UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Commission I.R.S. Employer
Specified in Its Charter File Number Identification No.
- ------------------------------------ ----------- ------------------
HAWAIIAN ELECTRIC INDUSTRIES, INC. 1-8503 99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC. 1-4955 99-0040500
State of Hawaii
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
900 Richards Street, Honolulu, Hawaii 96813
- --------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Hawaiian Electric Industries, Inc. ----- (808) 543-5662
Hawaiian Electric Company, Inc. -------- (808) 543-7771
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding May 3, 2001
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc. (Without Par Value)... 32,449,048 Shares
Hawaiian Electric Company, Inc. ($6 2/3 Par Value)....... 12,805,843 Shares
(not publicly traded)
================================================================================
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended March 31, 2001
INDEX
Page No.
Glossary of terms .................................................................. ii
Forward-looking statements ......................................................... v
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Hawaiian Electric Industries, Inc. and subsidiaries
---------------------------------------------------
Consolidated balance sheets (unaudited) -
March 31, 2001 and December 31, 2000.................................. 1
Consolidated statements of income (unaudited) -
three months ended March 31, 2001 and 2000............................ 2
Consolidated statements of changes in stockholders' equity (unaudited) -
three months ended March 31, 2001 and 2000............................ 3
Consolidated statements of cash flows (unaudited) -
three months ended March 31, 2001 and 2000............................ 4
Notes to consolidated financial statements (unaudited).................. 5
Hawaiian Electric Company, Inc. and subsidiaries
------------------------------------------------
Consolidated balance sheets (unaudited) -
March 31, 2001 and December 31, 2000.................................. 11
Consolidated statements of income (unaudited) -
three months ended March 31, 2001 and 2000............................ 12
Consolidated statements of retained earnings (unaudited) -
three months ended March 31, 2001 and 2000............................ 12
Consolidated statements of cash flows (unaudited) -
three months ended March 31, 2001 and 2000............................ 13
Notes to consolidated financial statements (unaudited).................. 14
Item 2. Management's discussion and analysis of financial condition
and results of operations............................................. 26
Item 3. Quantitative and qualitative disclosures about market risk.............. 35
PART II. OTHER INFORMATION
Item 1. Legal proceedings..................................................... 36
Item 2. Changes in securities and use of proceeds............................. 36
Item 4. Submission of matters to a vote of security holders................... 37
Item 5. Other information..................................................... 37
Item 6. Exhibits and reports on Form 8-K...................................... 50
Signatures.......................................................................... 51
i
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended March 31, 2001
GLOSSARY OF TERMS
Terms Definitions
- ------- ---------------
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
ASB American Savings Bank, F.S.B., a wholly owned subsidiary of HEI Diversified, Inc.
and parent company of American Savings Investment Services Corp. (and its
subsidiary since March 15, 2001, Bishop Insurance Agency of Hawaii, Inc.), ASB
Service Corporation, AdCommunications, Inc., American Savings Mortgage Co., Inc.
and ASB Realty Corporation
Baotou Steel Baotou Iron & Steel (Group) Co., Ltd.
BLNR Board of Land and Natural Resources of the State of Hawaii
CDUP Conservation District Use Permit
CEPALCO Cagayan Electric Power & Light Co., Inc.
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., HECO Capital Trust I, HECO
Capital Trust II, HEI Diversified, Inc., American Savings Bank, F.S.B. and its
subsidiaries, HEI Power Corp. and its subsidiaries, Pacific Energy Conservation
Services, Inc., HEI District Cooling, Inc., ProVision Technologies, Inc., HEI
Properties, Inc., HEI Leasing, Inc., Hycap Management, Inc., Hawaiian Electric
Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian
Electric Industries Capital Trust III, HEI Preferred Funding, LP, The Old Oahu Tug
Service, Inc. (formerly Hawaiian Tug & Barge Corp.) and Malama Pacific Corp. and
its subsidiaries
Consumer Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the
Advocate State of Hawaii
D&O Decision and order
DHHL Department of Hawaiian Home Lands of the State of Hawaii
DLNR Department of Land and Natural Resources of the State of Hawaii
DOH Department of Health of the State of Hawaii
DTCC Dual-train combined-cycle
EAB Environmental Appeals Board
ii
GLOSSARY OF TERMS, continued
Terms Definitions
- ------- ---------------
EAPRC East Asia Power Resources Corporation
Enserch Enserch Development Corporation
EPA Environmental Protection Agency - federal
EPHE EPHE Philippines Energy Company, Inc.
FASB Financial Accounting Standards Board
Federal U.S. Government
FHLB Federal Home Loan Bank
GAAP Accounting principles generally accepted in the United States of America
GPA Guam Power Authority
Hamakua Hamakua Energy Partners, L.P., formerly known as Encogen Hawaii, L.P.
Partners
HAR Hawaii Administrative Rules
HCPC Hilo Coast Power Company
HECO Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric
Industries, Inc. and parent company of Maui Electric Company, Limited, Hawaii
Electric Light Company, Inc., HECO Capital Trust I and HECO Capital Trust II
HEI Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric
Company, Inc., HEI Diversified, Inc., HEI Power Corp., Pacific Energy Conservation
Services, Inc., HEI District Cooling, Inc., ProVision Technologies, Inc., HEI
Properties, Inc., HEI Leasing, Inc., Hycap Management, Inc., Hawaiian Electric
Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian
Electric Industries Capital Trust III, The Old Oahu Tug Service, Inc. (formerly
Hawaiian Tug & Barge Corp.) and Malama Pacific 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.
HEIII HEI Investments, Inc. (formerly HEI Investment Corp.), a subsidiary of HEI Power
Corp.
HEIPC HEI Power Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.,
and the parent company of several subsidiaries
HEIPC HEI Power Corp. and its subsidiaries
Group
iii
GLOSSARY OF TERMS, continued
Terms Definitions
- ------- ---------------
HELCO Hawaii Electric Light Company, Inc., a wholly owned electric utility subsidiary of
Hawaiian Electric Company, Inc.
HPG HEI Power Corp. Guam, a wholly owned subsidiary of HEI Power Corp.
HRS Hawaii Revised Statutes
HTB Hawaiian Tug & Barge Corp. On November 10, 1999, HTB sold substantially all of its
operating assets and the stock of Young Brothers, Limited, and changed its name to
The Old Oahu Tug Service, Inc.
IMPC Inner Mongolia Power Company
IPP Independent power producer
KCP Kawaihae Cogeneration Partners
KDC Keahole Defense Coalition
KWH Kilowatthour
MECO Maui Electric Company, Limited, a wholly owned electric utility subsidiary of
Hawaiian Electric Company, Inc.
MW Megawatt
NOV Notice of Violation
OTS Office of Thrift Supervision, Department of Treasury
PBR Performance-based rate-making
PSD permit Prevention of Significant Deterioration/Covered Source permit
PRPs Potentially responsible parties
PSC Public Service Company
PUC Public Utilities Commission of the State of Hawaii
ROACE Return on average common equity
SEC Securities and Exchange Commission
iv
GLOSSARY OF TERMS, continued
Terms Definitions
- ------- ---------------
SFAS Statement of Financial Accounting Standards
TOOTS The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp. (HTB)), a wholly
owned subsidiary of Hawaiian Electric Industries, Inc. On November 10, 1999,
HTB sold Young Brothers, Limited and substantially all of HTB's operating assets and
changed its name
YB Young Brothers, Limited, which was sold on November 10, 1999, was formerly a wholly
owned subsidiary of Hawaiian Tug & Barge Corp.
Forward-looking statements
This report and other presentations made by Hawaiian Electric Industries, Inc.
(HEI) and its subsidiaries contain "forward-looking statements," which include
statements that are predictive in nature, depend upon or refer to future events
or conditions, and/or include words such as "expects", "anticipates", "intends",
"plans", "believes", "predicts", "estimates" or similar expressions. In
addition, any statements concerning future financial performance (including
future revenues, earnings/losses or growth rates), ongoing business strategies
or prospects and possible future actions, which may be provided by management,
are also forward-looking statements. Forward-looking statements are based on
current expectations and projections about future events and are subject to
risks, uncertainties and assumptions about HEI and its subsidiaries, the
performance of the industries in which they do business and economic and market
factors, among other things. These statements are not guaranties of future
performance. Such risks, uncertainties and other important factors could cause
actual results to differ materially from those in the forward-looking statements
and include, but are not limited to, the following: the effect of international,
national and local economic conditions, including the condition of the Hawaii
tourist and construction industries and the Hawaii housing market; the effects
of weather and natural disasters; product demand and market acceptance risks;
increasing competition in the electric utility, banking and international power
industries; capacity and supply constraints or difficulties; fuel oil price
changes and the continued availability of the electric utilities' energy cost
adjustment clauses; new technological developments; federal, state and
international governmental and regulatory actions, including changes in laws,
rules and regulations applicable to HEI and its subsidiaries, decisions in rate
cases and other Public Utilities Commission of the State of Hawaii (PUC)
proceedings and on permitting issues, required corrective actions and changes in
taxation; the results of financing efforts; the timing and extent of changes in
interest rates; the risks inherent in changes in the value of and market for
securities available for sale; the timing and extent of changes in foreign
currency exchange rates, and the convertibility and availability of foreign
currency, particularly in the Philippines and China; the risks inherent in
implementing hedging strategies, including the availability and pricing of
forward contracts; political and business risks inherent in doing business in
developing countries; the ultimate outcome of tax positions taken; the risk that
ASB Realty Corporation fails to qualify as a real estate investment trust for
federal and state income tax purposes, in which case it would be subject to
regular corporate income taxation; and other risks or uncertainties described
elsewhere in this report and in other periodic reports previously and
subsequently filed by HEI and/or Hawaiian Electric Company, Inc. (HECO) with the
Securities and Exchange Commission (SEC). Forward-looking statements speak only
as of the date of the report, presentation or filing in which they are made.
v
PART I - FINANCIAL INFORMATION
Item 1. Financial statements
- -----------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated balance sheets (unaudited)
March 31, December 31,
(in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Assets
- ------
Cash and equivalents........................................................ $ 197,197 $ 215,034
Accounts receivable and unbilled revenues, net.............................. 163,014 191,501
Available-for-sale investment and mortgage/asset-backed securities.......... 2,244,895 164,668
Held-to-maturity investment and mortgage/asset-backed securities............ 80,385 2,105,837
Loans receivable, net....................................................... 3,213,204 3,211,325
Property, plant and equipment, net of accumulated
depreciation of $1,256,655 and $1,230,691............................... 2,089,446 2,091,345
Regulatory assets........................................................... 115,659 116,623
Other....................................................................... 302,248 273,861
Goodwill and other intangibles.............................................. 98,503 99,128
- ----------------------------------------------------------------------------------------------------------------
$8,504,551 $8,469,322
================================================================================================================
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
Accounts payable............................................................ $ 126,414 $ 127,565
Deposit liabilities......................................................... 3,637,134 3,584,646
Short-term borrowings....................................................... 158,468 104,398
Securities sold under agreements to repurchase.............................. 609,707 596,504
Advances from Federal Home Loan Bank........................................ 1,204,252 1,249,252
Long-term debt.............................................................. 1,063,376 1,088,731
Deferred income taxes....................................................... 139,584 147,513
Contributions in aid of construction........................................ 210,624 211,518
Other....................................................................... 274,576 284,891
- ----------------------------------------------------------------------------------------------------------------
7,424,135 7,395,018
- ----------------------------------------------------------------------------------------------------------------
HEI- and HECO-obligated preferred securities of trust subsidiaries
directly or indirectly holding solely HEI and HEI-guaranteed
and HECO and HECO-guaranteed subordinated debentures.................... 200,000 200,000
Preferred stock of subsidiaries - not subject to mandatory redemption....... 34,406 34,406
Minority interests.......................................................... 815 839
- ----------------------------------------------------------------------------------------------------------------
235,221 235,245
- ----------------------------------------------------------------------------------------------------------------
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: 33,370 shares and 32,991 shares........................ 705,121 691,925
Retained earnings........................................................... 154,530 147,324
Accumulated other comprehensive loss........................................ (14,456) (190)
- ----------------------------------------------------------------------------------------------------------------
845,195 839,059
- ----------------------------------------------------------------------------------------------------------------
$8,504,551 $8,469,322
================================================================================================================
See accompanying "Notes to consolidated financial statements."
1
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated statements of income (unaudited)
Three months ended March 31 2001 2000
- ----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts and ratio of earnings to fixed charges)
Revenues
Electric utility.................................................................. $318,423 $289,405
Savings bank...................................................................... 115,754 110,267
International power............................................................... 1,969 1,665
Other............................................................................. (1,279) 538
- ----------------------------------------------------------------------------------------------------------------
434,867 401,875
- ----------------------------------------------------------------------------------------------------------------
Expenses
Electric utility.................................................................. 270,413 237,775
Savings bank...................................................................... 95,605 91,077
International power............................................................... 773 2,115
Other............................................................................. 2,359 2,706
- ----------------------------------------------------------------------------------------------------------------
369,150 333,673
- ----------------------------------------------------------------------------------------------------------------
Operating income (loss)
Electric utility.................................................................. 48,010 51,630
Savings bank...................................................................... 20,149 19,190
International power............................................................... 1,196 (450)
Other............................................................................. (3,638) (2,168)
- ----------------------------------------------------------------------------------------------------------------
65,717 68,202
- ----------------------------------------------------------------------------------------------------------------
Interest expense--other than savings bank......................................... (20,005) (19,072)
Allowance for borrowed funds used during construction............................. 676 691
Preferred stock dividends of subsidiaries......................................... (502) (498)
Preferred securities distributions of trust subsidiaries.......................... (4,009) (4,009)
Allowance for equity funds used during construction............................... 1,265 1,269
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes........................................................ 43,142 46,583
Income taxes...................................................................... 15,397 17,607
- ----------------------------------------------------------------------------------------------------------------
Net income........................................................................ $ 27,745 $ 28,976
================================================================================================================
Basic earnings per common share................................................... $ 0.84 $ 0.90
================================================================================================================
Diluted earnings per common share................................................. $ 0.83 $ 0.90
================================================================================================================
Dividends per common share........................................................ $ 0.62 $ 0.62
================================================================================================================
Weighted-average number of common shares outstanding.............................. 33,159 32,266
Dilutive effect of stock options and dividend equivalents.................... 153 106
- ----------------------------------------------------------------------------------------------------------------
Adjusted weighted-average shares.................................................. 33,312 32,372
================================================================================================================
Ratio of earnings to fixed charges (SEC method)
Excluding interest on ASB deposits........................................... 1.78 1.86
================================================================================================================
Including interest on ASB deposits........................................... 1.49 1.57
================================================================================================================
See accompanying "Notes to consolidated financial statements."
2
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated statements of changes in stockholders' equity (unaudited)
Accumulated
Common stock other
------------------------------- Retained comprehensive
(in thousands) Shares Amount earnings income (loss) Total
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000..................... 32,991 $691,925 $147,324 $ (190) $839,059
Comprehensive income:
Net income.................................. - - 27,745 - 27,745
Cash flow hedge:
Cumulative effect of the adoption of
SFAS No. 133, net of tax benefits
of $1,031............................. - - - (1,619) (1,619)
Derivative losses, net of tax benefits
of $757............................... - - - (1,189) (1,189)
Unrealized losses on securities:
Cumulative effect of the adoption of
SFAS No. 133, net of taxes of $571.... - - - 1,060 1,060
Unrealized losses arising during
the period, net of tax benefits
of $6,716............................. - - - (12,470) (12,470)
Minimum pension liability adjustment,
net of tax benefits of $30............... - - - (48) (48)
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss).................... - - 27,745 (14,266) 13,479
- --------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock....................... 379 13,196 - - 13,196
Cash dividends ($0.62 per share)............... - - (20,539) - (20,539)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2001........................ 33,370 $705,121 $154,530 $(14,456) $845,195
================================================================================================================================
Balance, December 31, 1999..................... 32,213 $665,614 $182,251 $ (279) $847,586
Net income..................................... - - 28,976 - 28,976
Issuance of common stock....................... 102 2,622 - - 2,622
Cash dividends ($0.62 per share)............... - - (20,025) - (20,025)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000........................ 32,315 $668,236 $191,202 $ (279) $859,159
================================================================================================================================
Net income approximates comprehensive income for the three months ended
March 31, 2000.
See accompanying "Notes to consolidated financial statements."
3
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated statements of cash flows (unaudited)
Three months ended March 31 2001 2000
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities
Net income.......................................................................... $ 27,745 $ 28,976
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment................................. 27,289 27,143
Other amortization............................................................ 3,862 1,476
Provision for loan losses..................................................... 3,000 3,000
Deferred income taxes......................................................... 786 (300)
Allowance for equity funds used during construction........................... (1,265) (1,269)
Changes in assets and liabilities
Decrease in accounts receivable and unbilled revenues, net.............. 28,487 815
Increase (decrease) in accounts payable................................. (1,151) 388
Changes in other assets and liabilities................................. (33,209) 2,153
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities........................................... 55,544 62,382
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Principal repayments on available-for-sale investment securities.................... 890 -
Proceeds from sale of investment securities......................................... 12,157 -
Available-for-sale mortgage/asset-backed securities purchased....................... (189,706) -
Principal repayments on available-for-sale mortgage/asset-backed securities......... 82,132 -
Proceeds from sale of mortgage/asset-backed securities.............................. 23,713 -
Held-to-maturity mortgage/asset-backed securities purchased......................... - (151,425)
Principal repayments on held-to-maturity mortgage/asset-backed securities........... - 58,434
Loans receivable originated and purchased........................................... (177,139) (110,360)
Principal repayments on loans receivable............................................ 135,017 103,611
Proceeds from sale of loans......................................................... 35,124 2,921
Capital expenditures................................................................ (26,226) (25,080)
Acquisition of Philippines investment............................................... - (87,500)
Other............................................................................... 3,895 4,846
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities............................................... (100,143) (204,553)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase in deposit liabilities................................................. 52,488 66,369
Net increase in short-term borrowings with original maturities of three months or 57,066 81,026
less...............................................................................
Repayment of other short-term borrowings............................................ (3,000) -
Net increase in retail repurchase agreements........................................ 35 2,280
Proceeds from securities sold under agreements to repurchase........................ 296,132 218,728
Repayments of securities sold under agreements to repurchase........................ (283,232) (240,085)
Proceeds from advances from Federal Home Loan Bank.................................. 7,000 218,531
Principal payments on advances from Federal Home Loan Bank.......................... (52,000) (180,500)
Proceeds from issuance of long-term debt............................................ 9,595 6,304
Repayment of long-term debt......................................................... (35,000) -
Preferred securities distributions of trust subsidiaries............................ (4,009) (4,009)
Net proceeds from issuance of common stock.......................................... 8,936 2,590
Common stock dividends.............................................................. (16,517) (20,025)
Other............................................................................... (10,732) (6,361)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities........................................... 26,762 144,848
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents..................................... (17,837) 2,677
Cash and equivalents, beginning of period........................................... 215,034 199,906
- ----------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period................................................. $ 197,197 $ 202,583
=================================================================================================================
See accompanying "Notes to consolidated financial statements."
4
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 conformity with accounting principles generally accepted in the United States
of America (GAAP) 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 GAAP for complete financial
statements. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheet and the reported amounts of revenues and expenses for the
period. Actual results could differ significantly from those estimates. 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, 2000.
In the opinion of HEI's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by GAAP to
present fairly the Company's financial position as of March 31, 2001 and
December 31, 2000, and the results of its operations and its cash flows for the
three months ended March 31, 2001 and 2000. 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.
When required, certain reclassifications are made to prior periods' consolidated
financial statements to conform to the 2001 presentation.
(2) Segment financial information
- ----------------------------------
Segment financial information was as follows:
Electric Savings International
(in thousands) utility bank power Other Total
- ---------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2001
Revenues from external customers..... $ 318,421 $ 115,754 $ 1,965 $ (1,273) $ 434,867
Intersegment revenues................ 2 - 4 (6) -
- ---------------------------------------------------------------------------------------------------------------------
Revenues......................... 318,423 115,754 1,969 (1,279) 434,867
=====================================================================================================================
Income (loss) before income taxes.... 35,001 18,737 775** (11,371) 43,142
Income taxes (benefit)............... 13,576 6,862 341 (5,382) 15,397
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss)................ 21,425 11,875 434** (5,989) 27,745
=====================================================================================================================
Assets*.............................. 2,366,829 6,010,289 100,552 26,881 8,504,551
=====================================================================================================================
Three months ended March 31, 2000
Revenues from external customers..... $ 289,391 $ 110,263 $ 1,654 $ 567 $ 401,875
Intersegment revenues................ 14 4 11 (29) -
- ---------------------------------------------------------------------------------------------------------------------
Revenues......................... 289,405 110,267 1,665 538 401,875
=====================================================================================================================
Income (loss) before income taxes.... 38,902 17,783 (659) (9,443) 46,583
Income taxes (benefit)............... 15,177 6,562 262 (4,394) 17,607
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss)................ 23,725 11,221 (921) (5,049) 28,976
=====================================================================================================================
Assets*.............................. 2,290,877 5,943,462 192,196 31,202 8,457,737
=====================================================================================================================
* At March 31.
** Includes the reversal of $1.5 million of a guaranty obligation, see note (5).
Revenues attributed to foreign countries for the periods identified above were
not significant.
5
(3) Electric utility subsidiary
- --------------------------------
For HECO's consolidated financial information, including its commitments and
contingencies, see pages 11 through 26.
(4) Savings bank subsidiary
- ----------------------------
Selected financial information
American Savings Bank, F.S.B. and subsidiaries
Consolidated balance sheet data
March 31, December 31,
(in thousands) 2001 2000
- ------------------------------------------------------------------------------------------------------
Assets
Cash and equivalents.................................................... $ 192,319 $ 207,785
Available-for-sale investment securities................................ 107,208 107,955
Available-for-sale mortgage/asset-backed securities..................... 1,791,531 56,713
Available-for-sale mortgage/asset-backed securities
pledged for repurchase agreements.................................. 346,156 -
Held-to-maturity investment securities.................................. 80,385 91,723
Held-to-maturity mortgage/asset-backed securities....................... - 1,697,343
Held-to-maturity mortgage/asset-backed securities
pledged for repurchase agreements.................................. - 316,771
Loans receivable, net................................................... 3,213,204 3,211,325
Other................................................................... 180,983 180,572
Goodwill and other intangibles.......................................... 98,503 99,128
- ------------------------------------------------------------------------------------------------------
$6,010,289 $5,969,315
======================================================================================================
Liabilities and equity
Deposit liabilities..................................................... $3,637,134 $3,584,646
Securities sold under agreements to repurchase.......................... 609,707 596,504
Advances from Federal Home Loan Bank.................................... 1,204,252 1,249,252
Other................................................................... 105,189 81,277
- ------------------------------------------------------------------------------------------------------
5,556,282 5,511,679
Minority interests and preferred stock of subsidiary.................... 3,469 3,412
Preferred stock......................................................... 75,000 75,000
Common stock equity..................................................... 375,538 379,224
- ------------------------------------------------------------------------------------------------------
$6,010,289 $5,969,315
======================================================================================================
6
American Savings Bank, F.S.B. and subsidiaries
Consolidated income statement data
Three months ended March 31 2001 2000
- ------------------------------------------------------------------------------------------------------
(in thousands)
Interest income......................................................... $107,601 $102,508
Interest expense........................................................ 60,500 55,718
- ------------------------------------------------------------------------------------------------------
Net interest income..................................................... 47,101 46,790
Provision for loan losses............................................... (3,000) (3,000)
Other income............................................................ 8,153 7,759
Operating, administrative and general expenses.......................... (32,105) (32,359)
- ------------------------------------------------------------------------------------------------------
Operating income........................................................ 20,149 19,190
Minority interests...................................................... 59 57
Income taxes............................................................ 6,862 6,562
- ------------------------------------------------------------------------------------------------------
Income before preferred stock dividends................................. 13,228 12,571
Preferred stock dividends............................................... 1,353 1,350
- ------------------------------------------------------------------------------------------------------
Net income.............................................................. $ 11,875 $ 11,221
======================================================================================================
Disposition of certain debt securities
In June 2000, the Office of Thrift Supervision (OTS) advised American Savings
Bank, F.S.B. (ASB) that four debt securities, in the original aggregate
principal amount of $114 million, were impermissible investments under
regulations applicable to federal savings banks. The securities, purchased
through two brokers, are trust certificates which are rated Aaa as to principal
repayment but not rated as to interest. The trust certificates represent (i) the
right to receive the principal amount of the trust certificates at maturity from
an Aaa-rated swap counterparty (principal swap) and (ii) the right to receive
the cash flow received on subordinated notes (income class notes). ASB
recognizes interest income on these securities on a cash basis. In 2000, ASB
reclassified these trust certificates from "held-to-maturity" status to
"available-for-sale" status in its financial statements and recognized a $3.8
million net loss on the writedown of these securities to their estimated fair
value. In the first quarter of 2001, ASB recognized a $0.5 million net loss on
the writedown of one series of these trust certificates to its estimated fair
value. Additional losses could result from the ultimate disposition of these
securities, or if there is a further "other-than-temporary" decline in their
fair value.
Because of the ongoing regulatory demands that ASB dispose of the securities,
ASB has undertaken efforts to dispose of those four trust certificate
investments by the end of the second quarter of 2001. ASB has demanded that the
brokers who sold these securities agree to rescission of the transactions. One
broker, through whom ASB purchased one issue of trust certificates for
approximately $30 million, arranged a transaction which closed in April 2001 for
the disposition of that issue for an amount approximating ASB's original
purchase price.
ASB has filed a lawsuit against the broker through whom the other three issues
of trust certificates were purchased, seeking rescission and other remedies,
including recovery of any losses ASB may incur as a result of its purchase and
ownership of these trust certificates. ASB has taken steps to terminate the
principal swap for two of the three series and to cause the related income class
notes to be sold (or their value otherwise determined and paid to ASB in
accordance with the trust agreement), with the proceeds to be paid to ASB. HEI's
bid to purchase the income class notes for the first of these two series of
notes for approximately $10.2 million has been accepted, and HEI currently
intends to submit bids to purchase the income class notes underlying the other
two issues of trust certificates.
7
Reclassification of certain debt securities
On January 1, 2001, ASB reclassified approximately $2 billion of the securities
it owns from held-to-maturity to available-for-sale. See note (7), "Recent
accounting pronouncements-Derivative instruments and hedging activities."
(5) International power subsidiary
- -----------------------------------
China project
In 1998 and 1999, HEI Power Corp. and its subsidiaries (HEIPC Group) acquired
what is now a 75% interest in a joint venture, Baotou Tianjiao Power Co., Ltd.,
formed to design, construct, own, operate and manage a 200 megawatt (MW) (net)
coal-fired power plant to be located in Inner Mongolia, People's Republic of
China. The power plant is being built "inside the fence" for Baotou Iron & Steel
(Group) Co., Ltd. (Baotou Steel). The project has received approval from both
the National and Inner Mongolia governments. Construction had commenced and the
first of the two units had been expected to be online by early 2001, and the
second six months later. However, the Inner Mongolia Power Company (IMPC), which
owns and operates the electricity grid in Inner Mongolia, has caused a delay of
the project by failing to enter into a satisfactory interconnection arrangement
with the joint venture. The HEIPC Group does not believe that it is prudent to
continue construction without an interconnection arrangement whose terms are
consistent with the project as approved by the National and Inner Mongolia
governments. Under the Power Purchase Contract between the joint venture and
Baotou Steel, it is Baotou Steel's responsibility to secure an interconnection
arrangement with IMPC. The HEIPC Group continues to work with Baotou Steel and
IMPC to secure a satisfactory interconnection arrangement. If such an
arrangement is not obtained, the HEIPC Group intends to withdraw from the
project (including the HEIPC Group's commitment to invest up to an additional
$86 million toward the project, subject to certain conditions) and seek recovery
of its investment of approximately $25 million to date. Management cannot
predict the outcome of such efforts, nor estimate its impairment loss, if any,
at this time. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Philippines investment
On March 7, 2000, an indirect subsidiary of HEI Power Corp. (HEIPC) acquired a
50% interest in EPHE Philippines Energy Company, Inc. (EPHE), an indirect
subsidiary of El Paso Energy Corporation, for $87.5 million plus up to an
additional $6 million of payments contingent upon future earnings of East Asia
Power Resources Corporation (EAPRC). EPHE then owned approximately 91.7% of the
common shares of EAPRC, a Philippines holding company primarily engaged in the
electric generation business in Manila and Cebu through its direct and indirect
subsidiaries, using land and barge-based generating facilities fired by bunker
fuel oil, with total installed capacity of approximately 390 MW. The HEIPC Group
accounted for its investment in EPHE under the equity method of accounting. The
Company evaluates equity investments when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. Due to
the equity losses of $24.1 million incurred in 2000 from the investment in EPHE
and the changes in the political and economic conditions related to the
investment (primarily devaluation of the Philippine peso and increase in fuel
oil prices), management determined that the investment in EAPRC was impaired
based on an estimate of the undiscounted future operating cash flows, and on
December 31, 2000, wrote off the remaining $65.7 million investment in EAPRC
based upon management's estimate of fair value using anticipated cash flows
discounted at a rate commensurate with the risks involved. On December 31, 2000,
the Company also accrued a potential payment obligation under an HEI guaranty of
$10 million of EAPRC loans. In the first quarter of 2001, HEI was partially
released from the guaranty obligation and the Company reversed $1.5 million
($0.9 million, net of income taxes) of the $10 million accrued on December 31,
2000.
8
(6) Cash flows
- ---------------
Supplemental disclosures of cash flow information
For the three months ended March 31, 2001 and 2000, the Company paid interest
amounting to $64.8 million and $56.5 million, respectively.
For the three months ended March 31, 2001 and 2000, the Company paid income
taxes amounting to $13.4 million and $0.6 million, respectively.
Supplemental disclosures of noncash activities
In April 2000, HEI recommenced issuing new common shares under the HEI Dividend
Reinvestment and Stock Purchase Plan (DRIP). From March 1998 to March 2000, HEI
had acquired for cash its common shares in the open market to satisfy the
requirements of the HEI DRIP. Under the HEI DRIP, common stock dividends
reinvested by shareholders in HEI common stock in noncash transactions amounted
to $4.0 million for the three months ended March 31, 2001.
(7) Recent accounting pronouncements
- -------------------------------------
Derivative instruments and hedging activities
The Company adopted the Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, on January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and hedging activities and requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The adoption of SFAS No. 133
did not have a material impact on the Company's financial condition, net income
or liquidity.
SFAS No. 133, as amended, allows the reclassification of certain debt securities
from held-to-maturity to either available-for-sale or trading at the time of
adoption. On January 1, 2001, ASB reclassified approximately $2 billion in
mortgage/asset-backed securities and $13 million in investment securities having
estimated fair values of approximately $2 billion and $13 million, respectively,
from held-to-maturity to available-for-sale. This reclassification gives ASB the
ability to better manage its risks (including interest rate, liquidity and
credit risks). At January 1, 2001, the gross unrealized gain on such securities,
net of income taxes, was approximately $1 million, and was included in
accumulated other comprehensive income within stockholders' equity.
In April 2000, simultaneous with the sale of $100 million of medium-term notes,
HEI entered into a swap agreement to manage a portion of its interest rate risk.
The swap effectively fixed the interest rate on the $100 million of debt at
7.995% until maturity. Other than this swap, the Company does not currently use
derivatives to manage interest rate risk. On January 1, 2001, HEI designated
this swap as a cash flow hedge, which hedges the variability of forecasted cash
flows attributable to interest rate risk. All conditions were met to assume no
ineffectiveness in the hedging relationship. Thus, this cash flow hedge is
accounted for under the shortcut method by recording the value of the swap on
the balance sheet as either an asset or liability with a corresponding offset
recorded in accumulated other comprehensive income within stockholders' equity,
net of tax. HEI recorded the after-tax transition amount associated with
establishing the fair value of the swap on the balance sheet as a reduction of
$1.6 million in accumulated other comprehensive income.
(in thousands)
Summary of transition adjustment, January 1, 2001
Balance sheet - liabilities and stockholders' equity
Deferred income taxes $(1,031)
Other liabilities 2,650
Accumulated other comprehensive loss (1,619)
-----------
$ -
===========
9
(8) Commitments and contingencies
- ----------------------------------
See note (4), "Savings bank subsidiary," and note (5), "International power
subsidiary," above and note (3), "Commitments and contingencies," in HECO's
"Notes to consolidated financial statements."
(9) Subsequent event - issuance of medium-term notes
- -----------------------------------------------------
In March 1999, HEI filed a registration statement with the SEC to register $300
million of Medium-Term Notes, Series C (Series C Notes). In April 2001, HEI sold
the last $100 million of its Series C Notes. The $100 million of Series C Notes
sold in April 2001 have a fixed interest rate of 7.56% and a maturity date of
April 10, 2006.
10
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated balance sheets (unaudited)
March 31, December 31,
(in thousands, except par value) 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Assets
Utility plant, at cost
Land.................................................................. $ 29,131 $ 31,037
Plant and equipment................................................... 2,978,171 2,974,153
Less accumulated depreciation......................................... (1,193,511) (1,170,184)
Plant acquisition adjustment, net..................................... 393 406
Construction in progress.............................................. 177,306 157,183
- ----------------------------------------------------------------------------------------------------------------
Net utility plant............................................... 1,991,490 1,992,595
- ----------------------------------------------------------------------------------------------------------------
Current assets
Cash and equivalents.................................................. 419 1,534
Customer accounts receivable, net..................................... 75,189 88,546
Accrued unbilled revenues, net........................................ 54,891 64,020
Other accounts receivable, net........................................ 2,032 5,426
Fuel oil stock, at average cost....................................... 35,812 37,124
Materials and supplies, at average cost............................... 18,733 16,787
Prepayments and other................................................. 32,588 4,697
- ----------------------------------------------------------------------------------------------------------------
Total current assets............................................ 219,664 218,134
- ----------------------------------------------------------------------------------------------------------------
Other assets
Regulatory assets..................................................... 115,659 116,623
Other................................................................. 40,016 41,170
- ----------------------------------------------------------------------------------------------------------------
Total other assets.............................................. 155,675 157,793
- ----------------------------------------------------------------------------------------------------------------
$ 2,366,829 $ 2,368,522
================================================================================================================
Capitalization and liabilities
Capitalization
Common stock, $6 2/3 par value, authorized
50,000 shares; outstanding 12,806 shares........................... $ 85,387 $ 85,387
Premium on capital stock.............................................. 295,688 295,655
Retained earnings..................................................... 465,395 443,970
- ----------------------------------------------------------------------------------------------------------------
Common stock equity............................................. 846,470 825,012
Cumulative preferred stock - not subject to mandatory redemption...... 34,293 34,293
HECO-obligated mandatorily redeemable trust preferred securities of
subsidiary trusts holding solely HECO and HECO-guaranteed debentures. 100,000 100,000
Long-term debt........................................................ 677,376 667,731
- ----------------------------------------------------------------------------------------------------------------
Total capitalization............................................ 1,658,139 1,627,036
- ----------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term borrowings-nonaffiliates................................... 96,869 104,398
Short-term borrowings-affiliate....................................... 1,964 8,764
Accounts payable...................................................... 49,809 71,698
Interest and preferred dividends payable.............................. 16,937 10,483
Taxes accrued......................................................... 65,774 78,186
Other................................................................. 19,920 10,559
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities....................................... 251,273 284,088
- ----------------------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
Deferred income taxes................................................. 137,946 137,066
Unamortized tax credits............................................... 47,478 47,603
Other................................................................. 61,369 61,211
- ----------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities.................... 246,793 245,880
- ----------------------------------------------------------------------------------------------------------------
Contributions in aid of construction..................................... 210,624 211,518
- ----------------------------------------------------------------------------------------------------------------
$ 2,366,829 $ 2,368,522
================================================================================================================
See accompanying "Notes to consolidated financial statements."
11
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated statements of income (unaudited)
Three months ended March 31 2001 2000
- ----------------------------------------------------------------------------------------------
(in thousands, except for ratio of earnings to fixed charges)
Operating revenues.................................................. $317,293 $288,421
- ----------------------------------------------------------------------------------------------
Operating expenses
Fuel oil............................................................ 88,245 75,155
Purchased power..................................................... 81,916 70,226
Other operation..................................................... 29,774 27,741
Maintenance......................................................... 15,197 12,533
Depreciation........................................................ 24,609 24,334
Taxes, other than income taxes...................................... 30,491 27,361
Income taxes........................................................ 13,604 15,193
- ----------------------------------------------------------------------------------------------
283,836 252,543
- ----------------------------------------------------------------------------------------------
Operating income.................................................... 33,457 35,878
- ----------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used during construction................. 1,265 1,269
Other, net.......................................................... 977 575
- ----------------------------------------------------------------------------------------------
2,242 1,844
- ----------------------------------------------------------------------------------------------
Income before interest and other charges............................ 35,699 37,722
- ----------------------------------------------------------------------------------------------
Interest and other charges
Interest on long-term debt.......................................... 9,929 9,932
Amortization of net bond premium and expense........................ 530 442
Other interest charges.............................................. 2,073 1,897
Allowance for borrowed funds used during construction............... (676) (691)
Preferred stock dividends of subsidiaries........................... 229 228
Preferred securities distributions of trust subsidiaries............ 1,919 1,919
- ----------------------------------------------------------------------------------------------
14,004 13,727
- ----------------------------------------------------------------------------------------------
Income before preferred stock dividends of HECO..................... 21,695 23,995
Preferred stock dividends of HECO................................... 270 270
- ----------------------------------------------------------------------------------------------
Net income for common stock......................................... $ 21,425 $ 23,725
==============================================================================================
Ratio of earnings to fixed charges (SEC method)..................... 3.29 3.61
==============================================================================================
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated statements of retained earnings (unaudited)
Three months ended March 31 2001 2000
- ---------------------------------------------------------------------------------------------
(in thousands)
Retained earnings, beginning of period.............................. $443,970 $425,206
Net income for common stock......................................... 21,425 23,725
Common stock dividends.............................................. - (13,952)
- ---------------------------------------------------------------------------------------------
Retained earnings, end of period.................................... $465,395 $434,979
=============================================================================================
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 consolidated financial statements."
12
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated statements of cash flows (unaudited)
Three months ended March 31 2001 2000
- --------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities
Income before preferred stock dividends of HECO.......................... $ 21,695 $ 23,995
Adjustments to reconcile income before preferred stock dividends of
HECO to net cash provided by operating activities
Depreciation of property, plant and equipment...................... 24,609 24,334
Other amortization................................................. 3,206 1,069
Deferred income taxes.............................................. 1,341 1,418
Tax credits, net................................................... 267 339
Allowance for equity funds used during construction................ (1,265) (1,269)
Changes in assets and liabilities
Decrease in accounts receivable............................... 16,751 821
Decrease in accrued unbilled revenues......................... 9,129 798
Decrease in fuel oil stock.................................... 1,312 7,285
Increase in materials and supplies............................ (1,946) (297)
Increase in regulatory assets................................. (695) (513)
Decrease in accounts payable.................................. (21,889) (6,550)
Changes in other assets and liabilities....................... (16,571) (12,323)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities................................ 35,944 39,107
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures..................................................... (24,485) (23,848)
Contributions in aid of construction..................................... 1,803 1,647
Payments on notes receivable............................................. - 138
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities.................................... (22,682) (22,063)
- --------------------------------------------------------------------------------------------------
Cash flows from financing activities
Common stock dividends................................................... - (13,952)
Preferred stock dividends................................................ (270) (270)
Preferred securities distributions of trust subsidiaries................. (1,919) (1,919)
Proceeds from issuance of long-term debt................................. 9,595 6,304
Net decrease in short-term borrowings from nonaffiliates and
affiliate with original maturities of three months or less.............. (11,333) (2,036)
Repayment of other short-term borrowings................................. (3,000) -
Other.................................................................... (7,450) (6,051)
- --------------------------------------------------------------------------------------------------
Net cash used in financing activities.................................... (14,377) (17,924)
- --------------------------------------------------------------------------------------------------
Net decrease in cash and equivalents..................................... (1,115) (880)
Cash and equivalents, beginning of period................................ 1,534 1,966
- --------------------------------------------------------------------------------------------------
Cash and equivalents, end of period...................................... $ 419 $ 1,086
==================================================================================================
See accompanying "Notes to consolidated financial statements."
13
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 conformity with GAAP 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 GAAP for
complete financial statements. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet and the reported amounts of revenues and expenses
for the period. Actual results could differ significantly from those estimates.
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, 2000.
In the opinion of HECO's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by GAAP to
present fairly the financial position of HECO and its subsidiaries as of
March 31, 2001 and December 31, 2000, and the results of their operations and
cash flows for the three months ended March 31, 2001 and 2000. 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.
When required, certain reclassifications are made to prior periods' consolidated
financial statements to conform to the 2001 presentation.
(2) Cash flows
- ---------------
Supplemental disclosures of cash flow information
For the three months ended March 31, 2001 and 2000, HECO and its subsidiaries
paid interest amounting to $5.5 million and $2.6 million, respectively.
For the three months ended March 31, 2001 and 2000, HECO and its subsidiaries
paid income taxes amounting to $3.4 million and $9.5 million, respectively.
Supplemental disclosure of noncash activities
The allowance for equity funds used during construction, which was charged to
construction in progress as part of the cost of electric utility plant, amounted
to $1.3 million for each of the three months ended March 31, 2001 and 2000.
(3) Commitments and contingencies
- ----------------------------------
HELCO power situation
In 1991, Hawaii Electric Light Company, Inc. (HELCO) began planning to meet
increased electric generation demand forecasted for 1994. HELCO's plans were to
install at its Keahole power plant 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) dual-train combined-cycle unit.
In January 1994, the PUC approved expenditures for CT-4, which HELCO had planned
to install in late 1994. The timing of the installation of HELCO's phased units
has been revised on several occasions due to delays in obtaining an amendment of
a land use permit from the Hawaii Board of Land and Natural Resources (BLNR) and
an air permit from the Department of Health of the State of Hawaii (DOH) and the
U.S. Environmental Protection Agency (EPA) for the Keahole power plant site. The
delays are also attributable to lawsuits, claims and petitions filed by
independent power producers (IPPs) and other parties challenging these permits
and objecting to the expansion, alleging among other things that
14
(1) operation of the expanded Keahole site would not comply with land use
regulations (including noise standards) and HELCO's land patent; (2) HELCO
cannot operate the plant within current air quality standards; (3) HELCO could
alternatively purchase power from IPPs to meet increased electric generation
demand; and (4) HELCO's land use entitlement expired in April 1999 and HELCO's
request for an extension must be heard in a contested case hearing.
For a detailed description and a partial history of the Keahole Power Plant
situation, see "HELCO power situation" on pages 9 to 17 of HEI's Annual Report
on SEC Form 10-K for the year ended December 31, 2000. Recent developments in
this situation are described below.
Land use permit amendment. The Third Circuit Court of the State of Hawaii (the
- -------------------------
Circuit Court) ruled in 1997 that because the BLNR had failed to render a valid
decision on HELCO's application to amend its land use permit before the
statutory deadline, HELCO was entitled to use its Keahole site for the expansion
project (HELCO's "default entitlement"). Final judgments of the Circuit Court
related to this ruling are on appeal to the Hawaii Supreme Court, which in 1998
denied motions to stay the Circuit Court's final judgment pending resolution of
the appeal.
The Circuit Court's final judgment provided that HELCO must comply with the
conditions in its application and with the standard land use conditions insofar
as those conditions were not inconsistent with HELCO's default entitlement.
Subsequent to entry of the Circuit Court's final judgment, there have been
numerous proceedings before the Circuit Court and the BLNR in which various
plaintiffs (a) have sought determinations of what conditions apply to HELCO's
default entitlement, (b) have claimed that HELCO has not complied with
applicable land use conditions and that its default entitlement should thus be
forfeited, (c) have claimed that HELCO will not be able to operate the proposed
plant without violating applicable land use conditions and provisions of
Hawaii's Clean Air Act and Noise Pollution Act and (d) have sought orders
enjoining any further construction at the Keahole site.
Although there has not been a final resolution of these claims, to date there
have been three rulings on these claims which may adversely affect HELCO's
ability to construct and operate CT-4 and CT-5. First, based on a change by the
DOH in its interpretation of the noise rules it promulgated under the Hawaii
Noise Pollution Act, the Circuit Court has ruled that a 55dBA daytime and 45dBA
nighttime noise standard, rather than the previously applied 70dBA noise
standard, applies to HELCO's plant, but has left enforcement of the ruling to
the DOH. The DOH has not taken any formal enforcement action. If and when the
DOH actually enforces the stricter standards, HELCO may assert that the noise
regulations are unconstitutional as applied. Meanwhile, HELCO has installed
noise mitigation measures on the existing diesel units at Keahole, has obtained
approval to install an additional silencer on CT-2 and is exploring possible
noise mitigation measures, which can be implemented if necessary, for CT-4 and
CT-5. Second, in September 2000, the Circuit Court ruled that, absent a legal or
equitable extension properly authorized by the BLNR, the three-year construction
period in the DLNR's standard land use conditions expired in April 1999. In
October 2000, HELCO filed with the BLNR a request for extension of the
construction deadline and, in January 2001, the BLNR sent the request to a
contested case hearing. A hearings officer has been selected, but procedures and
schedules for the hearing have not yet been set. In April 2001, however, the
Circuit Court ordered the BLNR to allow discovery in the contested case hearing,
with the Court maintaining jurisdiction over any questions of privilege. Third,
in December 2000, the Circuit Court granted a motion to stay further
construction until extension of the construction deadline is obtained from the
BLNR, at which time the Court would consider lifting the stay.
On March 28, 2001, an individual plaintiff filed a motion for post-judgment
relief and a subpoena to require a former BLNR member to appear before the
Circuit Court. When the hearing on this motion was postponed from April 23, 2001
to May 7, 2001, the individual plaintiff did not issue another subpoena to the
former BLNR member. Citing testimony in support of the project given by the
former BLNR member at a March 6, 2001 public hearing on HELCO's air permit, the
individual alleged that the testimony established grounds to conclude that the
former BLNR member was unduly influenced by evidence of the need for the project
that the BLNR had improperly admitted during the contested case hearing in 1995-
1996 and that the BLNR member voted to approve HELCO's application on that
basis. The plaintiff therefore requested the Circuit Court to order that: (1)
the agency record be supplemented by adding the transcript of the former BLNR
member's testimony; (2) the plaintiff be allowed an opportunity to argue the
prejudicial effect of HELCO's submission of evidence on the need for the project
on her
15
right to due process; (3) the plaintiff's motion be granted and the Circuit
Court thereby: (a) vacate its February 11, 1998 judgment denying her cross-
appeal; (b) grant her cross-appeal; (c) suspend operation of the default
entitlement and the proceedings now before the BLNR; (d) certify the remaining
issues in the current appeal to the Supreme Court as being issues for
interlocutory appeal; and (e) certify its order in granting her motion to the
Supreme Court. A hearing on this motion was held on May 7, 2001. The Court took
the matter under advisement and requested additional briefing on the issues by
May 18, 2001.
Air permit. In 1997, the EPA approved a draft permit and the DOH issued a final
- ----------
air permit for the Keahole expansion project. Nine appeals of the issuance of
the permit were filed with the EPA's Environmental Appeals Board (EAB). In
November 1998, the EAB denied several of the appeals, but directed the DOH to
reopen the permit for the limited purpose of (1) providing an updated air
quality impact report on sulfur dioxide and particulate matter ambient
concentrations and (2) either providing a sufficient explanation of why certain
data used to support the permit were reasonably representative or performing a
new air quality analysis based on data shown to be representative. Upon remand,
the EPA and DOH required additional data collection, which was satisfactorily
completed in April 2000. A draft permit was issued in January 2001 by the DOH,
and the DOH held a public hearing in March 2001. The DOH is currently preparing
responses to comments submitted at the public hearing. HELCO continues to work
with the DOH and EPA with the objective of having the final air permit reissued
in mid-2001 and of reaching a final resolution of any appeals to the EAB as
expeditiously as possible thereafter.
IPP Complaints. Three IPPs--Kawaihae Cogeneration Partners (KCP), Enserch
- --------------
Development Corporation (Enserch) and Hilo Coast Power Company (HCPC)--filed
separate complaints with the PUC in 1993, 1994 and 1999, respectively, alleging
that they are each entitled to a power purchase agreement (PPA) to provide HELCO
with additional capacity. KCP and Enserch each claimed they would be a
substitute for HELCO's planned expansion of Keahole.
In 1994 and 1995, the PUC allowed HELCO to pursue construction of and commit
expenditures for CT-5 and ST-7, but noted that such costs are not to be included
in rate base until the project is installed and "is used and useful for utility
purposes." The PUC also ordered HELCO to continue negotiating with the IPPs and
held that the facility to be built should be the one that can be most
expeditiously put into service at "allowable cost."
The Enserch and HCPC complaints have been resolved. An Enserch affiliate (which
was subsequently sold) has a PUC-approved PPA with HELCO for a 60 MW (net)
facility, which was placed in service in 2000. The PUC also approved a restated
and amended PPA between HELCO and HCPC which requires that HCPC continue to
provide HELCO with 22 MW of firm capacity from 2000 to 2004. HELCO may terminate
the PPA with HCPC as of the end of 2002, 2003 or 2004 by giving advance written
notice and paying an early termination amount of $0.5 million for each of the
remaining years in the five-year term. Both PPAs were necessary to ensure
reliable service to customers on the island of Hawaii and, in the opinion of
management, do not supplant the need for CT-4 and CT-5.
In October 1999, the Circuit Court ruled that the lease for KCP's proposed plant
site was invalid. Based on this ruling and for other reasons, management
believes that KCP's pending proposal for a PPA is not viable and, therefore,
will not impact the need for CT-4 and CT-5.
Management's evaluation; costs incurred. Management believes that the issues
- ---------------------------------------
surrounding the amendment to the land use permit and applicable land use
conditions, the air permit, the IPP complaints and related matters will be
satisfactorily resolved and will not prevent HELCO from ultimately constructing
CT-4 and CT-5. Management currently expects that the BLNR, after holding a
contested case hearing, will extend the construction period for the plant
expansion and that installation of CT-4 and CT-5 will begin when the final air
permit is effective (i.e., after resolution of any EAB appeals), with an
expedited in-service date in the second half of 2002. There can be no
assurances, however, that these results will be achieved or that this time frame
will be met.
The recovery of costs relating to CT-4 and CT-5 are subject to the rate-making
process governed by the PUC. Management believes no adjustment to costs incurred
to put CT-4 and CT-5 into service is required as of March 31, 2001. If it
becomes probable that CT-4 and/or CT-5 will not be installed, however, HELCO may
be required to write-off a material portion of the costs incurred in its efforts
to put these units into service. As of March 31, 2001,
16
HELCO's costs incurred in its efforts to put CT-4 and CT-5 into service and to
support existing units amounted to approximately $74 million, including
$29 million for equipment and material purchases, $25 million for planning,
engineering, permitting, site development and other costs and $20 million for
AFUDC.
Although management believes it has acted prudently with respect to the Keahole
project, effective December 1, 1998, HELCO decided to discontinue the accrual of
AFUDC on CT-4 and CT-5 (which would have been approximately $0.5 million after
tax per month) due in part to the delays to date and potential further delays.
HELCO has also deferred plans for ST-7 to 2005. No costs for ST-7 are included
in construction in progress.
Competition proceeding
On December 30, 1996, the PUC instituted a proceeding to identify and examine
the issues surrounding electric competition and to determine the impact of
competition on the electric utility infrastructure in Hawaii. After a
collaborative process involving the 19 parties to the proceeding, final
statements of position were prepared by several of the parties and submitted to
the PUC in October 1998. HECO's position is that retail competition is not
feasible in Hawaii, but that some of the benefits of competition can be achieved
through competitive bidding for new generation, performance-based rate-making
(PBR) and innovative pricing provisions. The other parties to the proceeding
advanced numerous other proposals in their statements of position. In January
2000, the PUC submitted a status report on its investigation to the legislature.
In the report, the PUC stated that competitive bidding for new power supplies
(i.e., wholesale generation competition) is a logical first step to encourage
competition in the state's electric industry and that it plans to proceed with
an examination of the feasibility of competitive bidding. The PUC also indicated
in the report its plans to review specific policies to encourage renewable
energy resources in the power generation mix. The report states that "further
steps" by the PUC "will involve the development of specific policies to
encourage wholesale competition and the continuing examination of other areas
suitable for the development of competition." HECO cannot predict what the
ultimate outcome of the proceeding will be or which (if any) of the proposals
advanced in the proceeding will be implemented. In addition, some of the parties
may seek state legislative action on their proposals.
In May 1999, the PUC approved HECO's standard form contract for customer
retention that allows HECO to provide a rate option for customers who would
otherwise reduce their energy use from HECO's system by using energy from a
nonutility generator. Based on HECO's current rates, the standard form contract
provides a 2.77% and an 11.27% discount on base energy rates for "Large Power"
and "General Service Demand" customers, respectively. In March 2000, the PUC
approved a similar standard form contract for HELCO which, based on HELCO's
current rates, provides a 10.00% discount on base energy rates for "Large Power"
and "General Service Demand" customers.
In December 1999, HECO, HELCO and Maui Electric Company, Limited (MECO) filed an
application with the PUC seeking permission to implement PBR in future rate
cases. The proposed PBR would have allowed adjustments in the electric
utilities' rates (for up to five years after a rate case) based on an index-
based price cap, an earnings sharing mechanism and a service quality mechanism.
In early 2001, the PUC dismissed the electric utilities' PBR proposal without
prejudice, indicating it declines at this time to change its current cost of
service/rate of return methodology for determining electric utility rates.
Environmental regulation
In early 1995, the DOH initially advised HECO, Hawaiian Tug & Barge Corp. (HTB),
Young Brothers, Limited (YB) and others that it 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
issued letters in December 1995, indicating that it had identified a number of
parties, including HECO, HTB and YB, who appear to be potentially responsible
for the contamination and/or operate their facilities upon contaminated land.
The DOH
17
met with these identified parties in January 1996 and certain of the identified
parties (including HECO, Chevron Products Company, the State of Hawaii
Department of Transportation Harbors Division and others) formed a Honolulu
Harbor Work Group. Effective January 30, 1998, the Work Group and the DOH
entered into a voluntary agreement and scope of work to determine the nature and
extent of any contamination, the responsible parties and appropriate remedial
actions.
In 1999, the Work Group submitted reports to the DOH presenting environmental
conditions and recommendations for additional data gathering to allow for an
assessment of the need for risk-based corrective action. The Work Group also
engaged a consultant who identified 27 additional potentially responsible
parties (PRPs) who were not members of the Work Group, including YB. Under the
terms of the agreement for the sale of YB, HEI and The Old Oahu Tug Service,
Inc. (TOOTS, formerly HTB) have certain indemnity obligations, including
obligations with respect to the Honolulu Harbor investigation. In response to
the DOH's request for technical assistance, the EPA became involved with the
harbor investigation in June 2000. In August 2000, the Work Group, the DOH, the
EPA and the U.S. Coast Guard met to discuss the Conceptual Site Model, how to
proceed and other matters.
The DOH issued notices to over 20 other PRPs, including YB, regarding the on
going investigation in the Honolulu Harbor area. A new voluntary agreement and a
Joint Defense Agreement was signed by the parties in the Work Group and some of
the new PRPs, including Phillips Petroleum, but not YB. The next steps are
determining a method of cost allocation between the PRPs and remediation work.
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
further site analysis or future remediation and cleanup requirements, nor can it
estimate when such costs would be incurred. Certain of the costs incurred may be
claimed and covered under insurance policies, but such coverage is not
determinable at this time.
(4) HECO-obligated mandatorily redeemable preferred securities of trust
- ------------------------------------------------------------------------
subsidiaries holding solely HECO and HECO-guaranteed subordinated
------------------------------------------------------------------
debentures
----------
In March 1997, HECO Capital Trust I (Trust I), a grantor trust and a wholly
owned subsidiary of HECO, sold (i) in a public offering, 2 million of its HECO-
Obligated 8.05% Cumulative Quarterly Income Preferred Securities, Series 1997
(1997 trust preferred securities) with an aggregate liquidation preference of
$50 million and (ii) to HECO, common securities with a liquidation preference of
approximately $1.55 million. Proceeds from the sale of the 1997 trust preferred
securities and the common securities were used by Trust I to purchase 8.05%
Junior Subordinated Deferrable Interest Debentures, Series 1997 (1997 junior
deferrable debentures) issued by HECO in the principal amount of $31.55 million
and issued by each of MECO and HELCO in the respective principal amounts of
$10 million. The 1997 junior deferrable debentures, which bear interest at 8.05%
and mature on March 27, 2027, together with the subsidiary guarantees (pursuant
to which the obligations of MECO and HELCO under their respective debentures are
fully and unconditionally guaranteed by HECO), are the sole assets of Trust I.
The 1997 trust preferred securities must be redeemed at the maturity of the
underlying debt on March 27, 2027, which maturity may be shortened to a date no
earlier than March 27, 2002 or extended to a date no later than March 27, 2046,
and are not redeemable at the option of the holders, but may be redeemed by
Trust I, in whole or in part, from time to time, on or after March 27, 2002 or
upon the occurrence of certain events. All of the proceeds from the sale were
invested by Trust I in the underlying debt securities of HECO, HELCO and MECO.
In December 1998, HECO Capital Trust II (Trust II), a grantor trust and a wholly
owned subsidiary of HECO, sold (i) in a public offering, 2 million of its HECO-
Obligated 7.30% Cumulative Quarterly Income Preferred Securities, Series 1998
(1998 trust preferred securities) with an aggregate liquidation preference of
$50 million and (ii) to HECO, common securities with a liquidation preference of
approximately $1.55 million. Proceeds from the sale of the 1998 trust preferred
securities and the common securities were used by Trust II to purchase 7.30%
Junior Subordinated Deferrable Interest Debentures, Series 1998 (1998 junior
deferrable debentures) issued by HECO in the principal amount of $31.55 million
and issued by each of MECO and HELCO in the respective principal amounts of $10
million. The 1998 junior deferrable debentures, which bear interest at 7.30% and
mature on December 15, 2028, together with the subsidiary guarantees (pursuant
to which the obligations of MECO and
18
HELCO under their respective debentures are fully and unconditionally guaranteed
by HECO), are the sole assets of Trust II. The 1998 trust preferred securities
must be redeemed at the maturity of the underlying debt on December 15, 2028,
which maturity may be shortened to a date no earlier than December 15, 2003 or
extended to a date no later than December 15, 2047, and are not redeemable at
the option of the holders, but may be redeemed by Trust II, in whole or in part,
from time to time, on or after December 15, 2003 or upon the occurrence of
certain events. All of the proceeds from the sale were invested by Trust II in
the underlying debt securities of HECO, HELCO and MECO, who used such proceeds
from the sale of the 1998 junior deferrable debentures primarily to effect the
redemption of certain series of their preferred stock having a total par value
of $47 million.
The 1997 and 1998 junior deferrable debentures and the common securities of
the Trusts have been eliminated in HECO's consolidated balance sheets as of
March 31, 2001 and December 31, 2000. The 1997 and 1998 junior deferrable
debentures are redeemable only (i) at the option of HECO, MECO and HELCO,
respectively, in whole or in part, on or after March 27, 2002 (1997 junior
deferrable debentures) and December 15, 2003 (1998 junior deferrable debentures)
or (ii) at the option of HECO, in whole, upon the occurrence of a "Special
Event" (relating to certain changes in laws or regulations).
(5) Recent accounting pronouncements
- ------------------------------------
Derivative instruments and hedging activities
HECO and its subsidiaries adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, on January 1, 2001 with no
resulting material impact to consolidated financial condition, net income or
liquidity. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities and requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value.
19
(6) Consolidating financial information
- ----------------------------------------
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating balance sheet (unaudited)
March 31, 2001
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousands) HECO HELCO MECO Trust I Trust II tions consolidated
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Utility plant, at cost
Land.................................... $ 25,283 $ 2,196 $ 1,652 $ - $ - $ - $ 29,131
Plant and equipment..................... 1,875,771 542,467 559,933 - - - 2,978,171
Less accumulated depreciation........... (766,771) (225,237) (201,503) - - - (1,193,511)
Plant acquisition adjustment, net....... - - 393 - - - 393
Construction in progress................ 86,957 80,171 10,178 - - - 177,306
- -------------------------------------------------------------------------------------------------------------------------------
Net utility plant................... 1,221,240 399,597 370,653 - - - 1,991,490
- -------------------------------------------------------------------------------------------------------------------------------
Investment in wholly owned subsidiaries,
at equity............................... 337,311 - - - - (337,311) -
- -------------------------------------------------------------------------------------------------------------------------------
Current assets
Cash and equivalents.................... 9 4 406 - - - 419
Advances to affiliates.................. 18,100 - 2,000 51,546 51,546 (123,192) -
Customer accounts receivable, net....... 48,493 13,942 12,754 - - - 75,189
Accrued unbilled revenues, net.......... 38,016 9,199 7,676 - - - 54,891
Other accounts receivable, net.......... 2,131 641 173 - - (913) 2,032
Fuel oil stock, at average cost......... 24,204 3,372 8,236 - - - 35,812
Materials and supplies, at average cost. 8,234 2,386 8,113 - - - 18,733
Prepayments and other................... 25,710 4,999 1,879 - - - 32,588
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets................ 164,897 34,543 41,237 51,546 51,546 (124,105) 219,664
- -------------------------------------------------------------------------------------------------------------------------------
Other assets
Regulatory assets....................... 77,685 19,498 18,476 - - - 115,659
Other................................... 26,228 6,258 7,530 - - - 40,016
- -------------------------------------------------------------------------------------------------------------------------------
Total other assets.................. 103,913 25,756 26,006 - - - 155,675
- -------------------------------------------------------------------------------------------------------------------------------
$1,827,361 $ 459,896 $ 437,896 $51,546 $51,546 $(461,416) $ 2,366,829
===============================================================================================================================
Capitalization and liabilities
Capitalization
Common stock equity..................... $ 846,470 $ 165,062 $ 169,157 $ 1,546 $ 1,546 $(337,311) $ 846,470
Cumulative preferred stock-not
subject to mandatory redemption... 22,293 7,000 5,000 - - - 34,293
HECO-obligated mandatorily redeemable
trust preferred securities of
subsidiary trusts holding solely HECO
and HECO-guaranteed debentures..... - - - 50,000 50,000 - 100,000
Long-term debt.......................... 462,935 145,939 171,594 - - (103,092) 677,376
- -------------------------------------------------------------------------------------------------------------------------------
Total capitalization................ 1,331,698 318,001 345,751 51,546 51,546 (440,403) 1,658,139
- -------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term borrowings-nonaffiliates..... 96,869 - - - - - 96,869
Short-term borrowings-affiliate......... 3,964 18,100 - - - (20,100) 1,964
Accounts payable........................ 33,248 9,043 7,518 - - - 49,809
Interest and preferred dividends payable 9,995 3,151 3,904 - - (113) 16,937
Taxes accrued........................... 35,442 13,445 16,887 - - - 65,774
Other................................... 13,656 2,955 4,109 - - (800) 19,920
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities........... 193,174 46,694 32,418 - - (21,013) 251,273
- -------------------------------------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
Deferred income taxes................... 118,439 10,487 9,020 - - - 137,946
Unamortized tax credits................. 28,040 8,964 10,474 - - - 47,478
Other................................... 21,805 23,660 15,904 - - - 61,369
- -------------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other
liabilities...................... 168,284 43,111 35,398 - - - 246,793
- -------------------------------------------------------------------------------------------------------------------------------
Contributions in aid of construction....... 134,205 52,090 24,329 - - - 210,624
- -------------------------------------------------------------------------------------------------------------------------------
$1,827,361 $ 459,896 $ 437,896 $51,546 $51,546 $(461,416) $ 2,366,829
===============================================================================================================================
20
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating balance sheet (unaudited)
December 31, 2001
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousands) HECO HELCO MECO Trust I Trust II tions consolidated
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Utility plant, at cost
Land.................................... $ 24,999 $ 2,470 $ 3,568 $ - $ - $ - $ 31,037
Plant and equipment..................... 1,865,486 556,094 552,573 - - - 2,974,153
Less accumulated depreciation........... (751,894) (222,476) (195,814) - - - (1,170,184)
Plant acquisition adjustment, net....... - - 406 - - - 406
Construction in progress................ 82,105 64,552 10,526 - - - 157,183
- -------------------------------------------------------------------------------------------------------------------------------
Net utility plant................... 1,220,696 400,640 371,259 - - - 1,992,595
- -------------------------------------------------------------------------------------------------------------------------------
Investment in wholly owned subsidiaries,
at equity............................... 333,809 - - - - (333,809) -
- -------------------------------------------------------------------------------------------------------------------------------
Current assets
Cash and equivalents.................... 1,398 4 132 - - - 1,534
Advances to affiliates.................. 21,800 - - 51,546 51,546 (124,892) -
Customer accounts receivable, net....... 60,484 15,022 13,040 - - - 88,546
Accrued unbilled revenues, net.......... 44,448 10,144 9,428 - - - 64,020
Other accounts receivable, net.......... 4,311 920 231 - - (36) 5,426
Fuel oil stock, at average cost......... 24,176 3,439 9,509 - - - 37,124
Materials and supplies, at average cost. 6,958 2,365 7,464 - - - 16,787
Prepayments and other................... 3,130 1,251 316 - - - 4,697
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets................ 166,705 33,145 40,120 51,546 51,546 (124,928) 218,134
- -------------------------------------------------------------------------------------------------------------------------------
Other assets
Regulatory assets....................... 77,717 19,838 19,068 - - - 116,623
Other................................... 27,743 5,823 7,604 - - - 41,170
- -------------------------------------------------------------------------------------------------------------------------------
Total other assets.................. 105,460 25,661 26,672 - - - 157,793
- -------------------------------------------------------------------------------------------------------------------------------
$1,826,670 $ 459,446 $ 438,051 $51,546 $51,546 $(458,737) $ 2,368,522
===============================================================================================================================
Capitalization and liabilities
Capitalization
Common stock equity..................... $ 825,012 $ 162,901 $ 167,816 $ 1,546 $ 1,546 $(333,809) $ 825,012
Cumulative preferred stock-not
subject to mandatory redemption... 22,293 7,000 5,000 - - - 34,293
HECO-obligated mandatorily redeemable
trust preferred securities of
subsidary trusts holding solely HECO
and HECO-guaranteed debentures..... - - - 50,000 50,000 - 100,000
Long-term debt.......................... 453,310 145,931 171,582 - - (103,092) 667,731
- -------------------------------------------------------------------------------------------------------------------------------
Total capitalization................ 1,300,615 315,832 344,398 51,546 51,546 (436,901) 1,627,036
- -------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term borrowings-nonaffiliates..... 104,398 - - - - - 104,398
Short-term borrowings-affiliate......... 8,764 20,300 1,500 - - (21,800) 8,764
Accounts payable........................ 51,249 10,146 10,303 - - - 71,698
Interest and preferred dividends payable 6,779 1,790 2,045 - - (131) 10,483
Taxes accrued........................... 46,094 15,572 16,520 - - - 78,186
Other................................... 6,343 534 3,587 - - 95 10,559
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities........... 223,627 48,342 33,955 - - (21,836) 284,088
- -------------------------------------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
Deferred income taxes................... 116,642 10,535 9,889 - - - 137,066
Unamortized tax credits................. 28,179 8,975 10,449 - - - 47,603
Other................................... 22,284 23,821 15,106 - - - 61,211
- -------------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other
liabilities..................... 167,105 43,331 35,444 - - - 245,880
- -------------------------------------------------------------------------------------------------------------------------------
Contributions in aid of construction....... 135,323 51,941 24,254 - - - 211,518
- -------------------------------------------------------------------------------------------------------------------------------
$1,826,670 $ 459,446 $ 438,051 $51,546 $51,546 $(458,737) $ 2,368,522
===============================================================================================================================
21
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating statement of income (unaudited)
Three months ended March 31, 2001
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousands) HECO HELCO MECO Trust I Trust II tions consolidated
- --------------------------------------------------------------------------------------------------------------------------
Operating revenues.................... $215,219 $50,251 $51,823 $ - $ - $ - $317,293
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses
Fuel oil.............................. 57,627 7,885 22,733 - - - 88,245
Purchased power....................... 63,461 18,074 381 - - - 81,916
Other operation....................... 19,590 4,338 5,846 - - - 29,774
Maintenance........................... 10,512 1,769 2,916 - - - 15,197
Depreciation, of property, plant
and equipment...................... 15,196 4,065 5,348 - - - 24,609
Taxes, other than income taxes........ 20,766 4,772 4,953 - - - 30,491
Income taxes.......................... 8,229 2,603 2,772 - - - 13,604
- --------------------------------------------------------------------------------------------------------------------------
195,381 43,506 44,949 - - - 283,836
- --------------------------------------------------------------------------------------------------------------------------
Operating income...................... 19,838 6,745 6,874 - - - 33,457
- --------------------------------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used
during construction................ 1,076 57 132 - - - 1,265
Equity in earnings of subsidiaries.... 8,484 - - - - (8,484) -
Other, net............................ 1,176 116 56 1,037 941 (2,349) 977
- --------------------------------------------------------------------------------------------------------------------------
10,736 173 188 1,037 941 (10,833) 2,242
- --------------------------------------------------------------------------------------------------------------------------
Income before interest and
other charges...................... 30,574 6,918 7,062 1,037 941 (10,833) 35,699
- --------------------------------------------------------------------------------------------------------------------------
Interest and other charges
Interest on long-term debt............ 5,819 1,909 2,201 - - - 9,929
Amortization of net bond premium
and expense........................ 327 102 101 - - - 530
Other interest charges................ 3,315 749 358 - - (2,349) 2,073
Allowance for borrowed funds used
during construction................ (582) (35) (59) - - - (676)
Preferred stock dividends of
subsidiaries......................... - - - - - 229 229
Preferred securities distributions
of trust subsidiaries.............. - - - - - 1,919 1,919
- --------------------------------------------------------------------------------------------------------------------------
8,879 2,725 2,601 - - (201) 14,004
- --------------------------------------------------------------------------------------------------------------------------
Income before preferred stock
dividends of HECO.................. 21,695 4,193 4,461 1,037 941 (10,632) 21,695
Preferred stock dividends of HECO..... 270 134 95 1,006 913 (2,148) 270
- --------------------------------------------------------------------------------------------------------------------------
Net income for common stock........... $ 21,425 $ 4,059 $ 4,366 $ 31 $ 28 $ (8,484) $ 21,425
==========================================================================================================================
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating statement of retained earnings (unaudited)
Three months ended March 31, 2001
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousands) HECO HELCO MECO Trust I Trust II tions consolidated
- --------------------------------------------------------------------------------------------------------------------------
Retained earnings, beginning of period $443,970 $62,962 $73,586 $ - $ - $(136,548) $443,970
Net income for common stock........... 21,425 4,059 4,366 31 28 (8,484) 21,425
Common stock dividends................ - (1,904) (3,032) (31) (28) 4,995 -
- --------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period...... $465,395 $65,117 $74,920 $ - $ - $(140,037) $465,395
==========================================================================================================================
22
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating statement of income (unaudited)
Three months ended March 31, 2000
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousands) HECO HELCO MECO Trust I Trust II tions consolidated
- --------------------------------------------------------------------------------------------------------------------------
Operating revenues.................... $200,349 $44,211 $43,861 $ - $ - $ - $288,421
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses
Fuel oil.............................. 47,586 12,208 15,361 - - - 75,155
Purchased power....................... 60,661 7,936 1,629 - - - 70,226
Other operation....................... 18,768 4,390 4,583 - - - 27,741
Maintenance........................... 8,718 1,562 2,253 - - - 12,533
Depreciation, of property, plant
and equipment...................... 14,598 4,849 4,887 - - - 24,334
Taxes, other than income taxes........ 18,980 4,219 4,162 - - - 27,361
Income taxes.......................... 9,240 2,507 3,446 - - - 15,193
- --------------------------------------------------------------------------------------------------------------------------
178,551 37,671 36,321 - - - 252,543
- --------------------------------------------------------------------------------------------------------------------------
Operating income...................... 21,798 6,540 7,540 - - - 35,878
- --------------------------------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used
during construction................ 932 49 288 - - - 1,269
Equity in earnings of subsidiaries.... 9,328 - - - - (9,328) -
Other, net............................ 645 186 281 1,037 941 (2,515) 575
- --------------------------------------------------------------------------------------------------------------------------
10,905 235 569 1,037 941 (11,843) 1,844
- --------------------------------------------------------------------------------------------------------------------------
Income before interest and
other charges...................... 32,703 6,775 8,109 1,037 941 (11,843) 37,722
- --------------------------------------------------------------------------------------------------------------------------
Interest and other charges
Interest on long-term debt............ 5,740 1,912 2,280 - - - 9,932
Amortization of net bond premium
and expense........................ 285 70 87 - - - 442
Other interest charges................ 3,204 789 418 - - (2,514) 1,897
Allowance for borrowed funds used
during construction................ (521) (30) (140) - - - (691)
Preferred stock dividends of
subsidiaries......................... - - - - - 228 228
Preferred securities distributions
of trust subsidiaries.............. - - - - - 1,919 1,919
- --------------------------------------------------------------------------------------------------------------------------
8,708 2,741 2,645 - - (367) 13,727
- --------------------------------------------------------------------------------------------------------------------------
Income before preferred stock
dividends of HECO.................. 23,995 4,034 5,464 1,037 941 (11,476) 23,995
Preferred stock dividends of HECO..... 270 133 96 1,006 913 (2,148) 270
- --------------------------------------------------------------------------------------------------------------------------
Net income for common stock........... $ 23,725 $ 3,901 $ 5,368 $ 31 $ 28 $ (9,328) $ 23,725
==========================================================================================================================
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating statement of retained earnings (unaudited)
Three months ended March 31, 2000
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousands) HECO HELCO MECO Trust I Trust II tions consolidated
- --------------------------------------------------------------------------------------------------------------------------
Retained earnings, beginning of period $425,206 $59,806 $69,633 $ - $ - $(129,439) $425,206
Net income for common stock........... 23,725 3,901 5,368 31 28 (9,328) 23,725
Common stock dividends................ (13,952) (2,431) (3,583) (31) (28) 6,073 (13,952)
- --------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period...... $434,979 $61,276 $71,418 $ - $ - $(132,694) $434,979
==========================================================================================================================
23
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating statement of cash flows (unaudited)
Three months ended March 31, 2001
------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousand s) HECO HELCO MECO Trust I Trust II tions consolidated
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Income before preferred stock
dividends of HECO...................... $ 21,695 $ 4,193 $ 4,461 $ 1,037 $ 941 $(10,632) $ 21,695
Adjustments to reconcile income before
preferred stock dividends of HECO to
net cash provided by operating
activities
Equity in earnings................ (8,484) - - - - 8,484 -
Common stock dividends received
from subsidiaries................ 4,995 - - - - (4,995) -
Depreciation of property,
plant and equipment.............. 15,196 4,065 5,348 - - - 24,609
Other amortization................ 1,451 551 1,204 - - - 3,206
Deferred income taxes............. 1,797 (49) (407) - - - 1,341
Tax credits, net.................. 128 48 91 - - - 267
Allowance for equity funds used
during construction.............. (1,076) (57) (132) - - - (1,265)
Changes in assets and liabilities
Decrease in accounts
receivable................... 14,171 1,359 344 - - 877 16,751
Decrease in accrued unbilled
revenues..................... 6,432 945 1,752 - - - 9,129
Decrease (increase) in fuel
oil stock.................... (28) 67 1,273 - - - 1,312
Increase in materials and
supplies..................... (1,276) (21) (649) - - - (1,946)
Increase in regulatory assets. (239) (34) (422) - - - (695)
Decrease in accounts payable.. (18,001) (1,103) (2,785) - - - (21,889)
Changes in other assets and
liabilities.................. (16,394) (2,619) 1,400 - - 1,042 (16,571)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating
activities............................. 20,367 7,345 11,478 1,037 941 (5,224) 35,944
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures.................... (15,999) (3,523) (4,963) - - - (24,485)
Contributions in aid of construction.... 622 795 386 - - - 1,803
Advances to (repayments from) affiliates 3,700 - (2,000) - - (1,700) -
Net cash used in investing activities... (11,677) (2,728) (6,577) - - (1,700) (22,682)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Common stock dividends.................. - (1,904) (3,032) (31) (28) 4,995 -
Preferred stock dividends............... (270) (134) (95) - - 229 (270)
Preferred securities distributions
of trust subsidiaries.................. - - - (1,006) (913) - (1,919)
Proceeds from issuance of
long-term debt......................... 9,595 - - - - - 9,595
Net decrease in short-term borrowings
from nonaffiliates and affiliate with
original maturities of three months
or less................................ (9,333) (2,200) (1,500) - - 1,700 (11,333)
Repayment of other short-term
borrowings............................. (3,000) - - - - - (3,000)
Other................................... (7,071) (379) - - - - (7,450)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities... (10,079) (4,617) (4,627) (1,037) (941) 6,924 (14,377)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and equivalents................... (1,389) - 274 - - - (1,115)
Cash and equivalents, beginning of
period................................. 1,398 4 132 - - - 1,534
- --------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period..... $ 9 $ 4 $ 406 $ - $ - $ - $ 419
==========================================================================================================================
24
Hawaiian Electric Company, Inc. and subsidiaries
Consolidating statement of cash flows (unaudited)
Three months ended March 31, 2000
----------------------------------------------------------------------------------------
Reclassi-
fications
HECO HECO and
Capital Capital elimina- HECO
(in thousand s) HECO HELCO MECO Trust I Trust II tions consolidated
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Income before preferred stock
dividends of HECO......................... $ 23,995 $ 4,034 $ 5,464 $ 1,037 $ 941 $(11,476) $ 23,995
Adjustments to reconcile income before
preferred stock dividends of HECO to net
cash provided by operating activities
Equity in earnings................... (9,328) - - - - 9,328 -
Common stock dividends received
from subsidiaries................... 6,073 - - - - (6,073) -
Depreciation of property,
plant and equipment................. 14,598 4,849 4,887 - - - 24,334
Other amortization................... 697 161 211 - - - 1,069
Deferred income taxes................ 906 229 283 - - - 1,418
Tax credits, net..................... 311 47 (19) - - - 339
Allowance for equity funds used
during construction................. (932) (49) (288) - - - (1,269)
Changes in assets and liabilities
Decrease (increase) in
accounts receivable............. (1,179) 288 (187) - 1,899 821
Decrease (increase) in accrued - -
unbilled revenues............... 701 211 (114) - 798
Decrease in fuel oil stock....... 6,230 250 805 - - - 7,285
Decrease (increase) in materials - -
and supplies.................... (299) (44) 46 - (297)
Increase in regulatory assets.... (346) (21) (146) - - - (513)
Increase (decrease) in accounts
payable......................... (5,889) 1,148 (1,809) - - - (6,550)
Changes in other assets
and liabilities................. (12,757) (857) 1,271 - 20 (12,323)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities.. 22,781 10,246 10,404 1,037 941 (6,302) 39,107
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures....................... (16,329) (3,469) (4,050) - - - (23,848)
Contributions in aid of construction....... 999 390 258 - - - 1,647
Advances to (repayments from) affiliates... 3,200 - (3,100) - - (100) -
Payments on notes receivable............... - 138 - - - - 138
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities...... (12,130) (2,941) (6,892) - - (100) (22,063)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Common stock dividends..................... (13,952) (2,431) (3,583) (31) (28) 6,073 (13,952)
Preferred stock dividends.................. (270) (133) (96) - - 229 (270)
Preferred securities distributions
of trust subsidiaries..................... - - - (1,006) (913) - (1,919)
Proceeds from issuance of long-term debt... 6,304 - - - - - 6,304
Net increase (decrease) in short-term
Borrowings from nonaffiliates and
affiliate with original maturities
of three months or less.............. 1,064 (3,200) - - - 100 (2,036)
Other...................................... (4,827) (1,224) - - - - (6,051)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities...... (11,681) (6,988) (3,679) (1,037) (941) 6,402 (17,924)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and equivalents...................... (1,030) 317 (167) - - - (880)
Cash and equivalents, beginning of period.. 1,039 198 729 - - - 1,966
- ------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period........ $ 9 $ 515 $ 562 $ - $ - $ - $ 1,086
==============================================================================================================================
HECO has not provided separate financial statements and other disclosures
concerning HELCO and MECO because management has concluded that such financial
statements and other information are not material to holders of the 1997 and
1998 junior deferrable debentures issued by HELCO and MECO which have been fully
and unconditionally guaranteed by HECO.
25
(8) Reconciliation of electric utility operating income per HEI and HECO
- -------------------------------------------------------------------------
consolidated statements of income
---------------------------------
Three months ended March 31, 2001 2000
- ------------------------------------------------------------------------------------------------------
(in thousands)
Operating income from regulated and nonregulated activities before income
taxes (per HEI consolidated statements of income)............................ $ 48,010 $ 51,630
Deduct:
Income taxes on regulated activities......................................... (13,604) (15,193)
Revenues from nonregulated activities........................................ (1,130) (984)
Add:
Expenses from nonregulated activities........................................ 181 425
- ------------------------------------------------------------------------------------------------------
Operating income from regulated activities after income taxes (per HECO
consolidated statements of income)........................................... $ 33,457 $ 35,878
======================================================================================================
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 of HEI and HECO and accompanying notes.
RESULTS OF OPERATIONS
HEI Consolidated
- ----------------
Three months ended
March 31,
(in thousands, except per ------------------------ % Primary reason(s) for
share amounts) 2001 2000 change significant change*
- ---------------------------------------------------------------------------------------------------------------------
Revenues........................... $434,867 $401,875 8 Increases for the electric utility, savings
bank and international power segments, partly
offset by a decrease for the "other" segment
Operating income................... 65,717 68,202 (4) Increases for the savings bank and
international power segments, more than offset
by decreases for the electric utility and
"other" segments
Net income......................... 27,745 28,976 (4) Lower operating income and higher interest
expense due to higher average borrowings due
to an HEIPC acquisition in March 2000, partly
offset by lower income taxes
Basic earnings
per common share................ $ 0.84 $ 0.90 (7) See explanation for net income and weighted
average number of common shares outstanding
Weighted-average number of common
shares outstanding................ 33,159 32,266 3 Issuances under the Dividend Reinvestment and
Stock Purchase Plan and other plans
* Also see segment discussions which follow.
26
Following is a general discussion of the results of operations by business
segment.
Electric utility
- ----------------
Three months ended
March 31,
(in thousands, except per ---------------------- %
barrel amounts) 2001 2000 change Primary reason(s) for significant change
- ----------------------------------------------------------------------------------------------------------------
Revenues...................... $318,423 $289,405 10 Higher fuel oil and purchased energy fuel
prices, the effects of which are passed on to
customers ($20 million), 1.7% higher KWH
sales ($4 million), HELCO rate increase and
the recovery of integrated resource planning
and related costs
Expenses
Fuel oil..................... 88,245 75,155 17 Higher fuel oil prices, partly offset by
fewer KWHs generated
Purchased power.............. 81,916 70,226 17 Higher fuel prices, higher capacity charges
due to increased capacity (including a new
IPP, Hamakua Energy) and availability, and
more KWHs purchased
Other........................ 100,252 92,394 9 Higher other operation and maintenance
expenses and taxes, other than income taxes
Operating income.............. 48,010 51,630 (7) Higher KWH sales and HELCO rate increase,
more than offset by higher maintenance
expense and purchased power capacity charges
Net income.................... 21,425 23,725 (10) Lower operating income and higher interest
expense
Kilowatthour sales (millions). 2,241 2,203 2
Fuel oil price per barrel..... $34.88 $29.14 20
Kilowatthour (KWH) sales in the first quarter of 2001 increased 1.7% from the
same quarter in 2000, partly due to warmer weather, the improvement in Hawaii's
economy and an increase in the number of customers. Electric utility operating
income, however, decreased 7% from the first quarter 2000, primarily due to
higher purchased power and maintenance expenses. Maintenance expenses were
higher due to more production, transmission and distribution maintenance work in
the first quarter of 2001 than in the first quarter of 2000. Other operation
expenses increased 7% primarily due to higher integrated resource planning costs
which were recovered in revenues.
27
Competition
The electric utility industry is becoming increasingly competitive. IPPs are
well established in Hawaii and continue to actively pursue new projects.
Customer self-generation, with or without cogeneration, has made inroads in
Hawaii and is a continuing competitive factor. Competition in the generation
sector in Hawaii is moderated, however, by the scarcity of generation sites,
various permitting processes and lack of interconnections to other electric
utilities. HECO and its subsidiaries have been able to compete successfully by
offering customers economic alternatives that, among other things, employ energy
efficient electrotechnologies such as the heat pump water heater.
In December 1996, the PUC instituted a proceeding to identify and examine the
issues surrounding electric competition and to determine the impact of
competition on the electric utility infrastructure in Hawaii. See "Competition
proceeding" in note (3) of HECO's "Notes to consolidated financial statements."
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 may be granted.
In May 2001, David Morihara became a commissioner on the PUC replacing Rae Loui.
David Morihara is a Democrat, businessman and former state representative. The
other commissioners are Dennis Yamada, Chairman (serving on the PUC since 1994),
and Gregory Pai (serving on the PUC since 1998).
Recent rate requests
HEI's electric utility subsidiaries initiate PUC proceedings from time to time
to request electric rate increases to cover rising operating costs, the cost of
purchased power and the cost of plant and equipment, including the cost of new
capital projects to maintain and improve service reliability. As of May 3, 2001,
the return on average common equity (ROACE) found by the PUC to be reasonable in
the most recent final rate decision for each utility was 11.40% for HECO (D&O
issued on December 11, 1995 and based on a 1995 test year), 11.50% for HELCO
(D&O issued on February 8, 2001 and based on a 2000 test year) and 10.94% for
MECO (amended D&O issued on April 6, 1999 and based on a 1999 test year).
Hawaii Electric Light Company, Inc.
- -----------------------------------
In October 1999, HELCO filed a request to increase rates by 9.6%, or $15.5
million in annual revenues, based on a 2000 test year, primarily to recover
(1) costs relating to the agreement to buy power from the 60 MW plant of Hamakua
Partners, and (2) depreciation of and a return on additional investments in
plant, equipment and deferred charges since the last rate case, including pre-
air permit facilities placed in service at the Keahole power plant. In its
application, HELCO presented evidence to justify an ROACE of 13.5% for the 2000
test year.
To simplify and expedite the rate case proceeding, HELCO and the Consumer
Advocate entered into a negotiated settlement agreement, subject to PUC
consideration and approval, with respect to certain test year estimates. In
early 2001, HELCO received a final D&O from the PUC authorizing an $8.4 million,
or 4.9% increase in annual revenues, effective February 15, 2001 and based on an
11.50% ROACE. The order granted HELCO an increase of approximately $2.3 million
in annual revenues, in addition to affirming interim increases that took effect
in September 2000 ($3.5 million) and January 2001 ($2.6 million). The $8.4
million increase covered costs relating to the Hamakua Partners power purchase
agreement and included in rate base $7.6 million for pre-air permit facilities
28
that the PUC found to be used or useful to support the existing generating units
at Keahole. The increase also included amounts for HELCO's incremental
integrated resource planning costs, which HELCO had previously recovered through
a surcharge.
The timing of a future HELCO rate increase request, if any, to recover costs
relating to adding two combustion turbines at Keahole, including the remaining
$14.8 million cost of pre-air permit facilities, will depend on future
circumstances. See "HELCO power situation" in note (3) of HECO's "Notes to
consolidated financial statements."
Accounting for the effects of certain types of regulation
In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," the Company's financial statements reflect assets and costs of HECO
and its subsidiaries based on current cost-based rate-making regulations.
Management believes HECO and its subsidiaries' operations currently satisfy the
SFAS No. 71 criteria. However, if events or circumstances should change so that
those criteria are no longer satisfied, management believes that a material
adverse effect on the Company's results of operations, financial position or
liquidity may result. As of March 31, 2001, HECO's consolidated regulatory
assets amounted to $116 million.
Legislation
Congress and the Hawaii legislature periodically consider legislation that could
have positive or negative effects on the utilities and their customers. For
example, Congress is considering an energy plan designed to increase the supply
of oil, as well as legislation that would promote renewable energy sources and
conservation. The Hawaii legislature did not consider deregulation in its 2001
session, but passed legislation which established renewable energy goals for the
state (7% by 2003, 8% by 2007, 9% in 2010) and net energy metering of small
photovoltaic and wind generating systems up to 10 kilowatts with a maximum
installed base of 0.5% of an electric utilities' peak demand (i.e., a customer
may be a net user or supplier of energy and will pay to or receive credit from
the electric utility accordingly). Management cannot predict whether any such
legislation or other proposed legislation affecting the utilities will be signed
into law or, if signed into law, in what form and with what effects on the
utilities or their customers.
Savings bank
- ------------
Three months ended
March 31,
---------------------- %
(in thousands) 2001 2000 change Primary reason(s) for significant change
- ---------------------------------------------------------------------------------------------------
Revenues............. $115,754 $110,267 5 Higher interest income as a result of
higher average balances of interest-earning
assets and higher weighted-average yields
on mortgage/asset-backed securities and
loans and higher other income (including
higher fee income, offset by a $0.7 million
writedown of collateralized debt
obligations)
Operating income..... 20,149 19,190 5 Higher net interest and other income and
slightly lower general and administrative
expenses
Net income........... 11,875 11,221 6 Higher operating income
Interest rate spread. 3.01% 3.28% (8) 9 basis points increase in the
weighted-average yield on interest-earning
assets, more than offset by a 36 basis
points increase in the weighted-average
rate on interest-bearing liabilities
29
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--decreased 8%. Comparing first quarter 2001 to the same period in
2000, the weighted-average rate on interest-bearing liabilities increased more
than the weighted-average yield on interest-earning assets increased.
Deposits traditionally have been the principal source of ASB's funds for use in
lending, meeting liquidity requirements and making investments. Deposits
increased by $52 million in the first quarter of 2001, including $29 million of
interest credited to accounts. ASB also derives funds from borrowings, payments
of interest and principal on outstanding loans receivable and investment and
mortgage/asset-backed securities and other sources. Advances from the Federal
Home Loan Bank (FHLB) of Seattle continue to be a significant source of funds as
the demand for deposits decreases due in part to increased competition from
money market and mutual funds. Using sources of funds with a higher cost than
deposits, such as advances from the FHLB, puts downward pressure on ASB's net
interest income.
During the first quarter of 2001, ASB added $3 million to its allowance for loan
losses. As of March 31, 2001, ASB's allowance for loan losses was 1.19% of
average loans outstanding. The following table presents the changes in the
allowance for loan losses for the periods indicated.
Three months ended March 31, 2001 2000
- ---------------------------------------------------------------------------
(in thousands)
Allowance for loan losses, January 1............. $37,449 $35,348
Provision for loan losses........................ 3,000 3,000
Net charge-offs.................................. (2,018) (1,763)
-------- -------
Allowance for loan losses, March 31.............. $38,431 $36,585
======== ========
In March 1998, ASB formed a wholly owned operating subsidiary, ASB Realty
Corporation, which elects to be taxed as a real estate investment trust. This
reorganization has reduced ASB's income taxes. For the first quarter of 2001,
ASB and subsidiaries' effective income tax rate was 34%. Although the State of
Hawaii has indicated that it may challenge the tax treatment of this
reorganization, ASB believes that its tax position is proper.
Regulation
Federal Deposit Insurance Corporation regulations restrict the ability of
financial institutions that are not "well-capitalized" to compete on the same
terms as "well-capitalized" institutions, such as by offering interest rates on
deposits that are significantly higher than the rates offered by competing
institutions. As of March 31, 2001, ASB was "well-capitalized" (ratio
requirements noted in parentheses) with a leverage ratio of 6.1% (5.0%), a Tier-
1 risk-based ratio of 10.6% (6.0%) and a total risk-based ratio of 11.5%
(10.0%).
For a discussion of securities deemed impermissible investments by the OTS, see
note (4) of HEI's "Notes to consolidated financial statements."
Examination of ASB by the OTS. ASB is subject to examination by the OTS. In
- -----------------------------
conducting its examinations, the OTS utilizes the Uniform Financial Institutions
Rating System adopted by the Federal Financial Institutions Examination Council,
which system utilizes the "CAMELS" criteria for rating financial institutions.
The six components in the rating system are: Capital adequacy, Asset quality,
- -
Management, Earnings, Liquidity and Sensitivity to market risk.
- - - - -
Thrift Bulletin (TB) 13a, adopted by the OTS on December 1, 1998, provides
guidance on the management of interest rate risks, investment securities and
derivatives activities. TB 13a updates the OTS's minimum standards for thrift
institutions' interest rate risk management practices with regard to board-
approved limits and interest rate risk measurement systems. Management has
developed and is implementing an action plan to improve ASB's interest rate risk
position. The current plan includes making changes to improve the matching of
asset and liability durations, such as lengthening the term of costing
liabilities and selling a portion of ASB's long-term fixed rate loan production.
30
During 2000, the OTS conducted Community Reinvestment Act, compliance, systems,
holding company and safety and soundness examinations of ASB. The most recent
OTS safety and soundness examination, covering the period from January 1, 1999,
up to and including March 31, 2000, was completed on June 16, 2000.
Federal Thrift Charter. In November 1999, Congress passed the Gramm-Leach-Bliley
- ----------------------
Act of 1998 (the Act), under which banks, insurance companies and investment
firms can compete directly against each other, thereby allowing "one-stop
shopping" for an array of financial services. Although the Act further restricts
the creation of so-called "unitary savings and loan holding companies" (i.e.,
companies such as HEI whose subsidiaries include one or more savings
associations and one or more nonfinancial subsidiaries), the unitary savings and
loan holding company relationship among HEI, HEI Diversified, Inc. (HEIDI) and
ASB is "grandfathered" under the Act so that HEI and its subsidiaries will be
able to continue to engage in their current activities. It is too early to
assess the net effect of the Act on ASB's competitive position. On the one hand,
the availability of "one-stop shopping" for financial services might increase
competitive pressures on ASB. On the other hand, the restriction on the creation
of new unitary savings and loan association holding companies may decrease
competitive pressure by reducing the incentive to create new thrifts. Under the
Act, any proposed acquisition of ASB would have to satisfy applicable statutory
and regulatory requirements and potential acquirers of ASB would most likely be
limited to companies that are already qualified as, or capable of qualifying as,
either a traditional savings and loan association holding company or a bank
holding company, or as one of the newly authorized financial holding companies
permitted under the Act.
International power
- -------------------
Three months ended
March 31,
------------------- %
(in thousands) 2001 2000 change Primary reason(s) for significant change
- -------------------------------------------------------------------------------------------------
Revenues................ $1,969 $1,665 18 Higher leveraged lease income from HEI
Investments, Inc., which became a
subsidiary of HEIPC in February 2000
Operating income (loss). 1,196 (450) NM $1.5 million partial release of a $10.0
million loan guaranty which was accrued
in December 2000
NM Not meaningful.
HEIPC was formed in 1995 and its subsidiaries have been formed from time to time
to pursue independent power and integrated energy services projects in Asia and
the Pacific.
In September 1996, HEI Power Corp. Guam (HPG), entered into an energy conversion
agreement for approximately 20 years with the Guam Power Authority (GPA),
pursuant to which HPG has repaired and is operating and maintaining two oil-
fired 25 MW (net) units in Tanguisson, Guam. HPG's total cost to repair the two
units was $15 million. The GPA project site is contaminated with oil from spills
occurring prior to HPG's assuming operational control. HPG has agreed to manage
the operation and maintenance of GPA's waste oil recovery system at the project
site consistent with GPA's oil recovery plan as approved by the U.S.
Environmental Protection Agency. GPA, however, has agreed to indemnify and hold
HPG harmless from any pre-existing environmental liability.
In 1998 and 1999, the HEIPC Group acquired what is now a 75% interest in a joint
venture, Baotou Tianjiao Power Co., Ltd., formed to design, construct, own,
operate and manage a 200 MW (net) coal-fired power plant to be located inside
Baotou Steel's complex in Inner Mongolia, People's Republic of China. See "China
project," in note (5) of HEI's "Notes to consolidated financial statements."
In December 1998, the HEIPC Group invested $7.6 million to acquire convertible
cumulative nonparticipating 8% preferred shares in Cagayan Electric Power &
Light Co., Inc. (CEPALCO), an electric distribution company in the
31
Philippines. In September 1999, the HEIPC Group also acquired 5% of the
outstanding CEPALCO common stock for $2.1 million. The acquisitions were
strategic moves which put the HEIPC Group in a position to participate in the
anticipated privatization of the National Power Corporation and growth in the
electric distribution business in the Philippines.
On March 7, 2000, an indirect subsidiary of HEIPC acquired a 50% interest in
EPHE, an indirect subsidiary of El Paso Energy Corporation, for $87.5 million
plus up to an additional $6 million of payments contingent upon future earnings
of EAPRC. EPHE owns approximately 91.7% of the common shares of EAPRC, a
Philippines holding company primarily engaged in the electric generation
business in Manila and Cebu through its direct and indirect subsidiaries, using
land and barge-based generating facilities fired by bunker fuel oil, with total
installed capacity of approximately 390 MW. See note (5) in HEI's "Notes to
Consolidated Financial Statements." Net income for the first quarter of 2000
does not include equity in net losses of EPHE. The accounts of HEIPC and
subsidiaries are consolidated on a one-month lag.
Due to the level of losses incurred in 2000 and the changes in the political and
economic conditions related to the investment in EAPRC (e.g., devaluation of the
Philippines peso and increase in fuel oil prices), management determined that
the investment was impaired on December 31, 2000 and wrote off the remaining
investment in EAPRC.
Management is evaluating the overall international strategy and HEIPC's
strategic alternatives. The Company will not be investing in new international
power projects during this period of evaluation. Management expects to have
completed its evaluation by the end of the third quarter 2001.
As of March 31, 2001, the HEIPC Group has invested in or advanced to overseas
power projects approximately $147 million, $100 million of which has been
written off. The success of any project undertaken by the HEIPC Group is
dependent on many factors, including the economic, political, monetary,
technological, regulatory and logistical circumstances surrounding each project
and the location of the project. Due to political or regulatory actions or other
circumstances, projects may be delayed or even prohibited. There is no assurance
that any project undertaken by the HEIPC Group will be successfully completed or
that the HEIPC Group's investment in any such project will not be lost, in whole
or in part.
Other
- -----
Three months ended
March 31,
------------------------ %
(in thousands) 2001 2000 change Primary reason(s) for significant change
- -------------------------------------------------------------------------------------------------
Revenues......... $(1,279) $ 538 NM Equity in net loss of Utech Venture Capital
Corporation ($1.5 million) and lower
leveraged lease income from HEI
Investments, Inc., which was transferred to
HEIPC
Operating loss... (3,638) (2,168) (68) See explanation for revenues
NM Not meaningful.
The "other" business segment includes results of operations of TOOTS, formerly
named HTB, a maritime freight transportation company which ceased operations in
the fourth quarter of 1999; Pacific Energy Conservation Services, Inc., a
contract services company primarily providing windfarm operational and
maintenance services to an affiliated electric utility; HEI District Cooling,
Inc., a company formed to develop, build, own, lease, operate and/or maintain
central chilled water, cooling system facilities, and other energy related
products and services; ProVision Technologies, Inc., a company formed to sell,
install, operate and maintain on-site power generation equipment and auxiliary
appliances in Hawaii and the Pacific Rim; HEI Properties, Inc., a company
currently holding passive investments and expected to hold real estate and
related assets; HEI Leasing, Inc., a company formed to
32
own real estate subject to leases; Hawaiian Electric Industries Capital Trust I,
HEI Preferred Funding, LP and Hycap Management, Inc., companies formed primarily
for the purpose of effecting the issuance of 8.36% Trust Originated Preferred
Securities; HEI and HEIDI, holding companies; and eliminations of intercompany
transactions.
Contingencies
- -------------
See note (8) in HEI's "Notes to consolidated financial statements" and note (3)
in HECO's "Notes to consolidated financial statements" for discussions of
contingencies.
Recent accounting pronouncements
- --------------------------------
See note (7) and note (5) in HEI's and HECO's respective "Notes to consolidated
financial statements."
FINANCIAL CONDITION
Liquidity and capital resources
- -------------------------------
The Company and consolidated HECO each believes that its ability to generate
cash, both internally from operations and externally from debt and equity
issues, is adequate to maintain sufficient liquidity to fund their respective
construction programs and investments and to cover debt and other cash
requirements in the foreseeable future.
The consolidated capital structure of HEI was as follows:
(in millions) March 31, 2001 December 31, 2000
- --------------------------------------------------------------------------------------
Short-term borrowings................... $ 159 7% $ 104 5%
Long-term debt.......................... 1,063 46 1,089 48
HEI- and HECO-obligated preferred
securities of trust subsidiaries..... 200 9 200 9
Preferred stock of subsidiaries......... 34 1 34 1
Minority interests...................... 1 - 1 -
Common stock equity..................... 845 37 839 37
- --------------------------------------------------------------------------------------
$2,302 100% $2,267 100%
======================================================================================
ASB's deposit liabilities, securities sold under agreements to repurchase and
advances from the FHLB of Seattle are not included in the table above.
For the first three months of 2001, net cash provided by operating activities of
consolidated HEI was $56 million. Net cash used in investing activities was $100
million, largely due to ASB's purchase of mortgage/asset-backed securities, net
of repayments and sales, and HECO's consolidated capital expenditures. Net cash
provided by financing activities was $27 million as a result of several factors,
including net increases in deposit liabilities, short-term borrowings and
securities sold under agreements to repurchase and the issuance of common stock,
partly offset by the payment of common stock dividends and trust preferred
securities distributions and net decreases in long-term debt and advances from
the FHLB.
Total HEI consolidated financing requirements for 2001 through 2005, including
net capital expenditures (which exclude AFUDC and capital expenditures funded by
third-party contributions in aid of construction), long-term debt retirements
(excluding repayments of advances from the FHLB of Seattle and securities sold
under agreements to repurchase) and preferred stock retirements, are estimated
to total $1.3 billion. Of this amount, approximately $0.7 billion is for net
capital expenditures (mostly relating to the electric utilities' net capital
expenditures described below). HEI's consolidated internal sources, after the
payment of HEI dividends, are expected to provide approximately 59% of the
consolidated financing requirements, with debt and equity financing providing
the remaining requirements. Additional debt and equity financing may be required
to fund activities not included in the
33
2001 through 2005 forecast, such as increases in the amount of or an
acceleration of capital expenditures of the electric utilities.
See note (9) in HEI's "Notes to consolidated financial statements" for a
description of the medium-term notes issued in April 2001.
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:
(in millions) March 31, 2001 December 31, 2000
- -------------------------------------------------------------------------------------
Short-term borrowings................ $ 99 6% $ 113 7%
Long-term debt....................... 677 38 668 38
HECO-obligated preferred securities
of trust subsidiaries............... 100 6 100 6
Preferred stock...................... 34 2 34 2
Common stock equity.................. 847 48 825 47
- -------------------------------------------------------------------------------------
$1,757 100% $1,740 100%
=====================================================================================
Operating activities provided $36 million in net cash during the first quarter
of 2001. Investing activities used net cash of $23 million, primarily for
capital expenditures. Financing activities used net cash of $14 million,
including $2 million for the payment of preferred dividends and preferred
securities distributions and $14 million for the net repayment of short-term
borrowings, partially offset by a $10 million net increase in long-term debt.
The electric utilities' consolidated financing requirements for 2001 through
2005, including net capital expenditures and long-term debt repayments, are
estimated to total $0.6 billion. HECO's consolidated internal sources, after the
payment of common stock and preferred stock dividends, are expected to provide
approximately 95% of the total requirements, with debt and equity financing
providing the remaining requirements.
As of March 31, 2001, $19 million of proceeds from previous sales by the
Department of Budget and Finance of the State of Hawaii of special purpose
revenue bonds issued for the benefit of HECO remain undrawn. Also as of
March 31, 2001, an additional $65 million of special purpose revenue bonds were
authorized by the Hawaii Legislature for issuance for the benefit of HECO and
HELCO prior to the end of 2003. HECO estimates that it will require
approximately $5 million in new common equity, in addition to retained earnings,
over the five-year period 2001 through 2005. The PUC must approve issuances, if
any, of long-term debt securities 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 2001 through 2005
are currently estimated to total $0.6 billion. Approximately 65% of forecast
gross capital expenditures, which includes the AFUDC and capital expenditures
funded by third-party contributions in aid of construction, is for transmission
and distribution projects, with the remaining 35% primarily for generation
projects.
For 2001, electric utility net capital expenditures are estimated to be $122
million. Gross capital expenditures are estimated to be $138 million, including
approximately $98 million for transmission and distribution projects,
approximately $24 million for generation projects and approximately $16 million
for general plant and other projects. Drawdowns of proceeds from previous sales
of tax-exempt special purpose revenue bonds and the generation of funds from
internal sources are expected to provide the cash needed for net capital
expenditures in 2001.
Management periodically reviews capital expenditure estimates and the timing of
construction projects. These estimates 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 and
changes in expectations concerning the construction and ownership of future
generating units, the availability of generating sites and
34
transmission and distribution corridors, the ability to obtain adequate and
timely rate increases, escalation in construction costs, demand-side management
programs and requirements of environmental and other regulatory and permitting
authorities.
Savings bank
March 31, December 31, %
(in millions) 2001 2000 change
- ---------------------------------------------------------------------------------------------
Total assets.......................................... $6,010 $5,969 1%
Investment and mortgage/asset-backed securities....... 2,325 2,271 2
Loans receivable, net................................. 3,213 3,211 -
Deposit liabilities................................... 3,637 3,585 1
Securities sold under agreements to repurchase........ 610 597 2
Advances from Federal Home Loan Bank.................. 1,204 1,249 (4)
As of March 31, 2001, ASB was the third largest financial institution in Hawaii
based on total assets of $6 billion and deposits of $3.6 billion.
For the first quarter of 2001, net cash provided by ASB's operating activities
was $47 million. Net cash used in ASB's investing activities was $77 million,
due largely to the purchase of mortgage/asset-backed securities, net of
repayments and sales. Net cash provided by financing activities was $14 million
largely due to net increases of $52 million in deposit liabilities and $13
million in securities sold under agreements to repurchase, partly offset by a
net decrease of $45 million in advances in FHLB and $6 million in common and
preferred stock dividends.
Minimum liquidity levels are currently governed by the regulations adopted by
the OTS. ASB was in compliance with OTS liquidity requirements as of March 31,
2001.
ASB believes that a satisfactory regulatory capital position provides a basis
for public confidence, affords protection to depositors, helps to ensure
continued access to capital markets on favorable terms and provides a foundation
for growth. As of March 31, 2001, ASB was in compliance with the OTS minimum
capital requirements (ratio requirements noted in parentheses) with a tangible
capital ratio of 6.1% (1.5%), a core capital ratio of 6.1% (4.0%) and a risk-
based capital ratio of 11.5% (8.0%).
Item 3. Quantitative and qualitative disclosures about market risk
- -------------------------------------------------------------------
The Company considers interest rate risk to be a very significant market risk as
it could potentially have a significant effect on the Company's financial
condition and results of operations. For additional quantitative and qualitative
information about the Company's market risks, see pages 16 to 19 of HEI's 2000
Annual Report to Stockholders.
U.S. Treasury yields at March 31, 2001 and December 31, 2000 were as follows:
(%) March 31, 2001 December 31, 2000
----------- -------------- -----------------
3 month 4.28 5.88
1 year 4.08 5.36
5 year 4.55 4.98
10 year 4.92 5.11
30 year 5.45 5.45
As interest rates (as measured by U.S. Treasury yields) have decreased between 0
and 160 basis points from December 31, 2000 to March 31, 2001, management
believes that with this inverted yield curve there was an unfavorable, but
immaterial, change between those dates in the Company's estimated fair values of
its interest-sensitive assets, liabilities and off-balance sheet items.
35
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal proceedings
- --------------------------
There are no significant developments in pending legal proceedings except as set
forth in HECO's "Notes to consolidated financial statements," and management's
discussion and analysis of financial condition and results of operations.
Item 2. Changes in securities and use of proceeds
- ---------------------------------------------------
HEI has issued unregistered common stock from January 1, 2001 through May 3,
2001 pursuant to the HEI 1990 Nonemployee Director Stock Plan, amended effective
April 27, 1999 (the Subsidiary Director Plan), the HEI 1999 Nonemployee Company
Director Stock Grant Plan (the HEI Nonemployee Director Plan), the HECO Utility
Group Team Incentive Plan and the HECO Utility Group Team Incentive Plan for
Bargaining Unit Employees (collectively, the Team Incentive Plan). Under the
Subsidiary Director Plan, 60% of the annual retainer payable to nonemployee
directors is paid in HEI common stock. Under the HEI Nonemployee Director Plan
as amended in 1999, a stock grant of 300 shares of HEI common stock is granted
to HEI nonemployee directors in addition to an annual retainer of $20,000. Under
the Team Incentive Plan, eligible employees of HECO, MECO and HELCO receive
awards of HEI common stock based on the attainment of performance goals by the
respective companies.
From January 1, 2001 through May 3, 2001, the director plans issued 1,932 shares
of HEI common stock, in exchange for the retention of cash by HEI that would
otherwise have been paid to the directors as retainers in the aggregate amount
of $72,000, and 2,700 shares of HEI common stock in the aggregate amount of
$101,000 from January 1, 2001 through May 3, 2001 to HEI directors in addition
to the retainer. In addition, from January 1, 2001 through May 3, 2001 the Team
Incentive Plan issued 57,693 shares of HEI common stock in exchange for cash
received by HEI from the electric utility subsidiaries in the aggregate amounts
of $2.1 million. The shares issued under the director stock plans were not
registered since they did not involve a "sale" as defined under Section 2(3) of
the Securities Act of 1933, as amended. Participation by nonemployee directors
of HEI and subsidiaries in the director stock plans is mandatory and thus does
not involve an investment decision. The shares issued under the Team Incentive
Plan were not registered because their initial sales to HECO, MECO and HELCO
were exempt as transactions not involving any public offering under Section 4(2)
of the Securities Act of 1933, as amended, and because their subsequent award to
eligible employees did not involve a "sale," as defined in Section 2(3) of the
Securities Act of 1933, as amended. Awards of HEI common stock under the Team
Incentive Plan are made to eligible employees on the basis of their attainment
of performance goals established by their respective companies and no cash or
other tangible or definable consideration is paid by such employees to their
respective companies for the shares.
36
Item 4. Submission of matters to a vote of security holders
- ------------------------------------------------------------
HEI
The Annual Meeting of Stockholders of HEI was held on April 24, 2001. Proxies
for the meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934. As of February 14, 2001 the record date for the Annual
Meeting, there were 33,128,022 shares of common stock issued and outstanding and
entitled to vote. There was no solicitation in opposition to the management
nominees to the Board of Directors as listed in the proxy statement for the
meeting and such nominees were elected to the Board of Directors.
The results of the voting for the Class II director-nominees and the independent
auditor are as follows:
Shares of Common Stock
--------------------------------------------------------
Broker
For Withheld Against Abstain nonvotes
----------- --------- -------- ------- ---------
Election of Class II Directors
Victor Hao Li 29,471,072 523,159 -
T. Michael May 29,528,879 465,352 -
Diane J. Plotts 29,431,613 562,618 -
Kelvin H. Taketa 29,495,442 498,789 -
Jeffrey N. Watanabe 29,474,029 520,202 -
Election of KPMG LLP
as independent auditor 29,554,401 230,232 209,598 -
Class III Directors -- Don E. Carroll, Bill D. Mills and Oswald K. Stender --
continue in office with terms ending at the 2002 Annual Meeting. Class I
Directors -- Robert F. Clarke, A. Maurice Myers and James K. Scott -- continue
in office with terms ending at the 2003 Annual Meeting.
HECO
The Annual Meeting of the Sole Stockholder of HECO was conducted by written
consent effective April 24, 2001. The incumbent members of the Board of
Directors of HECO were re-elected, except for Richard Henderson and Paul C. Yuen
who both reached the mandatory retirement age as specified by Board resolution
and did not stand for re-election. Paul Oyer retired on November 30, 2000. The
incumbent members continuing in office are Robert F. Clarke, T. Michael May,
Diane J. Plotts, James K. Scott, Anne M. Takabuki and Jeffrey N. Watanabe. Also,
Barry K. Taniguchi was elected to the Board of Directors of HECO. KPMG LLP was
elected independent auditor of HECO for the fiscal year 2001.
Item 5. Other information
- --------------------------
A. Exemption from real property taxes for HECO, HELCO and MECO
In April 2001, the Governor of the State of Hawaii signed into law Act 64, which
provides for the sharing of the Public Service Company (PSC) tax revenues
between the state and counties of the state. This legislation is consistent
with a settlement agreement that was entered into in January 2001 by the state,
the counties and the utility companies doing business in Hawaii. The sharing of
the PSC tax revenues will take effect on July 1, 2001.
In accordance with the settlement agreement, the utilities subject to the PSC
tax will pay the same amount of PSC taxes they would have under the old law,
which imposed taxes on electric revenues at rates ranging from 5.885% to 8.2%.
However, the state will now receive the taxes calculated at a 4% rate and
counties will now receive the revenues from the taxes in excess of 4%. In order
to share in these revenues, the counties must provide by ordinance for a real
property tax exemption for real property used by a public utility in its public
utility business and owned by the public utility (or leased to it by a lease
under which the public utility is required to pay the taxes) and must not have
denied the exemption to the utility with regard to such property. Once the
counties waive and release
37
claims for real property tax due and payable before July 1, 2001, all the
complaints and tax appeals filed by the utilities against the state in Tax
Appeal Court before January 11, 2001 will be dismissed, but under the settlement
agreement, the County of Hawaii will keep the approximately $0.1 million real
property tax installment HELCO paid under protest on August 20, 2000.
The counties of Oahu, Hawaii and Maui have passed the enabling statutes in
accordance with the settlement agreement or having existing statutes which
exempt HECO, HELCO and MECO from the real property tax in their respective
counties of operation.
B. Ratio of earnings to fixed charges
HEI and subsidiaries
Ratio of earnings to fixed charges excluding interest on ASB deposits
Three months ended Years ended December 31,
----------------------------------------------
March 31, 2001 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
1.78 1.29 1.80 1.85 1.89 1.93
==============================================================================
Ratio of earnings to fixed charges including interest on ASB deposits
Three months ended Years ended December 31,
----------------------------------------------
March 31, 2001 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
1.49 1.19 1.48 1.47 1.58 1.56
==============================================================================
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 50%-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, 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, (iv) the preferred stock dividend requirements of
HEI's subsidiaries, increased to an amount representing the pretax earnings
required to cover such dividend requirements and (v) the preferred securities
distribution requirements of trust subsidiaries.
HECO and subsidiaries
Ratio of earnings to fixed charges
Three months ended Years ended December 31,
----------------------------------------------
March 31, 2001 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
3.29 3.39 3.09 3.33 3.26 3.58
==============================================================================
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, (iv) the preferred stock dividend requirements of HELCO and
MECO, increased to an amount representing the pretax earnings required to cover
such dividend requirements and (v) the preferred securities distribution
requirements of the trust subsidiaries.
38
C. The following information will be included in the appendices to the HEI
presentations to the investment community, spring 2001.
American Savings Bank, F.S.B. and Subsidiaries
Consolidated Statements of Operations
(in thousands)
Year ended December 31,
-----------------------------------------------
2000 1999 1998
------------ ------------ ------------
Interest and dividend income:
Interest and fees on loans $ 254,502 $ 244,566 $ 246,299
Interest on mortgage/asset-backed securities 152,340 122,281 120,608
Interest and dividends on investment securities 16,733 13,132 13,754
------------ ------------ ------------
Total interest and dividend income 423,575 379,979 380,661
------------ ------------ ------------
Interest expense:
Interest on deposit liabilities 119,192 120,338 142,069
Interest on Federal Home Loan Bank advances 82,294 58,533 48,663
Interest on securities sold under repurchase agreements 37,389 28,297 26,262
------------ ------------ ------------
Total interest expense 238,875 207,168 216,994
------------ ------------ ------------
Net interest income 184,700 172,811 163,667
Provision for loan losses 13,050 16,500 13,802
------------ ------------ ------------
Net interest income after provision for loan losses 171,650 156,311 149,865
------------ ------------ ------------
Other income:
Fees from other financial services 14,349 10,337 8,789
Fee income on loans serviced for others 2,764 3,124 3,648
Fee income on deposit liabilities 8,760 8,075 8,103
Loss on investments (5,838) 0 0
Other income 7,093 8,191 8,433
------------ ------------ ------------
Total other income 27,128 29,727 28,973
------------ ------------ ------------
General and administrative expenses:
Compensation and employee benefits 48,423 51,382 48,199
Office occupancy 27,154 25,864 23,323
Consulting 5,449 4,243 8,151
Federal insurance premiums 730 2,060 2,251
Marketing 3,700 4,488 4,168
Data processing 2,739 4,222 3,319
Amortization of goodwill and core deposit intangibles 7,613 8,265 9,325
Other 32,929 25,162 26,452
------------ ------------ ------------
Total general and administrative expenses 128,737 125,686 125,188
------------ ------------ ------------
Income before minority interest and
income taxes 70,041 60,352 53,650
Minority interest of ASB Realty 225 0 0
Income taxes 23,774 19,528 17,987
------------ ------------ ------------
Income before preferred stock dividends 46,042 40,824 35,663
Preferred stock dividends 5,412 5,412 5,400
------------ ------------ ------------
Net income for common stock $ 40,630 $ 35,412 $ 30,263
============ ============ ============
39
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
(in thousands)
Three months Three months
ended ended
March 31, 2001 March 31, 2000
--------------- ----------------
Interest and dividend income:
Interest and fees on loans $ 64,139 $ 61,991
Interest on mortgage/asset-backed securities 37,802 36,047
Interest and dividends on investment securities 5,660 4,470
----------- ---------
Total interest and dividend income 107,601 102,508
----------- ---------
Interest expense:
Interest on deposit liabilities 31,992 27,674
Interest on Federal Home Loan Bank advances 19,657 18,849
Interest on securities sold under repurchase agreements 8,851 9,195
----------- ---------
Total interest expense 60,500 55,718
----------- ---------
Net interest income 47,101 46,790
Provision for loan losses 3,000 3,000
----------- ---------
Net interest income after provision for loan losses 44,101 43,790
----------- ---------
Other income:
Fees from other financial services 3,764 3,274
Fee income on loans serviced for others 644 710
Fee income on deposit liabilities 2,193 2,086
Loss on investments (747) -
Other income 2,255 1,642
----------- ---------
Total other income 8,109 7,712
----------- ---------
General and administrative expenses:
Compensation and employee benefits 12,446 12,756
Office occupancy 6,946 7,011
Consulting 529 848
Federal insurance premiums 174 188
Marketing 888 878
Data processing 112 905
Amortization of goodwill and core deposit intangibles 1,668 1,953
Other 9,298 7,773
----------- ---------
Total general and administrative expenses 32,061 32,312
----------- ---------
Income before minority interest and
income taxes 20,149 19,190
Minority interest of ASB Realty 59 57
Income taxes 6,862 6,562
----------- ---------
Net income before preferred stock dividends 13,228 12,571
Preferred stock dividends 1,353 1,350
----------- ---------
Net income for common stock $ 11,875 $ 11,221
=========== =========
40
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Consolidated Statement of Financial Condition
(in thousands)
December 31,
March 31, 2001 ---------------------------------------
Assets (unaudited) 2000 1999 1998
------ ----------------- --------- ---------- -----------
Cash and due from banks $ 117,470 $ 148,028 $ 166,783 $ 170,368
Interest-bearing deposits 74,849 59,757 26,024 182,198
Investment securities held-to-maturity 80,385 91,723 186,799 111,574
Investment securities available-for-sale 107,208 107,955 - -
Mortgage/asset-backed securities held-to-maturity - 2,014,114 1,973,146 1,791,353
Mortgage/asset-backed securities available-for-sale 2,137,687 56,713 - -
Loans receivable held for investment, net 3,195,437 3,202,943 3,202,993 3,143,197
Loans held for sale, at lower of cost or market 17,767 8,382 8,885 -
Real estate acquired in settlement of loans, net 8,280 8,948 4,597 5,566
Premises and equipment, net 58,204 59,082 66,110 68,028
Core deposit intangible, net 11,649 12,110 14,903 18,319
Goodwill, net 86,854 87,018 91,838 96,687
Other 114,499 112,542 106,129 104,382
------------- ------------ ------------ -------------
$6,010,289 $5,969,315 $5,848,207 $5,691,672
============= ============ ============ =============
Liabilities and Stockholder's Equity
------------------------------------
Liabilities:
Deposit liabilities $3,637,134 $3,584,646 $3,491,655 $3,865,736
Federal Home Loan Bank advances 1,204,252 1,249,252 1,189,081 805,581
Securities sold under repurchase agreements 609,707 596,504 661,215 523,800
Other liabilities 105,189 81,277 70,239 83,683
------------- ------------ ------------ -------------
Total liabilities 5,556,282 5,511,679 5,412,190 5,278,800
------------- ------------ ------------ -------------
Preferred stock of subsidiary, not subject to
mandatory redemption 113 113 113 113
Minority interests in consolidated subsidiary 3,356 3,299 3,300 -
Stockholder's equity:
Preferred stock 75,000 75,000 75,000 75,000
Common equity 375,538 379,224 357,604 337,759
------------- ------------ ------------ -------------
Total stockholder's equity 450,538 454,224 432,604 412,759
------------- ------------ ------------ -------------
$6,010,289 $5,969,315 $5,848,207 $5,691,672
============= ============ ============ =============
41
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Key Financial Ratios (%)
(unaudited)
ASB PEER GROUPS
--------------- -------------------------------
HAWAII (1) DISTRICT (1)
QTR END QTR END QTR END
12/31/00 12/31/00 12/31/00
--------------- -------------- ---------------
Total assets (1)
% increase(decrease) (annualized) (0.80) (0.80) N/A
Earning assets/total assets (1) 91.50 91.71 92.91
Earning assets/costing liabilities(1) 102.52 102.55 107.59
Earnings (1)
Interest income/average assets 7.24 7.20 7.52
Interest expense/average assets 4.21 4.20 4.60
Net interest income/average assets 2.79 2.78 2.78
Non-interest income/average assets 0.59 0.60 0.72
Non-interest expense/average assets 2.20 2.22 1.95
ROA: net income/average assets 0.77 0.76 1.01
Yield on earning assets 7.88 7.82 8.09
Cost of funds 4.68 4.66 5.28
Regulatory ROE: net income/average equity 10.23 10.25 9.96
Capital adequacy
GAAP capital/total assets (1) 7.60 7.45 10.23
Fully phased-in capital requirement (2)
Tangible capital/tangible assets 6.07 N/A N/A
Core capital/tangible assets 6.07 N/A N/A
Risk based capital/risk-weighted assets 11.35 N/A N/A
Asset quality (1)
Delinquent loans/total assets 1.18 1.14 1.08
Real estate owned/total assets 0.17 0.17 0.14
Classified assets/total assets 1.08 1.05 0.95
Loan loss reserves/total loans and MBS 0.73 0.67 0.57
Delinquent loans/net loans 2.19 2.14 1.55
(1) Source: FHLB Quarterly Management Information Report
(2) Source: OTS UniformThrift Performance Report
N/A - Data not available.
42
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Interest Rate Spread (%)
(unaudited)
Three Months
ended Year ended December 31,
March 31, ------------------------------------------------
2001 2000 1999 1998
---------------- ------------- ------------- ------------
Yield on loans and
mortgage/asset-backed securities 7.70 7.71 7.21 7.41
Yield on investments 4.60 5.81 6.01 5.76
-------- -------- -------- -------
Yield on loans, mortgage/asset-backed
securities and investments 7.53 7.61 7.16 7.34
-------- -------- -------- -------
Interest on deposits 3.60 3.37 3.25 3.68
Interest on borrowings 6.32 6.36 5.77 5.92
-------- -------- -------- -------
Interest on deposits and borrowings 4.52 4.41 3.97 4.23
-------- -------- -------- -------
Interest rate spread 3.01 3.20 3.19 3.11
======== ======== ======== =======
43
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Interest Rate Sensitivity
(unaudited)
(dollars in millions)
Amounts at March 31, 2001
subject to repricing within
-------------------------------------------------------
1 year (greater than) Over 5
or less 1-5 years years Total (1)
------------ -------------- ---------- -----------
Interest-earning assets:
Real estate loans and mortgage/
asset-backed securities:
Balloon and adjustable rate $ 1,660 $ 338 $ - $ 1,998
Fixed rate 1-4 unit residential 419 981 1,399 2,799
Other 10 51 94 155
Consumer loans 186 66 - 252
Commercial loans 147 - - 147
Other interest earning assets 262 - - 262
--------- ---------- -------- -------
Total interest-earning assets 2,684 1,436 1,493 5,613
--------- ---------- -------- -------
Interest-bearing liabilities:
Certificate accounts 1,284 314 35 1,633
Money market accounts 87 182 27 296
NOW Accounts 137 367 186 690
Passbook accounts 199 394 425 1,018
FHLB advances 563 622 19 1,204
Other borrowings 610 - - 610
--------- ---------- -------- -------
Total interest-bearing liabilities 2,880 1,879 692 5,451
--------- ---------- -------- -------
Interest rate sensitivity gap (2) $ (196) $ (443) $ 801 $ 162
========= ========== ======== =======
Cumulative interest rate sensitivity gap $ (196) $ (639) $ 162
========= ========== ========
Cumulative interest rate sensitivity gap over
total assets (3.26)% (10.63)% 2.70 %
========= ========== ========
(1) The table does not include $397 million of noninterest-earning assets and
$105 million of noninterest-bearing liabilities.
(2) The difference between the total interest-earning assets and the total
interest-bearing liabilities.
44
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Loan Portfolio Analysis
(unaudited)
(in thousands)
December 31,
----------------------------------------------------------------
March 31, 2001 2000 1999 1998
-------------------- ---------------------- -------------------- --------------------
Balance % Balance % Balance % Balance %
---------- --------- ----------- --------- ------------ ------- ----------- --------
REAL ESTATE LOANS (1-4 Residential):
Adjustable rate $ 596,981 18.15 $ 612,793 18.64 $ 555,270 16.87 $ 680,367 21.03
Fixed rate mortgages 2,047,405 62.26 2,050,953 62.38 2,098,766 63.78 1,854,084 57.30
Second Mortgages 44,109 1.34 46,514 1.41 54,286 1.65 67,768 2.09
Loans purchased 46,190 1.41 48,406 1.47 60,779 1.85 87,463 2.70
----------- ------- ------------ --------- ------------ ------- ----------- --------
2,734,685 83.16 2,758,666 83.90 2,769,101 84.15 2,689,682 83.12
COMMERCIAL & INDUSTRIAL LOANS:
Commercial financing 154,854 4.71 156,178 4.75 170,663 5.19 198,530 6.14
----------- ------- ------------ --------- ------------ ------- ----------- --------
Gross R/E loans 2,889,539 87.87 2,914,844 88.65 2,939,764 89.34 2,888,212 89.26
----------- ------- ------------ --------- ------------ ------- ----------- --------
CONSUMER LOANS:
Equity powerline 151,979 4.62 155,674 4.74 151,278 4.60 157,356 4.86
Installment 62,566 1.90 44,140 1.34 51,256 1.56 53,656 1.66
Visa 16,122 0.49 15,957 0.49 13,470 0.41 12,279 0.38
Preferred credit line 14,134 0.43 14,559 0.44 14,433 0.43 13,105 0.41
----------- ------- ------------ --------- ------------ ------- ----------- --------
244,801 7.44 230,330 7.01 230,437 7.00 236,396 7.31
----------- ------- ------------ --------- ------------ ------- ----------- --------
CORPORATE BANKING LOANS 146,672 4.46 134,784 4.10 106,098 3.22 94,045 2.91
SAVINGS ACCOUNT LOANS 7,516 0.23 8,021 0.24 14,496 0.44 16,836 0.52
----------- ------- ------------ --------- ------------ ------- ----------- --------
Gross loan portfolio 3,288,528 100.00 3,287,979 100.00 3,290,795 100.00 3,235,489 100.00
======= ========= ======= ========
Loans in process (15,346) (17,617) (19,486) (31,277)
Loan loss reserves (38,431) (37,449) (35,348) (39,779)
Discounts on loans (21,547) (21,588) (24,083) (21,236)
----------- ------------ ------------ -----------
Net loan portfolio $3,213,204 $3,211,325 $3,211,878 $3,143,197
=========== ============ ============ ===========
45
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Nonaccrual and Renegotiated Loans
(unaudited)
(in thousands)
December 31,
March 31, --------------------------------------------
2001 2000 1999 1998
--------------- ------------ ------------ ------------
Nonaccrual loans:
1-4 unit residential $27,229 $26,738 $43,750 $47,565
Income property 13,469 15,132 18,747 29,456
--------- --------- --------- ---------
Total real estate 40,698 41,870 62,497 77,021
Commercial (corporate banking) 2,994 2,872 2,192 2,030
Consumer 2,545 2,844 3,777 6,454
--------- --------- --------- ---------
Total nonaccrual loans $46,237 (1) $47,586 (1) $68,466 (1) $85,505 (1)
========= ========= ========= =========
Renegotiated loans not included above $ 93 $ 48 $ 6,030 (2) $12,264 (2)
========= ========= ========= =========
(1) Includes restructured loans to a single real estate developer with
residential, income property and commercial loans totaling $3.2 million,
$4.4 million, $12.2 million and $13.6 million at March 31, 2001, December
31, 2000, 1999, and 1998, respectively.
(2) Primarily represents a commercial real estate loan of $8.1 million as of
12/31/98 that was written down to $5.2 million as of 12/31/99 and
foreclosed on in 2000.
46
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Mortgage/Asset-backed Securities
(unaudited)
(in thousands)
December 31,
------------------------------------------------------
Marrch 31, 2001 2000 1999 1998
-------------------- ------------------- ----------------- ------------------
NET BOOK NET BOOK NET BOOK NET BOOK
VALUE (1) % VALUE (2) % VALUE (3) % VALUE (3) %
----------- ------- ---------- -------- ---------- ------ ----------- ------
Asset-backed Securities:
Federal Home Loan Mortgage Corp. $ 135,370 6.33 $ 45,318 2.19 $ 57,786 2.93 $ 81,573 4.56
Government National Mortgage Assn. 141,486 6.62 129,938 6.27 148,368 7.52 186,708 10.42
Federal National Mortgage Assn. 364,321 17.04 289,392 13.97 319,422 16.19 369,313 20.62
Private issue 116,761 5.46 118,799 5.74 154,602 47.00 114,889 6.41
----------- ------- ---------- -------- ---------- ------ ----------- ------
757,938 35.45 583,447 28.17 680,178 73.64 752,483 42.01
----------- ------- ---------- -------- ---------- ------ ----------- ------
Adjustable Rate Mortgage/
Asset-backed Securities:
Federal Home Loan Mortgage Corp. 93,468 4.37 98,760 4.77 56,680 2.87 82,718 4.62
Government National Mortgage Assn. 94,663 4.43 108,392 5.23 151,827 7.70 212,304 11.85
Federal National Mortgage Assn. 260,661 12.20 304,304 14.70 238,443 12.08 336,430 18.78
Private issue 930,957 43.55 975,924 47.13 846,018 42.88 407,418 22.74
----------- ------- ---------- -------- ---------- ------ ----------- ------
1,379,749 64.55 1,487,380 71.83 1,292,968 65.53 1,038,870 57.99
----------- ------- ---------- -------- ---------- ------ ----------- ------
Total Mortgage/
Asset-backed Securities $2,137,687 100.00 $2,070,827 100.00 $1,973,146 139.17 $1,791,353 100.00
=========== ======= ========== ======== ========== ====== =========== ======
(1) Classified as available-for-sale.
(2) Classified as held-to-maturity except for $10,454 of adjustable rate
Federal Home Loan Mortgage Corporation and $46,259 of adjustable rate
Federal National Mortgage Association securities.
(3) Classified as held-to-maturity.
47
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Investment Portfolio
(unaudited)
(in thousands)
December 31,
March 31, --------------------------------------------------------
2001 (1) 2000 (2) 1999 (3) 1998 (3)
---------------- ---------------- ---------------- ----------------
Stock in Federal Home Loan Bank of Seattle $79,922 $78,661 $73,750 $68,553
Collateralized debt obligations 107,208 121,017 71,510 -
Federal agency obligations - - 41,539 43,021
Other investments 463 - - -
------------ ------------- ------------- -------------
Total investments $187,593 $199,678 $186,799 $111,574
============ ============= ============= =============
Weighted average rate on investments 4.09% 5.62% 6.81% 6.23%
============ ============= ============= =============
(1) Classified as held-to-maturity except for $107,208 of collateralized debt
obligations that are classified as available-for-sale.
(2) Classified as held-to-maturity except for $107,955 of collateralized debt
obligations that are classified as available-for-sale.
(3) Classified as held-to-maturity.
48
C. (continued)
American Savings Bank, F.S.B. and Subsidiaries
Deposits Liabilities
(unaudited)
(in thousands)
December 31,
----------------------------------------------------------------
March 31, 2001 2000 1999
-------------------------------- -------------------------------- ------------------------------
% of % of % of
Total Rate Total Rate Total Rate
Balance Deposits (%) Balance Deposits (%) Balance Deposits (%)
------------- --------- ------- ------------- -------- ------- ------------ --------- ------
Savings accounts $1,017,742 27.98 2.00 $1,018,347 28.41 2.00 $1,089,996 31.22 2.25
NOW and checking accounts 689,718 18.96 0.70 679,008 18.94 0.71 628,816 18.01 0.89
Money market accounts 296,270 8.15 2.67 288,042 8.03 2.89 321,315 9.20 3.00
------------- --------- ------- ------------- -------- ------- ------------ --------- ------
Total core deposits 2,003,730 55.09 1.65 1,985,397 55.38 1.69 2,040,127 58.43 1.95
------------- --------- ------- ------------- -------- ------- ------------ --------- ------
Certificate accounts 1,318,696 36.26 5.91 1,305,748 36.43 5.94 1,146,828 32.84 4.83
Jumbo certificate accounts 314,708 8.65 5.76 293,501 8.19 6.05 304,700 8.73 5.07
------------- --------- ------- ------------- -------- ------- ------------ --------- ------
Total deposits $3,637,134 100.00 3.55 $3,584,646 100.00 3.59 $3,491,655 100.00 3.16
============= ========= ======= ============= ======== ======= ============ ========= ======
49
Item 6. Exhibits and reports on Form 8-K
- -----------------------------------------
(a) Exhibits
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 12.1 Computation of ratio of earnings to fixed charges, three
months ended March 31, 2001 and 2000
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 12.2 Computation of ratio of earnings to fixed charges, three
months ended March 31, 2001 and 2000
(b) Reports on Form 8-K
Subsequent to December 31, 2000, HEI and/or HECO filed Current Reports,
Forms 8-K, with the SEC as follows:
Dated Registrant/s Items reported
- -------------------------------------------------------------------------------------------------------
January 18, 2001 HEI/HECO Item 5. Announcement of HEI's teleconference call to review yearend
earnings on January 24, 2001
January 23, 2001 HEI/HECO Item 5. HEI's January 23, 2001 news release reporting 2000 earnings
February 23, 2001 HEI/HECO Item 7. HEI's 2000 Annual Report to Stockholders and portions of
HECO's 2000 Annual Report to Stockholder
April 23, 2001 HEI/HECO Item 5. HEI's April 23, 2001 news release reporting first quarter
2001 earnings
April 24, 2001 HEI Item 5. HEI's April 24, 2001 news releases reporting HEI's
quarterly dividend and the retirement of ASB's president
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized. The signature of the undersigned
companies shall be deemed to relate only to matters having reference to such
companies and any subsidiaries thereof.
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ Robert F. Mougeot By /s/ Richard A. von Gnechten
-------------------------------- -----------------------------------
Robert F. Mougeot Richard A. von Gnechten
Financial Vice President, Treasurer Financial Vice President
and Chief Financial Officer (Principal Financial Officer of HECO)
(Principal Financial Officer of HEI)
Date: May 14, 2001 Date: May 14, 2001
51