<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
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
REGISTRANT TITLE OF EACH CLASS ON 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 registrant's 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 [_]
<PAGE>
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 1994 Annual Report to
Stockholders and HECO's 1994 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:
1994 Annual Report to
Stockholder(s)
(Page/s)
-------------------
HEI HECO
--- ----
Independent Auditors' Reports 39 31
Consolidated Statements of Income, Years Ended
December 31, 1994, 1993 and 1992 40 11
Consolidated Statements of Retained Earnings, Years Ended
December 31, 1994, 1993 and 1992 40 11
Consolidated Balance Sheets, December 31, 1994 and 1993 41 12
Consolidated Statements of Capitalization,
December 31, 1994 and 1993 na 13-14
Consolidated Statements of Cash Flows, Years Ended
December 31, 1994, 1993 and 1992 42 15
Notes to Consolidated Financial Statements 43-67 16-30
56
<PAGE>
(a)(2) Financial Statement Schedules
The following financial statement schedules for HEI and HECO are included in
this Report on the pages indicated below:
Page/s in
Form 10-K
-----------------
HEI HECO
---- ----
Independent auditors' report 58 59
Schedule I Condensed financial information of registrant,
Hawaiian Electric Industries, Inc.
(Parent Company) as of December 31, 1994
and 1993 and years ended December 31, 1994,
1993 and 1992 60-62 na
Schedule II Valuation and qualifying accounts, years
ended December 31, 1994, 1993 and 1992 63 63
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 1994 Annual Report
to Stockholders and HECO's 1994 Annual Report to Stockholder, which financial
statements are incorporated herein by reference.
(a)(3) Exhibits
Exhibits for HEI and HECO and their subsidiaries are listed in the "Index to
Exhibits" found on pages 64 through 71 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 1994, HEI and HECO filed a Current Report, Form
8-K dated November 29, 1994, with the SEC. HEI and HECO filed information under
Item 5 regarding the PUC decision and order on a generic docket to determine
whether SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," should be adopted for rate-making purposes.
57
<PAGE>
[KPMG Peat Marwick letterhead]
Independent Auditors' Report
The Board of Directors
and Stockholders
Hawaiian Electric Industries, Inc.:
Under date of January 25, 1995, we reported on the consolidated balance sheets
of Hawaiian Electric Industries, Inc. and subsidiaries as of December 31, 1994
and 1993, 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,
1994, as contained in the 1994 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1994. 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 14 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Additionally, as discussed in note 17 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 LLP
Honolulu, Hawaii
January 25, 1995
58
<PAGE>
[KPMG Peat Marwick letterhead]
Independent Auditors' Report
The Board of Directors
and Stockholder
Hawaiian Electric Company, Inc.:
Under date of January 25, 1995, 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, 1994 and 1993, 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, 1994, as contained in the 1994 annual
report to stockholder. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1994. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. The financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
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 LLP
Honolulu, Hawaii
January 25, 1995
59
<PAGE>
Hawaiian Electric Industries, Inc.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------
(in thousands) 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 223 $ 32,383
Advances to and notes receivable from subsidiaries 27,696 28,455
Accounts receivable 2,565 6,679
Other investments 809 809
Property, plant and equipment, net 2,460 2,874
Other assets 5,857 3,289
Investment in wholly owned subsidiaries, at equity 888,651 805,226
-------- --------
$928,261 $879,715
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 9,246 $ 8,861
Advances from subsidiaries 2,293 --
Commercial paper 12,750 --
Long-term debt, net 209,500 200,500
Deferred income taxes 4,301 3,927
Unamortized tax credits 29 36
Other 8,053 23,363
-------- --------
246,172 236,687
-------- --------
Stockholders' equity
Common stock 546,254 514,710
Retained earnings 135,835 128,318
-------- --------
682,089 643,028
-------- --------
$928,261 $879,715
======== ========
Note to Balance Sheets
Long-term debt, net, consisted of the following:
Promissory notes, 6.3% - 7.6%, due in various years through 2003 $113,000 $113,000
Promissory notes, 8.2% - 9.9%, due in various years through 2011 61,500 87,500
Promissory note, variable rate (6.45% at December 31, 1994) due 1999 35,000 --
-------- --------
$209,500 $200,500
======== ========
</TABLE>
As of December 31, 1994, HEI guaranteed debt of its subsidiaries and affiliates
amounting to $11 million.
The aggregate payments of principal required on long-term debt subsequent to
December 31, 1994 are $1 million in 1995, $37 million in 1996, $51 million in
1997, $21 million in 1998, $41 million in 1999 and $59 million thereafter.
60
<PAGE>
Hawaiian Electric Industries, Inc.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 3,318 $ 3,353 $ 1,884
Equity in income from continuing
operations of subsidiaries 84,819 74,764 68,156
------- -------- --------
88,137 78,117 70,040
------- -------- --------
EXPENSES:
Operating, administrative and general 7,786 6,897 1,637
Taxes, other than income taxes 292 226 193
Depreciation and amortization of
property, plant and equipment 587 569 660
------- -------- --------
8,665 7,692 2,490
------- -------- --------
79,472 70,425 67,550
Interest expense 15,195 18,355 12,641
------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT 64,277 52,070 54,909
Income tax benefit (8,753) (9,614) (6,806)
------- -------- --------
Income from continuing operations 73,030 61,684 61,715
Loss from discontinued operations -- (13,025) (73,297)
------- -------- --------
NET INCOME (LOSS) $73,030 $ 48,659 $(11,582)
======= ======== ========
</TABLE>
61
<PAGE>
Hawaiian Electric Industries, Inc.
SCHEDULE I- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
(in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 73,030 $ 61,684 $ 61,715
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities (84,819) (74,764) (68,156)
Equity in income from continuing
operations of subsidiaries
Common stock dividends received from
subsidiaries 43,909 53,305 33,884
Depreciation and amortization of
property, plant and equipment 587 569 660
Other amortization 209 294 282
Deferred income taxes and tax credits,
net 367 232 825
Changes in assets and liabilities
Decrease (increase) in accounts
receivable 4,114 (6,211) 984
Increase (decrease) in accounts
payable 385 (16,506) 22,497
Changes in other assets and
liabilities (15,485) 34,733 (15,447)
--------- -------- --------
22,297 53,336 37,244
Cash flows from discontinued operations 36 2,525 --
--------- --------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 22,333 55,861 37,244
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in advances to
and notes receivable from subsidiaries (16,141) 8,756 1,024
Capital expenditures (177) (193) (535)
Additional investments in subsidiaries (25,510) (65,000) (56,967)
Other -- 50 --
--------- --------- --------
(41,828) (56,387) (56,478)
Net investment in discontinued
operations -- -- (24,751)
--------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES (41,828) (56,387) (81,229)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase(decrease) in advances from
subsidiaries with original maturities
of three months or less 2,293 (185) (15,463)
Proceeds from other short-term
borrowings -- -- 36,000
Repayment of other short-term borrowings -- (36,000) --
Net increase in commercial paper 12,750 -- --
Proceeds from issuance of long-term debt 35,000 37,000 50,000
Repayment of long-term debt (26,000) (22,500) --
Net proceeds from issuance of common
stock 13,602 88,658 18,248
Common stock dividends (47,676) (42,012) (39,214)
Other (2,634) 1,949 413
--------- --------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (12,665) 26,910 49,984
--------- --------- --------
Net increase (decrease) in cash and
equivalents (32,160) 26,384 5,999
Cash and equivalents, beginning of year 32,383 5,999 --
--------- --------- --------
CASH AND EQUIVALENTS, END OF YEAR $ 223 $ 32,383 $ 5,999
========= ========= ========
</TABLE>
Supplemental disclosures of noncash activities:
In 1994, $16.9 million of HEI advances to HEIDI were converted to equity in a
noncash transaction.
In 1992, HEI 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 $18 million in 1994, $17 million in 1993 and
$15 million in 1992.
62
<PAGE>
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
Charged to
Balance at costs and Balance at
beginning of other Charged to end of
(in thousands) period expenses accounts Deductions period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
----
Allowance for uncollectible
accounts
Hawaiian Electric Company,
Inc. and subsidiaries $ 1,357 $ 2,177 $ 674 $ 3,072 $ 1,136
Other companies 220 130 2 72 280
--------- --------- ------- --------- ---------
$ 1,577 $ 2,307 $ 676(a) $ 3,144(b) $ 1,416
========= ========= ======= ========= =========
Allowance for uncollectible
interest (ASB) $ 341 $ 760 $ -- $ -- $ 1,101
========= ========= ======= ========= =========
Allowance for losses for
loans receivable (ASB) $ 5,314 $ 3,983 $ 67(a) $ 571(b) $ 8,793
========= ========= ======= ========== =========
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 $ 36(a) $ 658(b) $ 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 $ 47(a) $ 202(b) $ 5,157
========= ========= ======= ========= =========
</TABLE>
(a) Primarily bad debts recovered.
(b) Bad debts charged off.
63
<PAGE>
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.
Exhibit no. Description
- ----------- -----------
HEI:
- ---
3(i).1(a) HEI's Restated Articles of Incorporation (Exhibit 4(b) to
Registration No. 33-7895).
3(i).2(a) 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 Pricing Supplement No. 10 to Registration Statement on Form S-3 of
HEI (Registration No. 33-58820).
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).
64
<PAGE>
Exhibit no. Description
- ----------- -----------
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).
10.2 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).
10.2(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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
65
<PAGE>
Exhibit no. Description
- ----------- -----------
10.14 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).
10.15 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).
10.15(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).
10.16 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.
(Exhibit 10.20 to HEI's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-8503).
*11 Computation of Earnings Per Share of Common Stock. Filed herein as
page 72.
*12(a) Computation of Ratio of Earnings to Fixed Charges. Filed herein as
pages 73 and 74.
*13(a) Pages 25 to 68 of HEI's 1994 Annual Report to Stockholders (with the
exception of the data incorporated by reference in Part I, Part II,
Part III and Part IV, no other data appearing in the 1994 Annual
Report to Stockholders is to be deemed filed as part of this Form
10-K Annual Report).
*21(a) Subsidiaries of HEI. Filed herein as page 76.
*23 Consent of Independent Auditors. Filed herein as page 78.
*27(a) HEI and subsidiaries financial data schedule, December 31, 1994 and
year ended December 31, 1994.
*99.1(a) Annual Report on Form 11-K for the HEI 401-K Retirement Savings Plan
for the year ended December 31, 1994.
99.2(a) Amendment 1994-1 to the Hawaiian Electric Industries, Inc. Retirement
Savings Plan for incorporation by reference into Registration
Statement on Form S-8 (Registration No. 33-52911) (Exhibit 99 to
HEI's Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, File No. 1-8503).
*99.3(a) Amendment 1994-2 to the Hawaiian Electric Industries, Inc. Retirement
Savings Plan for incorporation by reference into Registration
Statement on Form S-8 (Registration No. 33-52911).
66
<PAGE>
Exhibit no. Description
- ----------- -----------
HECO:
- -----
3(i).1(b) 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(i).2(b) 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(i).3 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(ii) 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 (Exhibit 4.5 to HECO's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-4955).
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 (Exhibit 4.6 to HECO's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993, File No. 1-4955).
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 (Exhibit
4.7 to HECO's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-4955).
67
<PAGE>
Exhibit no. Description
- ----------- -----------
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
(Exhibit 4.8 to HECO's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-4955).
10.1 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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.2 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).
10.2(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 the fiscal year ended December 31,
1988, File No. 1-4955).
10.2(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).
10.2(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).
10.3 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).
68
<PAGE>
Exhibit no. Description
- ----------- -----------
*10.3(a) Letter agreement between HELCO and Hilo Coast Processing Company
dated January 5, 1995.
10.4 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).
10.4(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).
10.4(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).
10.5 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).
10.5(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).
10.6 Purchase Power Contract between HECO and the City and County of
Honolulu dated March 10, 1986 (Exhibit 10.9 to HECO's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-
4955).
10.6(a) Firm Capacity Amendment, dated April 8, 1991, to Purchase Power
Contract, dated March 10, 1986, by and between HECO and the 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).
10.7 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).
10.8 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).
10.8(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).
10.8(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).
69
<PAGE>
Exhibit no. Description
- ----------- -----------
10.8(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).
10.8(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).
10.8(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).
10.9 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).
10.9(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).
10.9(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).
10.9(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).
10.10 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).
10.11 Contract of private carriage by and between HITI and HELCO dated
November 10, 1993 (Exhibit 10.13 to HECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File No. 1-4955).
10.12 Contract of private carriage by and between HITI and MECO dated
November 12, 1993 (Exhibit 10.14 to HECO's Annual Report on Form 10-K
for the fiscal year ended December 1, 1993, File No. 1-4955).
10.13 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).
10.14 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).
70
<PAGE>
Exhibit no. Description
- ----------- -----------
10.15 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).
10.15(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 1994 Annual Report to Stockholder attached as Exhibit 13(b)
hereto.
*12(b) Computation of Ratio of Earnings to Fixed Charges. Filed herein as
page 75.
*13(b) Pages 2 to 31 and 33 of HECO's 1994 Annual Report to Stockholder
(with the exception of the data incorporated by reference in Part I,
Part II, Part III and Part IV, no other data appearing in the 1994
Annual Report to Stockholder is to be deemed filed as part of this
Form 10-K Annual Report).
*21(b) Subsidiaries of HECO. Filed herein as page 77.
*27(b) HECO and subsidiaries financial data schedule, December 31, 1994 and
year ended December 31, 1994.
*99(b) Reconciliation of electric utility operating income per HEI and HECO
Consolidated Statements of Income. Filed herein as page 79.
71
<PAGE>
HEI Exhibit 11
<TABLE>
<CAPTION>
Hawaiian Electric Industries, Inc.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Years ended December 31, 1994, 1993, 1992, 1991 and 1990
(in thousands,
except per share amounts) 1994 1993 1992 1991 1990
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income (loss)
Continuing operations $73,030 $61,684 $ 61,715 $55,620 $42,895
Discontinued operations -- (13,025) (73,297) (794) 707
------- ------- -------- ------- -------
$73,030 $48,659 $(11,582) $54,826 $43,602
======= ======= ======== ======= =======
Weighted average number
of common shares
outstanding 28,137 25,938 24,275 22,882 21,559
======= ======= ======== ======= =======
Earnings (loss) per
common share
Continuing operations $2.60 $2.38 $2.54 $2.43 $1.99
Discontinued operations -- (0.50) (3.02) (0.03) 0.03
------- ------- -------- ------- -------
$2.60 $1.88 $(0.48) $2.40 $2.02
======= ======= ======== ======= =======
</TABLE>
Note: The dilutive effect of stock options is not material.
72
<PAGE>
HEI Exhibit 12(a) (page 1 of 2)
Hawaiian Electric Industries, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1994, 1993, 1992, 1991 and 1990
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- ---------------------- ---------------------
(dollars in thousands) (1) (2) (1) (2) (1) (2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3) $82,306 $158,815 $68,254 $145,905 $67,559 $161,756
Proportionate share of fifty-
percent-owned persons 539 539 564 564 1,051 1,051
Interest component of rentals 3,819 3,819 3,944 3,944 3,254 3,254
Pre-tax preferred stock dividend
requirements of subsidiaries 11,899 11,899 11,018 11,018 9,606 9,606
------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 98,563 $175,072 $ 83,780 $161,431 $81,470 $175,667
======= ======== ======== ======== ======== ========
EARNINGS
Pre-tax income from continuing
operations $126,049 $126,049 $108,770 $108,770 $ 91,244 $ 91,244
Undistributed earnings from less
than fifty-percent-owned person -- -- -- -- (244) (244)
Fixed charges, as shown 98,563 175,072 83,780 161,431 81,470 175,667
Interest capitalized
The Company (4,924) (4,924) (3,881) (3,881) (2,104) (2,104)
Proportionate share of fifty-
percent-owned persons (539) (539) (408) (408) (803) (803)
------- -------- -------- -------- -------- --------
EARNINGS AVAILABE FOR FIXED
CHARGES $219,149 $295,658 $188,261 $265,912 $169,563 $263,760
======= ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES 2.22 1.69 2.25 1.65 2.08 1.50
======= ======== ======== ======== ======== ========
</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.
73
<PAGE>
HEI Exhibit 12(a) (page 2 of 2)
Hawaiian Electric Industries, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1994, 1993, 1992, 1991 and 1990--Continued
<TABLE>
<CAPTION>
1991 1990
-----------------------------------------------
(dollars in thousands) (1) (2) (1) (2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3) $ 69,957 $168,691 $ 76,897 $162,753
Proportionate share of
fifty-percent-owned persons 1,875 1,875 406 406
Interest component of rentals 2,231 2,231 2,197 2,197
Pre-tax preferred stock dividend
requirements of subsidiaries 10,449 10,449 11,450 11,450
-------- -------- -------- --------
TOTAL FIXED CHARGES $ 84,512 $183,246 $ 90,950 $176,806
======== ======== ======== ========
EARNINGS
Pre-tax income from continuing
operations $ 87,953 $ 87,953 $ 74,088 $ 74,088
Undistributed earnings from less than
fifty-percent-owned person (278) (278) 7 7
Fixed charges, as shown 84,512 183,246 90,950 176,806
Interest capitalized
The Company (1,945) (1,945) (4,360) (4,360)
Proportionate share of
fifty-percent-owned persons (1,875) (1,875) (406) (406)
-------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES $168,367 $267,101 $160,279 $246,135
======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 1.99 1.46 1.76 1.39
======== ======== ======== ========
</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.
74
<PAGE>
HECO Exhibit 12(b)
Hawaiian Electric Company, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1994, 1993 1992, 1991 and 1990
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges $ 37,340 $ 35,287 $ 33,011 $ 33,248 $ 30,874
Interest component of rentals 808 970 1,070 1,130 1,341
Pretax preferred stock dividend
requirements of subsidiaries 4,651 3,425 3,117 3,409 3,490
-------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 42,799 $ 39,682 $ 37,198 $ 37,787 $ 35,705
======== ======== ======== ======== ========
EARNINGS
Income before preferred stock dividends
of HECO $ 65,961 $ 56,126 $ 53,678 $ 46,210 $ 48,484
Fixed charges, as shown 42,799 39,682 37,198 37,787 35,705
Income taxes (see note below) 43,588 36,897 23,843 23,816 23,927
Interest capitalized on AFUDC for
borrowed funds (4,043) (3,869) (2,095) (1,307) (1,375)
-------- -------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES $148,305 $128,836 $112,624 $106,506 $106,741
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 3.47 3.25 3.03 2.82 2.99
======== ======== ======== ======== ========
NOTE:
Income taxes is comprised of the
following
Income tax expense relating to
operating income for regulatory
purposes $ 43,820 $ 37,007 $ 26,254 $ 24,137 $ 24,145
Income tax benefit relating to
nonoperating loss (232) (110) (2,411) (321) (218)
-------- -------- -------- -------- --------
$ 43,588 $ 36,897 $ 23,843 $ 23,816 $ 23,927
======== ======== ======== ======== ========
</TABLE>
75
<PAGE>
HEI Exhibit 21(a)
Hawaiian Electric Industries, Inc.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiary corporations of the registrant as
of March 21, 1995:
<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.,
Malama Waterfront Corp., Malama Property Investment Corp.,
Malama Development Corp., Malama Realty Corp., Malama Elua Corp.,
TMG Service Corp., Malama Hoaloha Corp., Malama Mohala Corp. and
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 subsidiary American Savings Bank, State of Hawaii (except
F.S.B. and its subsidiaries, American Savings Investment Corp., American Savings Bank,
ASB Service Corporation, Adcommunications, Inc. and F.S.B., which is federally
Associated Mortgage, Inc. chartered)
Pacific Energy Conservation Services, Inc. State of Hawaii
</TABLE>
76
<PAGE>
HECO Exhibit 21(b)
Hawaiian Electric Company, Inc.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiary corporations of the registrant as
of March 21, 1995:
<TABLE>
<CAPTION>
Name Place of incorporation
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Maui Electric Company, Limited State of Hawaii
Hawaii Electric Light Company, Inc. State of Hawaii
</TABLE>
77
<PAGE>
[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. 33-56561
and 33-58820 on Form S-3 and in Registration Statement Nos. 33-65234 and 33-
52911 on Form S-8 of Hawaiian Electric Industries, Inc. of our report dated
January 25 1995, relating to the consolidated balance sheets of Hawaiian
Electric Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, 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, 1994, which
report is incorporated by reference in the 1994 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 January 25 1995 relating to the financial statement schedules of
Hawaiian Electric Industries, Inc. in the aforementioned 1994 annual report on
Form 10-K, which report is included in said Form 10-K.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 21, 1995
78
<PAGE>
HECO Exhibit 99(b)
Hawaiian Electric Company, Inc.
RECONCILIATION OF ELECTRIC UTILITY OPERATING
INCOME PER HEI AND HECO CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
(in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income from regulated and
nonregulated activities before income
taxes (per HEI Consolidated Statements
of Income) $136,628 $119,565 $103,841
Deduct:
Income taxes on regulated activities (43,820) (37,007) (26,254)
Revenues from nonregulated activities (6,411) (5,100) (1,761)
Add:
Expenses from nonregulated activities 915 627 1,213
-------- -------- --------
Operating income from regulated
activities after income taxes (per
HECO Consolidated Statements of
Income) $ 87,312 $ 78,085 $ 77,039
======== ======== ========
</TABLE>
79
<PAGE>
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.
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ Robert F. Mougeot By /s/ Paul Oyer
------------------------------- ----------------------------
Robert F. Mougeot Paul A. Oyer
Financial Vice President and Financial Vice President,
Chief Financial Officer of HEI Treasurer and Director of HECO
(Principal Financial Officer of (Principal Financial Officer of
HEI) HECO)
Date: August 22, 1995 Date: August 22, 1995
80
<PAGE>
HEI EXHIBIT 4.7
Pricing Supplement No. 10 Filing under Rule424(b)(3)
Dated August 10, 1994 Registration File No. 33-58820
(To Prospectus dated June 11, 1993)
$250,000,000
HAWAIIAN ELECTRIC INDUSTRIES, INC.
MEDIUM-TERM NOTES, SERIES B
<TABLE>
<S> <C>
Principal amount: $35,000,000 Floating Rate Notes:
Interest Rate (if fixed rate): N/A Base Rate: LIBOR
Stated Maturity Date: August 23, 1999 Index Maturity: 3 months
Issue price (as a percentage of Spread: 0.45%
principal amount): 100% Spread Multiplier: N/A
Selling Agents' commission (%): 0.50% Maximum Interest Rate: N/A
Purchasing Agents' discount Minimum Interest Rate: N/A
or commission (%): N/A Initial Interest Rate: To be
Net proceeds to the Company (%): $34,825,000 determined on August 19, 1994
Settlement date and time (original Interest Reset Period: Quarterly
Issue date): August 23, 1994 Interest Determination Date(s): A/S
Initial Redemption Date (if any): N/A Calculation Date(s): A/S
Initial Redemption Percentage: N/A Interest Payment Period: Quarterly
Annual Redemption Interest Payment and Reset Dates:
Percentage Reduction: N/A 23rd day of February, May, August
Optional Repayment Dates: N/A and November of each year and at
Currency of Denomination: U.S. Maturity, with such exceptions
Currency of Payment: U.S. as are described in the Prospectus
Minimum Authorized if an interest Payment or Reset
Denominations: $1,000 Date would otherwise be a day that
Additional Terms: N/A is not a Business Day (as defined in
the Prospectus)
Regular Record Date(s): A/S
Calculation Agent: Citibank, N.A.
</TABLE>
Redemption prices (if any): The Redemption Price shall initially be __ N/A
__% of the principal amount of such Notes to be redeemed and shall decline (but
not below par) on each anniversary of the Initial Redemption Date by __ N/A __%
of the principal amount to be redeemed until the Redemption Price is 100% of
such principal amount.
Use of Proceeds and Additional Terms:
All or substantially all of the net proceeds to Hawaiian Electric
Industries, Inc. ("HEI") from the sale of the Medium-Term Notes, Series B,
covered by this Pricing Supplement will be used by HEI to retire commercial
paper and/or temporarily invest in short-term securities pending such
retirement. As of August 10, 1994, HEI's commercial paper outstanding
totaled approximately $33 million. Such commercial paper bore interest at
prevailing market rates and had maturities varying between 5 and 47 days.
As of the date of this Pricing Supplement, the aggregate initial public
offering price of the Notes which have been sold (including the Notes to which
this Pricing Supplement relates) is $72,000,000.
"N/A" as used herein means "Not applicable." "A/S" as used herein means "As
stated in the Prospectus referred to above."
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
<PAGE>
HECO Exhibit 10.3(a)
--------------------
[HELCO LETTERHEAD]
January 5, 1995
Mr. James S. Andrasick
Chairman of the Board
Hilo Coast Processing Company
c/o C. Brewer and Company, Ltd.
827 Fort Street
Honolulu, Hawaii 96813
Re: HCPC Power Plant, Purchase Power Amendment
------------------------------------------
Dear Jim:
HELCO wishes to submit for your consideration this counterproposal for an
amendment to the current purchase power agreement (PPA). This proposal is
substantially based on HELCOs proposal of December 22, 1994, the intervening
Bankruptcy Court proceedings, and subsequent discussions amongst the parties.
Again, for ease of reference the proposal is restated herein in its entirety.
This proposal supersedes all prior proposals relating to an amendment of the
PPA. This letter (the Letter Agreement), when accepted by you, is an
expression of the basis on which HELCO and HCPC are willing to enter into a
definitive agreement to amend the PPA.
1. Agreement
---------
HELCO offers to amend the PPA, as set forth herein and subject to
the terms and conditions herein, along with any other terms and conditions which
are customary for transactions of this type and consistent with this Letter
Agreement.
2. Term of Amendment
-----------------
From the effective date of the Definitive Agreement through
December 31, 1999.
3. HELCO Dispatch
--------------
Minimum of 4,000 KW during 48 operating weeks.
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 2
4. Capacity Guarantee
------------------
HCPC shall furnish HELCO 20,000 KW of capacity up to May 31, 1995 and
22,000 KW of capacity thereafter. (Kilovars to be discussed.) This capacity
guarantee is based on the assumptions that such levels are within HCPCs permit
limitations and conditions, and any necessary substation upgrades (see
Substation Upgrades below) are completed by May 31, 1995 and, therefore, is
conditioned upon compliance with applicable PUC rules and actual completion of
the upgrades on or before that date. Accordingly, the effective date of the
increase to 22,000 KW shall be delayed if necessary until such time as those
conditions are met. HCPC must use its best efforts to meet these conditions in a
timely manner.
5. Plant Shutdown Period
---------------------
HCPC shall have the right to shut down for 4 consecutive weeks during
each twelve-month period. The period shall be mutually agreeable to HCPC and
HELCO.
6. Capacity Charge
---------------
HELCO will pay HCPC for the Capacity Guarantee a graduated capacity
charge which would average out to $218/kw-yr over the contract term.
Specifically, HELCO will pay $167/kw-yr through December 31, 1995 and $231/kw-yr
during the remainder of the term. Such amount shall be payable monthly within
ten (10) days after the last day of the calendar month. Monthly repayment of the
cash advance will be calculated so that HCPCs cash flow from the Capacity
Charge net of such repayments is the same as that which would result from a
levelized capacity charge of $218/kw-yr and repayment in monthly installments
over the term of the Definitive Agreement.
7. Power Sales
-----------
During each contract year, HELCO shall purchase at least 94% on a
weekly basis and at least 98% on an annual basis of the following amounts of
energy (subject to adjustment based on the effective date condition stated in
"Capacity Guarantee" above):
<TABLE>
<CAPTION>
Projected Assumed Contract Contract
Time Period Capacity Guarantee Week Amount Year Amount
----------- ------------------ ----------- -----------
<S> <C> <C> <C>
Effective Date
- 5/31/95 20,000 KW 2,025,500 KWH 97,222,000 KWH
6/1/95 - 12/31/99 22,000 KW 2,192,400 KWH 105,235,200 KWH
</TABLE>
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 3
8. Energy Rates
------------
The rate for energy shall be the same as provided in the PPA, except
that HELCO shall waive the energy rate discount provision.
9. Fuel Cost Differential
----------------------
It is anticipated that HCPC will exhaust its existing supply of coal
before it is able to order and receive another shipment of coal. Accordingly,
HCPC will be required to utilize diesel fuel to operate the plant from the time
the coal is exhausted and until receipt of the first shipment of new coal
supplies, approximately six weeks from the date of order (the Diesel Period).
HELCO agrees to compensate HCPC for the Cost Differential incurred by HCPC
during this Diesel Period, unless otherwise provided by the Interim Operating
Agreement defined in Section20 herein. Such Cost Differential for this period
shall be the actual price of diesel utilized by HCPC less the cost which would
have been incurred by HCPC had it utilized an equivalent amount of coal for such
period. Such cost differential shall be payable weekly in advance and reconciled
within fifteen (15) days of the end of the Diesel Period.
Provided, however, that HELCO may, at its option, provide to HCPC the
diesel required to operate the plant during this period, in which case HELCO
shall offset the lower of: (a) its cost for such diesel or (b) through January
31, 1995, the cost which would have been incurred by HCPC had it utilized an
equivalent amount of coal against the next due energy payment and no other cost
differential shall be owed to HCPC. After January 31, 1995, during the Diesel
Period HELCO shall offset its cost for such diesel against the next due energy
payment and, in addition, shall pay HCPC one-half of the difference between the
energy payment and the cost which would have been incurred by HCPC had it
utilized an equivalent amount of coal for such period.
Furthermore, during such Diesel Period the minimum power sales levels
in Section 7, "Power Sales," shall not apply and HELCO shall have the right to
place the unit into standby reserve during periods in which the capacity is not
needed by HELCO, such as weekend shutdowns.
10. Substation Upgrades
-------------------
If necessary, and subject to compliance with applicable PUC rules,
HELCO shall upgrade the substation and transmission lines interconnecting the
HCPC Power Plant to HELCOs system in order to accommodate HCPC's supply of
22,000 KW of power. Any costs incurred by HELCO shall be prorated between HELCO
and HCPC in proportion to the relative value derived by each party from the
upgrade, pursuant to terms to be discussed. (For example, if the cost were
$500,000 for an upgrade with a 20-year life, and HCPC derived five years of
value from the upgrade, its share of the cost would be $125,000.)
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 4
11. Cash Advance
------------
HELCO shall advance to HCPC, upon execution of the Definitive Agreement
and related documentation, a cash advance of $6 million to be directed $3.5
million for payment of its employee severance payments and similar employee
benefit obligations and $2.5 million for power plant capital improvements. With
regard to the $2.5 million, HCPC shall be required to use such funds for items,
such as the stack extension, necessary for HCPC to continue power plant
operations. Such advance is to be appropriately documented, shall bear interest
at the rate of nine percent (9%), and shall be repaid in substantially equal
installments over the term of the Definitive Agreement through an offset of
payments owed by HELCO to HCPC for capacity. In addition, the making of such
advance shall be secured by and conditioned upon HCPCOs arranging for HELCO to
receive, contemporaneously with the making of the cash advance, security
satisfactory to HELCO consisting of: (i) at all times during the term of the
Definitive Agreement, agriculturally zoned lands having a fair market Ohighest
and best useO appraised value at least equal to the unpaid principal balance of
the cash advance (the "Land Security"), (ii) superpriority status pursuant to
Section 364 of the Bankruptcy Code and (iii) a security interest in the proceeds
of the PPA, to the extent not subject to the existing assignment of proceeds in
favor of the State. The appraised value of the initial 600 acres, as well as any
additional acreage necessary to meet the initial $6 million threshold, shall be
subject to confirmation by a mutually agreed upon independent appraiser. The
Land Security will be released by HELCO ratably as the principal on the cash
advance is repaid. Such security shall be evidenced by the execution and filing
of appropriate security agreements and other documents and shall have priority
over the claims of other HCPC creditors. Furthermore, in the event that HCPC
defaults on repayment of the cash advance and HELCO forecloses on the Land
Security, HCPC agrees to arrange for the liquidation, within 18 months of the
default, of a sufficient portion of such Land Security to cover HELCO's
remaining principal balance on the cash advance and to remit the proceeds from
such liquidation to HELCO in lieu of the Land Security itself. Should the
liquidation proceeds not be sufficient to cover HELCO's remaining principal
balance in full, HCPC shall cause to be contributed and liquidated additional
land to make up the shortfall. Should the power plant be sold or the PPA
otherwise terminate prior to December 31, 1999, or HCPC default on its
obligations to generate power under the PPA or this amendment, any unpaid
balance of the cash advance shall be immediately due and payable.
12. Revolving Fuel Line of Credit
-----------------------------
HELCO agrees to provide a revolving line of credit to HCPC of up to
$2 million, bearing interest at the rate of nine percent (9%) per annum, to
facilitate HCPC's purchase of fuel to operate the Power Plant and to finance
other operating expenses currently incurred in the operation of the Power Plant.
Such drawings under this revolving line of credit shall be restricted to such
use and shall be repaid
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 5
through an offset of energy payments owed by HELCO to HCPC until such time as
the drawing is repaid in full; provided, however, that in the event energy
payments are not projected by HELCO to be sufficient to repay the revolving line
of credit within a reasonable revolving line of credit within a reasonable time,
HELCO shall have the right to offset the balance against capacity payments. The
outstanding balance under this revolving fuel line of credit shall be secured by
and conditioned upon HCPC's granting HELCO, contemporaneously with HELCOs
issuance of the line of credit, a lien on such fuel and superpriority status
pursuant to Section 364 of the Bankruptcy Code. Such security shall be evidenced
by the execution and filing of appropriate security agreements and shall have
priority over the claims of other HCPC creditors. Should the power plant be sold
or the PPA otherwise terminate prior to December 31, 1999, or HCPC default on
its obligations to generate power under the PPA or the Definitive Agreement, any
unpaid balance of the revolving fuel line of credit shall be immediately due and
payable.
13. Option to Purchase Power Plant
------------------------------
HELCO shall waive the purchase option under Section XVI.B of the PPA.
14. PUC Approval
------------
HELCO shall seek a decision and order from the PUC approving the
Definitive Agreement. HELCO shall have the right to terminate this amendment if
the PUC disapproves, or if the PUC does not approve by interim or final decision
and order, acceptable to HELCO in its sole discretion, which shall not be
unreasonably invoked, within 180 days of the execution of the Definitive
Agreement, inclusion of the energy and capacity costs incurred by HELCO pursuant
to this amendment in its revenue requirements for ratemaking purposes or for the
purpose of determining the reasonableness of HELCO's rates, upon 45 days written
notice to HCPC.
15. Sugar Provisions
----------------
HELCO to waive other PPA provisions relating to sugar, subject to a
more detailed review of the PPA to determine exactly which provisions would be
affected.
16. Agreement Approval
------------------
Any amendment shall be contingent on obtaining all necessary final
approvals of the Definitive Agreement and the proposed transaction, including
without limitation, approvals by the Bankruptcy Court and by the respective
Boards of Directors of HELCO and HCPC. For purposes of this provision, as well
as any other provision herein requiring the parties to obtain certain approvals
(including, but not limited to, PUC approval), the parties shall use their good
faith efforts to obtain such approvals.
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 6
17. Termination of Offer
--------------------
The offer set forth in this Letter Agreement terminates if not signed
by HCPC and delivered to HELCO by the close of business today, January 5, 1995
(the Acceptance Date), or upon revocation in writing by HELCO at its sole
discretion (Revocation), or upon rejection by HCPC, whichever is earlier. The
offer shall be deemed rejected by HCPC and the offer shall thereupon terminate
(a) if HCPC gives notice of rejection to HELCO, (b) if HCPC counters the offer
set forth in this Letter Agreement, (c) if HCPC ceases production of power or
otherwise defaults on its obligations under the PPA, or (d) for any other
reasons deemed by law to be a rejection of an offer.
18. Termination of Letter Agreement
-------------------------------
After acceptance on or before the Acceptance Date, this Letter
Agreement shall terminate (a) in the event that a Definitive Agreement is not
executed on or before thirty (30) calendar days of the Acceptance Date, or (b)
if HCPC ceases production of power or otherwise defaults on its obligations
under the PPA.
19. Effect of Bankruptcy
--------------------
(a) In the event any cash advance, or drawing under the revolving
fuel line of credit, is made pursuant to the Definitive Agreement and to the
extent they are not repaid from payments under the PPA, as amended, repayments
of such amounts shall constitute a superpriority expense of the HCPC bankruptcy
estate, pursuant to Section 364 of the Bankruptcy Code.
(b) At the same time as HCPC seeks Bankruptcy Court approval of the
Definitive Agreement it shall also seek authorization from the Bankruptcy Court
to assume the PPA, as amended by the Definitive Agreement. HELCOs agreement to
the terms herein is made on the condition that HCPC also assumes the PPA.
(c) In the event there is an occurrence of total default by HCPC as
defined under Section XV of the PPA, HELCO shall have the right but not any
obligation immediately to take possession of the HCPC Power Plant for the
remaining term specified under the Definitive Agreement and to generate power
regardless of whether or not it exercises its Default Purchase Option under the
PPA. To the extent any automatic stay may apply, the parties agree that HELCO
will be entitled to immediate relief from any automatic stay to permit it to
take immediate possession of the HCPC Power Plant and generate power. The
parties agree that in the event of such total default by HCPC, HELCO would have
good cause, within the meaning of Section 362 of the Bankruptcy Code, to
exercise its right to take immediate possession of the HCPC Power Plant and to
generate power, in order to protect its interests under the PPA or the
Definitive Agreement, to protect the public interest and to preserve the value
of the HCPC Power Plant for the purposes of an effective reorganization of HCPC.
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 7
20. Interim Operating Agreement
---------------------------
During the period between the execution of this Letter Agreement by
HCPC and the receipt of the cash advance described in Section 11 herein (the
Interim Period), HCPC shall continue to operate the plant and furnish HELCO
20,000 KW of capacity. HELCO and HCPC shall enter into an Interim Period
Operating Agreement on or before the date of acceptance by HCPC of this Letter
Agreement, or as soon thereafter as practicable thereafter, but not more than 14
days, which defines the rights and obligations of the parties during the Interim
Period. HELCO may request an interim decision and order from the PUC allowing
the recovery of energy payments in excess of that under the current PPA.
21. Definitive Agreement
--------------------
Notwithstanding any language herein to the contrary, the completion of
each of the transactions contemplated herein shall be subject to negotiation and
execution of a definitive agreement and of all documents related to the
transactions incorporated therein, providing for an amendment to the PPA
pursuant to the terms of this Letter Agreement and containing terms and
provisions satisfactory to HELCO (the Definitive Agreement). Promptly
following the execution and return to HELCO of this Letter Agreement both
parties agree to instruct their respective legal counsel to prepare the
Definitive Agreement.
22. Extension of Temporary Restraining Order
----------------------------------------
Pending finalization and court approval of the Interim Operating
Agreement, the parties agree to extend the temporary restraining order until
such finalization and court approval occurs, except that the extension shall be
on the same terms relating to capacity charge and fuel cost differential set
forth in this Letter Agreement.
In the event that, pursuant to the Definitive Agreement, HELCO is to pay to
the State of Hawaii, in connection with HCPCs loan from the Department of
Agriculture, an amount other than the $100,000 currently payable under the
Assignment of Proceeds from the Sale of Electric Energy, HCPC shall obtain any
necessary consents, including any consent from the State of Hawaii.
<PAGE>
Mr. James S. Andrasick
January 5, 1995
Page 8
If the foregoing is acceptable, please so indicate by executing and
returning the enclosed copy of this Letter Agreement by today, January 5, 1995,
the Acceptance Date.
Very truly yours,
/s/ Warren H. W. Lee
ACCEPTED AND AGREED TO
on January 5 , 1995
-----------------------
HILO COAST PROCESSING COMPANY
By /s/ James S. Andrasick
-------------------------------
Its Chairman
<PAGE>
HEI Exhibit 13(a)
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $1,188,523 $1,142,170 $1,031,383 $ 993,242 $ 928,702
Net income (loss)
Continuing operations $ 73,030 $ 61,684 $ 61,715 $ 55,620 $ 42,895
Discontinued operations -- (13,025) (73,297) (794) 707
- --------------------------------------------------------------------------------------------------------------------------
$ 73,030 $ 48,659 $ (11,582) $ 54,826 $ 43,602
==========================================================================================================================
Earnings (loss) per common share
Continuing operations $ 2.60 $ 2.38 $ 2.54 $ 2.43 $ 1.99
Discontinued operations -- (0.50) (3.02) (0.03) 0.03
- --------------------------------------------------------------------------------------------------------------------------
$ 2.60 $ 1.88 $ (0.48) $ 2.40 $ 2.02
==========================================================================================================================
Return on average common equity 11.0% 8.2% (2.1)% 10.0% 8.7%
==========================================================================================================================
FINANCIAL POSITION *
Total assets $5,174,464 $4,521,592 $4,142,768 $3,716,872 $3,502,023
Deposit liabilities of the
savings bank subsidiary 2,129,310 2,091,583 2,032,869 1,615,361 1,511,291
Advances from Federal Home
Loan Bank to the savings bank
subsidiary 616,374 289,674 194,099 258,593 205,716
Long-term debt, net 718,240 697,836 582,475 525,641 463,362
Preferred stock of electric
utility subsidiaries
Subject to mandatory redemption 44,844 46,730 48,920 50,665 52,210
Not subject to mandatory redemption 48,293 48,293 36,293 36,293 36,293
Stockholders' equity 682,089 643,028 547,741 581,446 510,543
COMMON STOCK DATA
Book value per common share * 23.80 23.23 22.12 24.36 23.29
Market price range per common share
High 36.50 38.88 44.63 37.88 40.00
Low 29.88 31.00 34.75 29.38 27.25
Yearend 32.38 35.88 37.25 36.75 31.63
Dividends per common share 2.33 2.29 2.25 2.21 2.17
Dividend payout ratio 90% 121% nm 92% 107%
Dividend payout ratio-continuing
operations 90% 95% 88% 91% 109%
Market price to book value
per common share * 136% 154% 168% 151% 136%
Price earnings ratio ** 12.5x 15.1x 14.7x 15.1x 15.9x
Common shares outstanding
(thousands)
Weighted average 28,137 25,938 24,275 22,882 21,559
Geographic distribution
of ownership *
State of Hawaii *** 7,278 6,969 6,663 6,399 6,100
Other 21,377 20,706 18,099 17,468 15,818
- --------------------------------------------------------------------------------------------------------------------------
Total shares
outstanding 28,655 27,675 24,762 23,867 21,918
- --------------------------------------------------------------------------------------------------------------------------
Stockholders by geographic
distribution *
State of Hawaii *** 21,896 22,092 21,305 20,441 18,053
Other 18,830 18,374 16,891 15,598 13,883
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders 40,726 40,466 38,196 36,039 31,936
==========================================================================================================================
</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.
25
<PAGE>
SEGMENT FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
REVENUES
Electric utility $ 913,719 $ 879,110 $ 778,690
Savings bank 215,525 199,734 202,995
Other 59,279 63,326 49,698
- --------------------------------------------------------------------------------------
$1,188,523 $1,142,170 $1,031,383
======================================================================================
OPERATING INCOME (LOSS)
Electric utility $ 136,628 $ 119,565 $ 103,841
Savings bank 42,525 44,117 31,327
Other (5,020) (6,044) 1,051
- --------------------------------------------------------------------------------------
$ 174,133 $ 157,638 $ 136,219
======================================================================================
DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
Electric utility $ 63,779 $ 55,960 $ 53,856
Savings bank 3,551 3,167 2,852
Other 4,926 5,187 5,220
- --------------------------------------------------------------------------------------
$ 72,256 $ 64,314 $ 61,928
======================================================================================
CAPITAL EXPENDITURES
Electric utility $ 195,525 $ 212,916 $ 188,323
Savings bank 11,316 3,920 4,828
Other 2,749 3,822 4,283
- --------------------------------------------------------------------------------------
$ 209,590 $ 220,658 $ 197,434
======================================================================================
IDENTIFIABLE ASSETS (AT
DECEMBER 31)
Electric utility $1,889,120 $1,703,276 $1,501,330
Savings bank 3,115,651 2,618,485 2,461,694
Other 169,693 199,831 179,072
- --------------------------------------------------------------------------------------
5,174,464 4,521,592 4,142,096
Net assets of discontinued -- -- 672
operations
- --------------------------------------------------------------------------------------
$5,174,464 $4,521,592 $4,142,768
======================================================================================
</TABLE>
As of January 1, 1993, Hawaiian Electric Industries, Inc. (HEI) refined its
method of determining costs chargeable to its subsidiaries by identifying
additional common costs categories, increasing the number of cost causation
factors used to allocate common costs and utilizing timesheets. The refinements
resulted in lower allocations to subsidiaries and more expenses retained at
corporate in 1993 and 1994.
HEI's principal segments are as follows:
ELECTRIC UTILITY
- --------------------------------------------------------------------------------
Hawaiian Electric Company, Inc. and its wholly owned subsidiaries, Hawaii
Electric Light Company, Inc. and Maui Electric Company, Limited, are operating
electric public utilities in the business of generating, purchasing,
transmitting, distributing and selling electric energy, and are regulated by the
Public Utilities Commission of the State of Hawaii (PUC).
SAVINGS BANK
- --------------------------------------------------------------------------------
American Savings Bank, F.S.B. (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 and the Federal Deposit Insurance Corporation, and is also subject
to regulations of the Board of Governors of the Federal Reserve System.
OTHER
- --------------------------------------------------------------------------------
Hawaiian Tug & Barge Corp. provides tugboat and charter barge services in Hawaii
and the Pacific area and, together with its subsidiary, Young Brothers, Limited
(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.
Malama Pacific Corp. and its wholly owned subsidiaries invest in and develop
real estate.
HEI Investment Corp. invests primarily in leveraged leases.
Pacific Energy Conservation Services, Inc. (PECS) is a nonutility service
company formed in 1994 to promote energy conservation in Hawaii and the Pacific
Basin. PECS had no operations in 1994.
Other also includes amounts for HEI, HEI Diversified, Inc. and intercompany
eliminations.
26
<PAGE>
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 $2.60 per share in 1994, due to the results of
its major operating segments-the electric utility and the savings bank-partly
offset by losses in the "other" segment. Earnings per share from continuing
operations for 1994 increased 9% over 1993 due primarily to increased electric
utility earnings.
Many factors affected HEI's 1994 consolidated results, including Hawaii's
economic environment. Although Hawaii's economy grew rapidly in the late 1980's,
the economy slowed from 1991 through 1993 due to the effects of the Gulf War and
Hurricane Iniki as well as the U.S. and Japan recessions. In 1994, for the first
time in many years, Hawaii's unemployment rate exceeded the national average.
This unusual recessionary period appears to be over. A modest economic recovery
began in 1994 led by Hawaii's key industry, tourism. Visitor arrivals were up
about 5.4% over 1993, the first annual increase since 1990, largely as a result
of U.S. economic expansion and the economic recovery in Japan. However, the
near-term impact of the January 1995 earthquake in Japan, the flood in Los
Angeles and the devaluation of the Mexican peso on visitor arrivals to Hawaii is
uncertain.
The Company from time to time considers various strategies designed to enhance
its competitive position and to increase its ability to adapt to and anticipate
changes in its businesses. These strategies may include the formation or
acquisition of new businesses. The Company may from time to time be engaged in
preliminary discussions, either internally or with third parties, regarding
these potential strategies. No assurances can be given as to whether any of
these strategies will be successfully implemented or any potential transaction
will actually occur, or the ultimate effect of any such transaction or strategy
on the Company's financial condition or competitive position. In 1995, HEI is
forming a new subsidiary to pursue independent power projects in Asia, beginning
with the Philippines.
With continuing economic growth in the U.S. and Asia and the stabilization of
the construction industry and defense spending in Hawaii, Hawaii's economy is
expected to continue its recovery and grow moderately during the second half of
the 1990's. By providing essential services in Hawaii, HEI management believes
that the Company is well positioned to take advantage of Hawaii's projected
growth.
CONSOLIDATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% % %
1994 CHANGE 1993 change 1992 change
- ---------------------------------------------------------------------------------------------------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,189 4 $1,142 11 $1,031 4
Operating income 174 10 158 16 136 2
Net income (loss)
Continuing operations $ 73.0 18 $ 61.7 -- $ 61.7 11
Discontinued operations -- 100 (13.0) 82 (73.3) nm
- ---------------------------------------------------------------------------------------------------
$ 73.0 50 $ 48.7 nm $(11.6) nm
===================================================================================================
Earnings (loss) per common share
Continuing operations $ 2.60 9 $ 2.38 (6) $ 2.54 5
Discontinued operations -- 100 (0.50) 83 (3.02) nm
- ---------------------------------------------------------------------------------------------------
$ 2.60 38 $ 1.88 nm $(0.48) nm
===================================================================================================
Weighted average number of common
shares outstanding 28.1 8 25.9 7 24.3 6
Effective tax rate for continuing
operations 42% 43% 32%
</TABLE>
nm Not meaningful.
27
<PAGE>
The following discussion should be read in conjunction with the segment
discussions.
. The increase in 1994 net income from continuing operations compared to 1993
was due to improved results of the electric utility and "other" segments, partly
offset by a 2% decrease in net income of the savings bank segment.
. 1993 results include $15.0 million in after-tax losses from the settlement of
a lawsuit involving the discontinued operations of The Hawaiian Insurance &
Guaranty Co., Limited and its subsidiaries (the HIG Group) and $2.0 million in
after-tax gain from the reversal of a reserve after the sale of the discontinued
operations of Hawaiian Electric Renewable Systems, Inc. (HERS), the Company's
former wind energy business.
. 1993 income from continuing operations was flat when compared to 1992 and
included increases in net income from the savings bank and electric utility
segments, offset by an increase in net loss from the "other" segment.
. 1992 results include $73.3 million in after-tax losses from the discontinued
operations of the HIG Group and HERS. Higher earnings from continuing operations
resulted from increases at the electric utility and savings bank segments.
. The effective tax rate was higher in 1994 and 1993 than in 1992 primarily due
to the following: (1) a 1% increase in the federal income tax rate commencing in
1993; (2) the use of gross-up accounting for income taxes related to the
allowance for funds used during construction (AFUDC) under Statement of
Financial Accounting Standards (SFAS) No. 109 effective January 1, 1993; (3) the
treatment of Maritime Administration Capital Contribution Fund (CCF)
contributions as temporary (rather than permanent) differences between financial
reporting and tax income under SFAS No. 109 effective January 1, 1993; and (4)
the utilization of capital loss carryforwards in 1992.
. Dividends per common share increased in 1994 to $2.33, from $2.29 in 1993 and
$2.25 in 1992. HEI and its predecessor company, Hawaiian Electric Company, Inc.
(HECO), have paid dividends continuously since 1901. Dividends per share have
been higher each year since 1964. Although the Company's long-term goal is to
have dividend growth keep pace with inflation, the Company believes that recent
payout ratios (the percentages of earnings paid out in dividends) have been too
high. The Company believes that a payout ratio of 80% or less is more
appropriate and, in the future, hopes to increase earnings faster than dividends
to reduce the payout ratio. One of the keys to improved earnings is continued
regulatory support as evidenced by timely rate case decisions by the Hawaii
Public Utilities Commission (PUC). Another key to long-term growth in earnings
is growth and expansion of the Company. Thus, the Company is looking at
opportunities to grow in Hawaii, Asia and the Pacific.
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 26 and in the "Notes to Consolidated Financial Statements."
ELECTRIC UTILITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% % %
1994 CHANGE 1993 change 1992 change
- ------------------------------------------------------------------------------------------------
(in millions, except per barrel amounts
and number of employees)
<S> <C> <C> <C> <C> <C> <C>
Revenues/1/ $ 914 4 $ 879 13 $ 779 5
Expenses
Fuel oil 187 (12) 213 (5) 226 (18)
Purchased power 272 5 259 50 173 62
Other 318 11 287 4 276 7
Operating income 137 14 120 15 104 4
Allowance for funds used
during construction 13 21 11 22 9 67
Net income 62 19 52 5 49 18
Average price per barrel of fuel oil/1/ 18.92 (10) 21.09 7 19.69 (14)
Kilowatthour sales 8,593 3 8,325 -- 8,332 3
Number of employees 2,219 -- 2,226 5 2,118 5
</TABLE>
/1/ The rate schedules of the electric utilities contain 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 energy
costs, and the relative amounts of company-generated power and purchased power.
Accordingly, changes in fuel oil and certain components of purchased energy
costs are passed on to customers.
28
<PAGE>
. In 1994, the electric utilities' revenues increased 4% compared to 1993
primarily due to rate relief granted by the PUC and a 3.2% increase in
kilowatthour sales of electricity, partly offset by lower fuel oil prices. The
kilowatthour sales increase reflects the gradual recovery of Hawaii's economy
and the effects of warmer weather. Fuel oil expense declined because of lower
fuel oil prices and lower company generated kilowatthours. Purchased power
expense was higher due to an increase in kilowatthours purchased. The 11%
increase in other expenses was due to a 14% increase in depreciation expense as
a result of plant additions, a 12% increase in other operation and maintenance
expenses and a 6% increase in taxes, other than income taxes. Other operation
and maintenance expenses in 1994 increased partly because 1993 expenses reflect
a one-time reduction of $4 million due to the establishment under SFAS No. 71 of
a regulatory asset for vacation earned by employees, but not yet taken.
Operating income for 1994 increased 14% compared to 1993 due in part to rate
relief and higher kilowatthour sales, partly offset by the increased expenses.
Consolidated HECO's return on average common equity for 1994 was 10.2%, compared
to 9.7% for 1993 and 10.5% for 1992.
. 1993 revenues increased 13% over 1992 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 Hawaii's economy and conservation. Fuel oil
expense was lower despite higher fuel oil prices because fewer kilowatthours
were generated as purchased power increased. Purchased power expense increased
with a full year of purchases from a major independent power producer. The 4%
increase in other expenses was partly due to a 4% increase in depreciation
expense 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
reduction in expense due to the establishment of a regulatory asset for vacation
earned by employees, but not yet taken.
. 1992 revenues increased 5% over 1991 due to higher kilowatthour sales of
electricity and rate relief, partly offset by lower fuel oil prices. Higher 1992
operating income was primarily due to rate relief and increased kilowatthour
sales, 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 were not significantly affected by Hurricane Iniki,
which struck Kauai in September 1992.
COMPETITION
The electric utility industry has become increasingly competitive due to
regulatory and technological developments. Competition is affected by factors
including price, reliability of service, new technologies and governmental
regulations. Competition in Hawaii is also affected by the scarcity of
generation sites and lack of interconnections.
The Energy Policy Act of 1992 encourages competition by allowing both
utilities and nonutilities to form generation subsidiaries without becoming
subject to regulation under the Public Utility Holding Company Act of 1935. To
date, HECO and its subsidiaries have not faced this type of competition.
However, management cannot predict the future impact, if any, of the Energy
Policy Act of 1992 on the Company.
On the demand-side, a new kind of competitor-the energy service company-is
seeking customers in government and private business and promising to help them
reduce utility bills. On Oahu, one of these companies worked with a large
military housing project, installing energy-efficient equipment that decreased
the facility's electricity consumption by one-third. In August 1994, HEI formed
a new nonutility energy service company, Pacific Energy Conservation Services,
Inc. (PECS), to promote energy conservation in Hawaii and the Pacific Basin.
PECS is considering potential projects to install, finance, operate and maintain
energy conservation equipment, while sharing a percentage of the saved energy
costs with its clients.
29
<PAGE>
In response to increased competition, HECO and its subsidiaries are looking at
strategies to enhance their competitive position, including increasing efforts
to provide reliable electric service at a reasonable cost, offering customers
new choices regarding the services provided and promoting new technologies like
electric vehicles.
REGULATION OF ELECTRIC UTILITY RATES
The PUC has broad discretion in its regulation of the rates charged by HEI's
electric utility subsidiaries and in other matters. Any adverse decision by the
PUC concerning the level or method of determining electric utility rates, the
authorized returns on equity or other matters, or any prolonged delay in
rendering a decision in a rate or other proceeding, could have a material
adverse effect on the Company's financial condition and results of operations.
Upon a showing of probable entitlement, the PUC is required to issue an interim
decision in a rate case within 10 months from the date of filing a completed
application if the evidentiary hearing is completed (subject to extension for 30
days if the evidentiary hearing is not completed). There is no time limit for
rendering a final decision. Interim rate increases are subject to refund with
interest, pending the final outcome of the case.
RECENT RATE REQUESTS
Postretirement benefits other than pensions
- -------------------------------------------
In November 1994, the PUC issued a decision and order in a generic docket opened
in February 1992 with respect to the accounting and rate-making treatment of the
costs of postretirement benefits other than pensions (PBOP). The decision and
order authorized full recovery of PBOP costs determined pursuant to SFAS No.
106, effective January 1, 1995. The decision and order also allowed the recovery
of the regulatory assets related to PBOP costs, over the next 18 years. These
regulatory assets were recognized by HECO, Hawaii Electric Light Company, Inc.
(HELCO), Maui Electric Company, Limited (MECO) and Young Brothers, Limited (YB)
for PBOP costs accrued from January 1, 1993 through December 31, 1994 and
amounted to $36.7 million for the four companies at December 31, 1994. This
order will result in additional annual revenues of approximately $10.0 million,
$1.8 million, $1.9 million and $1.0 million for HECO, HELCO, MECO and YB,
respectively, to cover the increase in PBOP expense. See Note 17 in the "Notes
to Consolidated Financial Statements," for further information.
Hawaiian Electric Company, Inc.
- -------------------------------
. 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
(which was later increased to 12.75%). The increase requested, as subsequently
revised, represented an increase of 8.6% over rates in effect at the time of the
revised filing, or $53.8 million in additional annual revenues. The revised
requested increase was needed to cover rising operating costs (including PBOP
costs discussed above) and to cover the cost of new capital projects to maintain
and improve service reliability.
In December 1994, HECO received a final decision and order from the PUC
authorizing a $40.5 million, or 6.5%, increase in annual revenues, effective
January 1, 1995 and based on a 12.15% return on average common equity. The order
granted HECO an increase of approximately $3.5 million in annual revenues, in
addition to reaffirming interim increases that took effect in April, May and
November 1994. The final decision and order, together with the PBOP decision
and order, resulted in $50.5 million of annual rate relief.
. 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
(which was later increased to 13.25%). The requested increase, as subsequently
revised, represented an increase of approximately 5%, or $38.5 million in
additional annual revenues, over rates in effect at the time of the revised
filing (which rates included interim rate relief granted on the 1994 test year
application). The revised requested increase is needed to cover rising operating
costs (including PBOP costs discussed above) and costs of new capital projects
to maintain and improve service reliability.
30
<PAGE>
The PUC completed hearings in November 1994 on HECO's rate increase request
based on a 1995 test year. In December 1994, HECO received an interim decision
and order authorizing an increase of $13.2 million, or 1.9%, in annual revenues.
Approximately $10.6 million of the interim increase took effect January 1, 1995,
which was the beginning of the test year. The balance is effective in steps in
May and November 1995. The interim order was based on a 12.6% return on average
common equity.
Hawaii Electric Light Company, Inc.
- -----------------------------------
. In November 1993, HELCO applied to the PUC for permission to increase electric
rates to provide $15.8 million in annual revenues, or a 13.4% increase over the
rates then in effect. The requested increase is based on a 1994 test year and a
12.4% return on average common equity (which was later increased to 13.1%). The
increase is needed to cover the costs of plant and equipment, operating costs
necessary to maintain and improve service and provide reliable power and PBOP
costs discussed above. In February 1995, HELCO received a final decision and
order from the PUC authorizing a $13.7 million, or 11.8%, increase in annual
revenues, based on a 12.6% return on average common equity. The order granted
HELCO an increase of approximately $0.1 million in annual revenues, in addition
to reaffirming interim increases that took effect in August and November 1994.
The final decision and order, together with the PBOP decision and order,
resulted in $15.5 million of annual rate relief.
. In June 1994, HELCO filed a notice of intent to file an application for a
general rate increase using a 1995 test year. The increase is expected to be
required primarily to cover investments in new generating units. The application
has not yet been filed and may be filed based on a 1996 test year.
Maui Electric Company, Limited
- ------------------------------
. In November 1991, MECO filed a request to increase rates. In January 1993,
MECO revised its requested increase to $11.4 million annually, or 10% over the
rates then in effect, based on a 13.0% return on average common equity. Most of
the proposed increase reflected the costs of adding a 58-MW combined-cycle
generating unit on Maui in three phases and PBOP costs discussed above. In 1993,
MECO received four interim decisions which authorized step increases totaling
$8.2 million in annual revenues. In August 1994, MECO received the final
decision and order from the PUC granting an increase of $8.1 million in annual
revenues, or approximately 7.0%, based on a 12.75% return on average common
equity. That action, together with the PBOP decision and order, resulted in $10
million of annual rate relief.
. In December 1994, MECO filed a notice of intent to request rate relief, based
on a 1996 test year.
Management cannot predict with certainty when decisions in pending or future
rate cases will be rendered or the amount of any interim or final rate increase
that will be granted.
<TABLE>
<CAPTION>
SAVINGS BANK
% % %
1994 CHANGE 1993 change 1992 change
- ------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 216 8 $ 200 (2) $ 203 2
Net interest income 99 4 96 23 78 21
Operating income 43 (4) 44 41 31 24
Net income 25 (2) 25 36 19 24
Interest-earning assets
Average balance $2,700 15 $2,356 7 $2,207 15
Weighted average yield 7.53% (6) 8.01% (8) 8.73% (11)
Interest-bearing liabilities
Average balance $2,611 13 $2,306 6 $2,171 14
Weighted average rate 3.98% (1) 4.02% (24) 5.28% (20)
Interest rate spread 3.55% (11) 3.99% 16 3.45% 6
</TABLE>
31
<PAGE>
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
interest expense incurred on interest-bearing liabilities (deposit liabilities
and borrowings). ASB's loan volumes and yields are affected by market interest
rates, competition, demand for real estate financing, 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.
. 1994 net interest income increased 4% over 1993, despite an 11% decrease in
interest rate spread, due to a $392 million higher average balance of loans and
mortgage-backed securities. Operating and net income declined slightly due to an
increased provision for loan losses, higher compensation and employee benefits
expenses and higher trading portfolio losses. The decline was offset in part by
interest income on a tax refund from an amended tax return.
In 1994, the federal funds rate, which is the rate charged by banks for
overnight loans to each other and which has a significant influence on consumer
rates, increased 2.5% to 5.5%. In February 1995, the federal funds rate
increased 0.5% to 6.0%.
The demand for mortgage loans has decreased partly due to the rising interest
rates and the slow real estate market. Also, the recent recession in Hawaii
contributed to a trend of increased loan delinquencies. In 1994, nonaccrual and
renegotiated loans increased $17 million and the allowance for loan losses
increased $3 million. As Hawaii's economy begins its recovery, management
expects to see a reversal in the trend of increased delinquencies.
Another unfavorable trend has been the outflow of deposits partly due to
competition from money market funds. In 1994, there was a small increase in
deposits due to interest credited, partly offset by an outflow of deposit
accounts. For funding loans and purchasing mortgage-backed securities, ASB has
turned to higher cost advances from the Federal Home Loan Bank and securities
sold under agreements to repurchase. The use of higher cost sources of funds put
downward pressure on ASB's interest rate spread.
The decrease in interest rate spread can also be attributed to the changing
interest rate environment. During 1993, falling interest rates resulted in
improved interest rate spreads as interest-bearing liabilities repriced downward
at a faster pace than interest-earning assets. During 1994, the rising interest
rates caused the cost of interest-bearing liabilities to increase. However,
yields on interest-earning assets in 1994 decreased 48 basis points due in part
to 1993's refinancings and repricing of adjustable loans and mortgage-backed
securities. In the future, ASB's cost of interest-bearing liabilities may
further increase, which may result in a decreased interest rate spread and lower
net interest income. If interest rates stabilize, however, ASB's spread is
expected to improve as adjustable-rate mortgages reprice to market levels.
. 1993 net interest income increased 23% over 1992 due to the significantly
lower cost of funds and a higher average balance of loans. The 1993 interest
rate spread increased 16% over 1992. 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.
. 1992 net interest income increased 21% over 1991 due largely to a higher
average balance of interest-earning assets, a low interest rate environment and
a 6% 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.
32
<PAGE>
<TABLE>
<CAPTION>
OTHER
% % %
1994 CHANGE 1993 change 1992 change
- ---------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 59 (6) $ 63 27 $ 50 (8)
Operating income (loss) (5) 17 (6) nm 1 (86)
</TABLE>
nm Not meaningful.
The "Other" business segment includes results of operations from Hawaiian Tug &
Barge Corp. (HTB) and its subsidiary, 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; PECS, a newly formed energy service company with no operations in
1994; HEI and HEI Diversified, Inc. (HEIDI), parent companies; and eliminations
of intercompany transactions.
. The freight transportation subsidiaries recorded operating income of $3.6
million in 1994, compared with an operating loss of $0.1 million in 1993 and
operating income of $3.4 million in 1992. The increase in 1994 was due in part
to higher harbor assists and contract tows and a gain on the sale of a barge.
Despite YB's rate increases in 1993, HTB's consolidated operating results were
down significantly in 1993 compared to 1992 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 vessels when HTB exited the heavy fuel-oil shipping
business. The decrease in operating income in 1992 was due in part to higher
maintenance costs from drydocking more barges and higher depreciation expense.
HTB and YB have been hampered by Hawaii's recent recession and decreased
construction activity.
In May 1994, YB filed an application with the PUC to increase rates by
approximately $2.4 million annually. In September 1994, YB filed a stipulated
agreement with the PUC indicating YB and the Consumer Advocate had agreed to
stipulate to a 6% general rate increase, or approximately $2.0 million annually.
The increase took effect in December 1994. Also, see the PBOP discussion under
the "Electric utility - Recent rate requests" section.
. 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. No new investments are
currently planned for HEIIC.
. MPC's operating loss was $1.5 million in 1994, compared with an operating loss
of $0.6 million in 1993 and $1.3 million in 1992. MPC's real estate development
activities have been impacted by the slow real estate market in Hawaii. MPC sold
fewer units in 1994 than 1993 and fewer units in 1993 than 1992. Writedowns were
taken for the carrying value of certain real estate projects in 1994, 1993 and
1992. See Note 6 in the "Notes to Consolidated Financial Statements" for a
further discussion on MPC and its subsidiaries.
. The HEI and HEIDI corporate operating loss increased $1.0 million in 1994
compared to 1993 due in part to higher employee benefits expense. The HEI and
HEIDI corporate operating loss increased $4.6 million in 1993 compared to 1992
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 page 26 for more information on the corporate
allocation methodology refinement.
DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
See Note 2 in the "Notes to Consolidated Financial Statements" for information
on the discontinued operations of the HIG Group and HERS.
33
<PAGE>
ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION
- --------------------------------------------------------------------------------
The electric utility companies and YB follow the accounting prescribed by SFAS
No. 71, "Accounting for the Effects of Certain Types of Regulation." SFAS No. 71
provides guidance in preparing financial statements for most public utilities.
Under SFAS No. 71, if regulation provides assurance that incurred costs will be
recovered in the future, those costs must be capitalized rather than expensed.
If the continued application of SFAS No. 71 would no longer be appropriate--due
to increased competition or regulatory, legislative or judicial actions or
otherwise--the financial effects of the resulting accounting change, including a
write-off of all regulatory assets, could be material.
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 by the PUC for rate-making purposes. Based on information
available to the Company, management is not aware of any contingent liabilities
relating to environmental matters that would have a material adverse effect on
the Company.
ELECTRIC AND MAGNETIC FIELDS
- --------------------------------------------------------------------------------
Research is ongoing about the potential adverse health effects from exposure to
electric and magnetic fields (EMF). However, the scientific community has not
yet reached a consensus on the nature of any health effects. HECO and its
subsidiaries are participating in utility industry funded studies on the subject
and are taking steps to reduce EMF, where practical, in the design of new
transmission and distribution facilities. The Company cannot predict the impact,
if any, the EMF issue may have on the Company in the future.
EFFECTS OF INFLATION
- --------------------------------------------------------------------------------
Inflation, as measured by the U.S. Consumer Price Index, averaged 2.6% in 1994
and 3.0% in 1993 and 1992. 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, 1993 and 1994, the electric
utility companies received rate relief, in part to cover increases due to
inflation in operating expenses and construction costs.
ACCOUNTING CHANGES
- --------------------------------------------------------------------------------
See Note 1 in the "Notes to Consolidated Financial Statements."
34
<PAGE>
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 $5.2 billion and $4.5 billion at December 31,
1994 and 1993, respectively. Asset growth in 1994 stemmed from growth in ASB's
loan and mortgage-backed securities portfolios and capital expenditures by the
electric utility companies.
The consolidated capital structure of HEI was as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Short-term borrowings $ 137 8% $ 40 3%
Long-term debt, net 718 44 698 47
Preferred stock of electric utility
subsidiaries 93 6 95 6
Common stock equity 682 42 643 44
- ------------------------------------------------------------------------
$1,630 100% $1,476 100%
========================================================================
</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 close to the levels at
December 31, 1994 and 1993 through the issuance of short-term and long-term
debt, the issuance of preferred stock by the electric utilities, retained
earnings and the issuance of common stock by HEI through public offerings, the
Dividend Reinvestment and Stock Purchase Plan and other plans.
As of February 15, 1995, the Standard & Poor's (S&P), Moody's Investors
Service (Moody's) and Duff & Phelps Credit Rating Co.'s (Duff & Phelps) ratings
of HEI's and HECO's securities were as follows:
<TABLE>
<CAPTION>
S&P Moody's Duff & Phelps
- ------------------------------------------------------------------------
<S> <C> <C> <C>
HEI
- ---
Medium-term notes BBB Baa2 BBB+
Commercial paper A-2 P-2 Duff 2
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-
</TABLE>
The above ratings are not recommendations to buy, sell or hold any securities,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies.
In January 1995, S&P revised its ratings outlook on HEI and HECO to "stable"
from "negative" citing recent PUC decisions which demonstrate a continuing trend
of regulatory support for the electric utility subsidiaries' heavy construction
program and HEI's commitment to a well balanced capital structure. Neither HEI
nor HECO management can predict with certainty future rating agency actions or
their effects on the future cost of capital to HEI or HECO.
At December 31, 1994, $178 million of a $250 million registered medium-term
note program was available for offering by HEI.
35
<PAGE>
Operating activities provided net cash of $130 million in 1994, $139 million
in 1993 and $98 million in 1992. Investing activities such as capital
expenditures and the origination and purchases of loans and mortgage-backed
securities accounted for a significant portion of the net cash used of $713
million in 1994, $352 million in 1993 and $392 million in 1992. Financing
activities provided net cash of $554 million in 1994, $172 million in 1993 and
$395 million in 1992. In 1994, significant amounts of cash came from the net
increases in advances from the Federal Home Loan Bank, securities sold under
agreements to repurchase and short-term borrowings.
A portion of net assets 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 18 in the "Notes to
Consolidated Financial Statements.")
Total HEI consolidated financing requirements for 1995 through 1999, including
net capital expenditures, debt retirements (excluding repayments of Advances to
Federal Home Loan Bank and repurchases of securities sold under agreements to
repurchase) and sinking fund requirements, are currently estimated to total $1.1
billion. Of this amount, approximately $0.8 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 56% of the
consolidated financing requirements, with debt and equity financing providing
the remaining requirements. Over the five-year period 1995 through 1999, HEI
estimates that it will require approximately $161 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.
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 1994 1993
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Short-term borrowings from
nonaffiliates and affiliate $ 118 9% $ 41 3%
Long-term debt, net 489 37 485 41
Preferred stock
Subject to mandatory redemption 45 3 47 4
Not subject to mandatory redemption 48 4 48 4
Common stock equity 634 47 570 48
- ------------------------------------------------------------------------
$1,334 100% $1,191 100%
========================================================================
</TABLE>
In 1994, the electric utility companies used $186 million in cash for capital
expenditures and $29 million for common stock dividends. Operations provided
$102 million in cash and $15 million of cash came from third-party contributions
in aid of construction. Financing activities provided $78 million, including a
$77 million net increase in short-term borrowings. Also, HEI provided $30
million of cash through its purchase of HECO common stock.
The electric utility's consolidated financing requirements for 1995 through
1999, including net capital expenditures, debt retirements and sinking fund
requirements, are estimated to total $850 million. HECO's consolidated internal
sources, after the payment of common stock and preferred stock dividends, are
currently expected to provide approximately 60% of the total $850 million
requirements, with debt and equity financing providing the remaining
requirements. HECO currently estimates that it will require approximately $60
million in common equity, other than retained earnings, over the five-year
period 1995 through 1999. The PUC must approve issuances of long-term debt and
equity for HECO, HELCO and MECO.
36
<PAGE>
Capital expenditures include the costs of projects which are required to meet
expected load growth, to improve reliability and to replace and upgrade existing
equipment. Net capital expenditures for the five-year period 1995 through 1999
are currently estimated to total $750 million. 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, 1994, purchase commitments other than fuel and power purchase
contracts were approximately $83 million, including amounts for construction
projects. (Also see Note 4 in the "Notes to Consolidated Financial Statements"
for a discussion of fuel and power purchase commitments.)
For 1995, electric utility net capital expenditures are estimated to be $170
million and gross capital expenditures are estimated to be $205 million, of
which approximately 65% is for transmission and distribution projects. An
estimated $40 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, 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 January 1995, the Department of Budget and Finance of the State of Hawaii
issued tax-exempt special purpose revenue bonds in the principal amount of $47
million, with a maturity of 30 years and a fixed coupon interest rate of 6.60%,
and loaned the proceeds from the sale to HECO, HELCO and MECO. The bonds were
issued at a discount, resulting in a yield of approximately 6.75%. As of
December 31, 1994, an additional $170 million of revenue bonds had been
authorized by the Hawaii Legislature for issuance prior to the end of 1997.
<TABLE>
<CAPTION>
SAVINGS BANK
- ------------------------------------------------------------------------------------------
December 31 1994 1993
- ------------------------------------------------------------------------------------------
% %
$ change $ change
- ------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Assets $3,116 19 $2,618 6
Loans receivable 1,824 5 1,735 19
Mortgage-backed securities 1,067 69 630 (11)
Deposit liabilities 2,129 2 2,092 3
Securities sold under agreements to
repurchase 123 nm -- (100)
Advances from Federal Home Loan Bank 616 113 290 49
</TABLE>
nm Not meaningful.
As of September 30, 1994, ASB was the fourth largest financial institution in
the state based on total assets of $2.9 billion. In 1994, ASB's total assets
increased primarily due to originations and purchases of loans and mortgage-
backed securities of $937 million, partly offset by repayments of $413 million.
Loans and deposits continued to grow in 1994, although at a slower pace than in
1993 and 1992.
At December 31, 1994, loans which do not accrue interest totaled $23.8
million or 1.31% of net loans outstanding. At the end of 1994, there were only
three properties acquired in settlement of loans valued at $0.8 million.
For 1994, cash used by investing activities was $540 million, due largely to
the origination of loans receivable and the purchase of mortgage-backed
securities, partly offset by principal repayments. Cash provided by financing
activities included a net increase of $327 million in advances from the Federal
Home Loan Bank, $122 million in securities sold under agreements to repurchase
and $38 million in deposit liabilities, partly offset by common stock dividends
of $15 million.
37
<PAGE>
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. In the last two years, advances from the Federal Home Loan Bank have
become a more significant source of funds as the demand for deposits has
decreased. Using higher cost sources of funds puts downward pressure on ASB's
net interest income.
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, 1994.
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-weighted assets. As of
December 31, 1994, ASB was in compliance with the minimum capital requirements
with a tangible capital ratio of 4.9%, a core capital ratio of 5.2% and a risk-
based capital ratio of 11.4%.
The OTS adopted a rule adding an interest rate risk (IRR) component to the
existing risk-based capital requirement. Institutions with an "above normal"
level of IRR exposure may be required to hold additional capital. "Above normal"
IRR is defined as any percentage 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. Although the
regulation generally became effective January 1, 1994, the IRR capital
deduction, which was to go into effect with the September 1994 Thrift Financial
Report, has been waived until the OTS finalizes the process under which
institutions may appeal such capital deductions. This means that in calculating
the risk-based capital requirement, ASB was not required to deduct capital for
IRR, and did not report such a deduction for the December 1994
Thrift Financial Report. However, based on the lowest IRR reported as of the
three prior quarter-ends, ASB would not have been required to hold additional
capital at December 31, 1994, 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, under-capitalized,
significantly under-capitalized and critically under-capitalized), 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, 1994, ASB believes that based on OTS
capital standards it would have been classified as "well-capitalized" with a
leverage ratio of 5.2%, a Tier-1 risk-based ratio of 11.0% and a total risk-
based ratio of 11.4%.
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.
On September 29, 1994, the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Banking Act) was signed into law. The
Interstate Banking Act will create a uniform system of interstate banking in the
U.S. Also, subject to certain limitations, it will permit interstate branching
by U.S. banks, marking a major departure from previous law. Although the
Interstate Banking Act applies only to banks, it could nonetheless affect the
competitive balance among banks, thrifts and other financial institutions and
the level of competition among financial institutions doing business in Hawaii.
38
<PAGE>
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 14 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Additionally, as discussed in Note 17 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 LLP
Honolulu, Hawaii
January 25, 1995
39
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ---------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES
Electric utility $ 913,719 $ 879,110 $ 778,690
Savings bank 215,525 199,734 202,995
Other 59,279 63,326 49,698
- ---------------------------------------------------------------------------------
1,188,523 1,142,170 1,031,383
- ---------------------------------------------------------------------------------
EXPENSES
Electric utility 777,091 759,545 674,849
Savings bank 173,000 155,617 171,668
Other 64,299 69,370 48,647
- ---------------------------------------------------------------------------------
1,014,390 984,532 895,164
- ---------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Electric utility 136,628 119,565 103,841
Savings bank 42,525 44,117 31,327
Other (5,020) (6,044) 1,051
- ---------------------------------------------------------------------------------
174,133 157,638 136,219
- ---------------------------------------------------------------------------------
Interest expense--electric utility and
other (54,028) (53,192) (47,141)
Allowance for borrowed funds used
during construction 4,043 3,869 2,095
Preferred stock dividends of electric
utility subsidiaries (7,163) (6,518) (6,710)
Allowance for equity funds used during
construction 9,064 6,973 6,781
- ---------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 126,049 108,770 91,244
Income taxes 53,019 47,086 29,529
- ---------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 73,030 61,684 61,715
- ---------------------------------------------------------------------------------
DISCONTINUED OPERATIONS, NET OF INCOME
TAXES
Loss from operations -- -- (57,090)
Loss on disposal -- (13,025) (16,207)
- ---------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS -- (13,025) (73,297)
- ---------------------------------------------------------------------------------
NET INCOME (LOSS) $ 73,030 $ 48,659 $ (11,582)
=================================================================================
EARNINGS (LOSS) PER COMMON SHARE
CONTINUING OPERATIONS $2.60 $2.38 $2.54
DISCONTINUED OPERATIONS -- (0.50) (3.02)
- ---------------------------------------------------------------------------------
$2.60 $1.88 $(0.48)
=================================================================================
DIVIDENDS PER COMMON SHARE $2.33 $2.29 $2.25
=================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 28,137 25,938 24,275
=================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- -------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ---------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR $ 128,318 $ 138,484 $ 204,663
Net income (loss) 73,030 48,659 (11,582)
Common stock dividends (65,513) (58,825) (54,597)
- ---------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR $ 135,835 $ 128,318 $ 138,484
=================================================================================
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
40
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
December 31 1994 1993
- -------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 87,623 $ 116,260
Accounts receivable and unbilled
revenues, net 130,762 117,116
Inventories, at average cost 43,126 39,405
Real estate developments 33,956 29,673
Loans receivable, net 1,824,055 1,735,098
Marketable securities (estimated market
value $1,051,673 and $710,369) 1,099,810 698,755
Other investments 77,297 77,106
Property, plant and equipment, net
Land $ 33,861 $ 33,103
Plant and equipment 2,220,213 2,058,201
Construction in progress 171,251 129,875
---------- ----------
2,425,325 2,221,179
Less - accumulated depreciation (747,503) 1,677,822 (678,190) 1,542,989
---------- ----------
Regulatory assets 95,257 62,543
Other 59,301 52,983
Goodwill and other intangibles 45,455 49,664
- -------------------------------------------------------------------------------------------
$5,174,464 $4,521,592
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 97,210 $ 88,628
Deposit liabilities 2,129,310 2,091,583
Short-term borrowings 136,755 40,416
Securities sold under agreements to
repurchase 123,301 --
Advances from Federal Home Loan Bank 616,374 289,674
Long-term debt, net 718,240 697,836
Deferred income taxes 172,930 168,329
Unamortized tax credits 45,954 44,357
Contributions in aid of construction 178,635 165,005
Other 180,529 197,713
- -------------------------------------------------------------------------------------------
4,399,238 3,783,541
- -------------------------------------------------------------------------------------------
PREFERRED STOCK OF ELECTRIC UTILITY
SUBSIDIARIES
Subject to mandatory redemption 44,844 46,730
Not subject to mandatory redemption 48,293 48,293
- -------------------------------------------------------------------------------------------
93,137 95,023
- -------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value,
authorized 10,000 shares; issued: none -- --
Common stock, no par value, authorized
100,000 shares; issued and outstanding:
28,655 shares and 27,675 shares 546,254 514,710
Retained earnings 135,835 128,318
- -------------------------------------------------------------------------------------------
682,089 643,028
- -------------------------------------------------------------------------------------------
$5,174,464 $4,521,592
===========================================================================================
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
41
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 73,030 $ 61,684 $ 61,715
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities
Depreciation and amortization of
property, plant and equipment 72,256 64,314 61,928
Other amortization (660) (88) 784
Deferred income taxes and tax
credits, net 9,161 3,164 (4,530)
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 (13,646) 1,108 (17,515)
Decrease (increase) in
inventories (3,721) (453) 2,593
Decrease (increase) in
other securities held for
trading 45,396 (22,359) (9,161)
Increase in regulatory
assets (9,885) (9,606) (2,921)
Increase in accounts payable 8,582 6,248 8,474
Changes in other assets and
liabilities (17,570) 35,401 (3,614)
- ------------------------------------------------------------------------------
162,943 139,413 97,753
Cash flows used by discontinued
operations (32,623) (92) --
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 130,320 139,321 97,753
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated and
purchased (515,070) (557,009) (585,292)
Principal repayments on loans receivable 225,002 288,932 268,672
Proceeds from sale of loans receivable 2,138 633 5,208
"Held-to-maturity" mortgage-backed
securities purchased (421,649) (190,517) (216,289)
Principal repayments on
"held-to-maturity" mortgage-backed
securities 187,967 269,816 307,364
Capital expenditures (200,526) (213,685) (190,653)
Contributions in aid of construction 15,112 20,158 17,949
Other (5,695) 29,980 25,953
- ------------------------------------------------------------------------------
(712,721) (351,692) (367,088)
Net investment in discontinued
operations -- -- (24,751)
- ------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (712,721) (351,692) (391,839)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit liabilities 37,727 58,714 417,508
Net increase (decrease) in short-term
borrowings with original maturities of
three months or less 101,688 (93,247) 92,303
Proceeds from other short-term
borrowings 1,008 25,622 36,000
Repayment of other short-term borrowings (6,357) (72,707) --
Proceeds from securities sold under
agreements to repurchase 145,669 -- 43,000
Repurchase of securities sold under
agreements to repurchase (23,330) (27,000) (145,200)
Proceeds from advances from Federal
Home Loan Bank 998,200 194,692 32,900
Principal payments on advances from
Federal Home Loan Bank (671,500) (99,117) (97,400)
Proceeds from issuance of long-term debt 87,814 193,788 83,736
Repayment of long-term debt (75,427) (70,801) (43,436)
Proceeds from issuance of electric
utility subsidiaries' preferred stock -- 12,000 --
Redemption of electric utility
subsidiaries' preferred stock (1,886) (2,190) (1,745)
Net proceeds from issuance of common
stock 13,602 88,658 18,248
Common stock dividends (47,676) (42,012) (39,214)
Other (5,768) 5,477 (1,595)
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 553,764 171,877 395,105
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
equivalents (28,637) (40,494) 101,019
Cash and equivalents, beginning of year 116,260 156,754 55,735
- ------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF YEAR $ 87,623 $ 116,260 $ 156,754
==============================================================================
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 regulatory assets, the allowance for loan losses,
the provision 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 assets, 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 direct and
indirect wholly owned subsidiaries (collectively, the Company). HEI's
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); Hawaiian Tug & Barge Corp. (HTB), parent company of Young
Brothers, Limited (YB); Lalamilo Ventures, Inc. (LVI); Malama Pacific Corp.
(MPC), parent company of several real estate subsidiaries; HEI Investment Corp.
(HEIIC); and Pacific Energy Conservation Services, Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
PUBLIC UTILITY COMMISSION 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.
DEBT AND EQUITY SECURITIES. In May 1993, the Financial Accounting Standards
Board (FASB) issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The Company adopted the provisions of SFAS No. 115
effective January 1, 1994, and the implementation of SFAS No. 115 did not have a
material effect on the Company's financial condition or results of operations.
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost.
Equity securities (with readily determinable fair values) and debt 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.
Equity securities (with readily determinable fair values) and debt 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 stockholders' equity.
43
<PAGE>
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 held-to-maturity investments, available-for-sale investments and other
investments described above, 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.
POSTRETIREMENT AND POSTEMPLOYMENT 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 17). 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 1993, primarily due to the regulated nature of
the electric utility subsidiaries and YB.
In November 1992, the 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 financial condition or results of operations.
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. Subsequent to its acquisition, ASB evaluates whether
later events or circumstances have occurred that indicate the remaining
estimated useful life of an intangible asset may warrant revision or that the
remaining balance of an intangible asset may not be recoverable. When factors
indicate that an intangible asset should be evaluated for possible impairment,
ASB will use an estimate of undiscounted future cash flows over the remaining
useful life of the asset in measuring whether the intangible asset is
recoverable.
44
<PAGE>
ENVIRONMENTAL EXPENDITURES. In general, environmental contamination treatment
costs are charged to expense, unless it is probable such costs will be recovered
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 property 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 to be recovered in future
rates.
INCOME TAXES. The Company adopted the provisions of 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 1993, primarily due to the
regulated nature of the electric utility subsidiaries and YB (see Note 14).
Federal and state 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 1994 presentation.
ACCOUNTING CHANGES - 1995 IMPLEMENTATION. In May 1993, the FASB issued SFAS No.
114 "Accounting by Creditors for Impairment of a Loan." The Company adopted the
provisions of SFAS No. 114, as amended by SFAS No. 118, effective January 1,
1995. The adoption 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 1995 results of operations.
ELECTRIC UTILITY
- --------------------------------------------------------------------------------
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.
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.
45
<PAGE>
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. DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
HAWAIIAN ELECTRIC RENEWABLE SYSTEMS, INC.
- --------------------------------------------------------------------------------
In October 1992, the HEI Board of Directors 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 operating losses. In
March 1993, HEI sold the stock of Hawaiian Electric Renewable Systems, Inc.
(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 HERS'
disposal costs that were no longer needed due to the terms of the sale,
resulting in a gain on disposal of $2.0 million (net of $1.2 million of income
taxes).
In 1992, HERS operating revenues were $0.6 million, loss from operations was
$5.5 million (net of $8.1 million of income tax benefits) and loss on disposal
was $8.1 million (net of $9.0 million of income tax benefits).
THE HAWAIIAN INSURANCE & GUARANTY COMPANY, LIMITED
- --------------------------------------------------------------------------------
The Hawaiian Insurance & Guaranty Company, Limited (HIG) and its subsidiaries
(collectively, the HIG Group) are property and casualty insurance companies.
HEIDI was the holder of record of all the common stock of HIG until August 16,
1994. In December 1992, due to a significant increase in the estimate of
policyholder claims from Hurricane Iniki, the HEI Board of Directors had
concluded that it would not contribute additional capital to HIG and the
remaining investment in the HIG Group was written off. On December 24, 1992, a
formal rehabilitation order vested full control over the HIG Group in the
Insurance Commissioner (the Rehabilitator) and her deputies.
46
<PAGE>
On April 12, 1993, the Rehabilitator, the HIG Group and others filed a
complaint against HEI, HEIDI and others. The complaint, which was subsequently
amended, set forth several separate counts, including claims to the effect that
HEI and/or HEIDI should be held liable for HIG's obligations and claims that
directors and officers of HEI, HEIDI and the HIG Group were responsible for the
losses suffered by the HIG Group. In 1994, HEI, HEIDI, the named directors and
officers, the Rehabilitator and others signed an agreement to settle the
lawsuit. In August 1994, $32 million was disbursed to the Rehabilitator, at
which time a release of claims against HEI, its affiliates and their past and
present officers and directors became effective. HEI is seeking reimbursement
for the settlement and defense costs from its insurance carriers. One of HEI's
insurance carriers has filed a declaratory relief action seeking resolution of
insurance coverage and other policy issues, and HEI has filed counterclaims.
Trial is scheduled for October 1995. Recoveries from HEI's insurance carriers,
if any, will be recognized when realized.
The settlement of the lawsuit resulted in a loss on disposal of $15.0 million
(net of $9.2 million of income tax benefits) in 1993. In 1992, HIG operating
revenues were $80.7 million, loss from operations was $51.6 million (net of
$28.5 million of income tax benefits) and loss on disposal was $8.1 million (net
of $5.0 million of income tax benefits).
In December 1994, five insurance agencies, which had served as insurance
agents for the HIG Group, filed a complaint against HEI, HEIDI and others. The
complaint set forth several causes of action, including breach of contract and
piercing the corporate veil. The plaintiffs ask for relief from the defendants,
including compensatory damages for lost commissions, lost business and lost
profits in an amount to be proven at trial and punitive damages. In the opinion
of management, losses, if any, resulting from the ultimate outcome of the
lawsuit will not have a material adverse effect on the Company's financial
condition or results of operations.
3. SEGMENT FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Segment financial information on page 26 is incorporated herein by reference.
47
<PAGE>
4. ELECTRIC UTILITY SUBSIDIARY
- --------------------------------------------------------------------------------
Hawaiian Electric Company, Inc. and subsidiaries
Selected consolidated financial information
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
Years ended December 31 1994 1993 1992
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
REVENUES
Operating revenues $907,308 $874,010 $776,929
Other--nonregulated 6,411 5,100 1,761
- -------------------------------------------------------------------------------
913,719 879,110 778,690
- -------------------------------------------------------------------------------
EXPENSES
Fuel oil 186,717 213,285 225,611
Purchased power 271,636 258,723 172,761
Other operation 121,740 105,957 105,303
Maintenance 46,427 44,281 44,653
Depreciation 63,779 55,960 53,856
OpTaxes, other than income taxes 85,877 80,712 71,452
Other--nonregulated 915 627 1,213
- -------------------------------------------------------------------------------
777,091 759,545 674,849
- -------------------------------------------------------------------------------
Operating income from regulated and
nonregulated activities 136,628 119,565 103,841
Allowance for equity funds used during
construction 9,064 6,973 6,781
Interest and other charges (40,187) (37,384) (35,196)
Allowance for borrowed funds used
during construction 4,043 3,869 2,095
- -------------------------------------------------------------------------------
Income before income taxes and
preferred stock dividends of HECO 109,548 93,023 77,521
Income taxes 43,587 36,897 23,843
- -------------------------------------------------------------------------------
Income before preferred stock dividends
of HECO 65,961 56,126 53,678
Preferred stock dividends of HECO 4,316 4,421 4,525
- -------------------------------------------------------------------------------
Net income for common stock $ 61,645 $ 51,705 $ 49,153
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
December 31 1994 1993
- -------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Utility plant, at cost
Property, plant and equipment $2,129,274 $1,976,192
Less accumulated depreciation (702,945) (641,230)
Construction in progress 164,247 126,342
- -------------------------------------------------------------------------------------
Net utility plant 1,590,576 1,461,304
Accounts receivable, net 70,708 64,012
Unbilled revenues, net 38,435 34,735
Regulatory assets 92,524 61,078
Other 96,877 82,147
- -------------------------------------------------------------------------------------
$1,889,120 $1,703,276
=====================================================================================
CAPITALIZATION AND LIABILITIES
Common stock equity $ 633,901 $ 570,663
Cumulative preferred stock
Not subject to mandatory redemption, dividend rates of
4.25-8.875% 48,293 48,293
Subject to mandatory redemption, dividend rates of
7.68-13.75% 44,844 46,730
Long-term debt, net 489,586 484,736
- -------------------------------------------------------------------------------------
Total capitalization 1,216,624 1,150,422
Short-term borrowings from nonaffiliates and affiliate 117,866 40,928
Deferred income taxes 108,362 107,449
Unamortized tax credits 44,939 43,348
Contributions in aid of construction 178,635 165,005
Other 222,694 196,124
- -------------------------------------------------------------------------------------
$1,889,120 $1,703,276
=====================================================================================
</TABLE>
48
<PAGE>
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.
The total sinking fund requirements on preferred stock subject to mandatory
redemption from 1995 to 1999 are $2 million each year.
INDEBTEDNESS. See Notes 10 and 11.
MAJOR CUSTOMERS. The electric utility subsidiaries derived 10% of their
operating revenues from the sale of electricity to various federal government
agencies amounting to $89 million in 1994, $91 million in 1993 and $78 million
in 1992.
COMMITMENTS AND CONTINGENCIES.
FUEL CONTRACTS AND OTHER PURCHASE COMMITMENTS. HECO and its subsidiaries have
contractual agreements to purchase a minimum amount of 0.5% sulfur residual fuel
oil and 0.4% sulfur diesel fuel through 1995. The prices under these contracts
are tied to market prices of petroleum products as reported in Singapore and the
U.S. Pacific Northwest. Based on the average price per barrel prevailing on
January 1, 1995, the estimated amount of required purchases for 1995 is $171
million. The actual amount of purchases in 1995 could vary substantially from
such estimates as a result of changes in market prices and other factors. HECO
and its subsidiaries purchased $186 million, $205 million and $216 million of
fuel under these or prior contractual agreements in 1994, 1993 and 1992,
respectively. New contracts to replace expiring ones are expected to be entered
into in the normal course of business.
At December 31, 1994, HECO and its subsidiaries had purchase commitments,
other than fuel and power purchase contracts, amounting to approximately $83
million.
POWER PURCHASE AGREEMENTS. At December 31, 1994, HECO and its subsidiaries had
power purchase agreements for 465 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 [including HELCO's agreement in principle with Hilo Coast Processing
Company (HCPC)-see discussion which follows], aggregate minimum fixed capacity
charges are expected to be approximately $107 million in 1995, $109 million in
each of 1996 and 1997, $106 million in 1998, $109 million in 1999 and $2.1
billion thereafter.
In general, payments under the power purchase agreements for 465 MW of firm
capacity 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 payment 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 the energy cost
adjustment clause 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 agreements. Title to the facilities does not pass to HECO nor
its subsidiaries upon expiration of the agreements, and the agreements do not
contain bargain purchase options with respect to the facilities.
49
<PAGE>
HELCO has a power purchase agreement with HCPC for 18 MW of firm capacity. On
December 12, 1994, HCPC filed a Chapter 11 bankruptcy petition and advised HELCO
that it would cease operating its plant in December 1994. HELCO obtained a
temporary restraining order and, later, an extension of such order, requiring
HCPC to continue operations of the HCPC facility through March 7, 1995, with
HELCO to pay an additional amount for the power HCPC supplies. On January 5,
1995, HELCO and HCPC entered into an agreement in principle, subject to the
negotiation and execution of a definitive agreement, amending the existing power
purchase agreement through December 1999. The definitive agreement must be
approved by the bankruptcy court and is subject to cancellation by HELCO if not
approved by the PUC within 180 days of its execution. If unable to purchase
power from HCPC as contemplated by the agreement in principle, HELCO would be
operating with a slim generation margin and might have to initiate planned
service interruptions (rolling blackouts) until it is able to arrange for
additional generation.
HELCO RELIABILITY INVESTIGATION. In July 1991, following service interruptions
and rolling blackouts instituted on the island of Hawaii, the PUC initiated an
investigation into the reliability of HELCO's system and held hearings. Further
hearings were held in July 1992 following additional service interruptions and
rolling blackouts. 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. In the opinion of management, any adjustment by the PUC to its
October 1992 rate increase resulting from the reliability investigation would
not have a material adverse effect on the Company's financial condition or
results of operations.
Subsequent to the hearings on HELCO's reliability, HELCO's generation margin
improved. However, HELCO's generation margin was adversely affected by the
cessation of operations by Hamakua Sugar Company in 1994 and will be further
adversely affected if an agreement in principle that HELCO has reached with HCPC
is not implemented. See "Power purchase agreements" above.
HELCO is proceeding with plans to install two 20-MW combustion turbines in
1995 or 1996, followed by an 18-MW heat steam recovery generator in 1997.
However, two independent power producers have each filed with the PUC separate
complaints against HELCO, alleging that they are entitled to a power purchase
contract to provide all or part of the capacity.
Also, HELCO has encountered procedural and other difficulties in obtaining the
necessary air permit and Conservation District Use Permit (CDUP) which would
allow the combined-cycle unit to be constructed. As a result of these permitting
delays, HELCO's unit installation schedule has been adversely impacted and HELCO
is exploring other alternatives to meet projected energy needs, including any
viable, timely and cost-effective nonutility generation alternative. However,
until additional generation is in place, management believes that there is a
significant risk of capacity shortages on the island of Hawaii that could result
in rolling blackouts.
50
<PAGE>
HECO POWER OUTAGE. On April 9, 1991, HECO experienced a power outage that
affected all customers on the island of Oahu. The PUC initiated an investigation
of the outage, which was consolidated with a pending investigation of an outage
that occurred in 1988.
Power Technologies, Inc. (PTI), an independent consultant hired by HECO with
the approval of the PUC, investigated the outage. HECO is implementing certain
of PTI's recommendations and is either studying or disagrees with certain of the
other recommendations. Management cannot predict the timing and outcome of any
PUC decision and order that may be issued, if any, with respect to the outages
or PTI's recommendations.
HECO's PUC-approved tariff states that HECO is not liable for interruptions or
insufficiency of supply when the cause was beyond HECO's control. Nevertheless,
HECO received 3,063 customer claims, which totaled approximately $7.8 million,
within the time limit to file claims. 1,530 of these claims are for property
damage and most have been settled, with no admission of liability, or closed as
of December 31, 1994. The other 1,533 claims involve personal injury or economic
loss, such as lost profits, and generally have not been covered by settlement.
Seven direct or indirect business customers have filed a lawsuit against HECO
on behalf of themselves and an alleged class, claiming $75 million in
compensatory damages and additional unspecified amounts for punitive damages
because of the April 9, 1991 outage. HECO has filed an answer which denies the
principal allegations in the complaint. The class has not been certified. Trial
has been set for January 1996.
HECO recorded a liability of $1 million for the total amount of expected
defense costs and settlements with respect to the outage. In the opinion of
management, losses (if any) in excess of the amount for which provision has been
made, net of estimated insurance recoveries, resulting from the ultimate outcome
of the lawsuit and claims related to the April 1991 outage will not have a
material adverse effect on the Company.
MANAGEMENT SERVICES FEES. HEI charges to HECO and its subsidiaries for general
management and administrative services totaled $2.4 million, $2.3 million and
$5.6 million in 1994, 1993 and 1992, respectively.
51
<PAGE>
5. SAVINGS BANK SUBSIDIARY
- -------------------------------------------------------------------------------
American Savings Bank, F.S.B. and subsidiaries
Selected consolidated financial information
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
Years ended December 31 1994 1993 1992
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Interest income $203,373 $ 188,619 $ 192,644
Interest expense 103,906 92,701 114,748
- -------------------------------------------------------------------------------
Net interest income 99,467 95,918 77,896
Provision for losses (3,983) (779) (1,494)
Other income 12,152 11,115 10,351
Operating, administrative and general
expenses (65,111) (62,137) (53,915)
- -------------------------------------------------------------------------------
Operating income 42,525 44,117 32,838
Income taxes 17,760 18,835 13,280
- -------------------------------------------------------------------------------
Net income $ 24,765 $ 25,282 $ 19,558
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
December 31 1994 1993
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and equivalents $ 76,502 $ 77,610
Investment securities 32,523 68,599
Mortgage-backed securities 1,067,287 630,156
Loans receivable, net 1,824,055 1,735,098
Other 69,829 57,358
Goodwill and other intangibles 45,455 49,664
- -------------------------------------------------------------------------------
$3,115,651 $2,618,485
===============================================================================
LIABILITIES AND EQUITY
Deposit liabilities $2,129,310 $2,091,583
Securities sold under agreements to repurchase 123,301 --
Advances from Federal Home Loan Bank 616,374 289,674
Other 51,078 52,717
- -------------------------------------------------------------------------------
2,920,063 2,433,974
Common stock equity 195,588 184,511
- -------------------------------------------------------------------------------
$3,115,651 $2,618,485
===============================================================================
</TABLE>
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Investment and mortgage-backed
securities consisted of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
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>
Investment securities:
Securities held
for trading $ -- $ -- $ -- $ -- $ 45,396 $ -- $ -- $ 45,396
Stock in FHLB
of Seattle 32,523 -- -- 32,523 23,203 -- -- 23,203
- -----------------------------------------------------------------------------------------------------------------------------
32,523 -- -- 32,523 68,599 -- -- 68,599
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Private-issue 707,260 243 (28,858) 678,645 465,373 4,339 (1,440) 468,272
FHLMC 75,546 1,899 (1,331) 76,114 117,803 8,024 -- 125,827
GNMA 78,693 185 (6,285) 72,593 42,539 906 (629) 42,816
FNMA 205,788 557 (14,547) 191,798 4,441 414 -- 4,855
- -----------------------------------------------------------------------------------------------------------------------------
1,067,287 2,884 (51,021) 1,019,150 630,156 13,683 (2,069) 641,770
- -----------------------------------------------------------------------------------------------------------------------------
$1,099,810 $2,884 $(51,021) $ 1,051,673 $698,755 $13,683 $(2,069) $710,369
=============================================================================================================================
</TABLE>
52
<PAGE>
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). All such mortgage-backed securities as of December 31, 1994 are
classified as "held-to-maturity" securities.
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.
The weighted average interest rate for mortgage-backed securities at December
31, 1994 and 1993 was 6.21% and 6.65%, respectively.
Mortgage-backed securities with a carrying value of approximately $862 million
and $469 million at December 31, 1994 and 1993, 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 (FHLB) of Seattle. At
December 31, 1994, mortgage-backed securities sold under agreements to
repurchase had a carrying value of $137 million.
ASB did not sell mortgage-backed securities or other securities held for
investment in 1994, 1993 or 1992.
In 1994 and 1993, proceeds from the sale of trading securities were
approximately $59 million and $30 million, respectively, resulting in a net loss
of $2.0 million and a net gain of $0.1 million, respectively. There were no
sales of investment securities during 1992.
LOANS RECEIVABLE. Loans receivable consisted of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
- -------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Real estate loans
Conventional $1,636,282 $1,584,218
Construction and development 32,074 26,526
Troubled debt restructurings 16,151 3,397
- -------------------------------------------------------------------
1,684,507 1,614,141
Loans secured by savings deposits 15,378 15,015
Consumer loans 144,505 129,961
Commercial loans 27,981 24,494
- -------------------------------------------------------------------
1,872,371 1,783,611
Undisbursed portion of loans in process (18,312) (16,315)
Deferred fees and discounts, including
net purchase accounting discounts (21,211) (26,884)
Allowance for loan losses (8,793) (5,314)
- -------------------------------------------------------------------
$1,824,055 $1,735,098
===================================================================
</TABLE>
At December 31, 1994 and 1993, the weighted average interest rate for loans
receivable was 7.73% and 7.63%, respectively.
At December 31, 1994 and 1993, nonaccrual and renegotiated loans were $25
million and $8 million, respectively.
ASB services real estate loans ($327 million, $178 million and $311 million at
December 31, 1994, 1993 and 1992, 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 $35 million are not reflected on
the balance sheet as of December 31, 1994. Of such commitments, $29 million were
for variable-rate mortgage loans and $6 million were for fixed-rate mortgage
loans.
In January 1995, ASB entered into a pool purchase contract to sell to and
service for the FNMA certain 15-year and 30-year conventional fixed-rate, level
payment residential mortgage loans in the amount of $200 million. In addition,
the FNMA agreed to issue its Guaranteed Mortgage Pass-Through Securities backed
by these same mortgages.
53
<PAGE>
ALLOWANCE FOR LOAN LOSSES. For 1994, 1993 and 1992, net charge-offs amounted to
$0.5 million, $0.6 million and $0.2 million, respectively. For 1994, 1993 and
1992, the ratio of net charge-offs to average loans outstanding was 0.03%, 0.04%
and 0.01%, respectively.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS. At December 31, 1994 and 1993, ASB
had real estate acquired in settlement of loans of $0.8 million and $0.2
million, respectively.
DEPOSIT LIABILITIES. Deposit liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
Weighted Weighted
average average
rate amount rate Amount
- ---------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial checking -- % $ 18,444 -- % $ 17,405
Other checking 2.39 250,350 2.42 255,838
Passbook 3.49 1,112,230 3.48 1,211,330
Money market 3.51 70,860 3.11 106,362
Term certificates 5.08 677,426 4.40 500,648
- ---------------------------------------------------------------------------
3.84% $2,129,310 3.52% $2,091,583
===========================================================================
</TABLE>
At December 31, 1994 and 1993, deposit accounts of $100,000 or more totaled $407
million and $438 million, respectively.
The approximate scheduled maturities of term certificates outstanding at
December 31, 1994 were $373 million in 1995, $180 million in 1996, $33 million
in 1997, $11 million in 1998 and $21 million in 1999.
The interest expense on savings deposits by type of deposit was as follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Interest-bearing checking $ 5,997 $ 6,679 $ 9,982
Passbook 42,624 42,021 34,645
Money market 2,670 3,758 6,447
Term certificates 25,218 25,193 43,265
- ----------------------------------------------------------
$76,509 $77,651 $94,339
==========================================================
</TABLE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. At December 31, 1994,
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, 1994, the $137 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, 1994, approximately $123 million of
agreements to repurchase substantially the same securities were outstanding. At
December 31, 1994, the weighted average interest rate on securities sold under
agreements to repurchase was 6.22% and the weighted average remaining days to
maturity was 118 days. Securities sold under agreements to repurchase averaged
$21 million, $20 million and $66 million during 1994, 1993 and 1992,
respectively, and the maximum amount outstanding at any month-end during 1994,
1993 and 1992 was $123 million, $27 million and $125 million, respectively.
54
<PAGE>
ADVANCES FROM FEDERAL HOME LOAN BANK. Advances from the FHLB, secured by
mortgage-backed securities and stock in the FHLB, were summarized as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- -----------------------------------------------------------------------
Weighted Weighted
average average
rate Amount rate Amount
- -----------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in
1994 --% $ -- 6.40% $ 73,000
1995 6.39 337,822 8.33 16,822
1996 6.56 116,060 7.23 58,360
1997 5.77 94,800 5.99 73,800
1998 4.96 36,392 4.96 36,392
1999 4.98 20,300 4.98 20,300
Thereafter 4.98 11,000 4.98 11,000
- -----------------------------------------------------------------------
6.17% $616,374 6.24% $289,674
=======================================================================
</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. As of December 31, 1994, ASB was in compliance with the
minimum capital requirements under the Office of Thrift Supervision regulations.
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 for that
year were 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 1992 because of corporate-level
expenses which were allocated to the segment, but were not billed. In 1994 and
1993, 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 and administrative
services totaled $0.8 million, $0.8 million and $2.0 million for 1994, 1993 and
1992, respectively.
6. REAL ESTATE SUBSIDIARY
- -------------------------------------------------------------------------------
At December 31, 1994 and 1993, MPC and its subsidiaries' total real estate
project inventory, equity investment in real estate joint ventures and loans and
advances to unconsolidated joint ventures or joint venture partners amounted to
$51 million and $49 million, respectively.
RELATED PARTY TRANSACTIONS. Two joint ventures involve partnerships in which a
director of HEI has significant interests. Another joint venture involves a
corporate partner in which the family of an HEI officer has a significant
interest. Investments in joint ventures with related parties totaled $13 million
and $15 million at December 31, 1994 and 1993, respectively.
55
<PAGE>
COMMITMENTS AND CONTINGENCIES. At December 31, 1994, MPC or its subsidiaries
had issued (i) guaranties under which they were jointly and severally
contingently liable with their joint venture partners for $1.9 million of
outstanding loans and (ii) payment guaranties under which MPC or its
subsidiaries were severally contingently liable for $7.2 million of outstanding
loans and $7.1 million of additional undrawn loan facilities. At December 31,
1994, HEI had agreed with the lenders of construction loans and loan facilities,
of which approximately $13.3 million was outstanding and $7.9 million was
undrawn, that it will maintain ownership of 100% of the stock of MPC and that it
intends, subject to good and prudent business practices, to keep MPC financially
sound and responsible to meet its obligations.
7. OTHER INVESTMENTS
- --------------------------------------------------------------------------------
Other investments, which have no ready market, consisted of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------------------------------------------------------
(in thousands)
<S> <C> <C>
Leveraged leases (see Note 8) $54,372 $53,115
Real estate joint venture interests 15,259 17,494
Other 7,666 6,497
- ----------------------------------------------------------
$77,297 $77,106
==========================================================
</TABLE>
Realized gains and losses from the sale and writedown of other investments were
not material in 1994, 1993 or 1992.
8. 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 15% ownership interest in an 818-MW coal-fired generating
unit, which is subject to a leveraged lease agreement entered into in 1985 and
expiring in 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.
56
<PAGE>
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.
HEIIC's net investment in leveraged leases was as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------
(in thousands)
<S> <C> <C>
Rentals receivable, net of principal
and interest on nonrecourse debt $ 61,994 $ 62,225
Estimated residual value of leased assets 35,266 35,268
Less unearned income (42,888) (44,378)
- ---------------------------------------------------------------
Investment in leveraged leases 54,372 53,115
Less deferred income taxes arising from
leveraged leases (46,277) (45,418)
- ---------------------------------------------------------------
$ 8,095 $ 7,697
===============================================================
</TABLE>
9. REGULATORY ASSETS
- -------------------------------------------------------------------------------
Regulatory assets at December 31, 1994 and 1993 included the following
deferred costs:
<TABLE>
<CAPTION>
December 31 1994 1993
- -----------------------------------------------------------------
(in thousands)
<S> <C> <C>
Postretirement benefits other than pensions $36,670 $19,210
Income taxes 23,522 16,297
Unamortized debt expense on retired issuances 7,513 5,435
Integrated resource planning costs 7,189 4,661
Computer system development costs 6,090 3,152
Vacation earned, but not yet taken 5,972 5,494
Preliminary plant costs on suspended project 5,768 5,199
Other 2,533 3,095
- -----------------------------------------------------------------
$95,257 $62,543
=================================================================
</TABLE>
10. SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings at December 31, 1994 and 1993 had a weighted average
interest rate of 6.5% and 4.7%, respectively, and consisted of commercial paper
and bank loans.
At December 31, 1994 and 1993, HEI maintained bank lines of credit which
totaled $50 million and HECO maintained bank lines of credit which totaled $125
million and $108 million, respectively. The HEI and HECO lines of credit support
the issuance of commercial paper. There were no borrowings under any line of
credit during 1994 or 1993.
57
<PAGE>
11. LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
First mortgage bonds
4.55-5.75%, due in various years through 1997 $ 24,000 $ 24,000
7.63-7.88%, due in various years through 2003 22,000 22,000
8.50-9.88%, due in various years through 2016 -- 43,000
10.75%, due 2005 -- 5,000
- -------------------------------------------------------------------------------------------------------------------------------
46,000 94,000
- -------------------------------------------------------------------------------------------------------------------------------
Obligations to the State of Hawaii for the repayment of special purpose
revenue bonds issued on behalf of electric utility subsidiaries
6.88% refunding series 1987, due 2012 57,500 57,500
7.20% series 1984, due 2014 11,400 11,400
7.63% series 1988, due 2018 50,000 50,000
7.35-7.60% series 1990, due 2020 100,000 100,000
6.55% series 1992, due 2022 60,000 60,000
5.45% series 1993, due 2023 100,000 100,000
- -------------------------------------------------------------------------------------------------------------------------------
378,900 378,900
Less funds on deposit with trustees (3,391) (56,205)
Less unamortized discount (1,923) (1,986)
- -------------------------------------------------------------------------------------------------------------------------------
373,586 320,709
- -------------------------------------------------------------------------------------------------------------------------------
Promissory notes
4.85-5.83%, due in various years through 1998 70,000 70,000
6.26-7.59%, due in various years through 2003 113,000 113,000
8.20-9.90%, due in various years through 2011 72,700 100,100
Variable rate (6.45% at December 31, 1994), due 1999 35,000 --
Variable rate (9.25% at December 31, 1994), due 2001 7,954 --
Other -- 27
- -------------------------------------------------------------------------------------------------------------------------------
298,654 283,127
- -------------------------------------------------------------------------------------------------------------------------------
$718,240 $697,836
===============================================================================================================================
</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.
At December 31, 1994, the aggregate principal payments required on long-term
debt for 1995 through 1999 are $23 million in 1995, $68 million in 1996, $65
million in 1997, $52 million in 1998 and $42 million in 1999.
In January 1995, the Department of Budget and Finance of the State of Hawaii
issued tax-exempt special purpose revenue bonds in the principal amount of $47
million, with a maturity of 30 years and a fixed coupon interest rate of 6.60%,
and loaned the proceeds from the sale to HECO, HELCO and MECO. The bonds were
issued at a discount, resulting in a yield of approximately 6.75%.
58
<PAGE>
12. COMMON STOCK
- --------------------------------------------------------------------------------
Changes to common stock were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------
Common Common Common
Shares Stock Shares stock Shares stock
- -------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 27,675 $514,710 24,762 $409,257 23,867 $376,783
Issuance of common stock
Public offering -- -- 2,000 74,500 -- --
Dividend reinvestment and
stock purchase plan 869 28,087 758 28,013 703 27,102
HEI retirement savings and
other plans 111 3,605 155 5,637 192 6,822
Expenses and other -- (148) -- (2,697) -- (1,450)
- -------------------------------------------------------------------------------------------
Balance, end of year 28,655 $546,254 27,675 $514,710 24,762 $409,257
===========================================================================================
</TABLE>
At December 31, 1994, the Company had reserved a total of 4,552,000 shares of
common stock for future issuance under the Dividend Reinvestment and Stock
Purchase Plan, Hawaiian Electric Industries Retirement Savings Plan, 1987 Stock
Option and Incentive Plan and other plans.
13. INTEREST EXPENSE
- --------------------------------------------------------------------------------
Interest expense by segment (including amounts capitalized as allowance for
borrowed funds used during construction and excluding interest on nonrecourse
debt on leveraged leases) was as follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- -------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Electric utility $ 37,340 $ 35,287 $ 33,011
Other 16,688 17,905 14,130
- -------------------------------------------------------------------------------------------
54,028 53,192 47,141
Savings bank 103,906 92,701 114,748
- -------------------------------------------------------------------------------------------
$157,934 $145,893 $161,889
===========================================================================================
</TABLE>
14. INCOME TAXES
- --------------------------------------------------------------------------------
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes,"
which 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.
59
<PAGE>
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 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 payable arising from the adoption of SFAS No.
109 is recoverable through future rates and has been recorded as a regulatory
asset. In 1993, additional income tax expense of $1.8 million was recognized
under SFAS No. 109 as a result of 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 recorded as follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- -------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Continuing operations $53,019 $47,086 $ 29,529
Discontinued operations -- (7,982) (50,623)
- -------------------------------------------------------------------------
$53,019 $39,104 $(21,094)
=========================================================================
</TABLE>
The components of income taxes attributable to income from continuing
operations were as follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- -------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal
Current $40,798 $40,537 $ 32,425
Deferred 4,665 (152) (7,085)
Deferred tax credits, net (278) 50 (1,777)
- -------------------------------------------------------------------------
45,185 40,435 23,563
- -------------------------------------------------------------------------
State
Current 3,060 3,385 1,634
Deferred 1,218 (475) (332)
Deferred tax credits, net 3,556 3,741 4,664
- -------------------------------------------------------------------------
7,834 6,651 5,966
- -------------------------------------------------------------------------
$53,019 $47,086 $ 29,529
=========================================================================
</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 provision for deferred income taxes were
as follows:
<TABLE>
<CAPTION>
Year ended December 31 1992
- -------------------------------------------------------------------------
(in thousands)
<S> <C>
Excess of tax depreciation over financial reporting
straight-line depreciation $ 2,977
Excess tax deductions from leveraged leases 2,099
Interest capitalized for tax purposes (3,347)
Gain on sale of land deferred for financial
reporting purposes (4,737)
Contributions in aid of construction and customer
advances, net (6,095)
Other 1,686
- -------------------------------------------------------------------------
$(7,417)
=========================================================================
</TABLE>
60
<PAGE>
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 was as follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal statutory income tax rate 35% 35% 34%
Amount at the federal statutory income
tax rate $44,117 $38,070 $31,023
State income taxes, net of effect on
federal income taxes 5,092 4,323 3,938
Preferred stock dividends of electric
utility subsidiaries 2,507 2,281 2,281
Difference between financial reporting
and tax straight-line depreciation for
which no deferred taxes were provided -- -- 3,015
Amortization of contributions in aid of
construction -- -- (1,658)
Amortization of utility deferred income
taxes in excess of current rates -- -- (1,675)
Amortization of deferred tax credits -- -- (1,776)
Allowance for funds used during
construction -- -- (2,375)
Utilization of capital loss
carryforwards -- -- (3,317)
Other, net 1,303 2,412 73
- ------------------------------------------------------------------------------
$53,019 $47,086 $29,529
==============================================================================
</TABLE>
Deferred tax assets and deferred tax liabilities were comprised of the
following:
<TABLE>
<CAPTION>
December 31 1994 1993
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets
Property, plant and equipment $ 7,424 $ 6,133
Contributions in aid of construction
and customer advances 52,892 44,932
Other 29,947 25,435
- ------------------------------------------------------------------------------
90,263 76,500
- ------------------------------------------------------------------------------
Deferred tax liabilities
Property, plant and equipment 165,835 162,671
Leveraged leases 46,277 45,418
Regulatory asset 8,897 6,237
Other 42,184 29,324
- ------------------------------------------------------------------------------
263,193 243,650
Discontinued operations -- 1,179
- ------------------------------------------------------------------------------
263,193 244,829
- ------------------------------------------------------------------------------
Deferred income taxes $172,930 $168,329
==============================================================================
</TABLE>
There was no valuation allowance provided for deferred tax assets at December
31, 1994 or 1993.
15. CASH FLOWS
- ------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION. In 1994, 1993 and 1992, cash
paid for interest (including interest paid by the savings bank, but excluding
interest paid on nonrecourse debt on leveraged leases), net of capitalized
amounts which were not material, amounted to $154 million, $142 million and $159
million, respectively. In 1994, 1993 and 1992, cash paid for interest on
nonrecourse debt on leveraged leases amounted to $9 million, $10 million and $11
million, respectively.
In 1994, 1993 and 1992, cash paid for income taxes amounted to $47 million, $6
million and $29 million, respectively. In 1993, tax benefits were realized from
the discontinued operations of the HIG Group.
61
<PAGE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES. In 1994, ASB received $203
million in mortgage-backed securities in exchange for loans.
Common stock dividends reinvested by shareholders in HEI common stock in
noncash transactions amounted to $18 million, $17 million and $15 million in
1994, 1993 and 1992, 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 estimated fair value of noncash contributions in aid of construction
received in 1994 amounted to $6 million.
The allowance for equity funds used during construction, which was capitalized
as part of the cost of electric utility plant, amounted to $9 million, $7
million and $7 million in 1994, 1993 and 1992, respectively.
In 1994, a consolidated real estate joint venture, in which the Company has a
controlling interest, closed on an option to purchase approximately 147 acres of
land. Of the total land purchase price of $9.9 million, the joint venture issued
mortgage notes payable of $8.0 million in noncash consideration.
16. 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>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 463,458 359,000 227,500
Granted 97,000 123,000 209,000
Exercised -- (18,542) (75,625)
Canceled (3,125) -- (1,875)
- ---------------------------------------------------------------------------
Options outstanding, end of year 557,333 463,458 359,000
===========================================================================
Options exercisable, December 31 330,958 235,458 189,625
===========================================================================
Price range for options
Exercised
High $-- $36 $36
Low -- 30 27
Outstanding, December 31
High 41 41 41
Low 30 30 30
===========================================================================
</TABLE>
62
<PAGE>
17. 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.
The funded status of the pension plans and the amounts recognized in the
consolidated financial statements were as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accumulated benefit obligation
Vested $308,888 $293,627
Nonvested 32,948 43,543
- ---------------------------------------------------------------------------
$341,836 $337,170
===========================================================================
Projected benefit obligation $420,512 $432,435
Plan assets at fair value, primarily equity
securities and fixed income investments 400,956 410,369
- ---------------------------------------------------------------------------
Projected benefit obligation in excess of plan
assets 19,556 22,066
Unrecognized prior service cost (3,600) (2,401)
Unrecognized net gain 6,844 4,958
Unrecognized net transition obligation (19,878) (22,259)
Adjustment required to recognize minimum liability 1,251 1,985
- ---------------------------------------------------------------------------
Accrued pension liability $ 4,173 $ 4,349
===========================================================================
</TABLE>
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 1994 1993 1992
- ---------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost--benefits earned during
the period $ 16,834 $ 11,423 $ 10,358
Interest cost on projected benefit
obligation 30,067 27,350 27,401
Actual loss (return) on plan assets 11,520 (56,710) (14,050)
Amortization and deferral, net (39,001) 35,607 (5,721)
- ---------------------------------------------------------------------------
$ 19,420 $ 17,670 $ 17,988
===========================================================================
</TABLE>
Of these net periodic pension costs, $14 million, $12 million and $12 million
were expensed in 1994, 1993 and 1992, respectively, and the remaining amounts
were charged primarily to electric utility plant.
For all pension plans, at December 31, 1994 and 1993, the discount rate
assumed in determining the actuarial present value of the projected benefit
obligation was 8% and 7%, respectively. For 1994, 1993 and 1992, the expected
long-term rate of return on assets was 8% and the assumed rate of increase in
future compensation levels was 5%.
For most of the plans, the transition obligation (the projected benefit
obligation in excess of plan assets at January 1, 1987) is being amortized
ratably 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.
Health benefits are provided with contributions by retirees toward costs based
on their years of service and retirement date. Generally, employees are eligible
for these benefits if, upon retirement, they participate in one of the Company's
defined benefit pension plans. The Company began funding some of these benefits
near yearend 1994. 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). Payments for postretirement benefits other than pensions
amounted to $3 million in 1992.
63
<PAGE>
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 amortized ratably over 20 years beginning in 1993.
In February 1992, the PUC opened a generic docket to determine whether SFAS
No. 106 should be adopted for rate-making purposes. In November 1994, the PUC
issued a decision and order authorizing recovery of the full cost
ofpostretirement benefits other than pensions effective January 1, 1995. HECO,
HELCO, MECO and YB are required to establish trust funds and to deposit into
these funds the recovered SFAS No. 106 costs. The regulatory asset established
from January 1, 1993 through December 31, 1994 for postretirement benefits other
than pensions is being amortized ratably over 18 years beginning in 1995 for
rate-making and financial reporting purposes.
The funded status of the postretirement benefit plans and the amounts
recognized in the consolidated financial statements were as follows:
<TABLE>
<CAPTION>
December 31, 1994 1993
- -----------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retirees $ 61,932 $ 61,498
Fully eligible active plan participants 36,287 33,086
Other active plan participants 49,427 53,760
- -----------------------------------------------------------------
147,646 148,344
Plan assets at fair value, primarily
fixed income investments 2,833 --
- -----------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 144,813 148,344
Unrecognized net gain (loss) 8,423 (880)
Unrecognized net transition obligation (118,701) (127,940)
- -----------------------------------------------------------------
Accrued postretirement benefits
liability $ 34,535 $ 19,524
=================================================================
</TABLE>
At December 31, 1994 and 1993, the assumed discount rate used to measure the
accumulated postretirement benefit obligation was 8% and 7%, respectively. For
1994 and 1993, the assumed rate of increase in future compensation levels was
5%.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993
- -----------------------------------------------------
(in thousands)
<S> <C> <C>
Service cost $ 5,269 $ 5,712
Interest cost 10,066 11,216
Amortization and deferral, net 6,734 6,733
- -----------------------------------------------------
$22,069 $23,661
=====================================================
</TABLE>
Of the net periodic postretirement benefit cost, $3 million was expensed in each
of 1994 and 1993, and the remaining amount was charged primarily to regulatory
assets and also to electric utility plant and other accounts.
At December 31, 1994, the assumed health care trend rates for 1995 and future
years were as follows: medical, 7.5%; dental, 6%; and vision, 5%.
A 1% increase in the trend rate for health care costs would have increased the
accumulated postretirement benefit obligation at December 31, 1994 by
approximately $21 million and the service and interest costs for 1994 by
approximately $3 million.
64
<PAGE>
18. REGULATORY RESTRICTIONS ON NET ASSETS
- --------------------------------------------------------------------------------
At December 31, 1994, net assets (assets less liabilities) of approximately $510
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.
19. 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. ASB's policy is to require mortgage insurance
on all real estate loans with a loan to appraisal ratio in excess of 80%.
At December 31, 1994, 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 61% of the portfolio was collateralized by real estate in
California. At December 31, 1994, substantially all private-issue mortgage-
backed securities were rated investment grade by various securities rating
agencies.
20. FAIR VALUE OF 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, "Disclosures about Fair Value of
Financial Instruments," 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 instruments.
65
<PAGE>
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 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.
The estimated fair values of certain of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and equivalents $ 87,623 $ 87,623 $ 116,260 $ 116,260
Loans receivable, net 1,824,055 1,756,650 1,735,098 1,801,044
Marketable securities 1,099,810 1,051,673 698,755 710,369
Other investments for which it is not
practicable to estimate fair value/1/ 7,666 na 6,497 na
FINANCIAL LIABILITIES
Deposit liabilities 2,129,310 2,111,481 2,091,583 2,095,850
Short-term borrowings 136,755 136,755 40,416 40,416
Securities sold under agreements to repurchase 123,301 121,064 -- --
Advances from Federal Home Loan Bank 616,374 605,271 289,674 301,537
Long-term debt, net 718,240 682,956 697,836 722,347
PREFERRED STOCK OF ELECTRIC UTILITY SUBSIDIARIES
SUBJECT TO MANDATORY REDEMPTION 44,844 46,478 46,730 49,583
OFF-BALANCE SHEET
Commitments to extend credit/2/
Financial guaranties written/3/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ At December 31, 1994 and 1993, 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 $5.2 million and $5.5
million at December 31, 1994 and 1993, respectively. At December 31, 1993,
the total assets reported by this company were $61 million and the common
stockholders' equity was $56 million. For 1993, revenues were $1.0 million,
net realized and unrealized gain on investments was $8.0 million and net
income was $3.7 million.
/2/ At December 31, 1994 and 1993, 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, 1994 and 1993, MPC or its subsidiaries had issued guaranties
of loans with outstanding balances of $9.1 million and $6.7 million,
respectively. All such loans are collateralized by real property. 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.
na 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 cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are provided for certain 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. 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.
66
<PAGE>
21. QUARTERLY INFORMATION (UNAUDITED)
- -------------------------------------------------------------------------------
Selected quarterly information was as follows:
<TABLE>
<CAPTION>
Quarter ended YEAR ENDED
- --------------------------------------------------------------------------------------------------------------
1994 March 31 June 30 Sept. 30 Dec. 31 DEC. 31
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $265,042 $284,556 $319,156 $319,769 $1,188,523
Operating income 33,404 42,955 51,550 46,224 174,133
Net income 11,788 17,632 22,691 20,919 73,030
Earnings per common share /1/ 0.42 0.63 0.80 0.73 2.60
Dividends per common share 0.58 0.58 0.58 0.59 2.33
Market price per common share /2/
High 36.50 34.63 33.88 32.88 36.50
Low 32.00 30.25 30.00 29.88 29.88
- -----------------------------------------------------------------------------------------------------------------------------------
1993
- -----------------------------------------------------------------------------------------------------------------------------------
(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 37.13 34.25 31.00
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
67
<PAGE>
<TABLE>
<S> <C> <C> <C>
DIRECTORS
Committees of the Board of Robert F. Clarke, 52 (1) Victor Hao Li, S.J.D., 53 (2) Diane J. Plotts, 59 (1,2)
Directors President and Co-chairman General Partner
Chief Executive Officer Asia Pacific Consulting Group Mideast and China Trading
Hawaiian Electric Industries, Inc. (international business Company (real estate
(1) EXECUTIVE: 1989 consultant) development) 1987
Richard Henderson, Chairman 1988
(2) AUDIT: Edwin L. Carter, 69 (1, 3) Oswald K. Stender, 63 (3)
Diane J. Plotts, Chairman Retired President and Bill D. Mills, 43 (3) Trustee
(3) COMPENSATION: Chief Executive Officer Chairman of the Board and Kamehameha Schools/Bishop
Edwin L. Carter, Chairman Bishop Trust Company, Ltd. Chief Executive Officer Estate
(4) NOMINATING: (financial services) Bill Mills Development and (charitable trust)
Jeffrey N. Watanabe, Chairman 1985 Investment Company, Inc. 1993
(real estate development)
John D. Field, 69 (2) 1988 Kelvin H. Taketa, 40 (2)
Retired Vice President- Vice President and
Regulatory Affairs A. Maurice Myers, 54 (4) Director-Asia Pacific Region
GTE Service Corporation President and The Nature Conservancy
(telecommunications services) Chief Operating Officer (international conservation
1986 America West Airlines, Inc. nonprofit)
(commercial air 1993
Richard Henderson, 66 (1, 3) transportation services)
President 1991 Jeffrey N. Watanabe, 52 (1,
HSC, Inc. 3, 4)
(real estate investment and Ruth M. Ono, Ph.D., 59 (2) Partner
development) Vice President Watanabe, Ing & Kawashima
1981 The Queen's Health Systems (private law firm)
(hospital and health care 1987
Ben F. Kaito, 68 (1, 2, 4) services)
Of Counsel 1987 Harwood D. Williamson, 63
Kaito & Ishida President and Chief
(private law firm) Executive Officer
1981 Hawaiian Electric Company,
Inc.
1985
Subsidiary Outside Directors Gladys C. Baisa, 54 Tom C. Kiely, 44 Denzil W. Rose, 69
Executive Director The Kiely Co., Inc. Retired President and
Maui Economic Opportunity, Inc. (marketing consultants) General Manager
(nonprofit human services) American Savings Bank, F.S.B. Hawaii Motors, Inc.
Maui Electric Company, Ltd. 1994 (automobile dealership)
1995 Hawaii Electric Light
Mildred D. Kosaki, 70 Company, Inc.
Jorge G. Camara, M.D., 44 Specialist in education 1960
Camara Eye Clinic research
(ophthalmology) Hawaiian Electric Company, Anne M. Takabuki, 38
American Savings Bank, F.S.B. Inc. Vice President
1990 1973 and General Counsel
Wailea Resort Company, Ltd.
Joseph W. Hartley, Jr., 61 Sanford J. Langa, 65 (resort and commercial
President and Partner development)
Chief Executive Officer Langa, Breen & Wiltsie Maui Electric Company, Ltd.
Maui Land & Pineapple Company, (private law firm) 1993
Inc. Maui Electric Company, Ltd.
(resort and commercial 1961 Donald K. Yamada, 63
development, agriculture) President
Maui Electric Company, Ltd. B. Martin Luna, 56 Yamada Diversified
1993 (resigned effective March 1, Partner Corporation
1995) Carlsmith, Ball, Wichman, (construction and trucking
Murray, Case & Ichiki services)
Louise K. Y. Ing, 43 (private law firm) Hawaii Electric Light
Partner Maui Electric Company, Ltd. Company, Inc.
Alston Hunt Floyd & Ing 1978 1985
(private law firm)
American Savings Bank, F.S.B. Paul C. Yuen, Ph.D., 66
1994 Dean, College of Engineering
University of Hawaii-Manoa
(higher education)
Hawaiian Electric Company,
Inc.
1993
</TABLE>
Year denotes year of appointment or
election to the board of directors
68
<PAGE>
HECO Exhibit 13(b)
------------------
SELECTED FINANCIAL DATA
- -----------------------
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
INCOME STATEMENT DATA
(Years ended December 31,)
Operating revenues............... $ 907,308 $ 874,010 $ 776,929 $ 739,636 $ 704,853
Operating expenses............... 819,996 795,925 699,890 663,709 631,300
---------- ---------- ---------- ---------- ----------
Operating income................. 87,312 78,085 77,039 75,927 73,553
Other income..................... 14,793 11,556 9,740 4,511 6,804
---------- ---------- ---------- ---------- ----------
Income before
interest and
other charges................... 102,105 89,641 86,779 80,438 80,357
Interest and other
charges......................... 36,144 33,515 33,101 34,228 31,873
---------- ---------- ---------- ---------- ----------
Income before
preferred stock
dividends of HECO............... 65,961 56,126 53,678 46,210 48,484
Preferred stock
dividends of HECO............... 4,316 4,421 4,525 4,600 4,674
---------- ---------- ---------- ---------- ----------
Net income for common
stock........................... $ 61,645 $ 51,705 $ 49,153 $ 41,610 $ 43,810
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
(At December 31,)
Utility plant.................... $2,293,521 $2,102,534 $1,877,404 $1,701,218 $1,564,075
Accumulated
depreciation.................... (702,945) (641,230) (583,031) (536,552) (489,957)
---------- ---------- ---------- ---------- ----------
Net utility plant................ $1,590,576 $1,461,304 $1,294,373 $1,164,666 $1,074,118
========== ========== ========== ========== ==========
Total assets..................... $1,889,120 $1,703,276 $1,501,330 $1,318,023 $1,250,142
========== ========== ========== ========== ==========
Capitalization:/1/
Long-term debt................... $ 489,586 $ 484,736 $ 374,835 $ 365,098 $ 356,741
Preferred stock
subject to mandatory
redemption...................... 44,844 46,730 48,920 50,665 52,210
Preferred stock not
subject to mandatory
redemption...................... 48,293 48,293 36,293 36,293 36,293
Common stock equity.............. 633,901 570,663 499,894 440,831 365,812
---------- ---------- ---------- ---------- ----------
Total capitalization . $1,216,624 $1,150,422 $ 959,942 $ 892,887 $ 811,056
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE RATIOS (%)/2/
(At December 31,)
Debt............................. 45.5 44.1 45.9 43.1 48.4
Preferred stock.................. 7.0 8.0 7.9 9.4 10.1
Common stock equity.............. 47.5 47.9 46.2 47.5 41.5
=======================================================================================================
</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>
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 1994 was $61.6 million compared to $51.7
million for 1993 and $49.2 million for 1992. The 1994 net income represents a
10.2% return on the average amount of common stock equity invested in HECO and
its subsidiaries (collectively, the "Company"), compared to returns of 9.7% in
1993 and 10.5% in 1992.
SALES
- -----
Consolidated sales of electricity were 8,593 million kilowatthours (KWH) for
1994, 8,325 million KWH for 1993, and 8,332 million KWH for 1992. The 3.2%
increase in KWH sales in 1994 reflects the gradual recovery of Hawaii's economy
and the effects of warmer weather. Cool weather, the downturn in Hawaii's
economy, and conservation efforts resulted in a 0.1% decline in KWH sales in
1993 compared to 1992.
OPERATING REVENUES
- ------------------
Operating revenues were $907.3 million in 1994, compared to $874.0 million in
1993 and $776.9 million in 1992. The 1994 increase in operating revenues of
$33.3 million, or 3.8% over 1993 revenues, was due primarily to interim rate
increases granted by the PUC to HECO and HELCO and higher KWH sales of
electricity. The revenue increase was tempered by lower fuel oil prices, which
cost savings were 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 costs, and the relative amounts of company-
generated power and purchased power.
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 the
effects of higher fuel oil prices, which were passed through to customers.
OPERATING EXPENSES
- ------------------
Total operating expenses were $820.0 million in 1994 compared to $795.9
million in 1993 and $699.9 million in 1992. The increase in 1994 was due to an
increase in purchased power, other operation, maintenance, depreciation, income
taxes, and taxes other than income taxes expense, partially offset by lower fuel
oil expense. 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 expense, 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 the regulatory asset for vacation earned, but not yet taken,
resulted in a one-time reduction in 1993 operating expenses of $4.2 million. For
rate-making purposes, the PUC permits recovery of vacation pay expense on a pay-
as-you-go basis.
Fuel oil expense was $186.7 million in 1994 compared to $213.3 million in
1993 and $225.6 million in 1992. The decrease in fuel oil expense in 1994 was
due primarily to lower fuel oil prices and fewer KWH generated. 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 Barbers Point, Inc., offset somewhat by
higher fuel oil prices. In 1994, the Company paid an average of $18.92 per
barrel of fuel oil, compared to $21.09 in 1993 and $19.69 in 1992.
3
<PAGE>
Purchased power expense was $271.6 million in 1994 compared to $258.7 million
in 1993 and $172.8 million in 1992. The increase in purchased power expense in
both 1994 and 1993 was due primarily to capacity and nonfuel purchased power
costs paid to independent power producers, and an increase in the number of KWH
purchased, mostly by HECO. Purchased KWH provided approximately 37.5% of the
total energy net generated and purchased in 1994 compared to 34.9% in 1993 and
26.2% in 1992.
Other operation expenses totaled $121.7 million in 1994, an increase of
$15.8 million over the 1993 amount. The increase was due primarily to higher
production, transmission and distribution, and administrative and general
expenses, including higher employee benefit costs and the absence in 1994 of the
one-time reduction to 1993 expenses due to the establishment of the regulatory
asset for vacation earned but not yet taken by employees. HEI charges for
general management, administrative and support services totaled $2.4 million in
1994, $2.3 million in 1993 and $5.6 million in 1992. In 1993, other operation
expenses 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, partially offset by lower management service fees from HEI, and
the one-time effect of the establishment of the regulatory asset for vacation
earned by employees, but not yet taken.
Maintenance expenses in 1994 of $46.4 million increased by $2.1 million from
1993 primarily due to the absence in 1994 of the one-time reduction to 1993
expenses due to the establishment of the regulatory asset for vacation earned
but not yet taken by employees, and increased maintenance on the transmission
and distribution systems, partially offset by lower production maintenance
expenses at HECO. In 1993, maintenance expenses totaled $44.3 million, a 0.8%
decrease from 1992, primarily due to the one-time effect of the establishment of
the regulatory asset for vacation earned by employees, but not yet taken,
partially offset by increased maintenance on the transmission and distribution
systems.
Depreciation expense was up 14.0% in 1994 to $63.8 million and up 3.9% in
1993 to $56.0 million. In both years, the increase reflects depreciation of the
Company's additions to plant in service in the previous year. Major additions
to plant in service in 1993 included HECO's Waiau-Makalapa 138-kilovolt line and
MECO's 18-megawatt heat recovery unit (Maalaea 15) and 20-megawatt combustion
turbine unit (Maalaea 16) at Maalaea. Major additions to plant in service in
1992 included transmission and distribution substation projects by HECO, the
addition of HELCO's 20-megawatt combustion turbine unit at Puna (CT-3) and the
addition of MECO's 20-megawatt combustion turbine unit (Maalaea 14).
Taxes, other than income taxes, increased by 6.4% in 1994 to $85.9 million,
and by 13.0% in 1993 to $80.7 million. These taxes consist primarily of taxes
based on revenues, and the increases reflect the corresponding increases in each
year's operating revenues. In 1994, the increase also reflects an increase in
the PUC fee rate from 0.25% to 0.5%, as mandated by the Hawaii State
Legislature.
The effective income tax rate was higher in 1994 and 1993 than in 1992
primarily due to the 1% increase in the Federal income tax rate commencing in
1993 and the use of gross-up accounting for income taxes related to the
Allowance for Funds Used During Construction (AFUDC) under Statement of
Financial Accounting Standards (SFAS) No. 109, effective January 1, 1993. The
increase in income taxes due to the gross-up accounting for AFUDC was offset,
however, by a corresponding increase in other income (see below).
OTHER INCOME
- ------------
Other income of $14.8 million for 1994 was $3.2 million higher than for 1993.
The increase was due primarily to higher Allowance for Equity Funds Used During
Construction (AFUDC-Equity), reflecting a higher average level of construction
in progress during the year. For 1993, income of $11.6 million was $1.8 million
4
<PAGE>
higher than for 1992. The increase was primarily because of the "gross-up" of
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.
INTEREST AND OTHER CHARGES
- --------------------------
Interest and other charges for 1994 totaled $36.1 million, compared to $33.5
million for 1993 and $33.1 million for 1992. Interest expense on long-term debt
increased by $4.3 million in 1994 and decreased by $0.3 million in 1993. The
increase in 1994 was due to interest on drawdowns of tax-exempt special purpose
revenue bond proceeds during 1994, and the full year's interest on the drawdowns
of revenue bond proceeds and the sale of medium-term notes in 1993. The 1994
increase in interest expense was partially offset by lower interest expense on
first mortgage bonds resulting from the early redemptions in March 1994 of
HECO's 9.125% Series X mortgage bonds of $20 million, HELCO's 8.5% to 10.75%
Series I, L, M and N mortgage bonds totaling $12.5 million and MECO's 8.75% to
10.75% Series I, J, K, L and M mortgage bonds totaling $15.5 million. The 1993
decrease in interest expense on long-term debt 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; 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 the early redemption of HECO's 9% Series Q mortgage bonds of
$23 million in 1992, partially 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.
Other interest charges of $4.8 million for 1994 were $2.7 million lower than
for 1993 due to lower interest on short-term borrowings as a result of lower
borrowing levels during the year, partially offset by higher interest rates.
COMPETITION
- -----------
The electric utility industry has become increasingly competitive due to
regulatory and technological developments. Competition is affected by factors
including price, reliability of service, alternate energy sources, new
technologies and governmental regulations. Competition in Hawaii is also
affected by the scarcity of generation sites and lack of interconnections.
The Energy Policy Act of 1992 encourages competition by allowing both
utilities and nonutilities to form generation subsidiaries without becoming
subject to regulation under the Public Utility Holding Company Act of 1935. To
date, HECO and its subsidiaries have not faced this type of competition.
However, management cannot predict the future impact, if any, of the Energy
Policy Act of 1992 on the Company.
On the demand-side, a new kind of competitor--the energy service company--is
seeking customers in government and private business and promising to help them
reduce utility bills. On Oahu, one of these companies worked with a large
military housing project, installing energy-efficient equipment that decreased
the facility's electricity consumption by one-third. In August 1994, HEI formed
a new nonutility energy service company, Pacific Energy Conservation Services,
Inc. (PECS), to promote energy conservation in Hawaii and the Pacific Basin.
PECS is considering potential projects to install, finance, operate and maintain
energy conservation equipment, while sharing a percentage of the saved energy
costs with its clients.
In response to increased competition, HECO and its subsidiaries are looking
at strategies to enhance their competitive position, including increasing
efforts to provide reliable electric service at a reasonable cost, offering
customers new choices regarding the services provided and promoting conservation
and new technologies like electric vehicles.
5
<PAGE>
REGULATION OF ELECTRIC UTILITY RATES
- ------------------------------------
The PUC has broad discretion in its regulation of the rates charged by the
Company and in other matters. 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 prolonged delay in rendering a decision in a rate or
other proceeding, could have a material adverse effect on the Company's
financial condition and results of operations. Upon a showing of probable
entitlement, the PUC is required to issue an interim decision in a rate case
within 10 months from the date of filing a completed application if the
evidentiary hearing is completed (subject to extension for 30 days if the
evidentiary hearing is not completed). There is no time limit for rendering a
final decision. Interim rate increases are subject to refund with interest,
pending the final outcome of the case.
RECENT RATE REQUESTS AND RESULTS
- --------------------------------
HECO. 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 (which was later increased to 12.75%). The increase requested, as
subsequently revised, represented an increase of 8.6% over rates in effect at
the time of the revised filing, or $53.8 million in additional annual revenues.
The revised requested increase was needed to cover rising operating costs
including the costs related to the change in method of accounting for
postretirement benefits other than pensions (PBOP) (which increases were
recently allowed by the final decision in a separate generic docket discussed
below), and to cover the cost of new capital projects to maintain and improve
service reliability. In December 1994, HECO received a final decision and order
from the PUC authorizing a $40.5 million, or 6.5%, increase in annual revenues,
effective January 1, 1995 and based on a 12.15% return on average common equity.
The order granted HECO an increase of approximately $3.5 million in annual
revenues, in addition to reaffirming interim increases that took effect in
April, May and November 1994. The final decision and order, together with the
PBOP decision and order, resulted in $50.5 million of annual rate relief.
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
(which was later increased to 13.25%). The requested increase, as subsequently
revised, represented an increase of approximately 5%, or $38.5 million in
additional annual revenues over rates in effect at the time of the revised
filing (which rates included interim rate relief granted in the 1994 test year
application). The revised requested increase is needed to cover rising
operating costs (including the costs related to the change in the method of
accounting for PBOP discussed below), and the cost of new capital projects to
maintain and improve service reliability. The PUC completed hearings in
November 1994 on HECO's rate increase request based on a 1995 test year. In
December 1994, HECO received an interim decision and order authorizing an
increase of $13.2 million, or 1.9%, in annual revenues. The interim order was
based on a 12.6% return on average common equity. Approximately $10.6 million
of the interim increase took effect January 1, 1995, which was the beginning of
the test year, and the balance will be effective in steps in May and November
1995.
HELCO. In November 1993, HELCO applied to the PUC for permission to increase
------
electric rates to provide $15.8 million in annual revenues, or a 13.4% increase
over rates then in effect. The requested increase is based on a 1994 test year
and a 12.4% return on average common equity (which was later increased to
13.1%). The increase is needed to cover plant and equipment related costs,
operating costs necessary to maintain and improve service and provide reliable
power, and PBOP costs which are discussed below. In August 1994, HELCO received
an interim decision and order from the PUC on its rate increase application
authorizing an increase of $13.6 million in annual revenues, or approximately
11.7%, and based on a 12.4% return on average common equity. $13.2 million of
the increase took effect in August 1994 and $0.4 million in November 1994. In
February 1995, HELCO received a final decision and order from the PUC
authorizing a $13.7 million, or 11.8%,
6
<PAGE>
increase in annual revenues, based on a 12.6% return on average common equity.
The order granted HELCO an increase of approximately $0.1 million in annual
revenues, in addition to reaffirming interim increases that took effect in
August and November 1994. The final decision and order, together with the PBOP
decision and order, resulted in $15.5 million of annual rate relief.
In June 1994, HELCO filed a notice of intent to file an application for a
general rate increase using a 1995 test year. The increase is expected to be
required primarily to cover investments in new generating units. The
application has not yet been filed and may be filed based on a 1996 test year.
MECO. In November 1991, MECO filed a request to increase rates, based on a
-----
1992/1993 test year. In January 1993, MECO revised its requested increase to
$11.4 million annually, or 10% over the rates then in effect, based on a 13.0%
return on average common equity. Most of the proposed increase reflected the
costs of adding a 58-megawatt combined-cycle generating unit on Maui in three
phases and PBOP costs which are discussed below. In 1993, MECO received four
interim decisions which authorized step increases totaling $8.2 million in
annual revenues. In August 1994, MECO received the final decision and order
from the PUC granting an increase of $8.1 million in annual revenues, or
approximately 7.0%, based on a 12.75% return on average common equity. That
action, together with the PBOP decision and order, resulted in $10.0 million of
annual rate relief.
In December 1994, MECO filed a notice of intent to request rate relief, based
on a 1996 test year. In February 1995, the PUC granted MECO's motion requesting
a waiver of the PUC's rule which otherwise provides for a 1996 test year only
when an application is filed in the last six months of 1995. MECO plans to file
its rate increase application in early 1995.
Management cannot predict with certainty when decisions in pending or future
rate cases will be rendered or the amount of any interim or final rate increase
that will be granted.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. In November 1994, the PUC
--------------------------------------------
issued a decision and order in a generic docket opened in February 1992 with
respect to the accounting and rate-making treatment of the costs of
postretirement benefits other than pensions. The decision and order authorized
full recovery of PBOP costs determined pursuant to SFAS No. 106, effective
January 1, 1995. The decision and order also allowed the recovery of the
regulatory assets related to PBOP costs, over the next 18 years. These
regulatory assets were recognized by the Company for PBOP costs accrued from
January 1, 1993 through December 31, 1994 and amounted to $34.0 million at
December 31, 1994. This order will result in additional annual revenues of
approximately $10.0 million, $1.8 million and $1.9 million for HECO, HELCO and
MECO, respectively, to cover the increase in PBOP expense. See Note 10 in the
"Notes to Consolidated Financial Statements," for further information.
EFFECTS OF INFLATION
- --------------------
Inflation, as measured by the U.S. Consumer Price Index, averaged 2.6% in
1994 and 3.0% in 1993 and 1992. 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 and 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, 1993 and 1994, the Company received rate relief, in part to cover
increases due to inflation in operating expenses and construction costs.
ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION
- ---------------------------------------------------------
The Company follows the accounting prescribed by SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation." SFAS No. 71 provides guidance in
preparing financial statements for most public utilities. Under SFAS No. 71, if
7
<PAGE>
regulation provides assurance that incurred costs will be recovered in the
future, those costs must be capitalized rather than expensed. If the continued
application of SFAS No. 71 would no longer be appropriate--due to increased
competition or regulatory, legislative or judicial actions or otherwise--the
financial effects of the resulting accounting change, including a write-off of
all regulatory assets, could be material.
ENVIRONMENTAL MATTERS
- ---------------------
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 the recovery through rates of most, if not all, of any costs
incurred by the Company 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 by the PUC for
rate-making purposes. Based on information available to the Company, management
is not aware of any contingent liabilities relating to environmental matters
that would have a material adverse effect on the Company.
ELECTRIC AND MAGNETIC FIELDS
- ----------------------------
Research is ongoing about the potential adverse health effects from exposure
to electric and magnetic fields (EMF). However, the scientific community has
not yet reached a consensus on the nature of any health effects. HECO and its
subsidiaries are participating in utility industry funded studies on the subject
and are considering possible steps to reduce EMF, where feasible, in the design
of new transmission and distribution facilities. The Company cannot predict the
impact, if any, the EMF issue may have on the Company in the future.
ACCOUNTING CHANGES
- ------------------
See Note 1 in the "Notes to Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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.
Capital expenditures requiring the use of cash, as shown on the "Consolidated
Statements of Cash Flows," totaled approximately $186.5 million in 1994, of
which $114.8 million was attributable to HECO, $45.8 million to HELCO and
$25.9 million to MECO. Approximately 84% of the total 1994 capital expenditures
was for transmission and distribution and other projects, including HECO's
Waiau-CIP 138-kilovolt line, and 16% was for generation projects, including
HELCO's Keahole combustion turbines and MECO's Molokai generation expansion.
Cash contributions in aid of construction received in 1994 totaled $15.1
million.
The Company's investment in plant and equipment for 1994 was financed with
cash from operating activities and cash from financing activities. Cash
provided by operating activities totaled $102.3 million in 1994. Cash provided
by financing activities totaled a net $77.8 million and included a net $4.8
million in drawdowns
8
<PAGE>
of proceeds from the sale of tax-exempt special purpose revenue bonds, less
long-term debt repayments primarily for first mortgage bonds. The Company used
$28.5 million for common stock dividends. Short-term borrowings provided $76.9
million in cash and HEI provided $30.0 million through its purchase of HECO
common stock.
The Company's consolidated financing requirements for the years 1995 through
1999, including net capital expenditures, debt retirements and sinking fund
requirements, are estimated to total $850 million. The Company's consolidated
internal sources, after the payment of common stock and preferred stock
dividends, are currently expected to provide approximately 60% of the total $850
million requirements, with debt and equity financing providing the remaining
requirements. The Company estimates that it will require approximately $60
million in common equity, other than retained earnings, over the five-year
period 1995 through 1999. The PUC must approve issuances of long-term debt and
equity for HECO, HELCO and MECO.
Capital expenditures include the costs of projects which are required to
meet expected load growth, to improve reliability and to replace and upgrade
existing equipment. Net capital expenditures, for the five-year period 1995
through 1999, are currently estimated to total $750 million. 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, 1994, purchase commitments other than fuel and power
purchase contracts were approximately $83 million, including amounts for
construction projects. (Also see Note 11 in the "Notes to Consolidated
Financial Statements" for a discussion of fuel and power purchase commitments.)
Capital expenditures for 1995, net of cash contributions in aid of
construction and excluding AFUDC, are estimated to be $170 million, and gross
capital expenditures are estimated to be $205 million, of which approximately
65% is for transmission and distribution projects. An estimated $40 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. Among these considerations are changes in economic condi-
tions, changes in forecasts of kilowatthour sales and peak load, the
availability of alternate energy and purchased power, the availability of
generating sites and transmission and distribution line 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, the Department of Budget and Finance of the State of Hawaii (DBF)
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, resulting in a yield of approximately
5.6%. As of December 31, 1994 approximately $3.4 million of the proceeds from
the sale of special purpose revenue bonds were available to be used. In January
1995, the DBF issued tax-exempt special purpose revenue bonds, in the principal
amount of $47 million with a maturity of 30 years and a fixed coupon interest
rate of 6.6% on behalf of HECO, HELCO and MECO. The bonds were issued at a
discount, resulting in a yield of approximately 6.75%. As of February 1, 1995,
an additional $170 million of revenue bonds had been authorized by the Hawaii
legislature for issuance prior to the end of 1997.
As of February 15, 1995, Standard & Poor's Corporation (S&P), Moody's
Investors Service (Moody's) and Duff & Phelps Credit Rating Co. (D&P) rated
HECO's securities as follows:
9
<PAGE>
<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-
====================================================
</TABLE>
The above ratings are not recommendations to buy, sell or hold any securities,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies.
In January 1995, S&P revised its ratings outlook on HECO to "stable" from
"negative" citing recent PUC decisions which demonstrate a continuing trend of
regulatory support for the Company's heavy construction program. The Company's
management cannot predict with certainty future rating agency actions or their
effects on the future cost of capital to the Company.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
=================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
(in thousands)
Operating revenues............................... $907,308 $874,010 $776,929
-------- -------- --------
Operating expenses:
Fuel oil......................................... 186,717 213,285 225,611
Purchased power.................................. 271,636 258,723 172,761
Other operation.................................. 121,740 105,957 105,303
Maintenance...................................... 46,427 44,281 44,653
Depreciation and amortization.................... 63,779 55,960 53,856
Taxes, other than income taxes................... 85,877 80,712 71,452
Income taxes..................................... 43,820 37,007 26,254
-------- -------- --------
819,996 795,925 699,890
-------- -------- --------
OPERATING INCOME................................. 87,312 78,085 77,039
-------- -------- --------
OTHER INCOME:
Allowance for equity funds used during
construction.................................... 9,064 6,973 6,781
Other, net....................................... 5,729 4,583 2,959
-------- -------- --------
14,793 11,556 9,740
-------- -------- --------
INCOME BEFORE INTEREST AND OTHER CHARGES......... 102,105 89,641 86,779
-------- -------- --------
INTEREST AND OTHER CHARGES:
Interest on long-term debt....................... 31,369 27,046 27,307
Amortization of debt discount, premium and
expense......................................... 1,208 774 638
Other interest charges........................... 4,763 7,467 5,066
Allowance for borrowed funds used during
construction.................................... (4,043) (3,869) (2,095)
Preferred stock dividends of subsidiaries........ 2,847 2,097 2,185
-------- -------- --------
36,144 33,515 33,101
-------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS OF HECO.. 65,961 56,126 53,678
Preferred stock dividends of HECO................ 4,316 4,421 4,525
-------- -------- --------
NET INCOME FOR COMMON STOCK...................... $ 61,645 $ 51,705 $ 49,153
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
============================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- -------------------------------------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR.. $275,401 $249,583 $223,478
Net income for common stock........... 61,645 51,705 49,153
Common stock dividends................ (28,511) (25,887) (23,048)
-------- -------- --------
RETAINED EARNINGS, END OF YEAR........ $308,535 $275,401 $249,583
======== ======== ========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
===========================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------------------------------------------------------------- ----------- -----------
(in thousands)
<S> <C> <C>
Assets
Utility plant, at cost:
Land............................................................. $ 27,108 $ 26,976
Plant and equipment.............................................. 2,101,447 1,948,445
Less accumulated depreciation.................................... (702,945) (641,230)
Plant acquisition adjustment, net................................ 719 771
Construction in progress......................................... 164,247 126,342
---------- ----------
Net utility plant............................................ 1,590,576 1,461,304
---------- ----------
Current assets:
Cash and equivalents............................................. 10,694 1,922
Customer accounts receivable, net................................ 60,406 55,614
Accrued unbilled revenues, net................................... 38,435 34,735
Other accounts receivable, net................................... 10,302 8,398
Fuel oil stock, at average cost.................................. 21,966 18,188
Materials and supplies, at average cost.......................... 20,108 20,239
Prepayments and other............................................ 2,028 2,715
---------- ----------
Total current assets......................................... 163,939 141,811
---------- ----------
Other assets:
Regulatory assets................................................ 92,524 61,078
Unamortized debt expense......................................... 9,662 10,179
Long-term receivables and other.................................. 32,419 28,904
---------- ----------
Total other assets........................................... 134,605 100,161
---------- ----------
$1,889,120 $1,703,276
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization (see Consolidated Statements of Capitalization):
Common stock equity.............................................. $ 633,901 $ 570,663
Cumulative preferred stock:
Not subject to mandatory redemption............................. 48,293 48,293
Subject to mandatory redemption................................. 42,470 45,410
Long-term debt, net.............................................. 468,653 436,776
---------- ----------
Total capitalization......................................... 1,193,317 1,101,142
---------- ----------
Current liabilities:
Long-term debt due within one year............................... 20,933 47,960
Preferred stock sinking fund requirements........................ 2,374 1,320
Short-term borrowings--nonaffiliates............................. 117,866 28,928
Short-term borrowings--affiliate................................. -- 12,000
Accounts payable................................................. 54,662 41,808
Interest and preferred dividends payable......................... 8,575 10,332
Income taxes payable............................................. 3,300 6,232
Other taxes accrued.............................................. 39,666 36,959
Other............................................................ 30,111 31,036
---------- ----------
Total current liabilities.................................... 277,487 216,575
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes............................................ 108,362 107,449
Unamortized tax credits.......................................... 44,939 43,348
Other............................................................ 86,380 69,757
---------- ----------
Total deferred credits and other liabilities................. 239,681 220,554
---------- ----------
Contributions in aid of construction............................. 178,635 165,005
---------- ----------
$1,889,120 $1,703,276
========== ==========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
12
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
=========================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
December 31 1994 1993
- ------------------------------------------------------------ -------- --------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Common stock equity:
Common stock of $6 2/3 par value. Authorized: 50,000,000
shares. Outstanding: 1994, 11,813,147 shares and 1993,
11,258,290 shares......................................... $ 78,766 $ 75,065
Premium on capital stock.................................... 246,600 220,197
Retained earnings........................................... 308,535 275,401
-------- --------
Common stock equity.................................... 633,901 570,663
-------- --------
Cumulative preferred stock:
Authorized: 5,000,000 shares of $20 par value and
7,000,000 shares of $100 par value. Outstanding:
1994, 1,823,097 shares and 1993, 1,841,957 shares.
<CAPTION>
SHARES
OUTSTANDING
PAR DECEMBER 31,
SERIES VALUE 1994
- ------------------------------------------------------------ ---------- -----------
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 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 5,000
----------- -------- --------
1,374,657 48,293 48,293
=========== -------- --------
Series subject to mandatory redemption:
O-11 1/2% $100 (HECO) 8,000 800 1,300
Q-7.68% 100 (HECO) 92,040 9,204 9,600
R-8.75% 100 (HECO) 200,000 20,000 20,000
B-10 3/4% 100 (HELCO) -- -- 100
C-9 1/4% 100 (HELCO) 6,000 600 800
D-12 3/4% 100 (HELCO) 6,500 650 700
E-12.25% 100 (HELCO) 7,500 750 800
F-8.5% 100 (HELCO) 60,000 6,000 6,000
D-8 3/4% 100 (MECO) 12,400 1,240 1,430
E-12 1/4% 100 (MECO) 2,000 200 400
F-13 3/4% 100 (MECO) 4,000 400 600
G-8.5% 100 (MECO) 50,000 5,000 5,000
----------- -------- --------
448,440 44,844 46,730
===========
Less sinking fund requirements due within one year.......... 2,374 1,320
-------- --------
42,470 45,410
-------- --------
Cumulative preferred stock............................. 90,763 93,703
-------- --------
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
13
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION, continued
====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
December 31 1994 1993
- ------------------------------------------------------ ---------- ----------
<S> <C> <C>
(in thousands)
Long-term debt:
First mortgage bonds:
HECO:
4.55-5.75%, due 1995 through 1997.................. $ 24,000 $ 24,000
7 5/8%, due 2002................................... 10,000 30,000
---------- ----------
34,000 54,000
---------- ----------
HELCO:
7 3/4-7 7/8%, due 2002 through 2003................ 5,000 17,500
---------- ----------
MECO:
7 3/4-7 7/8%, due 2002 through 2003................ 7,000 22,500
---------- ----------
Total first mortgage bonds...................... 46,000 94,000
---------- ----------
Obligations to the State of Hawaii for the repayment
of Special Purpose Revenue Bonds:
HECO, 5.45%, series 1993, due 2023................... 50,000 50,000
HELCO, 5.45%, series 1993, due 2023.................. 20,000 20,000
MECO, 5.45%, series 1993, due 2023................... 30,000 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
---------- ----------
378,900 378,900
Less funds on deposit with trustees.................. 3,391 56,205
---------- ----------
Total obligations to the State of Hawaii........ 375,509 322,695
---------- ----------
Other long-term debt - unsecured:
HECO, 5.15% note, due 1996........................... 20,000 20,000
HECO, 5.83% note, due 1998........................... 30,000 30,000
HELCO, 4.85% note, due 1995.......................... 10,000 10,000
MECO, 5.15% note, due 1996........................... 10,000 10,000
Other................................................ -- 27
---------- ----------
Total other long-term debt - unsecured.......... 70,000 70,027
---------- ----------
Total long-term debt............................ 491,509 486,722
Less unamortized discount............................. 1,923 1,986
Less amounts due within one year...................... 20,933 47,960
---------- ----------
Long-term debt, net................................ 468,653 436,776
---------- ----------
Total capitalization............................ $1,193,317 $1,101,142
========== ==========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
(in thousands)
Cash flows from operating activities:
Income before preferred stock dividends of HECO.. $ 65,961 $ 56,126 $ 53,678
Adjustments to reconcile income before
preferred stock dividends of HECO to net
cash provided by operating activities:
Depreciation and amortization of plant
and equipment.............................. 63,779 55,960 53,856
Other amortization............................ 4,521 3,338 1,137
Deferred income taxes......................... 855 (1,952) (11,074)
Tax credits, net.............................. 3,271 4,086 2,852
Allowance for equity funds used during
construction............................... (9,064) (6,973) (6,781)
Increase in accounts receivable............... (6,696) (1,924) (8,857)
Decrease (increase) in accrued unbilled
revenues................................... (3,700) 912 (8,238)
Decrease (increase) in fuel oil stock......... (3,778) 1,914 2,466
Decrease (increase) in materials and
supplies................................... 131 (2,398) (17)
Increase in regulatory assets................. (9,885) (9,606) (2,921)
Increase (decrease) in accounts payable....... 12,854 (2,273) 6,192
Increase (decrease) in interest and
preferred dividends payable................ (1,757) 1,287 925
Changes in other assets and liabilities....... (14,170) (92) (4,525)
--------- --------- ---------
Net cash provided by operating activities........ 102,322 98,405 78,693
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures............................. (186,461) (205,943) (181,542)
Contributions in aid of construction............. 15,112 20,158 17,949
Proceeds from sales of assets.................... -- -- 14,270
--------- --------- ---------
Net cash used in investing activities............ (171,349) (185,785) (149,323)
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in short-term
borrowings from nonaffiliates and
affiliate with original maturities
of three months or less......................... 76,938 (81,248) 87,606
Proceeds from other short-term borrowings........ -- 25,259 --
Repayment of other short-term borrowings......... -- (25,259) --
Proceeds from issuance of long-term debt......... 52,814 156,788 33,130
Repayment of long-term debt...................... (48,027) (46,901) (23,393)
Proceeds from issuance of preferred stock........ -- 12,000 --
Redemption of preferred stock.................... (1,886) (2,190) (1,745)
Preferred stock dividends........................ (4,316) (4,421) (4,525)
Proceeds from issuance of common stock........... 30,000 45,000 33,000
Capital stock expense............................ (59) (84) (15)
Common stock dividends........................... (28,511) (25,887) (23,048)
Other............................................ 846 5,362 82
--------- --------- ---------
Net cash provided by financing activities........ 77,799 58,419 101,092
--------- --------- ---------
Net increase (decrease) in cash and equivalents.. 8,772 (28,961) 30,462
Cash and equivalents, beginning of year.......... 1,922 30,883 421
--------- --------- ---------
Cash and equivalents, end of year................ $ 10,694 $ 1,922 $ 30,883
========= ========= =========
</TABLE>
See accompanying "Notes to Financial Statements."
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
1 . 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 appropriately 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). HECO is a wholly owned subsidiary of
Hawaiian Electric Industries, Inc. (HEI).
All significant intercompany accounts and transactions have been eliminated
in consolidation.
PUBLIC UTILITY COMMISSION 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
contribu-tions 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 power and purchased power.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS. Pension costs are charged primarily
- -------------------------------------------
to expense and plant accounts. The Company's policy is 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
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
be accrued during the years in which employees render service (see Note 10).
Previously, the costs 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 1993 primarily due to the
regulated nature of the Company's operations.
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
financial condition or results of 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 1994 and 1993 and 3.8% in 1992.
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 9.4% in 1994, 9.3% in 1993
and 10.2% in 1992 and reflected quarterly compounding.
INCOME TAXES. HECO and its subsidiaries are included in the consolidated income
- -------------
tax returns of HECO's parent, HEI. Income tax expense has been computed for
financial statement purposes as if HECO and its subsidiaries filed separate
consolidated HECO income tax returns.
The Company adopted the provisions of 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 1993 due to the regulated nature of the
Company's operations (see Note 7).
Federal and state tax credits are deferred and amortized over the estimated
useful lives of the properties which qualified for the credits.
CASH FLOWS. The Company considers cash on hand, deposits in banks, 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.
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 property for sale.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
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 to be recovered in future rates.
RECLASSIFICATIONS. Certain reclassifications have been made to prior years'
- ------------------
consolidated financial statements to conform to the 1994 presentation.
2 . CUMULATIVE PREFERRED STOCK
The following series of cumulative preferred stock are redeemable at the
option of the respective company and are subject to voluntary liquidation
provisions as follows:
<TABLE>
<CAPTION>
Voluntary
liquidation Redemption
price price
December 31, December 31,
Series 1994 1994
- ---------------------------- ------------ ------------
<S> <C> <C>
C, D, E, H, J and K (HECO).. $ 20.00 $ 21.00
I (HECO).................... 20.00 20.00
M (HECO).................... 100.00 101.00
A (HELCO)................... 101.00 101.00
A (MECO).................... 101.00 101.00
B (MECO).................... 101.00 101.00
========================================================
</TABLE>
The following series of cumulative preferred stock are subject to mandatory
sinking fund, voluntary liquidation and optional redemption provisions as
indicated below:
<TABLE>
<CAPTION>
Voluntary Optional
liquidation redemption
Annual sinking fund provision price price
------------------------------
Number of shares
---------------- Commencement December 31, December 31,
Series Minimum Maximum date 1994 1994
- ----------- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
O (HECO)... 3,250 6,500 10/15/86 $100.00 $101.70
Q (HECO)... 4,000 4,000 1/15/93 100.00 111.12
R (HECO)... 10,000 20,000 1/15/95 100.00 106.42
C (HELCO).. 1,000 2,000 10/15/85 101.00 101.00
D (HELCO).. 500 500 10/15/88 106.38 106.38
E (HELCO).. 500 500 10/15/90 106.92 106.92
F (HELCO).. 10,000 20,000 1/15/00 100.00 106.07
D (MECO)... 950 1,900 7/15/89 101.00 101.00
E (MECO)... 1,000 2,000 10/15/86 101.75 101.75
F (MECO)... 1,000 2,000 10/15/92 104.34 104.34
G (MECO)... 8,333 16,667 1/15/00 100.00 106.07
=======================================================================
</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). In the event of voluntary liquidation,
preferred shareholders would be entitled, insofar as the assets of the Company
would permit, to the liquidation prices shown above.
The total minimum sinking fund requirements on preferred stock subject to
mandatory redemption are $2,374,000 in 1995, $2,220,000 in 1996, $1,795,000 in
1997 and 1998, $1,695,000 in 1999 and a total of $34,965,000 thereafter.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
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 . COMMON STOCK
In 1994, 1993 and 1992 HECO issued 554,857, 897,111 and 681,635 shares of
common stock to its parent, HEI, for $30 million, $45 million and $33 million,
respectively.
4 . 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.
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.
At December 31, 1994, the aggregate payments of principal required on long-
term debt during the next five years are $20,933,000 in 1995, $29,933,000 in
1996, $12,933,000 in 1997, $29,933,000 in 1998 and nil in 1999.
In January 1995, the Department of Budget and Finance of the State of Hawaii
issued tax-exempt special purpose revenue bonds, in the principal amount of $47
million with a maturity of 30 years and a fixed coupon interest rate of 6.60%,
and loaned the proceeds from the sale to HECO, HELCO and MECO. The bonds were
issued at a discount, resulting in a yield of approximately 6.75%.
5 . SHORT-TERM BORROWINGS
Short-term borrowings from nonaffiliates at December 31, 1994 and 1993 had a
weighted average interest rate of 6.3% and 3.6%, respectively, and consisted
entirely of commercial paper.
The Company maintained bank lines of credit which totaled approximately
$125.0 million and $107.5 million at December 31, 1994 and 1993, respectively.
The lines of credit support the issuance of commercial paper. There were no
borrowings against any line of credit during 1994 and 1993.
6 . REGULATORY ASSETS
Regulatory assets at December 31, 1994 and 1993 included the following
deferred costs:
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------------------------------------------- ------- -------
<S> <C> <C>
(in thousands)
Postretirement benefits other than pensions.... $34,032 $17,866
Income taxes................................... 23,427 16,176
Unamortized debt expense on retired issuances.. 7,513 5,435
Integrated resource planning costs............. 7,189 4,661
Computer system development costs.............. 6,090 3,152
Vacation earned, but not yet taken............. 5,972 5,494
Preliminary plant costs on suspended project... 5,768 5,199
Other.......................................... 2,533 3,095
------- -------
$92,524 $61,078
======= =======
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
In the first quarter of 1995, the Company applied to the PUC for recovery of
the preliminary plant costs on suspended project.
7 . INCOME TAXES
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income
Taxes", which 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 1993 primarily due to the regulated nature of the Company. The
net increase in deferred income taxes payable arising from the adoption of SFAS
No. 109 is recoverable through future rates and has been recorded as a
regulatory asset. In 1993, additional income tax expense of $828,000 was
recognized under SFAS No. 109 as a result of 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>
Years ended December 31 1994 1993 1992
- ---------------------------- -------- -------- ---------
<S> <C> <C> <C>
(in thousands)
Federal:
Current.................... $37,422 $33,556 $ 33,516
Deferred................... 2,133 432 (10,130)
Deferred tax credits, net.. (1,922) (2,260) (1,740)
------- ------- --------
37,633 31,728 21,646
------- ------- --------
State:
Current.................... 2,359 1,402 1,090
Deferred................... 315 (123) (1,074)
Deferred tax credits, net.. 3,513 4,000 4,592
------- ------- --------
6,187 5,279 4,608
------- ------- --------
Total....................... $43,820 $37,007 $ 26,254
======= ======= ========
</TABLE>
Income tax benefits related to nonoperating activities, included in "Other,
Net" on the statements of income, amounted to $232,000, $109,000 and $2,411,000
for 1994, 1993 and 1992, respectively. Of the $2,411,000 income tax benefits
related to nonoperating activities in 1992, $2,019,000 was a tax benefit arising
from the utilization of a capital loss carryforward.
The sources of timing differences in the recognition of revenues and expenses
for tax and financial reporting purposes and the related deferred tax amounts
under Accounting Principles Board Opinion No. 11 included in operating expenses
in 1992 were as follows:
<TABLE>
<CAPTION>
Year ended December 31 1992
- ----------------------------------------------------------------------- ---------
<S> <C>
(in thousands)
Excess of tax depreciation over book straight-line depreciation rates.. $ 952
Contributions in aid of construction and customer advances, net........ (6,095)
Interest capitalized for tax purposes.................................. (3,347)
Excess of tax depreciation over financial reporting depreciation
due to basis differences.............................................. 1,631
Gain on sale of land deferred for financial reporting purposes......... (4,737)
Other.................................................................. 392
--------
Total.................................................................. $(11,204)
========
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
Deferred income taxes related to timing differences in the recognition of
nonoperating revenues and expenses for tax and financial reporting purposes in
1992 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 follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
- ----------------------------------------------- -------- ------------ -----------
<S> <C> <C> <C>
(dollars in thousands)
Federal statutory income tax rate.............. 35% 35% 34%
======= ======== ========
Amount at the federal statutory income tax
rate.......................................... $39,420 $ 33,331 $ 27,920
Allowance for funds used during construction
not included in taxable income................ -- -- (2,375)
State income taxes on operating income,
net of effect on federal income
taxes......................................... 4,022 3,431 3,139
Difference between financial reporting and tax
straight-line depreciation for which no
deferred taxes were provided.................. -- -- 3,015
Amortization of deferred tax credits........... -- 84 (1,720)
Amortization of contributions in aid of
construction.................................. -- -- (1,658)
Amortization of federal deferred taxes in
excess of current rates....................... -- (64) (1,675)
Other.......................................... 378 225 (392)
------- -------- --------
Income taxes charged to operating expenses..... $43,820 $ 37,007 $ 26,254
======= ======== ========
Deferred tax assets and deferred tax liabilities were comprised of the
following:
December 31 1994 1993
- ----------------------------------------------- -------- --------
(in thousands)
Deferred tax assets:
Property, plant and equipment................. $ 7,075 $ 5,810
Contributions in aid of construction and
customer advances............................ 52,892 44,932
Other......................................... 13,858 13,625
-------- --------
73,825 64,367
-------- --------
Deferred tax liabilities:
Property, plant and equipment................. 157,067 153,765
Regulatory assets............................. 8,897 6,236
Other......................................... 16,223 11,815
-------- --------
182,187 171,816
-------- --------
Net deferred tax liability..................... $108,362 $107,449
- ----------------------------------------------- ======== ========
</TABLE>
There was no valuation allowance provided for deferred tax assets as of
December 31, 1994 and 1993.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
8 . CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during 1994, 1993 and 1992 for interest (net of capitalized
amounts which were not material) and income taxes was as follows:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993 1992
------------------------- ------- ------- -------
<S> <C> <C> <C>
(in thousands)
Interest................. $35,001 $31,875 $30,021
======= ======= =======
Income taxes............. $40,849 $34,796 $30,472
======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
- ----------------------------------------------
The allowance for equity funds used during construction, which was charged
primarily to construction in progress amounted to $9,064,000, $6,973,000 and
$6,781,000 in 1994, 1993 and 1992, 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.
The estimated fair value of noncash contributions received in 1994 amounted to
$5,556,000.
9 . MAJOR CUSTOMERS
HECO and its subsidiaries derived 10% of their operating revenues from the
sale of electricity to federal government agencies amounting to $89,479,000 in
1994, $90,614,000 in 1993 and $78,020,000 in 1992.
10 . 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 were
as follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- ------------------------------------ --------- ---------
<S> <C> <C>
(in thousands)
Accumulated benefit obligation:
Vested............................ $285,605 $270,802
Nonvested......................... 30,279 40,791
-------- --------
$315,884 $311,593
======== ========
Projected benefit obligation........ $388,150 $399,858
Plan assets at fair value,
primarily equity securities
and fixed income investments...... 376,968 386,912
-------- --------
Projected benefit obligation in excess of plan assets 11,182 12,946
Unrecognized prior service cost..... (240) --
Unrecognized net gain............... 9,316 9,374
Unrecognized net transition obligation (19,153) (21,440)
Adjustment required to recognize minimum liability 282 321
-------- --------
Accrued pension liability........... $ 1,387 $ 1,201
======== ========
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
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 1994 1993 1992
- ----------------------- -------- -------- --------
<S> <C> <C> <C>
(in thousands)
Service cost-benefits earned during the period ...... $ 14,469 $ 9,861 $ 8,935
Interest cost on projected benefit obligation ....... 27,803 25,437 25,735
Actual loss (return) on plan assets ................. 10,775 (53,703) (13,427)
Amortization and deferral, net ...................... (37,154) 33,564 (5,614)
-------- -------- --------
Net periodic pension cost ........................... $15,893 $ 15,159 $ 15,629
======== ======== ========
</TABLE>
Of these net periodic pension costs, $10,801,000, $9,663,000 and $9,801,000
were expensed in 1994, 1993 and 1992, respectively, and the remaining amounts
were charged primarily to electric utility plant.
For all pension plans, as of December 31, 1994 and 1993, the discount rate
assumed in determining the actuarial present value of the projected benefit
obligation was 8.0% and 7.0%, respectively. For 1994, 1993 and 1992, 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%.
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 ratably 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 upon their retirement. Health benefits are
provided with contributions by retirees toward costs based on their years of
service and retirement date. Employees are eligible for these benefits if, upon
retirement, they participate in one of the Company's defined benefit pension
plans. The Company began funding some of these benefits near year-end 1994.
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).
Payments for post-retirement benefits other than pensions amounted to $3,100,000
in 1992.
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 amortized ratably over 20 years beginning in
1993.
In February 1992, the PUC opened a generic docket to determine whether
SFAS No. 106 should be adopted for rate-making purposes. In November 1994, the
PUC issued a decision and order authorizing recovery of the full cost of
postretirement benefits other than pensions effective January 1, 1995. The
Companies are required to establish trust funds and to deposit into these funds
the recovered SFAS No. 106 costs. The regulatory asset established from January
1, 1993 through December 31, 1994 for postretirement benefits other than
pensions is being amortized ratably over 18 years beginning in 1995 for rate-
making and financial reporting purposes.
The funded status of the postretirement benefit plans and the amounts
recognized in the consolidated financial statements were as follows:
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
<TABLE>
<CAPTION>
December 31 1994 1993
- --------------------------------------------------- ---------- ----------
<S> <C> <C>
(in thousands)
Accumulated postretirement benefit obligation:
Retirees.......................................... $ 59,047 $ 58,861
Fully eligible active plan participants........... 34,261 30,772
Other active plan participants.................... 45,664 48,072
--------- ---------
138,972 137,705
Plan assets at fair value, primarily fixed income
investments....................................... 2,732 --
--------- ---------
Accumulated postretirement benefit obligation
in excess of plan assets.......................... 136,240 137,705
Unrecognized net gain (loss)....................... 7,816 (819)
Unrecognized net transition obligation............. (112,756) (119,020)
--------- ---------
Accrued postretirement benefits liability.......... $ 31,300 $ 17,866
========= =========
</TABLE>
As of December 31, 1994 and 1993, the assumed discount rates used to measure
the accumulated postretirement benefit obligation were 8.0% and 7.0%,
respectively. For 1994 and 1993, the assumed rate of increase in future
compensation levels was 5.0%.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31 1994 1993
- ------------------------------------------ ------- -------
<S> <C> <C>
(in thousands)
Service cost.............................. $ 4,642 $ 5,115
Interest cost............................. 9,284 10,426
Amortization and deferral, net............ 6,264 6,264
------- -------
Net periodic postretirement benefit cost.. $20,190 $21,805
======= =======
</TABLE>
Of the net periodic postretirement benefit cost, $2,573,000 and $2,362,000
was expensed in 1994 and 1993, respectively, and the remaining amounts were
charged primarily to regulatory assets, and also to electric utility plant and
other accounts.
At December 31, 1994, the assumed health care trend rates for 1995 and future
years were as follows: medical, 7.5%; dental, 6.0% and vision, 5.0%.
A 1% increase in the trend rate for health care costs would have increased
the accumulated postretirement benefit obligation as of December 31, 1994 by
approxi-mately $19.9 million and the service and interest costs for 1994 by
approximately $2.4 million.
11 . COMMITMENTS AND CONTINGENCIES
FUEL CONTRACTS AND OTHER PURCHASE COMMITMENTS
- ---------------------------------------------
HECO and its subsidiaries have contractual agreements to purchase a minimum
amount of 0.5% sulfur residual fuel oil and 0.4% sulfur diesel fuel through
1995. The prices under these contracts are tied to market prices of petroleum
products as reported in Singapore and the U.S. Pacific Northwest. Based on the
average price per barrel prevailing on January 1, 1995, the estimated amount of
required purchases for 1995 is $171 million. The actual amount of purchases in
1995 could vary substantially from such estimates as a result of changes in
market prices and other factors. HECO and its subsidiaries purchased $186
million, $205 million and $216 million of fuel under these or prior contractual
agreements in 1994, 1993 and
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
1992, respectively. New contracts to replace expiring ones are expected to be
entered into in the normal course of business.
At December 31, 1994, the Company had purchase commitments, other than fuel
and power purchase contracts, amounting to approximately $83 million.
POWER PURCHASE AGREEMENTS
- -------------------------
As of December 31, 1994, the Company had power purchase agreements for 465
megawatts (MW) of firm capacity representing approximately 22% of their total
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 [including HELCO's agreement
in principle with Hilo Coast Processing Company (HCPC)--see discussion which
follows], aggregate minimum fixed capacity charges are expected to be
approximately $107 million in 1995, $109 million in each of 1996 and 1997, $106
million in 1998, $109 million in 1999 and $2.1 billion thereafter.
In general, payments under the power purchase agreements for 465 MW of firm
capacity 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 payment 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 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.
HELCO has a power purchase agreement with HCPC for 18 MW of firm capacity.
Hamakua Sugar Company, which had supplied HELCO with 8 MW of firm capacity,
ceased operations in October 1994. Puna Geothermal Ventures (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.
In March 1994, HCPC, which then provided 18 MW of firm capacity, issued a
written notice of termination to HELCO indicating that it would cease producing
power in March 1997. HELCO, in turn, issued a written notice of its preliminary
intent to purchase the HCPC facility, subject to a number of conditions. HELCO
has the right, but not the obligation, to purchase the facilities for fair
market value. As permitted under the power purchase agreement, HCPC asked that
the issue of the fair market value of the facilities be determined through
binding arbitration. HELCO and HCPC then engaged in negotiations regarding the
potential purchase of the plant or the possible amendment of the existing power
purchase agreement to keep the plant operating at least through March 1997.
On December 12, 1994, HCPC filed a Chapter 11 bankruptcy petition and advised
HELCO that it would cease operating its plant in December 1994. HELCO obtained
a temporary restraining order and, later, an extension of such order, requiring
HCPC to continue operations of the HCPC facility through March 7, 1995, with
HELCO to pay an additional amount for the power HCPC supplies. On January 5,
1995, HELCO and HCPC entered into an agreement in principle, subject to the
negotiation and execution of a definitive agreement, amending the existing power
purchase agreement through December 1999. The definitive agreement must be
approved by the bankruptcy court and is subject to cancellation by HELCO if not
approved by the PUC within 180 days of its execution. If unable to purchase
power from HCPC as contemplated by
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
the agreement in principle, HELCO would be operating with a slim generation
margin and might have to initiate planned service interruptions (rolling
blackouts) until it is able to arrange for additional generation.
HECO POWER OUTAGE
- -----------------
On April 9, 1991, HECO experienced a power outage that affected all customers
on the island of Oahu. The PUC initiated an investigation of the outage, which
was consolidated with a pending investigation of an outage that occurred in
1988.
Power Technologies, Inc. (PTI), an independent consultant hired by HECO with
the approval of the PUC, investigated the outage. HECO is implementing certain
of PTI's recommendations and is either studying or disagrees with certain of the
other recommendations. Management cannot predict the timing and outcome of any
PUC decision and order that may be issued, if any, with respect to the outages
or PTI's recommendations.
HECO's PUC-approved tariff rule states that HECO is not liable for interrup-
tions or insufficiency of supply when the cause was beyond HECO's control.
Nevertheless, HECO received 3,063 claims, which totaled approximately $7.8
million, within the time limit to file claims. 1,530 of these claims are for
property damage and most have been settled, with no admission of liability, or
closed as of December 31, 1994. The other 1,533 claims involve personal injury
or economic loss, such as lost profits, and generally have not been covered by
settlement.
Seven direct or indirect business customers have filed a lawsuit against HECO
on behalf of themselves and an alleged class, claiming $75 million in
compensatory damages and additional unspecified amounts for punitive damages
because of the April 9, 1991 outage. HECO has filed an answer which denies the
principal allegations in the complaint. The class has not been certified.
Trial has been set for January 1996.
HECO recorded a liability of $1 million for the total amount of expected
defense costs and settlements with respect to the outage. In the opinion of
management, losses (if any) in excess of the amount for which provision has been
made, net of estimated insurance recoveries, resulting from the ultimate outcome
of the lawsuit and claims related to the April 1991 outage will not have a
material adverse effect on the 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 and held hearings.
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. 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.
Subsequent to the hearings in this matter, HELCO's generation margin improved
with the addition of a 20-MW combustion turbine in August 1992 and PGV's
commencement of commercial operations. However, HELCO's generation margin was
adversely affected by the cessation of operations by Hamakua and will be further
adversely affected if an agreement in principle that HELCO has reached with HCPC
is not implemented. See "Power Purchase Agreements" above.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
HELCO is proceeding with plans to install two 20-MW combustion turbines at
Keahole on the island of Hawaii in 1995 or 1996, 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 and
approvals. The PUC has issued a decision and order approving commitment of
expenditures for the first 20-MW combustion turbine. Evidentiary hearings on
the other portions of the unit were held in July 1994. Further, two independent
power producers, Kawaihae Cogeneration Partners and Ensearch Development Corp.,
have each filed with the PUC separate complaints against HELCO, alleging that,
rather than having HELCO build the combined-cycle unit, they are entitled to a
power purchase contract to provide all or part of the capacity. An evidentiary
hearing in the Kawaihae Cogeneration Partners docket was held in June 1994. The
evidentiary hearing in the Ensearch Development Corp. docket was held in
December 1994.
HELCO has encountered procedural and other difficulties in obtaining the
necessary air permit and Conservation District Use Permit ("CDUP") which would
allow the combined-cycle unit to be constructed at the Keahole site. As a
result of these permitting delays, HELCO's unit installation schedule has been
adversely impacted. To address the contingency that the air permit or CDUP
might be signifi-cantly delayed or ultimately denied, HELCO is exploring other
alternatives to meet projected energy needs, including any viable, timely and
cost-effective unaffiliated nonutility generation alternative. However, until
additional generation is in place, and depending on the availability of existing
generation and the timing and size of load peaks, management believes that there
is a significant risk of capacity shortages on the island of Hawaii that could
result in rolling blackouts.
12 . REGULATORY RESTRICTIONS ON DISTRIBUTIONS TO PARENT
At December 31, 1994, net assets (assets less liabilities) of approximately
$314 million were not available for transfer to HEI in the form of dividends,
loans or advances without regulatory approval.
13 . RELATED-PARTY TRANSACTIONS
HEI charged HECO and its subsidiaries for general management and
administrative services totaling $2,417,000, $2,258,000 and $5,604,000 in 1994,
1993 and 1992, respectively. The amounts charged by HEI to its subsidiaries are
allocated primarily on the basis of actual labor hours. As of January 1, 1993,
HEI refined its method of identifying costs chargeable to its subsidiaries,
resulting in lower allocations to subsidiaries.
HEI also charged HECO for data processing services totaling $3,554,000,
$3,563,000 and $3,231,000 in 1994, 1993 and 1992, respectively.
HECO's borrowings from HEI totaled nil and $12,000,000 at December 31, 1994
and 1993, 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 $77,000, $1,795,000 and $232,000 in 1994, 1993
and 1992, respectively.
14 . 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.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
15 . FAIR VALUE OF FINANCIAL INSTRUMENTS
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 instruments.
LONG-TERM DEBT. Fair value is estimated based on the quoted market prices for
- ---------------
the same or similar issues of 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 were as
follows:
<TABLE>
<CAPTION>
December 31 1994 1993
- ---------------------------------- ------------------- -------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
(in thousands)
Financial assets:
Cash and equivalents.............. $ 10,694 $ 10,694 $ 1,922 $ 1,922
Financial liabilities:
Short-term borrowings from
nonaffiliates and affiliate..... 117,866 117,866 40,928 40,928
Long-term debt, net, including
amounts due within one year..... 489,586 461,082 484,736 506,089
Cumulative preferred stock
subject to mandatory redemption,
including sinking fund
requirements...................... 44,844 46,478 46,730 49,583
=============================================================================
</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 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. In addi-
tion, 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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
16 . SUMMARIZED FINANCIAL INFORMATION
Summarized financial information for HECO's consolidated subsidiaries, HELCO and
MECO, was as follows:
HAWAII ELECTRIC LIGHT COMPANY, INC.
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------------------------- -------- --------
<S> <C> <C> <C>
(in thousands)
Balance sheet data
Current assets............... $ 25,151 $ 22,161
Noncurrent assets............ 335,725 297,847
-------- --------
$360,876 $320,008
======== ========
Common stock equity.......... $120,908 $102,438
Cumulative preferred stock:
Not subject to mandatory redemption 10,000 10,000
Subject to mandatory redemption 7,800 8,100
Current liabilities.......... 59,787 42,615
Noncurrent liabilities....... 162,381 156,855
-------- --------
$360,876 $320,008
======== ========
<CAPTION>
Years ended December 31 1994 1993 1992
- ----------------------------- -------- -------- --------
(in thousands)
Income statement data
Operating revenues........... $128,706 $113,579 $104,904
Operating income............. 11,821 11,902 10,951
Net income for common stock.. 8,420 5,807 5,770
===========================================================
</TABLE>
MAUI ELECTRIC COMPANY, LIMITED
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------------------------- -------- --------
<S> <C> <C> <C>
(in thousands)
Balance sheet data
Current assets............... $ 29,204 $ 31,465
Noncurrent assets............ 272,019 252,680
-------- --------
$301,223 $284,145
======== ========
Common stock equity.......... $108,313 $ 97,569
Cumulative preferred stock:
Not subject to mandatory redemption 8,000 8,000
Subject to mandatory redemption 6,545 7,135
Current liabilities.......... 34,197 35,027
Noncurrent liabilities....... 144,168 136,414
-------- --------
$301,223 $284,145
======== ========
<CAPTION>
Years ended December 31 1994 1993 1992
- ----------------------------- -------- -------- --------
(in thousands)
Income statement data
Operating revenues........... $120,966 $114,256 $105,343
Operating income............. 16,251 13,518 12,379
Net income for common stock.. 10,196 9,274 8,770
===========================================================
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
=====================================================
HAWAIIAN ELECTRIC COMPANY, INC. and Subsidiaries
17 . CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly consolidated financial information for 1994 and 1993 was
as follows:
<TABLE>
<CAPTION>
Quarter ended YEAR ENDED
- -------------------------------------------------------------------------------------------
1994 March 31 June 30 Sept.30 Dec. 31 DEC. 31
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Operating revenues..... $ 200,098 $ 217,884/1/ $247,844/1,2/ $241,482/1,2/ $907,308
Operating income....... 16,132 21,635/1/ 25,708/1,2/ 23,837/1,2/ 87,312
Net income for common
stock................ 9,276 15,188/1/ 19,328/1,2/ 17,853/1,2/ 61,645
============================================================================================
1993
- -----------------------
(in thousands)
Operating revenues..... $205,560/5/ $ 218,158/5/ $ 234,484/5/ $ 215,808/5/ $874,010
Operating income....... 13,705/5/ 22,862/3,4,5/ 20,377/3,5/ 21,141/3,5/ 78,085
Net income for common
stock................ 7,462/5/ 16,465/3,4,5/ 14,548/3,5/ 13,230/3,5/ 51,705
============================================================================================
</TABLE>
/1/ Includes interim rate increases granted to HECO, primarily to cover the
costs of new facilities and equipment.
/2/ Includes interim rate increases granted to HELCO, primarily to cover the
costs of plant and equipment and operating costs necessary to maintain
and improve service.
/3/ 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.)
/4/ 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.)
/5/ Includes interim rate increases granted to MECO, primarily to cover the
costs of a phased installation of a combined-cycle generating unit on Maui.
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholder
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, 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
January 25, 1995
31
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
HAWAIIAN ELECTRIC COMPANY, HAWAII ELECTRIC LIGHT MAUI ELECTRIC COMPANY,
INC. COMPANY, INC. LIMITED
- --------------------------------------------------------------------------------------------
DIRECTORS DIRECTORS DIRECTORS
<S> <C> <C>
( ) indicates age and year indicates
first elected or appointed./1/
ROBERT F. CLARKE (52), 1990 HARWOOD D. WILLIAMSON HARWOOD D. WILLIAMSON
RICHARD HENDERSON (66), 1970 RICHARD HENDERSON GLADYS C. BAISA
BEN F. KAITO/2/ (68), 1975 WARREN H. W. LEE THOMAS J. JEZIERNY
MILDRED D. KOSAKI/2/ (70), 1973 DENZIL W. ROSE SANFORD J. LANGA
PAUL A. OYER (54), 1985 DONALD K. YAMADA B. MARTIN LUNA
DIANE J. PLOTTS/2/ (59), 1991 ANNE M. TAKABUKI
HARWOOD D. WILLIAMSON (63), 1985
PAUL C. YUEN/2/ (66), 1993
- ---------------------------------------------------------------------------------------------
/1/ All directors serve one year terms.
/2/ Audit Committee member.
<CAPTION>
OFFICERS OFFICERS 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 DEORNA L. IKEDA MICHAEL E. KAM
Vice President-Engineering Assistant Treasurer Assistant Treasurer
THOMAS L. JOAQUIN WILLIAM J. STORMONT STANLEY T. NAKAMOTO
Vice President-Operations Assistant Secretary Assistant Treasurer
RICHARD L. O'CONNELL JESSIE K. AKAGI
Vice President-Customer Relations Assistant Secretary
PAUL A. OYER
Financial Vice President and Treasurer
DAVID M. RODRIGUES
Vice President-Corporate Excellence
ERNEST T. SHIRAKI
Controller
MOLLY M. EGGED
Secretary
MARVIN A. HAWTHORNE
Assistant Treasurer
</TABLE>
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Hawaiian
Electric Industries, Inc. and subsidiaries' consolidated balance sheet as of
December 31, 1994 and consolidated statement of income for the year ended
December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000354707
<NAME> HAWAIIAN ELECTRIC INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 87,623
<SECURITIES> 1,099,810
<RECEIVABLES> 133,279
<ALLOWANCES> 2,517
<INVENTORY> 43,126
<CURRENT-ASSETS> 0
<PP&E> 2,425,325
<DEPRECIATION> (747,503)
<TOTAL-ASSETS> 5,174,464
<CURRENT-LIABILITIES> 0
<BONDS> 718,240
<COMMON> 546,254
44,844
48,293
<OTHER-SE> 135,835
<TOTAL-LIABILITY-AND-EQUITY> 5,174,464
<SALES> 0
<TOTAL-REVENUES> 1,188,523
<CGS> 0
<TOTAL-COSTS> 1,014,390
<OTHER-EXPENSES> (5,944)
<LOSS-PROVISION> 3,067
<INTEREST-EXPENSE> 54,028
<INCOME-PRETAX> 126,049
<INCOME-TAX> 53,019
<INCOME-CONTINUING> 73,030
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,030
<EPS-PRIMARY> 2.60
<EPS-DILUTED> 2.60
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Hawaiian
Electric Company, Inc. and subsidiaries' consolidated balance sheet as of
December 31, 1994 and consolidated statement of income and consolidated
statement of cash flows for the year ended December 31, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000046207
<NAME> HAWAIIAN ELECTRIC CO., INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,590,576
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 163,939
<TOTAL-DEFERRED-CHARGES> 9,662
<OTHER-ASSETS> 124,943
<TOTAL-ASSETS> 1,889,120
<COMMON> 78,766
<CAPITAL-SURPLUS-PAID-IN> 246,600
<RETAINED-EARNINGS> 308,535
<TOTAL-COMMON-STOCKHOLDERS-EQ> 633,901
42,470
48,293
<LONG-TERM-DEBT-NET> 468,653
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 117,866
<LONG-TERM-DEBT-CURRENT-PORT> 20,933
2,374
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 554,630
<TOT-CAPITALIZATION-AND-LIAB> 1,889,120
<GROSS-OPERATING-REVENUE> 907,308
<INCOME-TAX-EXPENSE> 43,820
<OTHER-OPERATING-EXPENSES> 776,176
<TOTAL-OPERATING-EXPENSES> 819,996
<OPERATING-INCOME-LOSS> 87,312
<OTHER-INCOME-NET> 14,793
<INCOME-BEFORE-INTEREST-EXPEN> 102,105
<TOTAL-INTEREST-EXPENSE> 36,144
<NET-INCOME> 65,961
4,316
<EARNINGS-AVAILABLE-FOR-COMM> 61,645
<COMMON-STOCK-DIVIDENDS> 28,511
<TOTAL-INTEREST-ON-BONDS> 33,111
<CASH-FLOW-OPERATIONS> 102,322
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
HEI EXHIBIT 99.1(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, 1994
-------------------------------------------
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>
REQUIRED INFORMATION
--------------------
Financial Statements. The statements of net assets available for benefits at
- --------------------
December 31, 1994 and 1993, statements of changes in net assets available for
benefits for the years ended December 31, 1994, 1993 and 1992, together with
notes to financial statements, and KPMG Peat Marwick LLP's audit report thereon
are filed as a part of this annual report in paper format under cover of Form SE
dated March 21,1995.
Exhibits. The written consent of KPMG Peat Marwick LLP with respect to the
- --------
Plan's financial statements is attached hereto as Exhibit 1.
<PAGE>
Exhibit 1
[KPMG PEAT MARWICK LETTERHEAD]
Hawaiian Electric Industries, Inc.
Pension Investment Committee:
We consent to incorporation by reference in Registration Statement No. 33-52911
on Form S-8 of Hawaiian Electric Industries, Inc. of our report dated March 10,
1995 included herein, relating to the statements of net assets available for
benefits of the Hawaiian Electric Industries Retirement Savings Plan as of
December 31, 1994 and 1993, 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, 1994.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 21, 1995
<PAGE>
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 21, 1995 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>
HEI Exhibit 99.3(a)
--------------------
AMENDMENT 1994-2
TO THE HAWAIIAN ELECTRIC INDUSTRIES
RETIREMENT SAVINGS PLAN
In accordance with Section 10.1 of the Hawaiian Electric Industries
Retirement Savings Plan (the "Plan"), the Plan is hereby amended in the
following respects:
1. Section 1.3 is amended by inserting the following after the fourth
sentence thereof:
"A Participant may also name a contingent Beneficiary to succeed to the
interests of the named Beneficiary in the event such named Beneficiary
shall not survive the Participant."
2. Section 1.7 is amended by revising the third sentence to read as
follows:
"Commencing January 1, 1994, only the first $150,000 (or such larger amount
as the Commissioner of Internal Revenue may prescribe) of a Participant's
Compensation (determined in accordance with Section 401(a)(17) of the Code)
shall be taken into account for purposes of the Plan. In determining the
Compensation of a Participant for purposes of this limitation, the rules of
Section 414(q)(6) of the Code shall apply, except that in applying such
rules, the term "family" shall include only the spouse of the Participant
and any lineal descendants of the Participant who have not attained age 19
before the close of the Plan Year. If, as a result of the application of
such rules, the dollar limitation is exceeded, then the limitation shall be
prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this Section prior to the
application of the limitation."
3. Section 1.8 is amended by revising the second sentence thereof to read
as follows:
"Eligible Employee means a Participant who is eligible to receive an
-----------------
allocation of Salary Reduction Contributions for all or a portion of the
Plan Year."
4. Section 1.16 is amended to read as follows:
"Participant means any Employee who has satisfied the eligibility
-----------
requirements of Article II and whose Accounts remain in the Plan and
allocated to him. Active Participant means a Participant during the
------------------
period he is employed in an eligible class of Employees and is, therefore,
eligible to receive an allocation of Salary Reduction Contributions."
<PAGE>
5. Section 1.17 is amended to read as follows:
"Participant Voluntary Contribution means the voluntary contributions of a
----------------------------------
Participant permitted prior to July 1, 1992."
6. Section 1.22 is amended to read as follows:
"Plan Year means a 12-month period commencing on January 1 and
---------
anniversaries thereof."
7. Section 3.3 is amended to read as follows:
"Any Participant who has received a distribution from a qualified employee
pension benefit plan or annuity plan may make a contribution to a Rollover
Account established on his behalf; provided that proper verification is
provided and the Plan Administrator, in his sole discretion, agrees in
writing to such a contribution. The Plan shall not accept rollovers from
individual retirement accounts, whether or not the funds involved
originally were received as distributions from a qualified employee pension
benefit plan."
8. Section 4.1 (a)(1) and (2) shall be amended by replacing the term
"other Eligible Employees" with the term "non-Highly Compensated Employees".
9. Section 4.1 (b)(1) is amended to replace the word "Compensation" with
the word "compensation".
10. Section 4.1(b)(3) is amended to read as follows:
"For purposes of determining the actual deferral percentage of an Eligible
Employee who is a Highly Compensated Employee by virtue of being either a
five percent (5%) owner or among the top 10 highest paid, the Salary
Reduction Contributions and compensation of Family Members of such Highly
Compensated Employee shall be combined and the Family Members and such
Highly Compensated Employee shall be treated as a single Employee. Such
Family Members shall be disregarded in determining the actual deferral
percentage for Participants who are non-Highly Compensated Employees."
11. Section 4.1(b) is amended to add a new subsection (6), to read as
follows:
"For purposes of this Section 4.1, the term "compensation" shall mean W-2
pay including any reductions related to arrangements qualifying under
Sections 125 or 401(k) of the Code."
-2-
<PAGE>
12. Section 4.2(a)(1) and (2) shall be amended by replacing the term
"other Eligible Employees" with the term "non-Highly Compensated Employees."
13. Section 4.2(b)(3) is amended to read as follows:
"For purposes of determining the contribution percentage of an Eligible
Employee who is a Highly Compensated Employee by virtue of being either a
five percent (5%) owner or among the top 10 highest paid, the Participant
Voluntary Contributions and compensation of Family Members of such Highly
Compensated Employee shall be combined and the Family Members and such
Highly Compensated Employee shall be treated as a single Employee. Such
Family Members shall be disregarded in determining the actual deferral
percentage for Participants who are non-Highly Compensated Employees."
14. Section 4.2(d)(2) is amended to replace the term "Compensation" with
the term "compensation."
15. Section 4.2(d) is amended to add a new subsection (4), to read as
follows:
""compensation" shall mean W-2 pay including any reductions related to
arrangements qualifying under Sections 125 or 401(k) of the Code."
16. Section 4.4(c)(ii) is amended by replacing "April 1" with "February
15".
17. Section 4.5(b) is amended to read as follows:
"If necessary to limit the annual addition to a Participant's Accounts for
a limitation year, the Plan Administrator may reduce or suspend Salary
Reduction Contributions, provided that notice of such reduction or
suspension be given to the Participant. Such notice need not precede the
reduction or suspension. If further necessary to limit the annual addition
to a Participant's Accounts for a limitation year, distributions shall be
made in the following order to the Participant on whose behalf such
contributions were made, to the extent necessary to reduce the annual
addition to the prescribed amount: (i) Participant Voluntary Contributions
and interest thereon; (ii) Salary Reduction Contributions and interest
thereon; (iii) Employer Contributions."
18. The third sentence of Section 4.5(d)(1) is amended to read as follows:
"Annual additions for a limitation year shall, however, include Salary
Reduction Contributions for such Plan Year that are subsequently
distributed to or forfeited by a Participant pursuant to this Article IV,
except to the extent of excess Salary Reduction Contributions and earnings
thereon
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refunded to the Participant by April 15 of the following Plan Year."
19. The first sentence of Section 5.3 shall be amended to read as follows:
"The assets of the Plan and each investment alternative shall be valued on
a daily basis."
20. Section 6.3(a) shall be amended by adding the following at the end
thereof:
"In distributing such amounts, distributions shall be made first from
Participant Voluntary Contributions made prior to 1986."
21. Section 6.3(b)(3)(iv) is amended to read as follows:
"Payment of tuition for the next 12 months of post-secondary education for
the Participant, his spouse, children or dependents (as defined in Section
152 of the Code)."
22. Sections 6.2(b)(5)(ii) and 6.2(d) are amended to add the following at
the end thereof:
"Notwithstanding any other provision to the contrary, any Participant
eligible to receive a distribution which would qualify as an "eligible
rollover distribution" under Section 401(a)(31)(C) of the Code may elect to
have such distribution paid directly to an "eligible retirement plan" as
defined in Section 401(a)(31)(D) of the Code and, upon the Participant's
specification of the eligible retirement plan to which such distribution is
to be paid, such distribution shall be made in the form of a direct
trustee-to-trustee transfer to the eligible retirement plan so specified."
23. Sections 6.4(d)(2) and (3) are amended to read as follows:
"(2) Bear interest on unpaid principal at the then current money market
account rate at American Savings Bank, plus two percent (2%).
(3) Be subject to a substantially level amortization schedule and
repayment on at least a monthly basis."
24. Section 6.4(f) is amended to read as follows:
"A loan, if approved, shall be disbursed as soon as reasonably practicable
after the date on which the loan is approved."
25. Section 6.6(a)(ii) is amended by replacing "tenth" with "fifth".
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<PAGE>
26. Section 6.6(b)(3) is amended by adding the following at the end
thereof:
"The amount of the minimum which must be distributed in each calendar year
shall be determined by dividing the Participant's vested Accounts by the
applicable life expectancy. Any Participant who has attained age 70-1/2 may
elect to have distributed to him in any Plan Year an amount greater than
the minimum required distribution."
27. Section 7.4 is amended to read as follows:
"To the extent any expenses of the Plan are not paid by Participants or
paid out of the assets of the Plan, the Participating Companies shall pay
all expenses of administering the Plan. Such expenses shall include any
expenses incurred by a Participating Company, the Committee, the Asset
Manager, or the Plan Administrator, including, but not limited to, the
payment of professional fees of consultants. Commencing March 31, 1994
[check date] Participants shall be assessed a portion of Plan recordkeeping
fees, including fees for plan loans, set-up fees and annual maintenance
fees."
Unless otherwise stated each of these Amendments shall be effective January
1, 1994.
TO RECORD the adoption of this amendment to the Plan, the Hawaiian Electric
Industries Pension Investment Committee has caused this document to be executed
this 30th day of June , 1994.
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HAWAIIAN ELECTRIC INDUSTRIES
PENSION INVESTMENT COMMITTEE
By /s/ Constance H. Lau
--------------------
By /s/ Peter C. Lewis
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