Edgar Filing: HAWAIIAN ELECTRIC CO INC

Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report: July 21, 2003

Exact Name of Registrant

as Specified in Its Charter

Commission File Number

I.R.S. Employer Identification No.

Hawaiian Electric Industries, Inc.

1-8503

99-0208097

Hawaiian Electric Company, Inc.

1-4955

99-0040500

State of Hawaii

(State or other jurisdiction of incorporation)

900 Richards Street, Honolulu, Hawaii 93813

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:

(808) 543-5662—Hawaiian Electric Industries, Inc. (HEI)

(808) 543-7771—Hawaiian Electric Company, Inc. (HECO)

None

(Former name or former address, if changed since last report.)

Item 5.

Other Events

On July 21, 2003, HEI issued the following news release:

HAWAIIAN ELECTRIC INDUSTRIES, INC. REPORTS SECOND QUARTER 2003 EARNINGS

HONOLULU — Hawaiian Electric Industries, Inc. (NYSE—HE) today reported income from continuing operations for the three months ended June 30, 2003, of $25.8 million, or 69 cents per share, compared with $31.5 million, or 87 cents per share in the same quarter of 2002. For the six months ended June 30, 2003, income from continuing operations was $50.1 million, or $1.35 per share, compared with $58.3 million, or $1.62 per share in the same period last year.

“Several factors worked against more positive second quarter results, including the effects of a weak Japanese economy and fear of terrorism and SARS on tourism, increased retirement benefits expense resulting from poor stock market performance in 2000 through 2002 and a tightening interest rate spread caused by the lowest interest rates in 45 years,” said Robert F. Clarke, HEI chairman, president and chief executive officer.

Electric utility net income during the quarter was $18.6 million versus $23.9 million in the same quarter last year. Electric utility net income for the first six months of 2003 was $36.2 million versus $44.2 million in the same period of 2002.

“As expected, increased retirement benefits expense lowered electric utility net income by $3.9 million in the second quarter of 2003 versus the same quarter in 2002,” said Clarke. “On the bright side, kilowatthour sales in the second quarter were up 1.2% compared to the same quarter in 2002 due to slightly warmer weather and increased commercial usage on the Big Island and Maui.”

Bank net income in the second quarter was $13.5 million compared to $14.8 million in the same quarter last year. Bank net income for the first six months of 2003 was $27.0 million versus $28.2 million in the same period in 2002.

“The bank did an excellent job of managing margin compression through this difficult interest rate environment and was able to achieve second quarter earnings at the same level as the first quarter of 2003,” said Clarke. Compared to the second quarter of last year, bank net income for the second quarter was down $1.3 million primarily due to the less favorable interest rate environment quarter-over-quarter. The interest rate spread was 3.02% in the second quarter of 2003 versus 3.31% in the same quarter of 2002. High prepayments of mortgage-related securities due to record-level refinancings significantly lowered the yield on those assets. Partially offsetting this decrease in yields was lower interest expense resulting from restructuring certain liabilities. Other positive factors during the second quarter included a lower provision for loan losses due to low delinquencies, increased fee income from other financial services and gain on sales of securities. These positives were partially offset by an increase in general and administrative expenses to execute the bank’s continued strategic transformation to a full-service community bank.

Net losses from continuing operations for the holding and other companies in the second quarter were $6.3 million compared to $7.2 million in the same quarter last year. Holding and other companies’ net losses from continuing operations for the first six months of 2003 were $13.1 million versus $14.0 million in the same period of 2002. Lower losses in the second quarter of 2003 were due to lower interest expenses and investment losses.

Losses from the discontinued international power operations for the quarter and six months ended June 30, 2003, were $3.9 million, or $0.10 per share, due primarily to a $3.2 million after-tax writedown of the Company’s investment in CEPALCO, a Philippine electric distribution company located in the northern part of the island of Mindanao. The reduced valuation of CEPALCO resulted from the deteriorating political and economic environment that had significant adverse impacts on the electric power industry in the Philippines in the second quarter of 2003 and on the expected financial performance of CEPALCO. HEI discontinued its international operations in the third quarter of 2001. The investment was offered for sale at that time and continues to be available for sale, but remains unsold.

HEI is the largest Hawaii-based company (based on reported revenues), providing electric utility services to 95% of Hawaii’s residents and a wide array of banking services to consumers and businesses through the state’s third largest bank.

Forward-Looking Statements

This release may contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually 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, expenses, earnings or 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 forward-looking statements are not guarantees of future performance.

Forward-looking statements in this release should be read in conjunction with the “Forward-Looking Statements and Risk Factors” discussion (which is incorporated by reference herein) set forth on page v of HEI’s Form 10-Q for the quarter ended March 31, 2003, and in HEI’s future periodic reports that discuss important factors that could cause HEI’s results to differ materially from those anticipated in such statements. Forward-looking statements speak only as of the date of this release.

###

Hawaiian Electric Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended June 30,						Six months ended June 30,						Twelve months ended June 30,
(in thousands, except per share amounts)	2003			2002			2003			2002			2003			2002
Revenues
Electric utility	$	354,529		$	307,676		$	683,441		$	586,007		$	1,354,610		$	1,243,237
Bank		92,703			102,069			187,805			200,911			386,149			417,509
Other		1,524			(743	)		2,146			(480	)		(104	)		(7,707	)

		448,756			409,002			873,392			786,438			1,740,655			1,653,039

Expenses
Electric utility		311,944			256,723			599,881			489,450			1,172,651			1,050,773
Bank		70,342			77,700			143,018			154,371			295,019			326,591
Other		5,017			3,953			9,952			7,387			21,241			13,906

		387,303			338,376			752,851			651,208			1,488,911			1,391,270

Operating income (loss)
Electric utility		42,585			50,953			83,560			96,557			181,959			192,464
Bank		22,361			24,369			44,787			46,540			91,130			90,918
Other		(3,493	)		(4,696	)		(7,806	)		(7,867	)		(21,345	)		(21,613	)

		61,453			70,626			120,541			135,230			251,744			261,769

Interest expense–other than bank		(17,879	)		(18,340	)		(35,859	)		(36,867	)		(71,284	)		(76,069	)
Allowance for borrowed funds used during construction		446			488			889			843			1,901			1,914
Preferred stock dividends of subsidiaries		(501	)		(502	)		(1,003	)		(1,003	)		(2,006	)		(2,006	)
Preferred securities distributions of trust subsidiaries		(4,009	)		(4,009	)		(8,018	)		(8,018	)		(16,035	)		(16,035	)

Allowance for equity funds used during construction		989			1,042			1,977			1,815			4,116			3,834


Income from continuing operations before income taxes		40,499			49,305			78,527			92,000			168,436			173,407
Income taxes		14,739			17,847			28,440			33,670			58,462			61,207

Income from continuing operations		25,760			31,458			50,087			58,330			109,974			112,200
Discontinued operations, net of income taxes
Loss from operations		(3,870	)		—			(3,870	)		—			(3,870	)		(711	)
Net loss on disposals		—			—			—			—			—			(22,787	)

Loss from discontinued operations		(3,870	)		—			(3,870	)		—			(3,870	)		(23,498	)

Net income	$	21,890		$	31,458		$	46,217		$	58,330		$	106,104		$	88,702

Per common share
Basic earnings (loss)
Continuing operations	$	0.69		$	0.87		$	1.35		$	1.62		$	2.99		$	3.20
Discontinued operations		(0.10	)		—			(0.10	)		—			(0.11	)		(0.67	)

	$	0.59		$	0.87		$	1.25		$	1.62		$	2.88		$	2.53

Diluted earnings (loss)
Continuing operations	$	0.69		$	0.86		$	1.34		$	1.61		$	2.97		$	3.18
Discontinued operations		(0.10	)		—		$	(0.10	)		—			(0.10	)		(0.66	)

	$	0.59		$	0.86		$	1.24		$	1.61		$	2.87		$	2.52

Dividends	$	0.62		$	0.62		$	1.24		$	1.24		$	2.48		$	2.48

Weighted-average number of common shares outstanding		37,195			36,189			37,047			36,005			36,795			35,085

Adjusted weighted-average shares		37,377			36,406			37,222			36,203			36,978			35,248

Income (loss) from continuing operations by segment
Electric utility	$	18,556		$	23,850		$	36,212		$	44,209		$	82,208		$	88,368
Bank		13,494			14,812			27,002			28,163			55,064			54,612
Other		(6,290	)		(7,204	)		(13,127	)		(14,042	)		(27,298	)		(30,780	)

Income from continuing operations	$	25,760		$	31,458		$	50,087		$	58,330		$	109,974		$	112,200

This information 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, 2002 and the consolidated financial statements and the notes thereto in HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2003 and June 30, 2003 (when filed).

Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.

Hawaiian Electric Industries, Inc. and subsidiaries

GOODWILL

(Unaudited)

The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually.

The Company's $83.1 million of goodwill is in the bank segment and was tested for impairment as of January 1 and September 30, 2002 and will be tested for impairment annually as of September 30. As of January 1 and September 30, 2002, there was no impairment of goodwill. The fair value of the bank was estimated using a valuation method based on a market approach, which takes into consideration market values of comparable publicly traded companies and recent transactions of companies in the industry.

Application of the provisions of SFAS No. 142 has affected the comparability of the twelve months ended results of operations because the goodwill in the bank segment is no longer being amortized over a 25 year period. Thus, the following “transitional” disclosures present net income and earnings per common share “adjusted” as shown below:

	Twelve months ended June 30,
( in thousands, except per share amounts)	2003		2002
Consolidated
Reported net income	$	106,104		88,702
Goodwill amortization, net of tax benefits		—		1,929

Adjusted net income	$	106,104	$	90,631

Per common share
Reported basic earnings	$	2.88	$	2.53
Goodwill amortization, net of tax benefits		—		0.05

Adjusted basic earnings	$	2.88	$	2.58

Per common share
Reported diluted earnings	$	2.87	$	2.52
Goodwill amortization, net of tax benefits		—		0.05

Adjusted diluted earnings	$	2.87	$	2.57

Bank
Reported net income	$	55,064	$	54,612
Goodwill amortization, net of tax benefits		—		1,929

Adjusted net income	$	55,064	$	56,541

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2003			2002			2003			2002
Operating revenues	$	353,385		$	306,616		$	681,346		$	583,949

Operating expenses
Fuel oil		102,168			74,355			193,007			133,590
Purchased power		95,264			76,520			180,618			153,621
Other operation		38,317			32,462			76,844			61,685
Maintenance		15,476			16,010			29,758			30,022
Depreciation		27,633			26,363			55,245			52,723
Taxes, other than income taxes		32,810			30,792			63,887			57,482
Income taxes		11,676			15,032			22,891			27,823

		323,344			271,534			622,250			516,946

Operating income		30,041			35,082			59,096			67,003

Other income
Allowance for equity funds used during construction		989			1,042			1,977			1,815
Other, net		869			762			1,636			1,577

		1,858			1,804			3,613			3,392

Income before interest and other charges		31,899			36,886			62,709			70,395

Interest and other charges
Interest on long-term debt		10,436			10,167			20,760			20,303
Amortization of net bond premium and expense		528			507			1,041			1,007
Other interest charges		407			432			749			883
Allowance for borrowed funds used during construction		(446	)		(488	)		(889	)		(843	)
Preferred stock dividends of subsidiaries		229			229			458			458
Preferred securities distributions of trust subsidiaries		1,919			1,919			3,838			3,838

		13,073			12,766			25,957			25,646

Income before preferred stock dividends of HECO		18,826			24,120			36,752			44,749
Preferred stock dividends of HECO		270			270			540			540

Net income for common stock	$	18,556		$	23,850		$	36,212		$	44,209

OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)		2,407			2,379			4,686			4,602
Cooling degree days (Oahu)		1,283			1,253			2,111			2,072
Average fuel cost per barrel	$	38.76		$	27.04		$	37.36		$	25.82

American Savings Bank, F.S.B. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended June 30,					Six months ended June 30,
(in thousands)	2003			2002		2003			2002
Interest and dividend income
Interest and fees on loans	$	50,425		$	50,468	$	100,898		$	102,090
Interest on mortgage-related securities		26,023			36,325		55,300			68,131
Interest and dividends on investment securities		1,551			1,873		3,308			4,099

		77,999			88,666		159,506			174,320

Interest expense
Interest on deposit liabilities		13,653			19,325		28,083			39,498
Interest on Federal Home Loan Bank advances		12,052			14,440		25,618			28,422
Interest on securities sold under repurchase agreements		5,431			5,612		10,772			9,573

		31,136			39,377		64,473			77,493

Net interest income		46,863			49,289		95,033			96,827
Provision for loan losses		1,025			3,000		2,175			6,500

Net interest income after provision for loan losses		45,838			46,289		92,858			90,327

Other income
Fees from other financial services		6,264			5,345		11,949			9,965
Fee income on deposit liabilities		3,964			4,151		7,834			7,626
Fee income on other financial products		2,379			2,368		5,234			5,055
Fee income on loans serviced by others, net		(442	)		100		(1,444	)		513
Gain on sale of securities		1,554			117		2,366			273
Other income		985			1,322		2,360			3,159

		14,704			13,403		28,299			26,591

General and administrative expenses
Compensation and employee benefits		16,701			15,276		32,794			29,293
Occupancy and equipment		7,476			7,376		14,668			14,491
Data processing		2,603			2,819		5,407			5,649
Consulting		1,459			1,146		4,177			2,792
Other		9,942			8,706		19,324			18,153

		38,181			35,323		76,370			70,378

Income before minority interest and income taxes		22,361			24,369		44,787			46,540
Minority interests		32			44		66			89
Income taxes		7,483			8,161		15,014			15,583

Income before preferred stock dividends		14,846			16,164		29,707			30,868
Preferred stock dividends		1,352			1,352		2,705			2,705

Net income for common stock	$	13,494		$	14,812	$	27,002		$	28,163

Interest rate spread (%)		3.02			3.31		3.08			3.29

Item 9.

Regulation FD Disclosure

The information filed under Item 5, “Other Events,” herein is also furnished pursuant to Item 9, “Regulation FD Disclosure,” and Item 12, “Disclosure of Results of Operations and Financial Condition.”

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)


/s/ ERIC K. YEAMAN						/s/ RICHARD A. VON GNECHTEN
Eric K. Yeaman						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: July 21, 2003						Date: July 21, 2003