<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 March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Commission I.R.S. Employer
Specified in Its Charter File Number Identification No.
- ------------------------------------- ----------- ------------------
HAWAIIAN ELECTRIC INDUSTRIES, INC. 1-8503 99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC. 1-4955 99-0040500
STATE OF HAWAII
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
900 RICHARDS STREET, HONOLULU, HAWAII 96813
- -------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
HAWAIIAN ELECTRIC INDUSTRIES, INC. ----- (808) 543-5662
HAWAIIAN ELECTRIC COMPANY, INC. ------- (808) 543-7771
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
===============================================================================
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding May 1, 1996
- -------------------------------------------------------------------------------
Hawaiian Electric Industries,
Inc. (Without Par Value)........... 30,136,062 Shares
Hawaiian Electric Company, Inc.
($6 2/3 Par Value). ............... 12,302,657 Shares (not publicly traded)
===============================================================================
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended March 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Glossary of terms........................................................... ii
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Hawaiian Electric Industries, Inc. and subsidiaries
---------------------------------------------------
Consolidated balance sheets (unaudited) - March 31, 1996
and December 31, 1995............................................ 1
Consolidated statements of income (unaudited) - three months
ended March 31, 1996 and 1995.................................... 2
Consolidated statements of retained earnings (unaudited) - three
months ended March 31, 1996 and 1995............................. 2
Consolidated statements of cash flows (unaudited) - three months
ended March 31, 1996 and 1995.................................... 3
Notes to consolidated financial statements (unaudited)............ 4
Hawaiian Electric Company, Inc. and subsidiaries
------------------------------------------------
Consolidated balance sheets (unaudited) - March 31, 1996
and December 31, 1995............................................ 9
Consolidated statements of income (unaudited) - three months
ended March 31, 1996 and 1995.................................... 10
Consolidated statements of retained earnings (unaudited) -
three months ended March 31, 1996 and 1995....................... 10
Consolidated statements of cash flows (unaudited) - three months
ended March 31, 1996 and 1995.................................... 11
Notes to consolidated financial statements (unaudited)............ 12
Item 2. Management's discussion and analysis of financial condition
and results of operations........................................ 16
PART II. OTHER INFORMATION
Item 1. Legal proceedings................................................. 22
Item 4. Submission of matters to a vote of security holders............... 22
Item 5. Other information................................................. 23
Item 6. Exhibits and reports on Form 8-K.................................. 25
Signatures.................................................................. 25
</TABLE>
i
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended March 31, 1996
GLOSSARY OF TERMS
TERMS DEFINITIONS
- ----- -----------
AFUDC Allowance for funds used during construction
ASB American Savings Bank, F.S.B., a wholly owned
subsidiary of HEI Diversified, Inc. and parent
company of American Savings Investment Services
Corp., ASB Service Corporation,
AdCommunications, Inc. and Associated Mortgage,
Inc.
BIF Bank Insurance Fund
BLNR Board of Land and Natural Resources of the State
of Hawaii
CDUP Conservation District Use Permit amendment
COMPANY Hawaiian Electric Industries, Inc. and its
direct and indirect subsidiaries, including,
without limitation, Hawaiian Electric Company,
Inc., Maui Electric Company, Limited, Hawaii
Electric Light Company, Inc., HEI Investment
Corp., Malama Pacific Corp. and its
subsidiaries, Hawaiian Tug & Barge Corp., Young
Brothers, Limited, HEI Diversified, Inc.,
American Savings Bank, F.S.B. and its
subsidiaries, Lalamilo Ventures, Inc., Pacific
Energy Conservation Services, Inc. and HEI Power
Corp.
CONSUMER ADVOCATE Division of Consumer Advocacy, Department of
Commerce and Consumer Affairs of the State of
Hawaii
D&O Decision and Order
DOH Department of Health of the State of Hawaii
DSM Demand-side management
EPA Environmental Protection Agency - federal
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
HECO Hawaiian Electric Company, Inc., a wholly owned
electric utility subsidiary of Hawaiian Electric
Industries, Inc. and parent company of Maui
Electric Company, Limited and Hawaii Electric
Light Company, Inc.
HEI Hawaiian Electric Industries, Inc., parent
company of Hawaiian Electric Company, Inc., HEI
Investment Corp., Malama Pacific Corp., Hawaiian
Tug & Barge Corp., Lalamilo Ventures, Inc., HEI
Diversified, Inc., Pacific Energy Conservation
Services, Inc. and HEI Power Corp.
ii
<PAGE>
GLOSSARY OF TERMS, CONTINUED
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<C> <S>
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.
HELCO Hawaii Electric Light Company, Inc., a wholly owned electric
utility subsidiary of Hawaiian Electric Company, Inc.
HIG The Hawaiian Insurance & Guaranty Company, Limited, an insurance
company which was placed in state rehabilitation proceedings. HEI
Diversified, Inc. was the holder of record of HIG's common stock
prior to August 16, 1994
HTB Hawaiian Tug & Barge Corp., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc. and parent company of Young Brothers,
Limited
IPP Independent power producer
IRR Interest rate risk
KCP Kawaihae Cogeneration Partners
KWH Kilowatthour
MECO Maui Electric Company, Limited, a wholly owned electric utility
subsidiary of Hawaiian Electric Company, Inc.
MPC Malama Pacific Corp., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc. and parent company of several real
estate subsidiaries
MW Megawatt
OTS Office of Thrift Supervision, Department of Treasury
PSD Prevention of Significant Deterioration/Covered Source Permit
PUC Public Utilities Commission of the State of Hawaii
ROACE Return on average common equity
SAIF Savings Association Insurance Fund
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
YB Young Brothers, Limited, a wholly owned subsidiary of Hawaiian Tug
& Barge Corp.
</TABLE>
iii
<PAGE>
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents.................... $ 88,059 $ 130,833
Accounts receivable and unbilled
revenues, net.......................... 123,765 142,505
Inventories, at average cost............ 38,533 35,258
Real estate developments................ 35,758 35,023
Marketable securities................... 1,457,756 1,479,552
Other investments....................... 74,208 74,325
Loans receivable, net................... 1,753,366 1,687,801
Property, plant and equipment, net of
accumulated depreciation of
$835,162 and $815,547.................. 1,829,795 1,808,195
Regulatory assets....................... 102,520 99,693
Other................................... 69,603 69,315
Goodwill and other intangibles.......... 40,192 41,245
---------- ----------
$5,613,555 $5,603,745
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................ $ 92,997 $ 94,806
Deposit liabilities..................... 2,257,011 2,223,755
Short-term borrowings................... 206,573 181,825
Securities sold under agreements to
repurchase............................. 455,337 412,521
Advances from Federal Home Loan Bank.... 424,274 501,274
Long-term debt.......................... 753,497 758,463
Deferred income taxes................... 183,660 182,101
Unamortized tax credits................. 47,473 46,965
Contributions in aid of construction.... 192,438 191,854
Other................................... 171,830 190,535
---------- ----------
4,785,090 4,784,099
---------- ----------
PREFERRED STOCK OF ELECTRIC UTILITY
SUBSIDIARIES
Subject to mandatory redemption......... 39,350 41,750
Not subject to mandatory redemption..... 48,293 48,293
---------- ----------
87,643 90,043
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value,
authorized 10,000 shares;
issued: none..................... -- --
Common stock, no par value, authorized
100,000 shares; issued and outstanding
30,053 shares and 29,773 shares........ 595,650 585,387
Retained earnings....................... 145,172 144,216
---------- ----------
740,822 729,603
---------- ----------
$5,613,555 $5,603,745
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share amounts Three months ended March 31,
and ratio of earnings to fixed charges) ----------------------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Electric utility........................ $247,837 $232,521
Savings bank............................ 65,792 60,717
Other................................... 12,540 13,036
-------- --------
326,169 306,274
-------- --------
EXPENSES
Electric utility........................ 209,098 197,108
Savings bank............................ 55,836 50,492
Other................................... 14,500 14,365
-------- --------
279,434 261,965
-------- --------
OPERATING INCOME (LOSS)
Electric utility........................ 38,739 35,413
Savings bank............................ 9,956 10,225
Other................................... (1,960) (1,329)
-------- --------
46,735 44,309
-------- --------
Interest expense--electric utility and
other.................................. (16,159) (14,952)
Allowance for borrowed funds used
during construction.................... 1,350 1,167
Preferred stock dividends of electric
utility subsidiaries................... (1,675) (1,731)
Allowance for equity funds used during
construction........................... 2,651 2,367
-------- --------
INCOME BEFORE INCOME TAXES.............. 32,902 31,160
Income taxes............................ 14,033 13,313
-------- --------
NET INCOME.............................. $ 18,869 $ 17,847
======== ========
Earnings per common share............... $0.63 $0.62
======== ========
Dividends per common share.............. $0.60 $0.59
======== ========
Weighted average number of common
shares outstanding..................... 29,884 28,772
======== ========
Ratio of earnings to fixed charges (SEC
method)
Excluding interest on ASB deposits.... 1.91 1.93
======== ========
Including interest on ASB deposits.... 1.54 1.56
======== ========
</TABLE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
(in thousands) 1996 1995
- ---------------------------------------- ----------------------------------
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD.. $144,216 $135,835
Net income.............................. 18,869 17,847
Common stock dividends.................. (17,913) (16,970)
-------- --------
RETAINED EARNINGS, END OF PERIOD........ $145,172 $136,712
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
(in thousands) 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 18,869 $ 17,847
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization of
property, plant and equipment...... 20,579 19,177
Other amortization................... 2,155 (487)
Deferred income taxes and tax
credits, net....................... 2,657 3,208
Allowance for equity funds used
during construction................ (2,651) (2,367)
Changes in assets and liabilities
Decrease in accounts receivable
and unbilled revenues, net..... 18,740 6,817
Decrease (increase) in
inventories.................... (3,275) 7,169
Increase in regulatory assets.... (858) (1,303)
Decrease in accounts payable..... (1,809) (7,756)
Changes in other assets and
liabilities.................... (18,617) (4,691)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................. 35,790 37,614
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated and
purchased............................. (107,907) (84,121)
Principal repayments on loans receivable 41,754 30,096
Proceeds from sale of loans receivable.. 675 2,413
Held-to-maturity mortgage-backed
securities purchased.................. (65,112) (9,793)
Principal repayments on
held-to-maturity mortgage-backed
securities............................ 87,104 30,032
Capital expenditures.................... (40,920) (51,157)
Contributions in aid of construction.... 2,460 2,173
Other................................... 21 140
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES... (81,925) (80,217)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit
liabilities........................... 33,256 (20,497)
Net increase (decrease) in short-term
borrowings with original maturities of
three months or less.................. 25,063 (5,259)
Proceeds from other short-term
borrowings............................ 76 252
Repayment of other short-term borrowings (391) (521)
Proceeds from securities sold under
agreements to repurchase.............. 95,100 98,000
Repurchase of securities sold under
agreements to repurchase.............. (53,500) (23,636)
Proceeds from advances from Federal
Home Loan Bank........................ -- 185,500
Principal payments on advances from
Federal Home Loan Bank................ (77,000) (183,500)
Proceeds from issuance of long-term debt 10,009 36,815
Repayment of long-term debt............. (15,000) (12,400)
Redemption of electric utility
subsidiaries' preferred stock......... (2,400) (1,404)
Net proceeds from issuance of common
stock................................. 4,712 5,009
Common stock dividends.................. (12,380) (12,236)
Other................................... (4,184) (3,720)
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 3,361 62,403
--------- ---------
Net increase (decrease) in cash and
equivalents........................... (42,774) 19,800
Cash and equivalents, beginning of
period................................ 130,833 87,623
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD..... $ 88,059 $ 107,423
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Unaudited)
- -------------------------------------------------------------------------------
(1) ACCOUNTING STATEMENT
- -------------------------
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 HEIs Annual Report
on SEC Form 10-K for the year ended December 31, 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 March 31, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the three months ended March 31, 1996 and
1995. All such adjustments are of a normal recurring nature, unless otherwise
disclosed in this Form 10-Q or other referenced material. Results of operations
for interim periods are not necessarily indicative of results for the full year.
(2) ELECTRIC UTILITY SUBSIDIARY
- --------------------------------
For Hawaiian Electric Company, Inc.'s consolidated financial information,
including its commitments and contingencies, see pages 9 through 15.
(3) SAVINGS BANK SUBSIDIARY
- ----------------------------
SELECTED CONSOLIDATED FINANCIAL INFORMATION
American Savings Bank, F.S.B. and subsidiaries
Income statement data
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
(in thousands) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Interest income......................... $ 62,080 $ 57,633
Interest expense........................ 37,538 32,975
-------- --------
NET INTEREST INCOME..................... 24,542 24,658
Provision for loan losses............... (420) (385)
Other income............................ 3,712 3,084
Operating, administrative and general
expenses............................... (17,878) (17,132)
-------- --------
OPERATING INCOME........................ 9,956 10,225
Income taxes............................ 4,166 4,276
-------- --------
NET INCOME.............................. $ 5,790 $ 5,949
======== ========
</TABLE>
4
<PAGE>
American Savings Bank, F.S.B. and subsidiaries
Balance sheet data
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents.................... $ 84,576 $ 129,678
Held-to-maturity investment securities.. 35,367 34,720
Held-to-maturity mortgage-backed
securities............................. 1,422,389 1,444,832
Loans receivable, net................... 1,753,366 1,687,801
Other................................... 75,098 75,150
Goodwill and other intangibles.......... 40,192 41,245
---------- ----------
$3,410,988 $3,413,426
========== ==========
LIABILITIES AND EQUITY
Deposit liabilities..................... $2,257,011 $2,223,755
Securities sold under agreements to
repurchase............................. 455,337 412,521
Advances from Federal Home Loan Bank.... 424,274 501,274
Other................................... 53,723 57,973
---------- ----------
3,190,345 3,195,523
Common stock equity..................... 220,643 217,903
---------- ----------
$3,410,988 $3,413,426
========== ==========
</TABLE>
PROPOSED LEGISLATION AFFECTING FINANCIAL INSTITUTIONS
The deposit accounts of ASB and other thrifts are insured by the Savings
Association Insurance Fund (SAIF). The deposit accounts of commercial banks are
insured by the Bank Insurance Fund (BIF). The SAIF and BIF are administered by
the Federal Deposit Insurance Corporation (FDIC). In order to capitalize these
funds, thrifts and banks have in the past paid costs of insurance ranging from
23 cents to 31 cents per $100 of deposits. However, under existing law, the FDIC
may reduce these assessment rates when the SAIF and BIF individually reach a
designated 1.25% reserve ratio. The BIF reached the designated reserve ratio in
1995, but the SAIF is unlikely to do so at present insurance rates for several
years. Effective in January 1996, well-capitalized banks pay only the legally
required annual minimum of $2,000 for BIF insurance. For all other BIF
institutions, the FDIC deposit insurance assessment rates range from 3 to 27
cents per $100 of deposits. While the FDIC reduced the deposit assessments paid
by banks, it maintained the 23 to 31 cents per $100 of deposits assessment for
thrifts, depending on their risk classification. This disparity places ASB and
other thrifts 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 the 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 pretax 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 or ASB might be
affected.
5
<PAGE>
(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 $50 million at March 31, 1996
and December 31, 1995. MPC's present focus is to reduce its current investment
in real estate development assets and increase cash flow by continuing the
development and sales of its existing projects. There are currently no plans to
invest in new projects.
At March 31, 1996, MPC or its subsidiaries had issued (i) guaranties under which
they were jointly and severally contingently liable with their joint venture
partners for $2.3 million of outstanding loans and $0.1 million of additional
undrawn loan facilities and (ii) payment guaranties under which MPC or its
subsidiaries were severally contingently liable for $5.5 million of outstanding
loans and $4.3 million of additional undrawn loan facilities. All such loans are
collateralized by real property. At March 31, 1996, HEI had agreed with the
lenders of construction loans and loan facilities, of which approximately $10.0
million was outstanding and $5.5 million was undrawn, that it will maintain
ownership of l00% of the stock of MPC and that it intends, subject to good and
prudent business practices, to keep MPC financially sound and responsible to
meet its obligations as guarantor.
(5) CASH FLOWS
- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) for interest (net of capitalized amounts) and income taxes
was as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
(in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Interest (including interest paid by
savings bank, but excluding interest paid on
nonrecourse debt on leveraged leases)...................... $49,203 $39,546
======= =======
Interest on nonrecourse debt from leveraged leases.......... $ 182 $ 239
======= =======
Income taxes................................................ $ 860 $ (681)
======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
In the three months ended March 31, 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 $5.5 million and $4.7 million for the three months
ended March 31, 1996 and 1995, respectively.
The allowance for equity funds used during construction, which was capitalized
as part of the cost of electric utility plant, amounted to $2.7 million and $2.4
million for the three months ended March 31, 1996 and 1995, respectively.
(6) ACCOUNTING CHANGES--1996 IMPLEMENTATION
- --------------------------------------------
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows derived from an asset
is less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss is based on the fair value of the asset.
6
<PAGE>
Generally, SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. SFAS No. 121 also requires that a rate-regulated
enterprise recognize an impairment loss for the amount of costs excluded by a
regulator from the enterprise's rate base. The Company adopted the provisions of
SFAS No. 121 on January 1, 1996. The adoption of SFAS No. 121 did not have a
material effect on the Company's financial condition or results of operations.
MORTGAGE SERVICING RIGHTS
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. ASB adopted the
provisions of SFAS No. 122 on January 1, 1996. The adoption of SFAS No. 122 did
not have a material effect on the Company's financial condition or results of
operations.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value based method of accounting
for stock-based compensation, but does not require an entity to adopt the new
method for purposes of preparing its basic financial statements. For entities
not adopting the new method, SFAS No. 123 requires footnote disclosure of
proforma net income and earnings per share information as if the fair value
based method had been adopted. The disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company will comply with the disclosure requirements of SFAS No. 123
in its annual financial statements for 1996.
(7) DISCONTINUED OPERATIONS
- ----------------------------
THE HAWAIIAN INSURANCE & GUARANTY COMPANY, LIMITED
The Hawaiian Insurance & Guaranty Company, Limited (HIG) and its subsidiaries
(collectively, the HIG Group) 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 of
the State of Hawaii (the Rehabilitator) and her deputies.
On April 12, 1993, the Rehabilitator, the HIG Group and others filed a complaint
against HEI, HEIDI and others. 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 early 1994 and $32 million was disbursed
to the Rehabilitator. In exchange, all the plaintiffs released their claims
against HEI, its affiliates and their past and present officers and directors.
The $32 million settlement amount, less income tax benefits and certain amounts
recognized in previously established reserves, resulted in a $15 million after-
tax charge to discontinued operations in 1993. HEI and HEIDI are seeking
reimbursement for the settlement and defense costs from their insurance
carriers. One of the insurance carriers filed a declaratory relief action in the
U.S. District Court for Hawaii seeking resolution of insurance coverage and
other policy issues, and HEI and HEIDI filed counterclaims. On December 15,
1995, the judge ruled on motions for partial summary judgment that had been
argued in June 1995. The District Court found that HEI and HEIDI did not breach
their insurance contract and that the settlement they entered into was
reasonable. Among the issues left for consideration by the District Court
include plaintiff's defense of allocation. A trial date has not yet been set.
Recoveries from HEI's insurance carriers, if any, will be recognized when
realized.
7
<PAGE>
(8) CONTINGENCIES
- ------------------
ENVIRONMENTAL REGULATION--HAZARDOUS WASTE AND TOXIC SUBSTANCES CONTROL
By letters in January and February 1995, the DOH advised HECO, HTB, YB and
others that the DOH was conducting an investigation to determine the nature and
extent of actual or potential releases of hazardous substances, oil, pollutants
or contaminants at or near Honolulu Harbor. The DOH letter to HECO requested
information regarding past hazardous substances and oil spills that may have
occurred at HECO's Honolulu power plant and nearby fuel storage and pipeline
facilities, which are located near Honolulu Harbor. HECO submitted a response to
the DOH on April 28, 1995. The DOH letters to HTB and YB requested information
regarding past hazardous substances and oil spills that may have occurred at
Pier 21 and Piers 24-29 in Honolulu Harbor. HTB and YB provided responses to the
DOH letters. Based on a limited review of the responses received from HECO, HTB,
YB and others, the DOH issued letters on December 18, 1995, indicating that the
DOH has identified a number of parties, including HECO, HTB and YB, who appear
to be either potentially responsible for the contamination and/or operate their
facilities upon contaminated land. The DOH met with these identified parties on
January 24, 1996 to inform them of its findings and to establish the framework
to determine remedial and cleanup requirements. The DOH's goal is the formation
of a voluntary response group comprised of these identified parties. The
Honolulu Harbor area of investigation was divided into four units, with the
highest priority area (Iwilei Area) to be addressed first. The DOH met again
with the identified parties in March and May 1996. Because the process for
determining appropriate remedial and cleanup action, if any, is at an early
stage, management cannot predict at this time the costs of future site analysis,
remediation and cleanup requirements, if any, nor can it estimate when such
costs, if any, would be incurred. Certain of the costs incurred, if any, may be
claimed and covered under existing insurance policies, but such coverage is not
determinable at this time.
8
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands, except par value) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Utility plant, at cost
Property, plant and equipment............................ $2,318,132 $2,291,545
Construction in progress................................. 204,320 191,460
Less--accumulated depreciation........................... (780,222) (762,770)
---------- ----------
NET UTILITY PLANT.................................. 1,742,230 1,720,235
---------- ----------
Current assets
Cash and equivalents..................................... 1,693 20
Customer accounts receivable, net........................ 59,619 67,698
Accrued unbilled revenues, net........................... 34,143 43,695
Other accounts receivable, net........................... 3,831 5,355
Fuel oil stock, at average cost.......................... 16,262 13,469
Materials and supplies, at average cost.................. 20,881 20,538
Prepayments and other.................................... 2,586 2,297
---------- ----------
TOTAL CURRENT ASSETS............................... 139,015 153,072
---------- ----------
Other assets
Regulatory assets........................................ 99,980 97,114
Other.................................................... 45,578 45,862
---------- ----------
TOTAL OTHER ASSETS................................. 145,558 142,976
---------- ----------
$2,026,803 $2,016,283
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock, $6 2/3 par value, authorized
50,000 shares; outstanding 12,303 shares.............. $ 82,031 $ 82,031
Premium on capital stock................................. 271,466 271,449
Retained earnings........................................ 349,910 343,425
---------- ----------
COMMON STOCK EQUITY................................ 703,407 696,905
Cumulative preferred stock
Not subject to mandatory redemption................... 48,293 48,293
Subject to mandatory redemption....................... 37,555 39,955
Long-term debt, net...................................... 474,243 487,306
---------- ----------
TOTAL CAPITALIZATION............................... 1,263,498 1,272,459
---------- ----------
Current liabilities
Long-term debt due within one year....................... 43,000 29,903
Preferred stock sinking fund requirements................ 1,795 1,795
Short-term borrowings - nonaffiliates.................... 151,010 131,753
Short-term borrowings - affiliate........................ 6,000 7,000
Accounts payable......................................... 50,345 48,691
Interest and preferred dividends payable................. 11,893 9,954
Taxes accrued............................................ 37,595 42,968
Other.................................................... 23,077 37,573
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 324,715 309,637
---------- ----------
Deferred credits and other liabilities
Deferred income taxes.................................... 117,826 116,963
Unamortized tax credits.................................. 46,440 45,935
Other.................................................... 81,886 79,435
---------- ----------
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES....... 246,152 242,333
---------- ----------
Contributions in aid of construction........................ 192,438 191,854
---------- ----------
$2,026,803 $2,016,283
========== ==========
</TABLE>
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
March 31,
--------------------------
(in thousands, except for ratio of earnings to fixed charges) 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES............................................ $245,944 $231,176
-------- --------
OPERATING EXPENSES
Fuel oil...................................................... 53,622 48,477
Purchased power............................................... 67,807 63,853
Other operation............................................... 33,591 34,183
Maintenance................................................... 11,945 11,222
Depreciation and amortization................................. 18,343 16,982
Taxes, other than income taxes................................ 23,708 22,079
Income taxes.................................................. 12,233 11,174
-------- --------
221,249 207,970
-------- --------
OPERATING INCOME.............................................. 24,695 23,206
-------- --------
OTHER INCOME
Allowance for equity funds used during
construction................................................. 2,651 2,367
Other, net.................................................... 1,851 1,237
-------- --------
4,502 3,604
-------- --------
INCOME BEFORE INTEREST AND OTHER CHARGES...................... 29,197 26,810
-------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt.................................... 8,528 8,078
Amortization of net bond premium and
expense...................................................... 315 314
Other interest charges........................................ 2,490 2,054
Allowance for borrowed funds used
during construction.......................................... (1,350) (1,167)
Preferred stock dividends of
subsidiaries................................................. 702 692
-------- --------
10,685 9,971
-------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS
OF HECO...................................................... 18,512 16,839
Preferred stock dividends of HECO............................. 973 1,039
-------- --------
NET INCOME FOR COMMON STOCK................................... $ 17,539 $ 15,800
======== ========
Ratio of earnings to fixed charges (SEC
method)...................................................... 3.32 3.27
======== ========
</TABLE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD........................ $343,425 $308,535
Net income for common stock................................... 17,539 15,800
Common stock dividends........................................ (11,054) (8,927)
-------- --------
RETAINED EARNINGS, END OF PERIOD.............................. $349,910 $315,408
======== ========
</TABLE>
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
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before preferred stock dividends
of HECO.................................................... $ 18,512 $ 16,839
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........................................... 18,343 16,982
Other amortization........................................ 1,219 750
Deferred income taxes..................................... 838 470
Tax credits, net.......................................... 920 1,076
Allowance for equity funds used during construction....... (2,651) (2,367)
Changes in assets and liabilities
Decrease in accounts receivable......................... 9,603 5,202
Decrease in accrued unbilled revenues................... 9,552 2,793
Decrease (increase) in fuel oil stock................... (2,793) 8,247
Increase in materials and supplies...................... (343) (1,079)
Increase in regulatory assets........................... (858) (1,303)
Increase (decrease) in accounts payable................. 1,654 (8,938)
Increase in interest and preferred dividends payable.... 1,939 2,323
Changes in other assets and liabilities................. (17,201) (5,796)
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................................................. 38,734 35,199
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (39,046) (47,319)
Contributions in aid of construction........................ 2,460 2,173
Increase in notes receivable................................ (312) --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (36,898) (45,146)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock dividends...................................... (11,054) (8,927)
Preferred stock dividends................................... (973) (1,039)
Proceeds from issuance of long-term debt.................... 9 36,815
Repayment of long-term debt................................. -- (11,000)
Redemption of preferred stock............................... (2,400) (1,404)
Net increase (decrease) in short-term borrowings from
nonaffiliates and affiliate with original maturities
of three months or less.................................... 18,257 (11,599)
Other....................................................... (4,002) (3,516)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES....................... (163) (670)
-------- --------
Net increase (decrease) in cash and equivalents............. 1,673 (10,617)
Cash and equivalents, beginning of period................... 20 10,694
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD......................... $ 1,693 $ 77
======== ========
</TABLE>
See accompanying notes to HECO's consolidated financial statements.
11
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Unaudited)
- -------------------------------------------------------------------------------
(1) ACCOUNTING STATEMENT
- -------------------------
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, 1995.
In the opinion of HECO's management, the accompanying unaudited consolidated
financial statements contain all material adjustments to present fairly the
financial position of HECO and its subsidiaries as of March 31, 1996 and
December 31, 1995, and the results of their operations and their cash flows for
the three months ended March 31, 1996 and 1995. All such adjustments are of a
normal recurring nature, unless otherwise disclosed in this Form 10-Q or other
referenced material. Results of operations for interim periods are not
necessarily indicative of results for the full year.
(2) CASH FLOWS
- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized amounts) and income taxes was as
follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Interest....................................... $7,906 $6,038
====== ======
Income taxes................................... $ 711 $ 582
====== ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
The allowance for equity funds used during construction, which was capitalized
as part of the cost of electric utility plant, amounted to $2.7 million and $2.4
million for the three months ended March 31, 1996 and 1995, respectively.
(3) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
HELCO POWER SITUATION
In 1991, HELCO identified the need for additional generation beginning in 1994
to provide for forecasted load growth while maintaining a satisfactory
generation reserve margin, to address uncertainties about future deliveries of
power from existing firm power producers and to permit the retirement of older
generating units. In the same year, the Hawaii Public Utilities Commission (PUC)
issued an order calling for an investigation of the reliability of HELCO's
system following service interruptions and rolling blackouts instituted on the
island of Hawaii. HELCO added firm capacity to its system in August 1992 (a 20-
MW HELCO-owned unit) and in June 1993 (pursuant to a power purchase agreement
for 25 MW of firm capacity). HELCO also proceeded with plans to install at its
Keahole power plant site two 20-MW combustion turbines (CT-4 and CT-5), followed
by an 18-MW heat steam recovery generator (ST-7), at which time these units
would be converted to a 56-MW (net) combined-cycle unit. In January 1994, the
PUC approved expenditures for CT-4, which HELCO had planned to install in late
1994, and in September 1995, the PUC conditionally approved expenditures for
CT-5 and ST-7.
12
<PAGE>
Despite HELCO's best efforts to install the necessary additional generation, the
schedule for the installation of HELCO's phased combined-cycle unit at HELCO's
Keahole power plant site was revised due to delays in obtaining approval of the
air quality Prevention of Significant Deterioration/Covered Source Permit (PSD)
and the Conservation District Use Permit amendment (CDUP) for the Keahole power
plant site.
In late 1995, a contested case hearing with respect to the CDUP was conducted
and the hearing officer recommended denial of the CDUP application. On April 22,
1996, the Hawaii Board of Land and Natural Resources (BLNR) issued a written
order in which it stated that it had voted 3 in favor and 2 against a motion to
accept the hearing officer's recommendation and stating that HELCO's CDUP
application was denied. The order stated that the BLNR does not intend to
deliberate further or vote again on the matter. HELCO's position is that denial
of the CDUP application requires the favorable vote of at least 4 members of the
BLNR, that the BLNR's order of April 22, 1996 thus does not operate to deny the
application and that the failure of the BLNR to take effective action results in
HELCO being entitled to its CDUP by operation of law. HELCO currently intends to
vindicate its position through judicial review of the BLNR's order or other
appropriate proceedings. These proceedings may delay, if not prevent,
installation of HELCO's project at the 15-acre Keahole site.
The Hawaii Department of Health (DOH) forwarded HELCO's PSD permit to the
Environmental Protection Agency (EPA) for its approval. In a November 1995
letter to the DOH, the EPA declined to sign HELCO's PSD permit. HELCO requested
that the EPA reconsider this decision and the EPA agreed to reconsider based on
additional information supplied by HELCO. In a second letter dated February 6,
1996, the EPA set forth information to be considered by HELCO, and HELCO
responded to the EPA's positions by letter dated March 8, 1996. By letter dated
April 8, the EPA restated its determinations and indicated that further
documentation is required from HELCO in order for the EPA to consider HELCO's
positions. Information exchange and discussions with the EPA and the DOH are
ongoing. If the EPA does not sign a permit forwarded by the DOH, this would
delay, if not prevent, HELCO's project.
Two independent power producers (IPPs), Kawaihae Cogeneration Partners (KCP) and
Enserch Development Corporation (Enserch), filed separate complaints against
HELCO with the PUC, alleging that they are entitled to power purchase contracts
to provide HELCO with additional capacity which, under HELCO's current estimates
of generating capacity requirements, would be in place of HELCO's planned 56-MW
combined-cycle unit at Keahole. In July 1995, the PUC issued a decision and
order in the docket involving KCP. 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, HELCO provided
proposals to the two IPPs, and further negotiations were undertaken. Status
reports on the negotiations with the two IPPs were filed with the PUC at the end
of September and October 1995.
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."
On January 26, 1996, the PUC ordered that the KCP docket be reopened and that
HELCO and KCP continue in good faith to negotiate a power purchase agreement,
file a list of unresolved issues requiring PUC guidance and meet with the PUC on
March 27, 1996. Status reports were filed during March and the meeting was held
as scheduled. On March 20, 1996, the PUC ordered that HELCO and Enserch file
status reports with the PUC and, if requested by either party on or before April
15, 1996, hold a hearing on April 25, 1996. Status reports were filed by Enserch
and HELCO during April and the hearing was held as scheduled. Additional written
submissions may be made to the PUC by the parties in the Enserch docket by May
21, 1996. The PUC may provide guidance to the IPPs and HELCO concerning certain
issues as their negotiations continue.
13
<PAGE>
If HELCO's negotiations with the IPPs result in a power purchase agreement
and/or if HELCO's combined-cycle unit is not installed, HELCO may be required to
write off a portion of the costs incurred in its efforts to put into service its
combined-cycle unit ($44.7 million as of March 31, 1996) if such costs
ultimately are not recoverable from customers or others. The $44.7 million
includes approximately $26.7 million for equipment and material purchases,
approximately $9.4 million for planning, engineering, permitting, site
development and other costs and approximately $8.6 million as an allowance for
funds used during construction. Management cannot determine at this time whether
the negotiations with the IPPs will result in a power purchase agreement, or
whether HELCO's combined cycle unit will be installed, or the amount of incurred
costs, if any, that may not be recoverable from customers or others.
In June 1995, HELCO filed with the PUC its generation resource contingency plan
detailing alternatives and mitigation measures to address possible further
delays in obtaining the permits necessary to construct its combined-cycle unit.
HELCO has arranged for additional firm capacity to be provided by its existing
firm power producers, obtained contracts shifting loads to off-peak hours, begun
implementing in January 1996 its energy-efficiency demand-side management
programs based on interim PUC approval and deferred generation unit
retirements. These measures have helped HELCO maintain its reserve margin and
reduce the risk of capacity shortages. HELCO is also proposing installation of
up to 6 MW of dispersed diesel generation units that could provide power by late
1996. In January 1996, the PUC opened a generic docket relating to HELCO's
contingency plan. Pursuant to the PUC order, HELCO submitted updated information
to the PUC on March 18, 1996.
ENVIRONMENTAL REGULATION - HAZARDOUS WASTE AND TOXIC SUBSTANCES CONTROLS
See note (8), "Contingencies," in HEI's "Notes to consolidated financial
statements."
INTERIM RATE INCREASES
Amounts recovered under interim rates in excess of final approved rates are
subject to refund with interest. At March 31, 1996, previously recorded revenue
amounts recognized under interim rate increases and subject to refund were not
significant.
(4) ACCOUNTING CHANGE
- ----------------------
See note (6), "Accounting changes--Long-lived assets," in HEI's "Notes to
consolidated financial statements."
14
<PAGE>
(5) SUMMARIZED FINANCIAL INFORMATION
- -------------------------------------
Summarized financial information for HECO's consolidated subsidiaries, HELCO and
MECO, is as follows:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
HELCO MECO
-------------------------------- -------------------------------
March 31, December 31, March 31, December 31,
(in thousands) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets.......................... $ 25,356 $ 23,485 $ 26,832 $ 27,161
Noncurrent assets....................... 372,517 368,785 317,009 306,191
-------- -------- -------- --------
$397,873 $392,270 $343,841 $333,352
======== ======== ======== ========
Common stock equity..................... $136,471 $136,930 $127,087 $126,458
Cumulative preferred stock
Not subject to mandatory redemption... 10,000 10,000 8,000 8,000
Subject to mandatory redemption....... 7,500 7,500 6,055 6,055
Current liabilities..................... 69,535 64,233 66,778 57,551
Noncurrent liabilities.................. 174,367 173,607 135,921 135,288
-------- -------- -------- --------
$397,873 $392,270 $343,841 $333,352
======== ======== ======== ========
</TABLE>
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
HELCO MECO
-------------------------------- -------------------------------
Three months ended Three months ended
March 31, March 31,
-------------------------------- -------------------------------
(in thousands) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues...................... $ 35,189 $ 32,695 $ 32,795 $ 29,793
Operating income........................ 2,689 3,423 3,930 3,743
Net income for common stock............. 2,139 2,548 3,167 2,289
</TABLE>
(6) RECONCILIATION OF ELECTRIC UTILITY OPERATING INCOME PER HEI AND HECO
- -------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating income from regulated and nonregulated activities before income
taxes (per HEI consolidated statements of income)......................... $ 38,739 $ 35,413
Deduct:
Income taxes on regulated activities.................................... (12,233) (11,174)
Revenues from nonregulated activities................................... (1,893) (1,345)
Add:
Expenses from nonregulated activities................................... 82 312
-------- --------
Operating income from regulated activities after income taxes (per HECO
consolidated statements of income)....................................... $ 24,695 $ 23,206
======== ========
</TABLE>
15
<PAGE>
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
CONSOLIDATED
- ------------
<TABLE>
<CAPTION>
Three months ended
March 31,
(in thousands, except per ---------------------- % Primary reason(s) for
share amounts) 1996 1995 change significant change*
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $326,169 $306,274 6 Increases for the electric
utility and savings bank segments
Operating income............. 46,735 44,309 5 Increase for the electric utility
segment
Net income................... 18,869 17,847 6 Higher operating income, partly
offset by higher interest expense
due to higher average borrowings
Earnings per common share.... $ 0.63 $ 0.62 2 See explanation for "net income,"
partly offset by an increase in
shares outstanding
Weighted average number of
common shares outstanding... 29,884 28,772 4 Issuances under the Dividend
Reinvestment and Stock Purchase
Plan and other plans
</TABLE>
* Also see segment discussions which follow.
During the first quarter of 1996, electric rates at HEI's three electric utility
subsidiaries were based on lower returns on average common equity (ROACEs) than
during the first quarter of 1995. The Hawaii Public Utilities Commission (PUC)
decisions and orders (D&Os) issued in December 1995 and the first quarter of
1996 set electric rates based on allowed ROACEs ranging from 11.40% to 11.65%,
compared with ROACEs greater than 12% in effect in the first quarter of 1995.
The PUC issued an order in December 1995 for HECO which lowered electric rates
retroactive to January 1, 1995, and required a refund to customers. Had the
lower rates actually been in effect from January 1, 1995, consolidated HEI's
1996 first quarter earnings per share would have exceeded earnings per share for
the first quarter of 1995 by approximately 5 cents, or 9%.
16
<PAGE>
Following is a general discussion of the results of operations by business
segment.
ELECTRIC UTILITY
- ----------------
<TABLE>
<CAPTION>
Three months ended
March 31,
(in thousands, except per ---------------------- % Primary reason(s) for
barrel amounts) 1996 1995 change significant change
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $247,837 $232,521 7 Higher fuel oil
prices ($7
million) which
are passed on to
customers and a
2.9% increase in
KWH sales ($6
million)
Expenses
Fuel oil.................. 53,622 48,477 11 Higher fuel oil
prices partly
offset by less
KWHs generated
Purchased power........... 67,807 63,853 6 More KWHs
purchased
Other..................... 87,669 84,778 3 Higher taxes,
other than income
taxes,
depreciation and
maintenance
expenses, partly
offset by lower
other operation
expense
Operating income............. 38,739 35,413 9 2.9% increase in
KWH sales, partly
offset by higher
expenses
Net income................... 17,539 15,800 11 Higher operating
income and higher
AFUDC, partly
offset by higher
interest expense
Fuel oil price per barrel.... 22.50 19.82 14
</TABLE>
Had the lower rates in the PUC's December 1995 D&O for HECO been in effect from
January 1, 1995, consolidated HECO's 1996 first quarter net income would have
exceeded net income for the first quarter of 1995 by approximately 20%.
Kilowatthour sales in the first quarter of 1996 increased 2.9% from the same
quarter in 1995, partly due to warmer weather and an increase in visitor
arrivals. Also, the electric utilities' efforts to control operating expenses
have been successful, as evidenced by a 2% reduction in other operation expenses
(see page 9).
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 D&O by the PUC
concerning the level or method of determining electric utility rates, the
authorized returns on equity or other matters, or any prolonged delay in
rendering a D&O in a rate or other proceeding, could have a material adverse
effect on the Company's financial condition and results of operations. Upon a
showing of probable entitlement, the PUC is required to issue an interim D&O in
a rate case within 10 months from the date of filing a completed application if
the evidentiary hearing is completed (subject to extension for 30 days if the
evidentiary hearing is not completed). There is no time limit for rendering a
final D&O. Interim rate increases are subject to refund with interest, pending
the final outcome of the case. Management cannot predict with certainty when
D&Os in pending or future rate cases will be rendered or the amount of any
interim or final rate increase that will be granted.
Recent rate requests
- --------------------
Hawaiian Electric Company, Inc.
- -------------------------------
. In December 1993, HECO filed a request to increase rates based on a 1995 test
year. HECO requested a 4.1% increase (as revised), or $28.2 million in annual
revenues, based on a 13.25% ROACE. In December 1995, HECO received a final D&O
authorizing a 1.3%, or $9.1 million, increase in annual
17
<PAGE>
revenues, based on an 11.4% ROACE. The D&O required a refund to customers
because HECO had previously received four interim increases totaling $18.9
million on an annualized basis, or $9.8 million more than the amount that was
finally approved. The reduced rate relief resulted primarily from the lower
ROACE used by the PUC in the final D&O because of decreases in interest rates
subsequent to the first interim increase, which was effective January 1, 1995
and was based on a 12.6% ROACE. The refund amount of $10.2 million (representing
amounts received under interim rates in excess of final approved rates, with
interest thereon), of which $10 million was accrued in December 1995, is being
returned to customers in the first half of 1996. The D&O also did not provide
revenue to cover costs relating to postretirement executive life insurance. HECO
and its subsidiaries wrote off a regulatory asset relating to such costs,
resulting in a 1995 after-tax charge of $1.1 million.
Hawaii Electric Light Company, Inc. (HELCO)
- -------------------------------------------
. In March 1995, HELCO filed a request to increase rates based on a 1996 test
year. In February 1996, HELCO revised its requested increase to 6.2%, or $8.9
million in annual revenues, based on a 12.5% ROACE. In March 1996, HELCO
received an interim D&O authorizing a 4.8%, or $6.8 million, increase in annual
revenues, based on an 11.65% ROACE, effective March 4, 1996.
. HELCO is considering filing a request to increase rates based on a 1997 test
year.
Maui Electric Company, Limited (MECO)
- -------------------------------------
. In February 1995, MECO filed a request to increase rates based on a 1996 test
year. MECO's final requested increase was 3.8%, or $5.0 million in annual
revenues, based on an 11.5% ROACE. In January 1996, MECO received an interim D&O
authorizing an increase of 2.8%, or $3.7 million in annual revenues, based on an
11.5% ROACE, effective February 1, 1996.
. MECO plans to file a request to increase rates based on a 1997 test year.
SAVINGS BANK
- ------------
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------- %
(in thousands) 1996 1995 change Primary reason(s) for significant change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $65,792 $60,717 8 Higher interest income as a result of
higher average mortgage-backed
securities balance, partly offset by
lower weighted average yield
Operating income............. 9,956 10,225 (3) Lower interest rate spread (see below)
and 4% increase in operating,
administrative and general expenses
due to higher labor and office
occupancy costs
Net income................... 5,790 5,949 (3) Lower operating income
Interest rate spread......... 2.85% 3.10% 7 basis points decrease in the
weighted average yield on
interest-earning assets and 18 basis
points increase in the weighted
average rate on interest-bearing
liabilities
</TABLE>
Several factors contributed to the decrease in ASBs interest rate spread--the
difference between the weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities. One of the primary
factors was the increase in short-term interest rates during 1995, which
resulted in a flat yield curve. Comparing first quarter 1996 to the same period
in 1995, the average rate on interest-bearing liabilities increased, while the
average rate on interest-earning assets remained relatively constant. The
quarterly interest rate spread decreased during 1995 from 3.10% for the first
quarter to 2.82% for the fourth quarter. The decline in short-term interest
rates during the latter part of
18
<PAGE>
1995 and the first quarter of 1996 resulted in a very modest improvement in the
first quarter 1996 interest rate spread.
Deposits traditionally have been the principal source of ASB's funds for use in
lending, meeting liquidity requirements and making investments. ASB also derives
funds from receipt of interest and principal on outstanding loans receivable and
mortgage-backed securities, borrowings from the Federal Home Loan Bank (FHLB) of
Seattle, securities sold under agreements to repurchase and other sources. Using
sources of funds with a higher cost than deposits puts downward pressure on
ASB's net interest income. In recent years, securities sold under agreements to
repurchase and advances from the FHLB of Seattle have become more significant
sources of funds as the demand for deposits decreased. However, deposits
increased by $33 million in the first quarter of 1996, including $21 million of
interest credited to accounts. In the first quarter of 1995, deposits decreased
by $20 million.
In 1995, the federal funds rate, which is the rate charged by banks for
overnight loans to each other and which has a significant influence on deposit
and loan receivable rates, increased from 5.5% to 6.0% and declined to 5.5% by
year end. In the first quarter of 1996, the federal funds rate decreased 25
basis points to 5.25%.
OTHER
- -----
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------- %
(in thousands) 1996 1995 change Primary reason(s) for significant change
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $12,540 $13,036 (4) Freight transportation subsidiaries' lower
general freight revenue
Operating loss............... (1,960) (1,329) NM Freight transportation subsidiaries' lower
general freight revenue and startup costs
of HEIPC
</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 development and investment companies;
PECS, which is an inactive energy service company; HEIPC, which is a company
formed in March 1995 to pursue independent power projects and energy services
projects in Asia and the Pacific; HEI and HEIDI, which are holding companies;
and eliminations of intercompany transactions.
FREIGHT TRANSPORTATION
The freight transportation subsidiaries recorded operating income of $0.4
million in the first quarter of 1996 compared with $0.9 million in the first
quarter of 1995. The decrease in operating income was a result of lower general
freight revenues. The freight transportation subsidiaries have been negatively
impacted by the slow Hawaii economy. YB plans to file a request to increase
rates based on a 1996 test year.
REAL ESTATE
MPC's real estate development activities have been negatively impacted by the
slow real estate market in Hawaii. 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. MPC's present focus is to reduce its current investment
in real estate development assets and increase cash flow by continuing the
development and sales of its existing projects. There are currently no plans to
invest in new projects. For further information on MPC, see note (4) in HEI's
"Notes to consolidated financial statements."
OTHER
HEIPC's operating loss for the first quarter of 1996 was $0.4 million.
19
<PAGE>
In December 1995, HEIPC signed a "Memorandum of Understanding" with Agusan Power
Corporation, Agusan Del Norte Electric Cooperative, Inc. and the provincial
government of Agusan Del Norte for a 67% interest in a $28 million, 22-MW
hydroelectric plant in the Philippines. In February 1996, HEIPC signed a
"Memorandum of Understanding" with Beacon Hill Associates, Inc. for a 50%
interest in a $74 million, 60-MW naphtha-fueled combined-cycle power plant in
Phnom Penh, Cambodia. Both projects are in very preliminary stages for HEIPC. No
assurances can be given as to whether either of these projects will be
successfully completed.
DISCONTINUED OPERATIONS
- -----------------------
See note (7) in HEI's "Notes to consolidated financial statements" for
information on the discontinued operations of HIG.
ACCOUNTING CHANGES
- ------------------
For a discussion of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of"; SFAS No. 122, "Accounting
for Mortgage Servicing Rights"; 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) March 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings.......... $ 207 12% $ 182 10%
Long-term debt................. 753 42 758 43
Preferred stock of electric
utility subsidiaries.......... 88 5 90 5
Common stock equity............ 741 41 730 42
------ ---- ------ ---
$1,789 100% $1,760 100%
====== === ====== ===
</TABLE>
ASB's deposit liabilities, securities sold under agreements to repurchase and
advances from FHLB are not included in the table above.
For the first three months of 1996, net cash provided by operating activities
was $36 million. Net cash used in investing activities was $82 million, largely
due to ASB's loan originations and consolidated HECO's capital expenditures. Net
cash provided by financing activities was only $3 million as a result of several
factors, including net increases in securities sold under agreements to
repurchase, deposit liabilities and short-term borrowings, partly offset by a
decrease in advances from FHLB and by common stock dividends.
Following is a discussion of the liquidity and capital resources of HEI's
largest segments.
20
<PAGE>
ELECTRIC UTILITY
HECO's consolidated capital structure was as follows:
<TABLE>
<CAPTION>
(in millions) March 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings from
nonaffiliates and affiliate.... $ 157 11% $ 139 10%
Long-term debt.................. 517 35 517 36
Preferred stock................. 88 6 90 6
Common stock equity............. 703 48 697 48
------ --- ------ ---
$1,465 100% $1,443 100%
====== === ====== ===
</TABLE>
Operating activities provided $39 million in net cash during the first three
months of 1996. Investing activities used cash of $37 million primarily for
capital expenditures, net of contributions in aid of construction. Financing
activities used cash of $0.2 million, partly comprised of the payment of common
and preferred dividends and the sinking fund redemption of preferred stock,
offset by a net increase in short-term borrowings.
As of March 31, 1996, $170 million of revenue bonds had been authorized by the
Hawaii Legislature for issuance by the Department of Budget and Finance of the
State of Hawaii on behalf of HECO, HELCO and MECO prior to the end of 1997. The
sale, pursuant to this authorization, of $75 million of revenue bonds is
currently planned for May 1996.
SAVINGS BANK
<TABLE>
<CAPTION>
March 31, December 31, %
(in millions) 1996 1995 change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets.................................. $3,411 $3,413 --
Mortgage-backed securities.............. 1,422 1,445 (2)
Loans receivable, net................... 1,753 1,688 4
Deposit liabilities..................... 2,257 2,224 1
Securities sold under agreements to
repurchase............................. 455 413 10
Advances from Federal Home Loan Bank.... 424 501 (15)
</TABLE>
At December 31, 1995, ASB was the fourth largest financial institution in the
state based on total assets of $3.4 billion and the third largest financial
institution based on deposits of $2.2 billion.
For the first three months of 1996, cash used in ASB's investing activities was
$44 million, due largely to the origination of loans receivable and purchase of
mortgage-backed securities, partly offset by principal repayments. Cash used in
financing activities was $5 million as a result of a decrease of $77 million in
advances from the FHLB of Seattle and by common stock dividends of $3 million,
partly offset by a net increase of $42 million in securities sold under
agreements to repurchase and a $33 million net increase in deposit liabilities.
Minimum liquidity levels are currently governed by the regulations adopted by
the Office of Thrift Supervision (OTS). ASB was in compliance with OTS liquidity
requirements as of March 31, 1996.
ASB believes that a satisfactory regulatory capital position provides a basis
for public confidence, affords protection to depositors, helps to ensure
continued access to capital markets on favorable terms and provides a foundation
for growth. As of March 31, 1996, ASB was in compliance with the OTS minimum
capital requirements (noted in parenthesis) with a tangible capital ratio of
5.4% (1.5%), a core capital ratio of 5.5% (3.0%) and a risk-based capital ratio
of 13.0% (8.0%).
The OTS has adopted a rule adding an interest rate risk (IRR) component to the
existing risk-based capital requirement. Institutions with an "above normal"
level of IRR exposure will be required to deduct an amount from total capital
and may be required to hold additional capital. Although the rule became
effective January 1, 1994, the OTS has provided a waiver of the IRR capital
deduction until it can finalize an appeals process for institutions subject to
such deductions. As of March 31, 1996, 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.
21
<PAGE>
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 March 31, 1996, ASB was well-capitalized (ratio requirements
noted in parenthesis) with a leverage ratio of 5.5% (5.0%), a Tier-1 risk-based
ratio of 12.3% (6.0%) and a total risk-based ratio of 13.0% (10%).
On September 29, 1994, the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Banking Act) was signed into law. Beginning
in September 1995, and subject to certain limits, adequately capitalized and
adequately managed bank holding companies were permitted to acquire control of
banks in any state, thereby creating a uniform system of interstate banking in
the U.S. Also, subject to certain limitations, the Interstate Banking Act will
permit interstate branching by U.S. banks, marking a major departure from
previous law. Although the Interstate Banking Act applies only to banks, it
could nonetheless affect the competitive balance among banks, thrifts and other
financial institutions and the level of competition among financial institutions
doing business in Hawaii.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
HEI
The Annual Meeting of Stockholders of HEI was held on April 23, 1996. Proxies
for the meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934. As of February 14, 1996, the record date for the Annual
Meeting, there were 29,857,858 shares of common stock issued and outstanding and
entitled to vote. There was no solicitation in opposition to the management
nominees to the Board of Directors as listed in the proxy statement for the
meeting and such nominees were elected to the Board of Directors.
The results of the voting for the single Class II director-nominee, the Class
III director-nominees, the independent auditor and the amendment of the 1987
Stock Option and Incentive Plan, as amended in 1992, are as follows:
<TABLE>
<CAPTION>
Shares of Common stock
--------------------------------------------------------
Broker
For Withheld Against Abstain nonvotes
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Election of Class II Director
T. Michael May 24,957,833 900,181 --
Election of Class III Directors
Don E. Carroll 24,924,141 933,873 --
Edwin L. Carter 24,906,402 951,612 --
Richard Henderson 24,897,998 960,016 --
Bill D. Mills 24,884,166 973,848 --
Oswald K. Stender 24,158,022 1,699,992 --
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Shares of Common stock
-------------------------------------------------------------
Broker
For Withheld Against Abstain nonvotes
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Election of KPMG Peat Marwick LLP as
independent auditor 25,399,358 175,718 282,938 --
Amendment of 1987 Stock
Option and Incentive Plan,
as amended in 1992 19,226,461 1,445,615 1,108,974 4,076,964
</TABLE>
Class I Directors--Robert F. Clarke, John D. Field, A. Maurice Myers, Ruth M.
Ono and James K. Scott --continue in office with terms ending at the 1997 Annual
Meeting. Class II Directors--Victor Hao Li, Diane J. Plotts, Kelvin H. Taketa
and Jeffrey N. Watanabe--continue in office with terms ending at the 1998 Annual
Meeting.
HECO
The Annual Meeting of the Sole Stockholder of HECO was conducted by written
consent effective April 23, 1996. The incumbent members of the Board of
Directors of HECO were re-elected. The incumbent members continuing in office
are Edwin L. Carter, Robert F. Clarke, Richard Henderson, Mildred D. Kosaki,
T. Michael May, Paul A. Oyer, Diane J. Plotts and Paul C. Yuen. In addition,
KPMG Peat Marwick LLP was elected independent auditor of HECO for the fiscal
year 1996.
ITEM 5. OTHER INFORMATION
- --------------------------
A. HECO's integrated resource plan (IRP)
The PUC issued its final D&O in HECO's IRP proceeding in March 1995. The PUC
found that HECO's proposed 20-year IRP "is in the public interest, is consistent
with the goals and objectives of integrated resource planning, and represents a
reasonable course for meeting the energy needs of its customers" and that the
IRP "identifies the resources or the mix of resources for meeting near and long
term consumer energy needs in an efficient and reliable manner at the lowest
reasonable cost." The supply-side programs proposed in the HECO plan include the
addition of a "clean coal" technology unit in 2005, following the retirement of
HECO's Honolulu power plant, the repowering of two existing units at its Waiau
power plant, and the addition of two oil-fired combustion turbines at the end of
the first decade in the new century. HECO's plan also includes proposals for
five energy efficiency demand-side management (DSM) programs, which are designed
to reduce the rate of increase in Oahu's energy use (allowing HECO to delay
construction of power plants), to reduce the states dependence on oil and to
achieve savings for its utility customers who take advantage of the programs,
and two load management DSM programs beginning in the year 2000. The DSM
programs include several proposed incentives to customers to install efficient
lighting, refrigeration, water-heating and air-conditioning equipment and
industrial motors. The PUC issued its final D&O in HECO's commercial and
industrial (C&I) proceeding on April 22, 1996. The C&I proceeding consolidated
three separate DSM programs targeting the C&I retrofit, new construction and
custom market segments. The PUC approved HECO's C&I DSM programs "as reasonable
means of meeting the energy needs of HECO's customers." The PUC also approved
HECO's mechanism for the recovery of C&I DSM program expenditures, net lost
revenues and shareholder incentives. HECO is scheduled to begin its C&I DSM
program implementation by June 1996. HECO is still awaiting PUC approval of its
residential retrofit and new construction water heating DSM programs.
23
<PAGE>
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
<TABLE>
<CAPTION>
Three months Years Ended December 31,
ended --------------------------------
March 31, 1996 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.91 1.94 2.22 2.25 2.08 1.99
==== ==== ==== ==== ==== ====
RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS
<CAPTION>
Three months Years Ended December 31,
ended --------------------------------
March 31, 1996 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.54 1.57 1.69 1.65 1.50 1.46
==== ==== ==== ==== ==== ====
</TABLE>
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>
Three months Years Ended December 31,
ended --------------------------------
March 31, 1996 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.32 3.46 3.47 3.25 3.03 2.82
==== ==== ==== ==== ==== ====
</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.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(A) EXHIBITS
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 12.1 Computation of ratio of earnings to fixed charges, three months
ended March 31, 1996 and 1995
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 12.2 Computation of ratio of earnings to fixed charges, three months
ended March 31, 1996 and 1995
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 27.1 Financial Data Schedule March 31, 1996 and three months ended
March 31, 1996
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 27.2 Financial Data Schedule March 31, 1996 and three months ended
March 31, 1996
(B) REPORTS ON FORM 8-K
During the quarter, HEI filed a Current Report on Form 8-K dated February 21,
1996, containing HEI Exhibit 13 with pages 25 to 62 of HEI's 1995 Annual Report
to Stockholders under "Item 7. Financial Statements and Exhibits."
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/ Curtis Y. Harada By /s/ Paul Oyer
--------------------- -----------------
Curtis Y. Harada Paul A. Oyer
Controller Financial Vice President and
(Principal Accounting Officer of HEI) Treasurer
(Principal Financial Officer of
HECO)
Date: May 8, 1996 Date: May 8, 1996
25
<PAGE>
HEI Exhibit 12.1
----------------
Hawaiian Electric Industries, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, March 31,
-----------------------------------------------
(dollars in thousands) 1996 (1) 1996 (2) 1995 (1) 1995 (2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3)......................... $30,277 $54,010 $27,776 $48,215
Proportionate share of fifty-percent-
owned persons......................... 174 174 191 191
Interest component of rentals............. 895 895 992 992
Pretax preferred stock dividend
requirements of subsidiaries............ 2,819 2,819 2,908 2,908
------- ------- ------- -------
TOTAL FIXED CHARGES....................... $34,165 $57,898 $31,867 $52,306
======= ======= ======= =======
EARNINGS
Pretax income............................. $32,902 $32,902 $31,160 $31,160
Fixed charges, as shown................... 34,165 57,898 31,867 52,306
Interest capitalized
The Company............................. (1,663) (1,663) (1,455) (1,455)
Proportionate share of fifty-percent-
owned persons......................... (174) (174) (191) (191)
------- ------- ------- -------
EARNINGS AVAILABLE FOR FIXED CHARGES...... $65,230 $88,963 $61,381 $81,820
======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES........ 1.91 1.54 1.93 1.56
======= ======= ======= =======
</TABLE>
(1) Excluding interest on ASB deposits.
(2) Including interest on ASB deposits.
(3) Total interest charges exclude interest on nonrecourse debt from leveraged
leases which is not included in interest expense in HEI's consolidated
statement of income.
<PAGE>
HECO Exhibit 12.2
-----------------
Hawaiian Electric Company, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
(dollars in thousands) 1996 1995
- ------------------------------------------- ------------------
<S> <C> <C>
FIXED CHARGES
Total interest charges....................................... $11,333 $10,446
Interest component of rentals................................ 179 175
Pretax preferred stock dividend requirements of
subsidiaries............................................... 1,148 1,125
------- --------
TOTAL FIXED CHARGES.......................................... $12,660 $11,746
======= ========
EARNINGS
Income before preferred stock dividends of HECO.............. $18,512 $16,839
Income taxes (see note below)................................ 12,193 10,970
Fixed charges, as shown...................................... 12,660 11,746
AFUDC for borrowed funds..................................... (1,350) (1,167)
------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES......................... $42,015 $38,388
======= ========
RATIO OF EARNINGS TO FIXED CHARGES........................... 3.32 3.27
======= ========
Note:
Income taxes is comprised of the following
Expense relating to operating income from regulated
activities............................................... $12,233 $11,174
Benefit relating to loss from nonregulated activities...... (40) (204)
------- --------
$12,193 $10,970
======= ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Hawaiian Electric Industries, Inc. and Subsidiaries
FINANCIAL DATA SCHEDULE
(unaudited)
This schedule contains summary financial information extracted from Hawaiian
Electric Industries, Inc. and subsidiaries' consolidated balance sheet as of
March 31, 1996 and consolidated statement of income for the three months ended
March 31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 88,059
<SECURITIES> 1,457,756
<RECEIVABLES> 123,765
<ALLOWANCES> 0
<INVENTORY> 38,533
<CURRENT-ASSETS> 0
<PP&E> 2,664,957
<DEPRECIATION> 835,162
<TOTAL-ASSETS> 5,613,555
<CURRENT-LIABILITIES> 0
<BONDS> 753,497
39,350
48,293
<COMMON> 595,650
<OTHER-SE> 145,172
<TOTAL-LIABILITY-AND-EQUITY> 5,613,555
<SALES> 0
<TOTAL-REVENUES> 326,169
<CGS> 0
<TOTAL-COSTS> 279,434
<OTHER-EXPENSES> (2,326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,159
<INCOME-PRETAX> 32,902
<INCOME-TAX> 14,033
<INCOME-CONTINUING> 18,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,869
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
Hawaiian Electric Company, Inc. and subsidiaries
FINANCIAL DATA SCHEDULE
(unaudited)
This schedule contains summary financial information extracted from Hawaiian
Electric Company, Inc. and subsidiaries' consolidated balance sheet as of March
31, 1996 and consolidated statement of income and consolidated statement of cash
flows for the three months ended March 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,742,230
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 139,015
<TOTAL-DEFERRED-CHARGES> 9,948
<OTHER-ASSETS> 135,610
<TOTAL-ASSETS> 2,026,803
<COMMON> 82,031
<CAPITAL-SURPLUS-PAID-IN> 271,466
<RETAINED-EARNINGS> 349,910
<TOTAL-COMMON-STOCKHOLDERS-EQ> 703,407
37,555
48,293
<LONG-TERM-DEBT-NET> 474,243
<SHORT-TERM-NOTES> 6,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 151,010
<LONG-TERM-DEBT-CURRENT-PORT> 43,000
1,795
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 561,500
<TOT-CAPITALIZATION-AND-LIAB> 2,026,803
<GROSS-OPERATING-REVENUE> 245,944
<INCOME-TAX-EXPENSE> 12,233
<OTHER-OPERATING-EXPENSES> 209,016
<TOTAL-OPERATING-EXPENSES> 221,249
<OPERATING-INCOME-LOSS> 24,695
<OTHER-INCOME-NET> 4,502
<INCOME-BEFORE-INTEREST-EXPEN> 29,197
<TOTAL-INTEREST-EXPENSE> 10,685
<NET-INCOME> 18,512
973
<EARNINGS-AVAILABLE-FOR-COMM> 17,539
<COMMON-STOCK-DIVIDENDS> 11,054
<TOTAL-INTEREST-ON-BONDS> 35,499
<CASH-FLOW-OPERATIONS> 38,734
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
