<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
<S> <C> <C>
Exact Name of Registrant as Commission I.R.S. Employer
Specified in Its Charter File Number Identification No.
- ------------------------------------ ----------- ------------------
HAWAIIAN ELECTRIC INDUSTRIES, INC. 1-8503 99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC. 1-4955 99-0040500
</TABLE>
STATE OF HAWAII
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
900 RICHARDS STREET, HONOLULU, HAWAII 96813
- -------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
HAWAIIAN ELECTRIC INDUSTRIES, INC. ----- (808) 543-5662
HAWAIIAN ELECTRIC COMPANY, INC. ------- (808) 543-7771
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
===============================================================================
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class of Common Stock Outstanding November 3, 1995
- --------------------------------------------------------------------------------
<S> <C>
Hawaiian Electric Industries, Inc. (Without Par Value).........29,513,130 Shares
Hawaiian Electric Company, Inc.
($6 2/3 Par Value)......................11,813,147 Shares (not publicly traded)
</TABLE>
================================================================================
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended September 30, 1995
INDEX
PAGE NO.
Glossary of terms......................................................... ii
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated balance sheets (unaudited) - September 30, 1995
and December 31, 1994........................................... 1
Consolidated statements of income (unaudited) - three and nine
months ended September 30, 1995 and 1994........................ 2
Consolidated statements of retained earnings (unaudited) - three
and nine months ended September 30, 1995 and 1994............... 2
Consolidated statements of cash flows (unaudited) - nine months
ended September 30, 1995 and 1994............................... 3
Notes to consolidated financial statements (unaudited)............ 4
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated balance sheets (unaudited) - September 30, 1995
and December 31, 1994........................................... 9
Consolidated statements of income (unaudited) - three and nine
months ended September 30, 1995 and 1994........................ 10
Consolidated statements of retained earnings (unaudited) - three
and nine months ended September 30, 1995 and 1994............... 10
Consolidated statements of cash flows (unaudited) - nine months
ended September 30, 1995 and 1994............................... 11
Notes to consolidated financial statements (unaudited)............ 12
Item 2. Management's discussion and analysis of financial condition
and results of operations....................................... 15
PART II. OTHER INFORMATION
Item 1. Legal proceedings................................................. 23
Item 5. Other information................................................. 23
Item 6. Exhibits and reports on Form 8-K.................................. 24
Signatures................................................................ 25
i
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q -- Quarter ended September 30, 1995
GLOSSARY OF TERMS
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<C> <S>
AFUDC Allowance for funds used during construction
ASB American Savings Bank, F.S.B., a wholly owned
subsidiary of HEI Diversified, Inc. and parent
company of American Savings Investment Services
Corp., ASB Service Corporation, AdCommunications,
Inc. and Associated Mortgage, Inc.
BIF Bank Insurance Fund
COMPANY Hawaiian Electric Industries, Inc. and its direct
and indirect subsidiaries, including, without
limitation, Hawaiian Electric Company, Inc., Maui
Electric Company, Limited, Hawaii Electric Light
Company, Inc., HEI Investment Corp., Malama
Pacific Corp. and its subsidiaries, Hawaiian Tug &
Barge Corp., Young Brothers, Limited, HEI
Diversified, Inc., American Savings Bank, F.S.B.
and its subsidiaries, Lalamilo Ventures, Inc.,
Pacific Energy Conservation Services, Inc. and HEI
Power Corp. (since its formation in March 1995)
CONSUMER Division of Consumer Advocacy, Department of
ADVOCATE Commerce and Consumer Affairs of the State of
Hawaii
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
HCPC Hilo Coast Processing Company
HECO Hawaiian Electric Company, Inc., a wholly owned
electric utility subsidiary of Hawaiian Electric
Industries, Inc. and parent company of Maui
Electric Company, Limited and Hawaii Electric
Light Company, Inc.
HEI Hawaiian Electric Industries, Inc., parent company
of Hawaiian Electric Company, Inc., HEI Investment
Corp., Malama Pacific Corp., Hawaiian Tug & Barge
Corp., Lalamilo Ventures, Inc., HEI Diversified,
Inc., Pacific Energy Conservation Services, Inc.
and HEI Power Corp. (since its formation in March
1995)
HEIDI HEI Diversified, Inc., a wholly owned subsidiary
of Hawaiian Electric Industries, Inc. and the
parent company of American Savings Bank, F.S.B.
HEIIC HEI Investment Corp., a wholly owned subsidiary of
Hawaiian Electric Industries, Inc.
HEIPC HEI Power Corp., a wholly owned subsidiary of
Hawaiian Electric Industries, Inc.
</TABLE>
ii
<PAGE>
GLOSSARY OF TERMS, CONTINUED
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<C> <S>
HELCO Hawaii Electric Light Company, Inc., a wholly
owned electric utility subsidiary of Hawaiian
Electric Company, Inc.
HIG The Hawaiian Insurance & Guaranty Company,
Limited, an insurance company which was placed in
state rehabilitation proceedings. HEI
Diversified, Inc. was the holder of record of
HIG's common stock prior to August 16, 1994
HTB Hawaiian Tug & Barge Corp., a wholly owned
subsidiary of Hawaiian Electric Industries, Inc.
and parent company of Young Brothers, Limited
KWH Kilowatthour
MECO Maui Electric Company, Limited, a wholly owned
electric utility subsidiary of Hawaiian Electric
Company, Inc.
MPC Malama Pacific Corp., a wholly owned subsidiary of
Hawaiian Electric Industries, Inc. and parent
company of several real estate subsidiaries
MW Megawatt
OTS Office of Thrift Supervision, Department of
Treasury
PBOP Postretirement benefits other than pensions
PGV Puna Geothermal Venture
PUC Public Utilities Commission of the State of Hawaii
SAIF Savings Association Insurance Fund
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
YB Young Brothers, Limited, a wholly owned subsidiary
of Hawaiian Tug & Barge Corp.
</TABLE>
iii
<PAGE>
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents....................... $ 85,261 $ 87,623
Accounts receivable and unbilled
revenues, net............................. 140,376 130,762
Inventories, at average cost............... 39,399 43,126
Real estate developments................... 37,068 33,956
Loans receivable, net...................... 1,756,308 1,824,055
Marketable securities...................... 1,352,397 1,099,810
Other investments.......................... 73,780 77,297
Property, plant and equipment, net of
accumulated depreciation
of $802,984 and $747,503.................. 1,767,864 1,677,822
Regulatory assets.......................... 102,411 95,257
Other...................................... 72,013 59,301
Goodwill and other intangibles............. 42,298 45,455
---------- ----------
$5,469,175 $5,174,464
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................... $ 92,746 $ 97,210
Deposit liabilities........................ 2,177,087 2,129,310
Short-term borrowings...................... 180,284 136,755
Securities sold under agreements to
repurchase................................ 329,392 123,301
Advances from Federal Home Loan Bank....... 539,874 616,374
Long-term debt............................. 753,338 718,240
Deferred income taxes...................... 177,081 172,930
Unamortized tax credits.................... 47,568 45,954
Contributions in aid of construction....... 181,330 178,635
Other...................................... 178,370 180,529
---------- ----------
4,657,070 4,399,238
---------- ----------
PREFERRED STOCK OF ELECTRIC UTILITY
SUBSIDIARIES
Subject to mandatory redemption............ 43,100 44,844
Not subject to mandatory redemption........ 48,293 48,293
---------- ----------
91,393 93,137
---------- ----------
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: 29,477 shares and 28,655
shares.................................... 574,392 546,254
Retained earnings.......................... 146,320 135,835
---------- ----------
720,712 682,089
---------- ----------
$5,469,175 $5,174,464
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(in thousands, except per share amounts and ---------------------- ----------------------
ratio of earnings to fixed charges) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Electric utility....................................... $261,886 $249,664 $738,913 $670,381
Savings bank........................................... 63,151 54,389 185,473 156,784
Other.................................................. 11,844 15,103 38,666 41,589
-------- -------- -------- --------
336,881 319,156 963,052 868,754
-------- -------- -------- --------
EXPENSES
Electric utility....................................... 211,215 209,015 614,530 571,591
Savings bank........................................... 53,462 43,187 155,716 124,287
Other.................................................. 15,529 15,404 45,752 44,967
-------- -------- -------- --------
280,206 267,606 815,998 740,845
-------- -------- -------- --------
OPERATING INCOME (LOSS)
Electric utility....................................... 50,671 40,649 124,383 98,790
Savings bank........................................... 9,689 11,202 29,757 32,497
Other.................................................. (3,685) (301) (7,086) (3,378)
-------- -------- -------- --------
56,675 51,550 147,054 127,909
-------- -------- -------- --------
Interest expense--electric utility and other........... (15,931) (13,916) (46,398) (40,126)
Allowance for borrowed funds used during
construction.......................................... 1,327 1,070 3,832 2,886
Preferred stock dividends of electric utility
subsidiaries.......................................... (1,726) (1,790) (5,183) (5,386)
Allowance for equity funds used during
construction.......................................... 2,590 2,381 7,575 6,427
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES............................. 42,935 39,295 106,880 91,710
Income taxes........................................... 17,784 16,604 45,002 39,599
-------- -------- -------- --------
NET INCOME............................................. $ 25,151 $ 22,691 $ 61,878 $ 52,111
======== ======== ======== ========
Earnings per common share............................. $0.86 $0.80 $2.13 $1.86
======== ======== ======== ========
Dividends per common share............................ $0.59 $0.58 $1.77 $1.74
======== ======== ======== ========
Weighted average number of common
shares outstanding................................... 29,331 28,255 29,058 28,014
======== ======== ======== ========
Ratio of earnings to fixed charges (SEC method)
Excluding interest on ASB deposits................. 2.03 2.23
======== ========
Including interest on ASB deposits................. 1.62 1.69
======== ========
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
(in thousands) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD................ $138,462 $125,406 $135,835 $128,318
Net income............................................ 25,151 22,691 61,878 52,111
Common stock dividends................................ (17,293) (16,376) (51,393) (48,708)
-------- -------- -------- --------
RETAINED EARNINGS, END OF PERIOD...................... $146,320 $131,721 $146,320 $131,721
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
(in thousands) 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations........ $ 61,878 $ 52,111
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities
Depreciation and amortization of
property, plant and equipment..... 57,662 54,353
Other amortization................. 2,275 247
Deferred income taxes and tax
credits, net...................... 8,005 9,652
Changes in assets and
liabilities, net of effects from
disposal of businesses
Increase in accounts
receivable and unbilled
revenues, net............... (9,614) (12,784)
Decrease (increase) in
inventories................. 3,727 (1,321)
Increase in real estate
developments................ (1,125) (1,351)
Decrease in securities held
for trading................. -- 29,873
Increase in regulatory
assets...................... (3,708) (8,397)
Increase (decrease) in
accounts payable............ (4,464) 5,342
Changes in other assets and
liabilities................. (14,514) (20,504)
--------- ---------
100,122 107,221
Cash used by discontinued operations..... -- (32,469)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. 100,122 74,752
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated and
purchased............................... (263,846) (412,704)
Principal repayments on loans receivable. 104,392 185,408
Proceeds from sale of loans receivable... 6,254 1,888
"Held-to-maturity" mortgage-backed
securities purchased.................... (146,029) (274,430)
Principal repayments on
"held-to-maturity" mortgage-backed
securities.............................. 119,430 162,031
Capital expenditures..................... (146,244) (143,035)
Contributions in aid of construction..... 8,482 9,114
Other.................................... (7,600) (2,733)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES.... (325,161) (474,461)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit liabilities...... 47,777 61,932
Net increase in short-term borrowings
with original maturities of
three months or less.................. 44,946 80,119
Proceeds from other short-term
borrowings.............................. 745 851
Repayment of other short-term borrowings. (2,162) (4,526)
Proceeds from securities sold under
agreements to repurchase................ 424,000 23,330
Repurchase of securities sold under
agreements to repurchase................ (220,339) --
Proceeds from advances from Federal
Home Loan Bank.......................... 355,200 584,200
Principal payments on advances from
Federal Home Loan Bank.................. (431,700) (352,000)
Proceeds from issuance of long-term debt. 48,444 83,274
Repayment of long-term debt.............. (13,400) (75,427)
Redemption of electric utility
subsidiaries' preferred stock........... (1,744) (591)
Net proceeds from issuance of common
stock................................... 13,497 10,564
Common stock dividends................... (36,840) (35,484)
Other.................................... (5,747) (8,596)
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. 222,677 367,646
--------- ---------
Net decrease in cash and equivalents..... (2,362) (32,063)
Cash and equivalents, beginning of
period.................................. 87,623 116,260
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD...... $ 85,261 $ 84,197
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(Unaudited)
- -------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto incorporated by reference in HEI's Annual
Report on SEC Form 10-K for the year ended December 31, 1994 and the
consolidated financial statements and the notes thereto in HEI's Quarterly
Report on SEC Form 10-Q for the quarters ended March 31 and June 30, 1995.
In the opinion of HEI's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by generally
accepted accounting principles to present fairly the Company's financial
position as of September 30, 1995 and December 31, 1994, the results of its
operations for the three months and nine months ended September 30, 1995 and
1994, and its cash flows for the nine months ended September 30, 1995 and 1994.
All such adjustments are of a normal recurring nature, unless otherwise
disclosed in this Form 10-Q or other referenced material. Results of operations
for interim periods are not necessarily indicative of results for the full year.
(2) ELECTRIC UTILITY SUBSIDIARY
- --------------------------------
For Hawaiian Electric Company, Inc.'s consolidated financial information,
including its commitments and contingencies, see pages 9 through 15.
(3) SAVINGS BANK SUBSIDIARY
- ----------------------------
SELECTED CONSOLIDATED FINANCIAL
INFORMATION
American Savings Bank, F.S.B. and
subsidiaries
Income statement data
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ---------------------
(in thousands) 1995 1994 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income......................... $ 59,533 $ 51,833 $ 175,094 $ 150,361
Interest expense........................ 36,577 26,789 104,551 74,704
--------- --------- --------- ---------
NET INTEREST INCOME..................... 22,956 25,044 70,543 75,657
Provision for losses.................... (242) (248) (867) (732)
Other income............................ 3,618 2,556 10,379 6,423
Operating, administrative and general
expenses............................... (16,643) (16,150) (50,298) (48,851)
--------- --------- --------- ---------
OPERATING INCOME........................ 9,689 11,202 29,757 32,497
Income taxes............................ 4,047 4,669 12,462 13,538
--------- --------- --------- ---------
NET INCOME.............................. $ 5,642 $ 6,533 $ 17,295 $ 18,959
========= ========= ========= =========
</TABLE>
4
<PAGE>
American Savings Bank, F.S.B. and subsidiaries
Balance sheet data
September 30, December 31,
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
ASSETS
Cash and equivalents............................ $ 83,063 $ 76,502
Investment securities........................... 34,097 32,523
Mortgage-backed securities...................... 1,318,300 1,067,287
Loans receivable, net........................... 1,756,308 1,824,055
Other........................................... 73,095 69,829
Goodwill and other intangibles.................. 42,298 45,455
---------- ----------
$3,307,161 $3,115,651
========== ==========
LIABILITIES AND EQUITY
Deposit liabilities............................. $2,177,087 $2,129,310
Securities sold under agreements to repurchase.. 329,392 123,301
Advances from Federal Home Loan Bank............ 539,874 616,374
Other........................................... 56,946 51,078
---------- ----------
3,103,299 2,920,063
Common stock equity............................. 203,862 195,588
---------- ----------
$3,307,161 $3,115,651
========== ==========
PROPOSED LEGISLATION AFFECTING FINANCIAL INSTITUTIONS
The deposit accounts of ASB and other thrifts are insured by the Savings
Association Insurance Fund (SAIF) administered by the Federal Deposit Insurance
Corporation (FDIC). The deposit accounts of commercial banks are insured by the
Bank Insurance Fund (BIF) administered by the FDIC. In order to capitalize
these funds, thrifts and banks have been paying costs of insurance ranging from
23 cents to 31 cents per $100 of deposits. However, under existing law these
assessment rates are to drop when the SAIF and BIF individually reach a required
1.25% reserve ratio. The BIF has reached the required reserve level, but the
SAIF is unlikely to do so at present insurance rates for several years.
Accordingly, in August 1995, the FDIC reduced the deposit insurance assessment
rate that most commercial banks will be paying to between 4 cents-5 cents per
$100 of deposits, whereas ASB and other thrifts will continue to pay at the rate
of 23 cents or more per $100 of deposits, depending on their risk
classification. This disparity places ASB at a disadvantage in competing with
commercial banks.
There have been a number of legislative proposals to address this situation,
including making a one-time or phased-in assessment of thrifts to permit
capitalization of SAIF up to required levels, followed by a merger of the two
funds; eliminating or reducing the disparity in the assessment rates paid by
banks or thrifts if the SAIF is recapitalized through the assessment; and
merging bank and thrift charters. Certain of these proposals, if adopted, could
have a material adverse effect on the Company. For example, if a one-time
assessment of 85 cents for every $100 of deposits is imposed, it is estimated
that ASB would be assessed approximately $18 million on a pre-tax basis ($11
million after tax), based on ASB's deposit liabilities as of March 31, 1995. If
thrift and bank charters are merged, HEI and its other subsidiaries might become
subject to the restrictions on the permissible activities of a bank holding
company. While certain of the proposals under consideration would grandfather
the activities of existing savings and loan holding companies, management cannot
predict whether or in what form any of these proposals might ultimately be
adopted or the extent to which the business of the Company might be affected.
(4) REAL ESTATE SUBSIDIARY
- ---------------------------
MPC and its subsidiaries' total real estate project inventory, equity investment
in real estate joint ventures and loans and advances to unconsolidated joint
ventures or joint venture partners amounted to $51 million at September 30, 1995
and December 31, 1994. MPC's present focus is to reduce its current investment
in real estate development assets and increase cash flow by continuing the
development and sales of its existing projects. There are currently no plans to
invest in new projects.
5
<PAGE>
At September 30, 1995, 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 $6.2 million of outstanding loans and $4.9 million of additional
undrawn loan facilities. All such loans are collateralized by real property. At
September 30, 1995, HEI had agreed with the lenders of construction loans and
loan facilities, of which approximately $11.0 million was outstanding and $6.1
million was undrawn, that it will maintain ownership of 100% of the stock of MPC
and that it intends, subject to good and prudent business practices, to keep MPC
financially sound and responsible to meet its obligations as guarantor.
(5) CASH FLOWS
- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized amounts) and income taxes was as
follows:
Nine months ended
September 30,
------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------------
Interest (including interest paid by savings bank, but
excluding interest paid on nonrecourse debt from
leveraged leases)....................................... $139,404 $108,688
======== ========
Interest on nonrecourse debt from leveraged leases........ $ 4,764 $ 5,001
======== ========
Income taxes.............................................. $ 31,981 $ 31,618
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
In the nine months ended September 30, 1995, ASB received $223 million in
mortgage-backed securities in exchange for loans.
Common stock dividends reinvested by shareholders in HEI common stock in noncash
transactions amounted to $14.6 million and $13.2 million for the nine months
ended September 30, 1995 and 1994, respectively.
The allowance for equity funds used during construction, which was capitalized
primarily as part of the cost of electric utility plant, amounted to $7.6
million and $6.4 million for the nine months ended September 30, 1995 and 1994,
respectively.
In March 1994, Malama Development Corp.'s Baldwin*Malama partnership closed on
an option to purchase approximately 147 acres of land on the island of Maui from
Baldwin Pacific Properties, Inc. Of the total land purchase price of $9.9
million, Baldwin*Malama issued mortgage notes payable of $8.0 million in noncash
consideration.
(6) ACCOUNTING CHANGES
- -----------------------
LONG-LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows derived from an asset
is less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss is based on the fair value of the asset.
Generally, SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell.
SFAS No. 121 also requires that a rate-regulated enterprise recognize an
impairment loss for the amount of costs excluded by a regulator from the
enterprise's rate base.
6
<PAGE>
The Company will adopt the provisions of SFAS No. 121 on January 1, 1996. The
Company does not believe that the impact of the adoption of SFAS No. 121 on its
consolidated financial condition or results of operations will be material.
MORTGAGE SERVICING RIGHTS
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." SFAS No. 122 requires that a mortgage banking enterprise (as defined)
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans based on their relative fair
values if it is practicable to estimate those fair values. The provisions of
SFAS No. 122 will be adopted by ASB on January 1, 1996. If SFAS No. 122 had been
adopted on January 1, 1995, it would not have had a material effect on the
Company's consolidated financial condition or results of operations.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a new, fair value based method of
accounting for stock-based compensation, but does not require an entity to adopt
the new method for purposes of preparing its basic financial statements. For
entities not adopting the new method, SFAS No. 123 requires that they disclose
in their footnotes pro forma net income and earnings per share information as if
the fair value based method had been adopted. The disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995. The Company plans to comply with the disclosure
requirements of SFAS No. 123 in its financial statements for 1996.
(7) DISCONTINUED OPERATIONS
- ----------------------------
THE HAWAIIAN INSURANCE & GUARANTY CO., LIMITED
HIG and its subsidiaries (collectively, the HIG Group) are property and casualty
insurance companies. HEIDI was the holder of record of all the common stock of
HIG until August 16, 1994. In December 1992, due to a significant increase in
the estimate of policyholder claims from Hurricane Iniki, the HEI Board of
Directors concluded it would not contribute additional capital to HIG and the
remaining investment in the HIG Group was written off. On December 24, 1992, a
formal rehabilitation order vested full control over the HIG Group in the
Insurance Commissioner (the Rehabilitator) and her deputies.
On April 12, 1993, the Rehabilitator, the HIG Group and others filed a complaint
against HEI, HEIDI and others. The complaint, which was subsequently amended,
set forth several separate counts, including claims that directors and officers
of HEI, HEIDI and the HIG Group were responsible for the losses suffered by the
HIG Group and claims that HEI and/or HEIDI should be held liable for HIG's
obligations. The lawsuit was settled in 1994 and in August 1994, $32 million was
disbursed to the Rehabilitator. In exchange, all the plaintiffs released their
claims against HEI, its affiliates and their past and present officers and
directors.
The $32 million settlement amount, less income tax benefits and certain amounts
recognized in previously established reserves, resulted in a $15 million after-
tax charge to discontinued operations in 1993. HEI and HEIDI are seeking
reimbursement for the settlement and defense costs from their insurance
carriers. One of the insurance carriers has filed a declaratory relief action
seeking resolution of insurance coverage and other policy issues, and HEI and
HEIDI have filed counterclaims. The trial date has been postponed pending a
judge's ruling on several motions. Recoveries from HEI's insurance carriers, if
any, will be recognized when realized.
In December 1994, five insurance agencies, which had served as insurance agents
for the HIG Group, filed a complaint against HEI, HEIDI and others. The
complaint set forth several causes of action, including breach of contract and
piercing the corporate veil. The plaintiffs 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 August 1995,
the court granted defendants' motion for summary judgment. However, the order
dismissing the case has not been filed and plaintiffs have indicated their
intention to pursue an appeal. 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.
7
<PAGE>
(8) LEVERAGED LEASES
- ---------------------
HEIIC owns commercial real estate which is subject to several leveraged lease
agreements entered into in 1987. HEIIC plans to sell a portion of the commercial
real estate to a lessee pursuant to the provisions of the leveraged lease
agreement. As a result of this planned sale, HEIIC recorded a net loss of $1.3
million in the third quarter of 1995.
(9) REGULATORY ASSETS
- ----------------------
Regulatory assets at September 30, 1995 and December 31, 1994 included the
following deferred costs:
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits other than pensions..... $ 35,141 $36,670
Income taxes.................................... 29,493 23,522
Integrated resource planning costs.............. 8,790 7,189
Unamortized debt expense on retired issuances... 7,023 7,513
Computer system development costs............... 6,829 6,090
Vacation earned, but not yet taken.............. 6,582 5,972
Preliminary plant costs on suspended project.... 5,759 5,768
Other........................................... 2,794 2,533
-----------------------------
$102,411 $95,257
=============================
</TABLE>
In the first quarter of 1995, the Company applied to the PUC for recovery of the
preliminary plant costs on suspended project.
8
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
(in thousands, except par value) 1995 1994
- ------------------------------------------------------------------------------
ASSETS
Utility plant, at cost
Property, plant and equipment................. $2,261,390 $2,129,274
Construction in progress...................... 170,394 164,247
Less--accumulated depreciation................ (752,508) (702,945)
---------- ----------
NET UTILITY PLANT....................... 1,679,276 1,590,576
---------- ----------
Current assets
Cash and equivalents.......................... 285 10,694
Customer accounts receivable, net............. 63,139 60,406
Accrued unbilled revenues, net................ 42,078 38,435
Other accounts receivable, net................ 9,656 10,302
Fuel oil stock, at average cost............... 17,507 21,966
Materials and supplies, at average cost....... 20,626 20,108
Prepayments and other......................... 2,909 2,028
---------- ----------
TOTAL CURRENT ASSETS.................... 156,200 163,939
---------- ----------
Other assets
Regulatory assets............................. 99,794 92,524
Other......................................... 48,798 42,081
---------- ----------
TOTAL OTHER ASSETS...................... 148,592 134,605
---------- ----------
$1,984,068 $1,889,120
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock, $6 2/3 par value, authorized
50,000 shares; outstanding 11,813 shares..... $ 78,766 $ 78,766
Premium on capital stock...................... 246,689 246,600
Retained earnings............................. 341,097 308,535
---------- ----------
COMMON STOCK EQUITY..................... 666,552 633,901
Cumulative preferred stock
Not subject to mandatory redemption........ 48,293 48,293
Subject to mandatory redemption............ 40,880 42,470
Long-term debt, net........................... 517,182 468,653
---------- ----------
TOTAL CAPITALIZATION.................... 1,272,907 1,193,317
---------- ----------
Current liabilities
Long-term debt due within one year............ 9,902 20,933
Preferred stock sinking fund requirements..... 2,220 2,374
Short-term borrowings - nonaffiliates......... 134,011 117,866
Short-term borrowings - affiliate............. 17,000 --
Accounts payable.............................. 45,807 54,662
Interest and preferred dividends payable...... 12,645 8,575
Income taxes payable.......................... 5,210 3,300
Other taxes accrued........................... 39,967 39,666
Other......................................... 20,789 30,111
---------- ----------
TOTAL CURRENT LIABILITIES............... 287,551 277,487
---------- ----------
Deferred credits and other liabilities
Deferred income taxes......................... 111,472 108,362
Unamortized tax credits....................... 46,631 44,939
Other......................................... 84,177 86,380
---------- ----------
TOTAL DEFERRED CREDITS AND OTHER
LIABILITIES............................ 242,280 239,681
---------- ----------
Contributions in aid of construction............. 181,330 178,635
---------- ----------
$1,984,068 $1,889,120
========== ==========
See accompanying notes to HECO's consolidated financial statements.
9
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------------
(in thousands, except for ratio of earnings to fixed charges) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES............................................... $260,123 $247,844 $733,945 $665,826
-------- -------- -------- --------
OPERATING EXPENSES
Fuel oil......................................................... 57,365 53,329 154,658 133,409
Purchased power.................................................. 70,250 73,514 204,993 205,794
Other operation.................................................. 30,429 31,205 98,824 89,299
Maintenance...................................................... 11,349 11,654 34,982 32,933
Depreciation..................................................... 16,977 16,017 50,987 48,110
Taxes, other than income taxes................................... 24,729 23,031 69,496 61,590
Income taxes..................................................... 16,760 13,386 40,030 31,216
-------- -------- -------- --------
227,859 222,136 653,970 602,351
-------- -------- -------- --------
OPERATING INCOME................................................. 32,264 25,708 79,975 63,475
-------- -------- -------- --------
OTHER INCOME
Allowance for equity funds used
during construction........................................... 2,590 2,381 7,575 6,427
Other, net....................................................... 1,704 1,559 4,651 4,160
-------- -------- -------- --------
4,294 3,940 12,226 10,587
-------- -------- -------- --------
INCOME BEFORE INTEREST AND OTHER CHARGES......................... 36,558 29,648 92,201 74,062
-------- -------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt....................................... 8,730 7,838 25,395 23,368
Amortization of net bond premium and expense..................... 319 294 953 831
Other interest charges........................................... 2,291 1,468 6,343 3,571
Allowance for borrowed funds used during construction............ (1,327) (1,070) (3,832) (2,886)
Preferred stock dividends of subsidiaries........................ 691 707 2,075 2,137
-------- -------- -------- --------
10,704 9,237 30,934 27,021
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS OF HECO.................. 25,854 20,411 61,267 47,041
Preferred stock dividends of HECO................................ 1,035 1,083 3,108 3,249
-------- -------- -------- --------
NET INCOME FOR COMMON STOCK...................................... $ 24,819 $ 19,328 $ 58,159 $ 43,792
======== ======== ======== ========
Ratio of earnings to fixed charges (SEC method).................. 3.66 3.36
======== ========
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------------
(in thousands) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD........................... $325,048 $288,612 $308,535 $275,401
Net income for common stock...................................... 24,819 19,328 58,159 43,792
Common stock dividends........................................... (8,770) (7,594) (25,597) (18,847)
-------- -------- -------- --------
RETAINED EARNINGS, END OF PERIOD................................. $341,097 $300,346 $341,097 $300,346
======== ======== ======= ========
HEI owns all the common stock of HECO. Therefore, per share data with respect to shares of common stock of HECO are not meaningful.
See accompanying notes to HECO's consolidated financial statements.
10
</TABLE>
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
(in thousands) 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before preferred stock dividends
of HECO..................................$ 61,267 $ 47,041
Adjustments to reconcile income before
preferred stock dividends of HECO to
net cash provided by operating
activities
Depreciation and amortization of
property, plant and equipment...... 50,987 48,110
Other amortization.................. 4,099 4,784
Deferred income taxes............... 4,040 1,962
Tax credits, net.................... 2,976 2,393
Allowance for equity funds used
during construction................ (7,575) (6,427)
Changes in assets and liabilities
Increase in accounts
receivable...................... (2,087) (4,917)
Increase in accrued unbilled
revenues........................ (3,643) (6,484)
Decrease (increase) in fuel
oil stock....................... 4,459 (2,171)
Decrease (increase) in
materials and supplies.......... (518) 1,053
Increase in regulatory assets.... (3,708) (8,397)
Increase (decrease) in
accounts payable................ (8,855) 7,034
Increase in interest and
preferred dividends payable..... 4,070 2,556
Changes in other assets and
liabilities..................... (14,469) (10,555)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 91,043 75,982
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................... (138,089) (131,225)
Contributions in aid of construction...... 8,482 9,114
Other..................................... (7,995) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES..... (137,602) (122,111)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock dividends.................... (25,597) (18,847)
Preferred stock dividends................. (3,108) (3,249)
Proceeds from issuance of long-term debt.. 48,444 48,274
Repayment of long-term debt............... (11,000) (48,027)
Redemption of preferred stock............. (1,744) (591)
Net increase in short-term borrowings
from nonaffiliates and affiliate with
original maturities of three months or
less..................................... 33,145 71,919
Other..................................... (3,990) (4,392)
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................... 36,150 45,087
--------- ---------
Net decrease in cash and equivalents...... (10,409) (1,042)
Cash and equivalents, beginning of
period................................... 10,694 1,922
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD.......$ 285 $ 880
========= =========
See accompanying notes to HECO's consolidated financial
statements.
</TABLE>
11
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(Unaudited)
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto incorporated by reference in HECO's Annual
Report on SEC Form 10-K for the year ended December 31, 1994 and the
consolidated financial statements and the notes thereto in HECO's Quarterly
Report on SEC Form 10-Q for the quarters ended March 31 and June 30, 1995.
In the opinion of HECO's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by generally
accepted accounting principles to present fairly the financial position of HECO
and its subsidiaries as of September 30, 1995 and December 31, 1994, and the
results of their operations for the three months and nine months ended September
30, 1995 and 1994, and their cash flows for the nine months ended September 30,
1995 and 1994. All such adjustments are of a normal recurring nature, unless
otherwise disclosed in this Form 10-Q or other referenced material. Results of
operations for interim periods are not necessarily indicative of results for the
full year.
(2) CASH FLOWS
- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized amounts) and income taxes was as
follows:
<TABLE>
<CAPTION>
Nine months
ended
September 30,
----------------
(in thousands) 1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Interest............................... $23,890 $22,556
================
Income taxes........................... $30,479 $26,005
================
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
</TABLE>
The allowance for equity funds used during construction, which was capitalized
primarily as part of the cost of electric utility plant, amounted to $7.6
million and $6.4 million for the nine months ended September 30, 1995 and 1994,
respectively.
(3) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
HELCO POWER SITUATION
HELCO is the electric utility subsidiary of HECO, serving the island of Hawaii.
As of December 31, 1994, HELCO's generating and firm purchased capability was
197 MW, 9% of HECO consolidated generating and firm purchased capability of
2,102 MW.
HELCO has a power purchase agreement with Hilo Coast Processing Company (HCPC),
currently for 22 MW of firm capacity. In December 1994, at a time when the HCPC
contract was for delivery of 18 MW, HCPC filed a Chapter 11 bankruptcy petition.
In July 1995, the bankruptcy court approved an amended and restated HELCO and
HCPC power purchase agreement for 22 MW of firm capacity and the dismissal of
HCPC from bankruptcy, subject to a condition that was satisfied.
12
<PAGE>
HELCO has a power purchase agreement with PGV for 25 MW of firm capacity. HELCO
is currently negotiating with PGV for an additional 5 MW of firm capacity, which
is projected to be available in 1996 if negotiations are successful.
HELCO concluded some time ago that by this time there would be an unsatisfactory
margin between its forecasted load and its generating and firm purchase power
capability. In view of its need for additional power, HELCO has been proceeding
with plans to install two 20-MW combustion turbines, followed by an 18-MW heat
steam recovery generator, at which time these units would be converted to a
56-MW (net) combined-cycle unit. In January 1994, the PUC had approved
expenditures for the first combustion turbine, which HELCO had planned to
install in late 1994. However, installation has been delayed because HELCO has
encountered procedural and other difficulties in obtaining the necessary air
permit and Conservation District Use Permit (CDUP) that would allow the 56-MW
unit to be constructed. The Hawaii Department of Health, in September 1995, sent
the air permit to the EPA for its approval, and a contested case hearing with
respect to the CDUP is scheduled for November 1995. Because of the delays that
have occurred, the earliest that the combustion turbines could now be installed
is the third quarter of 1996.
During the period of delay, two independent power producers (IPPs) filed
separate complaints against HELCO with the PUC, alleging that they are entitled
to a power purchase contract to provide HELCO with additional capacity, which
under HELCO's current estimates of generating capacity requirements would be in
place of the planned 56-MW addition by HELCO. In July 1995, the PUC issued a
decision and order in a docket involving one of the IPPs, Kawaihae Cogeneration
Partners. In the order, the PUC stated its position on various issues affecting
HELCO's avoided cost calculations (several of which were contrary to HELCO's
recommendations).
In September 1995, the PUC allowed HELCO to continue to pursue construction of
and commit expenditures for the second combustion turbine and the steam recovery
generator for its planned combined-cycle unit, stating in its order that "no
part of the project may be included in HELCO's rate base unless and until the
project is in fact installed, and is used and useful for utility purposes." In
view of permitting delays and the need for power, the PUC also ordered HELCO to
continue negotiating with the IPPs and directed that the facility to be built
should be the one that can be most expeditiously put into service at "allowable
cost". In September 1995, HELCO provided proposals to the two IPPs seeking to
provide HELCO with additional capacity, and further negotiations have been
undertaken. HELCO and the two IPPs have submitted reports to the PUC on the
status of these negotiations.
Management cannot determine at this time whether the negotiations with the IPPs
will result in a power purchase agreement. If the negotiations result in a power
purchase agreement, HELCO will need to evaluate alternatives for the costs ($41
million as of September 30, 1995) already incurred to put into service its own
56-MW combined-cycle unit. HELCO might be required to write off a portion of the
incurred costs if such costs ultimately are not recoverable from customers or
others.
In June 1995, HELCO filed with the PUC its generation resource contingency plan
detailing alternatives and mitigation measures to address possible further
delays in obtaining the permits necessary to construct its combined-cycle unit.
HELCO is actively working to implement viable, timely and cost-effective
alternatives, including demand-side management measures, dispersed generation
additions and the delay of unit retirements. HELCO filed an application with
the PUC in October 1995 seeking approval of expenditures for dispersed
generation diesel units (at an estimated cost of $7 million) that could provide
power by late 1996. Until the margin between the forecasted load and capacity
reaches an acceptable level, management believes that there is a risk of
capacity shortages on the island of Hawaii that could result in rolling
blackouts within the next year.
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.
Management cannot predict the timing and outcome of any PUC decision and order,
if any, with respect to the outages.
As a result of the April 9, 1991 outage, HECO received 3,063 customer claims,
which totaled approximately $7.8 million, within the time limit to file claims.
1,530 of these claims were for property damage and most have been settled, with
no admission of liability, or closed. None of the other 1,533 claims, which
generally involve personal injury or economic loss, such as lost profits, has
been settled. 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 through the exercise of reasonable diligence and care.
13
<PAGE>
Seven direct or indirect business customers 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 filed an answer which denies the principal
allegations in the complaint. In August 1995, the circuit court ruled that it
would not certify the case as a class action. Trial has been set for January
1996.
In 1991, 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 financial condition or results of
operations of HECO and its subsidiaries.
(4) ACCOUNTING CHANGE
- ----------------------
See note (6), "Accounting changes--Long-lived assets," in HEI's "Notes to
consolidated financial statements."
(5) SUMMARIZED FINANCIAL INFORMATION
- -------------------------------------
Summarized financial information for HECO's consolidated subsidiaries, HELCO and
MECO, is as follows:
<TABLE>
<CAPTION>
BALANCE SHEET DATA
HELCO MECO
----------------------------- -----------------------------
September 30, December 31, September 30, December 31,
(in thousands) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets............................. $ 26,944 $ 25,151 $ 25,533 $ 29,204
Noncurrent assets.......................... 363,068 335,725 294,620 272,019
-------- -------- -------- --------
$390,012 $360,876 $320,153 $301,223
======== ======== ======== ========
Common stock equity........................ $126,451 $120,908 $112,716 $108,313
Cumulative preferred stock
Not subject to mandatory redemption...... 10,000 10,000 8,000 8,000
Subject to mandatory redemption.......... 7,800 7,800 6,355 6,545
Current liabilities........................ 73,767 59,787 46,881 34,197
Noncurrent liabilities..................... 171,994 162,381 146,201 144,168
-------- -------- -------- --------
$390,012 $360,876 $320,153 $301,223
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
HELCO MECO
-------------------------------------- --------------------------------------
Three months ended Nine months ended Three months ended Nine months ended
September 30, September 30, September 30, September 30,
------------------ ----------------- ------------------ -----------------
(in thousands) 1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues........ $34,937 $34,383 $101,183 $94,001 $34,029 $31,955 $95,270 $88,614
Operating income.......... 4,613 3,227 11,969 8,551 4,406 4,228 12,296 11,905
Net income for common
stock.................. 3,983 2,327 9,642 5,862 3,310 2,798 8,409 7,242
</TABLE>
14
<PAGE>
(6) RECONCILIATION OF ELECTRIC UTILITY OPERATING INCOME PER HEI AND HECO
- -------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
(in thousands) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING INCOME FROM REGULATED AND NONREGULATED ACTIVITIES
BEFORE INCOME TAXES (PER HEI CONSOLIDATED STATEMENTS OF INCOME) .. $ 50,671 $ 40,649 $124,383 $ 98,790
Deduct:
Income taxes on regulated activities ........................... (16,760) (13,386) (40,030) (31,216)
Revenues from nonregulated activities .......................... (1,763) (1,820) (4,968) (4,555)
Add:
Expenses from nonregulated activities .......................... 116 265 590 456
-------- -------- -------- --------
OPERATING INCOME FROM REGULATED ACTIVITIES AFTER INCOME TAXES
(PER HECO CONSOLIDATED STATEMENTS OF INCOME) ..................... $ 32,264 $ 25,708 $ 79,975 $ 63,475
======== ======== ======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion should be read in conjunction with the consolidated
financial statements and accompanying notes.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED
- ------------ Three months ended
September 30,
(in thousands, except --------------------
per share amounts) 1995 1994 % change Primary reason(s) for significant change*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $336,881 $319,156 6 Increase for the electric utility and
savings bank segments
Operating income .............. 56,675 51,550 10 Increase for the electric utility segment
Net income .................... 25,151 22,691 11 Higher operating income and lower
effective tax rate, partly offset by
higher interest expense due to higher
average borrowings
Earnings per common share ..... 0.86 0.80 8 See explanation for "net income," partly
offset by an increase in shares
outstanding
Weighted average number of
common shares outstanding ... 29,331 28,255 4 Issuances under the Dividend Reinvestment
and Stock Purchase Plan and other plans
</TABLE>
* Also see segment discussions which follow.
15
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
(in thousands, except --------------------
per share amounts) 1995 1994 % change Primary reason(s) for significant change*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $963,052 $868,754 11 Increase for the electric utility and
savings bank segments
Operating income .............. 147,054 127,909 15 Increase for the electric utility
segment
Net income .................... 61,878 52,111 19 Higher operating income and lower
effective tax rate, partly offset by
higher interest expense due to higher
average borrowings
Earnings per common share ..... 2.13 1.86 15 See explanation for "net income,"
partly offset by an increase in shares
outstanding
Weighted average number of
common shares outstanding .... 29,058 28,014 4 Issuances under the Dividend Reinvestment
and Stock Purchase Plan and other plans
</TABLE>
* Also see segment discussions which follow.
Following is a general discussion of the results of operations by business
segment.
<TABLE>
<CAPTION>
ELECTRIC UTILITY
- ---------------- Three months ended
September 30,
(in thousands, except --------------------
per share amounts) 1995 1994 % change Primary reason(s) for significant change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $261,886 $249,664 5 Higher rates ($11 million), higher fuel
oil prices ($3 million) which are passed
on to customers and a 0.9% increase in
KWH sales ($2 million), partly offset by
lower revenues due to change in KWH sales
mix
Expenses
Fuel oil ..................... 57,365 53,329 8 Higher fuel oil prices and more KWHs
generated
Purchased power .............. 70,250 73,514 (4) Lower costs associated with a power
purchase agreement due in part to prior
year nonrecurring expenses, partly offset
by more KWHs purchased
Other ........................ 83,600 82,172 2 Higher taxes, other than income taxes,
and depreciation expense, partly offset
by lower other operation and maintenance
expense
Operating income .............. 50,671 40,649 25 Higher rates and a 0.9% increase in KWH
sales, partly offset by higher expenses
Net income .................... 24,819 19,328 28 Higher operating income and higher AFUDC,
partly offset by higher interest expense
Fuel oil price per barrel ..... 21.26 20.10 6
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
(in thousands, except --------------------
per share amounts) 1995 1994 % change Primary reason(s) for significant change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $738,913 $670,381 10 Higher rates ($40 million), higher fuel
oil prices ($23 million) which are
passed on to customers and a 1.7%
increase in KWH sales ($11 million) due
primarily to an increase in load partly
from warmer weather
Expenses
Fuel oil ..................... 154,658 133,409 16 Higher fuel oil prices and more KWHs
generated
Purchased power .............. 204,993 205,794 0 Lower costs associated with a power
purchase agreement due in part to prior
year nonrecurring expenses, partly
offset by more KWHs purchased
Other ........................ 254,879 232,388 10 Higher other operation and maintenance
expense including the increase in PBOP
expense, depreciation expense and taxes,
other than income taxes
Operating income .............. 124,383 98,790 26 Higher rates and a 1.7% increase in KWH
sales, partly offset by higher expenses
Net income .................... 58,159 43,792 33 Higher operating income and higher AFUDC,
partly offset by higher interest expense
Fuel oil price per barrel ..... 20.57 18.07 14
</TABLE>
There have been a number of rate changes for HECO and its subsidiaries in 1994
and 1995. Among the most significant changes were HECO's interim rate increases
and the rate increase for PBOP for HECO and its subsidiaries. HECO received
interim rate relief in April, May and November 1994 for test year 1994. HECO's
first quarter 1994 results did not include interim rate relief. For test year
1995, HECO received interim rate relief on January 1, 1995 and in May, August
and November 1995. The PUC's decision allowing recovery of PBOP costs was also
effective on January 1, 1995. Thus, consolidated revenues for the first nine
months of 1995 included approximately $40 million from rate increases that
became effective after the first nine months of 1994.
MAJOR CUSTOMERS
For 1994, approximately 10% of consolidated operating revenues of HECO and its
subsidiaries was from the sale of electricity to various federal government
agencies. One of HECO's large customers, the Naval Base at Barbers Point, Oahu,
is expected to be closed within the next few years. However, HECO anticipates
that the base closure will result in little, if any, loss in aggregate KWH
sales, as the Navy will continue to occupy portions of Barbers Point and much of
the surplus facilities and land currently not utilized by the Navy will probably
be occupied by state agencies.
The Navy is currently conducting preliminary self-/co-generation feasibility
studies for the Pearl Harbor Naval Base and the Marine Corps Base Hawaii. The
studies were initiated to investigate cost reduction opportunities. HECO is
working with the Navy to develop a long-term service arrangement that is
beneficial to both parties.
17
<PAGE>
On March 8, 1994, President Clinton signed an Executive Order which mandates
that each federal agency develop and implement a program with the intent of
reducing energy consumption by 30% by the year 2005. The 30% reduction will be
measured relative to the agency's 1985 energy use. HECO is working with various
federal government agencies such as the Department of Defense to implement
demand-side management programs which will help them achieve their energy
reduction objectives. Some Department of Defense installations may sign a Basic
Ordering Agreement with HECO under which HECO would finance and install energy
conservation projects for them. Neither HEI nor HECO management can predict with
certainty the impact of President Clinton's Executive Order on the future
results of operations of the Company or of HECO and its subsidiaries.
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.
Pending rate requests
- ---------------------
. In December 1993, HECO applied to the PUC for permission to increase electric
rates, based on a 1995 test year. The requested increase, as subsequently
revised, represents an increase of approximately $28.2 million in annual
revenues over revenues from permanent rates in effect at the time of the revised
filing, and was based on a 13.25% return on average common equity. The revised
requested increase was needed to cover rising operating costs and costs of new
capital projects to maintain and improve service reliability. In December 1994,
HECO received an interim decision and order authorizing an increase of $13.5
million, or 1.9%, in annual revenues, based on a 12.6% return on average common
equity. Approximately $10.6 million, $1.5 million and $1.4 million of the
interim increase took effect on January 1, May 1, and November 1, 1995,
respectively. HECO received another interim decision and order authorizing an
increase of $5.4 million, or 0.8%, in annual revenues, effective August 31,
1995, to cover the carrying cost of two transmission lines in western Oahu.
. In February 1995, MECO applied to the PUC for permission to increase electric
rates to provide $23 million in annual revenues, which represents a 17.4%
increase over current rates, based on a 1996 test year and a 13.5% return on
average common equity. A hearing on the application is scheduled for January
1996.
. In March 1995, HELCO applied to the PUC for permission to increase electric
rates to provide $27 million in additional annual revenues (excluding the effect
of the potential imposition on HELCO of real property taxes), which represents
an 18.7% increase over current rates, based on a 1996 test year and a 13.5%
return on average common equity. A hearing on the application is scheduled for
January 1996.
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.
Self-Insured Property Damage Reserve
- ------------------------------------
In March 1995, the PUC opened a generic docket to investigate whether the public
utilities in the State of Hawaii should be allowed to establish self-insured
property damage reserves to cover the cost of damage to their facilities and
equipment caused by catastrophic disasters. HECO's overhead transmission and
distribution system is susceptible to wind and earthquake damage, and its
underground system is susceptible to earthquake and flood damage. The overhead
and underground transmission and distribution systems have a replacement value
roughly estimated at about $2 billion and are uninsured because the amount of
transmission and distribution system insurance available is limited and the
premiums are extremely high. Hearings on this docket are scheduled for August
1996.
18
<PAGE>
<TABLE>
<CAPTION>
SAVINGS BANK
- ------------
Three months ended
September 30,
------------------
%
(in thousands) 1995 1994 change Primary reason(s) for significant change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................ $ 63,151 $ 54,389 16 Higher interest income as a result of higher average mortgage-backed
securities balance and yield, partly offset by lower average loans
receivable balance
Operating income........ 9,689 11,202 (14) Lower net interest income due to lower interest rate spread
Net income.............. 5,642 6,533 (14) Lower operating income
Interest rate spread.... 2.84% 3.51% 18 basis points increase in the weighted average yield on interest-
earning assets, offset by 85 basis points increase in the weighted
average rate on interest-bearing liabilities
Nine months ended
September 30,
------------------
%
(in thousands) 1995 1994 change Primary reason(s) for significant change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................ $185,473 $156,784 18 Higher interest income as a result of higher average mortgage-backed
securities balance and yield, partly offset by lower average loans
receivable balance
Operating income........ 29,757 32,497 (8) Lower net interest income due to lower interest rate spread and higher
compensation and employee benefits expenses
Net income.............. 17,295 18,959 (9) Lower operating income
Interest rate spread.... 2.93% 3.67% 10 basis points increase in the weighted average yield on interest-
earning assets, offset by 84 basis points increase in the weighted
average rate on interest-bearing liabilities
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 deposit and loan rates, increased 250 basis points to 5.5%. In the first nine months of 1995, the federal funds rate
increased a net 25 basis points to 5.75%.
The demand for mortgage loans has decreased due to the slow real estate market in Hawaii.
Another trend has been the outflow of deposits partly due to competition from money market funds. In the first nine months of 1995,
there was a savings outflow of $10 million, offset by interest credited to deposit accounts of $58 million. In 1994, for funding
loans and purchasing mortgage-backed securities, ASB turned to higher cost advances from the Federal Home Loan Bank and securities
sold under agreements to repurchase. In the first nine months of 1995, securities sold under agreements to repurchase became a more
significant source of funds for ASB as they were generally a less costly source of funds than advances from the Federal Home Loan
Bank. Securities sold under agreements to
</TABLE>
19
<PAGE>
repurchase and advances, rather than deposits, are increasingly more important
sources of funds for ASB and this puts 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 1994 and the first nine months of 1995,
generally rising interest rates caused the cost of interest-bearing liabilities
to increase. However, the average yield on interest-earning assets for 1994
decreased 48 basis points compared to 1993 due in part to 1993's refinancings
and the lag in the repricing of adjustable loans and mortgage-backed securities.
The average yield for the first nine months of 1995 increased only 10 basis
points over the first nine months of 1994 as the repricing of interest-earning
assets lagged the repricing of interest-bearing liabilities. Further, the
flattening of the yield curve also contributed to the decrease in ASB's interest
rate spread. 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 and the yield curve widens,
however, ASB's spread is expected to improve.
<TABLE>
<CAPTION>
OTHER
- ----- Three months ended
September 30,
------------------
(in thousands) 1995 1994 % change Primary reason(s) for significant change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $11,844 $15,103 (22) HEIIC pre-tax loss on disposition of a
leveraged lease investment ($2 million),
MPC's Baldwin* Malama lower unit sales
and freight transportation subsidiaries'
lower contract tows and harbor assists
Operating loss ................ (3,685) (301) NM HEIIC pre-tax loss on disposition of a
leveraged lease investment, freight
transportation subsidiaries' lower
contract tows and harbor assists and
higher maintenance expense and startup
costs of HEIPC
<CAPTION>
Nine months ended
September 30,
------------------
(in thousands) 1995 1994 % change Primary reason(s) for significant change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $38,666 $41,589 (7) MPC deferral of agreement of sales
revenues and reduced margins from joint
venture sales and HEIIC's loss on
disposition of a leveraged lease
investment, partly offset by YB's higher
general freight and interstate revenues
Operating loss ................ (7,086) (3,378) NM HEIIC loss on disposition of a leveraged
lease investment, startup costs of HEIPC
and real estate activity losses
</TABLE>
NM Not meaningful
The "Other" business segment includes results of operations from HTB and its
subsidiary, YB, which are maritime freight transportation companies; HEIIC,
which is a company primarily holding investments in leveraged leases; MPC and
its subsidiaries, which are real estate investment and development companies;
PECS, which is an inactive energy service company; HEIPC, which is a company
formed in March 1995 to pursue independent power projects in Asia and the
Pacific and which will pursue energy conservation projects in place of PECS;
HEI and HEIDI, which are holding companies; and eliminations of intercompany
transactions.
20
<PAGE>
REAL ESTATE
In 1994 and the first nine months of 1995, MPC's real estate development
activities were adversely impacted by economic conditions. The real estate
market continued to experience slowdowns due to the weakness in Hawaii's
economy. It is not expected that there will be significant growth in Hawaii's
economy or a rebound in Hawaii's real estate market in the near term, although
the recent decline in mortgage interest rates enhances the relative
affordability of Hawaii real estate. MPC's present focus is to reduce its
current investment in real estate development assets and increase cash flow by
continuing the development and sales of its existing projects. There are
currently no plans to invest in new projects. For further information on MPC,
see note (4) in HEI's "Notes to consolidated financial statements."
OTHER
In 1995, HEIPC and its joint venture partners submitted bids on two foreign
independent power projects. To date, the bids have not been awarded. It is
anticipated that future independent power projects will be financed largely with
project debt.
DISCONTINUED OPERATIONS
- -----------------------
See note (7) in HEI's "Notes to consolidated financial statements" for
information on the discontinued operations of HIG.
ACCOUNTING CHANGES
- ------------------
For discussions of SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," see note (6) in HEI's
"Notes to consolidated financial statements" and note (4) in HECO's "Notes to
consolidated financial statements." For a discussion of SFAS No. 122,
"Accounting for Mortgage Servicing Rights" and SFAS No. 123, "Accounting for
Stock-Based Compensation," see note (6) in HEI's "Notes to consolidated
financial statements."
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company and consolidated HECO believe that their ability to generate cash,
both internally from operations and externally from debt and equity issues, is
adequate to maintain sufficient liquidity to fund their construction programs
and to cover debt retirements and other cash requirements in the foreseeable
future.
The consolidated capital structure of HEI was as follows:
<TABLE>
<CAPTION>
(in millions) September 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings................... $ 180 11% $ 137 8%
Long-term debt.......................... 754 43 718 44
Preferred stock of electric utility
subsidiaries........................... 91 5 93 6
Common stock equity..................... 721 41 682 42
------ --- ------ ---
$1,746 100% $1,630 100%
====== === ====== ===
</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.
In May 1995, Standard & Poor's (S&P) raised HECO's unsecured notes rating to
"BBB+" from the previous rating of "BBB." S&P announced that it had redefined
its criteria for distinguishing senior and junior issues of a corporate borrower
and changed the ratings of about 50 entities. S&P said the rating changes in no
way reflect any reassessment of the issuers' fundamental credit quality.
In June 1995, S&P revised its rating outlook on HEI's and HECO's ratings to
"positive" from "stable." In a press release, S&P said "[t]he outlook change
reflects several positive trends, including diminishing construction
expenditures in nearby years, continuing regulatory support, improved
reliability, higher sales volumes, and signs of a modest recovery in Hawaii's
economy, as well as expectations for gradual financial improvement."
21
<PAGE>
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.
For the first nine months of 1995, net cash provided by operating activities was
$100 million. Net cash used in investing activities was $325 million, largely
due to ASB's loan originations and consolidated HECO's capital expenditures. Net
cash provided by financing activities was $223 million, due primarily to a net
increase in securities sold under agreements to repurchase, long-term debt,
deposit liabilities and short-term borrowings, partly offset by a net decrease
in advances from Federal Home Loan Bank and by common stock dividends.
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>
(in millions) September 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings from
nonaffiliates and affiliate.............. $ 151 11% $ 118 9%
Long-term debt, net....................... 527 37 489 37
Preferred stock........................... 91 6 93 7
Common stock equity....................... 667 46 634 47
------ --- ------ ---
$1,436 100% $1,334 100%
====== === ====== ===
</TABLE>
Operating activities provided $91 million in net cash during the first nine
months of 1995. Investing activities used cash of $138 million primarily for
capital expenditures net of contributions in aid of construction. Financing
activities provided cash of $36 million primarily from net increases in long-
term debt (i.e., the drawdown of revenue bond proceeds, net of the repayments of
long-term debt) and short-term borrowings, offset by common and preferred
dividends.
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
September 30, 1995, an additional $170 million of revenue bonds had been
authorized by the Hawaii Legislature for issuance prior to the end of 1997.
SAVINGS BANK
- ------------
<TABLE>
<CAPTION>
(in millions) September 30, 1995 December 31, 1994 %
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets........................................... $3,307 $3,116 6%
Mortgage-backed securities....................... 1,318 1,067 24
Loans receivable, net............................ 1,756 1,824 (4)
Deposit liabilities.............................. 2,177 2,129 2
Securities sold under agreements to
repurchase...................................... 329 123 167
Advances from Federal Home Loan Bank............. 540 616 (12)
</TABLE>
At June 30, 1995, ASB was the fourth largest financial institution in the state
based on total assets of $3.2 billion and the third largest financial
institution based on deposits of $2.2 billion. The 24% increase in mortgage-
backed securities in the first nine months of 1995 was primarily due to the
securitization of $223 million of loans receivable. Under OTS rules, these
securitized loans (i.e., Federal National Mortgage Association mortgage-backed
securities) require less capital than loans receivable. Thus, ASB has
securitized loans to support its recent growth.
For the first nine months of 1995, cash used in ASB's investing activities was
$183 million, due largely to the origination of loans receivable and purchase of
mortgage-backed securities, partly offset by principal repayments. Cash provided
by financing activities was $165 million as a result of a net increase of $204
million in securities sold under agreements to repurchase and a $48 million
increase in deposit liabilities, partly offset by a net decrease of $77 million
in advances from the Federal Home Loan Bank of Seattle and by common stock
dividends of $10 million.
22
<PAGE>
As of September 30, 1995, ASB was in full compliance with the OTS minimum
capital requirements (noted in parenthesis) with a tangible capital ratio of
5.0% (1.5%), a core capital ratio of 5.1% (3.0%) and a risk-based capital ratio
of 11.8% (8.0%).
The OTS has adopted a rule adding an interest rate risk (IRR) component to the
existing risk-based capital requirement effective January 1, 1994. The OTS,
however, announced its intention to delay implementation of the IRR capital
deduction until it can finalize an appeals process for institutions subject to
such deductions. Institutions with an "above normal" level of IRR exposure will
be required to deduct an amount from total capital and may be required to hold
additional capital. As of September 30, 1995, ASB would not have been required
to deduct an amount from total capital or to hold additional capital if the rule
adding the IRR component had been implemented.
Federal Deposit Insurance Corporation regulations restrict the ability of
financial institutions that are not "well-capitalized" to offer interest rates
on deposits that are significantly higher than the rates offered by competing
institutions. As of September 30, 1995, ASB was "well-capitalized" (ratio
requirements noted in parenthesis) with a leverage ratio of 5.1% (5.0%), a Tier-
1 risk-based ratio of 11.3% (6.0%) and a total risk-based ratio of 11.8% (10%).
For a discussion of proposed legislation affecting financial institutions, see
note (3) in HEI's "Notes to consolidated financial statements."
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
There are no significant developments except as set forth in HEI's and HECO's
"Notes to consolidated financial statements," management's discussion and
analysis of financial condition and results of operations and Item 5, "Other
information."
ITEM 5. OTHER INFORMATION
- --------------------------
A. HECO's President and Chief Executive Officer's retirement
On September 1, 1995, Harwood. D. Williamson, 63 years old, retired from the
positions of HEI Senior Vice President and HECO President and Chief Executive
Officer. T. Michael May, 48 years old and former HECO Senior Vice President,
succeeded Mr. Williamson in these positions.
B. Ratio of earnings to fixed charges
The following tables set forth the ratio of earnings to fixed charges for HEI
and its subsidiaries for the periods indicated:
RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON ASB DEPOSITS
Nine months Years Ended December 31,
ended --------------------------------------------
September 30, 1995 1994 1993 1992 1991 1990
------------------ ---- ---- ---- ---- ----
2.03 2.22 2.25 2.08 1.99 1.76
==== ==== ==== ==== ==== ====
RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS
Nine months Years Ended December 31,
ended --------------------------------------------
September 30, 1995 1994 1993 1992 1991 1990
------------------ ---- ---- ---- ---- ----
1.62 1.69 1.65 1.50 1.46 1.39
==== ==== ==== ==== ==== ====
23
<PAGE>
For purposes of calculating the ratio of earnings to fixed charges, "earnings"
represent the sum of (i) pretax income from continuing operations (excluding
undistributed net income or net loss from less than fifty-percent-owned persons)
and (ii) fixed charges (as hereinafter defined, but excluding capitalized
interest). "Fixed charges" are calculated both excluding and including interest
on ASB's deposits during the applicable periods and represent the sum of (i)
interest, whether capitalized or expensed, incurred by HEI and its subsidiaries
plus their proportionate share of interest on debt to outsiders incurred by
fifty-percent-owned persons, but excluding interest on nonrecourse debt from
leveraged leases which is not included in interest expense in HEI's consolidated
statements of income, (ii) amortization of debt expense and discount or premium
related to any indebtedness, whether capitalized or expensed, (iii) the interest
factor in rental expense and (iv) the preferred stock dividend requirements of
HEI's subsidiaries, increased to an amount representing the pretax earnings
required to cover such dividend requirements.
The following table sets forth the ratio of earnings to fixed charges for HECO
and its subsidiaries for the periods indicated:
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine months Years Ended December 31,
ended ------------------------------------------------
September 30, 1995 1994 1993 1992 1991 1990
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.66 3.47 3.25 3.03 2.82 2.99
==== ==== ==== ==== ==== ====
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, "earnings"
represent the sum of (i) pretax income before preferred stock dividends of HECO
and (ii) fixed charges (as hereinafter defined, but excluding the allowance for
borrowed funds used during construction). "Fixed charges" represent the sum of
(i) interest, whether capitalized or expensed, incurred by HECO and its
subsidiaries, (ii) amortization of debt expense and discount or premium related
to any indebtedness, whether capitalized or expensed, (iii) the interest factor
in rental expense and (iv) the preferred stock dividend requirements of HELCO
and MECO, increased to an amount representing the pretax earnings required to
cover such dividend requirements.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
<S> <C>
(a) EXHIBITS
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 12(a) Computation of ratio of earnings to fixed charges,
nine months ended September 30, 1995 and 1994
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 12(b) Computation of ratio of earnings to fixed charges,
nine months ended September 30, 1995 and 1994
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 27(a) Financial data schedule, September 30, 1995 and
nine months ended September 30, 1995
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 27(b) Financial data schedule, September 30, 1995 and
nine months ended September 30, 1995
(b) REPORTS ON FORM 8-K
</TABLE>
During the quarter, no Current Report, Form 8-K, was filed with the SEC.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized. The signature of the undersigned
companies shall be deemed to relate only to matters having reference to such
companies and any subsidiaries thereof.
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ Robert F. Mougeot By /s/ Paul Oyer
---------------------------- -------------------------------
Robert F. Mougeot Paul A. Oyer
Financial Vice President and Financial Vice President and
Chief Financial Officer Treasurer
(Principal Financial Officer (Principal Financial Officer of
of HEI) HECO)
Date: November 7, 1995 Date: November 7, 1995
25
<PAGE>
HEI Exhibit 12(a)
-----------------
<TABLE>
<CAPTION>
Hawaiian Electric Industries, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
Nine months ended September 30,
------------------------------------------
(dollars in thousands) 1995 (1) 1995 (2) 1994 (1) 1994 (2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3)........................ $ 86,017 $151,858 $ 58,970 $115,432
Proportionate share of fifty-
percent-owned persons................. 705 705 302 302
Interest component of rentals............. 2,913 2,913 2,824 2,824
Pretax preferred stock dividend
requirements of subsidiaries............. 8,661 8,661 9,095 9,095
-------- -------- -------- --------
TOTAL FIXED CHARGES....................... $ 98,296 $164,137 $ 71,191 $127,653
======== ======== ======== ========
EARNINGS
Pretax income from continuing operations.. $106,880 $106,880 $ 91,710 $ 91,710
Fixed charges, as shown................... 98,296 164,137 71,191 127,653
Interest capitalized
The Company............................ (4,741) (4,741) (3,488) (3,488)
Proportionate share of fifty-
percent-owned persons................. (705) (705) (302) (302)
-------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES...... $199,730 $265,571 $159,111 $215,573
======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES........ 2.03 1.62 2.23 1.69
======== ======== ======== ========
</TABLE>
(1) Excluding interest on ASB deposits.
(2) Including interest on ASB deposits.
(3) Total interest charges exclude interest on nonrecourse debt issued in
connection with leveraged leases which is not included in interest expense
in HEI's consolidated statements of income.
<PAGE>
HECO Exhibit 12(b)
------------------
Hawaiian Electric Company, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------
(dollars in thousands) 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
FIXED CHARGES
Total interest charges................. $ 32,691 $ 27,770
Interest component of rentals.......... 508 622
Pretax preferred stock dividend
requirements of subsidiaries......... 3,377 3,491
-------- --------
TOTAL FIXED CHARGES.................... $ 36,576 $ 31,883
======== ========
EARNINGS
Income before preferred stock dividends
of HECO............................... $ 61,267 $ 47,041
Income taxes (see note below).......... 39,757 31,155
Fixed charges, as shown................ 36,576 31,883
AFUDC for borrowed funds............... (3,832) (2,886)
-------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES... $133,768 $107,193
======== ========
RATIO OF EARNINGS TO FIXED CHARGES..... 3.66 3.36
======== ========
Note:
Income taxes is comprised of the
following:
Expense relating to operating income
from regulated activities........... $ 40,030 $ 31,216
Benefit relating to loss from
nonregulated activities............. (273) (61)
-------- --------
$ 39,757 $ 31,155
======== ========
</TABLE>
<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 September 30, 1995 and consolidated statement of income for the nine
months ended September 30, 1995 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 85,261
<SECURITIES> 1,352,397
<RECEIVABLES> 140,376
<ALLOWANCES> 0
<INVENTORY> 39,399
<CURRENT-ASSETS> 0
<PP&E> 2,570,848
<DEPRECIATION> 802,984
<TOTAL-ASSETS> 5,469,175
<CURRENT-LIABILITIES> 0
<BONDS> 753,338
<COMMON> 574,392
43,100
48,293
<OTHER-SE> 146,320
<TOTAL-LIABILITY-AND-EQUITY> 5,469,175
<SALES> 0
<TOTAL-REVENUES> 963,052
<CGS> 0
<TOTAL-COSTS> 815,998
<OTHER-EXPENSES> (6,224)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,398
<INCOME-PRETAX> 106,880
<INCOME-TAX> 45,002
<INCOME-CONTINUING> 61,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,878
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
</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 September 30, 1995 and consolidated statement of income and consolidated
statement of cash flows for the nine months ended September 30, 1995 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,679,276
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 156,200
<TOTAL-DEFERRED-CHARGES> 10,185
<OTHER-ASSETS> 138,407
<TOTAL-ASSETS> 1,984,068
<COMMON> 78,766
<CAPITAL-SURPLUS-PAID-IN> 246,689
<RETAINED-EARNINGS> 341,097
<TOTAL-COMMON-STOCKHOLDERS-EQ> 666,552
40,880
48,293
<LONG-TERM-DEBT-NET> 517,182
<SHORT-TERM-NOTES> 17,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 134,011
<LONG-TERM-DEBT-CURRENT-PORT> 9,902
2,220
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 548,028
<TOT-CAPITALIZATION-AND-LIAB> 1,984,068
<GROSS-OPERATING-REVENUE> 733,945
<INCOME-TAX-EXPENSE> 40,030
<OTHER-OPERATING-EXPENSES> 613,940
<TOTAL-OPERATING-EXPENSES> 653,970
<OPERATING-INCOME-LOSS> 79,975
<OTHER-INCOME-NET> 12,226
<INCOME-BEFORE-INTEREST-EXPEN> 92,201
<TOTAL-INTEREST-EXPENSE> 30,934
<NET-INCOME> 61,267
3,108
<EARNINGS-AVAILABLE-FOR-COMM> 58,159
<COMMON-STOCK-DIVIDENDS> 25,597
<TOTAL-INTEREST-ON-BONDS> 35,997
<CASH-FLOW-OPERATIONS> 91,043
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
