<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 June 30, 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 August 1, 1996
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc.
(Without Par Value)................... 30,425,824 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 June 30, 1996
INDEX
Page No.
Glossary of terms..................................................... ii
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Hawaiian Electric Industries, Inc. and subsidiaries
---------------------------------------------------
Consolidated balance sheets (unaudited) - June 30, 1996
and December 31, 1995....................................... 1
Consolidated statements of income (unaudited) - three and six
months ended June 30, 1996 and 1995.......................... 2
Consolidated statements of retained earnings (unaudited) -
three and six months ended June 30, 1996 and 1995............ 2
Consolidated statements of cash flows (unaudited) - six months
ended June 30, 1996 and 1995................................ 3
Notes to consolidated financial statements (unaudited)........ 4
Hawaiian Electric Company, Inc. and subsidiaries
------------------------------------------------
Consolidated balance sheets (unaudited) - June 30, 1996
and December 31, 1995....................................... 9
Consolidated statements of income (unaudited) - three and six
months ended June 30, 1996 and 1995.......................... 10
Consolidated statements of retained earnings (unaudited) -
three and six months ended June 30, 1996 and 1995............. 10
Consolidated statements of cash flows (unaudited) - six months
ended June 30, 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.......................................... 25
Item 5. Other information.......................................... 25
Item 6. Exhibits and reports on Form 8-K........................... 27
Signatures............................................................. 27
i
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended June 30, 1996
GLOSSARY OF TERMS
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<S> <C>
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. and HEI
Power Corp. and its subsidiaries
D&O Decision and Order
DOH Department of Health of the State of Hawaii
EMF Electric and magnetic fields
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.
HEIDI HEI Diversified, Inc., a wholly owned subsidiary
of Hawaiian Electric Industries, Inc. and the
parent company of American Savings Bank, F.S.B.
</TABLE>
ii
<PAGE>
GLOSSARY OF TERMS, CONTINUED
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<S> <C>
HEIIC HEI Investment Corp., a wholly owned subsidiary
of Hawaiian Electric Industries, Inc.
HEIPC HEI Power Corp., a wholly owned subsidiary of
Hawaiian Electric Industries, Inc., and the
parent company of several subsidiaries
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
IRP Integrated resource plan
IRR Interest rate risk
KCP Kawaihae Cogeneration Partners
KWH Kilowatthour
MECO Maui Electric Company, Limited, a wholly owned
electric utility subsidiary of Hawaiian
Electric Company, Inc.
MPC Malama Pacific Corp., a wholly owned subsidiary
of Hawaiian Electric Industries, Inc. and
parent company of several real estate
subsidiaries
MW Megawatt
OTS Office of Thrift Supervision, Department of
Treasury
PGV Puna Geothermal Venture
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>
June 30, December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents............................................... $ 90,300 $ 130,833
Accounts receivable and unbilled revenues, net.................... 147,835 142,505
Inventories, at average cost....................................... 44,289 35,258
Real estate developments........................................... 34,392 35,023
Marketable securities.............................................. 1,409,358 1,479,552
Other investments.................................................. 74,046 74,325
Loans receivable, net.............................................. 1,903,529 1,687,801
Property, plant and equipment, net of accumulated
depreciation of $854,344 and $815,547......................... 1,854,425 1,808,195
Regulatory assets.................................................. 101,928 99,693
Other.............................................................. 72,285 69,315
Goodwill and other intangibles..................................... 39,140 41,245
---------- ----------
$5,771,527 $5,603,745
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................... $ 97,394 $ 94,806
Deposit liabilities................................................ 2,259,024 2,223,755
Short-term borrowings.............................................. 166,377 181,825
Securities sold under agreements to repurchase..................... 455,252 412,521
Advances from Federal Home Loan Bank............................... 526,774 501,274
Long-term debt..................................................... 818,358 758,463
Deferred income taxes.............................................. 184,748 182,101
Unamortized tax credits............................................ 47,978 46,965
Contributions in aid of construction............................... 193,862 191,854
Other.............................................................. 179,882 190,535
---------- ----------
4,929,649 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 30,365 shares and 29,773 shares........... 605,785 585,387
Retained earnings.................................................. 148,450 144,216
---------- ----------
754,235 729,603
---------- ----------
$5,771,527 $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>
Three months ended Six months ended
June 30, June 30,
------------------------ -------------------------
(in thousands, except per share amounts 1996 1995 1996 1995
and ratio of earnings to fixed charges)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Electric utility................................... $264,987 $244,506 $512,824 $477,027
Savings bank....................................... 66,278 61,605 132,070 122,322
Other.............................................. 15,978 13,786 28,518 26,822
-------- -------- ------- --------
347,243 319,897 673,412 626,171
-------- -------- ------- --------
EXPENSES
Electric utility................................... 221,612 206,207 430,710 403,315
Savings bank....................................... 56,076 51,762 111,912 102,254
Other.............................................. 18,143 15,858 32,643 30,223
-------- -------- -------- --------
295,831 273,827 575,265 535,792
-------- -------- -------- --------
OPERATING INCOME (LOSS)
Electric utility................................... 43,375 38,299 82,114 73,712
Savings bank....................................... 10,202 9,843 20,158 20,068
Other.............................................. (2,165) (2,072) (4,125) (3,401)
-------- -------- -------- --------
51,412 46,070 98,147 90,379
-------- -------- -------- --------
Interest expense--electric utility and other....... (16,090) (15,515) (32,249) (30,467)
Allowance for borrowed funds used
during construction............................... 1,154 1,338 2,504 2,505
Preferred stock dividends of electric
utility subsidiaries.............................. (1,666) (1,726) (3,341) (3,457)
Allowance for equity funds used during
construction...................................... 2,147 2,618 4,798 4,985
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES......................... 36,957 32,785 69,859 63,945
Income taxes....................................... 15,594 13,905 29,627 27,218
-------- -------- -------- --------
NET INCOME......................................... $ 21,363 $ 18,880 $ 40,232 $ 36,727
======== ======== ======== ========
Earnings per common share.......................... $0.71 $0.65 $1.34 $1.27
======== ======== ======== ========
Dividends per common share......................... $0.60 $0.59 $1.20 $1.18
======== ======== ======== ========
Weighted average number of common
shares outstanding................................ 30,182 29,063 30,033 28,919
======== ======== ======== ========
Ratio of earnings to fixed charges (SEC method)
Excluding interest on ASB deposits.............. 1.96 1.93
======== ========
Including interest on ASB deposits.............. 1.57 1.56
======== ========
</TABLE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- -------------------------
(in thousands) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD............. $145,172 $136,712 $144,216 $135,835
Net income......................................... 21,363 18,880 40,232 36,727
Common stock dividends............................. (18,085) (17,130) (35,998) (34,100)
-------- -------- -------- --------
RETAINED EARNINGS, END OF PERIOD................... $148,450 $138,462 $148,450 $138,462
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
(in thousands) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 40,232 $ 36,727
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization of
property, plant and equipment.... 41,204 38,429
Other amortization................ 6,481 776
Deferred income taxes and tax
credits, net..................... 4,744 6,074
Allowance for equity funds used
during construction.............. (4,798) (4,985)
Changes in assets and liabilities
Increase in accounts
receivable and unbilled
revenues, net.............. (5,330) (11,850)
Decrease (increase) in
inventories................ (9,031) 5,092
Decrease (increase) in real
estate developments........ 631 (685)
Increase in regulatory
assets..................... (1,676) (2,394)
Increase (decrease) in
accounts payable........... 2,588 (6,472)
Changes in other assets and
liabilities................ (16,997) (9,153)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................. 58,048 51,559
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated and
purchased.............................. (308,574) (158,696)
Principal repayments on loans
receivable............................. 90,691 64,061
Proceeds from sale of loans receivable.. 2,092 3,582
Held-to-maturity mortgage-backed
securities purchased................... (112,581) (79,566)
Principal repayments on
held-to-maturity mortgage-backed
securities............................. 182,907 63,084
Capital expenditures.................... (85,540) (102,892)
Contributions in aid of construction.... 5,984 6,414
Other................................... 1,164 1,066
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES... (223,857) (202,947)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit liabilities..... 35,269 34,072
Net increase (decrease) in short-term
borrowings with original maturities of
three months or less................... (14,738) 30,135
Proceeds from other short-term
borrowings............................. 608 745
Repayment of other short-term
borrowings............................. (1,318) (1,593)
Proceeds from securities sold under
agreements to repurchase............... 384,100 326,500
Repurchase of securities sold under
agreements to repurchase............... (341,000) (172,339)
Proceeds from advances from Federal
Home Loan Bank......................... 323,200 251,200
Principal payments on advances from
Federal Home Loan Bank................. (297,700) (338,700)
Proceeds from issuance of long-term
debt................................... 77,242 48,213
Repayment of long-term debt............. (17,400) (13,400)
Redemption of electric utility
subsidiaries' preferred stock.......... (2,400) (1,554)
Net proceeds from issuance of common
stock.................................. 9,746 10,112
Common stock dividends.................. (25,377) (24,510)
Other................................... (4,956) (5,681)
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 125,276 143,200
--------- ---------
Net decrease in cash and equivalents.... (40,533) (8,188)
Cash and equivalents, beginning of
period................................. 130,833 87,623
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD..... $ 90,300 $ 79,435
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Securities and Exchange
Commission (SEC) Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
incorporated by reference in HEI's Annual Report on SEC Form 10-K for the year
ended December 31, 1995 (as amended) and the consolidated financial statements
and the notes thereto in HEI's Quarterly Report on SEC Form 10-Q for the quarter
ended March 31, 1996.
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 June 30, 1996 and December 31, 1995, and the results of its
operations for the three months and six months ended June 30, 1996 and 1995, and
its cash flows for the six months ended June 30, 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 Six months ended
June 30, June 30,
-------------------- --------------------
(in thousands) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income......................... $ 62,374 $ 57,928 $124,454 $115,561
Interest expense........................ 37,727 34,999 75,265 67,974
-------- -------- -------- --------
NET INTEREST INCOME..................... 24,647 22,929 49,189 47,587
Provision for losses.................... (471) (240) (891) (625)
Other income............................ 3,904 3,677 7,616 6,761
Operating, administrative and general
expenses............................... (17,878) (16,523) (35,756) (33,655)
-------- -------- -------- --------
OPERATING INCOME........................ 10,202 9,843 20,158 20,068
Income taxes............................ 4,256 4,139 8,422 8,415
-------- -------- -------- --------
NET INCOME.............................. $ 5,946 $ 5,704 $ 11,736 $ 11,653
======== ======== ======== ========
</TABLE>
4
<PAGE>
American Savings Bank, F.S.B. and subsidiaries
Balance sheet data
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents.................... $ 86,927 $ 129,678
Held-to-maturity investment securities.. 36,053 34,720
Held-to-maturity mortgage-backed 1,373,305 1,444,832
securities.............................
Loans receivable, net................... 1,903,529 1,687,801
Other................................... 74,632 75,150
Goodwill and other intangibles.......... 39,140 41,245
---------- ----------
$3,513,586 $3,413,426
========== ==========
LIABILITIES AND EQUITY
Deposit liabilities..................... $2,259,024 $2,223,755
Securities sold under agreements to 455,252 412,521
repurchase.............................
Advances from Federal Home Loan Bank.... 526,774 501,274
Other................................... 59,895 57,973
---------- ----------
3,300,945 3,195,523
Common stock equity..................... 212,641 217,903
---------- ----------
$3,513,586 $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 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.
(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 $49 million and $50 million at
June 30, 1996 and December 31, 1995, respectively. MPC's present focus is to
reduce its current investment in real estate development assets and increase
cash flow by continuing the development and sales of its existing projects.
There are currently no plans to invest in new projects.
5
<PAGE>
At June 30, 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 (ii) payment guaranties under
which MPC or its subsidiaries were severally contingently liable for
$5.1 million of outstanding loans and $4.0 million of additional undrawn loan
facilities. All such loans are collateralized by real property. At June 30,
1996, HEI had agreed with the lenders of construction loans and loan facilities,
of which approximately $9.1 million was outstanding and $4.8 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 for interest (net of capitalized amounts) and income taxes was as
follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------
(in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest (including interest paid by savings bank, but excluding interest
paid on nonrecourse debt from leveraged leases)......................... $105,138 $92,457
======== =======
Interest on nonrecourse debt from leveraged leases....................... $ 4,142 $ 4,534
======== =======
Income taxes............................................................. $ 21,397 $19,809
======== =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
In the six months ended June 30, 1995, ASB received $223 million in mortgage-
backed securities in exchange for loans.
Common stock dividends reinvested by shareholders in HEI common stock in noncash
transactions amounted to $10.6 million and $9.6 million for the six months ended
June 30, 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 $4.8 million and
$5.0 million for the six months ended June 30, 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.
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.
6
<PAGE>
MORTGAGE SERVICING RIGHTS AND TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
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.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards based on the consistent application
of a financial-components approach that focuses on control. Under that
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 amends or supersedes various
statements, including superseding SFAS No. 122. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. The
Company will adopt the provisions of SFAS No. 125 on January 1, 1997, but has
not determined the impact of the adoption.
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
7
<PAGE>
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. In June 1996, the District Court held a
hearing on cross-motions for summary judgment with respect to the remaining
issues in the case, but the District Court has not yet ruled on these motions.
In the event any issues remain for trial after the Court rules on these motions,
a trial date must be set. Recoveries from HEI's insurance carriers, if any, will
be recognized when realized.
(8) CONTINGENCIES
- ------------------
ENVIRONMENTAL REGULATION -- HAZARDOUS WASTE AND TOXIC SUBSTANCES CONTROL
By letters in January and February 1995, the Department of Health of the State
of Hawaii (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>
June 30, December 31,
(in thousands, except par value) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Utility plant, at cost
Property, plant and equipment........ $2,349,603 $2,291,545
Construction in progress............. 212,973 191,460
Less--accumulated depreciation....... (797,228) (762,770)
---------- ----------
NET UTILITY PLANT.............. 1,765,348 1,720,235
---------- ----------
Current assets
Cash and equivalents................. 1,965 20
Customer accounts receivable, net.... 77,422 67,698
Accrued unbilled revenues, net....... 39,997 43,695
Other accounts receivable, net....... 3,795 5,355
Fuel oil stock, at average cost...... 23,747 13,469
Materials and supplies, at average
cost................................ 19,189 20,538
Prepayments and other................ 2,433 2,297
---------- ----------
TOTAL CURRENT ASSETS........... 168,548 153,072
---------- ----------
Other assets
Regulatory assets.................... 99,426 97,114
Other................................ 48,326 45,862
---------- ----------
TOTAL OTHER ASSETS............. 147,752 142,976
---------- ----------
$2,081,648 $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............. 271,480 271,449
Retained earnings.................... 356,644 343,425
---------- ----------
COMMON STOCK EQUITY............ 710,155 696,905
Cumulative preferred stock
Not subject to mandatory
redemption....................... 48,293 48,293
Subject to mandatory redemption... 37,555 39,955
Long-term debt, net.................. 541,504 487,306
---------- ----------
TOTAL CAPITALIZATION........... 1,337,507 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 121,208 131,753
Short-term borrowings - affiliate.... 12,400 7,000
Accounts payable..................... 52,052 48,691
Interest and preferred dividends
payable............................. 10,515 9,954
Taxes accrued........................ 37,234 42,968
Other................................ 25,822 37,573
---------- ----------
TOTAL CURRENT LIABILITIES...... 304,026 309,637
---------- ----------
Deferred credits and other liabilities
Deferred income taxes................ 118,226 116,963
Unamortized tax credits.............. 46,946 45,935
Other................................ 81,081 79,435
---------- ----------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES............. 246,253 242,333
---------- ----------
Contributions in aid of construction.... 193,862 191,854
---------- ----------
$2,081,648 $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 Six months ended
June 30, June 30,
(in thousands, except for ratio of ---------------------- --------------------
earnings to fixed charges) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES...................... $262,807 $242,646 $508,751 $473,822
-------- -------- -------- --------
OPERATING EXPENSES
Fuel oil................................ 61,665 48,816 115,287 97,293
Purchased power......................... 69,798 70,890 137,605 134,743
Other operation......................... 35,978 34,212 69,569 68,395
Maintenance............................. 11,448 12,411 23,393 23,633
Depreciation and amortization........... 18,338 17,028 36,681 34,010
Taxes, other than income taxes.......... 24,312 22,688 48,020 44,767
Income taxes............................ 13,660 12,096 25,893 23,270
-------- -------- -------- --------
235,199 218,141 456,448 426,111
-------- -------- -------- --------
OPERATING INCOME........................ 27,608 24,505 52,303 47,711
-------- -------- -------- --------
OTHER INCOME
Allowance for equity funds used
during construction.................. 2,147 2,618 4,798 4,985
Other, net.............................. 2,165 1,710 4,016 2,947
-------- -------- -------- --------
4,312 4,328 8,814 7,932
-------- -------- -------- --------
INCOME BEFORE INTEREST AND OTHER CHARGES 31,920 28,833 61,117 55,643
-------- -------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt.............. 8,735 8,587 17,263 16,665
Amortization of net bond premium and
expense................................ 320 320 635 634
Other interest charges.................. 2,465 1,998 4,955 4,052
Allowance for borrowed funds used
during construction.................. (1,154) (1,338) (2,504) (2,505)
Preferred stock dividends of
subsidiaries........................... 702 692 1,404 1,384
-------- -------- -------- --------
11,068 10,259 21,753 20,230
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS
OF HECO.............................. 20,852 18,574 39,364 35,413
Preferred stock dividends of HECO....... 964 1,034 1,937 2,073
-------- -------- -------- --------
NET INCOME FOR COMMON STOCK............. $ 19,888 $ 17,540 $ 37,427 $ 33,340
======== ======== ======== ========
Ratio of earnings to fixed charges
(SEC method)......................... 3.46 3.34
======== ========
</TABLE>
Hawaiian Electric Company, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD.. $349,910 $315,408 $343,425 $308,535
Net income for common stock............. 19,888 17,540 37,427 33,340
Common stock dividends.................. (13,154) (7,900) (24,208) (16,827)
-------- -------- -------- --------
RETAINED EARNINGS, END OF PERIOD........ $356,644 $325,048 $356,644 $325,048
======== ======== ======== ========
</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>
Six months ended
June 30,
----------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before preferred stock dividends of HECO................................. $ 39,364 $ 35,413
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............ 36,681 34,010
Other amortization........................................................ 4,574 2,816
Deferred income taxes..................................................... 1,302 1,837
Tax credits, net.......................................................... 1,840 2,174
Allowance for equity funds used during construction....................... (4,798) (4,985)
Changes in assets and liabilities
Increase in accounts receivable........................................... (8,164) (7,741)
Decrease (increase) in accrued unbilled revenues.......................... 3,698 (300)
Decrease (increase) in fuel oil stock..................................... (10,278) 5,281
Decrease (increase) in materials and supplies............................. 1,349 (72)
Increase in regulatory assets............................................. (1,676) (2,394)
Increase (decrease) in accounts payable................................... 3,361 (7,645)
Increase in interest and preferred dividends payable...................... 561 1,166
Changes in other assets and liabilities................................... (21,899) (14,012)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... 45,915 45,548
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................................................ (79,820) (95,741)
Contributions in aid of construction............................................ 5,984 6,414
Increase in notes receivable.................................................... (391) --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES........................................... (74,227) (89,327)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock dividends.......................................................... (24,208) (16,827)
Preferred stock dividends....................................................... (1,937) (2,073)
Proceeds from issuance of long-term debt........................................ 67,242 48,213
Repayment of long-term debt..................................................... -- (11,000)
Redemption of preferred stock................................................... (2,400) (1,554)
Net increase (decrease) in short-term borrowings from nonaffiliates
and affiliate with original maturities of three months or less................ (5,145) 20,899
Other........................................................................... (3,295) (4,134)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES....................................... 30,257 33,524
-------- --------
Net increase (decrease) in cash and equivalents................................. 1,945 (10,255)
Cash and equivalents, beginning of period....................................... 20 10,694
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD............................................. $ 1,965 $ 439
======== ========
</TABLE>
See accompanying notes to HECO's consolidated financial statements.
11
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to SEC Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. 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 (as amended) and
the consolidated financial statements and the notes thereto in HECO's Quarterly
Report on SEC Form 10-Q for the quarter ended March 31, 1996.
In the opinion of HECO's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by generally
accepted accounting principles to present fairly the financial position of HECO
and its subsidiaries as of June 30, 1996 and December 31, 1995, and the results
of their operations for the three months and six months ended June 30, 1996 and
1995, and their cash flows for the six months ended June 30, 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>
Six months ended
June 30,
-----------------
(in thousands) 1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Interest................................ $19,788 $17,332
======= =======
Income taxes............................ $16,411 $19,174
======= =======
</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 $4.8 million and
$5.0 million for the six months ended June 30, 1996 and 1995, respectively.
(3) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
HELCO POWER SITUATION
BACKGROUND. In 1991, HELCO identified the need beginning in 1994 for additional
- ----------
generation 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
12
<PAGE>
planned to install in late 1994, and in September 1995, the PUC conditionally
approved expenditures for CT-5 and ST-7.
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.
CDUP DELAYS. 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 that
HELCO's CDUP application was denied. On May 10, 1996 the BLNR issued an amended
order which no longer stated that the application was denied, but rather that it
would not issue a permit based on that vote. HELCO's position is that denial of
the CDUP application requires the favorable vote of at least 4 members of the
BLNR, and that the failure of the BLNR to take effective action results in HELCO
being entitled to its CDUP by operation of law. HELCO has filed both a complaint
for declaratory judgment (basically asking that HELCO be allowed to put its land
to the use requested and asking that BLNR and others act consistently with that
purpose) and a protective appeal of the original BLNR order. Other parties have
been allowed to intervene or cross-appeal, respectively, in those actions. On
July 25, 1996, the Third Circuit Court consolidated HELCO'S cases and set an
expedited schedule which results in oral arguments on September 30, 1996. A
decision is anticipated shortly thereafter. These proceedings may further delay,
if not prevent, HELCO's project.
PSD PERMIT DELAYS. 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. By letter dated June 5, 1996 to the DOH, the EPA stated that
it had reviewed HELCO's letter to the DOH dated April 3, 1996 in which HELCO
proposed to reduce net nitrogen oxide emission increases at Keahole by retiring
and/or reducing output of certain existing diesel units, that it found the
netting approach procedurally and substantively acceptable, and that if emission
increases were kept below significance levels it would not require the use of
any particular emission control technology. In addition, the EPA has requested
that the DOH reconsider the use of low sulfur naphtha fuel as best available
control technology for sulfur dioxide emissions. HELCO has submitted information
showing that the use of such fuel in the Keahole unit is economically
infeasible. The DOH is still reviewing this issue. 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 may further delay, if not prevent, HELCO's
project.
IPP COMPLAINTS. 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.
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
13
<PAGE>
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 were made to the PUC by the parties in the Enserch docket on
June 14, 1996. The PUC may provide guidance to the IPPs and HELCO concerning
certain issues as their negotiations continue.
COSTS INCURRED. 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 ($46.3 million as of June 30, 1996) if
such costs ultimately are not recoverable from customers or others. The $46.3
million includes approximately $26.7 million for equipment and material
purchases, approximately $9.8 million for planning, engineering, permitting,
site development and other costs and approximately $9.8 million as an allowance
for funds used during construction (AFUDC). 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.
CONTINGENCY PLANNING. In June 1995, HELCO filed with the PUC its generation
- --------------------
resource contingency plan detailing alternatives and mitigation measures to
address possible further delays in obtaining the permits necessary to construct
its combined-cycle unit. HELCO 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 and deferred generation unit retirements. These
measures have helped HELCO maintain its reserve margin and reduce the risk of
capacity shortages. 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 June 30, 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
----------------------- -----------------------
June 30, December 31, June 30, December 31,
(in thousands) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets............................................ $ 26,405 $ 23,485 $ 28,581 $ 27,161
Noncurrent assets......................................... 376,689 368,785 330,365 306,191
-------- -------- -------- --------
$403,094 $392,270 $358,946 $333,352
======== ======== ======== ========
Common stock equity....................................... $137,890 $136,930 $127,820 $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....................................... 64,692 64,233 61,014 57,551
Noncurrent liabilities.................................... 183,012 173,607 156,057 135,288
-------- -------- -------- --------
$403,094 $392,270 $358,946 $333,352
======== ======== ======== ========
</TABLE>
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
HELCO MECO
------------------------------------------- ----------------------------------------------
Three months ended Six months ended Three months ended Six months ended
June 30, June 30, June 30, June 30,
---------------------- ------------------ --------------------- ---------------------
(in thousands) 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............ $37,481 $33,551 $72,670 $66,246 $35,416 $31,448 $68,211 $61,241
Operating income.............. 4,768 3,933 7,457 7,356 3,695 4,147 7,625 7,890
Net income for common stock... 3,023 3,111 5,162 5,659 3,105 2,810 6,272 5,099
</TABLE>
(6) RECONCILIATION OF ELECTRIC UTILITY OPERATING INCOME PER HEI AND HECO
- -------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- ---------------------
(in thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating income from regulated and nonregulated
activities before income taxes (per HEI
consolidated statements of income)....................... $ 43,375 $ 38,299 $ 82,114 $ 73,712
Deduct:
Income taxes on regulated activities.................... (13,660) (12,096) (25,893) (23,270)
Revenues from nonregulated activities................... (2,180) (1,860) (4,073) (3,205)
Add:
Expenses from nonregulated activities.................. 73 162 155 474
-------- -------- -------- --------
Operating income from regulated activities after income
taxes (per HECO consolidated statements of income)....... $ 27,608 $ 24,505 $ 52,303 $ 47,711
======== ======== ======== ========
</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
<TABLE>
<CAPTION>
CONSOLIDATED
- ------------
Three months ended
June 30,
(in thousands, except per -------------------- % Primary reason(s) for
share amounts) 1996 1995 change significant change*
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $347,243 $319,897 9 Increase for all
segments
Operating income............. 51,412 46,070 12 Increase for the electric utility
and savings bank segments
Net income................... 21,363 18,880 13 Higher operating income, partly
offset by higher interest expense
due to higher average borrowings and
lower AFUDC
Earnings per common share.... 0.71 0.65 9 See explanation for "net income,"
partly offset by an increase in
shares outstanding
Weighted average number of
common shares outstanding... 30,182 29,063 4 Issuances under the Dividend
Reinvestment and Stock Purchase
Plan and other plans
<CAPTION>
Six months ended
June 30,
(in thousands, except per -------------------- % Primary reason(s) for
share amounts) 1996 1995 change significant change*
- ------------------------------------------------------------------------------------------------------
Revenues..................... $673,412 $626,171 8 Increase for all segments
Operating income............. 98,147 90,379 9 Increase for the electric utility
segment
Net income................... 40,232 36,727 10 Higher operating income, partly
offset by higher interest expense
due to higher average borrowings
Earnings per common share.... 1.34 1.27 6 See explanation for "net income,"
partly offset by an increase in
shares outstanding
Weighted average number of
common shares outstanding... 30,033 28,919 4 Issuances under the Dividend
Reinvestment and Stock Purchase
Plan and other plans
</TABLE>
* Also see segment discussions which follow.
16
<PAGE>
During the first six months of 1996, electric rates at HEI's three electric
utility subsidiaries were designed to provide lower returns on average common
equity (ROACEs) than the allowed ROACEs in effect during the first six months of
1995. The Hawaii Public Utilities Commission (PUC) decisions and orders (D&Os)
issued in December 1995 and the first six months of 1996 established allowed
ROACEs ranging from 11.40% to 11.65%, compared with ROACEs greater than 12% in
effect in the first half 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 second quarter earnings per share would have
exceeded earnings per share for the second quarter of 1995 by approximately
11 cents, or 18%, and consolidated HEI's earnings per share for the first half
of 1996 would have exceeded earnings per share for the first half of 1995 by
approximately 16 cents, or 14%.
Following is a general discussion of revenues, expenses and operating income by
business segment.
ELECTRIC UTILITY
- ----------------
<TABLE>
<CAPTION>
Three months ended
June 30,
(in thousands, except per ------------------ % Primary reason(s) for
barrel amounts 1996 1995 change significant change
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $264,987 $244,506 8 4.3% increase in KWH sales
($10 million), higher rates
($2 million) and higher
fuel oil prices ($9 million)
which are recovered
through rates
Expenses
Fuel oil.................... 61,665 48,816 26 Higher fuel oil prices and
more KWHs generated
Purchased power............. 69,798 70,890 (2) Less KWHs purchased,
partly offset by higher fuel
oil prices
Other....................... 90,149 86,501 4 Higher other operation
expense, depreciation
expense and taxes, other
than income taxes, partly
offset by lower maintenance
expense
Operating income............. 43,375 38,299 13 Higher revenues, partly offset
by higher fuel oil and other
expenses
Net income................... 19,888 17,540 13 Higher operating income, partly
offset by higher interest
expense and lower AFUDC
Fuel oil price per barrel.... 23.11 20.56 12
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Six months ended
June 30,
(in thousands, except per --------------------- % Primary reason(s) for
barrel amounts) 1996 1995 change significant change
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $512,824 $477,027 8 3.6% increase in KWH sales
($17 million), higher rates
($3 million) and higher fuel
oil prices ($15 million)
which are recovered
through rates
Expenses
Fuel oil.................... 115,287 97,293 18 Higher fuel oil prices and more
KWHs generated
Purchased power............. 137,605 134,743 2 Higher purchased energy prices,
partly due to higher fuel oil
prices
Other....................... 177,818 171,279 4 Higher other operation
expense, depreciation
expense and taxes, other
than income taxes
Operating income............. 82,114 73,712 11 Higher revenues,
partly offset by higher
expenses
Net income................... 37,427 33,340 12 Higher operating income, partly
offset by higher interest
expense
Fuel oil price per barrel.... 22.83 20.19 13
</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 second quarter net income would have
exceeded net income for the second quarter of 1995 by approximately 23%, and
consolidated HECO's net income for six months ended June 30, 1996 would have
exceeded net income for the first half of 1995 by approximately 22%.
Kilowatthour sales in the second quarter and first half of 1996 increased 4.3%
and 3.6%, respectively, from the same periods in 1995, partly due to increases
in visitor arrivals and the number of customers and warmer weather. Also, the
electric utilities have been controlling their other operation and maintenance
expenses.
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.
18
<PAGE>
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 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, was 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 fourth quarter 1995 after-tax charge of
$1.1 million.
Hawaii Electric Light Company, Inc.
- -----------------------------------
. In March 1995, HELCO filed a request to increase rates based on a 1996 test
year. In February 1996, HELCO revised its requested increase to 6.2%, or
$8.9 million in annual revenues, based on a 12.5% ROACE. In March 1996, HELCO
received an interim D&O authorizing a 4.8%, or $6.8 million, increase in annual
revenues, based on an 11.65% ROACE, effective March 4, 1996.
. HELCO is considering filing a request to increase rates based on a 1997 test
year. At this time, however, it appears unlikely.
Maui Electric Company, Limited
- ------------------------------
. In February 1995, MECO filed a request to increase rates based on a 1996 test
year. MECO's final requested increase was 3.8%, or $5.0 million in annual
revenues, based on an 11.5% ROACE. In January 1996, MECO received an interim D&O
authorizing an increase of 2.8%, or $3.7 million in annual revenues, based on an
11.5% ROACE, effective February 1, 1996.
. In May 1996, MECO filed a request to increase rates based on a 1997 test
year. MECO requested an increase of 13%, or $18.9 million in annual revenues
over rates in effect at the time of filing, based on a 12.9% ROACE.
SAVINGS BANK
- ------------
<TABLE>
<CAPTION>
Three months ended
June 30,
------------------ %
(in thousands) 1996 1995 change Primary reason(s) for significant change
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $66,278 $61,605 8 Higher interest income as a result of
higher average loans receivable and
mortgage-backed securities balances,
partly offset by lower yields
Operating income............. 10,202 9,843 4 Higher net interest income, offset by
higher compensation and employee
benefits expenses
Net income................... 5,946 5,704 4 Higher operating income
Interest rate spread......... 2.79% 2.88% 12 basis points decrease in the weighted
average yield on interest-earning assets,
partly offset by 3 basis points decrease
in the weighted average rate on interest-
bearing liabilities
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------- %
(in thousands) 1996 1995 change Primary reason(s) for significant change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $132,070 $122,322 8 Higher interest income as a result of
higher average mortgage-backed
securities balance, partly offset by lower
yield
Operating income............. 20,158 20,068 -- Higher net interest income, offset by
higher compensation and employee
benefits expenses and higher office
occupancy expense
Net income................... 11,736 11,653 1 Higher operating income
Interest rate spread......... 2.82% 2.98% 10 basis points decrease in the weighted
average yield on interest-earning assets
and 6 basis points increase in the
weighted average rate on interest-
bearing liabilities
</TABLE>
Several factors contributed to the decrease in ASB's interest rate spread -- the
difference between the weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities. One of the primary
factors was the flattening of the yield curve beginning in 1995. Comparing
second quarter 1996 to the same period in 1995, the weighted average rate on
interest-bearing liabilities remained relatively constant, while the weighted
average rate on interest-earning assets decreased. Comparing the first half of
1996 to the same period in 1995, the weighted average rate on interest-bearing
liabilities increased, while the weighted average rate on interest-earning
assets decreased.
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. In
recent years, securities sold under agreements to repurchase and advances from
the FHLB of Seattle have become more significant sources of funds as the demand
for deposits decreased. Using sources of funds with a higher cost than deposits
puts downward pressure on ASB's net interest income.
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 loans receivable rates, increased from 5.5% to 6.0% and declined to 5.5% by
year end. In the first six months of 1996, the federal funds rate decreased 25
basis points to 5.25%.
20
<PAGE>
OTHER
- -----
<TABLE>
<CAPTION>
Three months ended
June 30,
------------------ %
(in thousands) 1996 1995 change Primary reason(s) for significant change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $15,978 $13,786 16 Real estate subsidiary sale of land in
downtown Honolulu to a developer for a
residential condominium
Operating loss............... (2,165) (2,072) NM Higher administrative and general
expenses at corporate, partly offset
by real estate subsidiary sale of land
in downtown Honolulu
</TABLE>
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------ %
(in thousands) 1996 1995 change Primary reason(s) for significant change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues..................... $28,518 $26,822 6 Real estate subsidiary sale of land in
downtown Honolulu to a developer for a
residential condominium
Operating loss............... (4,125) (3,401) NM Lower general freight revenue at freight
transportation subsidiaries and the
startup costs of HEIPC, partly offset
by real estate subsidiary sale of land
in downtown Honolulu
</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;
HEIPC and subsidiaries, which have been and will be formed from time to time 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
$0.5 million and $0.9 million in the second quarter and first half of 1996,
respectively, compared with $0.6 million and $1.5 million in the same periods of
1995. The decrease in operating income was a result of lower general freight
revenues as the freight transportation subsidiaries continue to be negatively
impacted by the slow economic activity on the neighbor islands and the slow
construction industry. In June 1996, YB filed a request with the PUC for a
general rate increase based on a 1996 test year. YB requested an increase of
9.9%, or $3.5 million in annual revenues, based on a 15.15% ROACE.
REAL ESTATE
The real estate subsidiaries recorded operating income of $0.7 million and
$0.4 million in the second quarter and first half of 1996, respectively,
compared with operating losses of $0.4 million and $0.6 million in the same
periods of 1995. In April 1996, MPC sold land in downtown Honolulu to a
developer for a pretax gain of $1.1 million. MPC's other real estate development
activities continue to be 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."
21
<PAGE>
OTHER
HEIPC was formed in March 1995 and its operating loss (i.e., startup costs) for
the first half of 1996 was $1.0 million, compared with $0.5 million for the
first half of 1995.
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-megawatt
(MW) hydroelectric plant in the Philippines. The project is in a preliminary
stage for HEIPC. No assurances can be given as to whether the project will be
successfully completed.
In February 1996, HEIPC signed a "Memorandum of Understanding" with Beacon Hill
Associates, Inc. for a 50% interest in a 60-MW naphtha-fueled combined-cycle
power plant in Phnom Penh, Cambodia. However, in June 1996, HEIPC withdrew from
negotiations with Beacon Hill Associates, Inc.
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 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. 122, "Accounting for Mortgage Servicing Rights"; and
SFAS No. 123, "Accounting for Stock-Based Compensation"; and SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," 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) June 30, 1996 December 31, 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings........ $ 167 9% $ 182 10%
Long-term debt............... 818 45 758 43
Preferred stock of electric
utility subsidiaries........ 88 5 90 5
Common stock equity.......... 754 41 730 42
------ --- ------ ---
$1,827 100% $1,760 100%
====== === ====== ===
</TABLE>
ASB's deposit liabilities, securities sold under agreements to repurchase and
advances from the Federal Home Loan Bank are not included in the table above.
For the first six months of 1996, net cash provided by operating activities was
$58 million. Net cash used in investing activities was $224 million, largely due
to ASB's loan originations, net of repayments, and consolidated HECO's capital
expenditures. Net cash provided by financing activities was $125 million as a
result of several factors, including net increases in long-term debt, securities
sold under agreements to repurchase, advances from FHLB and deposit liabilities,
partly offset by a decrease in short-term borrowings and by common stock
dividends.
Total HEI consolidated financing requirements for 1996 through 2000 (excluding
any financing requirements HEIPC may have), including net capital expenditures
(which excludes the allowance for funds used during construction and capital
expenditures funded by third-party cash contributions in aid of construction),
debt retirements (excluding repayments of advances from FHLB of Seattle and
securities sold under agreements to repurchase) and sinking fund requirements,
are currently estimated to total $1.1 billion. Of this amount, approximately
$0.9 billion are for net capital expenditures (mostly relating to the electric
utilities' net capital expenditures described below). HEI consolidated internal
22
<PAGE>
sources, after the payment of HEI dividends, are expected to provide
approximately 57% of the consolidated financing requirements, with debt and
equity financing providing the remaining requirements. Over the five-year period
1996 through 2000, HEI estimates that it will require approximately $172 million
in new common equity, in addition to retained earnings, which is expected to be
provided principally by HEI's Dividend Reinvestment and Stock Purchase Plan and
the Hawaiian Electric Industries Retirement Savings Plan. The additional equity
will be used to fund the electric utilities' common equity requirements related
to their capital expenditure programs and to reduce HEI's overall borrowing
level. Additional common equity in excess of the $172 million described above,
and additional debt financing, may be required for the development of
independent power projects and energy services projects by HEIPC in Asia and the
Pacific.
Following is a discussion of the liquidity and capital resources of HEI's
largest segments.
ELECTRIC UTILITY
- ----------------
HECO's consolidated capital structure was as follows:
<TABLE>
<CAPTION>
(in millions) June 30, 1996 December 31, 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings from
nonaffiliates and affiliate...... $ 134 9% $ 139 10%
Long-term debt.................... 584 38 517 36
Preferred stock................... 88 6 90 6
Common stock equity............... 710 47 697 48
------ --- ------ ---
$1,516 100% $1,443 100%
====== === ====== ===
</TABLE>
Operating activities provided $46 million in net cash during the first six
months of 1996. Investing activities used cash of $74 million primarily for
capital expenditures, net of contributions in aid of construction. Financing
activities provided cash of $30 million through an increase in long-term debt,
partly offset by a net decrease in short-term borrowings, payment of common and
preferred dividends and the sinking fund redemption of preferred stock.
During May 1996, the Department of Budget and Finance of the State of Hawaii
issued $75 million of special purpose revenue bonds on behalf of HECO, HELCO and
MECO at a discount, resulting in a yield of 6.375%. As of June 30, 1996, an
additional $95 million of revenue bonds had been authorized by the Hawaii
Legislature for issuance prior to the end of 1997. In July 1996, an additional
$150 million of revenue bonds was authorized by the Hawaii Legislature for
issuance prior to the end of 1999.
The electric utilities' consolidated financing requirements for 1996 through
2000, including net capital expenditures, debt retirements and sinking fund
requirements, are estimated to total $887 million. HECO's consolidated internal
sources, after the payment of common and preferred stock dividends, are
currently expected to provide approximately 64% of the total $887 million
requirements, with debt and equity financing providing the remaining
requirements. HECO currently estimates that it will require approximately
$64 million in new common equity, in addition to retained earnings, over the
five-year period 1996 through 2000. The PUC must approve issuances of long-term
debt and equity by HECO, HELCO and MECO.
Capital expenditures include the costs of projects which are required to meet
expected load growth, to improve reliability and to replace and upgrade existing
equipment. Net capital expenditures for the five-year period 1996 through 2000
are currently estimated to total $805 million. Approximately 65% of gross
capital expenditures, including the allowance for funds used during construction
and capital expenditures funded by third-party cash contributions in aid of
construction, is for transmission and distribution projects, with the remaining
35% primarily for generation projects.
Capital expenditure estimates and the timing of construction projects are
reviewed periodically by management and may change significantly as a result of
many considerations, including changes in economic conditions, changes in
forecasts of KWH sales and peak load, the availability of purchased power, the
availability of generating sites and transmission and distribution corridors,
the ability to obtain adequate and timely rate relief, escalation in
construction costs, demand-side management programs and requirements of
environmental and other regulatory and permitting authorities.
23
<PAGE>
SAVINGS BANK
- ------------
<TABLE>
<CAPTION>
%
(in millions) June 30, 1996 December 31, 1995 change
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets.................................. $3,514 $3,413 3
Mortgage-backed securities.............. 1,373 1,445 (5)
Loans receivable........................ 1,904 1,688 13
Deposit liabilities..................... 2,259 2,224 2
Securities sold under agreements to 455 413 10
repurchase.............................
Advances from Federal Home Loan Bank.... 527 501 5
</TABLE>
At March 31, 1996, 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 $2.3 billion. The 13% increase in loans
receivable was partly due to the fact that ASB's refinancings of other
institutions loans were high in the first half of 1996. This trend, however, is
not expected to continue in the second half of 1996.
For the first six months of 1996, cash used in ASB's investing activities was
$146 million, due largely to the origination of loans receivable, partly offset
by principal repayments. Cash provided by financing activities was $86 million
as a result of a net increase of $43 million in securities sold under agreements
to repurchase, $35 million in deposit liabilities and $26 million in advances
from the FHLB of Seattle, partly offset by the return of an $11 million capital
contribution and common stock dividends of $7 million.
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 June 30, 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 June 30, 1996, ASB was in compliance with the OTS minimum
capital requirements (noted in parenthesis) with a tangible capital ratio of
5.01% (1.5%), a core capital ratio of 5.14% (3.0%) and a risk-based capital
ratio of 11.97% (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 June 30, 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.
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 June 30, 1996, ASB was well-capitalized (ratio requirements
noted in parenthesis) with a leverage ratio of 5.14% (5.0%), a Tier-1 risk-based
ratio of 11.25% (6.0%) and a total risk-based ratio of 11.97% (10.0%).
Significant interstate banking legislation has been enacted at both the federal
and state levels. Under the federal Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, a bank holding company may acquire control of a bank in
any state, subject to certain restrictions. Under Hawaii law which takes effect
on June 1, 1997, a bank chartered under Hawaii law may merge with an out-of-
state bank and convert all branches of both banks into branches of a single
bank, subject to certain restrictions. Although the federal and Hawaii laws
apply only to banks, such legislation may nonetheless affect the competitive
balance among banks, thrifts and other financial institutions and the level of
competition among financial institutions doing business in Hawaii.
For a discussion of proposed legislation affecting financial institutions, see
note (3) in HEI's "Notes to consolidated financial statements."
24
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
There are no significant developments except as set forth in HEI's and HECO's
"Notes to consolidated financial statements," management's discussion and
analysis of financial condition and results of operations and Item 5, "Other
information."
ITEM 5. OTHER INFORMATION
- --------------------------
A. WAIAU-CAMPBELL INDUSTRIAL PARK TRANSMISSION LINES
In 1993, the PUC held hearings concerning Part 2 of the Waiau-Campbell
Industrial Park (CIP) 138-kilovolt transmission lines. These lines are part of a
second transmission corridor in West Oahu, running approximately 15 miles
between CIP and HECO's Waiau power plant. The new lines were needed (1) to
increase system reliability, (2) to provide additional transmission capacity to
meet expected load growth and (3) to provide transmission capacity for existing
and new power generation projects planned for West Oahu. HECO experienced
community opposition over the proposed placement of portions of these lines
based in part on the potential effects of the lines on aesthetics and the
concern of some that the electric and magnetic fields (EMF) from the power lines
may have adverse health effects. HECO witnesses addressed EMF, the route
selection process (which involved extensive public input), as well as
engineering and related subjects.
One proposal by those who oppose the route of the overhead lines was to place
Part 2 of the Waiau-CIP lines underground. HECO estimated that this proposal
would cost approximately $100 million more than the cost of overhead lines. In
April 1994, the PUC issued a decision which permitted HECO to construct the
lines above ground. While the PUC recognized the concerns of aesthetics and EMF,
it felt that neither concern was sufficient to justify the added cost of
undergrounding the lines. In May 1994, appeals to the state Supreme Court were
filed by intervenors in the PUC proceeding requesting that the Court overturn
the PUC's ruling that allowed HECO to construct the lines above ground. No stay
of the PUC order was entered. HECO completed construction of the overhead lines
which were placed in service in August 1995. In June 1996, the state Supreme
Court affirmed the decision of the PUC.
B. HELCO's and MECO's Integrated Resource Plans (IRPs)
In May 1996, the PUC issued D&Os in which it approved HELCO's and MECO's
respective IRPs and Action Plans. The PUC also approved HELCO's and MECO's
mechanisms for recovery of demand-side management program expenditures, net lost
revenues and shareholder incentives.
HELCO was also ordered to conduct a study to determine the cost-effectiveness of
establishing spinning reserve criteria and to submit the study to the PUC with
its next IRP or with its next application to commit generation capacity funds,
whichever submittal occurs earlier.
C. Puna Geothermal Venture (PGV)
On February 12, 1996, HELCO and PGV executed an amendment to the existing power
purchase agreement, under which PGV would be obligated to provide an additional
5 MW of firm capacity to HELCO commencing in late 1996. The amendment was
approved by the PUC in August 1996. Such additional capacity will assist HELCO
in addressing its capacity situation.
D. MECO Maalaea Unit 14
Following a unit overhaul, emission compliance tests conducted for MECO's
Maalaea Unit 14 in October 1995 and documented in November 1995 indicated that
particulate emissions were in excess of Prevention of Significant
Deterioration/Covered Source Permit (PSD) limits. Corrective actions included
fine tuning of the combustion turbine's fuel nozzles in December 1995, and a
retest in February 1996 confirmed that the unit returned to compliance with PSD
limits. All test reports were submitted to the Department of Health of the State
of Hawaii (DOH). By letter dated July 15, 1996, the DOH indicated that a Notice
of Violation will be issued for the past violations. Management does not believe
that the issuance or final resolution of the Notice of Violation will have a
material adverse effect on consolidated HECO's financial condition or results of
operations.
25
<PAGE>
E. 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>
Six months Years Ended December 31,
ended --------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.96 1.94 2.22 2.25 2.08 1.99
==== ==== ==== ==== ==== ====
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON ASB DEPOSITS
---------
<TABLE>
<CAPTION>
Six months Years Ended December 31,
ended --------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.57 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>
Six months Years Ended December 31,
ended --------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.46 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.
26
<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,
six months ended June 30, 1996 and 1995
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 12.2 Computation of ratio of earnings to fixed charges,
six months ended June 30, 1996 and 1995
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 27.1 Financial Data Schedule
June 30, 1996 and six months ended June 30, 1996
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 27.2 Financial Data Schedule
June 30, 1996 and six months ended June 30, 1996
(b) REPORTS ON FORM 8-K
During the quarter, HEI and HECO filed a Current Report on Form 8-K dated April
30, 1996, under "Item 5. Other Events."
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 each registrant shall
be deemed to relate only to matters having reference to that registrant 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 Oyer
Controller Financial Vice President and
(Principal Accounting Officer of HEI) Treasurer
(Principal Financial Officer of
HECO)
Date: August 6, 1996 Date: August 6, 1996
27
<PAGE>
HEI Exhibit 12.1
----------------
Hawaiian Electric Industries, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------------------
(dollars in thousands) 1996 (1) 1996 (2) 1995 (1) 1995 (2)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3)...................... $ 60,805 $108,145 $ 56,505 $ 99,038
Proportionate share of
fifty-percent-owned persons......... 372 372 461 461
Interest component of rentals........... 2,052 2,052 1,939 1,939
Pretax preferred stock dividend
requirements of subsidiaries........... 5,613 5,613 5,799 5,799
-------- -------- -------- --------
TOTAL FIXED CHARGES..................... $ 68,842 $116,182 $ 64,704 $107,237
======== ======== ======== ========
EARNINGS
Pretax income........................... $ 69,859 $ 69,859 $ 63,945 $ 63,945
Fixed charges, as shown................. 68,842 116,182 64,704 107,237
Interest capitalized
The Company.......................... (3,135) (3,135) (3,102) (3,102)
Proportionate share of
fifty-percent-owned persons......... (372) (372) (461) (461)
-------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES.... $135,194 $182,534 $125,086 $167,619
======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES...... 1.96 1.57 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>
Six months ended
June 30,
------------------
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
FIXED CHARGES
Total interest charges.................. $22,853 $21,351
Interest component of rentals........... 352 330
Pretax preferred stock dividend
requirements of subsidiaries........... 2,293 2,252
------- -------
TOTAL FIXED CHARGES..................... $25,498 $23,933
======= =======
EARNINGS
Income before preferred stock dividends
of HECO................................ $39,364 $35,413
Income taxes (see note below)........... 25,795 23,054
Fixed charges, as shown................. 25,498 23,933
AFUDC for borrowed funds................ (2,504) (2,505)
------- -------
EARNINGS AVAILABLE FOR FIXED CHARGES.... $88,153 $79,895
======= =======
RATIO OF EARNINGS TO FIXED CHARGES...... 3.46 3.34
======= =======
Note:
Income taxes are comprised of the
following:
Expense relating to operating income $25,893 $23,270
for regulated purposes..............
Benefit relating to nonoperating loss. (98) (216)
------- -------
$25,795 $23,054
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HAWAIIAN
ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AS OF
JUNE 30, 1996 AND CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000354707
<NAME> HEI
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 90,300
<SECURITIES> 1,409,358
<RECEIVABLES> 147,835
<ALLOWANCES> 0
<INVENTORY> 44,289
<CURRENT-ASSETS> 0
<PP&E> 2,708,769
<DEPRECIATION> 854,344
<TOTAL-ASSETS> 5,771,527
<CURRENT-LIABILITIES> 0
<BONDS> 818,358
39,350
48,293
<COMMON> 605,785
<OTHER-SE> 148,450
<TOTAL-LIABILITY-AND-EQUITY> 5,771,527
<SALES> 0
<TOTAL-REVENUES> 673,412
<CGS> 0
<TOTAL-COSTS> 575,265
<OTHER-EXPENSES> (3,961)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,249
<INCOME-PRETAX> 69,859
<INCOME-TAX> 29,627
<INCOME-CONTINUING> 40,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,232
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HAWAIIAN
ELECTRIC COMPANY, INC. AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AS OF JUNE
30, 1996 AND CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000046207
<NAME> HECO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,765,348
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 168,548
<TOTAL-DEFERRED-CHARGES> 11,524
<OTHER-ASSETS> 136,228
<TOTAL-ASSETS> 2,081,648
<COMMON> 82,031
<CAPITAL-SURPLUS-PAID-IN> 271,480
<RETAINED-EARNINGS> 356,644
<TOTAL-COMMON-STOCKHOLDERS-EQ> 710,155
37,555
48,293
<LONG-TERM-DEBT-NET> 541,504
<SHORT-TERM-NOTES> 12,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 121,208
<LONG-TERM-DEBT-CURRENT-PORT> 43,000
1,795
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 565,738
<TOT-CAPITALIZATION-AND-LIAB> 2,081,648
<GROSS-OPERATING-REVENUE> 508,751
<INCOME-TAX-EXPENSE> 25,893
<OTHER-OPERATING-EXPENSES> 430,555
<TOTAL-OPERATING-EXPENSES> 456,448
<OPERATING-INCOME-LOSS> 52,303
<OTHER-INCOME-NET> 8,814
<INCOME-BEFORE-INTEREST-EXPEN> 61,117
<TOTAL-INTEREST-EXPENSE> 21,753
<NET-INCOME> 39,364
1,937
<EARNINGS-AVAILABLE-FOR-COMM> 37,427
<COMMON-STOCK-DIVIDENDS> 24,208
<TOTAL-INTEREST-ON-BONDS> 39,884
<CASH-FLOW-OPERATIONS> 45,915
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>