(0.48) $ 2.40 $ 2.02 $ 3.06
========== ========== ========== ======== ========
Return on average common equity . . . . . . . . . 8.2% (2.1)% 10.0% 8.7% 13.5%
FINANCIAL POSITION *
Total assets . . . . . . . . . . . . . . . . . . $4,521,592 $4,142,768 $3,716,872 $3,502,023 $2,968,382
Deposit liabilities of the savings bank subsidiary $2,091,583 $2,032,869 $1,615,361 $1,511,291 $1,094,558
Advances from Federal Home Loan Bank
to the savings bank subsidiary . . . . . . . . $289,674 $194,099 $258,593 $205,716 $253,410
Long-term debt, net . . . . . . . . . . . . . . . $697,836 $582,475 $525,641 $463,362 $430,385
Preferred stock of electric utility subsidiaries
Subject to mandatory redemption . . . . . . . $46,730 $48,920 $50,665 $52,210 $53,655
Not subject to mandatory redemption . . . . . $48,293 $36,293 $36,293 $36,293 $36,293
Stockholders' equity. . . . . . . . . . . . . . . $643,028 $547,741 $581,446 $510,543 $493,014
COMMON STOCK DATA
Book value per common share * . . . . . . . . . . $23.23 $22.12 $24.36 $23.29 $23.18
Market price range per common share
High. . . . . . . . . . . . . . . . . . . . . $38.88 $44.63 $37.88 $40.00 $40.25
Low. . . . . . . . . . . . . . . . . . . . . $31.00 $34.75 $29.38 $27.25 $29.38
Yearend . . . . . . . . . . . . . . . . . . . $35.88 $37.25 $36.75 $31.63 $40.25
Market price to book value per common share * . . 154% 168% 151% 136% 174%
Price earnings ratio ** . . . . . . . . . . . . . 15.1 14.7 15.1 15.9 14.5
Dividends per common share . . . . . . . . . . . $2.29 $2.25 $2.21 $2.17 $2.07
Dividend payout ratio . . . . . . . . . . . . . . 121% NM 92% 107% 68%
Dividend payout ratio-continuing operations . . . 95% 88% 91% 109% 75%
Common shares outstanding (thousands)
Weighted average. . . . . . . . . . . . . . . 25,938 24,275 22,882 21,559 20,960
Geographic distribution of ownership *
State of Hawaii *** . . . . . . . . . . . 6,969 6,663 6,399 6,100 5,610
Other . . . . . . . . . . . . . . . . . . 20,706 18,099 17,468 15,818 15,656
---------- ---------- ---------- -------- --------
Total shares outstanding. . . . . . . 27,675 24,762 23,867 21,918 21,266
========== ========== ========== ======== ========
Stockholders by geographic distribution *
State of Hawaii *** . . . . . . . . . . . . . 22,092 21,305 20,441 18,053 17,350
Other. . . . . . . . . . . . . . . . . . . . 18,374 16,891 15,598 13,883 13,946
---------- ---------- ---------- -------- --------
Total stockholders . . . . . . . . . . . 40,466 38,196 36,039 31,936 31,296
========== ========== ========== ======== ========
</TABLE>
NM Not meaningful.
* At December 31.
** Calculated using yearend market price per common share divided by
earnings per common share from continuing operations.
*** Does not include depository and brokerage accounts, which may contain
additional shares beneficially owned by Hawaii stockholders.
See Note 2, "Discontinued operations" in the "Notes to Consolidated Financial
Statements" for a discussion of the Company's former property and casualty
insurance business and wind energy business.
27
<PAGE> 2
SEGMENT FINANCIAL INFORMATION
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) ---------- ---------- --------
<S> <C> <C> <C>
REVENUES
Electric utility . . . . . . . . . . . . . . . . $ 879,110 $ 778,690 $740,632
Savings bank . . . . . . . . . . . . . . . . . . 199,734 202,995 198,776
Other . . . . . . . . . . . . . . . . . . . . . . 63,326 49,698 53,834
---------- ---------- --------
$1,142,170 $1,031,383 $993,242
========== ========== ========
OPERATING INCOME (LOSS)
Electric utility.. . . . . . . . . . . . . . . . $119,565 $103,841 $100,256
Savings bank . . . . . . . . . . . . . . . . . . 44,117 31,327 25,215
Other . . . . . . . . . . . . . . . . . . . . . . (6,044) 1,051 7,585
-------- -------- --------
$157,638 $136,219 $133,056
======== ======== ========
DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
Electric utility. . . . . . . . . . . . . . . . . $55,960 $53,856 $49,005
Savings bank . . . . . . . . . . . . . . . . . . 3,167 2,852 2,466
Other . . . . . . . . . . . . . . . . . . . . . . 5,187 5,220 4,805
------- ------- -------
$64,314 $61,928 $56,276
======= ======= =======
CAPITAL EXPENDITURES
Electric utility . . . . . . . . . . . . . . . . $212,916 $188,323 $145,898
Savings bank . . . . . . . . . . . . . . . . . . 3,920 4,828 5,099
Other . . . . . . . . . . . . . . . . . . . . . . 3,822 4,283 10,463
-------- -------- --------
$220,658 $197,434 $161,460
======== ======== ========
IDENTIFIABLE ASSETS (AT DECEMBER 31)
Electric utility. . . . . . . . . . . . . . . . . $1,703,276 $1,501,330 $1,318,023
Savings bank. . . . . . . . . . . . . . . . . . . 2,618,485 2,461,694 2,175,789
Other . . . . . . . . . . . . . . . . . . . . . . 199,831 179,072 170,968
---------- ---------- ----------
4,521,592 4,142,096 3,664,780
Net assets of discontinued operations . . . . . . -- 672 52,092
---------- ---------- ----------
$4,521,592 $4,142,768 $3,716,872
========== ========== ==========
</TABLE>
See Note 3, "Segment financial information" in the "Notes to Consolidated
Financial Statements" for a description of each segment.
28
<PAGE> 3
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
Hawaiian Electric Industries, Inc. (HEI) and its subsidiaries (collectively,
the Company) reported net income of $1.88 per share in 1993, due to the results
of the major operating segments--the electric utility and the savings bank,
partly offset by losses in the "Other" segment. Also included in the 1993
results is a loss from the discontinued insurance business of $0.58 per share,
partly offset by a gain from the discontinued wind energy operations of $0.08
per share. In early 1994, HEI, the Insurance Commissioner of the State of
Hawaii, the Hawaii Insurance Guaranty Association (HIGA) and others signed an
agreement, which is subject to court approval, to settle the lawsuit filed by
the Insurance Commissioner and HIGA against HEI, HEI Diversified, Inc. (HEIDI)
and certain officers and directors, resulting in a charge, net of income tax
benefit, to discontinued operations of $15 million for 1993. Earnings per
share from continuing operations for 1993 were down 6% to $2.38 per share
compared to $2.54 per share in 1992 due primarily to an increase in the
weighted average number of common shares outstanding.
Many factors affected HEI's 1993 consolidated results, including Hawaii's
economic environment. Hawaii's economic growth rate has fallen below
the U.S. economic growth rate in the past 3 years. Worldwide competition,
restructuring in the airline industry and economic sluggishness, particularly
in California and Japan, are affecting tourism, the state's largest industry.
As growth in Hawaii has moderated and conservation efforts have increased,
Hawaiian Electric Company, Inc. (HECO) and its subsidiaries currently estimate
that the kilowatthour sales average annual growth rate will be approximately
1.7% for the five-year period 1994 through 1998. The electric utilities have
proposed demand-side management programs which will encourage conservation and
have asked the PUC for continued recovery of their fixed costs and the costs of
implementing the demand-side management programs and for shareholder incentives.
As the credit rating agencies have noted--regulatory, economic and
technological changes are exposing the electric utility industry to increased
competition. The electric utilities' response to these competitive challenges
and their ability to obtain timely and adequate rate relief will be key in 1994
and beyond. It is also uncertain whether two of the state's major industries--
tourism and construction--will recover in 1994. Economic forecasts for
growth in Hawaii real gross state product in 1994 range from negative 2% to
no growth.
Over the longer term, it is expected that Hawaii's economy will grow, driven
by rebounding tourism markets and the resumption of construction and foreign
investment. By providing essential services in Hawaii, HEI management believes
that the Company is well positioned to take advantage of the state's projected
longer-term economic growth.
CONSOLIDATED
<TABLE>
<CAPTION>
% % %
1993 CHANGE 1992 change 1991 change
------ ------ ------ ------ ------ ------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $1,142 11 $1,031 4 $ 993 7
Operating income . . . . . . . . . . . . . . . . 158 16 136 2 133 14
Net income (loss)
Continuing operations . . . . . . . . . . . . . $ 61.7 -- $ 61.7 11 $ 55.6 30
Discontinued operations. . . . . . . . . . . . . (13.0) 82 (73.3) NM (0.8) NM
------ -- ------- -- ------ --
$ 48.7 NM $(11.6) NM $ 54.8 26
====== == ======= == ====== ==
Earnings (loss) per common share
Continuing operations . . . . . . . . . . . . . $ 2.38 (6) $ 2.54 5 $ 2.43 22
Discontinued operations . . . . . . . . . . . . (0.50) 83 (3.02) NM (0.03) NM
------ -- ------- -- ------ --
$ 1.88 NM $ (0.48) NM $ 2.40 19
====== == ======= == ====== ==
Weighted average number of common shares
outstanding. . . . . . . . . . . . . . . . . . . 25.9 7 24.3 6 22.9 6
Effective tax rate for continuing operations . . 43.3% 32.4% 36.8%
</TABLE>
NM Not meaningful.
29
<PAGE> 4
o 1993 results include $15.0 million in net losses, or $0.58 per share,
from the discontinued operations of The Hawaiian Insurance & Guaranty Co.,
Limited and its subsidiaries (the HIG Group), the Company's property and
casualty insurance business currently in rehabilitation proceedings, and $2.0
million in gains, or $0.08 per share, from the discontinued operations of
Hawaiian Electric Renewable Systems, Inc. (HERS), the Company's former wind
energy business. Pursuant to a settlement agreement signed in early 1994, upon
final court approval, HEI will pay $32.0 million to the Insurance Commissioner
as Rehabilitator/Liquidator of the HIG Group in return for a dismissal of the
lawsuit and a release of claims against HEI, its affiliates and their past and
present officers and directors. The $32.0 million settlement amount, less
income tax benefits and certain amounts in previously established reserves,
resulted in a $15.0 million after-tax charge to discontinued operations in
1993. HEI will fund the settlement out of available cash and/or borrowings. HEI
is seeking reimbursement from certain of its insurance carriers. HEI's claims
against its insurance carriers will require resolution of several insurance
coverage and other policy issues and the outcome of such claims cannot be
predicted at this time. One of HEI's insurance carriers has filed a declaratory
relief action in the U.S. District Court for the District of Hawaii seeking
resolution of these issues. Recoveries from HEI's insurance carriers, if any,
will be recognized when realized.
1993 income from continuing operations was flat when compared to 1992
and included increases in net income from the savings bank and the electric
utility companies, offset by a decrease in net income from the freight
transportation subsidiaries and an increase in net loss from HEI corporate. In
1993, the savings bank's interest rate spread increased 54 basis points
compared to 1992. Also in 1993, the freight transportation companies
incurred losses on the sale of their heavy fuel oil shipping assets
and have been negatively impacted by the slowing in Hawaii's construction
activity and the economy in general. As of January 1, 1993, HEI refined its
method of identifying costs chargeable to its subsidiaries, resulting in the
retention of a greater amount of expense at the HEI level.
"Interest expense--electric utility and other" increased 13% due to
increased borrowings at the electric utilities and at the corporate level,
partially offset by lower interest rates. Also in 1993, the effective tax rate
applicable to continuing operations increased significantly as explained below.
o 1992 results include $73.3 million, or $3.02 per share, in losses from
the discontinued operations of the HIG Group and HERS. Higher revenues and
earnings from continuing operations resulted from increases at the electric
utility companies and the savings bank, partly offset by decreases in the
"Other" segment. In 1992, the electric utilities on the islands of Oahu and
Hawaii obtained interim and final rate relief, the electric utilities'
kilowatthour sales increased 3% and the savings bank's interest rate spread
increased 19 basis points. "Interest expense--electric utility and other,"
applicable to continuing operations, increased 8% due to increased borrowings
at the electric utilities and at the corporate level, partially offset by
lower interest rates.
o 1991 results reflect the change in the method used by the electric
utility companies to estimate unbilled kilowatthour sales and revenues which
added $3.8 million to net income. Excluding $11.7 million of investment
writedowns (net of taxes) in 1990, 1991 earnings per share from continuing
operations would have been 10 cents lower than 1990, primarily due to lower
earnings from the electric utility and real estate companies, partially offset
by higher earnings from the savings bank. In 1991, the electric utilities
waited for needed rate relief, the real estate company was faced with a
slowdown in the market and the entire Company was affected by the Gulf war and
recession on the U.S. mainland. The 7% increase in 1991 consolidated revenues
from continuing operations was due to higher revenues from all segments.
"Interest expense--electric utility and other," applicable to continuing
operations, increased 5% primarily due to increased electric utility companies'
borrowings.
o The effective tax rate applicable to continuing operations was higher
in 1993 than 1992 and 1991 primarily due to the 1% federal income tax rate
increase retroactive to January 1, 1993, the recapture of tax benefits due to
the sale of a barge acquired with cash from the Maritime Administration Capital
Construction Fund (CCF) and the effects of the adoption of Statement of
Financial Accounting Standards (SFAS) No. 109. SFAS No. 109 does not allow
net-of-tax accounting for the "Allowance for Funds Used During Construction"
(AFUDC). This results in higher income taxes due to the "gross-up" of AFUDC for
income taxes, but does not impact net income. SFAS No. 109 also changes the
accounting for financial reporting purposes of Hawaiian Tug & Barge Corp.'s
(HTB) contributions to the CCF. Income tax expense was higher in 1993 because
CCF contributions are now treated as temporary (rather than permanent)
differences between book and tax income. The effective tax rate was relatively
low in 1992 due primarily to the utilization of capital loss carryforwards.
o Dividends per common share increased in 1993 to $2.29, from $2.25 in
1992 and $2.21 in 1991. Dividends have been higher each year for the past
30 years.
30
<PAGE> 5
Following is a general discussion of revenues, expenses and operating income by
business segment. Segment information is also shown in "Segment Financial
Information" on page 28 and in the "Notes to Consolidated Financial
Statements."
ELECTRIC UTILITY
<TABLE>
<CAPTION>
% % %
1993 CHANGE 1992 change 1991 change
----- ------ ----- ------ ----- ------
(in millions, except per barrel amounts
and number of employees)
<S> <C> <C> <C> <C> <C> <C>
Revenues (1). . . . . . . . . . . . . . . . . $879 13 $779 5 $741 5
Expenses
Fuel oil . . . . . . . . . . . . . . . . . 213 (5) 226 (18) 276 (17)
Purchased power . . . . . . . . . . . . . . 259 50 173 62 107 131
Other (2) . . . . . . . . . . . . . . . . . 287 4 276 7 258 12
Operating income. . . . . . . . . . . . . . . 120 15 104 4 100 --
Allowance for funds used
during construction . . . . . . . . . . . 10.8 22 8.9 67 5.3 (10)
Net income . . . . . . . . . . . . . . . . . 51.7 5 49.2 18 41.6 (5)
Average price per barrel of fuel oil (1). . . 21.09 7 19.69 (14) 22.79 (8)
Kilowatthour sales. . . . . . . . . . . . . . 8,325 -- 8,332 3 8,090(3) 2
Number of employees . . . . . . . . . . . . . 2,226 5 2,118 5 2,015 3
</TABLE>
(1) The rate schedules of the electric utilities include energy cost adjustment
clauses under which electric rates are adjusted for changes in the weighted
average price paid for fuel oil and certain components of purchased power, and
the relative amounts of company generated and purchased power.
(2) HEI charges to the electric utilities for general management,
administrative and support services totaled $2.3 million, $5.6 million and $5.1
million in 1993, 1992 and 1991, respectively. As of January 1, 1993, HEI
refined its method of identifying costs chargeable to its subsidiaries.
In 1993, the electric utilities established a regulatory asset for vacation
earned by employees, but not yet taken. The recognition of the regulatory asset
reduced 1993 expenses on a one-time basis by $4.0 million.
(3) Excludes the effect of the change in the method of estimating unbilled
kilowatthour sales and revenues.
o In 1993, the electric utilities' revenues increased 13% compared to
1992 revenues due in part to rate relief received in late 1992, primarily to
recover purchased power expenses. Kilowatthour sales of electricity for the
year were down 0.1% compared to 1992 primarily because of cooler weather, a
downturn in the state economy and conservation. Lower fuel oil expense was the
result of fewer kilowatthours generated, as purchased power increased, partly
offset by higher fuel oil prices. Higher purchased power expense was due to the
full-year effect of power purchased from a major independent power producer,
AES Barbers Point, Inc., which had commenced commercial operations in September
1992. The 4% increase in other expenses was partly due to a 4% increase in
depreciation as a result of plant additions and a 13% increase in taxes, other
than income taxes. Operating income for 1993 increased 15% compared to 1992 due
in part to rate relief, lower management service fees from HEI and the one-time
effect of the establishment of a regulatory asset for vacation earned by
employees, but not yet taken. For rate-making purposes, vacation pay is being
recovered in rates as the vacation time is taken. As of December 31, 1993, the
regulatory asset for vacation earned, but not yet taken, amounted to $5.5
million. The recognition of the regulatory asset increased operating income by
$4.0 million and net income by $2.4 million for the year ended December 31,
1993. Consolidated HECO's return on average common equity for 1993 was 9.7%,
compared to 10.5% for 1992 and 10.3% for 1991.
o 1992 revenues increased over 1991 revenues due to higher kilowatthour
sales of electricity and rate relief granted by the Hawaii Public Utilities
Commission (PUC), including rate relief for power purchased from two major
independent power producers, Kalaeloa Partners, L.P. and AES Barbers Point,
Inc., which commenced operations in May 1991 and September 1992, respectively.
The increase was tempered by lower fuel oil prices, the cost savings of which
were passed through to customers. While sales of electricity in HECO and its
subsidiaries' service territory increased faster than the national industry
average, consolidated HECO kilowatthour sales growth was only 3%. Higher 1992
operating income was primarily due to rate relief and increased kilowatthour
sales at consolidated HECO, offset in part by higher expenses. Net income
increased 18% as a result of the higher operating income and higher AFUDC
due to higher construction work-in-progress balances. HECO and its subsidiaries
do not provide electric service to the island of Kauai and, thus, were not
significantly impacted by Hurricane Iniki.
o 1991 revenues increased over 1990 revenues largely due to rate
increases granted by the PUC primarily to permit HECO to recover the cost of
power purchased from Kalaeloa Partners, L.P., a 1.5% increase in kilowatthour
sales of electricity and the one-time effect of approximately $7 million of a
change in the method of estimating unbilled kilowatthour sales and revenues. The
increase in revenues was tempered by lower fuel oil prices, the cost savings of
which were passed through to
31
<PAGE> 6
customers. The relatively low kilowatthour sales growth reflected the departure
of troops to the Middle East in early 1991 and a decline in tourism due to the
Gulf war and the recession on the U.S. mainland. Operating income for 1991 was
about the same as in 1990 because the effect of the increase in 1991
kilowatthour sales was offset by higher other operation and maintenance
expenses and by higher depreciation expense as a result of plant additions.
REGULATION OF ELECTRIC UTILITY RATES
The PUC has broad discretion in its regulation of the rates charged by HEI's
electric utility subsidiaries. Any adverse decision by the PUC concerning the
level or method of determining electric utility rates, the authorized returns
on equity or other matters, or any delay in rendering a decision in a rate
proceeding could have a material adverse effect on the Company's financial
condition and results of operations. Upon a showing of probable entitlement,
the PUC is required to issue an interim decision in a rate case within 10
months from the date of filing a complete application if the evidentiary
hearing is completed (subject to extension for 30 days if the evidentiary
hearing is not completed), but there is no limitation on the time within which
it must render a final decision.
PENDING RATE REQUESTS
In July 1993, HECO applied to the PUC for permission to increase electric
rates, based on a 1994 test year and a 12.6% return on average common equity.
In December 1993, HECO applied to the PUC for permission to increase electric
rates, based on a 1995 test year and a 12.3% return on average common equity.
Both requests combined represent a 16.7% increase over present rates, or
approximately $106 million in annual revenues. The requested increases are
needed to cover rising operating costs, to cover the cost of new capital
projects to maintain and improve service reliability, to cover additional
expenses associated with proposed changes in depreciation rates and methods and
to establish a self-insured property damage reserve for transmission and
distribution property in the event of catastrophic disasters.
In November 1993, Hawaii Electric Light Company, Inc. (HELCO) applied to
the PUC for permission to increase electric rates to provide approximately
$15.8 million in annual revenues, or a 13.4% increase over present rates. The
requested increase is based on a 1994 test year and a 12.4% return on average
common equity. The increase is needed to cover plant, equipment and operating
costs necessary to maintain and improve service and provide reliable power for
its customers.
In November 1991, Maui Electric Company, Limited (MECO) filed a request to
increase rates by approximately $18.3 million annually, or approximately 17%
above the rates in effect at the time of the filing. Evidentiary hearings were
held in January 1993 and, at the conclusion of the hearings, MECO's final
requested increase was adjusted to approximately $11.4 million annually, or
approximately 10% above the rates then in effect, in several steps in 1993. The
decrease in the requested rate increase resulted primarily from a reduced cost
of capital, lower administrative and general expenses and other revisions to
MECO's estimated revenue requirements for the 1993 test year used in the rate
case. MECO's revised request reflects a return on average common equity of
13.0%. In 1993, MECO received four interim decisions which authorized step
increases totaling $8.2 million in annual revenues, or 7.2%, based on a 12.75%
rate of return on average common equity. The interim increases are subject to
refund with interest, pending the final outcome of the case.
Management cannot predict with certainty when decisions in the rate cases
will be rendered or the amount of any interim or final rate increase that will
be granted.
HECO PURCHASED POWER BILLING DISPUTES
HECO is disputing certain amounts billed each month under its purchased power
agreements with Kalaeloa Partners, L.P. and AES Barbers Point, Inc. and has
withheld payment of some of the disputed amounts pending resolution. See "Power
purchase agreements" under Note 4 in the "Notes to Consolidated Financial
Statements" for a further discussion of this matter.
HECO POWER OUTAGE
On April 9, 1991, HECO experienced a power outage that affected all customers
on the island of Oahu. See "HECO power outage" under Note 4 in the "Notes to
Consolidated Financial Statements" for a discussion of contingent liabilities
related to the outage.
HELCO RELIABILITY INVESTIGATION
The PUC initiated an investigation into the reliability of HELCO's system in
July 1991. See "HELCO reliability investigation" under Note 4 in the "Notes to
Consolidated Financial Statements" for a further discussion of this matter.
WAIAU-CIP TRANSMISSION LINES
In 1993, the PUC held hearings concerning Part 2 of the proposed Waiau-CIP
138-kilovolt transmission lines. These lines will be a part of a second
transmission corridor in west Oahu, running approximately 15 miles between
Campbell Industrial Park (CIP) and HECO's Waiau power plant. The new lines are
needed (1) to increase system reliability by locating the new lines in a
separate corridor from the existing lines, (2) to provide additional
transmission capacity to meet expected load growth and (3) to provide
transmission capacity for existing and new power generation projects planned
for west Oahu. HECO is experiencing community opposition over the proposed
placement of portions of these lines based in part on the potential effects of
the lines on aesthetics and the concern of some that the electric and magnetic
fields (EMF) from the power lines
32
<PAGE> 7
may have adverse health effects. HECO witnesses addressed EMF, the route
selection process, which involved extensive public input, as well as
engineering and related subjects. One proposal by those who oppose the route of
the overhead lines is to place Part 2 of the Waiau-CIP lines underground. HECO
estimates that this proposal would cost approximately $100 million more than
the cost of overhead lines.
Management cannot predict with certainty the final outcome of the hearings
or the impact the final outcome, including resulting delays, if any, may have
on the cost of the lines or on system reliability.
UNDERGROUNDING OF UTILITY LINES
There is a proposal before the Honolulu City Council and some public support
for the mandatory undergrounding of utility lines "whenever possible," except
in some remote areas. HECO opposes the proposal, in its current form, because
the resulting costs could be too much of a burden for customers. Both the City
Planning Department and the City Planning Commission oppose the bill.
Management believes the cost of undergrounding utility lines would be
recoverable in rates. However, management cannot predict with certainty the
ultimate outcome of such proposals or the impact of such proposals on HECO or
the Company.
SAVINGS BANK
<TABLE>
<CAPTION>
% % %
1993 CHANGE 1992 change 1991 change
(in millions) ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . $200 (2) $203 2 $199 10
Net interest income . . . . . 96 23 78 21 64 22
Operating income(1) . . . . . 44 41 31 24 25 14
Net income(1) . . . . . . . . 25 36 19 24 15 16
Interest-earning assets
Average balance . . . . . $2,356 7 $2,207 15 $1,917 15
Weighted average yield . . 8.01% (8) 8.73% (11) 9.84% (4)
Interest-bearing liabilities
Average balance . . . . . $2,306 6 $2,171 14 $1,898 15
Weighted average rate. . . 4.02% (24) 5.28% (20) 6.58% (9)
Interest rate spread . . . . 3.99% 16 3.45% 6 3.26% 9
One-year "gap" . . . . . . . 3.2% 2.3% (10.1%)
</TABLE>
(1) Reflects allocation of corporate-level expenses for segment reporting
purposes. For segment reporting purposes, HEI expenses allocated to the savings
bank segment for general management, administrative and support services
totaled $0.8 million, $2.0 million and $1.7 million for 1993, 1992 and 1991,
respectively. As of January 1, 1993, HEI refined its method of identifying
costs chargeable to its subsidiaries.
American Savings Bank, F.S.B. (ASB) earnings depend primarily on net interest
income, the difference between the interest income earned on interest-earning
assets (loans receivable, mortgage-backed securities and investments) and the
interest expense incurred on interest-bearing liabilities (deposit liabilities
and borrowings). ASB's loan volumes and yields are affected by market interest
rates, competition, the demand for real estate financing, the availability of
funds and management's responses to these factors. Other factors affecting
ASB's operating results include income from servicing loans and expenses from
operations.
o 1993 net interest income increased 23% over 1992 due to the
significantly lower cost of funds and a higher average balance of loans. In 1993
and 1992, the spread between short-term and long-term interest rates was wider
than in 1991. In 1993, the weighted average rate on interest-bearing liabilities
decreased 126 basis points, while the weighted average yield on interest-earning
assets declined only 72 basis points, causing the interest rate spread to
increase 54 basis points. The increase in net interest income was partially
offset by higher administrative and general expenses, including $0.8 million of
higher federal insurance premiums for deposits.
o 1992 net interest income increased 21% due largely to a higher average
balance of interest-earning assets, a low interest rate environment and an
increase in the interest rate spread resulting from an inflow of low-cost
deposits. The $290 million increase in the average balance of interest-earning
assets was funded primarily with low-cost deposits. The weighted average rate
on interest- bearing liabilities decreased 130 basis points, while the weighted
average yield on interest-earning assets declined only 111 basis points,
causing the interest rate spread to increase 19 basis points.
o 1991 net interest income increased 22% due primarily to the higher
average balance of interest-earning assets resulting from the investment of
proceeds received after assuming the First Nationwide Bank deposit liabilities
in October 1990, the favorable interest rate environment and the increase in
the interest rate spread. The volume of ASB's business increased as reflected
in the $248 million increase in the average balance of interest-earning assets
in 1991 over 1990. During
33
<PAGE> 8
1991, declining interest rates lowered the cost of interest-bearing liabilities
faster than the yield on interest-earning assets which resulted in an
improvement in the interest rate spread of 26 basis points.
o "Gap" is the difference between the amount of interest-earning assets
and interest-bearing liabilities that reprice during a given period. A
"positive gap" exists when more assets than liabilities reprice within a given
period; a "negative gap" exists when more liabilities than assets reprice
within a given period.
As rates in 1993 have remained at low levels, the gap in the near term
(0-6 months) was a negative 4.1% of total assets as compared to a cumulative
one-year positive gap position of 3.2% of total assets as of December 31, 1993.
The negative near-term gap position reflects customers moving more interest
sensitive funds into liquid passbook deposits. The cumulative one-year 1993
"positive gap" was primarily due to a very low interest rate environment that
led to faster prepayments of fixed rate loans with high interest rates coupled
with the increase of noninterest rate sensitive passbook deposits with a life
expectancy of greater than a year. Generally, an increase in interest rates
should result in higher net interest income for a financial institution that is
in a positive gap position, as the yields on interest-earning assets increase
at a faster rate than the cost of interest-bearing liabilities. Conversely, a
decline in interest rates should result in lower net interest income.
o At December 31, 1993, ASB's private-issue mortgage-backed securities
represented whole or participating interests in pools of first mortgage loans
collateralized by real estate in the continental United States, and
approximately 81% of the portfolio was collateralized by real estate in
California. ASB's management has concluded, based on internal reviews of its
private-issue mortgage-backed securities, that any impairment in the value of
its mortgage-backed securities portfolio resulting from the consequences of the
earthquake that occurred on January 17, 1994 near Los Angeles, California is
not likely to have a material effect on the Company's financial condition or
results of operations. Substantially all private-issue mortgage-backed
securities at December 31, 1993, were rated investment grade by various
securities rating agencies.
OTHER
<TABLE>
<CAPTION>
% % %
1993 CHANGE 1992 change 1991 change
(in millions) ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . $63.3 27 $49.7 (8) $53.8 31
Operating income (loss) . . . (6.0) NM 1.1 (86) 7.6 NM
</TABLE>
NM Not meaningful
The "Other" business segment includes results of operations from HTB and its
subsidiary, Young Brothers, Limited (YB), which are maritime freight
transportation companies; HEI Investment Corp. (HEIIC), which is a company
primarily holding investments in leveraged leases; Malama Pacific Corp. (MPC)
and its subsidiaries, which are real estate investment and development
companies; HEI and HEIDI, parent companies; and eliminations of
intercompany transactions.
o The freight transportation subsidiaries recorded an operating loss of
$0.1 million in 1993, compared with operating income of $3.4 million in 1992
and $5.0 million in 1991. Despite YB's rate increases in 1993, HTB's
consolidated operating results were down significantly due in part to lower
charter revenues at HTB, the termination of an oil hauling contract in mid-1992
and losses on the sale of a tug and two oil barges when HTB exited the business
of shipping of heavy fuel oil. HTB and YB have been negatively impacted by the
slowing in Hawaii's construction activity and the slow economy. The decrease in
operating income in 1992 was due in part to higher maintenance costs due to the
drydocking of more barges and higher depreciation expense. Operating income
increased $0.4 million in 1991 compared to 1990 primarily due to the gain on
the sale of an oil barge and lower maintenance expenses, offset in part by
higher depreciation expense.
o In 1993, HEIIC refinanced the nonrecourse debt supporting a leveraged
lease, resulting in additional income, which was largely offset by the
cumulative effect of the 1% federal income tax rate increase. As of December
31, 1993, HEIIC primarily held investments in leveraged leases. No new
investments are currently planned.
o MPC's operating loss was $0.6 million in 1993, compared with an
operating loss of $1.3 million in 1992 and operating income of $0.9 million in
1991. In 1993, MPC's real estate development activities were impacted by the
slow economy. MPC sold fewer units in 1993 than 1992. However, large writedowns
were taken for the carrying value of certain joint venture real estate projects
in 1992. See Notes 6 and 16 in the "Notes to Consolidated Financial Statements"
for a further discussion on MPC and its subsidiaries.
o The HEI and HEIDI corporate operating loss increased $4.6 million in
1993 compared to 1992
34
<PAGE> 9
primarily due to a refinement in the method of identifying costs chargeable to
subsidiaries, resulting in lower allocations to subsidiaries and more expenses
retained at corporate. See Note 3 in the "Notes to Consolidated Financial
Statements" for more information on the corporate allocation methodology
refinement.
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
1993 1992 1991
(in millions, except per share amounts) ------ ------ ------
<S> <C> <C> <C>
Net income (loss)
Insurance business . . . . . . . . . . . $(15.0) $(59.7) $ 1.7
Nonutility wind energy business . . . . . 2.0 (13.6) (2.5)
------ ------ ------
$(13.0) $(73.3) $ (0.8)
====== ====== ======
Earnings (loss) per common share
Insurance business . . . . . . . . . . . $(0.58) $(2.46) $ 0.08
Nonutility wind energy business . . . . . 0.08 (0.56) (0.11)
------ ------ ------
$(0.50) $(3.02) $(0.03)
====== ====== ======
</TABLE>
See Note 2 in the "Notes to Consolidated Financial Statements" for information
on the discontinued operations of the HIG Group and HERS.
ENVIRONMENTAL MATTERS
HEI and its subsidiaries are subject to numerous laws and regulations which are
designed to protect the environment, and include air and water quality
controls, hazardous waste and toxic substance controls and the Federal Oil
Pollution Act of 1990. HEI's electric utility subsidiaries are exempt from
certain environmental requirements applicable on the U.S. mainland. For
example, the electric utility subsidiaries are exempt from the acid rain
provisions of the 1990 Clean Air Act Amendments. However, HEI and its
subsidiaries are subject to environmental laws and regulations which could
potentially impact the Company in terms of operating existing facilities,
constructing and operating new facilities and ensuring the proper cleanup and
disposal of hazardous waste and toxic substances. Management believes that the
recovery through rates of most, if not all, of any costs incurred by HECO and
its subsidiaries in complying with these environmental requirements would be
allowed by the PUC. However, as with other costs reviewed by the PUC in the
rate-making process, costs incurred by HECO and its subsidiaries in complying
with these environmental requirements may not be fully allowed or recovered.
Based on information available to the Company to date, management is not aware
of any contingent liabilities relating to environmental matters that would have
a material adverse effect on the Company's financial condition or results of
operations.
EFFECTS OF INFLATION
Inflation, as measured by the Consumer Price Index, averaged 2.7% in 1993, 3.0%
in 1992 and 4.2% in 1991. Although the rate of inflation over the past three
years has been relatively low compared with the late 1970's and early 1980's,
inflation continues to have an impact on HEI's operations.
Inflation increases operating costs and the replacement cost of assets.
Subsidiaries with significant physical assets, such as the electric utility
companies, replace assets at much higher costs and must request rate relief to
maintain adequate earnings. In the past, the PUC has generally approved rate
relief to cover the effects of inflation. In 1992 and 1993, the electric
utility companies received rate relief, in part to cover increases due to
inflation in operating expenses and construction costs.
ACCOUNTING CHANGES
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
resulting change in the method of accounting for postretirement benefits other
than pensions did not have a material effect on the Company's financial
condition or results of operations primarily due to the regulated nature of the
electric utility subsidiaries and YB. The PUC opened a generic docket to
determine whether SFAS No. 106 should be adopted for rate- making purposes, but
has not yet issued its final decision and order. See Note 18 in the "Notes to
Consolidated Financial Statements" for more information.
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes." The resulting change in the method of accounting
for income taxes did not have a material effect on the Company's financial
condition or results of operations primarily due to the regulated nature of the
electric utility subsidiaries and YB. See Note 15 in the "Notes to Consolidated
Financial Statements" for more information.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the provisions of
35
<PAGE> 10
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
statement requires employers to recognize the obligation to provide
postemployment benefits in accordance with SFAS No. 43, "Accounting for
Compensated Absences," if the obligation is attributable to employees' services
already rendered, employees' rights to those benefits accumulate or vest,
payment of the benefits is probable, and the amount of the benefits can be
reasonably estimated. The resulting change in the method of accounting for
postemployment benefits did not have a material effect on the Company's
financial condition and, in the opinion of management, will not have a material
effect on the Company's 1994 results of operations. See Note 1 in the "Notes to
Consolidated Financial Statements" for more information.
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective January 1, 1994, the Company adopted the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
statement requires that investments in equity securities that have readily
determinable fair values and investments in debt securities be classified in
three categories: held-to-maturity securities, trading securities and
available-for-sale securities. Each category has specific accounting
requirements. The resulting change in the method of accounting for investments
in debt and equity securities did not have a material effect on the Company's
financial condition and, in the opinion of management, will not have a material
effect on the Company's 1994 results of operations. See Note 1 in the "Notes to
Consolidated Financial Statements" for more information.
LOAN IMPAIRMENTS
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." This standard requires
that certain impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. The provisions of SFAS No.
114 must be adopted by ASB no later than January 1, 1995. If SFAS No. 114 were
adopted on December 31, 1993, it would not have had a material effect on the
Company's financial condition or results of operations. See Note 1 in the
"Notes to Consolidated Financial Statements" for more information.
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED
The Company believes that its ability to generate cash, both internally from
operations and externally from debt and equity issues, is adequate to maintain
sufficient liquidity to fund its construction programs and to cover debt and
other cash requirements in the foreseeable future.
The Company's total assets were $4.5 billion and $4.1 billion at
December 31, 1993 and 1992, respectively. Asset growth in 1993 stemmed from
growth in ASB's loan portfolio, increased capital expenditures by the electric
utility companies and the recognition of regulatory assets.
The consolidated capital structure of HEI was as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------------
1993 1992
-------------------- -------------------
(in millions)
<S> <C> <C> <C> <C>
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . $ 40 3% $ 160 12%
Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . 698 47 583 42
Preferred stock of electric utility subsidiaries . . . . . . . 95 6 85 6
Common stock equity . . . . . . . . . . . . . . . . . . . . . . 643 44 548 40
------ --- ------ ---
$1,476 100% $1,376 100%
====== === ====== ===
</TABLE>
ASB's deposit liabilities, securities sold under agreements to repurchase and
advances from the Federal Home Loan Bank are not included in the table above.
HEI plans to maintain its debt and equity structure within range of the
levels at December 31, 1993 and 1992 through the issuance of short-term and
long-term debt, the electric utilities issuance of preferred stock, retained
earnings and issuance of common stock through public offerings and the
Dividend Reinvestment and Stock Purchase Plan and other plans.
At December 31, 1993, short-term borrowings were $120 million lower than
at December 31, 1992. In 1993, short-term borrowings were replaced with
long-term debt, preferred stock equity of the electric utility subsidiaries
and common stock equity. HEI raised approximately $105 million, after
expenses, from the sale of 2.9 million shares of common stock through a public
offering completed in August 1993 and through the Dividend Reinvestment and
Stock Purchase Plan and other plans.
36
<PAGE> 11
Pursuant to the settlement agreement signed in early 1994, upon final
court approval, HEI will pay $32 million to the Insurance Commissioner as
Rehabilitator/Liquidator of the HIG Group in return for a dismissal of the
lawsuit and a release of claims against HEI, its affiliates and their past and
present officers and directors. HEI will fund the settlement out of available
cash and/or borrowings.
In October 1993, Standard & Poor's Corporation (S&P) completed its
review of the U.S. investor-owned electric utility industry and concluded that
more stringent financial risk standards are appropriate to counter mounting
business risk. "S&P believes the industry's credit profile is threatened
chiefly by intensifying competitive pressures," the agency said in a statement.
It also cited sluggish demand expectations, slow earnings growth prospects,
high dividend payouts and environmental cost pressures. Under the new
guidelines, S&P rated HECO's business position as average.
As of February 11, 1994, HEI and HECO's S&P, Moody's Investors
Service (Moody's) and Duff & Phelps Credit Rating Co.'s (Duff & Phelps)
security ratings were as follows:
<TABLE>
<CAPTION>
HEI S&P Moody's Duff & Phelps
- ----- -------- ------- -------------
<S> <C> <C> <C>
Medium-term notes . . . . . . . . . . BBB Baa2 BBB+
Commercial paper . . . . . . . . . . A-2 P-2 Duff 1-
Outlook . . . . . . . . . . . . . . . Negative N/A N/A
HECO
- ----
First mortgage bonds . . . . . . . . BBB+ A3 A
Unsecured notes . . . . . . . . . . . BBB Baa1 A-
Cumulative preferred stock . . . . . BBB baa1 BBB+
Commercial paper . . . . . . . . . . A-2 P-2 Duff 1-
Outlook . . . . . . . . . . . . . . . Negative N/A N/A
</TABLE>
N/A Not applicable.
Neither HEI nor HECO management can predict with certainty future rating agency
actions or their effects on the future cost of capital of HEI or HECO.
At December 31, 1993, $213 million of a $250 million registered
medium-term note program was available to HEI. HEI and HECO also maintained bank
lines of credit which totaled $50 million and $108 million, respectively, at
yearend 1993. As of January 1, 1994, HECO maintained bank lines of credit which
totaled $85 million. There were no borrowings under any line of credit during
1993 and 1992.
Operating activities provided net cash of $139 million in 1993, $98
million in 1992 and $142 million in 1991.
Investing activities such as capital expenditures and the origination
and purchases of loans accounted for a significant portion of the net cash used
of $352 million in 1993, $392 million in 1992 and $318 million in 1991.
Financing activities provided net cash of $172 million in 1993, $395
million in 1992 and $130 million in 1991. In 1993 significant amounts of cash
came from advances from the Federal Home Loan Bank and from the issuances of
long-term debt and common stock.
A portion of net assets (assets less liabilities) of HECO and ASB are
not available for transfer to HEI in the form of dividends, loans or advances
without regulatory approval. However, such restrictions are not expected to
significantly affect the operations of HEI, its ability to pay dividends on its
common stock or its ability to meet other cash obligations. (See Note 19 in the
"Notes to Consolidated Financial Statements.")
Total HEI consolidated financing requirements for the years 1994 through
1998, including net capital expenditures, debt retirements and sinking fund
requirements, are currently estimated to total $1.4 billion. Of this amount,
approximately $0.9 billion are for net capital expenditures (mostly relating to
the electric utility companies' net capital expenditures described below). HEI
consolidated internal sources, after the payment of HEI dividends, are expected
to provide approximately 42% of the consolidated financing requirements, with
debt and equity financing providing the remaining requirements. Over the
five-year period 1994 through 1998, HEI estimates that it will require
approximately $225 million in common equity, other than retained earnings, which
is expected to be provided principally by HEI's Dividend Reinvestment and Stock
Purchase Plan and the Hawaiian Electric Industries Retirement Savings Plan.
37
<PAGE> 12
Following is a discussion of the liquidity and capital resources of HEI's
largest segments.
ELECTRIC UTILITY
HECO's consolidated capital structure was as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------
1993 1992
-------------------- ----------------------
(in millions)
<S> <C> <C> <C> <C>
Short-term borrowings from
nonaffiliates and affiliate . . . . . . . . . $ 41 3% $ 122 11%
Long-term debt, net . . . . . . . . . . . . . . . 485 41 375 35
Preferred stock
Subject to mandatory redemption . . . . . . . 47 4 49 5
Not subject to mandatory redemption . . . . . 48 4 36 3
Common stock equity . . . . . . . . . . . . . . . 570 48 500 46
------ --- ------ ---
$1,191 100% $1,082 100%
====== === ====== ===
</TABLE>
In 1993, the electric utility companies used $206 million in cash for capital
expenditures, $81 million for repayments of short-term borrowings and $30
million for preferred and common stock dividends. Operations provided $98
million in cash and $20 million of cash came from third-party contributions in
aid of construction. Financing activities provided $110 million, net of
long-term debt repayments, from the issuance of unsecured notes and the
drawdown of proceeds from tax-exempt special purpose revenue bonds. Also, HEI
provided $45 million of cash through its purchase of HECO common stock.
The electric utility's consolidated financing requirements for the
years 1994 through 1998, including net capital expenditures, debt retirements
and sinking fund payment requirements, are estimated to total $1.0 billion.
HECO's consolidated internal sources, after the payment of common stock and
preferred stock dividends, are currently expected to provide approximately 50%
of the total $1.0 billion requirements, with debt and equity financing
providing the remaining requirements. HECO currently estimates that it will
require approximately $100 million in common equity, other than retained
earnings, over the five-year period 1994 through 1998. The PUC must approve
issuances of long-term debt and equity for HECO, HELCO and MECO.
Capital expenditures include projects which are required to meet
expected load growth and improve reliability, and projects to replace and
upgrade existing equipment. Net capital expenditures for the five-year period
1994 through 1998 are currently estimated to total $0.9 billion. Approximately
70% 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 30% primarily for
generation projects. At December 31, 1993, purchase commitments other than fuel
and power purchase contracts were approximately $61 million, including amounts
for construction projects. (Also see Note 4 in the "Notes to Consolidated
Financial Statements" for a discussion of power purchase commitments.)
For 1994, electric utility net capital expenditures are estimated to
be $205 million and gross capital expenditures are estimated to be $240
million, of which approximately 65% is for transmission and distribution
projects. An estimated $55 million is planned for new generation projects.
Drawdowns of proceeds from the sale of tax-exempt special purpose revenue
bonds, sales of common stock to HEI and the generation of funds from internal
sources are expected to provide the cash needed for the net 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 kilowatthour sales and peak load, the availability of alternate
energy and purchased power sources, the availability of generating sites and
transmission and distribution corridors, the ability to obtain adequate and
timely rate relief, escalation in construction costs, demand-side management
programs and requirements of environmental and other regulatory and permitting
authorities.
In 1993, HECO and its subsidiaries raised $70 million from the
issuance of unsecured notes, with maturities varying from two to five years,
and $12 million from the sale of preferred stock, which is not subject to
mandatory redemption. Also in 1993, the State of Hawaii issued a total of $100
million in tax-exempt special purpose revenue bonds, with a maturity of thirty
years and a fixed coupon interest rate of 5.45%, on behalf of HECO, HELCO and
MECO at a 2% discount for an effective interest rate of approximately 5.6%. As
of December 31, 1993, approximately $56 million of the proceeds from the sale
of special purpose revenue bonds were available to be used and an additional
$47 million of revenue bonds was authorized by the Hawaii legislature for
issuance prior to the end of 1995.
38
<PAGE> 13
SAVINGS BANK
<TABLE>
<CAPTION>
December 31 1993 1992
---------------------- --------------------
(in millions) $ % change $ % change
------ -------- ------ --------
<S> <C> <C> <C> <C>
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $2,618 6 $2,462 13
Loans receivable . . . . . . . . . . . . . . . . . . . . . 1,735 19 1,463 27
Mortgage-backed securities . . . . . . . . . . . . . . . . 630 (11) 710 (12)
Deposit liabilities. . . . . . . . . . . . . . . . . . . . 2,092 3 2,033 26
</TABLE>
As of September 30, 1993, ASB was the second largest savings bank in the state
based on total assets of $2.5 billion. In 1993, ASB's total assets increased 6%
primarily due to originations and purchases of loans of $557 million, partly
offset by repayments on loans of $289 million. Loans and deposits continued to
grow in 1993, although at a slower pace than in 1992.
At December 31, 1993, loans which do not accrue interest totaled $5.7
million or only 0.32% of net loans outstanding. At the end of 1993, there was
only one property acquired in settlement of a loan valued at $0.2 million.
For the year ended December 31, 1993, cash used by investing
activities was $175 million, due largely to the origination of loans
receivable, partly offset by principal repayments. Cash provided by financing
activities included a net increase of $96 million in advances from the Federal
Home Loan Bank and $59 million in deposit liabilities, offset by repurchases
of all of ASB's remaining securities sold under agreements to repurchase of
$27 million and common stock dividends of $14 million.
Deposits traditionally have been the principal source of ASB's funds
for use in lending, meeting liquidity requirements and making investments. ASB
also derives funds from receipt of interest and principal on outstanding loans
receivable and mortgage-backed securities, borrowings from the Federal Home
Loan Bank of Seattle, securities sold under agreements to repurchase and other
sources. Minimum liquidity levels are currently governed by the regulations
adopted by the Office of Thrift Supervision (OTS). ASB was in compliance with
OTS liquidity requirements as of December 31, 1993.
OTS regulations require each savings association to have regulatory
capital at least sufficient to meet three requirements: tangible capital and
core (leverage) capital of 1.5% and 3.0%, respectively, of adjusted total
assets; and a risk-based capital standard equal to 8.0% of risk-adjusted
assets. As of December 31, 1993, ASB was in full compliance with the minimum
capital requirements with a tangible capital ratio of 5.2%, a core capital
ratio of 5.6% and risk-based capital of $151.0 million, $46.2 million in
excess of the minimum requirement.
The OTS has adopted a new rule adding an interest rate risk (IRR)
component to the existing risk-based capital requirement. The regulation is
effective January 1, 1994; however, the requirement that thrifts incorporate
IRR into their risk-based capital calculations, based on the OTS Thrift
Financial Report as of December 31, 1993, is effective July 1, 1994.
Institutions with an "above normal" level of IRR exposure will be required to
hold additional capital. "Above normal" IRR is defined as any decline in market
value of an institution's portfolio equity in excess of 2% of the market value
of its assets, which would result from an immediate 200 basis point change in
interest rates. The OTS regulation will require a savings association with an
"above normal" level of IRR exposure to hold one-half of the "above normal" IRR
times the market value of its assets as capital in addition to its existing 8%
risk-based capital requirement. Based on IRR reported as of September 30, 1993,
ASB would not have been required to hold additional capital if the new rule had
been in effect at that time.
The Federal Deposit Insurance Corporation Improvement Act of 1991
established a statutory framework for closer monitoring of insured depository
institutions in order to ensure "prompt corrective action" by regulators as an
institution's capital position declines. The OTS rules for prompt corrective
action, effective on December 19, 1992, define the capital measures for five
capital categories (well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized), and provide
for progressively more stringent restrictions and supervision as capital
levels decline. To be classified as "well-capitalized," an institution must
have a "leverage ratio" of 5%, a "Tier-1 risk-based ratio" of 6% and a "total
risk-based ratio" of 10%. As of December 31, 1993, ASB believes that based on
OTS capital standards it would have been classified as "well-capitalized" with
a leverage ratio of 5.6%, a Tier-1 risk-based ratio of 11.1% and a total
risk-based ratio of 11.5%.
The OTS is currently considering proposed regulations which will
increase capital requirements. One of the proposed regulations includes
increasing core capital requirements to either 4% or 5% for many savings
associations. Under the proposed regulation, ASB believes it would be required
to comply with a 4% requirement. As of December 31, 1993, ASB would have been in
compliance with the proposed 4% requirement with a core capital ratio of 5.6%.
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 anticipated growth.
39
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hawaiian Electric Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Hawaiian
Electric Industries, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, retained earnings and cash
flows for each of the years in the three-year period ended December 31, 1993.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hawaiian Electric
Industries, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 15 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Additionally, as discussed in Note 18 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions.
/s/ KPMG Peat Marwick
Honolulu, Hawaii
February 11, 1994
40
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands, except per share amounts) ---------- ---------- --------
<S> <C> <C> <C>
REVENUES
Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . $ 879,110 $ 778,690 $740,632
Savings bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,734 202,995 198,776
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,326 49,698 53,834
--------- ---------- --------
1,142,170 1,031,383 993,242
--------- ---------- --------
EXPENSES
Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . 759,545 674,849 640,376
Savings bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,617 171,668 173,561
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,370 48,647 46,249
--------- ---------- --------
984,532 895,164 860,186
--------- ---------- --------
OPERATING INCOME (LOSS)
Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . 119,565 103,841 100,256
Savings bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,117 31,327 25,215
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,044) 1,051 7,585
--------- ---------- --------
157,638 136,219 133,056
--------- ---------- --------
Interest expense--electric utility and other . . . . . . . . . . . (53,192) (47,141) (43,521)
Allowance for borrowed funds used during construction . . . . . . . 3,869 2,095 1,307
Preferred stock dividends of electric utility subsidiaries . . . . (6,518) (6,710) (6,887)
Allowance for equity funds used during construction . . . . . . . . 6,973 6,781 3,998
--------- ---------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES . . . . . . . 108,770 91,244 87,953
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,086 29,529 32,333
--------- ---------- --------
INCOME FROM CONTINUING OPERATIONS. . . . . . . . . . . . . . . . . 61,684 61,715 55,620
--------- ---------- --------
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Loss from operations . . . . . . . . . . . . . . . . . . . . . -- (57,090) (794)
Loss on disposal . . . . . . . . . . . . . . . . . . . . . . . (13,025) (16,207) --
--------- ---------- --------
LOSS FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . (13,025) (73,297) (794)
--------- ---------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,659 $ (11,582) $ 54,826
========= ========== ========
EARNINGS (LOSS) PER COMMON SHARE
CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . $ 2.38 $ 2.54 $ 2.43
DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . (0.50) (3.02) (0.03)
--------- ---------- --------
$ 1.88 $ (0.48) $ 2.40
========= ========== ========
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . $ 2.29 $ 2.25 $ 2.21
========= ========== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING . . . . . . . 25,938 24,275 22,882
========= ========== ========
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) -------- -------- --------
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR . . . . . . . . . . . . . . $138,484 $204,663 $200,286
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . 48,659 (11,582) 54,826
Common stock dividends. . . . . . . . . . . . . . . . . . . . . . (58,825) (54,597) (50,449)
-------- -------- --------
RETAINED EARNINGS, END OF YEAR . . . . . . . . . . . . . . . . . $128,318 $138,484 $204,663
======== ======== ========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
41
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
December 31 1993 1992
(in thousands) ----------- -----------
<S> <C> <C>
ASSETS
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,260 $ 156,754
Accounts receivable and unbilled revenues, net . . . . . . . . . . . . . . 117,116 118,246
Inventories, at average cost . . . . . . . . . . . . . . . . . . . . . . . 39,405 38,952
Real estate developments . . . . . . . . . . . . . . . . . . . . . . . . . 29,673 14,424
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735,098 1,462,888
Marketable securities (estimated market value $710,369 and $785,926) . . . 698,755 768,415
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,106 81,974
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . 1,542,989 1,387,828
Regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,077 7,668
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,449 53,944
Goodwill and other intangibles . . . . . . . . . . . . . . . . . . . . . . 49,664 51,003
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . -- 672
---------- ----------
$4,521,592 $4,142,768
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,628 $ 82,235
Deposit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,091,583 2,032,869
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,416 160,211
Securities sold under agreements to repurchase . . . . . . . . . . . . . . -- 27,223
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . 289,674 194,099
Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,836 582,475
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,329 156,915
Unamortized tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . 44,357 42,912
Contributions in aid of construction . . . . . . . . . . . . . . . . . . . 165,005 126,308
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,713 104,567
---------- ----------
3,783,541 3,509,814
---------- ----------
PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 46,730 48,920
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 48,293 36,293
---------- ----------
95,023 85,213
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, authorized 10,000 shares;
no shares outstanding
Common stock, no par value, authorized 100,000 shares;
outstanding 27,675 shares and 24,762 shares . . . . . . . . . . . . . 514,710 409,257
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,318 138,484
---------- ----------
643,028 547,741
---------- ----------
$4,521,592 $4,142,768
========== ==========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
42
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) --------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ 61,684 $ 61,715 $ 55,620
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities
Depreciation and amortization of property, plant and equipment . . . . . 64,314 61,928 56,276
Other amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,623) 602 2,033
Deferred income taxes and tax credits, net . . . . . . . . . . . . . . . 3,164 (4,530) 7,456
Changes in assets and liabilities, net of effects from disposal of
businesses, acquisition of partnership interest and acquisition
of control of joint venture
Decrease (increase) in accounts receivable and unbilled revenues,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,108 (17,515) 14,248
Decrease (increase) in inventories . . . . . . . . . . . . . . . . (453) 2,593 15,959
Increase in other securities held for trading . . . . . . . . . . . (22,359) (9,161) (13,876)
Increase in accounts payable . . . . . . . . . . . . . . . . . . . 6,248 8,474 1,975
Changes in other assets and liabilities . . . . . . . . . . . . . . 33,380 (6,353) 1,714
--------- --------- ---------
144,463 97,753 141,405
Cash flows from discontinued operations . . . . . . . . . . . . . . . . . . . . (5,142) -- 750
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . 139,321 97,753 142,155
CASH FLOWS FROM INVESTING ACTIVITIES --------- --------- ---------
Loans receivable originated and purchased . . . . . . . . . . . . . . . . . . . (557,009) (585,292) (379,445)
Principal repayments on loans receivable . . . . . . . . . . . . . . . . . . . 288,932 268,672 164,848
Proceeds from sale of loans receivable . . . . . . . . . . . . . . . . . . . . 633 5,208 6,271
Mortgage-backed securities purchased . . . . . . . . . . . . . . . . . . . . . (190,517) (216,289) (169,276)
Principal repayments on mortgage-backed securities . . . . . . . . . . . . . . 269,816 307,364 162,269
Proceeds from sale of mortgage-backed securities . . . . . . . . . . . . . . . -- -- 29,543
Increase in other marketable securities and other investments . . . . . . . . . (4,912) (1,506) (16,112)
Proceeds from redemption, sale, maturity and principal repayments of
other marketable securities and other investments . . . . . . . . . . . . . 24,350 12,129 30,934
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (213,685) (190,653) (157,462)
Contributions in aid of construction . . . . . . . . . . . . . . . . . . . . . 20,158 17,949 16,632
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,542 15,330 533
--------- --------- ---------
(351,692) (367,088) (311,265)
Net investment in discontinued operations . . . . . . . . . . . . . . . . . . . -- (24,751) (6,750)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . (351,692) (391,839) (318,015)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit liabilities . . . . . . . . . . . . . . . . . . . . . . 58,714 417,508 104,070
Net increase (decrease) in short-term borrowings with original maturities
of three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . (93,247) 92,303 (93,876)
Proceeds from other short-term borrowings . . . . . . . . . . . . . . . . . . . 25,622 36,000 --
Repayment of other short-term borrowings . . . . . . . . . . . . . . . . . . . (72,707) -- --
Proceeds from securities sold under agreements to repurchase . . . . . . . . . -- 43,000 235,307
Repurchase of securities sold under agreements to repurchase . . . . . . . . . (27,000) (145,200) (242,876)
Proceeds from advances from Federal Home Loan Bank . . . . . . . . . . . . . . 194,692 32,900 178,860
Principal payments on advances from Federal Home Loan Bank . . . . . . . . . . (99,117) (97,400) (126,000)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . 193,788 83,736 125,579
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (70,801) (43,436) (63,300)
Proceeds from issuance of electric utility subsidiaries' preferred stock . . . 12,000 -- --
Redemption of electric utility subsidiaries' preferred stock . . . . . . . . . (2,190) (1,745) (1,545)
Net proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . 88,658 18,248 51,415
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,012) (39,214) (36,877)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,477 (1,595) (617)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . 171,877 395,105 130,140
--------- --------- ---------
Net increase (decrease) in cash and equivalents . . . . . . . . . . . . . . . . (40,494) 101,019 (45,720)
Cash and equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . 156,754 55,735 101,455
--------- --------- ---------
CASH AND EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . $ 116,260 $ 156,754 $ 55,735
========= ========= =========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
43
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 o SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
BASIS OF FINANCIAL STATEMENT PRESENTATION. The financial statements have been
prepared in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses, regulatory
assets, the provisions for costs in excess of net realizable values of real
estate projects and the provisions for losses relating to the disposal of
discontinued businesses. Management believes that such allowances and
provisions have been appropriately established in accordance with generally
accepted accounting principles.
CONSOLIDATION. The consolidated financial statements include the accounts of
Hawaiian Electric Industries, Inc. (HEI), a holding company, and its wholly
owned subsidiaries (collectively, the Company). These subsidiaries are Hawaiian
Electric Company, Inc. (HECO), parent company of Hawaii Electric Light
Company, Inc. (HELCO) and Maui Electric Company, Limited (MECO); HEI
Diversified, Inc. (HEIDI), parent company of American Savings Bank, F.S.B.
(ASB) and The Hawaiian Insurance & Guaranty Company, Limited (HIG); Hawaiian
Tug & Barge Corp. (HTB), parent company of Young Brothers, Limited (YB);
Lalamilo Ventures, Inc. (LVI); Malama Pacific Corp. (MPC); and HEI Investment
Corp. (HEIIC). In the fourth quarter of 1992, HEI/HEIDI wrote off its
investment in HIG and no longer consolidated the accounts of HIG and its
subsidiaries for financial reporting purposes.
All significant intercompany transactions and balances have been
eliminated in consolidation.
UTILITY REGULATION. The electric utility subsidiaries and YB are regulated by
the Public Utilities Commission of the State of Hawaii (PUC) and account for
the effects of regulation under Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." As
a result, the actions of regulators can affect the timing of recognition of
revenues, expenses, assets and liabilities.
INVESTMENTS.
MARKETABLE SECURITIES. Investments in mortgage-backed and other marketable
securities, which management intends and has the ability to hold until
maturity, are carried at amortized cost.
Other securities held for trading are carried at market value with
unrealized gains or losses reflected in net income.
OTHER INVESTMENTS. Investments in joint ventures and other investments for
which the Company has the ability to exercise significant influence over the
operating and financing policies of the enterprise are accounted for under the
equity method.
For all investments, declines in value determined to be other than
temporary are reflected in net income. The specific identification method is
used in determining realized gains and losses on the sale of securities.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. The cost of plant constructed by the electric utility subsidiaries
includes applicable engineering, supervision, administrative and general
expenses, and an allowance for the cost of funds used during the construction
period. Upon the ordinary retirement or sale of electric utility plant, no gain
or loss is recognized. The cost of the plant retired or sold and the cost of
removal (net of salvage obtained) are charged to accumulated depreciation.
RETIREMENT BENEFITS. Pension costs are charged primarily to expense and
electric utility plant. The Company's policy is to fund pension costs in
amounts consistent with the requirements of the Employee Retirement Income
Security Act.
Certain health care and/or life insurance benefits are provided to
retired employees, substantially all of whom become eligible for these benefits
upon retirement, and the employees' beneficiaries and covered dependents.
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," which
requires that the expected cost of postretirement benefits other than pensions
be accrued during the years in which employees render service (see Note 18).
Previously, the cost of these benefits were recognized when paid. The resulting
change in the method of accounting for postretirement benefits other than
pensions had no material effect on net income for the year ended December 31,
1993 primarily due to the regulated nature of the electric utility subsidiaries
and YB.
DEPRECIATION AND AMORTIZATION. Depreciation of plant and equipment is computed
primarily using the straight-line method over the estimated useful lives of the
assets.
Goodwill relates to the acquisition of ASB and is being amortized on a
straight-line basis over 25 years.
Core deposit intangibles are being amortized each year at the greater
of the actual attrition rate of such deposit base or 10% of the original value.
44
<PAGE> 19
ENVIRONMENTAL EXPENDITURES. In general, environmental contamination treatment
costs are charged to expense, unless such costs are probable of recovery
through rates authorized by the PUC. Also, environmental costs are capitalized
if: the costs extend the life, increase the capacity, or improve the safety or
efficiency of property owned; the costs mitigate or prevent environmental
contamination that has yet to occur and that otherwise may result from future
operations; or the costs are incurred in preparing for sale property currently
held for sale. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably estimated.
Corresponding regulatory assets are recorded when it is probable that such
costs would be allowed by the PUC as reasonable and necessary costs of service
for rate-making purposes.
INCOME TAXES. As further explained in Note 15, the Company adopted SFAS No.
109, "Accounting for Income Taxes" effective January 1, 1993. Previously,
income taxes were recognized in accordance with the provisions of Accounting
Principles Board Opinion No. 11. The resulting change in the method of
accounting for income taxes had no material effect on net income for the year
ended December 31, 1993, primarily due to the regulated nature of the electric
utility subsidiaries and YB.
Tax credits are deferred and amortized over the estimated useful lives
of the properties which qualified for the credits.
EARNINGS PER COMMON SHARE. Earnings per common share are based upon the
weighted average number of shares of common stock outstanding. The dilutive
effect of stock options is not material.
CASH FLOWS. The Company considers cash on hand, deposits in banks, deposits
with the Federal Home Loan Bank, money market accounts, certificates of
deposit, short-term commercial paper and reverse repurchase agreements with
original maturities of three months or less to be cash and equivalents.
RECLASSIFICATIONS. Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the 1993 presentation.
DISCONTINUED OPERATIONS. In 1992, management decided to discontinue the
operations of Hawaiian Electric Renewable Systems, Inc. (HERS). Also, in 1992,
the Board of Directors of HEI concluded that it would not contribute additional
capital to the insurance businesses conducted by HIG and its subsidiaries and
the remaining investment therein was written off. Control of HIG and its
subsidiaries is vested in the Insurance Commissioner of the State of Hawaii
under a formal rehabilitation order. The nonutility wind energy and insurance
businesses are accounted for as discontinued operations in the accompanying
financial statements for all years presented.
INSURANCE.
The accounting policies followed by the insurance company until its
discontinuance in 1992 were:
Marketable securities. Investments held for trading were carried at
market value with unrealized gains or losses reflected in stockholders'
equity.
Unpaid insurance losses and loss expenses. Unpaid insurance losses and
loss expenses were determined on the basis of estimates of unpaid
amounts with respect to reported losses and losses incurred but not
reported. Provisions for losses and loss expenses were intended to
cover ultimate payment amounts, less amounts recoverable from
reinsurance. The insurance company ceded insurance to reinsurers under
various contracts which covered individual risks or entire classes of
business.
Unearned insurance premiums. Unearned insurance premiums, less any
portions ceded to reinsurers, were recognized as income ratably over
the terms of the policies.
See Note 2 for further information on discontinued operations. Except
where indicated, footnote disclosures relate solely to continuing operations.
ACCOUNTING CHANGES - 1994 AND 1995 IMPLEMENTATION.
POSTEMPLOYMENT BENEFITS. In November 1992, the Financial Accounting
Standards Board (FASB) issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires employers to recognize the
obligation to provide postemployment benefits in accordance with SFAS No. 43,
"Accounting for Compensated Absences," if the obligation is attributable to
employees' services already rendered, employees' rights to those benefits
accumulate or vest, payment of the benefits is probable, and the amount of the
benefits can be reasonably estimated. The Company adopted the provisions of SFAS
No. 112 on January 1, 1994. The implementation of SFAS No. 112 did not have a
material effect on the Company's consolidated financial condition and, in the
opinion of management, will not have a material effect on the Company's 1994
results of operations.
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. In May 1993, the
FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This statement requires that investments in equity
securities that have readily determinable fair values and investments in
debt securities be classified in three categories and accounted for as follows:
o Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to- maturity
securities and reported at amortized cost.
45
<PAGE> 20
o Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized
gains and losses included in earnings.
o Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in
a separate component of shareholders' equity.
The Company adopted the provisions of SFAS No. 115 on January 1, 1994.
The implementation of SFAS No. 115 did not have a material effect on the
Company's consolidated financial condition and, in the opinion of management,
will not have a material effect on the Company's 1994 results of operations.
LOAN IMPAIRMENTS. In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." This standard requires that certain
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The provisions of SFAS No. 114
must be adopted by ASB no later than January 1, 1995. If SFAS No. 114 were
adopted on December 31, 1993, it would not have had a material effect on the
Company's consolidated financial condition or results of operations.
ELECTRIC UTILITY
ELECTRIC UTILITY REVENUES. Electric utility revenues are based on rates
authorized by the PUC and include revenues applicable to electric energy
consumed in the accounting period but not yet billed to the customers. The rate
schedules of the electric utility subsidiaries include energy cost adjustment
clauses under which electric rates are adjusted for changes in the weighted
average price paid for fuel oil and certain components of purchased power, and
the relative amounts of company-generated and purchased power.
CONTRIBUTIONS IN AID OF CONSTRUCTION. The electric utility subsidiaries
receive contributions from customers for special construction requirements. As
directed by the PUC, the contributions are amortized on a straight-line basis
over 30 years which approximates the estimated useful lives of the facilities
for which the contributions were received. This amortization is an offset
against depreciation expense.
SAVINGS BANK
LOANS RECEIVABLE. Any discount or premium on loans is amortized over the
estimated life of the loan using the level-yield method.
The valuation allowance for estimated losses on loans receivable is
provided to the extent that such losses are expected to be incurred.
The accrual of interest on a loan is discontinued when the loan becomes
more than 90 days delinquent or on an earlier basis when there is reasonable
doubt as to its collectability.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS. Real estate acquired in
settlement of loans is recorded at the lower of cost or fair value less
estimated selling expenses.
LOAN ORIGINATION AND COMMITMENT FEES. Loan origination fees (net of direct
loan origination costs) are deferred and recognized as an adjustment of yield
over the life of the loan. Nonrefundable commitment fees (net of direct loan
origination costs, if applicable) for commitments to originate or purchase
loans are deferred and, if the commitment is exercised, recognized as an
adjustment of yield over the life of the loan. If the commitment expires
unexercised, nonrefundable commitment fees are recognized as income upon
expiration of the commitment.
2 o DISCONTINUED OPERATIONS
HAWAIIAN ELECTRIC RENEWABLE SYSTEMS, INC.
On October 6, 1992, the Board of Directors of HEI ratified management's
September 30, 1992 plan to exit the nonutility wind energy business because of
chronic mechanical problems with its wind turbines and continuing losses from
operations. In March 1993, HEI sold the stock of HERS to The New World Power
Corporation for an amount which was not material. In 1993, in connection with
the sale of HERS, HEI reversed reserves for site restoral and other HERS'
disposal costs that were no longer needed due to the terms of the sale,
resulting in income from discontinued operations of $2.0 million.
46
<PAGE> 21
Summary financial information for the discontinued operations of HERS was as
follows:
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Years ended December 31 1992 1991
(in thousands) -------- -------
<S> <C> <C>
OPERATIONS
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . $ 564 $ 1,063
Operating loss. . . . . . . . . . . . . . . . . . . . . . (12,630) (3,151)
Interest expense. . . . . . . . . . . . . . . . . . . . . (953) (1,385)
Income tax benefits . . . . . . . . . . . . . . . . . . . 8,128 2,038
-------- -------
Loss from operations. . . . . . . . . . . . . . . . . . . $ (5,455) $(2,498)
======== =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31 1993 1992
(in thousands) ------- --------
<S> <C> <C>
DISPOSAL
Gain (loss) . . . . . . . . . . . . . . . $ 3,218 $(17,131)*
Income tax benefits (income taxes) . . . (1,223) 9,021
------- --------
Gain (loss) on disposal . . . . . . . . . $ 1,995 $ (8,110)
======= ========
</TABLE>
* Includes provision of $700 for loss from operations during phase-out period.
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31, 1992
(in thousands) -----------------
<S> <C>
ASSETS
Property, plant and equipment, net. . . . . . . . . . . $ 71
Other . . . . . . . . . . . . . . . . . . . . . . . . . 642
-----
713
-----
LIABILITIES
Deferred income taxes . . . . . . . . . . . . . . . . . (112)
Unamortized tax credits . . . . . . . . . . . . . . . . 6
Other. . . . . . . . . . . . . . . . . . . . . . . . . 147
-----
41
-----
Net assets of discontinued windfarm operations. . . . . $ 672
=====
</TABLE>
THE HAWAIIAN INSURANCE & GUARANTY COMPANY, LIMITED
HIG and its subsidiaries (the HIG Group) are property and casualty insurance
companies in the State of Hawaii. HEIDI, a subsidiary of HEI, is the holder of
record of all of the common stock of HIG. On December 2, 1992, the Board of
Directors of HEI concluded that it would not contribute additional capital to
HIG and HEI/HEIDI's remaining investment in the HIG Group was written off in
the fourth quarter of 1992. The decision resulted from an increase in the
estimate of policyholder claims from Hurricane Iniki (which hit the Hawaiian
Islands on September 11, 1992) from $200 million (unaudited) to more than $300
million (unaudited). At that level of claims, it was estimated that the
shortfall in the assets of the HIG Group available to pay claims would be in
excess of $80 million (unaudited), and that at least an additional $112 million
(unaudited) in capital contributions from HEI would be required if the HIG
Group were to continue to write insurance as in the past--$80 million
(unaudited) to cover the shortfall plus $32 million (unaudited) of new capital.
On December 24, 1992, with the consent of the HIG Group, a formal
rehabilitation order (the Rehabilitation Order) was entered by the First
Circuit Court of the State of Hawaii, vesting full control over the HIG Group
in the Insurance Commissioner and her deputies.
On April 12, 1993, the Rehabilitator filed her proposed rehabilitation plan
for approval by the First Circuit Court of the State of Hawaii. The plan, after
minor technical modifications, was approved by the court in May 1993.
On April 12, 1993, the Rehabilitator, HIG, UNICO and HUI filed a complaint
against HEI, HEIDI and certain current and former officers and directors of
HEI, HEIDI and the HIG Group in state court on the island of Kauai, and
demanded a jury trial. The complaint sets forth several separate counts,
including claims to the effect that HEI and/or HEIDI should be held liable for
HIG's obligations based on allegations, among others, that HIG was held out to
be part of an HEI family of companies (and not as a separate enterprise) and
47
<PAGE> 22
that HEIDI is liable for an assessment levied by the Rehabilitator. The
complaint alleges that certain current and former officers and directors of
HEI, HEIDI and the HIG Group have breached their fiduciary duties to the HIG
Group in numerous respects. The complaint seeks declaratory relief and
compensatory, general, special and punitive damages, together with costs and
attorneys' fees.
On July 12, 1993, the Rehabilitator filed a first amended complaint,
which repeats the claims asserted in the original complaint but adds the Hawaii
Insurance Guaranty Association (HIGA) as a plaintiff and asserts certain
additional claims. The first amended complaint asserts new claims for
negligence and the imposition of a constructive trust and a statutory claim for
unfair and deceptive trade practices under Chapter 480 of the Hawaii Revised
Statutes, which permits the recovery of treble damages in certain cases.
Although the damages requested were not specified in the complaint or
amended complaint and were reserved for proof at trial, by demand letter dated
February 26, 1993, the Rehabilitator had demanded (1) from HEI and/or HEIDI,
the amount required to cure HIG's deficit, estimated by the Rehabilitator in
the letter at $68 million, and (2) $55 million for alleged breaches of duties
and other obligations owed to HIG by the officers and directors of HEI, HEIDI
and HIG. These demands were based on alternative theories of liability and the
amounts claimed are believed by management to be duplicative and not
cumulative.
On October 13, 1993, HEI and HEIDI filed their answers to the First
Amended Complaint, denying the material allegations thereof and asserting
various affirmative defenses. The officer and director defendants have filed
similar answers, together with a counterclaim against the Rehabilitator for
indemnification. On November 2, 1993, defendants HEI and HEIDI filed
counterclaims against the Rehabilitator and HIGA alleging that the
Rehabilitator and HIGA have not acted in accordance with their statutory
duties. Discovery proceedings were initiated beginning in late 1993.
In early 1994, HEI, HEIDI, certain officers and directors, the
Rehabilitator/Liquidator and HIGA signed an agreement to settle the lawsuit.
Under the agreement, which is subject to court approval, HEI will pay $32.0
million to the Rehabilitator/Liquidator in return for a dismissal of the
lawsuit and a release of claims against HEI, its affiliates and their past and
present officers and directors. A hearing on a motion to approve the settlement
is scheduled in March 1994. The $32.0 million settlement amount, less income
tax benefits and certain amounts in previously established reserves, resulted
in a $15.0 million after-tax charge to discontinued operations in 1993. HEI is
seeking reimbursement from certain of its insurance carriers. HEI's claims
against its insurance carriers will require resolution of several insurance
coverage and other policy issues and the outcome of such claims cannot be
predicted at this time. One of HEI's insurance carriers has filed a declaratory
relief action in the U.S. District Court for the District of Hawaii seeking
resolution of these issues. Recoveries from HEI's insurance carriers, if any,
will be recognized when realized.
Summary financial information for the discontinued operations of the
HIG Group was as follows:
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Years ended December 31 1992 1991
(in thousands) -------- -------
<S> <C> <C>
OPERATIONS
Revenues . . . . . . . . . . . . . . . . . . . . $ 80,654 $89,536
Operating income (loss) . . . . . . . . . . . . (80,146) 1,328
Income tax benefits. . . . . . . . . . . . . . . 28,511 376
-------- -------
Income (loss) from operations . . . . . . . . . $(51,635) $ 1,704
======== =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31 1993 1992
(in thousands) -------- --------
<S> <C> <C>
DISPOSAL
Loss . . . . . . . . . . . . . $(24,225) $(13,060)
Income tax benefits . . . . . . 9,205 4,963
-------- --------
Loss on disposal . . . . . . . $(15,020) $ (8,097)
======== ========
</TABLE>
48
<PAGE> 23
3 o SEGMENT FINANCIAL INFORMATION
Segment financial information on page 28 is incorporated herein by reference.
As of January 1, 1993, HEI refined its method of identifying costs chargeable
to its subsidiaries. Under the refined methodology, additional common costs
categories have been identified and the number of cost causation factors used
to allocate common costs has increased. Also, timesheets are used to identify
chargeable labor costs. The refined methodology resulted in lower allocations
to subsidiaries and more expenses retained at corporate in 1993.
HEI's principal segments are as follows:
ELECTRIC UTILITY
HECO and its wholly owned subsidiaries, HELCO and MECO, are operating electric
public utilities in the business of generating, purchasing, transmitting,
distributing and selling electric energy, and are regulated by the PUC.
SAVINGS BANK
ASB is a Federally chartered savings bank providing a full range of banking
services to individual and corporate customers through its branch system in
Hawaii. ASB is subject to examination and comprehensive regulation by the
Department of Treasury, Office of Thrift Supervision (OTS) and the Federal
Deposit Insurance Corporation, and is also subject to regulations of the Board
of Governors of the Federal Reserve System.
OTHER
HTB provides tugboat and charter barge services in Hawaii and the Pacific area
and, together with its subsidiary, YB, provides general freight and
containerized cargo transportation between the Hawaiian islands. YB operates as
an authorized common carrier that services all major ports in Hawaii under the
Hawaii Water Carrier Act and is regulated by the PUC.
MPC and its wholly owned subsidiaries invest in and develop real estate.
HEIIC invests primarily in leveraged leases.
Other also includes certain HEI and HEIDI activities and intercompany
eliminations.
DISCONTINUED OPERATIONS
HIG and its subsidiaries, United National Insurance Company, Ltd. and Hawaiian
Underwriters Insurance Co., Ltd., are property and casualty insurance companies
which were placed in rehabilitation proceedings under the control of the
Insurance Commissioner of the State of Hawaii by a Rehabilitation Order entered
by the First Circuit Court of the State of Hawaii on December 24, 1992. HIG
continues to operate in rehabilitation and its insurance company subsidiaries
are being liquidated.
HERS owned and LVI owns nonutility wind energy facilities. HERS was sold in
March 1993.
See Note 2 for further information on discontinued operations.
49
<PAGE> 24
4 o ELECTRIC UTILITY SUBSIDIARY
Hawaiian Electric Company, Inc. and subsidiaries
Selected consolidated financial information
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) -------- -------- --------
<S> <C> <C> <C>
REVENUES
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . $874,010 $776,929 $739,636
Other--nonregulated . . . . . . . . . . . . . . . . . . . . . . . 5,100 1,761 996
-------- -------- --------
879,110 778,690 740,632
-------- -------- --------
EXPENSES
Fuel oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,285 225,611 275,806
Purchased power . . . . . . . . . . . . . . . . . . . . . . . . . 258,723 172,761 106,660
Other operation . . . . . . . . . . . . . . . . . . . . . . . . . 105,957 105,303 100,990
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,281 44,653 39,463
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 55,960 53,856 49,005
Taxes, other than income taxes . . . . . . . . . . . . . . . . . 80,712 71,452 67,648
Other--nonregulated . . . . . . . . . . . . . . . . . . . . . . . 627 1,213 804
-------- -------- --------
759,545 674,849 640,376
-------- -------- --------
Operating income from regulated and nonregulated activities . . . 119,565 103,841 100,256
Allowance for equity funds used during construction . . . . . . . 6,973 6,781 3,998
Interest and other charges . . . . . . . . . . . . . . . . . . . (37,384) (35,196) (35,535)
Allowance for borrowed funds used during construction . . . . . . 3,869 2,095 1,307
-------- -------- --------
Income before income taxes and preferred stock
dividends of HECO . . . . . . . . . . . . . . . . . . . . . . . 93,023 77,521 70,026
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 36,897 23,843 23,816
-------- -------- --------
Income before preferred stock dividends of HECO . . . . . . . . . 56,126 53,678 46,210
Preferred stock dividends of HECO . . . . . . . . . . . . . . . . 4,421 4,525 4,600
-------- -------- --------
Net income for common stock . . . . . . . . . . . . . . . . . . . $ 51,705 $ 49,153 $ 41,610
======== ======== ========
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31 1993 1992
(dollars in thousands) ---------- ----------
<S> <C> <C>
ASSETS
Utility plant, at cost
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,976,192 $1,770,374
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (641,230) (583,031)
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,342 107,030
---------- ----------
Net utility plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,461,304 1,294,373
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,012 62,088
Unbilled revenues, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,735 35,647
Regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,612 7,668
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,613 101,554
---------- ----------
$1,703,276 $1,501,330
========== ==========
CAPITALIZATION AND LIABILITIES
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 570,663 $ 499,894
Cumulative preferred stock
Not subject to mandatory redemption, dividend rates of 4.25-8.875% . . . . . . . . 48,293 36,293
Subject to mandatory redemption, dividend rates of 7.68-13.75% . . . . . . . . . . 46,730 48,920
Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484,736 374,835
---------- ----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150,422 959,942
Short-term borrowings, from nonaffiliates and affiliate . . . . . . . . . . . . . . . 40,928 122,176
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,449 101,447
Unamortized tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,348 41,608
Contributions in aid of construction . . . . . . . . . . . . . . . . . . . . . . . . 165,005 126,308
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,124 149,849
---------- ----------
$1,703,276 $1,501,330
========== ==========
</TABLE>
50
<PAGE> 25
CASH FLOW DATA
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before preferred stock dividends of HECO . . . . . . . . . . . . $ 56,126 $ 53,678 $ 46,210
Adjustments to reconcile income before preferred stock dividends
of HECO to net cash provided by operating activities
Depreciation and amortization of property,
plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . 55,960 53,856 49,005
Decrease (increase) in accounts receivable and
unbilled revenues, net . . . . . . . . . . . . . . . . . . . . . . . (1,012) (17,095) 8,109
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . (484) 2,449 16,027
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,185) (14,195) 3,667
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 98,405 78,693 123,018
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (205,943) (181,542) (141,900)
Contributions in aid of construction . . . . . . . . . . . . . . . . . 20,158 17,949 16,632
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . -- 14,270 --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . (185,785) (149,323) (125,268)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings from nonaffiliates
and affiliates with original maturities of three months or less . . . (81,248) 87,606 (35,350)
Proceeds from other short-term borrowings . . . . . . . . . . . . . . . 25,259 -- --
Repayment of other short-term borrowings . . . . . . . . . . . . . . . (25,259) -- --
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . 156,788 33,130 40,579
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . (46,901) (23,393) (32,222)
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . 12,000 -- --
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . (2,190) (1,745) (1,545)
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . (4,421) (4,525) (4,600)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . 45,000 33,000 61,000
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . (25,887) (23,048) (27,468)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,278 67 831
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . 58,419 101,092 1,225
--------- --------- ---------
Net increase (decrease) in cash and equivalents . . . . . . . . . . . . (28,961) 30,462 (1,025)
Cash and equivalents, beginning of year . . . . . . . . . . . . . . . . 30,883 421 1,446
--------- --------- ---------
CASH AND EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . $ 1,922 $ 30,883 $ 421
========= ========= =========
</TABLE>
CUMULATIVE PREFERRED STOCK. Certain cumulative preferred shares of HECO and
its subsidiaries are redeemable at the option of the respective company at a
premium or par. The remaining cumulative preferred shares are subject to
mandatory sinking fund provisions at par and optional redemption provisions at
a premium. In December 1993, HECO's subsidiaries issued $12 million of
preferred stock not subject to mandatory redemption with a dividend rate of
7.625%. The total sinking fund requirements on preferred stock subject to
mandatory redemption for the next five years and thereafter are $1.3 million in
1994, $2.2 million in 1995, $2.2 million in 1996, $2.2 million in 1997, $1.8
million in 1998 and $37.0 million thereafter.
INDEBTEDNESS. See Notes 11 and 12.
MAJOR CUSTOMERS. The electric utility subsidiaries derived 10% of their
operating revenues from the sale of electricity to various federal government
agencies amounting to $91 million in 1993, $78 million in 1992 and $77 million
in 1991.
COMMITMENTS AND CONTINGENCIES.
FUEL CONTRACTS AND OTHER PURCHASE COMMITMENTS. To assure access to a long-term
supply of residual fuel oil and diesel fuel, HECO has contractual agreements to
purchase a minimum amount of 0.5% sulfur residual fuel oil and 0.4% sulfur
diesel fuel annually through 1995. The fuel oil prices under these contracts
are tied to market prices of products as reported in Singapore and the U.S.
Pacific Northwest. Based on the average price per barrel at January 1, 1994,
the amount of required purchases for 1994 is estimated at $83 million. HECO's
subsidiaries have contractual agreements through 1995 under which the amount of
required purchases for 1994 is estimated at $43 million, based on the average
price per barrel at January 1, 1994. The actual amount of such purchases by
HECO and its subsidiaries could vary substantially as a result of changes in
the market price of fuel oil and other factors. HECO and its subsidiaries
purchased $205 million, $216 million and
51
<PAGE> 26
$251 million of fuel under these or prior contractual agreements in 1993, 1992
and 1991, respectively. New contracts to replace expiring ones are expected to
be entered into in the normal course of business.
At December 31, 1993, HECO and its subsidiaries had purchase commitments
other than fuel and power purchase contracts amounting to approximately
$61 million.
POWER PURCHASE AGREEMENTS. In general, payments under the major power purchase
agreements are based upon available capacity and energy. Payments for capacity
generally are not required if the contracted capacity is not available, and
payments are reduced, under certain conditions, if available capacity drops
below contracted levels. In general, the payment rates for capacity have been
predetermined for the terms of the agreements. The energy charges will vary
over the terms of the agreements and HECO and its subsidiaries may pass on
changes in the fuel component of the energy charges to customers through energy
cost adjustment clauses in its rate schedules. HECO and its subsidiaries do not
operate nor participate in the operation of any of the facilities that provide
power under the major agreements. Title to the facilities does not pass to HECO
and its subsidiaries upon expiration of the agreements, and the agreements do
not contain bargain purchase options with respect to the facilities.
As of December 31, 1993, HECO and its subsidiaries had power purchase
agreements for 473 megawatts (MW) of firm capacity representing approximately
22% of the total of their generating capabilities and purchased power firm
capacities. Rate recovery is allowed for energy and firm capacity payments
under these agreements. Assuming that each of the agreements remains in place
and the minimum availability criteria in the power purchase agreements are met,
aggregate minimum fixed capacity charges are expected to be approximately $107
million annually in 1994 and 1995, between $99 million and $106 million
annually from 1996 through 2015, between $50 million and $77 million annually
from 2016 through 2022 and $4 million annually from 2023 through 2028.
HECO is disputing certain amounts billed each month under its power purchase
agreements with Kalaeloa Partners, L.P. (Kalaeloa) and AES Barbers Point, Inc.
(AES-BP) and has withheld payment of some of the disputed amounts pending
resolution. With respect to the billings from Kalaeloa, HECO believes that it
has counterclaims which would mitigate, if not more than offset, the disputed
amounts billed by Kalaeloa. Disputed amounts billed by Kalaeloa and AES-BP
through December 31, 1993 totaled approximately $2.1 million and $1.5 million,
respectively. Approximately $0.5 million of the total disputed amounts, if
paid, are includable in HECO's energy cost adjustment clause, and would be
passed through to customers.
HECO has not recognized any portion of the disputed amounts as an expense or
liability in its financial statements. Discussions between HECO and Kalaeloa,
and HECO and AES-BP to resolve the disputed billing amounts are continuing. In
the event the parties are unable to settle the disputes, both the Kalaeloa and
AES-BP power purchase agreements contain provisions whereby either party to the
agreement may cause the dispute to be submitted to binding arbitration.
Kalaeloa has requested that its dispute with HECO be arbitrated and this
arbitration process has commenced. Based on information currently available,
HECO's management believes that the ultimate outcome of these disputes will not
have a material adverse effect on HECO's consolidated financial condition and
results of operations.
HELCO's power purchase agreements include an amended power purchase agreement
with Hamakua Sugar Company (Hamakua), a power purchase agreement with Puna
Geothermal Ventures (PGV) and a power purchase agreement with Hilo Coast
Processing Company (HCPC). Hamakua is in a Chapter 11 bankruptcy proceeding and
is now conducting a final sugar cane harvest over a period of 10 to 16 months,
which began in July 1993. During the harvest, Hamakua has agreed to supply
HELCO with 8 MW of firm capacity under an amendment to HELCO's existing power
purchase agreement. PGV, an independent geothermal power producer which had
experienced substantial delays in commencing commercial operations, passed an
acceptance test in June 1993 and is now considered to be a firm capacity source
for 25 MW. HCPC, which provides 18 MW of firm capacity, has announced that it
will discontinue harvesting sugar cane in the second half of 1994, but has
stated that it intends to continue generating power using coal supplemented by
biomass materials and diesel fuel oil.
HECO POWER OUTAGE. On April 9, 1991, HECO experienced a power outage that
affected all customers on the island of Oahu. The PUC initiated an
investigation of the outage by its order dated April 16, 1991. This
investigation was consolidated with a pending investigation of an outage that
occurred in 1988. The PUC held a hearing on the April 9, 1991 outage in May
1991 and further hearings are expected at a later time. The parties to the
investigation (HECO, Consumer Advocate and United States Department of Defense)
agreed that HECO should retain an independent consultant to investigate the
cause of the 1991 outage. The PUC approved HECO's retention of Power
Technologies, Inc. (PTI). PTI's report, with more than 100 recommendations, was
submitted to the PUC in August 1993 and HECO filed its comments on the PTI
recommendations with the PUC in November 1993. Management cannot predict the
timing and outcome of any decision and order to be issued by the PUC with
respect to the outages or with respect to the recommendations made by PTI.
HECO's PUC-approved tariff rule states that HECO "will not be liable for
interruption or insufficiency of supply or any loss, cost, damage or expense of
any nature whatsoever, occasioned thereby if caused by accident, storm, fire,
strikes, riots, war or any cause not within [HECO's] control through the
exercise of reasonable diligence and care." Under the rule, customers had 30
days from the date of the power outage to file claims. HECO received
approximately 2,900 customer claims which totaled approximately $7 million. Of
the 2,900 claims,
52
<PAGE> 27
approximately 1,450 are for property damage. As of December 31, 1993, HECO had
settled approximately 542 of these property damage claims, had settlement
offers outstanding with respect to approximately 119 more of these claims and
anticipates making settlement offers with respect to the remaining property
claims upon receipt and review of appropriate supporting documentation. The
settlement offers are being made for purposes of settlement and compromise
only, and without any admission by HECO of liability for the outage. Not
covered in the settlement offers and requests for documentation are
approximately 1,450 claims involving alleged personal injury or economic
losses, such as lost profits.
On April 19, 1991, seven direct or indirect business customers on the
island of Oahu filed a lawsuit against HECO on behalf of themselves and an
alleged class, claiming $75 million in compensatory damages and additional
unspecified amounts for punitive damages because of the April 9, 1991 outage.
The lawsuit was dismissed without prejudice in March 1993 and subsequently
refiled by the plaintiffs. HECO has filed an answer which denies the principal
allegations in the complaint, sets forth affirmative defenses, and asserts that
the suit should not be maintained as a class action. Discovery proceedings have
been initiated. No trial date has been set.
A reserve equal to the deductible limits with respect to HECO's insurance
coverage has been recorded with respect to claims arising out of the April 1991
outage. In the opinion of management, losses (if any), net of estimated
insurance recoveries, resulting from the ultimate outcome of the lawsuit and
claims related to the April 9, 1991 outage will not have a material adverse
effect on the Company.
HELCO RELIABILITY INVESTIGATION. In July 1991, following service interruptions
and rolling blackouts instituted on the island of Hawaii, the PUC issued an
order calling for an investigation into the reliability of HELCO's system.
An evidentiary hearing was held in September 1991 and public hearings were
held in October 1991. In light of approximately 20 subsequent incidents of
rolling blackouts and service interruptions resulting from insufficient
generation margin, further evidentiary hearings were held in July 1992. With
the input from an independent consultant and the parties to the proceedings,
the PUC may formulate minimum reliability standards for HELCO, use the
standards to assess HELCO's system reliability, and re-examine the rate
increase approved in October 1992 to see whether any adjustments are
appropriate.
HELCO's generation margin has improved with the addition of a 20-MW
combustion turbine in August 1992, PGV's commencement of commercial operations
and Hamakua's temporary return to commercial operation (see "Power purchase
agreements" herein). HELCO is proceeding with plans to install two 20-MW
combustion turbines in 1995, followed by an 18-MW heat steam recovery generator
in 1997, at which time these units will be converted to a combined-cycle unit,
subject in each case to obtaining necessary permits. In the opinion of
management, the PUC's adjustment, if any, resulting from the reliability
investigation will not have a material adverse effect upon HECO's consolidated
financial condition or results of operations.
CHANGE IN ACCOUNTING ESTIMATE. In September 1991, HECO and its subsidiaries
revised the method of estimating unbilled kilowatthour sales and revenues. The
revised method results in more accurate estimates. The effect of this change in
accounting estimate resulted in a nonrecurring increase in HECO and its
subsidiaries' net income of $3.8 million for 1991, or $0.17 per HEI common
share.
MANAGEMENT SERVICES FEES. HEI charges to HECO and its subsidiaries for general
management, administrative and support services totaled $2.3 million, $5.6
million and $5.1 million in 1993, 1992 and 1991, respectively.
5 o SAVINGS BANK SUBSIDIARY
American Savings Bank, F.S.B. and subsidiaries
Selected consolidated financial information
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $188,619 $192,644 $189,072
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,701 114,748 124,840
-------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 95,918 77,896 64,232
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . (779) (1,494) (641)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,115 10,351 9,704
Operating, administrative and general expenses . . . . . . . . . . . . (62,137) (53,915) (48,080)
-------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,117 32,838 25,215
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,835 13,280 10,224
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,282 $ 19,558 $ 14,991
======== ======== ========
</TABLE>
53
<PAGE> 28
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31 1993 1992
(in thousands) ---------- -----------
<S> <C> <C>
ASSETS
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . $ 77,610 $ 117,937
Investment securities . . . . . . . . . . . . . . . . . . . . . . 68,599 58,524
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . 630,156 709,891
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . 1,735,098 1,462,888
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,358 61,451
Goodwill and other intangibles . . . . . . . . . . . . . . . . . 49,664 51,003
---------- ----------
$2,618,485 $2,461,694
========== ==========
LIABILITIES AND EQUITY
Deposit liabilities . . . . . . . . . . . . . . . . . . . . . . . $2,091,583 $2,032,869
Securities sold under agreements to repurchase . . . . . . . . . -- 27,223
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 289,674 194,099
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,717 35,504
---------- ----------
2,433,974 2,289,695
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . 184,511 171,999
---------- ----------
$2,618,485 $2,461,694
========== ==========
</TABLE>
CASH FLOW DATA
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,282 $ 19,558 $ 14,991
Adjustments to reconcile net income to net cash provided by operating
activities
Decrease in accounts receivable . . . . . . . . . . . . . . . . . . 1,283 1,461 3,424
Increase in other securities held for trading . . . . . . . . . . . (22,359) (9,161) (13,876)
Increase in accounts payable . . . . . . . . . . . . . . . . . . . 6,736 237 2,003
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,371 (1,360) 7,405
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 20,313 10,735 13,947
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated and purchased . . . . . . . . . . . . . . . (557,009) (585,292) (379,445)
Principal repayments on loans receivable . . . . . . . . . . . . . . . 288,932 268,672 164,848
Proceeds from sale of loans receivable . . . . . . . . . . . . . . . . 633 5,208 6,271
Mortgage-backed securities purchased . . . . . . . . . . . . . . . . . (190,517) (216,289) (169,276)
Principal repayments on mortgage-backed securities . . . . . . . . . . 269,816 307,364 162,269
Proceeds from sale of mortgage-backed securities . . . . . . . . . . . -- -- 29,543
Proceeds from maturity of investment securities . . . . . . . . . . . . 15,000 12,000 19,924
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,014) (4,822) (19,995)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . (175,159) (213,159) (185,861)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit liabilities . . . . . . . . . . . . . . . . . . 58,714 417,508 104,070
Proceeds from securities sold under agreements to repurchase . . . . . -- 43,000 235,307
Repurchase of securities sold under agreements to repurchase . . . . . (27,000) (145,200) (242,876)
Proceeds from advances from Federal Home Loan Bank . . . . . . . . . . 194,692 32,900 178,860
Principal payments on advances from Federal Home Loan Bank . . . . . . (99,117) (97,400) (126,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,770) 14,390 (21,347)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . 114,519 265,198 128,014
--------- --------- ---------
Net increase (decrease) in cash and equivalents . . . . . . . . . . . . (40,327) 62,774 (43,900)
Cash and equivalents, beginning of year . . . . . . . . . . . . . . . . 117,937 55,163 99,063
--------- --------- ---------
CASH AND EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . $ 77,610 $ 117,937 $ 55,163
========= ========= =========
</TABLE>
54
<PAGE> 29
MORTGAGE-BACKED SECURITIES. The weighted average interest rate of
mortgage-backed securities at December 31, 1993 and 1992 was 6.65% and 7.60%,
respectively.
Mortgage-backed securities with a carrying value of
approximately $469 million and $331 million at December 31, 1993 and 1992,
respectively, were pledged as collateral to secure public funds, deposits with
the Federal Reserve Bank of San Francisco and advances from the Federal Home
Loan Bank of Seattle. At December 31, 1993, there were no mortgage-backed
securities sold under agreements to repurchase. At December 31, 1992,
mortgage-backed securities sold under agreements to repurchase had a carrying
value of $33 million.
LOANS RECEIVABLE. Loans receivable consisted of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
---------- ----------
(in thousands)
<S> <C> <C>
Real estate loans
Conventional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,584,218 $1,294,769
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . 26,526 33,123
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . 3,397 8,945
---------- ----------
1,614,141 1,336,837
Loans secured by savings deposits . . . . . . . . . . . . . . . . . . . . . . . 15,015 15,013
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,961 134,943
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,494 21,830
---------- ----------
1,783,611 1,508,623
Undisbursed loans in process . . . . . . . . . . . . . . . . . . . . . . . . . . (16,315) (20,008)
Deferred fees and discounts, including net purchase accounting discounts . . . . (26,884) (20,570)
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,314) (5,157)
---------- ----------
$1,735,098 $1,462,888
========== ==========
</TABLE>
At December 31, 1993 and 1992, the weighted average interest rate for
loans receivable was 7.63% and 8.47%, respectively.
Nonaccrual and renegotiated loans were $8 million and $14 million at
December 31, 1993 and 1992, respectively.
ASB services real estate loans ($178 million, $311 million and $487
million at December 31, 1993, 1992 and 1991, respectively) which are not
included in the accompanying consolidated financial statements. Fees earned for
servicing loans are reported as income when the related mortgage loan payments
are collected. Loan servicing costs are charged to expense as incurred.
Mortgage loan commitments of approximately $83 million are not
reflected on the balance sheet as of December 31, 1993. Of such commitments,
$22 million were for variable-rate mortgage loans and $61 million were for
fixed-rate mortgage loans.
ALLOWANCE FOR LOAN LOSSES. For the years ended December 31, 1993, 1992 and
1991, net charge-offs amounted to $0.6 million, $0.2 million and $0.2 million,
respectively. The ratio of net charge-offs to average loans outstanding was
0.04%, 0.01%, and 0.02% for the years ended December 31, 1993, 1992 and 1991,
respectively.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS. At December 31, 1993 and 1992,
ASB had real estate acquired in settlement of loans of $0.2 million and $1.9
million, respectively.
DEPOSIT LIABILITIES. Deposit liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
-------------------------- -------------------------
WEIGHTED Weighted
AVERAGE Average
RATE AMOUNT Rate Amount
-------- ---------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial checking . . . . . . . . . . . . . . . . -- % $ 17,405 -- % $ 19,060
Interest-bearing checking . . . . . . . . . . . . . 2.42 255,838 3.25 278,366
Passbook . . . . . . . . . . . . . . . . . . . . . 3.48 1,211,330 3.97 969,222
Money market . . . . . . . . . . . . . . . . . . . 3.11 106,362 3.65 131,774
Term certificates . . . . . . . . . . . . . . . . . 4.40 500,648 4.93 634,447
---- ---------- ---- ----------
3.52% $2,091,583 4.11% $2,032,869
==== ========== ==== ==========
</TABLE>
55
<PAGE> 30
At December 31, 1993 and 1992, deposit accounts of $100,000 or more
totaled $438 million and $465 million, respectively.
The approximate scheduled maturities of term certificates outstanding
at December 31, 1993 were $321 million in 1994, $77 million in 1995, $40
million in 1996, $5 million in 1997, $15 million in 1998 and $43 million in
subsequent years.
The interest expense on savings deposits by type of deposit was as
follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Interest-bearing checking . . . . . . . . . . . . . . . . . . . . . . . $ 6,679 $ 9,982 $ 8,575
Passbook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,021 34,645 20,266
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,758 6,447 9,845
Term certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,193 43,265 60,356
------- ------- -------
$77,651 $94,339 $99,042
======= ======= =======
</TABLE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. At December 31, 1993, there
are no securities sold under agreements to repurchase. At December 31, 1992,
securities sold under agreements to repurchase consisted of mortgage-backed
securities sold under fixed-coupon agreements. Other than Federal Home Loan
Mortgage Corporation (FHLMC) mortgage-backed securities, the securities
underlying the agreements were delivered to the brokers/dealers who arranged
the transactions. The FHLMC mortgage-backed securities are book-entry
securities and were delivered by appropriate entry into the counterparties'
accounts at the Federal Reserve System. At December 31, 1992, the $33 million
carrying value of securities underlying the agreements remained in ASB's asset
accounts. The obligation to repurchase securities sold is reflected as a
liability in the consolidated balance sheets. At December 31, 1992,
approximately $27 million of agreements to repurchase identical securities were
outstanding. At December 31, 1992, the weighted average interest rate on
securities sold under agreements to repurchase was 3.34% and the weighted
average remaining days to maturity were 270 days. Securities sold under
agreements to repurchase averaged $20 million, $66 million and $124 million
during 1993, 1992 and 1991, respectively, and the maximum amount outstanding at
any month-end during 1993, 1992 and 1991 was $27 million, $125 million and $136
million, respectively.
ADVANCES FROM FEDERAL HOME LOAN BANK. Advances from the Federal Home Loan Bank
(FHLB), secured by mortgage-backed securities and stock in the FHLB, are
summarized as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
------------------------- -------------------------
WEIGHTED Weighted
AVERAGE average
RATE AMOUNT rate Amount
-------- ------ -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in
1993 . . . . . . . . . . . . . . . . . . . . . . . -- % $ -- 8.57% $ 21,917
1994 . . . . . . . . . . . . . . . . . . . . . . . 6.40 73,000 6.94 62,000
1995 . . . . . . . . . . . . . . . . . . . . . . . 8.33 16,822 8.33 16,822
1996 . . . . . . . . . . . . . . . . . . . . . . . 7.23 58,360 7.48 52,860
1997 . . . . . . . . . . . . . . . . . . . . . . . 5.99 73,800 6.95 40,500
1998 . . . . . . . . . . . . . . . . . . . . . . . 4.96 36,392 -- --
Thereafter . . . . . . . . . . . . . . . . . . . . 4.98 31,300 -- --
----- -------- ------ --------
6.24% $289,674 7.39% $194,099
===== ======== ====== ========
</TABLE>
As a member of the FHLB system, ASB is required to own a specific
number of shares of capital stock of the FHLB of Seattle and is required to
maintain cash and investments in U.S. Government and other qualifying
securities in an amount equal to 5% of the amount of its savings accounts
and other obligations due within one year.
COMMON STOCK EQUITY. OTS regulations require each thrift institution
to have regulatory capital at least sufficient to meet three requirements:
tangible capital and core (leverage) capital of 1.5% and 3.0%, respectively,
of adjusted total assets, and a risk-based capital standard equal to 8.0%
of risk-adjusted assets. As of December 31, 1993, ASB was in compliance
with all of the minimum capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991
established a statutory framework for closer monitoring of insured depository
institutions in order to ensure "prompt corrective action" by regulators as an
institution's capital position declines. The OTS rules for prompt corrective
action, effective on December 19, 1992, define the capital measures for five
capital categories (well-capitalized, adequately
56
<PAGE> 31
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), and provide for progressively more stringent restrictions
and supervision as capital levels decline. To be classified as
"well-capitalized," an institution must have a "leverage ratio" of 5%, a
"Tier-1 risk-based ratio" of 6% and a "total risk-based ratio" of 10%. As of
December 31, 1993, ASB believes that based on OTS capital standards it would
have been classified as "well-capitalized."
MANAGEMENT SERVICES FEES. In the second quarter of 1992, HEI changed its
method of billing corporate-level expenses to ASB such that only certain direct
charges, rather than fully-allocated costs, were billed to ASB. However, no
change was made by HEI in the manner in which corporate-level expenses are
allocated for segment reporting purposes. Thus, operating income for the
savings bank segment differs from the operating income reported in the separate
financial statements of ASB for the year ended December 31, 1992 because of
corporate-level expenses which were allocated to the segment, but were not
billed. Also, because of the change in intercompany billing practice, net
income of ASB shown for the year ended December 31, 1992 is $1.0 million
greater than it would have been had the billing practice used in prior years
been consistently followed. In 1993 and 1991, corporate-level expenses
allocated to the savings bank segment did not differ from the amount billed to
ASB, and operating income for the savings bank segment did not differ from the
operating income reported in the separate financial statements of ASB. For
segment reporting purposes, HEI expenses allocated to the savings bank segment
for general management, administrative and support services totaled $0.8
million, $2.0 million and $1.7 million for 1993, 1992 and 1991, respectively.
6 o REAL ESTATE SUBSIDIARY
At December 31, 1993 and 1992, MPC and its subsidiaries' total real estate
project inventory, equity investment in real estate joint ventures and loans to
unconsolidated joint ventures or joint venture partners amounted to $49 million
and $41 million, respectively.
On August 17, 1992, Malama Mohala Corp. (MMO), a wholly owned subsidiary of
MPC, acquired MDT-BF Limited Partnership's (MDT) 50% interest in Ainalani
Associates (Ainalani), a joint venture between MMO and MDT. Upon closing of the
purchase, Ainalani was dissolved. The amount of consideration for the transfer,
which was not material to the Company's financial condition, was determined by
an arbitration process which ended on March 31, 1993 and was based primarily on
the net present value of MDT's partnership interest in Ainalani as of June 30,
1992. MMO plans to complete the development and sale of Ainalani's three
projects on the islands of Maui and Hawaii and has assumed Ainalani's 50%
partnership interest in Palailai Associates, a partnership with Palailai
Holdings, Inc.
In 1990, Malama Development Corp. (MDC) acquired a 50% general partnership
interest in Baldwin*Malama, a partnership with Baldwin Pacific Properties, Inc.
(BPPI). In May 1993, Baldwin*Malama was reorganized as a limited partnership in
which MDC became the sole general partner and BPPI the sole limited partner.
Beginning in May 1993, in conjunction with the dissolution of the general
partnership and formation of the limited partnership, MDC consolidated the
accounts of Baldwin*Malama. Previously, MDC accounted for its investment in
Baldwin*Malama under the equity method.
RELATED PARTY TRANSACTIONS. Two of MPC subsidiaries' joint ventures involve
partnerships in which a director of HEI has significant interests. Another
director of HEI had a significant interest in MDT, MMO's former partner in
Ainalani. Palailai Associates, one of MMO's joint ventures, involves a
corporate partner, Palailai Holdings, Inc., in which the family of an HEI
officer has a significant interest. Investments in joint ventures with related
parties aggregated $15 million and $21 million as of December 31, 1993 and
1992, respectively.
COMMITMENTS AND CONTINGENCIES. At December 31, 1993, MPC or its subsidiaries
were directly liable for $11.5 million of outstanding construction loans and
had additional construction loan facilities of $5.8 million. In addition, at
December 31, 1993, MPC or its subsidiaries had issued (i) guaranties under
which they were jointly and severally contingently liable with their joint
venture partners for $2.1 million of outstanding construction loans and (ii)
payment guaranties under which MPC or its subsidiaries were severally
contingently liable for $4.6 million of outstanding construction loans and $4.7
million of additional undrawn construction loan facilities. In total, at
December 31, 1993, MPC or its subsidiaries were liable or contingently liable
for $18.2 million of outstanding construction loans and $10.5 million in
undrawn construction loan facilities. At December 31, 1993, HEI had agreed with
the lenders of construction loans and loan facilities, of which approximately
$10.5 million was undrawn and $16.1 million was outstanding, that it will
maintain ownership of 100% of the stock of MPC and that it intends, subject to
good and prudent business practices, to keep MPC financially sound and
responsible to meet its obligations. MPC or its subsidiaries may enter into
additional commitments in connection with the financing of future phases of
development of MPC's projects and HEI may enter into similar agreements
regarding the ownership and financial condition of MPC.
57
<PAGE> 32
7 o INVESTMENTS
Marketable securities consisted of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
------------------------- -------------------------
ESTIMATED Estimated
CARRYING MARKET Carrying market
VALUE VALUE value value
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Savings bank
Mortgage-backed and other debt securities . . . . . $675,552 $687,166 $748,221 $765,732
Stock in Federal Home Loan Bank of Seattle . . . . 23,203 23,203 20,194 20,194
-------- -------- -------- --------
$698,755 $710,369 $768,415 $785,926
======== ======== ======== ========
</TABLE>
ASB has private-issue mortgage-backed securities and mortgage-backed
securities purchased from the Federal Home Loan Mortgage Corporation (FHLMC),
Government National Mortgage Association (GNMA) and Federal National Mortgage
Association (FNMA). The amortized cost and estimated market values of ASB's
mortgage-backed and other debt securities were as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
----------------------------------------------- -----------------------------------------------
GROSS GROSS ESTIMATED Gross Gross Estimated
CARRYING UNREALIZED UNREALIZED MARKET Carrying unrealized unrealized market
VALUE GAINS LOSSES VALUE value gains losses value
-------- ---------- ---------- --------- -------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities held for
investment
Private-issue . . $465,373 $4,339 $(1,440) $468,272 $491,566 $4,090 $(1,472) $494,184
FHLMC . . . . . 117,803 8,024 -- 125,827 182,670 12,378 -- 195,048
GNMA . . . . . . 42,539 906 (629) 42,816 22,488 1,030 (106) 23,412
FNMA . . . . . . 4,441 414 -- 4,855 13,167 1,100 -- 14,267
U.S. Government and
federal agencies
securities held for
investment . . . . -- -- -- -- 15,293 491 -- 15,784
Other securities held
for trading . . . 45,396 -- -- 45,396 23,037 -- -- 23,037
-------- ------- ------- -------- -------- ------- ------- --------
$675,552 $13,683 $(2,069) $687,166 $748,221 $19,089 $(1,578) $765,732
======== ======= ======= ======== ======== ======= ======= ========
</TABLE>
Contractual maturities are not presented for ASB's mortgage-backed securities
held for investment because these securities are not due at a single maturity
date.
ASB did not sell mortgage-backed securities held for investment in 1993 and
1992. Proceeds from the sale of a mortgage-backed security held for investment
were approximately $30 million for 1991. The proceeds from the 1991 sale
approximated the carrying value of the mortgage-backed security. ASB did not
sell other debt securities held for investment during 1993, 1992 and 1991.
Other investments, which have no ready market, consisted of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
(in thousands) ------- -------
<S> <C> <C>
Leveraged leases (see Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,115 $51,202
Real estate joint venture interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,494 24,796
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,497 5,976
------- -------
$77,106 $81,974
======= =======
</TABLE>
Realized gains and losses from the sale and writedown of other investments
were not material in 1993, 1992 and 1991.
58
<PAGE> 33
8 o INVESTMENT IN LEVERAGED LEASES
HEIIC owns commercial real estate which is subject to several leveraged lease
agreements entered into in 1987. The initial lease terms expire in 2009 and
2010, after which the lessees have options to renew the leases at fixed rentals
for additional periods of up to 28 years. The real estate reverts back to HEIIC
at the end of the last renewal term if not purchased by the lessees.
HEIIC also has a 25% interest in a leveraged lease agreement entered
into in 1985 under which 60% of an 818-MW coal-fired generating unit was leased
until 2013. The lessee has options to renew the lease at fixed rentals for at
least 8.5 additional years, and thereafter at fair market rentals.
In 1993, HEIIC refinanced approximately $13 million of nonrecourse debt
supporting one of the leveraged leases, reducing the interest rate from 16.75%
to 8.68%. As a result of the refinancing, 1993 net income increased by $1.1
million and an additional $7.5 million of net income from the leveraged lease
will be recognized over the remaining life of the lease.
The Omnibus Budget Act of 1993, which raised the maximum corporate
income tax rate by 1% effective January 1, 1993, caused a reduction in 1993 net
income from leveraged leases of $0.5 million.
HEIIC's net investment in leveraged leases was as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
(in thousands) ---------- -----------
<S> <C> <C>
Rentals receivable, net of principal and interest on nonrecourse debt . . . . . . . . $ 62,225 $ 49,055
Estimated residual value of leased assets . . . . . . . . . . . . . . . . . . . . . . . 35,268 35,268
Less unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,378) (33,121)
---------- ----------
Investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,115 51,202
Less deferred taxes arising from leveraged leases . . . . . . . . . . . . . . . . . . . (45,418) (44,928)
---------- ----------
$ 7,697 $ 6,274
========== ==========
</TABLE>
9 o PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
---------- ----------
(in thousands)
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,103 $ 35,646
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,058,201 1,858,150
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,875 109,116
---------- ----------
2,221,179 2,002,912
Less--accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (678,190) (615,084)
---------- ----------
$1,542,989 $1,387,828
========== ==========
</TABLE>
10 o REGULATORY ASSETS
Regulatory assets at December 31, 1993 and 1992 include the following deferred
costs:
<TABLE>
<CAPTION>
December 31 1993 1992
(in thousands) ---------- ----------
<S> <C> <C>
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . $ 19,210 $ --
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,297 --
Preliminary plant costs on suspended project . . . . . . . . . . . . . . . . . . . . 6,577 --
Vacation earned, but not yet taken . . . . . . . . . . . . . . . . . . . . . . . . . 5,494 --
Unamortized debt expense on retired issuances . . . . . . . . . . . . . . . . . . . . 5,435 4,983
Integrated resource planning costs . . . . . . . . . . . . . . . . . . . . . . . . . 4,661 1,730
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,403 955
---------- ----------
$ 62,077 $ 7,668
========== ==========
</TABLE>
In 1994, HECO intends to apply to the PUC for recovery of the preliminary plant
costs on a suspended project.
59
<PAGE> 34
11 o SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1993 and 1992 consisted of
commercial paper and bank loans.
HEI maintained bank lines of credit which totaled $50 million and $30
million at December 31, 1993 and 1992, respectively. HECO maintained bank lines
of credit which totaled $108 million and $135 million at December 31, 1993 and
1992, respectively. As of January 1, 1994, HECO maintained bank lines of credits
which totaled $85 million. The HEI and HECO lines of credit support the issuance
of commercial paper. There were no borrowings under any line of credit during
1993 and 1992.
12 o LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31 1993 1992
(dollars in thousands) -------- --------
<S> <C> <C>
First mortgage bonds
4.45-5.75%, due in various years through 1997 . . . . . . . . . . . . . . . . . . . . . . $ 24,000 $ 40,000
6.875-7.875%, due in various years through 2003 . . . . . . . . . . . . . . . . . . . . . 22,000 22,850
8.20-9.875%, due in various years through 2016 . . . . . . . . . . . . . . . . . . . . . 43,000 73,000
10.75%, due 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
-------- --------
94,000 140,850
Obligations to the State of Hawaii for the repayment of special purpose -------- --------
revenue bonds issued on behalf of electric utility subsidiaries
6.875% refunding series 1987, due 2012 . . . . . . . . . . . . . . . . . . . . . . . . . 57,500 57,500
7.2% series 1984, due 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,400 11,400
7.625% series 1988, due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
7.35-7.6% series 1990, due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
6.55% series 1992, due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 60,000
5.45% series 1993, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 --
-------- --------
378,900 278,900
Less funds on deposit with trustees . . . . . . . . . . . . . . . . . . . . . . . . . (56,205) (44,993)
Less unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,986) --
-------- --------
320,709 233,907
-------- --------
Promissory notes
4.85-5.83%, due in various years through 1998 . . . . . . . . . . . . . . . . . . . . . . 70,000 1,500
6.262-7.59%, due in various years through 2003 . . . . . . . . . . . . . . . . . . . . . 113,000 83,640
8.20-9.9%, due in various years through 2011 . . . . . . . . . . . . . . . . . . . . . . 100,100 122,500
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 78
-------- --------
283,127 207,718
-------- --------
$697,836 $582,475
======== ========
</TABLE>
The first mortgage bonds are secured by separate indentures which
purport to be liens on substantially all of the real and personal property now
owned or hereafter acquired by the respective electric utility subsidiaries.
In December 1993, HECO and its subsidiaries issued $70 million of
medium-term notes bearing interest at rates ranging from 4.85% to 5.83% and
with maturities varying between December 1995 through December 1998.
In June 1993, HEI issued $37 million of medium-term notes bearing
interest at rates ranging from 6.39% to 7.09% and with maturities varying
between June 1999 through June 2003.
In October 1992, HEI issued $50 million of senior unsecured debt
comprised of a $30 million 6.262% note and a $20 million 6.42% note, both due in
October 1997.
In 1993 and 1992, $100 million and $60 million, respectively, of fixed
rate, tax-exempt special purpose revenue bonds were issued by the Department of
Budget and Finance of the State of Hawaii on behalf of the electric utility
subsidiaries. The funds on deposit with trustees represent the undrawn proceeds
from the issuance of the special purpose revenue bonds and earn interest at
market rates. These funds are only available to the
60
<PAGE> 35
electric utility subsidiaries for certain authorized construction projects and
certain expenses related to the bonds.
At December 31, 1993, the aggregate payments of principal required on
long-term debt during the next five years and thereafter are $76 million in
1994, $23 million in 1995, $68 million in 1996, $65 million in 1997, $52
million in 1998 and $414 million thereafter.
13 o COMMON STOCK
Changes to common stock were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------- ---------------------- ---------------------
COMMON Common Common
SHARES STOCK Shares stock Shares stock
------ -------- ------ -------- ------ --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year . . . . . . . 24,762 $409,257 23,867 $376,783 21,918 $310,257
Issuance of common stock
Public offering . . . . . . . . . . . 2,000 74,500 -- -- 1,200 41,250
Dividend reinvestment and
stock purchase plan . . . . . . . 758 28,013 703 27,102 652 22,476
HEI retirement savings and
other plans . . . . . . . . . . . 155 5,637 192 6,822 97 3,145
Expenses and other . . . . . . . . . . -- (2,697) -- (1,450) -- (345)
------ -------- ------ -------- ------ --------
Balance, end of year . . . . . . . . . . 27,675 $514,710 24,762 $409,257 23,867 $376,783
====== ======== ====== ======== ====== ========
</TABLE>
At December 31, 1993, the Company had reserved a total of 2,359,000
shares of common stock for issuance under the Hawaiian Electric Industries
Retirement Savings Plan, the Dividend Reinvestment and Stock Purchase Plan, and
the 1987 Stock Option and Incentive Plan.
14 o INTEREST EXPENSE
Interest expense, including amounts capitalized as allowance for borrowed funds
used during construction and excluding interest on nonrecourse debt on
leveraged leases, consisted of the following:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Interest expense
Savings bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,701 $114,606 $124,532
Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,287 33,011 33,248
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,905 14,130 10,273
-------- -------- --------
$145,893 $161,747 $168,053
======== ======== ========
</TABLE>
15 o INCOME TAXES
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes."
The new standard requires companies to use the asset and liability method of
accounting for income taxes. The objective of the asset and liability method
is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such deferred tax assets or liabilities are realized or settled.
Effective January 1, 1993, the Company adopted SFAS No. 109. The resulting
change in the method of accounting for income taxes had no material effect on
net income for the year ended December 31, 1993 primarily due to the regulated
nature of the electric utility subsidiaries and YB. For these PUC regulated
subsidiaries, the net increase in deferred income taxes arising from the
adoption of SFAS No. 109 is recoverable
61
<PAGE> 36
through future rates and has been recorded as a regulatory asset. Under SFAS
No. 109, additional income tax expense of $1.8 million resulted from the 1%
increase in the maximum corporate income tax rate enacted by the Omnibus Budget
Reconciliation Act of 1993.
Total income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) ------- -------- -------
<S> <C> <C> <C>
Continuing operations . . . . . . . . . . . . . . $47,086 $ 29,529 $32,333
Discontinued operations . . . . . . . . . . . . . (7,982) (50,623) (2,414)
------- -------- -------
$39,104 $(21,094) $29,919
======= ======== =======
</TABLE>
The components of income taxes attributable to income from continuing
operations were as follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Federal
Current . . . . . . . . . . . . . . . . . . . . $40,537 $32,425 $21,950
Deferred . . . . . . . . . . . . . . . . . . . (152) (7,085) 5,942
Deferred tax credits, net . . . . . . . . . . . . 50 (1,777) (1,771)
------- ------- -------
40,435 23,563 26,121
------- ------- -------
State
Current . . . . . . . . . . . . . . . . . . . . 3,385 1,634 2,927
Deferred . . . . . . . . . . . . . . . . . . . (475) (332) 1,467
Deferred tax credits, net . . . . . . . . . . . 3,741 4,664 1,818
------- ------- -------
6,651 5,966 6,212
------- ------- -------
$47,086 $29,529 $32,333
======= ======= =======
</TABLE>
Under Accounting Principles Board Opinion No. 11, the sources of timing
differences in the recognition of revenues and expenses for tax and financial
reporting purposes related to the 1992 and 1991 provisions for deferred income
taxes were as follows:
<TABLE>
<CAPTION>
Years ended December 31 1992 1991
(in thousands) ------- -------
<S> <C> <C>
Excess of tax depreciation over book straight-line depreciation rates . . . . . . . $ 2,977 $ 3,218
Excess tax deductions from leveraged leases . . . . . . . . . . . . . . . . . . . . 2,099 2,676
Excess of tax pension deduction over book expense . . . . . . . . . . . . . . . . . (47) 2,984
Interest capitalized for tax purposes . . . . . . . . . . . . . . . . . . . . . . . (3,347) (1,967)
Gain on sale of land deferred for book purposes . . . . . . . . . . . . . . . . . . (4,737) --
Contributions in aid of construction and customer advances, net . . . . . . . . . . (6,095) (2,773)
Other 1,733 3,271
------- -------
$(7,417) $ 7,409
======= =======
</TABLE>
62
<PAGE> 37
A reconciliation of the amount of income taxes attributable to income from
continuing operations computed at the federal statutory rate to the amount
provided in the Company's Consolidated Statements of Income is as follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Federal statutory income tax rate . . . . . . . . . . . . . . . . 35% 34% 34%
Amount at the federal statutory income tax rate . . . . . . . . . $38,070 $31,023 $29,904
State income taxes, net of effect on federal income taxes . . . . 4,323 3,938 4,100
Preferred stock dividends of electric utility subsidiaries . . . 2,281 2,281 2,342
Difference between book and tax straight-line depreciation
for which no deferred taxes were provided . . . . . . . . . . -- 3,015 2,676
Amortization of contributions in aid of construction . . . . . . -- (1,658) (1,476)
Amortization of utility deferred income taxes in
excess of current rates . . . . . . . . . . . . . . . . . . . -- (1,675) (1,537)
Amortization of deferred tax credits . . . . . . . . . . . . . . -- (1,776) (1,787)
Allowance for funds used during construction . . . . . . . . . . -- (2,375) (1,403)
Utilization of capital loss carryforwards . . . . . . . . . . . . -- (3,317) (481)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,412 73 (5)
------- ------- -------
$47,086 $29,529 $32,333
======= ======= =======
</TABLE>
For financial reporting purposes, the Company has not recognized any
benefit for operating losses of HIG, its discontinued insurance subsidiary, in
excess of the Company's tax basis in HIG.
Deferred tax assets and deferred tax liabilities were comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
(in thousands) -----------------
<S> <C>
Deferred tax assets
Property, plant and equipment . . . . . . . . . . . . . . . . $ 6,133
Contributions in aid of construction and customer advances . . 44,932
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,435
--------
76,500
Deferred tax liabilities --------
Property, plant and equipment . . . . . . . . . . . . . . . . 162,671
Leveraged leases . . . . . . . . . . . . . . . . . . . . . . . 45,418
Regulatory asset . . . . . . . . . . . . . . . . . . . . . . . 6,237
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,324
--------
243,650
Discontinued operations . . . . . . . . . . . . . . . . . . . 1,179
--------
244,829
--------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . $168,329
========
</TABLE>
There was no valuation allowance provided for deferred tax assets as of
December 31, 1993.
16 o CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION. Cash paid for interest (net
of capitalized amounts which were not material) and income taxes were as
follows:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest (including interest paid by savings bank, but
excluding interest paid on nonrecourse debt on
leveraged leases) . . . . . . . . . . . . . . . . . . . . . $142,138 $158,553 $169,092
======== ======== ========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,641 $ 29,162 $ 28,810
======== ======== ========
</TABLE>
63
<PAGE> 38
In 1993, 1992 and 1991, cash paid for interest on nonrecourse debt on leveraged
leases amounted to $10 million, $11 million and $11 million, respectively.
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES. Common stock dividends
reinvested by shareholders in HEI common stock in noncash transactions amounted
to $17 million, $15 million and $14 million in 1993, 1992 and 1991,
respectively.
Effective in 1993, HECO recognized the estimated fair value of noncash
contributions in aid of construction received in 1993 and prior years, which
increased both plant and contributions in aid of construction by $26 million.
The allowance for equity funds used during construction, which was
capitalized as part of the cost of electric utility plant, amounted to $7
million, $7 million and $4 million in 1993, 1992 and 1991, respectively.
As described in Note 6, on August 17, 1992, MMO, a wholly owned
subsidiary of MPC, acquired MDT's 50% interest in Ainalani, a joint venture
between MMO and MDT. Upon closing of the purchase, Ainalani was dissolved. As
of December 31, 1992, MMO had made no payment to MDT for MDT's 50% interest in
Ainalani. In 1993, the payment to MDT, which was not material to the Company's
financial condition, was primarily reflected as an increase in other
investments in the Consolidated Statements of Cash Flows for the year ended
December 31, 1993. Prior to the acquisition of MDT's interest in Ainalani, MMO
accounted for its investment in Ainalani under the equity method. Subsequent to
the acquisition, MMO consolidated all of Ainalani's assets and liabilities,
which constituted less than 1% of the total consolidated assets and
liabilities, respectively, of HEI and its subsidiaries.
17 o STOCK OPTION AND INCENTIVE PLAN
Under the 1987 Stock Option and Incentive Plan, as amended, an aggregate of
1,250,000 shares of common stock may be issued to officers and key employees as
incentive stock options, nonqualified stock options, restricted stock, stock
appreciation rights, stock payments or dividend equivalents.
Only nonqualified stock options have been granted to date. For these
options, the purchase price of common stock was based on the market value of
the common stock on or near the date of grant. Options may be exercised as
determined by the Compensation Committee of the Board of Directors, but in no
event after 10 years and one day from the date of grant in the case of
nonqualified stock options.
Nonqualified stock option transactions were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Options outstanding, beginning of year . . . . . . . . . . . . . . . . 359,000 227,500 152,500
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,000 209,000 98,500
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,542) (75,625) (20,500)
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,875) (3,000)
------- ------- -------
Options outstanding, end of year . . . . . . . . . . . . . . . . . . . 463,458 359,000 227,500
======= ======= =======
Options exercisable, December 31 . . . . . . . . . . . . . . . . . . . 235,458 189,625 92,750
======= ======= =======
Price range for options
Exercised
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36 $36 $33
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 27 27
Outstanding, December 31
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 41 36
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 30 27
======= ======= =======
</TABLE>
18 o RETIREMENT BENEFITS
PENSIONS. The Company has several defined benefit pension plans which cover
substantially all employees. Benefits are based on the employees' years of
service and base compensation.
64
<PAGE> 39
The funded status of the pension plans and the amounts recognized in
the consolidated financial statements were as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
(in thousands) -------- --------
<S> <C> <C>
Accumulated benefit obligation
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $293,627 $241,834
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,543 30,774
-------- --------
$337,170 $272,608
======== ========
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $432,435 $336,617
Plan assets at fair value, primarily equity securities and fixed income investments . . 410,369 351,589
-------- --------
Projected benefit obligation in excess of (less than) plan assets . . . . . . . . . . 22,066 (14,972)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,401) (2,666)
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,958 44,542
Unrecognized net transition obligation . . . . . . . . . . . . . . . . . . . . . . . . (22,259) (24,657)
Adjustment required to recognize minimum liability . . . . . . . . . . . . . . . . . . 1,985 1,162
-------- --------
Accrued pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,349 $ 3,409
======== ========
</TABLE>
The accumulated benefit obligation is the actuarial present value of
benefits attributed to past services rendered by employees based on recent pay
levels. The projected benefit obligation is the accumulated benefit obligation
adjusted for the effect of assumed future pay increases. Plans with an
accumulated benefit obligation exceeding assets were not material.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the period . . . . . . . . . . . . $11,423 $10,358 $ 9,518
Interest cost on projected benefit obligation . . . . . . . . . . . . . 27,350 27,401 24,741
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . (56,710) (14,050) (73,139)
Amortization and deferral, net . . . . . . . . . . . . . . . . . . . . 35,607 (5,721) 55,043
------- ------- --------
$17,670 $17,988 $16,163
======= ======= ========
</TABLE>
Of these net periodic pension costs, $12 million, $12 million and $11
million were expensed in 1993, 1992 and 1991, respectively, and the remaining
amounts were charged primarily to electric utility plant and plant-related
accounts.
For all pension plans, as of December 31, 1993 and 1992, the discount
rate assumed in determining the actuarial present value of the projected
benefit obligation was 7.0% and 8.5%, respectively. For 1993, 1992 and 1991,
the expected long-term rate of return on assets was 8.0% and the assumed rate
of increase in future compensation levels was 5%.
The unrecognized net transition obligation is the projected benefit
obligation in excess of plan assets at January 1, 1987, less amounts amortized.
For most of the plans, the unrecognized net transition obligation is being
amortized over 16 years beginning in 1987.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company provides various
postretirement benefits other than pensions to eligible employees upon
retirement. Health and life insurance benefits are provided to eligible
employees of HEI, HECO and its subsidiaries, and YB upon their retirement.
Medical, dental and vision benefits are provided to eligible employees of HEI
and HECO and its subsidiaries upon their retirement, with contributions by
retirees toward costs based on their years of service and retirement date.
Medical and vision benefits are provided to eligible bargaining unit employees
of YB upon their retirement at no cost. Employees are eligible for these
benefits if, upon retirement, they participate in one of the Company's defined
benefit pension plans. Currently, no funding has been provided for these
benefits. Through December 31, 1992, the cost of postretirement benefits other
than pensions had not been recognized until paid (i.e., the pay-as-you-go
method). Accordingly, no provision had been made for future benefits to
existing or retired employees. Payments for postretirement benefits other than
pensions amounted to $3 million in 1992 and 1991.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual, during the years that an employee renders the necessary service, of
the expected cost of providing postretirement benefits other than pensions to
that employee and the employee's beneficiaries and covered dependents. The
transition obligation is being recognized on a delayed basis over 20 years.
65
<PAGE> 40
In February 1992, the PUC opened a generic docket to determine whether SFAS
No. 106 should be adopted for rate-making purposes. On July 15, 1993, the PUC
issued an interim decision and order in the generic docket, amending an earlier
interim decision and order to state that it is probable that its final decision
will allow, for rate-making purposes, the full costs of postretirement benefits
other than pensions calculated on the basis of SFAS No. 106. Upon request of
HECO and its subsidiaries, on January 11, 1994, the PUC issued another interim
decision and order which stated that it has "determined that it will allow each
utility to calculate, for ratemaking purposes, the full costs of postretirement
benefits other than pensions on an accrual basis, rather than the current pay-
as-you-go basis." The PUC further stated that it has not yet decided whether
to adopt SFAS No. 106 in its entirety or with modifications, but it reaffirmed
that "(1) it is probable that the final decision and order in these dockets
will allow, for ratemaking purposes, the full costs of postretirement benefits
other than pensions calculated on the basis of SFAS [No.] 106; and (2) it is
probable that the difference between the costs of postretirement benefits other
than pensions determined under SFAS [No.] 106 and the current pay-as-you-go
method from January 1, 1993, through the effective date of the postretirement
benefits step increases . . . will be recovered ratably through future rates
over a period not extending beyond 2013."
Based upon these interim decisions and orders, HECO and its subsidiaries
and YB recognized regulatory assets and deferred for financial reporting
purposes the difference between the costs of postretirement benefits other than
pensions determined under SFAS No. 106 and such costs under the pay-as-you-go
method. The regulatory assets totaled approximately $19.2 million as of
December 31, 1993.
If the PUC in its final decision and order does not fully adopt SFAS No.
106 for rate-making purposes and if under current accounting guidelines it is
concluded that recognition of a regulatory asset with respect to the difference
between the accrual and the pay-as-you-go methods would be inappropriate, then
the net earnings of the Company would be adversely affected by SFAS No. 106 in
1994 and future years. Management cannot predict with certainty when the final
decision in this docket will be rendered.
The accrued liability for postretirement benefits other than pensions was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
(in thousands) -----------------
<S> <C>
Accumulated postretirement benefit obligation
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,498
Fully eligible active plan participants . . . . . . . . . . . . . . . . . 33,086
Other active plan participants . . . . . . . . . . . . . . . . . . . . . 53,760
---------
148,344
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (880)
Unrecognized net transition obligation . . . . . . . . . . . . . . . . . . (127,940)
---------
Accrued liability recognized in the balance sheet . . . . . . . . . . . . . $ 19,524
=========
</TABLE>
As of December 31, 1993, the assumed discount rate and rate of increase in
future compensation levels used to measure the accumulated postretirement
benefit obligation were 7.0% and 5.0%, respectively.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31 1993
(in thousands) --------
<S> <C>
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,712
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,216
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . . 6,733
-------
$23,661
=======
</TABLE>
Of the net periodic postretirement benefit cost, $3 million was expensed in
1993, and the remaining amount was charged primarily to regulatory assets,
electric utility plant and plant-related accounts.
As of December 31, 1993, the assumed health care trend rates for 1994 and
future years were as follows: medical, 7.0%; dental, 5.5%; and vision, 4.5%.
A 1% increase in the trend rate for health care costs would have increased
the accumulated postretirement benefit obligation as of December 31, 1993 by
approximately $25 million and the service and interest costs for 1993 by
approximately $3 million.
66
<PAGE> 41
19 o REGULATORY RESTRICTIONS ON NET ASSETS
At December 31, 1993, net assets (assets less liabilities) of approximately
$498 million were not available for transfer to HEI from its subsidiaries in
the form of dividends, loans or advances without regulatory approval. However,
HEI expects that the regulatory restrictions will not materially affect the
operations of the Company nor its ability to pay dividends on its common stock.
20 o SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Substantially all of the Company's business activity is with customers located
in the State of Hawaii. Most of the financial instruments reflected on the
consolidated balance sheets are based in the State of Hawaii, except for the
mortgage-backed securities. Substantially all real estate loans receivable are
secured by real estate in Hawaii.
At December 31, 1993, ASB's private-issue mortgage-backed securities
represented whole or participating interests in pools of first mortgage loans
collateralized by real estate in the continental United States, and
approximately 81% of the portfolio was collateralized by real estate in
California. ASB's management has concluded, based on internal reviews of its
private-issue mortgage-backed securities, that any impairment in the value of
its mortgage-backed securities portfolio resulting from the consequences of the
earthquake that occurred on January 17, 1994 near Los Angeles, California is
not likely to have a material effect on the Company's financial condition or
results of operations. At December 31, 1993, substantially all private-issue
mortgage-backed securities were rated investment grade by various securities
rating agencies.
21 o DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for certain financial
instruments.
The following methods and assumptions were used to estimate the fair
value of each applicable class of financial instruments for which it is
practicable to estimate that value:
CASH AND EQUIVALENTS. The carrying amount approximates fair value because of
the short maturity of these instruments.
LOANS RECEIVABLE. For certain homogeneous categories of loans, such as some
residential mortgages, credit card receivables, and other consumer loans, fair
value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for similar remaining maturities.
MARKETABLE SECURITIES. Fair value is based on quoted market prices or dealer
quotes.
DEPOSIT LIABILITIES. Under SFAS No. 107, the fair value of demand deposits,
savings accounts, and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS. The carrying amount approximates fair value because of
the short maturity of these investments.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. Dealer quotes currently
available to ASB for securities sold under agreements to repurchase with
similar terms and remaining maturities are used to estimate fair value.
ADVANCES FROM FEDERAL HOME LOAN BANK AND LONG-TERM DEBT. Fair value is
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to ASB for debt of the same or similar remaining
maturities.
PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES SUBJECT TO MANDATORY
REDEMPTION. There are no quoted market prices for the electric utility
subsidiaries' preferred stocks. Fair value is estimated based on quoted market
prices for similar issues of preferred stock.
67
<PAGE> 42
The estimated fair values of certain of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
December 31 1993 1992
--------------------------- ---------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and equivalents . . . . . . . . . . . . . . . $ 116,260 $ 116,260 $ 156,754 $ 156,754
Loans receivable, net . . . . . . . . . . . . . . 1,735,098 1,801,044 1,462,888 1,504,930
Marketable securities . . . . . . . . . . . . . . 698,755 710,369 768,415 785,926
Other investments for which it is not
practicable to estimate fair value (1) . . . . . 6,497 N/A 5,976 N/A
FINANCIAL LIABILITIES
Deposit liabilities . . . . . . . . . . . . . . . 2,091,583 2,095,850 2,032,869 2,038,552
Short-term borrowings . . . . . . . . . . . . . . 40,416 40,416 160,211 160,211
Securities sold under agreements to repurchase . . -- -- 27,223 27,272
Advances from Federal Home Loan Bank . . . . . . . 289,674 301,537 194,099 205,154
Long-term debt, net. . . . . . . . . . . . . . . . 697,836 722,347 582,475 589,142
PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES
SUBJECT TO MANDATORY REDEMPTION . . . . . . . . . 46,730 49,583 48,920 51,437
OFF-BALANCE SHEET
Commitments to extend credit (2) . . . . . . . . . .
Financial guarantees written (3) . . . . . . . . . .
</TABLE>
(1) At December 31, 1993 and 1992, the other investments for which it is not
practicable to estimate fair value consists primarily of an investment
representing approximately 10% of the issued common stock of an untraded
company; that investment had a carrying value of $5.5 million and $5.0
million as of December 31, 1993 and 1992, respectively. At December 31,
1992, the total assets reported by this company were $54 million and the
common stockholders' equity was $53 million. For 1992, revenues were $1.2
million and net loss was $1.3 million.
(2) At December 31, 1993 and 1992, neither the commitment fees received on
commitments to extend credit nor the fair value thereof were significant
to the consolidated financial statements of the Company.
(3) At December 31, 1993 and 1992, MPC or its subsidiaries had issued
guaranties of construction loans as described in Note 6. These guaranties
relate to borrowings from third parties which bear interest at rates
ranging from prime plus 1.0% to prime plus 1.5%. It is not practicable to
estimate the fair value of these guaranties.
N/A Not available.
LIMITATIONS. Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include inventories, real estate
developments, leveraged leases, property, plant and equipment, regulatory
assets, goodwill, deferred income taxes, unamortized tax credits and
contributions in aid of construction. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered.
68
<PAGE> 43
22 o QUARTERLY INFORMATION (UNAUDITED)
Selected quarterly information was as follows:
<TABLE>
<CAPTION>
Quarter ended
-------------------------------------------------- YEAR ENDED
1993 March 31 June 30 Sept. 30 Dec. 31 DEC. 31
---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . $279,348 $281,645 $299,486 $281,691 $1,142,170
Operating income . . . . . . . . . . . . . 28,331 43,919 40,458 44,930 157,638
Net income (loss)
Continuing operations . . . . . . . . . . $ 9,292 $ 18,977 $ 16,088 $ 17,327 $ 61,684
Discontinued operations . . . . . . . . . 1,800 -- -- (14,825) (13,025)
-------- -------- -------- -------- ----------
$ 11,092 $ 18,977 $ 16,088 $ 2,502 $ 48,659
======== ======== ======== ======== ==========
Earnings (loss) per common share (1)
Continuing operations . . . . . . . . . . $ 0.38 $ 0.76 $ 0.61 $ 0.63 $ 2.38
Discontinued operations . . . . . . . . . 0.07 -- -- (0.54) (0.50)
-------- -------- -------- -------- ----------
$ 0.45 $ 0.76 $ 0.61 $ 0.09 $ 1.88
======== ======== ======== ======== ==========
Dividends per common share . . . . . . . . $ 0.57 $ 0.57 $ 0.57 $ 0.58 $ 2.29
Market price per common share (2)
High . . . . . . . . . . . . . . . . . . 38.88 38.50 38.63 38.75 38.88
Low . . . . . . . . . . . . . . . . . . . 35.38 31.00 37.25 34.25 31.00
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1992
----
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . $237,456 $241,404 $270,917 $281,606 $1,031,383
Operating income . . . . . . . . . . . . . 31,644 33,511 37,301 33,763 136,219
Net income (loss)
Continuing operations . . . . . . . . . . $ 13,183 $ 15,513 $ 16,552 $ 16,467 $ 61,715
Discontinued operations . . . . . . . . . 809 228 (53,479) (20,855) (73,297)
-------- -------- -------- -------- ----------
$ 13,992 $ 15,741 $(36,927) $ (4,388) $ (11,582)
======== ======== ======== ======== ==========
Earnings (loss) per common share (1)
Continuing operations . . . . . . . . . . $ 0.55 $ 0.64 $ 0.68 $ 0.67 $ 2.54
Discontinued operations . . . . . . . . . 0.03 0.01 (2.20) (0.85) (3.02)
-------- -------- -------- -------- ----------
$ 0.58 $ 0.65 $ (1.52) $ (0.18) $ (0.48)
======== ======== ======== ======== ==========
Dividends per common share . . . . . . . . $ 0.56 $ 0.56 $ 0.56 $ 0.57 $ 2.25
Market price per common share (2)
High . . . . . . . . . . . . . . . . . . 37.13 39.88 44.63 42.00 44.63
Low . . . . . . . . . . . . . . . . . . . 35.13 36.13 39.50 34.75 34.75
======== ======== ======== ======== ==========
</TABLE>
(1) The quarterly earnings per common share are based upon the weighted average
number of shares of common stock outstanding in each quarter.
(2) Market prices shown are as reported on the NYSE Composite Tape. The common
stock of HEI is traded on the New York and Pacific Stock Exchanges under
the symbol HE.
69
<PAGE> 44
DIRECTORS AND OFFICERS
DIRECTORS
<TABLE>
<S> <C> <C> <C>
Committees of the Board of Robert F. Clarke, 51 (1) Victor Hao Li, S.J.D., 52 Oswald K. Stender, 62 (3)
Directors President and (2) Trustee
Chief Executive Officer Co-Chairman Kamehameha Schools/Bishop
(1) Executive: Hawaiian Electric Industries, Asia Pacific Consulting Estate (charitable trust)
Thurston Twigg-Smith, Inc. Group (international 1993
Chairman 1989 business consultant)
(2) Audit: 1988
Diane J. Plotts, Edwin L. Carter, 68 (1, 3) Kelvin H. Taketa, 39 (2)
Chairman Retired President and Bill D. Mills, 42 (3) Vice President and
(3) Compensation: Chief Executive Officer Chairman of the Board and Director-Pacific Region
Edwin L. Carter, Bishop Trust Company, Ltd. Chief Executive Officer The Nature Conservancy
Chairman (financial services) Bill Mills Development and (international conservation
(4) Nominating: 1985 Investment Company, Inc. non-profit)
Richard Henderson, (real estate development) 1993
Chairman 1988
John D. Field, 68 (2) Thurston Twigg-Smith, 72
Retired Vice President- A. Maurice Myers, 53 (3) (1, 4)
Regulatory Affairs President and Chief President and
GTE Service Corporation Operating Officer Chief Executive Officer
(telecommunications services) America West Airlines, Inc. Persis Corporation
1986 (commercial air (newspaper publishing)
transporation services) 1981
1991
Richard Henderson, 65 (1, 3, Jeffrey N. Watanabe, 51 (1, 3)
4) Ruth M. Ono, Ph.D., 58 (2) Senior Partner
HSC, Inc. Vice President Watanabe, Ing and Kawashima
(real estate investment and The Queen's Health Systems (private law firm)
development) (hospital and health care 1987
1981 services)
1987
Ben F. Kaito, 67 (1, 2, 4) Harwood D. Williamson, 62
of Counsel Diane J. Plotts, 58 (1, 2) Group Vice President-
Kaito & Ishida General Partner Utility Companies
(private law firm) Mideast and China Hawaiian Electric
1981 Trading Company Industries, Inc.
(real estate development) 1985
1987
Subsidiary Outside Directors Jorge G. Camara, M.D., 43 Sanford J. Langa, 64 Anne M. Takabuki, 37
Camara Eye Clinic Attorney at law Vice President-
(ophthalmology) (private law firm) Finance and Administration
American Savings Bank Maui Electric Company Wailea Resort Company, Ltd.
1991 1961 (resort and commercial
development)
Maui Electric Company
1993
Joseph W. Hartley, Jr., 60 B. Martin Luna, 55
President and Partner
Chief Executive Officer Carlsmith, Ball, Wichman, Donald K. Yamada, 62
Maui Land & Pineapple Company, Murray, Case, Mukai and President
Inc. Ichiki (private law firm) Yamada Diversified
(resort and commercial Maui Electric Company Corporation (construction
development, agriculture) 1979 and trucking services)
Maui Electric Company Hawaii Electric Light
1993 Company
1985
Richard T. Ishida, 58 Denzil W. Rose, 68 Paul C. Yuen, Ph.D., 65
Attorney at law Retired President and Senior Vice President-
Goodsill Anderson Quinn & General Manager University of Hawaii
Stifel Hawaii Motors (higher education)
(private law firm) (automobile dealership) Hawaiian Electric Company
Hawaii Electric Light Company Hawaii Electric Light 1993
1984 Company
1960
Mildred D. Kosaki, 69
Specialist in education
research
Hawaiian Electric Company
1973
</TABLE>
Year denotes year of
appointment of election
to the Board of Directors
70
<PAGE> 1
HECO EXHIBIT 13(b)
SELECTED CONSOLIDATED FINANCIAL DATA
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (years ended December 31,):
Operating revenues ... $ 874,010 $ 776,929 $ 739,636 $ 704,853 $ 604,955
Operating expenses ... 795,925 699,890 663,709 631,300 528,167
---------- ---------- ---------- ---------- ----------
Operating income ..... 78,085 77,039 75,927 73,553 76,788
Other income ......... 11,556 9,740 4,511 6,804 6,385
---------- ---------- ---------- ---------- ----------
Income before
interest and
other charges ....... 89,641 86,779 80,438 80,357 83,173
Interest and other
charges ............. 33,515 33,101 34,228 31,873 30,340
---------- ---------- ---------- ---------- ----------
Income before
preferred stock
dividends of HECO ... 56,126 53,678 46,210 48,484 52,833
Preferred stock
dividends of HECO ... 4,421 4,525 4,600 4,674 3,097
---------- ---------- ---------- ---------- ----------
Net income for common
stock ............... $ 51,705 $ 49,153 $ 41,610 $ 43,810 $ 49,736
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (at December 31,):
Utility plant ........ $2,102,534 $1,877,404 $1,701,218 $1,564,075 $1,444,356
Accumulated
depreciation ........ (641,230) (583,031) (536,552) (489,957) (448,213)
---------- ---------- ---------- ---------- ----------
Net utility plant .... $1,461,304 $1,294,373 $1,164,666 $1,074,118 $ 996,143
========== ========== ========== ========== ==========
Total assets ......... $1,703,276 $1,501,330 $1,318,023 $1,250,142 $1,127,088
========== ========== ========== ========== ==========
Capitalization:(1)
Long-term debt ....... $ 484,736 $ 374,835 $ 365,098 $ 356,741 $ 317,699
Preferred stock
subject to mandatory
redemption .......... 46,730 48,920 50,665 52,210 53,655
Preferred stock not
subject to mandatory
redemption .......... 48,293 36,293 36,293 36,293 36,293
Common stock equity .. 570,663 499,894 440,831 365,812 346,995
---------- ---------- ---------- ---------- ----------
Total capitalization . $1,150,422 $ 959,942 $ 892,887 $ 811,056 $ 754,642
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE RATIOS (at December 31,) (%):(2)
Debt ................. 44.1 45.9 43.1 48.4 44.8
Preferred stock ...... 8.0 7.9 9.4 10.1 11.4
Common stock equity .. 47.9 46.2 47.5 41.5 43.8
==========================================================================================================
</TABLE>
(1) Includes amounts due within one year and sinking fund requirements.
(2) Includes amounts due within one year, short-term borrowings from
nonaffiliates and affiliate, and sinking fund requirements.
Note: HEI owns all of HECO's common stock. Therefore, per share data is not
meaningful.
2
<PAGE> 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
EARNINGS
Net income for common stock for 1993 was $51.7 million compared to $49.2
million for 1992 and $41.6 million for 1991. The 1993 net income represents a
9.7% return on the average amount of common stock equity invested in HECO and
its subsidiaries (collectively, the "Company"), compared to returns of 10.5% in
1992 and 10.3% in 1991.
SALES
Consolidated sales of electricity were 8,325 million kilowatthours (KWH) for
1993, 8,332 million KWH for 1992, and 8,090 million KWH for 1991, excluding the
effect of the change made in 1991 in the method of estimating unbilled KWH
sales (see Note 15 in the "Notes to Consolidated Financial Statements"). Cool
weather, the downturn in the State economy and conservation efforts resulted in
a 0.1% decline in KWH sales in 1993 compared to 1992. KWH sales growth was
only 3.0% in 1992 due to the slowing in the State's economy. The low KWH sales
growth of 1.5% in 1991 reflects the departure of troops to the Middle East in
early 1991 and a decline in tourism due to the Gulf war and the recession on
the U.S. mainland.
OPERATING REVENUES
Operating revenues were $874.0 million in 1993, compared to $776.9 million in
1992 and $739.6 million in 1991. Revenues for 1993 increased by $97.1 million,
or 12.5%, over 1992 revenues due primarily to the full year's effect of rate
relief granted by the PUC during 1992 for HECO and HELCO, interim rate
increases granted to MECO in 1993, and higher fuel oil prices, which are passed
through to customers. The rate schedules of the Company include energy cost
adjustment clauses under which electric rates are adjusted for changes in the
weighted average price for fuel oil and certain components of purchased power,
and the relative amounts of company-generated and purchased power.
Kilowatthour sales of electricity were relatively flat primarily because of
cooler weather, a downturn in the State economy and conservation efforts.
The 1992 increase in operating revenues of $37.3 million, or 5.0%, over
1991 revenues was due primarily to higher KWH sales of electricity and rate
relief granted by the PUC for HECO and HELCO. Revenues for 1992 included the
full year's effect of HECO rate relief for power purchased from Kalaeloa
Partners, L.P. (Kalaeloa) which commenced operations in May 1991, and the
effect of HECO rate relief for power purchased from AES Barbers Point, Inc.
(AES-BP) which commenced operations in September 1992. The revenue increase
was tempered by lower fuel oil prices, which cost savings were passed through
to customers.
OPERATING EXPENSES
Total operating expenses were $795.9 million in 1993, compared to $699.9
million in 1992 and $663.7 million in 1991. The increase in 1993 operating
expenses over 1992 was primarily due to an increase in purchased power, income
taxes, and taxes other than income taxes expenses, partially offset by lower
fuel oil expense and the establishment of a regulatory asset for vacation
earned by employees, but not yet taken. The recognition of a regulatory asset
for vacation earned, but not yet taken resulted in a reduction in 1993
operating expenses on a one-time basis by $4.0 million. For rate-making
purposes, the PUC permits recovery of vacation pay on a pay-as-you-go basis.
3
<PAGE> 3
The increase in operating expenses in 1992 was largely due to an increase
in purchased power and other operation and maintenance expenses, partially
offset by lower fuel oil expense. Expenses for 1992 include relatively small
amounts related to Hurricane Iniki which struck primarily the island of Kauai
in September 1992. The Company does not provide electric service to the island
of Kauai and, thus, was not significantly impacted by the hurricane.
Fuel oil expense was $213.3 million in 1993, compared to $225.6 million
in 1992 and $275.8 million in 1991. The decrease in fuel oil expense in 1993
was due to fewer KWH generated due to the full year's effect of power purchased
from AES-BP, offset somewhat by higher fuel oil prices. The decrease in fuel
oil expense in 1992 was due to lower fuel oil prices and a decrease in the
number of KWH generated as a result of the increase in power purchased from
Kalaeloa and AES-BP. In 1993, the Company paid an average of $21.09 per barrel
of fuel oil, compared to $19.69 in 1992 and $22.79 in 1991.
Purchased power expense was $258.7 million in 1993, compared to $172.8
million in 1992 and $106.7 million in 1991. The increase in purchased power
expense in both 1993 and 1992 was due primarily to capacity and nonfuel
purchase power costs paid to independent power producers, and an increase in
the number of KWH purchased, mostly at HECO. Purchased KWH provided
approximately 34.9% of the total energy net generated and purchased in 1993,
compared to 26.2% in 1992 and 18.6% in 1991. The increase in purchased power
expense in 1992 was due to purchases on Oahu from AES-BP which commenced
operations in September 1992 and Kalaeloa which commenced operations in May
1991.
Other operation expenses in 1993 totaled $106.0 million, an increase of
$0.7 million over the 1992 amount. The increase was due primarily to higher
production, transmission and distribution, and administrative and general
expenses, including higher employee benefit costs, offset by lower management
service fees from HEI and the one-time effect of the establishment of a
regulatory asset for vacation earned by employees, but not yet taken. HEI
charges for general management, administra-tive and support services totaled
$2.3 million, $5.6 million and $5.1 million in 1993, 1992 and 1991,
respectively. Other operation expenses of $105.3 million for 1992 were $4.3
million, or 4.3%, higher than 1991 expenses. The increase was due primarily to
higher production, distribution, and administrative and general expenses,
including higher employee benefit costs. The higher production expense was due
primarily to costs associated with the placement into service in May 1992 of
MECO's 20-megawatt combustion turbine unit, which is the first phase of a
56-megawatt combined-cycle facility, and in August 1992 of HELCO's 20-megawatt
combustion turbine, and higher costs incurred to operate generating units at
HELCO on a continuous basis due to the delay in receiving power from Puna
Geothermal Ventures (PGV), with whom HELCO has a purchase power agreement for
the purchase of 25 megawatts of firm capacity.
Maintenance expenses in 1993 of $44.3 million decreased by $0.4 million
from 1992 primarily due to the one-time effect of the establishment of a
regulatory asset for vacation earned by employees, but not yet taken, offset by
increased maintenance on the transmission and distribution systems.
Maintenance expenses in 1992 were $44.7 million, a 13.2% increase over 1991.
The increase was due to higher production maintenance expenses, reflecting more
generating unit overhauls and maintenance of auxiliary generating equipment at
HECO, and a major overhaul of HELCO's Puna steam turbine unit; and increased
maintenance on the transmission and distribution systems.
Depreciation expense was up 3.9% in 1993 to $56.0 million and up 9.9% in
1992 to $53.9 million. The increase in both years reflects depreciation of the
Company's additions to plant in service in the previous year. Major additions
to plant in service in 1992 consisted primarily of transmission and
distribution substation projects at HECO, the addition of HELCO's 20-megawatt
combustion turbine and the addition of MECO's 20-megawatt combustion turbine.
Major additions to plant in service in 1991 consisted primarily of transmission
and distribution projects, including the interconnection of the AES-BP power
plant to HECO's system. Revised depreciation rates for HECO which went into
effect in late 1991 also contributed to higher depreciation expense in 1992.
4
<PAGE> 4
Taxes, other than income taxes increased 13.0% in 1993 to $80.7 million
and increased 5.6% in 1992 to $71.5 million. These taxes consist primarily of
taxes based on revenues, and the increases reflect the corresponding increases
in each year's operating revenues.
Income tax expense was higher in 1993 than 1992 and 1991 primarily due to
the 1% Federal income tax rate increase retroactive to January 1, 1993 and the
effects of the adoption of Statement of Financial Accounting Standards (SFAS)
No. 109. SFAS No. 109 does not allow net-of-tax accounting for the "Allowance
for Funds Used During Construction" (AFUDC). This results in higher income
taxes due to the "gross-up" of AFUDC for income taxes, but does not impact net
income.
OTHER INCOME
Other income of $11.6 million for 1993 was $1.8 million higher than for 1992
primarily because of the "gross-up" of allowance for equity funds used during
construction (AFUDC-Equity) resulting from the effects of the adoption of SFAS
No. 109, offset by the income tax benefit related to the utilization of capital
loss carryforwards in 1992. Other income of $9.7 million for 1992 was $5.2
million higher than for 1991. The increase was due primarily to higher
AFUDC-Equity, reflecting a higher level of construction in progress throughout
the year, and a $2.0 million income tax benefit related to the utilization of
capital loss carryforwards. The capital losses, for which no tax benefits were
previously recognized, were incurred primarily in 1987.
INTEREST AND OTHER CHARGES
Interest and other charges for 1993 totaled $33.5 million, compared to $33.1
million for 1992 and $34.2 million for 1991. Interest expense on long-term
debt for 1993 and 1992 decreased $0.3 million and increased $0.3 million,
respectively. The decrease in 1993 was due to lower interest expense on first
mortgage bonds resulting from the redemption of MECO's 6.875% Series F mortgage
bonds of $0.9 million in March 1993 and HECO's 4.45% Series M mortgage bonds of
$16 million in July 1993, and the early redemption of HECO's 8.2% Series R
mortgage bonds of $14 million and 8.35% Series T mortgage bonds of $16 million
in June 1993 and HECO's 9% Series Q mortgage bonds of $23 million in 1992,
offset by interest on drawdowns of tax-exempt special purpose revenue bond
proceeds during 1993 and the full year's interest on the drawdowns made the
previous year. The 1992 increase in interest expense was partially offset by
lower interest expense on first mortgage bonds resulting from the redemption of
HECO's 4.65% Series L mortgage bonds of $12 million in April 1991, and the
early redemptions of HECO's 9% Series Q mortgage bonds of $23 million in 1992,
and three issues of first mortgage bonds in 1991, i.e., HECO's 11 7/8% Series V
mortgage bonds of $12 million, HELCO's 16 1/8% Series O mortgage bonds of $2
million and MECO's 16 1/8% Series N mortgage bonds of $4 million.
Other interest charges of $7.5 million for 1993 was $2.4 million higher
than for 1992 primarily due to higher interest on short-term borrowings due to
higher borrowing levels, offset by lower interest rates.
REGULATION OF ELECTRIC UTILITY RATES
The PUC has broad discretion in its regulation of the rates charged by the
Company. Any adverse decision by the PUC concerning the level or method of
determining utility rates, the authorized returns on equity or other matters,
or any significant delay in rendering a decision in a rate proceeding, could
have a material effect on the Company's financial condition and results of
operations. Upon the showing of probable entitlement, the PUC is required to
issue an interim decision in a rate case within 10 months from the date of
filing a complete application if the evidentiary hearing is completed (subject
to a 30-day extension if the evidentiary hearing is not completed). However,
there is no time limit for rendering a final decision.
PENDING RATE REQUESTS
In July 1993, HECO applied to the PUC for permission to increase electric
rates, based on a 1994 test year and a 12.6% return on average common equity.
In December 1993, HECO applied to the PUC for permission to
5
<PAGE> 5
increase electric rates, based on a 1995 test year and a 12.3% return on
average common equity. Both requests combined represent a 16.7% increase over
present rates, or approximately $106 million in annual revenues. The requested
increases are needed to cover rising operating costs, to cover the cost of new
capital projects to maintain and improve service reliability, to cover
additional expenses associated with proposed changes in depreciation rates and
methods and to establish a self-insured property damage reserve for
transmission and distribution property in the event of catastrophic disasters.
In November 1993, HELCO applied to the PUC for permission to increase
electric rates, using a 1994 test year and requesting an increase of
approximately $15.8 million in annual revenues, or 13.4%, over revenues
provided by rates currently in effect. The requested increase is based on a
12.4% return on average common equity and is needed to cover plant, equipment
and operating costs necessary to maintain and improve service and provide
reliable power for its customers.
In November 1991, MECO filed a request to increase rates by approximately
$18.3 million annually, or approximately 17% above the rates in effect at the
time of the filing, in several steps. Evidentiary hearings were held in
January 1993 and at the conclusion of the hearings, MECO's final requested
increase was adjusted to approximately $11.4 million annually, or approximately
10%, in several steps in 1993. The decrease in the requested rate increase
resulted primarily from a reduced cost of capital, lower administrative and
general expenses and other revisions to MECO's estimated revenue requirements
for the 1993 test year used in the rate case. MECO's revised request reflects
a return on average common equity of 13.0%. In 1993, MECO received four
interim decisions authorizing step increases totaling $8.2 million in annual
revenues, or 7.2%, and based on a rate of return on average common equity of
12.75%. The interim increases are subject to refund with interest, pending the
final outcome of the case.
Management cannot predict with certainty when decisions in the rate cases
will be rendered or the amount of any interim or final rate increase that will
be granted.
HECO PURCHASED POWER BILLING DISPUTES
HECO is disputing certain amounts billed each month under its purchased power
agreements with Kalaeloa and AES-BP and has withheld payment of some of the
disputed amounts pending resolution. See "Power purchase agreements" under
Note 11 in the "Notes to Consolidated Financial Statements" for a further
discussion of this matter.
HELCO RELIABILITY INVESTIGATION
The PUC initiated an investigation into the reliability of HELCO's system in
July 1991. See "HELCO reliability investigation" under Note 11 in the "Notes
to Consolidated Financial Statements" for a further discussion of this matter.
UNDERGROUNDING OF UTILITY LINES
There is a proposal before the Honolulu City Council and some public support
for the mandatory undergrounding of utility lines "whenever possible," except
in some remote areas. HECO opposes the proposal before the City Council, in
its current form, because the resulting costs could be too much of a burden for
customers. Both the City Planning Department and the City Planning Commission
oppose the bill. Management believes the cost of undergrounding utility lines
would be recoverable in rates. However, management cannot predict with
certainty the ultimate outcome of such proposals or the impact of such
proposals on the Company.
WAIAU-CIP TRANSMISSION LINES
In 1993, the PUC held hearings concerning Part 2 of the proposed Waiau-CIP
138-kilovolt transmission lines. These lines will be part of a second
transmission corridor in west Oahu, running approximately 15 miles between
Campbell Industrial Park (CIP) and HECO's Waiau power plant. The new lines are
needed (1) to increase system reliability by locating the new lines in a
separate corridor from the existing lines, (2) to provide additional
transmission capacity to meet expected
6
<PAGE> 6
load growth and (3) to provide transmission capacity for existing and new power
generation projects planned for west Oahu. HECO is experiencing community
opposition over the proposed placement of portions of these lines based in part
on the potential effects of the lines on aesthetics and the concern of some
that the electric and magnetic fields (EMF) from the power lines may have
adverse health effects. HECO witnesses addressed EMF, the route selection
process, which involved extensive public input, as well as engineering and
related subjects. One proposal by those who oppose the route of the overhead
lines is to place Part 2 of the Waiau-CIP lines underground. HECO estimates
that this proposal would cost approximately $100 million more than the cost of
overhead lines.
Management cannot predict with certainty the final outcome of the
hearings or the impact the final outcome, including resulting delays, if any,
may have on the cost of the lines or on system reliability.
EFFECTS OF INFLATION
Inflation, as measured by the Consumer Price Index, averaged 2.7% in 1993, 3.0%
in 1992 and 4.2% in 1991. Although the rate of inflation over the past three
years has been relatively low compared with the late 1970's and early 1980's,
inflation continues to have an impact on the Company's operations.
Inflation increases operating costs and the replacement cost of assets.
The Company has significant physical assets, replaces assets at much higher
costs, and must request rate relief to maintain adequate earnings. In the
past, the PUC has generally approved rate relief to cover the effects of
inflation. In 1992 and 1993, the Company received rate relief, in part to
cover increases due to inflation in operating expenses and construction costs,
as reflected in higher depreciation expense.
HECO OUTAGE
On April 9, 1991, HECO experienced a power outage that affected all customers
on the island of Oahu. See "HECO power outage" under Note 11 in the "Notes to
Consolidated Financial Statements" for a discussion of HECO's contingent
liabil-ities related to the outage.
ENVIRONMENTAL REGULATIONS
The Company is subject to numerous laws and regulations which are designed to
protect the environment, and include air and water quality controls, hazardous
waste and toxic substance controls and the Federal Oil Pollution Act of 1990.
The Company is exempt from certain environmental requirements applicable on the
U.S. mainland, such as the acid rain provisions of the 1990 Clean Air Act
Amendments. However, the Company is subject to environmental laws and
regulations which could potentially impact the Company in terms of operating
existing facilities, constructing and operating new facilities and ensuring the
proper cleanup and disposal of hazardous waste and toxic substances.
Management believes that most, if not all, of any costs incurred by the Company
in complying with these environmental requirements would be allowed by the PUC
as reasonable and necessary costs of service for rate-making purposes.
However, as with other costs reviewed by the PUC in the rate-making process,
costs incurred by HECO and its subsidiaries in complying with these
environmental requirements may not be fully allowed or recovered. Based on
information available to the Company to date, management is not aware of any
contingent liabilities relating to environmental matters that could have a
material adverse effect on the Company's financial condition or results of
operations.
ACCOUNTING CHANGES
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes." The resulting change in the method of
accounting for income taxes did not have a material effect on the Company's
financial
7
<PAGE> 7
condition or results of operations primarily due to the regulated nature of the
Company. See Note 7 in the "Notes to Consolidated Financial Statements" for
more information.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993 the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
resulting change in the method of accounting for postretirement benefits other
than pensions did not have a material effect on the Company's financial
condition or results of operations primarily due to the regulated nature of the
Company. See Note 10 in the "Notes to Consolidated Financial Statements" for
more information.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the provisions of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." This statement requires
employers to recognize the obligation to provide postemployment benefits in
accordance with SFAS No. 43, "Accounting for Compensated Absences," if the
obligation is attributable to employees' services already rendered, employees'
rights to those benefits accumulate or vest, payment of the benefits is
probable, and the amount of the benefits can be reasonably estimated. The
resulting change in the method of accounting for postemployment benefits did
not have a material effect on the Company's financial condition and in the
opinion of management will not have a material effect on the Company's 1994
results of operations. See Note 1 in the "Notes to Consolidated Financial
Statements" for more information.
LIQUIDITY AND FINANCING REQUIREMENTS
Capital expenditures requiring the use of cash, as shown on the "Consolidated
Statements of Cash Flows," totaled approximately $205.9 million in 1993, of
which $116.0 was attributable to HECO, $46.7 million was attributable to HELCO
and $43.2 million was attributable to MECO. Approximately 68% of the total
1993 capital expenditures were for transmission and distribution and other
projects, and 32% for generation projects, including additions to HECO's Archer
substation and Waiau-Makalapa 138-kilovolt line, MECO's 56-megawatt
combined-cycle facility, and HELCO's Keahole combustion turbine. Cash
contributions in aid of construction received in 1993 totaled $20.2 million.
The Company's investment in plant and equipment for 1993 was financed
with cash from operating activities and cash from financing activities. Cash
provided by operating activities totaled $98.4 million in 1993. Cash provided
by financing activities totaled a net $58.4 million and included $109.9 million
from the issuance of unsecured notes and drawdowns of proceeds from tax-exempt
special purpose revenue bonds, net of long-term debt repayments. HEI provided
$45.0 million through its purchase of HECO common stock.
The Company's consolidated financing requirements for the years 1994
through 1998, including net capital expenditures, debt retirements and sinking
fund payment requirements, are estimated to total $1.0 billion. The Company's
consolidated internal sources after the payment of common stock and preferred
stock dividends, are currently expected to provide approximately 50% of the
total $1.0 billion requirements, with debt and equity financing providing the
remaining requirements. The Company estimates that it will require
approximately $100 million in common equity, other than retained earnings, over
the five-year period 1994 through 1998. The PUC must approve issuances of
long-term debt and equity for HECO, HELCO and MECO.
Capital expenditures include projects which are required to meet expected
load growth and improve reliability, and projects to replace and upgrade
existing equipment. Net capital expenditures, for the five-year period 1994
through 1998, are currently estimated to total $0.9 billion. Approximately 70%
of gross capital
8
<PAGE> 8
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 30% primarily for generation projects. At
December 31, 1993, purchase commitments other than fuel and power purchase
contracts were approximately $61 million, including amounts for construction
projects. (Also see Note 11 in the "Notes to Consolidated Financial
Statements" for a discussion of power purchase commitments.)
Capital expenditure estimates and the timing of various construction
projects are reviewed continually by management and may change as a result of
many considerations. Among these considerations are changes in economic
conditions, changes in forecasts of kilowatthour sales and peak load, the
availability of alternate energy and purchased power sources, the availability
of generating sites and transmission and distribution line corridors, the
ability to obtain adequate and timely rate relief, escalations in construction
costs, demand side management programs and requirements of environmental and
other regulatory and permitting authorities.
Capital expenditures for 1994, net of cash contributions in aid of
construction and excluding AFUDC, are estimated to be $205 million, and gross
capital expenditures are estimated to be $240 million, of which approximately
65% is for transmission and distribution projects. An estimated $55 million is
planned for new generation projects. Approximately $20 million of the $240
million in capital expenditures will be provided through third-party cash
contributions in aid of construction. Drawdowns of proceeds from the sale of
tax-exempt special purpose revenue bonds, sales of common stock to HEI and
internal sources of funds are expected to provide the remaining funds needed
for capital expenditures.
In 1993, HECO and its subsidiaries issued $70 million in unsecured notes,
with maturities varying from two to five years, and $12 million in preferred
stock, which is not subject to mandatory redemption. Also in 1993, the State
of Hawaii issued a total of $100 million in tax-exempt special purpose revenue
bonds, with a maturity of thirty years and a fixed coupon interest rate of
5.45%, on behalf of HECO, HELCO and MECO at a 2% discount, for an effective
interest rate of approximately 5.6%. As of December 31, 1993, approximately
$56 million of the proceeds from the sale of special purpose revenue bonds were
available to be used. As of December 31, 1993, an additional $47 million of
revenue bonds was authorized by the Hawaii legislature for issuance prior to
the end of 1995.
In October 1993, Standard & Poor's Corporation (S&P) completed its review
of the U.S. investor-owned electric utility industry and concluded that more
stringent financial risk standards are appropriate to counter mounting business
risk. "S&P believes the industry's credit profile is threatened chiefly by
intensifying competitive pressures," the agency said in a statement. It also
cited sluggish demand expectations, slow earnings growth prospects, high
dividend payouts and environmental cost pressures. Under the new guidelines,
S&P rated HECO's business position as average.
As of February 11, 1994, S&P, Moody's Investors Service (Moody's) and
Duff & Phelps Credit Rating Co. (D&P) rated HECO's securities as follows:
<TABLE>
<CAPTION>
S&P Moody's D&P
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First mortgage bonds ......................... BBB+ A3 A
Revenue bonds ................................ BBB Baa1 A-
Cumulative preferred stock ................... BBB baa1 BBB+
Other unsecured debt ......................... BBB Baa1 A-
Commercial paper ............................. A-2 P-2 Duff 1-
Outlook ...................................... Negative N/A N/A
===========================================================================================
</TABLE>
N/A = Not applicable
The Company's management cannot predict with certainty future rating
agency actions or their effects on the future cost of capital of the Company.
9
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries, years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES ................................. $874,010 $776,929 $739,636
-------- -------- --------
OPERATING EXPENSES:
Fuel oil ........................................... 213,285 225,611 275,806
Purchased power .................................... 258,723 172,761 106,660
Other operation .................................... 105,957 105,303 100,990
Maintenance ........................................ 44,281 44,653 39,463
Depreciation ....................................... 55,960 53,856 49,005
Taxes, other than income taxes ..................... 80,712 71,452 67,648
Income taxes ....................................... 37,007 26,254 24,137
-------- -------- --------
795,925 699,890 663,709
-------- -------- --------
OPERATING INCOME ................................... 78,085 77,039 75,927
-------- -------- --------
OTHER INCOME:
Allowance for equity funds used during
construction ..................................... 6,973 6,781 3,998
Other, net ......................................... 4,583 2,959 513
-------- -------- --------
11,556 9,740 4,511
-------- -------- --------
INCOME BEFORE INTEREST AND OTHER CHARGES ........... 89,641 86,779 80,438
-------- -------- --------
INTEREST AND OTHER CHARGES:
Interest on long-term debt ......................... 27,046 27,307 26,961
Amortization of net bond premium and expense ....... 774 638 589
Other interest charges ............................. 7,467 5,066 5,698
Allowance for borrowed funds used during
construction ..................................... (3,869) (2,095) (1,307)
Preferred stock dividends of subsidiaries .......... 2,097 2,185 2,287
-------- -------- --------
33,515 33,101 34,228
-------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS OF
HECO ............................................. 56,126 53,678 46,210
Preferred stock dividends of HECO .................. 4,421 4,525 4,600
-------- -------- --------
NET INCOME FOR COMMON STOCK ........................ $ 51,705 $ 49,153 $ 41,610
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries, years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR ............... $249,583 $223,478 $209,336
Net income for common stock ........................ 51,705 49,153 41,610
Common stock dividends ............................. (25,887) (23,048) (27,468)
-------- -------- --------
RETAINED EARNINGS, END OF YEAR ..................... $275,401 $249,583 $223,478
======== ======== ========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
10
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries, December 31,
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
UTILITY PLANT, AT COST:
Land ..................................................... $ 26,976 $ 27,260
Plant and equipment ...................................... 1,948,445 1,742,291
Less accumulated depreciation ............................ (641,230) (583,031)
Plant acquisition adjustment, net ........................ 771 823
Construction in progress ................................. 126,342 107,030
---------- ----------
NET UTILITY PLANT ................................. 1,461,304 1,294,373
---------- ----------
CURRENT ASSETS:
Cash and equivalents ..................................... 1,922 30,883
Customer accounts receivable, net ........................ 55,614 53,970
Accrued unbilled revenues, net ........................... 34,735 35,647
Other accounts receivable, net ........................... 8,398 8,118
Fuel oil stock, at average cost .......................... 18,188 20,102
Materials and supplies, at average cost .................. 20,239 17,841
Prepayments and other .................................... 2,715 2,973
---------- ----------
TOTAL CURRENT ASSETS .............................. 141,811 169,534
---------- ----------
OTHER ASSETS:
Regulatory assets ........................................ 60,612 7,668
Unamortized debt expense ................................. 10,179 7,407
Long-term receivables and other .......................... 29,370 22,348
---------- ----------
TOTAL OTHER ASSETS ................................ 100,161 37,423
---------- ----------
$1,703,276 $1,501,330
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Consolidated Statements of Capitalization):
Common stock equity ...................................... $ 570,663 $ 499,894
Cumulative preferred stock:
Not subject to mandatory redemption ................... 48,293 36,293
Subject to mandatory redemption ....................... 45,410 47,550
Long-term debt, net ...................................... 436,776 357,934
---------- ----------
TOTAL CAPITALIZATION .............................. 1,101,142 941,671
---------- ----------
CURRENT LIABILITIES:
Long-term debt due within one year ....................... 47,960 16,901
Preferred stock sinking fund requirements ................ 1,320 1,370
Short-term borrowings - nonaffiliates .................... 28,928 122,176
Short-term borrowings - affiliate ........................ 12,000 --
Accounts payable ......................................... 41,808 44,081
Interest and preferred dividends payable ................. 10,332 9,045
Income taxes payable ..................................... 6,232 2,533
Other taxes accrued ...................................... 36,959 27,583
Other .................................................... 31,036 17,837
---------- ----------
TOTAL CURRENT LIABILITIES ......................... 216,575 241,526
---------- ----------
DEFERRED CREDITS:
Deferred income taxes .................................... 107,449 101,447
Unamortized tax credits .................................. 43,348 41,608
Other .................................................... 69,757 48,770
---------- ----------
TOTAL DEFERRED CREDITS ............................ 220,554 191,825
---------- ----------
CONTRIBUTIONS IN AID OF CONSTRUCTION ..................... 165,005 126,308
---------- ---------
$1,703,276 $1,501,330
========== ==========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
11
<PAGE> 11
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries, December 31,
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts) 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock of $6 2/3 par value. Authorized: 50,000,000
shares. Outstanding: 1993, 11,258,290 shares and 1992,
10,361,179 shares ........................................... $ 75,065 $ 69,081
Premium on capital stock ....................................... 220,197 181,230
Retained earnings .............................................. 275,401 249,583
-------- --------
COMMON STOCK EQUITY ...................................... 570,663 499,894
-------- --------
CUMULATIVE PREFERRED STOCK:
Authorized: 5,000,000 shares of $20 par value and
7,000,000 shares of $100 par value. Outstanding:
1993, 1,841,957 shares and 1992, 1,743,857 shares.
</TABLE>
<TABLE>
<CAPTION>
SHARES
OUTSTANDING
PAR DECEMBER 31,
SERIES VALUE 1993
- ----------------------------------------------------
<S> <C> <C> <C> <C>
SERIES NOT SUBJECT TO MANDATORY REDEMPTION:
C--4 1/4% $ 20 (HECO) ........... 150,000 .............. 3,000 3,000
D--5% 20 (HECO) ........... 50,000 .............. 1,000 1,000
E--5% 20 (HECO) ........... 150,000 .............. 3,000 3,000
H--5 1/4% 20 (HECO) ........... 250,000 .............. 5,000 5,000
I--5% 20 (HECO) ........... 89,657 .............. 1,793 1,793
J--4 3/4% 20 (HECO) ........... 250,000 .............. 5,000 5,000
K--4.65% 20 (HECO) ........... 175,000 .............. 3,500 3,500
M--8.05% 100 (HECO) ........... 80,000 .............. 8,000 8,000
A--8 7/8% 100 (HELCO) .......... 30,000 .............. 3,000 3,000
G--7 5/8% 100 (HELCO) .......... 70,000 .............. 7,000 --
A--8% 100 (MECO) ........... 20,000 .............. 2,000 2,000
B--8 7/8% 100 (MECO) ........... 10,000 .............. 1,000 1,000
H--7 5/8% 100 (MECO) ........... 50,000 .............. 5,000 --
--------- -------- --------
1,374,657 .............. 48,293 36,293
========= -------- --------
SERIES SUBJECT TO MANDATORY REDEMPTION:
O--11 1/2% $100 (HECO) ........... 13,000 .............. 1,300 1,950
Q--7.68% 100 (HECO) ........... 96,000 .............. 9,600 10,000
R--8.75% 100 (HECO) ........... 200,000 .............. 20,000 20,000
B--10 3/4% 100 (HELCO) .......... 1,000 .............. 100 300
C--9 1/4% 100 (HELCO) .......... 8,000 .............. 800 1,000
D--12 3/4% 100 (HELCO) .......... 7,000 .............. 700 750
E--12.25% 100 (HELCO) .......... 8,000 .............. 800 850
F--8.5% 100 (HELCO) .......... 60,000 .............. 6,000 6,000
C--10 3/4% 100 (MECO) ........... -- .............. -- 50
D--8 3/4% 100 (MECO) ........... 14,300 .............. 1,430 1,620
E--12 1/4% 100 (MECO) ........... 4,000 .............. 400 600
F--13 3/4% 100 (MECO) ........... 6,000 .............. 600 800
G--8.5% 100 (MECO) ........... 50,000 .............. 5,000 5,000
--------- -------- --------
467,300 .............. 46,730 48,920
=========
Less sinking fund requirements due within one year ............. 1,320 1,370
-------- --------
45,410 47,550
-------- --------
CUMULATIVE PREFERRED STOCK .............................. $ 93,703 $ 83,843
-------- --------
(continued)
</TABLE>
12
<PAGE> 12
CONSOLIDATED STATEMENTS OF CAPITALIZATION, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries, December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT:
First mortgage bonds:
HECO:
4.45 5.75%, due 1994 through 1997 ........... $ 24,000 $ 40,000
7 5/8-9 1/8%, due 2001 through 2016 ......... 30,000 60,000
---------- --------
54,000 100,000
---------- --------
HELCO:
7 3/4-10 3/4%, due 2001 through 2006 ......... 17,500 17,500
---------- --------
MECO:
6.875%, due 1993 ............................. -- 850
7 3/4-10 3/4%, due 2002 through 2009 ......... 22,500 22,500
---------- --------
22,500 23,350
---------- --------
Total first mortgage bonds ............... 94,000 140,850
---------- --------
Obligations to the State of Hawaii for the
repayment of
Special Purpose Revenue Bonds:
HECO, 5.45%, series 1993, due 2023 ............... 50,000 --
HELCO, 5.45%, series 1993, due 2023 .............. 20,000 --
MECO, 5.45%, series 1993, due 2023 ............... 30,000 --
HECO, 6.55%, series 1992, due 2022 ............... 40,000 40,000
HELCO, 6.55%, series 1992, due 2022 .............. 12,000 12,000
MECO, 6.55%, series 1992, due 2022 ............... 8,000 8,000
HECO, 7 3/8%, series 1990C, due 2020 ............. 25,000 25,000
HELCO, 7 3/8%, series 1990C, due 2020 ............ 10,000 10,000
MECO, 7 3/8%, series 1990C, due 2020 ............. 20,000 20,000
HECO, 7.60%, series 1990B, due 2020 .............. 21,000 21,000
HELCO, 7.60%, series 1990B, due 2020 ............. 4,000 4,000
HECO, 7.35%, series 1990A, due 2020 .............. 16,000 16,000
HELCO, 7.35%, series 1990A, due 2020 ............. 3,000 3,000
MECO, 7.35%, series 1990A, due 2020 .............. 1,000 1,000
HECO, 7 5/8%, series 1988, due 2018 .............. 30,000 30,000
HELCO, 7 5/8%, series 1988, due 2018 ............. 11,000 11,000
MECO, 7 5/8%, series 1988, due 2018 ............. 9,000 9,000
HECO, 6 7/8%, refunding series 1987, due 2012 .... 42,580 42,580
HELCO, 6 7/8%, refunding series 1987, due 2012 ... 7,200 7,200
MECO, 6 7/8%, refunding series 1987, due 2012 .... 7,720 7,720
HELCO, 7.2%, series 1984, due 2014 ............... 11,400 11,400
---------- --------
378,900 278,900
Less funds on deposit with trustees .............. 56,205 44,993
---------- --------
Total obligations to the State of Hawaii .. 322,695 233,907
---------- --------
Other long-term debt - unsecured:
HECO, 5.15% note, due 1996 ....................... 20,000 --
HECO, 5.83% note, due 1998 ....................... 30,000 --
HELCO, 4.85% note, due 1995 ...................... 10,000 --
MECO, 5.15% note, due 1996 ....................... 10,000 --
Other ............................................ 27 78
---------- --------
Total other long-term debt - unsecured .... 70,027 78
---------- --------
Total long-term debt ...................... 486,722 374,835
Less unamortized discount ........................... 1,986 --
Less amounts due within one year .................... 47,960 16,901
---------- --------
LONG-TERM DEBT, NET ....................... 436,776 357,934
---------- --------
TOTAL CAPITALIZATION ...................... $1,101,142 $941,671
========== ========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
13
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries, years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred stock dividends of
HECO ......................................$ 56,126 $ 53,678 $ 46,210
Adjustments to reconcile income before
preferred stock dividends of HECO to net
cash provided by operating activities:
Depreciation and amortization of plant
and equipment ...................... 55,960 53,856 49,005
Other amortization ..................... 803 955 1,204
Deferred income taxes .................. (1,952) (11,074) 947
Tax credits, net ....................... 4,086 2,852 (230)
Allowance for equity funds used during
construction ....................... (6,973) (6,781) (3,998)
Decrease (increase) in accounts
receivable ......................... (1,924) (8,857) 12,338
Decrease (increase) in accrued unbilled
revenues ........................... 912 (8,238) (4,229)
Decrease in fuel oil stock ............. 1,914 2,466 17,648
Increase in materials and supplies ..... (2,398) (17) (1,621)
Increase (decrease) in accounts payable (2,273) 6,192 1,862
Increase (decrease) in interest and
preferred dividends payable ........ 1,287 925 (1,148)
Changes in other assets and liabilities (7,163) (7,264) 5,030
-------- -------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .... 98,405 78,693 123,018
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................... (205,943) (181,542) (141,900)
Contributions in aid of construction ......... 20,158 17,949 16,632
Proceeds from sales of assets ................ -- 14,270 --
-------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES ........ (185,785) (149,323) (125,268)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings from nonaffiliates and
affiliate with original maturities of
three months or less ...................... (81,248) 87,606 (35,350)
Proceeds from other short-term borrowings .... 25,259 -- --
Repayment of other short-term borrowings ..... (25,259) -- --
Proceeds from issuance of long-term debt ..... 156,788 33,130 40,579
Repayment of long-term debt .................. (46,901) (23,393) (32,222)
Proceeds from issuance of preferred stock .... 12,000 -- --
Redemption of preferred stock ................ (2,190) (1,745) (1,545)
Preferred stock dividends .................... (4,421) (4,525) (4,600)
Proceeds from issuance of common stock ....... 45,000 33,000 61,000
Capital stock expense ........................ (84) (15) (123)
Common stock dividends ....................... (25,887) (23,048) (27,468)
Other ........................................ 5,362 82 954
-------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .... 58,419 101,092 1,225
-------- -------- ---------
Net increase (decrease) in cash and
equivalents ............................... (28,961) 30,462 (1,025)
Cash and equivalents, beginning of year ...... 30,883 421 1,446
-------- -------- ---------
CASH AND EQUIVALENTS, END OF YEAR ............ $ 1,922 $ 30,883 $ 421
======== ======== =========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
14
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
1 o SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION. The financial statements have been
prepared in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change relate to the
determination of regulatory assets. Management believes that regulatory assets
have been established in accordance with generally accepted accounting
principles.
CONSOLIDATION. The consolidated financial statements include the accounts of
Hawaiian Electric Company, Inc. (HECO) and its wholly owned subsidiaries
(collectively, the "Company"), Maui Electric Company, Limited (MECO) and Hawaii
Electric Light Company, Inc. (HELCO).
All significant intercompany transactions and balances have been eliminated
in consolidation.
UTILITY REGULATION. The Company is regulated by the Public Utilities
Commission of the State of Hawaii (PUC) and accounts for the effects of
regulation under Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." As a result, the
actions of regulators can affect the timing of recognition of revenues,
expenses, assets and liabilities.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. The cost of plant constructed by the Company includes applicable
engineering, supervision, administrative and general expenses, and an allowance
for the cost of funds used during the construction period. Upon the ordinary
retirement or sale of plant, no gain or loss is recognized. The cost of the
plant retired or sold and the cost of removal (net of salvage obtained) are
charged to accumulated depreciation.
CONTRIBUTIONS IN AID OF CONSTRUCTION. The Company receives contributions from
customers for special construction requirements. As directed by the PUC, the
contributions are amortized on a straight-line basis over 30 years, which
approximates the estimated useful lives of the facilities for which the
contributions were received. This amortization is an offset against
depreciation expense.
REVENUES. Revenues are based on rates authorized by the PUC and include
revenues applicable to electric energy consumed in the accounting period but
not yet billed to the customers. The rate schedules of the Company include
energy cost adjustment clauses under which electric rates are adjusted for
changes in the weighted average price paid for fuel oil and certain components
of purchased power, and the relative amounts of company-generated and purchased
power.
RETIREMENT BENEFITS. Pension costs are charged primarily to expense and plant
accounts. It is the Company's policy to fund pension costs in amounts
consistent with the requirements of the Employee Retirement Income Security
Act.
The Company provides certain health care, life insurance and other benefits
to retired employees, substantially all of whom become eligible for these
benefits upon retirement, and the employees' beneficiaries and covered
dependents. Effective January 1, 1993, the Company adopted the provisions of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires that the expected cost of postretirement benefits
other than pensions be accrued during the years in which employees render
service (see Note 10). Previously, the cost of these benefits were recognized
when paid. The resulting change in the method of accounting had no material
effect on net income for the year ended
15
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
December 31, 1993 due to the regulated nature of the Company's operations.
DEPRECIATION. Depreciation of plant and equipment is computed primarily using
the straight-line method over the estimated useful lives of the assets. The
composite annual depreciation rate was 3.9% in 1993, 3.8% in 1992 and 3.7% in
1991. HECO revised its depreciation rates for financial reporting and
rate-making purposes pursuant to PUC approval effective October 25, 1991. The
PUC also approved an increase in electric rates effective October 25, 1991 to
cover, among other things, the increased depreciation charges.
PREMIUM, DISCOUNT AND EXPENSE. The expenses of issuing long-term debt
securities and the premiums or discounts at which they were sold are amortized
against income over the terms of the respective securities.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Allowance for funds used during
construction (AFUDC) is an accounting practice whereby the costs of debt and
equity funds used to finance plant construction are transferred from the
income statement to construction in progress on the balance sheet. The
procedure removes the effect of the costs of financing construction activity
from the income statement and treats such costs in the same manner as
construction labor and material costs.
The weighted average gross-of-tax AFUDC rate was 9.3% in 1993, 10.2% in 1992
and 10.3% in 1991 and reflects quarterly compounding.
INCOME TAXES. HECO and its subsidiaries are included in the consolidated
income tax returns of HECO's parent, Hawaiian Electric Industries, Inc. (HEI).
Income tax expense has been computed for financial statement purposes as if
HECO and its subsidiaries file separate consolidated HECO income tax returns.
As further explained in Note 7, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" effective January 1, 1993. Previously, income
taxes were recognized in accordance with the provisions of Accounting
Principles Board Opinion No. 11. The resulting change in the method of
accounting for income taxes had no material effect on net income for the year
ended December 31, 1993 due to the regulated nature of the Company's
operations.
Federal and State tax credits are amortized over the estimated useful lives
of the properties which qualified for the credits.
POSTEMPLOYMENT BENEFITS. In November 1992, the Financial Accounting Standards
Board (FASB) issued SFAS No. 112, "Employers' Accounting for Postemployment
Benefits." This statement requires employers to recognize the obligation to
provide postemployment benefits in accordance with SFAS No. 43, "Accounting for
Compensated Absences," if the obligation is attributable to employees' services
already rendered, employees' rights to those benefits accumulate or vest,
payment of the benefits is probable, and the amount of the benefits can be
reasonably estimated. The Company adopted the provisions of SFAS No. 112 on
January 1, 1994. The implementation of SFAS No. 112 did not have a material
effect on the Company's consolidated financial condition and, in the opinion of
management, will not have a material effect on the Company's 1994 results of
operations.
CASH FLOWS. The Company considers cash on hand, deposits in banks, money
market accounts, and investments in short-term commercial paper and repurchase
agreements with original maturities of three months or less to be cash and
equivalents.
ENVIRONMENTAL EXPENDITURES. In general, environmental contamination treatment
costs are charged to expense, unless such costs are probable of recovery
through rates authorized by the PUC. Also, environmental costs are capitalized
if: the costs extend the life, increase the capacity, or improve the safety or
efficiency of property owned; the costs mitigate or prevent environmental
contamination that has yet to occur and that otherwise may result from future
operations; or the costs
16
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
are incurred in preparing for sale property currently held for sale.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be reasonably estimated. Corresponding
regulatory assets are recorded when it is probable that such costs would be
allowed by the PUC as reasonable and necessary costs of service for rate-making
purposes.
RECLASSIFICATION. Certain reclassifications have been made to prior year's
consolidated financial statements to conform to the 1993 presentation.
2 o CUMULATIVE PREFERRED STOCK
The following series of cumulative preferred stock are redeemable at the
option of the respective company:
<TABLE>
<CAPTION>
Redemption
price
December 31,
Series 1993
- -----------------------------------------------------------------------------------
<S> <C>
C, D, E, H, J and K (HECO) ............................................ $ 21.00
I (HECO) .............................................................. 20.00
M (HECO) .............................................................. 101.00
A (HELCO) ............................................................. 101.00
A (MECO) .............................................................. 101.00
B (MECO) .............................................................. 101.00
===================================================================================
</TABLE>
The following series of cumulative preferred stock are subject to
mandatory sinking fund provisions and optional redemption provisions as
indicated below:
<TABLE>
<CAPTION>
Annual sinking fund provision Optional
-------------------------------------- redemption
Number of shares price
-------------------- Commencement December 31,
Series Minimum Maximum date 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
O (HECO) ................. 3,250 6,500 10/15/86 $102.40
Q (HECO) ................. 4,000 4,000 1/15/93 111.12
R (HECO) ................. 10,000 20,000 1/15/95 107.00
B (HELCO) ................ 1,000 2,000 4/15/80 101.00
C (HELCO) ................ 1,000 2,000 10/15/85 101.55
D (HELCO) ................ 500 500 10/15/88 106.91
E (HELCO) ................ 500 500 10/15/90 107.46
F (HELCO) ................ 10,000 20,000 1/15/00 106.68
D (MECO) ................. 950 1,900 7/15/89 101.52
E (MECO) ................. 1,000 2,000 10/15/86 102.50
F (MECO) ................. 1,000 2,000 10/15/92 105.07
G (MECO) ................. 8,333 16,667 1/15/00 106.68
====================================================================================
</TABLE>
Shares redeemed under the annual sinking fund provisions are redeemable
at par value of $100.
Under optional redemption provisions, shares are redeemable at the option
of the respective company at redemption prices shown above (except that prior
to specific dates, no shares of certain series of preferred stock may be
redeemed through refunding at a cost of money to the respective company which
is less than the dividend rate of such series).
17
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
In December 1993, HELCO and MECO issued $7,000,000 and $5,000,000,
respec-tively, of non-mandatorily redeemable preferred stock with a dividend
rate of 7.625%. Both series of stock are redeemable at the option of the
respective company beginning in 2003.
The total minimum sinking fund requirements on preferred stock subject to
mandatory redemption are $1,320,000 in 1994, $2,220,000 in 1995, 1996 and 1997,
$1,795,000 in 1998 and $36,955,000 thereafter.
HECO is obligated to make dividend, redemption and liquidation payments
on the preferred stock of MECO and HELCO if MECO and HELCO are unable to make
such payments, provided that such obligation is subordinated to any obligation
to make payments on HECO's own preferred stock.
3 o COMMON STOCK
In 1993, 1992 and 1991 HECO issued 897,111, 681,635 and 1,330,048 shares
of common stock to its parent, HEI, for $45 million, $33 million and $61
million, respectively.
4 o LONG-TERM DEBT
The first mortgage bonds are secured by separate indentures which purport
to be liens on substantially all of the real and personal property now owned or
hereafter acquired by the respective companies.
In December 1992, the Department of Budget and Finance of the State of
Hawaii (DBF) issued $60 million in tax-exempt special purpose revenue bonds
(Series 1992) on behalf of HECO ($40 million), HELCO ($12 million) and MECO ($8
million). The bonds are at a fixed rate of 6.55%.
In November 1993, the DBF issued $100 million in tax-exempt special
purpose revenue bonds (Series 1993) on behalf of HECO ($50 million), HELCO ($20
million) and MECO ($30 million). The bonds are at a fixed rate of 5.45% and
were issued at a discount of $2 million.
The funds on deposit with trustees represent the undrawn proceeds from
the issuance of the special purpose revenue bonds and earn interest at market
rates. These funds are available only to pay for certain authorized
construction projects and certain expenses related to the bonds.
In December 1993, HECO and its subsidiaries issued $70 million of
unsecured debt. This issuance is comprised of a $20 million 5.15% note due in
1996 (HECO), a $30 million 5.83% note due in 1998 (HECO), a $10 million 4.85%
note due in 1995 (HELCO) and a $10 million 5.15% note due in 1996 (MECO). The
HELCO and MECO notes are unconditionally guaranteed by HECO.
At December 31, 1993, the aggregate payments of principal required on
long-term debt during the next five years are $47,960,000 in 1994, $20,933,000
in 1995, $29,933,000 in 1996, $12,933,000 in 1997, $29,933,000 in 1998 and
$343,044,000 thereafter.
5 o SHORT-TERM BORROWINGS
Short-term borrowings from nonaffiliates at December 31, 1993 and 1992
consisted entirely of commercial paper.
18
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
The Company maintained bank lines of credit which totaled approximately
$107.5 million and $135.0 million at December 31, 1993 and 1992, respectively.
The lines of credit support the issuance of commercial paper. There were no
borrowings against any line of credit during 1993 and 1992. Effective January
1, 1994, the Company's bank lines of credit totaled $85.0 million.
6 o REGULATORY ASSETS
Regulatory assets at December 31, 1993 and 1992 include the following
deferred costs:
<TABLE>
<CAPTION>
December 31,
--------------------
(in thousands) 1993 1992
- -----------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits other than pensions ............... $17,866 $ --
Income taxes .............................................. 16,176 --
Preliminary plant costs on suspended project .............. 6,577 --
Vacation earned, but not yet taken ........................ 5,494 --
Unamortized debt expense on retired issuances ............. 5,435 4,983
Integrated resource planning costs ........................ 4,661 1,730
Other ..................................................... 4,403 955
------- ------
$60,612 $7,668
======= ======
</TABLE>
The Company intends to apply to the PUC in 1994 for recovery of the
preliminary plant costs on a suspended project.
7 o INCOME TAXES
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income
Taxes." The new standard requires companies to use the asset and liability
method of accounting for income taxes. The objective of the asset and
liability method is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities at enacted tax rates expected to be in
effect when such deferred tax assets or liabilities are realized or settled.
Effective January 1, 1993, the Company adopted SFAS No. 109. The
resulting change in the method of accounting for income taxes had no material
effect on net income for the year ended December 31, 1993 primarily due to the
regulated nature of the Company. The net increase in deferred income taxes
arising from the adoption of SFAS No. 109 is recoverable through future rates
and has been recorded as a regulatory asset. Under SFAS No. 109, additional
income tax expense of $828,000 resulted from the 1% increase in the maximum
corporate income tax rate enacted by the Omnibus Budget Reconciliation Act of
1993.
The components of income taxes charged to operating expenses were as
follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL:
Current .................................... $33,556 $33,516 $21,361
Deferred ................................... 432 (10,130) 594
Deferred tax credits, net .................. (2,260) (1,740) (1,730)
------- ------- -------
31,728 21,646 20,225
------- ------- -------
STATE:
Current .................................... 1,402 1,090 2,144
Deferred ................................... (123) (1,074) 267
Deferred tax credits, net .................. 4,000 4,592 1,501
------- ------- -------
5,279 4,608 3,912
------- ------- -------
Total ......................................... $37,007 $26,254 $24,137
======= ======= =======
</TABLE>
19
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
Income tax benefits related to nonoperating activities, included in
"Other Net" on the income statement, amounted to $109,000, $2,411,000 and
$321,000 for 1993, 1992 and 1991, respectively. Of the $2,411,000 income tax
benefits related to nonoperating activities in 1992, $2,019,000 is a tax
benefit arising from the utilization of a capital loss carryforward.
The sources of timing differences and the related deferred tax amounts
under Accounting Principles Board Opinion No. 11 included in operating expenses
in 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Excess of tax depreciation over book straight-line
depreciation rates ........................................ $ 952 $ 2,108
Contributions in aid of construction and customer advances,
net ....................................................... (6,095) (2,773)
Interest capitalized for tax purposes ........................ (3,347) (1,967)
Excess of tax depreciation over book depreciation due to
basis differences ......................................... 1,631 1,324
Excess of tax pension deduction over book
expense ................................................... -- 2,728
Gain on sale of land deferred for book purposes .............. (4,737) --
Other ........................................................ 392 (559)
-------- -------
Total ........................................................ $(11,204) $ 861
======== =======
</TABLE>
Deferred income taxes related to timing differences in the recognition of
nonoperating revenues and expenses for tax and financial reporting purposes in
1992 and 1991 were not significant.
A reconciliation between income taxes charged to operating expenses and
the amount of income taxes computed at the federal statutory rates on income
before income taxes and preferred stock dividends is as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate .................. 35% 34% 34%
======= ======= =======
Amount at the federal statutory income tax
rate ............................................ $33,331 $27,920 $24,695
Allowance for funds used during construction not
included in taxable income ...................... -- (2,375) (1,403)
State income taxes on operating income, net of
effect on federal income taxes .................. 3,431 3,139 2,473
Difference between book and tax straight-line
depreciation for which no deferred taxes were
provided ........................................ -- 3,015 2,676
Amortization of deferred tax credits ............... 84 (1,720) (1,677)
Amortization of contributions in aid of
construction .................................... -- (1,658) (1,476)
Amortization of federal deferred taxes in excess
of current rates ................................ (64) (1,675) (1,537)
Other .............................................. 225 (392) 386
------- ------- -------
Income taxes charged to operating expenses ......... $37,007 $26,254 $24,137
======= ======= =======
</TABLE>
20
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
Deferred tax assets and deferred tax liabilities were comprised of the
following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1993
- -------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Property, plant and equipment .................................. $ 5,810
Contributions in aid of construction and customer
advances .................................................... 44,932
Other .......................................................... 13,625
--------
64,367
--------
Deferred tax liabilities:
Property, plant and equipment .................................. 153,765
Regulatory assets .............................................. 6,236
Other .......................................................... 11,815
--------
171,816
--------
Net deferred tax liability ........................................ $107,449
========
</TABLE>
There was no valuation allowance provided for deferred tax assets as of
December 31, 1993.
8 o CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during 1993, 1992 and 1991 for interest (net of capitalized
amounts which were not material) and income taxes was as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest ................................... $31,875 $30,021 $34,444
======= ======= =======
Income taxes ............................... $34,796 $30,472 $25,957
======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
The allowance for equity funds used during construction, which was
charged to construction in progress amounted to $6,973,000, $6,781,000 and
$3,998,000 in 1993, 1992 and 1991, respectively. Effective in 1993, the
Company recognized the estimated fair value of noncash contributions in aid of
construction received in 1993 and prior years, which increased both plant and
contributions in aid of construction by $26,105,000.
9 o MAJOR CUSTOMERS
HECO and its subsidiaries derived 10% of their operating revenues from
the sale of electricity to federal government agencies amounting to $90,614,000
in 1993, $78,020,000 in 1992 and $77,087,000 in 1991.
21
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
10 o RETIREMENT BENEFITS
PENSIONS
HECO and its subsidiaries participate in several of HEI's defined benefit
pension plans which cover substantially all employees of HECO and its
subsidiaries. Benefits are based on the employee's years of service and base
compensation.
The funded status of HECO and its subsidiaries' portion of the HEI
pension plans and the amounts recognized in the consolidated financial
statements at December 31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
(in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested ............................................. $270,802 $225,751
Nonvested .......................................... 40,791 28,424
-------- --------
$311,593 $254,175
======== ========
Projected benefit obligation .......................... $399,858 $314,233
Plan assets at fair value, primarily equity securities
and fixed income investments ....................... 386,912 332,865
-------- --------
Projected benefit obligation in excess of (less than)
plan assets ........................................ 12,946 (18,632)
Unrecognized prior service cost ....................... -- (2)
Unrecognized net gain ................................. 9,374 43,111
Unrecognized net transition obligation ................ (21,440) (23,737)
Adjustment required to recognize minimum
liability .......................................... 321 465
-------- --------
Accrued pension liability ............................. $ 1,201 $ 1,205
======== ========
</TABLE>
The accumulated benefit obligation is the actuarial present value of
benefits attributed to past services rendered by employees based on recent pay
levels. The projected benefit obligation is the accumulated benefit obligation
adjusted for the effect of assumed future pay increases. Plans with an
accumulated benefit obligation exceeding assets were not material.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period .. $ 9,861 $ 8,935 $ 8,461
Interest cost on projected benefit obligation ... 25,437 25,735 23,515
Actual return on plan assets .................... (53,703) (13,427) (70,089)
Net amortization and deferral ................... 33,564 (5,614) 52,663
------- ------- -------
Net periodic pension cost ....................... $15,159 $15,629 $14,550
======= ======= =======
</TABLE>
Of these net periodic pension costs, $9,663,000, $9,801,000 and
$9,670,000 were expensed in 1993, 1992 and 1991, respectively, and the
remaining amounts were charged primarily to electric utility plant and
plant-related accounts.
For all pension plans, as of December 31, 1993 and 1992, the discount
rate assumed in determining the actuarial present value of the projected
benefit obligation was 7.0% and 8.5%, respectively. For 1993, 1992 and 1991,
the expected long-term rate of return on assets was 8.0% and the assumed rate
of increase in future compensation levels was 5.0%.
22
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
The unrecognized net transition obligation is the projected benefit
obligation in excess of plan assets at January 1, 1987, less amounts amortized.
The unrecognized net transition obligation is being amortized over 16 years
beginning in 1987.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides medical, dental, vision, life insurance and other
benefits to eligible employees upon their retirement. Retirees contribute
toward the cost of medical, dental and vision benefits based on their years of
service and retirement date. Currently, no funding has been provided for
these benefits. Employees are eligible for these benefits if, upon retirement,
they participate in one of the Company's defined benefit pension plans.
Through December 31, 1992, the cost of postretirement benefits other than
pensions had not been recognized until paid (i.e., the pay-as-you-go method).
Accordingly, no provision had been made for future benefits to existing or
retired employees. Payments for postretirement benefits other than pensions
amounted to $3,100,000 and $3,200,000 in 1992 and 1991, respectively.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual, during the years that an employee renders the necessary service, of
the expected cost of providing postretirement benefits other than pensions to
that employee and the employee's beneficiaries and covered dependents. The
transition obligation is being recognized on a delayed basis over 20 years.
In February 1992, the PUC opened a generic docket to determine whether
SFAS No. 106 should be adopted for rate-making purposes. On July 15, 1993, the
PUC issued an interim decision and order in the generic docket, amending an
earlier interim decision and order to state that it is probable that its final
decision will allow, for rate-making purposes, the full costs of postretirement
benefits other than pensions calculated on the basis of SFAS No. 106. Upon
request of the Company, on January 11, 1994, the PUC issued another interim
decision and order, which stated that it has "determined that it will allow
each utility to calculate, for ratemaking purposes, the full costs of
postretirement benefits other than pensions on an accrual basis, rather than
the current pay-as-you-go basis." The PUC further stated that it has not yet
decided whether to adopt SFAS No. 106 in its entirety or with modifications,
but it reaffirmed that "(1) it is probable that the final decision and order in
these dockets will allow, for ratemaking purposes, the full costs of
postretirement benefits other than pensions calculated on the basis of SFAS
106; and (2) it is probable that the difference between the costs of
post-retirement benefits other than pensions determined under SFAS 106 and the
current pay-as-you-go method from January 1, 1993, through the effective date
of the postretirement benefits step increases...will be recovered ratably
through future rates over a period not extending beyond 2013."
Based upon these interim decisions and orders, the Company recognized a
regulatory asset and deferred for financial reporting purposes the difference
between the costs of postretirement benefits other than pensions determined
under SFAS No. 106 and such costs under the pay-as-you-go method. The
regulatory asset totaled approximately $17,866,000 as of December 31, 1993.
If the PUC in its final decision and order does not fully adopt SFAS No.
106 for rate-making purposes and if under current accounting guidelines it is
concluded that recognition of a regulatory asset with respect to the difference
between the accrual and the pay-as-you-go methods would be inappropriate, then
the net earnings of the Company would be adversely affected by SFAS No. 106 in
1994 and future years. Management cannot predict with certainty when the final
decision in this docket will be rendered.
The accrued liability for postretirement benefits other than pensions was
as follows:
23
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
<TABLE>
<CAPTION>
December 31,
(in thousands) 1993
- ----------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees ................................................. $ 58,861
Fully eligible active plan participants .................. 30,772
Other active plan participants ........................... 48,072
--------
137,705
Unrecognized net loss........................................ (819)
Unrecognized net transition obligation ...................... (119,020)
--------
Accrued liability recognized in the balance sheet ........... $ 17,866
========
</TABLE>
As of December 31, 1993, the discount rate and the assumed rate of
increase in future compensation levels used to measure the accumulated
postretirement benefit obligation were 7.0% and 5.0%, respectively.
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
(in thousands) 1993
- ----------------------------------------------------------------------------
<S> <C>
Service cost ................................................. $ 5,115
Interest cost ................................................ 10,426
Net amortization and deferral ................................ 6,264
-------
Net periodic postretirement benefit cost ..................... $21,805
=======
</TABLE>
Of the net periodic postretirement benefit cost, $2,362,000 was expensed
in 1993, and the remaining amounts were charged primarily to regulatory assets,
electric utility plant and plant-related accounts.
As of December 31, 1993, the assumed health care trend rates for 1994 and
future years were as follows: medical, 7.0%; dental, 5.5% and vision, 4.5%.
A 1% increase in the trend rate for health care costs would have
increased the accumulated postretirement benefit obligation as of December 31,
1993 by approximately $22.4 million and the service and interest costs for
1993 by approximately $3.1 million.
11 o COMMITMENTS AND CONTINGENCIES
FUEL CONTRACTS AND OTHER PURCHASE COMMITMENTS
To assure access to a long-term supply of residual fuel oil and diesel
fuel, HECO has contractual agreements to purchase a minimum amount of 0.5%
sulfur residual fuel oil and 0.4% sulfur diesel fuel annually through 1995.
The fuel oil prices under these contracts are tied to the market prices of
products as reported in Singapore and the U.S. Pacific Northwest. Based on
the average price per barrel at January 1, 1994, the amount of required
purchases for 1994 approximates $83 million. HECO's subsidiaries have
contractual agreements through 1995 under which the amount of required
purchases for 1994 approximates $43 million based on the average price per
barrel at January 1, 1994. The actual amount of purchases in 1994 could vary
substantially from such estimates as a result of changes in the market price of
fuel oil and other factors. HECO and its subsidiaries purchased $205 million,
$216 million and $251 million of fuel under these or prior contractual
agreements in 1993, 1992 and 1991, respectively. New contracts to replace
expiring ones are expected to be entered into in the normal course of business.
24
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
At December 31, 1993, the Company had purchase commitments other than
fuel and power purchase contracts amounting to approximately $61 million.
POWER PURCHASE AGREEMENTS
In general, payments under the major power purchase agreements are based
upon available capacity and energy. Payments for capacity generally are not
required if the contracted capacity is not available, and payments are reduced,
under certain conditions, if available capacity drops below contracted levels.
In general, the payment rates for capacity have been predetermined for the
terms of the agreements. The energy charges will vary over the terms of the
agreements and the Company may pass on changes in the fuel component of the
energy charges to customers through energy cost adjustment clauses in its rate
schedules. The Company does not operate nor participate in the operation of
any of the facilities that provide power under the major agreements. Title to
the facilities does not pass to the Company upon expiration of the agreements,
and the agreements do not contain bargain purchase options with respect to the
facilities.
As of December 31, 1993, the Company had power purchase agreements for
473 megawatts (MW) of firm capacity representing approximately 22% of their
generating capabilities and purchased power firm capacities. Rate recovery is
allowed for energy and firm capacity payments under these agreements. Assuming
that each of the agreements remains in place and the minimum availability
criteria in the power purchase agreements are met, aggregate minimum fixed
capacity charges are expected to be approximately $107 million annually in 1994
and 1995, between $99 million and $106 million annually from 1996 through 2015,
between $50 million and $77 million annually from 2016 through 2022 and $4
million annually from 2023 through 2028.
HECO is disputing certain amounts billed each month under its power
purchase agreements with Kalaeloa Partners, L.P. (Kalaeloa) and AES Barbers
Point, Inc. (AES-BP) and has withheld payment of some of the disputed amounts,
pending resolution. With respect to the billings from Kalaeloa, HECO believes
that it has counterclaims which would mitigate, if not more than offset, the
disputed amounts billed by Kalaeloa. Disputed amounts billed by Kalaeloa and
AES-BP through December 31, 1993 totaled approximately $2.1 million and $1.5
million, respectively. Approximately $0.5 million of the total disputed
amounts, if paid, are includable in HECO's energy cost adjustment clause, and
would be passed through to customers.
HECO has not recognized any portion of the disputed amounts as an expense
or liability in its financial statements. Discussions between HECO and
Kalaeloa, and HECO and AES-BP to resolve the disputed billing amounts are
continuing. In the event the parties are unable to settle the disputes, both
the Kalaeloa and AES-BP power purchase agreements contain provisions whereby
either party to the agreement may cause the dispute to be submitted to binding
arbitration. Kalaeloa has requested that its dispute with HECO be arbitrated
and this arbitration process has commenced. Based on information currently
available, HECO's management believes that the ultimate outcome of these
disputes will not have a material adverse effect, if any, on the Company's
consolidated financial condition and results of operations.
HELCO's power purchase agreements include an amended power purchase
agreement with Hamakua Sugar Company (Hamakua), a power purchase agreement with
Puna Geothermal Ventures (PGV) and a power purchase agreement with Hilo Coast
Processing Company (HCPC). Hamakua is in a Chapter 11 bankruptcy proceeding
and is now conducting a final sugar cane harvest over a period of 10 to 16
months, which began in July 1993. During the harvest, Hamakua has agreed to
supply HELCO with 8 MW of firm capacity under an amendment to HELCO's existing
power purchase agreement. PGV, an independent geothermal power producer which
had experienced substantial delays in commencing commercial operations, passed
an acceptance test in June 1993 and is now considered to be a firm capacity
source for 25 MW. HCPC, which provides
25
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
18 MW of firm capacity, has announced that it will discontinue harvesting sugar
cane in the second half of 1994, but has stated that it intends to continue
generating power using coal supplemented by biomass materials and diesel fuel
oil.
HECO POWER OUTAGE
On April 9, 1991, HECO experienced a power outage that affected all
customers on the island of Oahu. One major transmission line was de-energized
for routine maintenance when two major transmission lines tripped, causing
another major transmission line to become overloaded and automatically trip.
An island-wide power outage resulted. Power was restored over the next twelve
hours. The PUC initiated an investigation of the outage by its order dated
April 16, 1991. This investigation was consolidated with a pending
investigation of an outage that occurred in 1988. The parties to the
investigation (HECO, Consumer Advocate and United States Department of Defense)
agreed that HECO should retain an independent consultant to investigate the
cause of the line trip. The PUC approved HECO's retention of Power
Technologies, Inc. (PTI). PTI's report, with more than 100 recommendations,
was submitted to the PUC in August 1993 and HECO filed its comments on the PTI
recommendations with the PUC in November 1993. Management cannot predict the
timing and outcome of any decision and order to be issued by the PUC with
respect to the outages or with respect to the recommendations made by PTI.
HECO's PUC-approved tariff rule states that HECO "will not be liable for
interruption or insufficiency of supply or any loss, cost, damage or expense of
any nature whatsoever, occasioned thereby if caused by accident, storm, fire,
strikes, riots, war or any cause not within [HECO's] control through the
exercise of reasonable diligence and care." Under the rule, customers had 30
days from the date of the power outage to file claims. HECO received
approximately 2,900 customer claims which totaled approximately $7 million. Of
the 2,900 claims, approximately 1,450 are for property damage. As of December
31, 1993, HECO had settled approximately 542 of these property damage claims,
had settlement offers outstanding with respect to approximately 119 more of
these claims and anticipates making settlement offers with respect to the
remaining property claims upon receipt and review of appropriate supporting
documentation. The settlement offers are being made for purposes of settlement
and compromise only, and without any admission by HECO of liability for the
outage. Not covered in the settlement offers and requests for documentation
are approximately 1,450 claims involving alleged personal injury or economic
losses, such as lost profits.
On April 19, 1991, seven direct or indirect business customers on the
island of Oahu filed a lawsuit against HECO on behalf of themselves and an
alleged class, claiming $75 million in compensatory damages and additional
unspecified amounts for punitive damages because of the April 9, 1991 outage.
The lawsuit was dismissed without prejudice in March 1993 and subsequently
refiled by the plaintiffs. HECO has filed an answer which denies the principal
allegations in the complaint, sets forth affirmative defenses, and asserts that
the suit should not be maintained as a class action. Discovery proceedings
have been initiated. No trial date has been set.
A reserve equal to the deductible limits with respect to HECO's insurance
coverage has been recorded with respect to claims arising out of the April 1991
outage. In the opinion of management, losses (if any), net of estimated
insurance recoveries, resulting from the ultimate outcome of the lawsuit and
claims related to the April 9, 1991 outage will not have a material adverse
effect on the Company.
HELCO RELIABILITY INVESTIGATION
In July 1991, following service interruptions and rolling blackouts
instituted on the island of Hawaii, the PUC issued an order calling for an
investigation into the reliability of HELCO's system.
26
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
In light of approximately 20 subsequent incidents of rolling blackouts
and service interruptions resulting from insufficient generation margin,
further evidentiary hearings were held in July 1992. With the input from an
independent consultant and the parties to the proceedings, the PUC may
formulate minimum reliability standards for HELCO, use the standards to assess
HELCO's system reliability, and re-examine the rate increase approved in
October 1992 to see whether any adjustments are appropriate.
HELCO's generation margin has improved with the addition of a 20-MW
combustion turbine in August 1992, PGV's commencement of commercial operations
and Hamakua's temporary return to commercial operation (see "Power purchase
agreements" herein). HELCO is proceeding with plans to install a 20-MW
combustion turbine in July 1995 and a second 20-MW combustion turbine in
September 1995, followed by an 18-MW heat steam recovery generator in October
1997, at which time these units will be converted to a combined-cycle unit,
subject in each case to obtaining necessary permits. In the opinion of
management, the PUC's adjustment, if any, resulting from the reliability
investigation will not have a material adverse effect upon the Company's
consolidated financial condition or results of operations.
12 o REGULATORY RESTRICTIONS ON DISTRIBUTIONS TO PARENT
At December 31, 1993, net assets (assets less liabilities) of
approximately $313 million were not available for transfer to HEI in the form
of dividends, loans or advances without regulatory approval.
13 o RELATED-PARTY TRANSACTIONS
HEI charged HECO and its subsidiaries for general management,
administrative and support services totaling $2,258,000, $5,604,000 and
$5,133,000 in 1993, 1992 and 1991, respectively. As of January 1, 1993, HEI
refined its method of identifying costs chargeable to its subsidiaries,
resulting in less allocations to subsidiaries.
HEI also charged HECO for data processing services totaling $3,563,000,
$3,231,000 and $2,355,000 in 1993, 1992 and 1991, respectively.
HECO's borrowings from HEI totaled $12,000,000 and nil at December 31,
1993 and 1992, respectively. The interest charged on short-term borrowings
from HEI is computed based on HECO's short-term borrowing interest rate.
Interest charged by HEI to HECO totaled $1,795,000, $232,000 and $981,000 in
1993, 1992 and 1991, respectively.
14 o SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
HECO and its subsidiaries are operating electric public utilities engaged
in business on the islands of Oahu, Hawaii, Maui, Lanai and Molokai in the
State of Hawaii. HECO and its subsidiaries grant credit to customers, all of
whom reside or conduct business in the State of Hawaii.
15 o CHANGE IN ACCOUNTING ESTIMATE
In September 1991, the Company revised the method of estimating unbilled
kilowatthour sales and revenues. The revised method results in more accurate
estimates. The effect of this change in accounting estimate resulted in a
nonrecurring increase in the Company's consolidated net income of $3.8 million
for 1991.
16 o DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for certain financial
instruments.
27
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND EQUIVALENTS. The carrying amount approximates fair value because of
the short maturity of these instruments.
SHORT-TERM BORROWINGS. The carrying amount approximates fair value because of
the short maturity of these investments.
LONG-TERM DEBT. Fair value is estimated based on the quoted market prices for
the same or similar issues for debt.
CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION. There are no
quoted market prices for the Company's preferred stocks. Fair value is
estimated based on quoted market prices for similar issues of preferred stock.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
-------------------- -------------------
Estimated Estimated
Carrying fair Carrying fair
(in thousands) amount value amount value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and equivalents .............. $ 1,922 $ 1,922 $ 30,883 $ 30,883
FINANCIAL LIABILITIES:
Short-term borrowings from
nonaffiliates and affiliate .... $ 40,928 $ 40,928 $122,176 $122,176
Long-term debt, net, including
amounts due within one year .... $484,736 $506,089 $374,835 $378,785
PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION, INCLUDING SINKING FUND
REQUIREMENTS ...................... $ 46,730 $ 49,583 $ 48,920 $ 51,437
===============================================================================
</TABLE>
LIMITATIONS. Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial assets or
liabilities include inventories, property, plant and equipment, regulatory
assets, deferred income taxes, unamortized tax credits and contributions in aid
of construction. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered.
28
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Hawaiian Electric Company, Inc. (a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
17 o SUMMARIZED FINANCIAL INFORMATION
Summarized financial information for HECO's consolidated subsidiaries, HELCO
and MECO, is as follows:
HAWAII ELECTRIC LIGHT COMPANY, INC.
<TABLE>
<CAPTION>
December 31,
------------------------
(in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA
Current assets ........................................ $ 22,161 $ 18,199
Noncurrent assets ..................................... 297,847 247,065
-------- --------
$320,008 $265,264
======== ========
Common stock equity ................................... $102,438 $ 87,413
Cumulative preferred stock:
Not subject to mandatory redemption ................ 10,000 3,000
Subject to mandatory redemption .................... 8,100 8,600
Current liabilities ................................... 42,615 27,319
Noncurrent liabilities ................................ 156,855 138,932
-------- --------
$320,008 $265,264
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues ...................... $113,579 $104,904 $101,384
Operating income ........................ $ 11,902 $ 10,951 $ 13,033
Net income for common stock ............. $ 5,807 $ 5,770 $ 7,384
</TABLE>
MAUI ELECTRIC COMPANY, LIMITED
<TABLE>
<CAPTION>
December 31,
------------------------
(in thousands) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA
Current assets ....................................... $ 31,465 $ 22,426
Noncurrent assets .................................... 252,680 209,083
-------- --------
$284,145 $231,509
======== ========
Common stock equity .................................. $ 97,569 $ 87,226
Cumulative preferred stock:
Not subject to mandatory redemption ................ 8,000 3,000
Subject to mandatory redemption .................... 7,135 7,725
Current liabilities .................................. 35,027 23,654
Noncurrent liabilities ............................... 136,414 109,904
-------- --------
$284,145 $231,509
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues ....................... $114,256 $105,343 $101,870
Operating income ......................... $ 13,518 $ 12,379 $ 12,336
Net income for common stock .............. $ 9,274 $ 8,770 $ 7,851
</TABLE>
29
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Shareholder
Hawaiian Electric Company, Inc.:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Hawaiian Electric Company, Inc. (a wholly
owned subsidiary of Hawaiian Electric Industries, Inc.) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hawaiian Electric
Company, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Additionally, as discussed in Note 10 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions.
\s\ KPMG Peat Marwick
Honolulu, Hawaii
February 11, 1994
30
<PAGE> 30
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Hawaiian Electric Company, Inc.(a wholly owned subsidiary of Hawaiian Electric
Industries, Inc.) and Subsidiaries
Selected quarterly consolidated financial information for 1993 and 1992 is
as follows:
<TABLE>
<CAPTION>
(in thousands) Quarter ended
- ------------------------------------------------------------------------------------- Year ended
1993 March 31 June 30 Sept.30 Dec. 31 Dec. 31
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues .......... $205,560(3) $218,158(3) $234,484(3) $215,808(3) $874,010
Operating income ............ 13,705(3) 22,862(1,2,3) 20,377(1,3) 21,141(1,3) 78,085
Net income for common stock.. 7,462(3) 16,465(1,2,3) 14,548(1,3) 13,230(1,3) 51,705
=================================================================================================
1992
- -------------------------------------------------------------------------------------------------
Operating revenues .......... $173,095 $176,613 $206,580(4) $220,641(4) $776,929
Operating income ............ 17,223 18,555 21,368(4) 19,893(4) 77,039
Net income for common stock.. 10,507 11,483 13,866(4) 13,297(4) 49,153
=================================================================================================
</TABLE>
(1) Includes an adjustment to establish a regulatory asset for the difference
between postretirement benefits other than pension costs determined under
SFAS No. 106 and such costs under the pay-as-you-go method. The effect
was approximately $9.1 million, $4.4 million and $4.4 million on a
pre-tax basis for the second, third and fourth quarters, respectively
($5.5 million, $2.7 million and $2.7 million, respectively on an
after-tax basis.)
(2) Includes a nonrecurring adjustment to establish a regulatory asset for
vacation earned but not yet taken by employees. The effect was
approximately $4.2 million on a pre-tax basis ($2.6 million on an
after-tax basis.)
(3) Includes interim rate increases granted to MECO, primarily to cover the
costs of a phased installation of a combined-cycle generating unit on
Maui.
(4) Includes rate increases to primarily cover a pass-through of firm
capacity and nonfuel energy payments associated with the AES-BP power
purchase agreement.
31
<PAGE> 31
DIRECTORS AND OFFICERS
<TABLE>
<S> <C> <C>
HAWAIIAN ELECTRIC COMPANY, HAWAII ELECTRIC LIGHT MAUI ELECTRIC COMPANY,
INC. COMPANY, INC. LIMITED
A wholly owned subsidiary of A wholly owned subsidiary A wholly owned subsidiary
Hawaiian Electric Industries, of Hawaiian Electric of Hawaiian Electric
Inc. Company, Inc. Company, Inc.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS SUBSIDIARY DIRECTORS SUBSIDIARY DIRECTORS
(Age), year first elected or appointed.(1)
<S> <C> <C>
ROBERT F. CLARKE (51), 1990 HARWOOD D. WILLIAMSON HARWOOD D. WILLIAMSON
RICHARD HENDERSON (65), 1979 RICHARD HENDERSON JOSEPH W. HARTLEY, JR.
BEN F. KAITO(2) (67), 1975 RICHARD T. ISHIDA THOMAS J. JEZIERNY
MILDRED D. KOSAKI(2) (69), 1973 WARREN H. W. LEE SANFORD J. LANGA
PAUL A. OYER (53), 1985 DENZIL W. ROSE B. MARTIN LUNA
DIANE J. PLOTTS(2) (58), 1991 DONALD K. YAMADA ANNE M. TAKABUKI
THURSTON TWIGG-SMITH (72), 1967
HARWOOD D. WILLIAMSON (62), 1985
PAUL C. YUEN (65), 1993
</TABLE>
- ---------
(1) All directors serve one year terms.
(2) Audit Committee member.
<TABLE>
<CAPTION>
OFFICERS SUBSIDIARY OFFICERS SUBSIDIARY OFFICERS
<S> <C> <C>
ROBERT F. CLARKE HARWOOD D. WILLIAMSON HARWOOD D. WILLIAMSON
Chairman of the Board Chairman of the Board Chairman of the Board
HARWOOD D. WILLIAMSON WARREN H. W. LEE THOMAS J. JEZIERNY
President and Chief Executive President President
Officer
PAUL A. OYER PAUL A. OYER
T. MICHAEL MAY Financial Vice President Financial Vice President
Senior Vice President and Treasurer and Treasurer
JOAN M. DIAMOND EDWARD Y. HIRATA EDWARD Y. HIRATA
Vice President--Human Resources Vice President Vice President
JACKIE MAHI ERICKSON MOLLY M. EGGED MOLLY M. EGGED
Vice President--General Counsel Secretary Secretary
CHARLES M. FREEDMAN MICHAEL F. H. CHANG MARVIN A. HAWTHORNE
Vice President--Corporate Relations Assistant Treasurer Assistant Treasurer
EDWARD Y. HIRATA MARVIN A. HAWTHORNE DUANE T. HAYASHI
Vice President--Planning Assistant Treasurer Assistant Treasurer
GEORGE T. IWAHIRO WILLIAM J. STORMONT MICHAEL E. KAM
Vice President--Engineering Assistant Secretary Assistant Treasurer
RICHARD L. O'CONNELL STANLEY T. NAKAMOTO
Vice President--Customer Relations Assistant Treasurer
PAUL A. OYER JESSIE K. AKAGI
Financial Vice President and Treasurer Assistant Secretary
DAVID M. RODRIGUES
Vice President--Corporate Excellence
ERNEST T. SHIRAKI
Controller
MOLLY M. EGGED
Secretary
MARVIN A. HAWTHORNE
Assistant Treasurer
</TABLE>
33
<PAGE> 1
Exhibit 22
HAWAIIAN ELECTRIC INDUSTRIES, INC. o PO BOX 730 o HONOLULU, HI 96808-0730
(LOGO)
Robert F. Clarke
President and
Chief Executive Officer
March 10, 1994
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to
attend the Annual Meeting of Stockholders of Hawaiian Electric Industries, Inc.
(HEI). The meeting will be held in the Pacific Ballroom of the IIikai Hotel in
Honolulu, Hawaii on April 19, 1994, at 9:30 a.m.
The matters expected to be acted upon at the meeting are described in the
attached Proxy Statement. In addition, we will review significant events of 1993
and their impact on you and your Company. Corporate officers will be available
before and after the meeting to talk with you and answer any questions you may
have.
As a stockholder of HEI, it is important that your views be represented. We
ask that you promptly sign, date and return the enclosed proxy in the postage
prepaid envelope.
I join the management team of HEI in expressing our appreciation for your
confidence and support. I look forward to seeing you at the Annual Meeting in
Honolulu.
Sincerely,
ROBERT F. CLARKE
---------------------
Robert F. Clarke
<PAGE> 2
- --------------------------------------------------------------------------------
HAWAIIAN ELECTRIC INDUSTRIES, INC.
900 RICHARDS STREET [LOGO]
HONOLULU, HAWAII 96813
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 19, 1994
To the Holders of Common Stock
Notice is hereby given that the Annual Meeting of Stockholders of Hawaiian
Electric Industries, Inc. will be held on Tuesday, April 19, 1994, at 9:30 a.m.
in the Pacific Ballroom of the Ilikai Hotel, 1777 Ala Moana Boulevard, Honolulu,
Hawaii 96815, for the following purposes:
1. To elect four Class I directors.
2. To elect the independent auditor of the Company.
3. To transact such other business as may be properly brought before
the meeting.
Only holders of record of Common Stock at the close of business on February
10, 1994, will be entitled to vote at the meeting. The stock transfer books of
the Company will remain open.
All stockholders are urged to attend the meeting in person or by proxy. It
is important that your shares be represented at the meeting, regardless of the
size of your holding. Therefore, we urge you to SIGN, DATE and RETURN AS SOON AS
POSSIBLE the enclosed proxy in the postage prepaid envelope furnished for that
purpose.
Your attention is directed to the Proxy Statement which appears on the
following pages.
Betty Ann M. Splinter, Secretary
Hawaiian Electric Industries, Inc.
Honolulu, Hawaii
March 10, 1994
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introduction......................................................................... 1
Voting Rights........................................................................ 1
Management Proposal 1.
Election of Class I Directors................................................... 2
Board of Directors
Committees of the Board......................................................... 6
Remuneration of Directors and Attendance at Meetings............................ 6
Nonemployee Director Retirement Plan............................................ 7
Indemnification and Limitation of Liability.......................................... 7
Security Ownership of Directors and Executive Officers............................... 8
Security Ownership of Certain Beneficial Owner....................................... 9
Section 16 Proxy Statement Disclosure................................................ 9
Executive Management Compensation.................................................... 9
Summary Compensation Table...................................................... 10
Option Grants in Last Fiscal Year............................................... 11
Aggregated Option Exercises and Fiscal Year-End Option Values................... 12
Long-Term Incentive Plan ("LTIP") Awards........................................ 13
Pension Plans................................................................... 14
Change-in-Control Agreements.................................................... 15
Compensation Committee Report on Executive Compensation......................... 16
Stockholder Performance Graph................................................... 20
Compensation Committee Interlocks and Insider Participation..................... 21
Indebtedness of Management........................................................... 22
Transactions with Management and Directors........................................... 23
Management Proposal 2.
Election of Auditor............................................................. 23
Stockholder Proposals................................................................ 23
Other Business....................................................................... 24
</TABLE>
<PAGE> 4
HAWAIIAN ELECTRIC INDUSTRIES, INC.
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
This Proxy Statement is furnished to stockholders by Hawaiian Electric
Industries, Inc. (the "Company") in connection with the solicitation of proxies
for use at the Annual Meeting of Stockholders of the Company to be held on April
19, 1994, and at all adjournments thereof. The mailing address of the principal
executive offices of the Company is P.O. Box 730, Honolulu, Hawaii 96808. This
Proxy Statement and the accompanying form of proxy, together with the Company's
annual report to stockholders for the fiscal year ended December 31, 1993, are
being sent to stockholders commencing approximately March 10, 1994.
The annual report is not to be regarded as proxy soliciting material or as
a communication by means of which any solicitation is to be made.
All of the expenses of the solicitation of proxies for the Annual Meeting
will be borne by the Company. The Company may request banks, brokerage houses
and other custodians, nominees, and fiduciaries to forward proxies and proxy
material to the beneficial owners of stock of the Company and to request
authority for the execution of proxies. In such a case the Company may reimburse
such banks, brokerage houses, custodians, nominees and fiduciaries for their
expenses. Proxies may be solicited personally, or by telephone, telegram or by
mail by certain directors, officers and regular employees of the Company without
additional compensation for such services. In addition, the Company has retained
D. F. King & Co., Inc., to assist in the solicitation of proxies for an
estimated fee not to exceed $7,000, plus reimbursement of reasonable
out-of-pocket expenses.
VOTING RIGHTS
Only holders of Common Stock of record at the close of business on February
10, 1994, will be entitled to vote. On February 10, 1994, 27,747,718 shares of
Common Stock were outstanding. Each share of Common Stock is entitled to one
vote on each of the matters presented at the Annual Meeting. Under the By-Laws
of the Company, the holders of voting stock of the Company do not have
cumulative voting rights in the election of directors.
If you execute and return the enclosed proxy, you may revoke the proxy
before the Annual Meeting at any time by sending a written revocation to the
Company. The By-Laws of the Company provide, however, that if you attend the
Annual Meeting and wish to vote, your ballot at the meeting will cancel any
proxy that you have previously given. Unless your proxy is mutilated or
otherwise received in such form or at such time as to render it not votable, the
shares represented by your proxy will be voted as directed, and if no direction
is indicated it will be voted for all management proposals, as set forth in this
Proxy Statement. If you wish to give a proxy to someone other than the holders
of the Company's proxies, you may cross out all three names appearing on the
enclosed proxy and insert the name of another person to vote the shares at the
meeting. For your convenience, a self-addressed envelope is enclosed, requiring
no postage if mailed within the United States.
The holders of a majority of the shares of the Company's Common Stock,
present in person or by proxy at the Annual Meeting, constitute a quorum for the
transaction of business. Electing Class I directors and electing the independent
auditor require the affirmative vote of a majority of such quorum. For purposes
of determining whether a proposal has received a majority vote, abstentions will
be included in the vote totals. In the case of all other matters brought before
the meeting other than the election of directors, abstentions will have the
effect of a vote against the proposal.
<PAGE> 5
The Company has contracted with an affiliate company to act as tabulator
for the proxies of the stockholders of record for the Annual Meeting, while D.
F. King & Co. will act as tabulator for broker and bank proxies. The identity
and vote of any stockholder shall not be disclosed to any third party except as
necessary to meet applicable legal requirements and, in the case of any
contested proxy solicitation, as may be necessary to permit proper parties to
verify the propriety of proxies presented by any person and the results of the
voting.
If you own shares of HEI stock in the Dividend Reinvestment and Stock
Purchase Plan (DRIP) and/or the Hawaiian Electric Industries Retirement Savings
Plan (HEIRS) (including shares held in the Hawaiian Electric Industries Stock
Ownership Plan which was originally adopted as a Tax Reduction Act Stock
Ownership Plan ("TRASOP")), your share ownership is shown on the enclosed proxy.
The respective plan trustee will vote the shares of stock held in the Plans in
accordance with the directions received from shareholders participating in the
Plans. For both DRIP and HEIRS (excluding TRASOP), the trustee will vote all the
shares of Common Stock for which it has received no voting instruction in the
same proportion as it votes shares for which it receives instruction.
MANAGEMENT PROPOSAL 1. ELECTION OF CLASS I DIRECTORS
The persons named in the proxy will vote your stock for the election of
four directors to serve in Class I of the Company's Board of Directors for terms
expiring at the 1997 Annual Meeting and thereafter until their successors are
duly elected and qualified.
Although it is not contemplated that any Board of Directors nominee will
decline or be unable to serve, should such a situation arise prior to the
meeting, the proxy holders may vote in their discretion for a suitable
substitute. Each nominee for director is now serving on the Board.
The Board of Directors currently consists of 15 persons, divided into three
classes of equal size: Class I, Class II, and Class III, with the term of office
of one class expiring each year. Based on the recommendation of the Nominating
Committee, the Board of Directors has voted not to fill, at this time, the
position being vacated by Thurston Twigg-Smith, who has reached the mandatory
retirement age of 72 as specified by Board resolution. Therefore, the size of
the Board will be decreased from 15 to 14 immediately following Mr.
Twigg-Smith's retirement on April 19, 1994, and the size of Class I will be
reduced to four. The four Class I directors are being proposed for election for
new three-year terms (expiring in 1997) at this Annual Meeting. Terms for all
five Class II directors expire in 1995 and for all five Class III directors in
1996.
The following sets forth the name, age, year first elected or appointed as
a director of the Company, positions with the Company or business experience
during the past five years, and a list of directorships of the four nominees for
Class I directors and of the Class II and III directors who will continue to
serve on the Board of Directors pursuant to their prior elections.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF THE NOMINEES TO SERVE AS CLASS I DIRECTORS.
2
<PAGE> 6
NOMINEES FOR CLASS I DIRECTORS --
Terms would end at the 1997 Annual Meeting.
<TABLE>
<S> <C> <C> <C>
(PHOTO) (PHOTO) (PHOTO) (PHOTO)
ROBERT F. CLARKE JOHN D. FIELD A. MAURICE MYERS RUTH M. ONO, PH.D.
AGE 51 AGE 68 AGE 53 AGE 58
DIRECTOR SINCE 1989 DIRECTOR SINCE 1986 DIRECTOR SINCE 1991 DIRECTOR SINCE 1987
President and chief Vice president-- President, chief Vice president of The
executive officer of the regulatory affairs of operating officer, and Queen's Health Systems.
Company. From May 1, GTE Service Corporation director of America West
1988, until December 31, from 1982 until his Airlines, Inc. From June Director of American
1990, he was group vice retirement in October 1985 to December 1993, Savings Bank, F.S.B.,
president--diversified 1985. he was president and Hawaii Visitors Bureau,
companies of the chief executive officer Aloha United Way,
Company. of Aloha Airgroup, Inc. Japanese Cultural Center
of Hawaii, Japan-America
Chairman of the board Director of Air Society of Hawaii, Air
of Hawaiian Electric Transport Association of Force Civilian Advisory
Company, Inc., American America. Council, Plaza Club,
Savings Bank, F.S.B., Keiki Heart Foundation,
Hawaiian Tug & Barge Urasenke Foundation, The
Corp., Young Brothers, Tokushukai Medical
Limited, and Malama Corporation, Leadership
Pacific Corp. President America National
and director of Hawaiian Advisory Board, and
Electric Industries Soroptimist
Charitable Foundation. International of the
Chairman, 1994 Aloha Americas Foundation.
United Way Campaign. Vice chairman of the
Director of Chamber of board of Queen's
Commerce of Hawaii and International
PATH Housing Development Corporation. Honorary
Corporation. Member, Dean and Visiting
Hawaii Business Professor of Toho
Roundtable. Trustee, The University School of
Nature Conservancy of Medicine. Member, Board
Hawaii and Hawaii of Regents, University
Pacific University. of Hawaii and the Spark
M. Matsunaga Peace
Foundation Board of
Governors. Trustee, St.
Andrew's Priory.
</TABLE>
3
<PAGE> 7
CLASS II DIRECTORS --
Directors continuing in office with terms ending at the 1995 Annual Meeting.
<TABLE>
<S> <C> <C> <C> <C>
(PHOTO) (PHOTO) (PHOTO) (PHOTO) (PHOTO)
VICTOR HAO LI, S.J.D. DIANE J. PLOTTS KELVIN H. TAKETA JEFFREY N. WATANABE HARWOOD D. WILLIAMSON
AGE 52 AGE 58 AGE 39 AGE 51 AGE 62
DIRECTOR SINCE 1988 DIRECTOR SINCE 1987 DIRECTOR SINCE 1993 DIRECTOR SINCE 1987 DIRECTOR SINCE 1985
Co-chairman, Asia General partner of Vice president and Senior partner in the Group vice
Mideast and China director of the Pacific law firm of Watanabe, president--utility
Pacific Consulting Trading Company, Region, The Nature Ing and Kawashima. companies of the
Group. From 1981 to formerly known as Conservancy and Company. President,
1990, he served as Hemmeter Investment executive director of Director of American chief executive officer,
president of the East- Company. The Nature Conservancy Savings Bank, F.S.B., and director of Hawaiian
West Center. of Hawaii. Hawaiian Electric Electric Company, Inc.
Director of Hawaiian Industries Charitable and chairman of the
Director of Hawaiian Electric Company, Inc., Director of HISCO, Ltd., Foundation, Grace boards of Maui Electric
Electric Industries Malama Pacific Corp. and Sustainable Pacific Corporation and Company, Limited and
Charitable Foundation, its subsidiary Conservation, and PATH affiliates, Suntory Hawaii Electric Light
Grumman Corp., AES China companies, Hawaii Housing Development Resorts, Inc., Hawaiian Company, Inc.
Generating Corporation, Community Foundation, Corporation. Host, Inc., Bishop
The Immigrant Center, Hawaii Theatre Center, Museum, Child and Family Director of American
and Japan-America University of Hawaii Service--Project Savings Bank, F.S.B.,
Society of Hawaii. Foundation Forum/Center Philippines, Hawaiian Tug & Barge
Chairman of the board of for Strategic and Rehabilitation Hospital Corp., Young Brothers,
Queen's International International Studies, of the Pacific, Chamber Limited, Malama Pacific
Corporation. Member, Plaza Club, and Honolulu of Commerce of Hawaii, Corp., Hawaiian Electric
Board of Managers, Country Club. PATH Housing Development Industries Charitable
Mid-Pacific Institute. Corporation, and the Foundation, Aloha United
University of Hawaii Way, First Night
Foundation. Trustee, Honolulu, and Edison
Children's Television Electric Institute. Vice
Workshop, Blood Bank of president and director
Hawaii, Hawaii Maritime of the Western Energy
Center, Rehabilitation and Communication
Hospital of the Pacific Association. Chairman,
Foundation, The Nature Hawaiian Educational
Conservancy of Hawaii, Council. Member, Board
The Queen's Medical of Regents, Chaminade
Center, and the University of Honolulu.
Smithsonian Institution
National Board. Chairman
of the board of Alger
Foundation. Vice
chairman, 1994 Aloha
United Way Campaign.
</TABLE>
4
<PAGE> 8
CLASS III DIRECTORS --
Directors continuing in office with terms ending at the 1996 Annual Meeting.
<TABLE>
<S> <C> <C> <C> <C>
(PHOTO) (PHOTO) (PHOTO) (PHOTO) (PHOTO)
EDWIN L. CARTER RICHARD HENDERSON BEN F. KAITO BILL D. MILLS OSWALD K. STENDER
AGE 68 AGE 65 AGE 67 AGE 42 AGE 62
DIRECTOR SINCE 1985 DIRECTOR SINCE 1981 DIRECTOR SINCE 1981 DIRECTOR SINCE 1988 DIRECTOR SINCE 1993
President and director President and director Of counsel in the law Chairman of the board Trustee, Kamehameha
of Bishop Trust of HSC, Inc. and its firm of Kaito & Ishida. and chief executive Schools/Bishop Estate.
Company, Limited from subsidiaries. officer of Bill Mills From 1988 to 1990, he
1984 until his Director of Hawaiian Development and served as Senior Advisor
retirement in May 1993. Director of Hawaiian Electric Company, Inc., Investment Company, Inc. to the Board of Trustees
Electric Company, Inc., Malama Pacific Corp. and From 1986 to 1989, he of Campbell Estate.
Director of HEI Hawaii Electric Light its subsidiary was chairman of the
Investment Corp., Hawaii Company, Inc., Hawaiian companies, American board and chief Director of Affordable
Council on Economic Tug & Barge Corp., Young Savings Bank, F.S.B., executive officer of Housing Coalition,
Education, and Aloha Brothers, Limited, Jones and Hawaiian Electric Oceanic Properties, Inc. Hawaii Community
United Way. Chairman, Spacelink, Ltd., Industries Charitable Reinvestment Corp.,
Board of Regents, InterIsland Petroleum, Foundation. Member, Director of Hawaii Pacific Housing
Chaminade University of Inc., Hawaii Island Committee on Legal and Theatre Center, Historic Assistance Corporation,
Honolulu. Director and Economic Development Government Affairs, Hawaii Foundation, and PATH Housing Development
past president of the Board, Big Island Association for Retarded The Contemporary Museum. Corporation, Friends of
Aloha Council, Boy Substance Abuse Council, Citizens of Hawaii. Trustee, Hawaii Pacific Halawa Xeriscape Garden,
Scouts of America. United Way Statewide University and The Hawaii Nature Center,
National director and Association of Hawaii, Nature Conservancy of and Friends of Iolani
past president of the and Hawaii Island Hawaii. Member, Board of Palace. Director and
Pacific Region of the Chamber of Commerce. Governors, Iolani past president of the
Navy League of the Treasurer and director School. American Right of Way
United States. Honorary of The Island of Hawaii Association. Trustee,
member and past YMCA. President and Cash Assets Trust,
president of the Bishop trustee, Lyman House Hawaiian Tax-Free Trust,
Museum Board of Memorial Museum. Pacific Capital Funds,
Directors. Member, Board Historic Hawaii
of Managers, Mid-Pacific Mr. Henderson was the Foundation, The Nature
Institute. Trustee and chairman of the board of Conservancy of Hawaii,
treasurer, Board of Ocean Farms of Hawaii, and Academy of the
Trustees of the Academy Inc. (OFH), an Pacific. Member, Board
of the Pacific. aquaculture company that of Governors, Iolani
filed a petition in June School and East-West
1992 for voluntary Center.
bankruptcy under Chapter
7 of the U.S. Bankruptcy
Code. The assets of OFH
in the bankruptcy
proceedings were
abandoned to the secured
creditor, and the
Trustee was discharged.
HSC, Inc. owned an
approximate 1% interest
in OFH.
</TABLE>
5
<PAGE> 9
BOARD OF DIRECTORS
COMMITTEES OF THE BOARD
The Board of Directors has four standing committees: Audit, Compensation,
Executive and Nominating.
The Audit Committee is comprised of six nonemployee directors: Diane J.
Plotts, Chairman, and John D. Field, Ben F. Kaito, Victor H. Li, Ruth M. Ono,
and Kelvin H. Taketa, members. In 1993, the Audit Committee held five meetings
to review with management, the internal auditor and the Company's independent
auditor the activities of the internal auditor, the results of the annual audit
by the independent auditor and the financial statements which are included in
the Company's annual report to the stockholders. The Audit Committee holds such
meetings as it deems advisable to review the financial operations of the
Company.
The Compensation Committee is comprised of six nonemployee directors: Edwin
L. Carter, Chairman, and Richard Henderson, Bill D. Mills, A. Maurice Myers,
Oswald K. Stender, and Jeffrey N. Watanabe, members. In 1993, the Compensation
Committee held two meetings and reviewed the current salary administration
policies and compensation strategy of the Company. See pages 16 to 19 for the
Compensation Committee Report on Executive Compensation.
The Executive Committee is comprised of six nonemployee directors and one
employee director. The six nonemployee directors are: Thurston Twigg-Smith (who
is not standing for re-election as a director), Chairman, and Edwin L. Carter,
Richard Henderson, Ben F. Kaito, Diane J. Plotts, and Jeffrey N. Watanabe,
members. Robert F. Clarke is the employee director member of the Committee. In
1993, the Executive Committee held four meetings to review and discuss
organizational and other matters. The Executive Committee possesses and
exercises such powers of the Board as are expressly delegated to it by the Board
from time to time and is responsible for considering and making recommendations
to the Board concerning any questions relating to the business and affairs of
the Company.
The Nominating Committee is comprised of three nonemployee directors:
Richard Henderson, Chairman, and Ben F. Kaito and Thurston Twigg-Smith, members.
In 1993, the Nominating Committee held one meeting. The Nominating Committee
recommends to the Board of Directors the slate of directors to be submitted to
the stockholders at the Annual Meeting. The Committee will consider nominees for
director from all sources, including stockholders. Stockholders who wish to
suggest nominees should write to the Company's Nominating Committee, in care of
the Secretary, Hawaiian Electric Industries, Inc., P.O. Box 730, Honolulu,
Hawaii 96808. Such recommendations must be received by December 12, 1994, to be
considered for the 1995 Annual Meeting of Stockholders.
REMUNERATION OF DIRECTORS AND ATTENDANCE AT MEETINGS
In 1993, the nonemployee directors were paid a retainer of $12,000,
one-half of which was distributed in the Common Stock of the Company pursuant to
the Nonemployee Director Stock Plan and one-half of which was distributed in
cash. The number of shares of stock distributed to each director was based on a
price of $38.27 per share, which is equal to the average of the daily high and
low sales prices of HEI Common Stock for all trading days in March 1993, divided
into $6,000, with a cash payment made in lieu of any fractional share. In
addition, a fee of $700 was paid in cash to each director for each Board and
Committee meeting attended by the director. Chairmen of the respective
Committees were paid an additional $100 for each Committee meeting attended.
Effective May 1, 1994, members of the Board of Directors who are employees of
the Company will no longer be compensated for attendance at any meetings of the
Board or Committees of the Board.
In 1993, there were twelve regular monthly meetings and four special
meetings of the Board of Directors. All incumbent directors attended at least
75% of the total number of meetings of the Board and Committees on which they
served, except Bill D. Mills and Oswald K. Stender.
6
<PAGE> 10
NONEMPLOYEE DIRECTOR RETIREMENT PLAN
The Nonemployee Director Retirement Plan, which is not funded, was
established in 1989 and provides certain retirement benefits to nonemployee
directors of the Company or any subsidiary of the Company that elects to
participate in the Plan. No director who serves as an officer or employee of the
Company or any of its subsidiaries is entitled to receive benefits under the
Plan. Nonemployee directors who have served for at least five consecutive full
years (including years prior to adoption of the Plan) and who meet the other
requirements of the Plan receive, upon retirement from service as a nonemployee
director or age 65, whichever is later, payments each year in an amount equal to
the annual retainer which was established for the year in which the nonemployee
director retired. The annual payments will continue to be paid for a period
equal to the number of years of active service accumulated by a nonemployee
director as provided in the Plan or terminate in the event of the nonemployee
director's death. No amounts have yet been paid or distributed pursuant to the
Plan to any former nonemployee director.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company has entered into Indemnity Agreements with each of the
Company's directors and executive officers in substantially the form approved by
stockholders at the 1989 Annual Meeting. Each Indemnity Agreement provides for
mandatory indemnification of the director or officer to the fullest extent
authorized or permitted by law, including indemnification against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action by or in the
right of the Company. The Indemnity Agreement provides for the mandatory payment
of expenses incurred by the director or officer in defending a threatened or
actual proceeding before its final disposition, subject to the obligation to
repay such expenses if it is later determined that the officer or director is
not entitled to indemnification.
Each Indemnity Agreement specifically excludes indemnification (i) with
respect to proceedings initiated by the officer or director unless the Board of
Directors determines indemnification to be appropriate; (ii) with respect to
amounts covered by insurance or payable otherwise than under the Indemnity
Agreement; (iii) on account of profits made from the purchase or sale of stock
by a director or officer which are subject to the "short-swing profits"
liability provisions of federal or state securities laws; (iv) on account of an
action or omission of the officer or director finally adjudicated to be willful
misconduct or to have been knowingly fraudulent or deliberately dishonest; or
(v) if a final decision by a court having jurisdiction in the matter shall
determine that such indemnification is not permitted by law. In addition, the
Securities and Exchange Commission takes the position that indemnification
against liability arising under the Securities Act of 1933 is contrary to public
policy and is unenforceable.
At the 1990 Annual Meeting, the stockholders approved a proposal to amend
the Restated Articles of Incorporation of the Company to add a new Article
Fourteenth eliminating the personal liability of its directors for monetary
damages to the fullest extent permitted by Hawaii law.
7
<PAGE> 11
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the shares of Common Stock beneficially owned by
each nominee and director, named executive officers as listed in the Summary
Compensation Table on page 10, and by directors and executive officers as a
group, as of February 10, 1994, based on information furnished by the respective
individuals.
<TABLE>
<CAPTION>
AMOUNT OF
COMMON STOCK
NAME OF INDIVIDUAL AND NATURE OF
OR GROUP BENEFICIAL OWNERSHIP TOTAL
- ------------------------------------------------------------------------ -------------------- -------
<S> <C> <C>
NONEMPLOYEE DIRECTORS
Edwin L. Carter......................................................... 2,171(a) 2,171
----------
John D. Field........................................................... 671(a)
1,001(b)
1,944(d) 3,616
----------
Richard Henderson....................................................... 1,173(a) 1,173
----------
Ben F. Kaito............................................................ 1,549(a) 1,549
----------
Victor Hao Li........................................................... 766(a)
218(c) 984
----------
Bill D. Mills........................................................... 2,732(a)
4(c) 2,736
----------
A. Maurice Myers........................................................ 45(a)
671(b) 716
----------
Ruth M. Ono............................................................. 1,527(a) 1,527
----------
Diane J. Plotts......................................................... 921(a) 921
----------
Oswald K. Stender....................................................... 350(a)
300(b) 650
----------
Kelvin H. Taketa........................................................ 1,044(a) 1,044
----------
Thurston Twigg-Smith.................................................... 2,579(a)
1,254(c) 3,833
----------
Jeffrey N. Watanabe..................................................... 766(a)
407(b)
2(c)
885(e) 2,060
----------
EMPLOYEE DIRECTORS AND EXECUTIVE OFFICERS
Robert F. Clarke........................................................ 5,830(a)
4,966(b)
84,516(f) 95,312
----------
Harwood D. Williamson................................................... 11,735(a)
58,322(f) 70,057
----------
OTHER NAMED EXECUTIVE OFFICERS
Edward J. Blackburn..................................................... 2,800(a)
39,494(f) 42,294
----------
Peter C. Lewis.......................................................... 3,593(a)
227(c)
4,430(f) 8,250
----------
Robert F. Mougeot....................................................... 2,455(a)
15,668(f) 18,123
----------
All directors and executive officers as a group (23 persons)............ 46,277(a)
7,358(b)
2,429(c)
1,944(d)
885(e)
210,536(f) 269,429*
----------
</TABLE>
8
<PAGE> 12
- ---------------
* The current directors and executive officers of Hawaiian Electric Industries
as a group beneficially owned 0.97% of the Company's Common Stock on
February 10, 1994, and no one director or officer owned more than 0.3% of
such stock.
(a) Sole voting and investment power.
(b) Shared voting and investment power (shares registered in name of respective
individual and spouse).
(c) Shares owned by spouse, children or other relatives sharing the home of the
director or an officer in the group and in which personal interest of the
director or officer is disclaimed.
(d) Mr. Field is co-trustee of the Catharine P. Field Trust and shares voting
and investment powers over the 1,944 shares.
(e) Mr. Watanabe is sub-trustee of the Jeffrey N. Watanabe Profit Sharing Plan
Sub-Trust and has sole voting and investment powers over the 885 shares.
(f) Stock options, including accompanying dividend equivalent shares,
exercisable within 60 days after February 10, 1994, under the 1987 Stock
Option and Incentive Plan, as amended.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER
The following table sets forth information as to the beneficial ownership
of each person known to the Company to own more than 5% of the outstanding
Common Stock as of December 31, 1993.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED(1) CLASS
- ------------------------------- ------------ ----------
<S> <C> <C>
Franklin/Templeton 1,819,180 6.6%
Group of Funds
777 Mariners Island Boulevard
P.O. Box 7777
San Mateo, California 94403
</TABLE>
- ---------------
(1) This information is based on a Schedule 13G, dated January 28, 1994, filed
with the Securities and Exchange Commission that discloses that the
Franklin/Templeton Group of Funds has sole voting power over 1,818,180
shares and shared dispositive power over 1,819,180 shares.
SECTION 16 PROXY STATEMENT DISCLOSURE
Section 16 of the Securities Exchange Act of 1934, as amended, requires
that officers, directors, and holders of more than 10% of the Common Stock file
reports of their trading in Company equity securities with the Securities and
Exchange Commission. Based on a review of Section 16 forms filed by its
reporting persons during the last fiscal year, the Company believes that its
reporting persons complied with all applicable Section 16 filing requirements.
EXECUTIVE MANAGEMENT COMPENSATION
The Executive Management Compensation section contains the following tables
and a graph: Summary Compensation Table; Option Grants in Last Fiscal Year;
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values; Long-Term Incentive Plan -- Awards in Last Fiscal Year; and Stockholder
Performance Graph. Also included in this section of the Proxy Statement is a
Pension Plan Table, a report on Change-in-Control agreements, a report on
executive compensation which has been issued by the Compensation Committee of
the Board of Directors, and a discussion of Compensation Committee Interlocks
and Insider Participation.
9
<PAGE> 13
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the annual and
long-term compensation of the chief executive officer and the four other most
highly compensated executive officers of the Company serving at the end of 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION
------------------------------ AWARDS
OTHER ---------- PAYOUTS ALL
ANNUAL SECURITIES ---------- OTHER
COMPEN- UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL SALARY(1) BONUS(2) SATION(3) OPTIONS(4) PAYOUTS(5) SATION(6)
POSITION YEAR ($) ($) ($) (#) ($) ($)
- -------------------------------------- ---- --------- -------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert F. Clarke...................... 1993 $403,800 $160,578 $ -0- 15,000 $ -- $10,942
President & CEO 1992 374,800 -0- -0- 75,000 -0- -0-
1991 307,859 -0- -- 15,000 64,043 --
Harwood D. Williamson................. 1993 341,333 -0- 68,544 8,000 -- 18,843
Group V.P.--Utility Companies 1992 316,666 37,288 62,750 48,000 -0- -0-
1991 264,669 -0- -- 8,000 55,951 --
Edward J. Blackburn................... 1993 228,567 75,978 -0- 8,000 -- 14,136
Group V.P.--Diversified Companies 1992 212,333 -0- -0- 38,000 -0- -0-
1991 190,000 -0- -- 8,000 22,725 --
Robert F. Mougeot..................... 1993 195,666 41,059 -0- 5,000 -- 5,517
Financial Vice President 1992 182,000 -0- -0- 5,000 -0- -0-
1991 168,000 -0- -- 5,000 34,250 --
Peter C. Lewis........................ 1993 171,333 40,006 -0- 5,000 -- 10,320
V.P.--Administration 1992 162,833 -0- -0- 5,000 -0- -0-
1991 153,166 -0- -- 5,000 25,578 --
</TABLE>
- ---------------
(1) Includes directors' fees of $23,800 in 1993 and $24,800 in 1992 for Mr.
Clarke; directors' fees of $28,000 in 1993 and $25,000 in 1992 for Mr.
Williamson; and directors' fees of $4,900 in 1993 and $4,000 in 1992 for Mr.
Blackburn.
(2) The named executive officers are eligible for an incentive award under the
Company's annual Executive Incentive Compensation Plan ("EICP"). A decision
on EICP bonus payouts is made at the beginning of each year for the previous
year's performance period.
(3) Covers interest earned on deferred compensation and includes above-market
earnings in the amount of $57,498 for 1992 and $63,467 for 1993 on deferred
annual and long-term incentive plan payouts for Mr. Williamson.
(4) Includes special one-time, premium-priced grant without dividend equivalents
for Messrs. Clarke, Williamson and Blackburn in 1992. Other options granted
in 1992 and earlier years contained dividend equivalents as further
described in Option Grants in Last Fiscal Year, on page 11.
(5) LTIP payouts are determined in April each year for the 3-year cycle ending
on December 31, of the previous calendar year. In 1993, no LTIP payouts were
received for the 1990-1992 performance cycle because none of the minimum
earnings threshold levels were achieved. The determination of whether there
will be a payout under the 1991-1993 LTIP will not be made until April of
this year.
(6) Represents amounts accrued by the Company in 1993 for certain death benefits
provided to the named executive officers, as more fully covered in the
Compensation Committee Report on page 19 under the heading, "Other
Compensation Plans". In 1991 and 1992, the Company did not accrue for these
benefits.
10
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
Set forth in the following table is information on the stock options which
were granted to the five named executive officers in 1993, all of which were
nonqualified stock options. The practice of granting stock options, which
include dividend equivalent shares, has been followed each year since 1987.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF GRANT
UNDERLYING TOTAL OPTIONS DATE
OPTIONS GRANTED TO EXERCISE PRESENT
GRANTED(1) EMPLOYEES IN PRICE VALUE(2)
(#) FISCAL YEAR ($/SHARE) EXPIRATION DATE ($)
---------- ------------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Robert F. Clarke....... 15,000 12% $ 38.27 April 12, 2003 $ 144,900
Harwood D. Williamson.. 8,000 7 38.27 April 12, 2003 77,280
Edward J. Blackburn.... 8,000 7 38.27 April 12, 2003 77,280
Robert F. Mougeot...... 5,000 4 38.27 April 12, 2003 48,300
Peter C. Lewis......... 5,000 4 38.27 April 12, 2003 48,300
</TABLE>
- ---------------
(1) For the 41,000 option shares granted with an exercise price of $38.27 per
share, additional dividend equivalent shares are granted at no additional
cost throughout the four-year vesting period (vesting in equal installments)
which begins on the date of grant. Dividend equivalents are computed, as of
each dividend record date, both with respect to the number of shares under
the option and with respect to the number of dividend equivalent shares
previously credited to the participant and not issued during the period
prior to the dividend record date. Accelerated vesting is provided in the
event a Change-in-Control occurs. No stock appreciation rights have been
granted under the Company's current benefit plans.
(2) Based on a Binomial Option Pricing Model which is a variation of the
Black-Scholes Option Pricing Model. For the stock options granted with a
10-year option period, an exercise price of $38.27, and with additional
dividend equivalent shares granted for the first four years of the option,
the Binomial Value is $9.66 per share. The following assumptions were used
in the model: Stock Price: $38.27; Exercise Price: $38.27; Term: 10 years;
Volatility: .55; Interest Rate: 6.0%; and Dividend Rate: 6.4%. The following
were the valuation results: Binomial Option Value: $5.03; Dividend Credit
Value: $4.63; and Total Value: $9.66.
11
<PAGE> 15
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table shows the stock options, including dividend
equivalents, exercised by the named executive officers in 1993. Also shown is
the number and value of unexercised options and dividend equivalents at the end
of 1993. Under the Stock Option and Incentive Plan, dividend equivalents have
been granted to each executive officer as part of the stock option award, except
for the one-time, premium-priced grants to Messrs. Clarke, Williamson and
Blackburn in May 1992.
Dividend equivalents permit a participant who exercises a stock option to
obtain at no additional cost, in addition to the option shares, the amount of
dividends declared on the number of shares of Common Stock with respect to which
the option is exercised during the period between the grant and the exercise of
the option. Dividend equivalents are computed, as of each dividend record date
throughout the four-year vesting period (vesting in equal installments), which
begins on the date of grant, both with respect to the number of shares
underlying the option and with respect to the number of dividend equivalent
shares previously credited to the executive officer and not issued during the
period prior to the dividend record date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS (INCLUDING IN THE MONEY OPTIONS
DIVIDEND EQUIVALENTS) (INCLUDING DIVIDEND EQUIVALENTS)
DIVIDEND VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END(1)(2)
SHARES EQUIVALENTS VALUE REALIZED ---------------------- --------------------------------
ACQUIRED ACQUIRED REALIZED ON DIVIDEND EXERCISABLE/ EXERCISABLE/
ON EXERCISE ON EXERCISE ON OPTIONS EQUIVALENTS UNEXERCISABLE UNEXERCISABLE
(#) (#) ($) ($) (#) ($)
------------ ------------ ----------- ------------ ---------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert F.
Clarke...... -- -- -- -- 84,204/38,700 $ 151,750/72,955
Harwood D.
Williamson... -- -- -- -- 58,117/21,379 117,711/38,916
Edward J.
Blackburn... -- -- -- -- 39,331/20,587 38,916/38,916
Robert F.
Mougeot.... -- -- -- -- 15,508/13,955 103,114/24,319
Peter C.
Lewis...... 4,750 1,282 $ 6,486 $ 46,357 4,347/13,955 24,319/24,319
</TABLE>
- ---------------
(1) All options were in the money (where the option price is less than the
closing price on December 31, 1993) except the 1990 stock option grant with
dividend equivalents at $36.01 per share, the 1992 stock option grant with
dividend equivalents at $35.94 per share, and the 1993 stock option grant
with dividend equivalents at $38.27 per share, and the 1992 premium-priced
grant without dividend equivalents at $41.00 per share.
(2) Value based on closing price of $35.875 per share on the New York Stock
Exchange on December 31, 1993.
12
<PAGE> 16
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS
The table below sets forth a listing of LTIP awards made to the named
executive officers during 1993. The table shows potential payments that are tied
to the achievement of better than average performance over a three-year period
relating to three separate goals.
The three goals are (1) earnings per share (weighted 30%), (2) return on
average common equity (weighted 30%), and (3) total return to shareholders
(weighted 40%). The Company's performance is measured against the Edison
Electric Institute Index of 100 Investor-Owned Electric Companies as of December
31, 1995 ("Peer Group"). This is the same peer group of companies used for the
Stockholder Performance Graph shown on page 20. However, the performance of the
LTIP Peer Group is calculated on a noncapitalized weighted basis whereas the
Stockholder Performance Graph is calculated on a capitalized weighted basis. The
LTIP uses a noncapitalized weighted basis so as not to give a disproportionate
emphasis to the larger companies in the Edison Electric Institute Index.
Threshold minimum awards with respect to each goal will be earned if the
Company's performance equals 100% of the average performance of the Peer Group
with respect to that goal. Maximum awards will be earned on the earnings per
share goal if the Company's performance is 130% of the earnings per share
average of the Peer Group. Maximum awards will be earned on the return on
average common equity and total return to shareholders goals if the Company's
performance is 110% of the average of the return on average common equity and
total return to shareholders of the Peer Group. Earned awards are distributed in
the form of 60% cash and 40% Company Common Stock with the maximum award level
for each executive officer ranging from 75% to 100% of the midpoint of the
officer's salary grade range at the end of the performance cycle.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
---------------------------
PERFORMANCE CYCLE THRESHOLD(1) MAXIMUM
ENDING DATE ($) ($)
----------------- ------------ --------
<S> <C> <C> <C>
Robert F. Clarke..................... 12/31/95 $151,470 $459,000
Harwood D. Williamson................ 12/31/95 79,500 238,500
Edward J. Blackburn.................. 12/31/95 66,000 198,000
Robert F. Mougeot.................... 12/31/95 54,750 164,250
Peter C. Lewis....................... 12/31/95 45,250 135,750
</TABLE>
- ---------------
(1) Assumes meeting minimum threshold on all 3 goals; however, if only one goal
(weighted 30%) is met, the minimum threshold estimated future payout would
be: Mr. Clarke -- $45,441; Mr. Williamson -- $23,850; Mr.
Blackburn -- $19,800; Mr. Mougeot -- $16,425; and Mr. Lewis -- $13,575.
There is no LTIP payout unless the minimum threshold is met on at least one
of the three goals.
13
<PAGE> 17
PENSION PLANS
The following table shows the estimated annual pension benefits payable
upon retirement to all regular employees (including the named executive
officers) of the Company and its electric utility subsidiaries not represented
by collective bargaining agreements. The table is based on retirement at normal
retirement age under the Company's noncontributory, qualified defined benefit
pension plan ("Retirement Plan"), as well as the Company's noncontributory,
nonqualified excess benefit plan ("Excess Benefit Plan") which provides benefits
that would otherwise be denied employees by reason of certain Internal Revenue
Code limitations on qualified plan benefits, based on remuneration that is
covered under the plans and years of service with the Company and all of its
subsidiaries:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------
REMUNERATION 15 20 25 30 35
---------------------------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000.......................... $30,600 $40,800 $ 51,000 $ 61,200 $ 67,000
150,000.......................... 45,900 61,200 76,500 91,800 100,500
200,000.......................... 61,200 81,600 102,000 122,400 134,000
250,000.......................... 72,167 96,223 120,278 144,334 158,013
300,000.......................... 72,167 96,223 120,278 144,334 158,013
350,000.......................... 72,167 96,223 120,278 144,334 158,013
400,000.......................... 72,167 96,223 120,278 144,334 158,013
</TABLE>
The Retirement Plan provides a monthly retirement pension for life.
Benefits are determined by multiplying the product of years of credited service
and 2.04% (product not to exceed 67%) times the participant's average base
salary for any consecutive 36 months that would produce the highest monthly
average (highest monthly average converted to annualized remuneration in the
Pension Plan Table above).
Internal Revenue Code Sections 401(a) and 415 include limits on a
participant's maximum compensation that can be recognized under the Retirement
Plan and on the maximum amount of benefits a participant can receive from the
Retirement Plan. The limit on the maximum salary for 1993 is $235,840, which is
reflected in the Pension Plan Table above. During the coming year, the Company
intends to adopt a nonqualified excess pay supplemental executive retirement
plan designed to provide benefits that cannot be paid from the qualified
Retirement Plan.
As of December 31, 1993, the named executive officers had the following
number of years of credited service under the Company's Retirement Plan: Mr.
Clarke, 6 years; Mr. Williamson, 37 years; Mr. Blackburn, 6 years; Mr. Mougeot,
5 years; and Mr. Lewis, 25 years.
The limit on the maximum benefit that a participant can receive from the
Retirement Plan under Section 415 for 1993 is $115,641 at retirement age 65. If,
at retirement, the annual retirement benefit should exceed this limit, the
participant's benefit from the Retirement Plan will be reduced accordingly.
However, the amount of this reduction will be paid to each participant from an
existing unfunded Excess Benefit Plan designed for this purpose, or under the
existing Supplemental Executive Retirement Plan, which is described below.
The table above shows the estimated combined annual retirement benefits
payable to regular employees, including the named executive officers, under the
Retirement Plan and Excess Benefit Plan in the form of a straight life annuity
at age 65 at various levels of average base salary and years of service.
Benefits are in addition to amounts payable by Social Security. The estimates
are based on the $235,840 maximum recognizable compensation for 1993. This
results in maximum benefits payable under the Retirement Plan and Excess Benefit
Plan, combined, of $158,013.
14
<PAGE> 18
In 1989, the Company adopted a Supplemental Executive Retirement Plan
("SERP") for certain executive officers as approved by the Compensation
Committee of the Board of Directors. Executives who participate in the SERP are
not eligible to participate in the Excess Benefit Plan. Under the SERP at age
60, the executive is eligible to receive a benefit of up to 60% (depending on
years of credited service) of the participant's average compensation (including
amounts received under the annual Executive Incentive Compensation Plan) in the
highest three out of the last five years of service, reduced by the
participant's primary Social Security benefit and the benefit payable from the
Company's Retirement Plan, but in no event less than the benefit that would have
been payable under the Excess Benefit Plan. The SERP provides for reduced early
retirement benefits at age 50 with 15 years of service or age 55 with no service
requirement, and survivor benefits in the form of an annuity in the event of the
participant's death after becoming eligible for early retirement. Mr. Williamson
is currently approved for coverage under the SERP. Annual retirement benefits in
the form of a straight life annuity of approximately $68,000 would be payable to
Mr. Williamson under the SERP at age 65 based on his current compensation level.
Benefits payable under the SERP are in addition to benefits payable from the
Company's Retirement Plan which are limited to $115,641 in 1993 under current
provisions of the Internal Revenue Code.
CHANGE-IN-CONTROL AGREEMENTS
Since 1989, the Company has entered into Change-in-Control Agreements with
certain executives, including the executives named in the Summary Compensation
Table, to encourage and ensure their continued attention and dedication to the
performance of their assigned duties without distraction in the event of
potentially disturbing circumstances arising from the possibility of a
change-in-control of the Company.
Each Agreement provides that benefits, compensation and position
responsibility of these officers will remain at existing levels for a period of
two years following a "Change-in-Control," unless the "Expiration Date" of the
Agreement has earlier occurred. A "Change-in-Control" is defined to include a
change-in-control required to be reported under the proxy rules in effect on the
date of the agreements, the acquisition by a person (as defined under the
Securities Exchange Act of 1934) of 25% or more of the voting securities of the
Company, or specified changes in the composition of the Board of Directors of
the Company following a merger, tender offer or certain other corporate
transactions. "Expiration Date" is defined as the earliest to occur of (a) two
years after a change-in-control, (b) termination of the executive's employment
by the Company for "Cause" (as defined in the Agreement) or by the executive
other than for "Good Reason" (as defined in the Agreement), (c) retirement, or
(d) termination of the Agreement by the Company's Board of Directors, or
termination of the executive's employment, prior to a change-in-control. If the
employment of one of these executives is terminated after a change-in-control
and prior to the Expiration Date by the Company other than for cause or
disability, or by the executive for good reason, the Company is obligated to
provide a lump sum severance equal to 2.99 times the executive's average W-2
earnings for the last five years (or such lesser period that the executive has
been employed by the Company), subject to certain limitations. Based on W-2
earnings for the five most recent years (1989-1993), the lump sum severance
would be as follows: Mr. Clarke -- $1,255,213; Mr. Williamson -- $1,035,551; Mr.
Blackburn -- $662,009; Mr. Mougeot -- $589,453; and Mr. Lewis -- $728,616. In
the event of a change-in-control, all outstanding stock options would become
immediately exercisable.
15
<PAGE> 19
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
INTRODUCTION
Decisions on executive compensation are made by the Compensation Committee
of the Board which is composed of six independent nonemployee directors. All
decisions by the Compensation Committee are reviewed by the full Board except
for decisions about the Company's stock based plans, which must be made solely
by the Committee in order to satisfy Securities Exchange Act Rule 16b-3.
The Committee has retained the services of an independent compensation
consulting firm to assist in executive compensation matters.
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee's philosophy with respect to the Company's
executive officers, including the chief executive officer, is designed to (1)
maintain a compensation program that is equitable in a competitive marketplace,
(2) provide compensation opportunities that integrate pay with the Company's
annual and long-term performance goals which reinforce growth in stockholder
value, (3) recognize and reward individual initiative and achievements, and (4)
allow the Company to attract, retain, and motivate qualified executives who are
critical to the Company's success.
The Committee endorses the position that stock ownership by management is
beneficial in aligning management's and stockholders' interests in the
enhancement of stockholder value. Thus, the Committee has increasingly utilized
stock options and stock payouts in the compensation program for the executive
officers with a goal of increasing stock ownership over time.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program consists of three main
components: (1) base salary, (2) potential for an annual bonus based on overall
Company financial performance as well as individual performance, and (3) the
opportunity to earn long-term cash and stock based incentives which are intended
to encourage the achievement of superior results over time and to align
executive officer and stockholder interests. The second and third elements
constitute the "at-risk" portion of the compensation program and are designed to
link the interests of the executive with those of the stockholders. This means
that total compensation for each executive is variable and may fluctuate
significantly from year to year depending on the short-and long-term financial
performance of the Company.
BASE SALARY
Salaries for executive officers are reviewed by the Committee in April of
each year in consultation with the Committee's independent compensation
consultant. The consultant, at the direction of the Committee, examines the
position responsibilities of each incumbent officer position at HEI and each of
its subsidiaries against similar positions in similar organizations. All
compensation references represent the fiftieth percentile or midpoint of pay
practices found in companies which are similar in size and marketplace
orientation. The specific surveys used are at the consultant's recommendation
based on the consultant's knowledge of appropriate references given the
organization's overall compensation philosophy. For executive officers at the
holding company level, the competitive references are drawn from compensation
surveys of other electric utilities (weighted 75%) and general industry
(weighted 25%); for utility executive officers, the competitive references are
drawn exclusively from compensation surveys of other electric utilities; for
financial institution executive officers, the references are drawn exclusively
from compensation surveys of other financial institutions; for interisland
freight transportation executive officers, compensation references are drawn
from other transportation companies (weighted 50%) and general industry
16
<PAGE> 20
(weighted 50%); and for real estate related executive officers, the compensation
surveys encompass companies within the real estate industry. Based on the
information from these surveys, the consultant recommends a salary range for
each executive officer position. The midpoint of the range approximates the
fiftieth percentile of the survey data and the range has a spread of plus and
minus 20% around this midpoint. Actual setting of an executive officer's base
salary (except for Robert F. Clarke, President and Chief Executive Officer of
HEI) within the recommended range is based on Mr. Clarke's recommendation and
the Committee's approval. Mr. Clarke's recommendation is based on an overall
evaluation of each of the other named executive officer's performance during the
preceding year. This evaluation is subjective in nature and takes into account
all aspects of each of the other named executive officer's responsibilities at
the discretion of Mr. Clarke.
Mr. Clarke's base salary is determined through the Committee's overall
evaluation of his performance during the preceding year. This evaluation is
subjective in nature and takes into account all aspects of his responsibilities
at the total discretion of the Committee. The Committee's consultant provides
competitive compensation references from other electric utilities as described
in the preceding paragraph and also recommends a salary range consistent with
the procedure to establish salary ranges for the other named executive officers.
Based on the consultant's recommendation, the Committee has determined that it
is not economically feasible to survey all 100 investor-owned electric utilities
used in the Stockholder Performance Graph. Instead the consultant provides the
Committee with references from two surveys of electric utilities which includes
many, but not all, of the 100 investor-owned electric utility companies. These
surveys include one conducted by the Edison Electric Institute in which the
Company participates and one conducted by Executive Compensation Surveys in
which the Company does not participate. Based on the survey data provided by the
consultant, the resulting salary range recommendation, and the Committee's
overall evaluation of Mr. Clarke's performance during 1992, Mr. Clarke's base
salary was raised from an annual rate of $360,000 to an annual rate of $390,000
effective May 1, 1993. The $30,000 increase reflected a merit increase of
$20,000 and a market adjustment of $10,000 to align Mr. Clarke's base salary
more closely to the midpoint of his salary range. Mr. Clarke's new base salary
was approximately 10% below the consultant's findings with respect to the
fiftieth percentile of comparable electric utility organizations.
ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
Under the annual Executive Incentive Compensation Plan ("EICP"), annual
incentive awards are granted upon the achievement of financial and nonfinancial
performance measures as established by the Committee in the early part of each
calendar year. The financial measures are stated in terms of minimum, target and
maximum goals and are directly linked to financial operating budgets submitted
to the Company's Board of Directors for approval in December of the previous
year. Predominantly, the financial measures are earnings related for all
executive officers and include criteria such as earnings per share for the
holding company and net income for subsidiary operations. Different financial
goals are set for some of the named executive officers based on their
specialized areas of responsibility. Nonfinancial measures are based on
individual objectives established for each executive officer, except for Mr.
Clarke, and are related primarily to each officer's individual area of
responsibility and are approved by the Committee. Mr. Clarke makes a
recommendation to the Committee each year as to whether the other named
executive officers have achieved their nonfinancial individual goals.
The EICP has a minimum financial performance threshold linked to net income
or earnings per share (based on whether measurement is at the subsidiary or
holding company level) which must be achieved before a bonus can be considered.
The maximum awards under the EICP differ for each of the named executive
officers, ranging from a low of 37% to a high of 60% of base salary for Mr.
Clarke. The minimum target and maximum EICP potential award levels for each of
the named executive officers are established by the Committee each year based on
recommendations from the Committee's independent compensation consultant. The
consultant's recommendations are based
17
<PAGE> 21
on an assessment of competitive practices from a cross-section of all
industries, including some of the electric utility companies included in the
Stockholder Performance Graph.
Under the 1993 EICP, Mr. Clarke received an award of $160,578. This
resulted from achievement of the earnings per share goal (weighted 70%) at a
level between minimum and target and the market to book ratio goal (weighted
30%) where the performance was at a level between target and maximum. The EICP
award for Mr. Clarke was exclusively based on the foregoing measures. No further
adjustment was made by the Committee. Mr. Clarke received no awards under the
1992 EICP and the 1991 EICP as the minimum earnings threshold levels were not
achieved in either year.
LONG-TERM INCENTIVE PLAN
The Company provides a long-term incentive plan ("LTIP") that is linked to
the long-term financial performance of the Company. All awards under the LTIP
are paid 60% in cash and 40% in HEI Common Stock. The LTIP opportunity is
measured against the achievement of financial criteria established by the
Committee for a three-year period. A new performance period of three years
starts each year. In April 1993, the Committee established the financial
measures for the 1993-1995 cycle which included (1) change in earnings per share
(weighted 30%), (2) return on average common equity (weighted 30%), and (3)
total return to stockholders (weighted 40%), comparing the Company's results
against the Edison Electric Institute Peer Group of electric utility companies
included in the Stockholder Performance Graph. The three LTIP financial
performance goals were selected by the Committee because they represented a
meaningful method of reinforcing growth in stockholder value over time. The
achievement of each of the three goals was expressed in terms of minimum and
maximum levels. The minimum and maximum LTIP potential award levels for each of
the named executive officers are established by the Committee each year based on
recommendations from the Committee's independent compensation consultant. The
consultant's recommendations are based on an assessment of competitive practices
from a cross-section of all industries, including some of the electric utility
companies included in the Stockholder Performance Graph. These goals are covered
in more detail in the discussion of the Long-term Incentive Plan ("LTIP") Awards
on page 13. For the three-year cycle ending December 31, 1992, no LTIP award was
paid to the named executive officers.
STOCK OPTIONS
The Committee can grant nonqualified stock options, incentive stock
options, restricted stock, stock appreciation rights, and dividend equivalents
pursuant to the 1987 Stock Option and Incentive Plan of Hawaiian Electric
Industries, Inc. (as amended and restated effective April 21, 1992), which was
previously approved by the stockholders. To date, only nonqualified stock
options and dividend equivalents have been issued under the Plan. Biennially,
the Committee requests its independent compensation consultant to assess
competitive practices with respect to stock option awards from a cross-section
of all industries, including some of the electric utility companies included in
the Stockholder Performance Graph. Based on this assessment, the consultant
recommends a range of stock option awards for each named executive officer. This
range takes into account the fact that a portion of the executive officer's
long-term incentive opportunity is delivered through participation in the LTIP.
In awarding stock options, the Committee takes into consideration the amount and
value of current options outstanding. The awards are intended to retain
executive officers and to motivate executive officers to improve long-term stock
performance. Awards are granted at average fair market value which is based on
the average of the daily high and low sales prices of the Company's Common Stock
on the New York Stock Exchange during the calendar month preceding the date of
grant. Stock options generally vest in equal installments over a four-year
period.
The 1993 stock option award to Mr. Clarke of 15,000 shares of HEI Common
Stock plus dividend equivalents was based on the consultant's recommendation and
the independent evaluation of an appropriate award level by the Committee. In
this evaluation, the Committee took into account prior awards to Mr. Clarke and
an overall subjective evaluation of his job performance. To
18
<PAGE> 22
receive the dividend equivalents which accrue only during the first four years
following the stock option award, Mr. Clarke must exercise the stock options.
OTHER COMPENSATION PLANS
At various times in the past the Company has adopted certain broad-based
employee benefit plans and has adopted certain executive retirement and life
insurance plans in which its named executive officers participate. Other than
the Hawaiian Electric Industries Retirement Savings Plan (which qualifies under
Section 401(k) of the Internal Revenue Code), which offers the Company's Common
Stock as one of the investment options to further align employees' and
stockholders' long-term financial interests, benefits under these other plans
are not tied to Company performance.
For the named executive officers and certain other employees, the Company
provides additional retirement benefits which are discussed on pages 14 and 15.
In the event of death during active employment, the Company also provides the
named executive officers and certain other employees $50,000 term life insurance
plus an amount equal to two times the employee's salary at the date of death,
paid by the Company on an after-tax basis to the employee's beneficiary. If the
employee dies after retirement, this benefit is reduced to $20,000 term life
insurance plus an amount equal to one times the employee's salary at retirement,
also on an after-tax basis.
Finally, the Committee has reviewed the provisions of Section 162(m) of the
Internal Revenue Code (IRC), which was enacted in 1993, relating to the $1
million deduction cap for executive salaries and believes that no compensation
for the five highest paid named executives will be governed by this regulation
during 1994. Compensation alternatives to comply with IRC 162(m) are currently
under review by the Committee.
SUBMITTED BY THE
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
EDWIN L. CARTER, CHAIRMAN
RICHARD HENDERSON
BILL D. MILLS
A. MAURICE MYERS
OSWALD K. STENDER
JEFFREY N. WATANABE
19
<PAGE> 23
STOCKHOLDER PERFORMANCE GRAPH
Set forth below is a Comparison of Five-Year Cumulative Total Return graph
comparing the cumulative total stockholder return on the Company's Common Stock
against the cumulative total return of companies listed on the Standard & Poor's
500 Stock Index and the Edison Electric Institute ("EEI") Index of 100
Investor-Owned Electric Companies. The 100 companies comprising the EEI Index
serve 99% of the customers of the investor-owned electric utility industry. The
graph is based on the market price of the common stock for all the companies at
December 31 each year and assumes that $100 was invested on December 31, 1988,
in the Company's Common Stock and the common stock of all the companies and that
dividends were reinvested for all companies.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG HAWAIIAN ELECTRIC INDUSTRIES, INC.,
S&P 500 INDEX AND EDISON ELECTRIC INSTITUTE 100 INDEX
<TABLE>
<CAPTION>
Measurement Period S&P 500 EEI 100
(Fiscal Year Covered) HEI Index Index
- --------------------- --- ------- -------
<S> <C> <C> <C>
Measurement Pt 12/31/88
FYE 12/31/89 144.54 131.69 129.92
FYE 12/31/90 121.54 127.60 131.52
FYE 12/31/91 150.58 166.47 169.39
FYE 12/31/92 161.70 179.15 182.09
FYE 12/31/93 165.62 197.21 202.82
</TABLE>
*Total return assumes $100 invested on December 31, 1988, in HEI's Common Stock
as well as the common stock of the S&P 500 Index and the EEI 100 Index and a
reinvestment of dividends for all companies.
20
<PAGE> 24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee serving at the end of 1993 were
Edwin L. Carter, Chairman, and Richard Henderson, Bill D. Mills, A. Maurice
Myers, Oswald K. Stender, and Jeffrey N. Watanabe, members. Three members of the
Compensation Committee, Richard Henderson, Bill D. Mills, and Jeffrey N.
Watanabe, are or have been involved in various relationships with the Company.
American Savings Bank, F.S.B. ("ASB"), a subsidiary of the Company,
previously offered preferential loan rates to its directors, including
individuals who are also directors or executive officers of the Company.
However, in August 1989, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") provided that savings institutions would
henceforth be subject to provisions of the Federal Reserve Act which prohibit
loans to directors and executive officers of the insured institution or its
commonly owned affiliates on terms more favorable than available to the general
public.
The following schedule shows detailed information on a preferential rate
loan made by ASB to Mr. Watanabe, whose aggregate indebtedness to ASB exceeded
$60,000 during 1993. This loan, which was made prior to the enactment of FIRREA,
will not be affected by the new prohibitions against preferential loans unless
it is renegotiated or otherwise significantly modified. The first mortgage loan
rate was based on ASB's policy for employees and directors using a formula of
.50% above the cost of funds or .50% above the AFR (Applicable Federal Rate
established by the Internal Revenue Service), whichever is greater.
<TABLE>
<CAPTION>
LARGEST LOAN
LOAN AMOUNT AVERAGE
AMOUNT OUTSTANDING INTEREST
OUTSTANDING ON TYPE OF RATE
DURING 1993 12/31/93 TRANSACTION CHARGED
----------- ----------- -------------- -------
<S> <C> <C> <C> <C>
Jeffrey N. Watanabe.................. $ 328,126 $ 323,179 First Mortgage 7.50%
</TABLE>
In addition, Mr. Watanabe is a senior partner in the law firm of Watanabe,
Ing and Kawashima that provided legal services to the Company in 1993.
Malama Pacific Corp. ("MPC"), a subsidiary of the Company, is engaged in
real estate development activities. Several of MPC's subsidiaries have been or
are currently involved in partnerships in which Messrs. Henderson and Mills have
or had significant interests. All of the transactions described below were
negotiated on an arm's length basis and were approved by the disinterested
members of the HEI Board.
Ainalani Associates. Malama Mohala Corp. ("Malama Mohala"), a wholly owned
subsidiary of Malama Pacific Corp., and M/D/T BF Limited Partnership ("MDT-BF"),
were general partners in Ainalani Associates ("Ainalani"), a general partnership
which acquired a joint venture interest and certain development rights, options
and/or fee title to land from Blackfield Hawaii, Inc. ("Blackfield"). MDT-BF was
the managing partner of Ainalani.
Mr. Mills owned a majority partnership interest in MDT-BF as one of its
limited partners, and was chairman of the board of directors and majority
stockholder of MDT, Inc., the sole general partner of MDT-BF.
On August 17, 1992, Malama Mohala acquired MDT-BF's partnership interest
pursuant to a buy-out agreement dated June 23, 1992, and Ainalani was dissolved.
The consideration for the transfer of MDT-BF's interest was determined by
arbitration by three independent arbitrators on March 31, 1993. The amount of
consideration for the transfer was not material to the Company's financial
condition and was based primarily on the net present value of MDT-BF's
partnership interest in Ainalani as of June 30, 1992.
Sunrise Estates. Malama Development Corp. ("Malama Development"), a wholly
owned subsidiary of Malama Pacific Corp., and HSC, Inc. ("HSC"), are partners in
a general partnership
21
<PAGE> 25
known as Sunrise Estates which is currently developing and selling the remaining
9 lots of a development consisting of 165 one-acre agricultural lots in Hilo,
Hawaii. HSC is the managing partner of the partnership and received $4,000 in
management fees from the venture in 1993. The partnership paid RSM, Inc., an HSC
affiliate, $18,000 in sales commissions for lots sold during 1993. Malama
Development and HSC have each contributed $200,000 to the partnership, and
Malama Development and HSC will share equally in the profits and losses of the
partnership. As of December 31, 1993, 95% of the lots were sold. Mr. Henderson
and members of his family own, directly or indirectly, approximately 76% of the
stock of HSC.
Sunrise Estates II. Malama Elua Corp. ("Malama Elua"), a wholly owned
subsidiary of Malama Pacific Corp., and HSC have entered into a general
partnership known as Sunrise Estates II to develop and market approximately 140
one-acre agricultural lots in Hilo, Hawaii, adjacent to the Sunrise Estates
development. HSC has assigned its right, title and interest in the property to
the partnership at an agreed upon fair market value of $2.7 million, subject to
a bank loan of $2.1 million. The property was purchased by HSC in June 1990 for
$2.1 million and assigned to Sunrise Estates II in March of 1991. HSC is the
managing partner of the partnership. As of December 31, 1993, Malama Elua and
HSC have each contributed $300,000 to the partnership, and will share equally in
the profits and losses of the partnership. The valuation of the property
interest transferred by HSC to the Sunrise Estates II partnership was negotiated
and took into account HSC's incurred acquisition, carrying, and development
costs as well as existing market conditions.
INDEBTEDNESS OF MANAGEMENT
As disclosed in the above section on Compensation Committee Interlocks and
Insider Participation on page 21, ASB previously offered preferential rate loans
to its directors, including individuals who are also directors or executive
officers of the Company prior to the enactment of FIRREA.
In addition to Mr. Watanabe, two other directors and one other executive
officer (who is also a director) of the Company, whose aggregate indebtedness to
ASB exceeded $60,000 at any time during 1993, received these preferential rate
loans. Detailed information on these loans is listed below.
<TABLE>
<CAPTION>
LARGEST LOAN
LOAN AMOUNT AVERAGE
AMOUNT OUTSTANDING INTEREST
OUTSTANDING ON TYPE OF RATE
DURING 1993 12/31/93 TRANSACTION(1) CHARGED(2)
------------ ------------ --------------- -----------
<S> <C> <C> <C> <C>
Robert F. Clarke............... $ 380,784 $ 375,570 First Mortgage 7.50%
Ruth M. Ono.................... 190,027 187,409 First Mortgage 7.50
Thurston Twigg-Smith........... 1,807,653 1,782,969 First Mortgage 7.50
</TABLE>
- ---------------
(1) All loans were made prior to the enactment of FIRREA restrictions.
(2) The first mortgage rate is based on ASB's policy for employees and directors
using a formula of .50% above the cost of funds or .50% above the AFR
(Applicable Federal Rate established by the Internal Revenue Service),
whichever is greater.
ASB has made other loans, established lines of credit and issued credit
cards to directors and executive officers of the Company, including some of the
individuals identified in the above table, and to members of their immediate
families. These loans and extensions of credit have been made in the ordinary
course of business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the normal risk
of collectibility or present other unfavorable features.
22
<PAGE> 26
In addition, ASB has purchased a 25% participation interest in two loans
made by Bank of Hawaii to Finance Realty Company, Ltd. ("Finance Realty") and
Finance Holdings, Ltd. The family of the spouse of Constance H. Lau, the
Treasurer of the Company, owns approximately one-sixth of the common stock of
Finance Enterprises, the parent company of Finance Realty and Finance Holdings,
Ltd. ASB's 25% participation interest in both loans was made in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
In addition to the above loans financed by ASB, Robert F. Mougeot,
Financial Vice President of the Company, is indebted to the Company in the
amount of $165,000 by reason of a loan made to him by the Company in 1989 to
finance his purchase of the fee simple interest in his home. The loan is an
interest only loan, with interest at 8.01%, with the entire principal balance of
the loan due on March 1, 2004.
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
The real estate development activities of several of the subsidiaries of
Malama Pacific Corp. ("MPC") which involve directors of the Company are
discussed on pages 21 and 22 in the section on Compensation Committee Interlocks
and Insider Participation.
In addition, one of MPC's subsidiaries is involved in a partnership with a
corporation in which the family of an officer of the Company has a significant
interest. As previously disclosed, the family of Ms. Lau, the Treasurer of the
Company, owns approximately one-sixth of the common stock of Finance
Enterprises, the parent company of Finance Realty, Palailai Holdings, Inc.
("PHI"), and Finance Home Builders, Ltd.
Palailai Associates. The joint venture interest acquired by Ainalani
Associates (see page 21 for a discussion on Ainalani Associates) from Blackfield
also included an interest in a general partnership known as Palailai Associates
("Palailai"). Ainalani and PHI were equal partners of Palailai and agreed to
share profits and losses equally. As a result of Malama Mohala's purchase of
MDT-BF's interest in Ainalani, Malama Mohala succeeded to Ainalani's interest in
Palailai. PHI is the managing partner of Palailai. PHI's parent company, Finance
Realty, received $622,138 in management fees and $582,935 in sales commissions
from the venture during 1993. Finance Home Builders, Ltd., a general contractor
and affiliate of PHI and Finance Realty, received payments of $10,173,481 during
1993 under its contract with Palailai for the construction of homes.
MANAGEMENT PROPOSAL 2. ELECTION OF AUDITOR
The firm of KPMG Peat Marwick, independent certified public accountants,
has been the auditor of the Company since 1981. The Board of Directors
recommends the election of KPMG Peat Marwick as the auditor of the Company for
the fiscal year 1994 and thereafter until its successor is duly elected.
Representatives of KPMG Peat Marwick will be present at the Annual Meeting
and will be given the opportunity to make a statement if they desire to do so
and to respond to appropriate questions.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the next Annual
Meeting must be received by the Company by November 10, 1994, for inclusion in
the Proxy Statement and form of
23
<PAGE> 27
proxy for the 1995 Annual Meeting of Stockholders. Proposals should be sent to
the attention of the Secretary.
OTHER BUSINESS
The Company knows of no other business to be presented at the Annual
Meeting, but if further matters do properly come before the meeting, the proxy
holders will vote your stock in accordance with their best judgment.
Under the By-Laws of the Company, if a stockholder of record wishes to
present a matter of business which may be properly brought before the Annual
Meeting, the stockholder must give notice in writing to the Secretary of the
Company no later than March 25, 1994. The notice must state a brief description
of such business, the name and address of the stockholder, the number of shares
of Common Stock owned by the stockholder, and any material interest of the
stockholder in such business.
YOU ARE URGED TO DATE, SIGN AND RETURN YOUR PROXY AS SOON AS POSSIBLE to
make certain that your shares will be voted at the meeting. If you attend the
meeting, as we hope you will, you may vote your shares in person.
By Order of the Board of Directors
Betty Ann M. Splinter
Secretary
March 10, 1994
24
<PAGE> 1
HEI EXHIBIT 99(a)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8503
HAWAIIAN ELECTRIC INDUSTRIES RETIREMENT SAVINGS PLAN
HAWAIIAN ELECTRIC INDUSTRIES, INC.
900 RICHARDS STREET, HONOLULU, HAWAII 96813
TOTAL NUMBER OF PAGES IN THIS FILING: 4
<PAGE> 2
REQUIRED INFORMATION
Financial Statements. The statements of net assets available for benefits at
December 31, 1993 and 1992, statements of changes in net assets available for
benefits for the years ended December 31, 1993, 1992 and 1991, together with
notes to financial statements, and KPMG Peat Marwick's audit report thereon are
filed as a part of this annual report in paper format under cover of Form SE
dated March 22, 1994.
Exhibits. The written consent of KPMG Peat Marwick with respect to the Plan's
financial statements is attached hereto as Exhibit 1.
<PAGE> 3
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
HAWAIIAN ELECTRIC INDUSTRIES
RETIREMENT SAVINGS PLAN
Date: March 22, 1994 By: HAWAIIAN ELECTRIC INDUSTRIES
PENSION INVESTMENT COMMITTEE
Its Named Fiduciary
By: /s/ ROBERT F. MOUGEOT
------------------------------
Robert F. Mougeot
Its Chairman
By: /s/ CONSTANCE H. LAU
------------------------------
Constance H. Lau
Its Asset Manager and Secretary
<PAGE> 4
Exhibit 1
Hawaiian Electric Industries, Inc.
Pension Investment Committee:
We consent to incorporation by reference in Registration Statement No. 33-43892
on Form S-8 of Hawaiian Electric Industries, Inc. of our report dated March 11,
1994 included herein, relating to the statements of net assets available for
benefits of the Hawaiian Electric Industries Retirement Savings Plan as of
December 31, 1993 and 1992, and the related statements of changes in net assets
available for benefits for each of the years in the three-year period ended
December 31, 1993.
/s/ KPMG Peat Marwick
Honolulu, Hawaii
March 22, 1994
