Edgar Filing: HAWAIIAN ELECTRIC INDUSTRIES 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 19, 2004


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 96813

(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 and Regulation FD Disclosure

On July 19, 2004, HEI issued the following news release:

HAWAIIAN ELECTRIC INDUSTRIES, INC. REPORTS SECOND QUARTER 2004 EARNINGS

HONOLULU — Hawaiian Electric Industries, Inc. (NYSE - HE) today reported net income from continuing operations for the three months ended June 30, 2004, of $11.2 million, or 14 cents per share, compared with $25.8 million, or 34 cents per share, in the same quarter of 2003. For the six months ended June 30, 2004, income from continuing operations was $42.2 million or 54 cents per share, compared with $50.1 million or 67 cents per share in the same period last year. In June, the Company recognized a cumulative $24 million charge (30 cents per share) through March 31, 2004, to net income for an unfavorable tax ruling involving American Savings Bank’s real estate investment trust (REIT) subsidiary. In addition, in the second quarter, the Company accrued $0.2 million in interest, net of taxes, related to the REIT tax issue and state bank franchise tax of $1.2 million. Management continues to believe that its tax position is proper and has appealed the ruling to the Hawaii State Supreme Court.

“Excluding the effects of the REIT tax adjustment through March 31, 2004, earnings for the quarter would have been $35.2 million or 44 cents per share—a solid 29% increase over the same quarter last year on a per share basis. This performance resulted primarily from broad-based strength in the Hawaii economy that had positive effects on HEI’s electric utility and bank subsidiaries’ operating results,” said Robert F. Clarke, HEI chairman, president and chief executive officer.

Hawaiian Electric Company’s net income for the second quarter was up 17% to $21.7 million compared with $18.6 million for the same quarter last year when the adverse effects of the Iraq war on tourism and increased retirement benefits expenses decreased earnings. Electric utility net income for the six months ended June 30, 2004, was $41.8 million compared with $36.2 million for the same period of 2003.

Kilowatthour sales were higher by 2.8% quarter-over-quarter. “Double-digit international and strong domestic visitor arrival growth rates in April and May and increased military activity contributed to increased commercial usage,” said Clarke. “In addition, residential sales were up on all islands resulting from increased usage by existing customers and the effects of new home construction activity,” Clarke added.

Further contributing to the increase in electric utility net income were a reduction in other operation costs principally due to a $2.3 million decrease in retirement benefits expenses compared with the second quarter of 2003 and a $0.5 million reduction in interest expenses and preferred securities distributions of trust subsidiaries related to the refinancing of higher-costing debt in the first half of 2004.

Bank net loss in the second quarter was $6.9 million compared to net income of $13.5 million in the same quarter last year. Bank net income for the six months ended June 30, 2004, was $9.0 million compared with $27.0 million in the same period last year. Bank results included a cumulative $24 million charge in June 2004 related to the previously reported unfavorable tax court ruling involving the bank’s REIT subsidiary. Details of the REIT tax issue were fully disclosed in a separate filing with the Securities and Exchange Commission on Form 8-K on June 8, 2004. Excluding the charge, bank net income would have been $17.0 million for the second quarter and $32.9 million for the first six months of 2004.

“Strong demand for homes and limited supply continued to add strength to the Hawaii real estate market and further improve asset quality at the bank,” said Clarke. Delinquent and nonaccrual loans as a percent of total loans at June 30, 2004, continued to trend downward to 0.4%, a level well below historical norms. These factors combined with recoveries on loans previously charged off resulted in the reversal of $3.0 million of the bank’s allowance for loan losses in the second quarter. The bank remained adequately reserved against possible loan losses with $38.8 million reserved at June 30, 2004.

Net interest income increased $1.2 million quarter-over-quarter. The interest rate spread increased to 3.08% for the second quarter compared with 3.02% for the second quarter of 2003. The increase in the interest rate spread quarter-over-quarter was primarily due to a change in the mix of the bank’s funding base out of higher-costing borrowings and into low-costing core deposits, partially offset by a decrease in the yield on loans.

The holding and other companies’ net expenses were $3.5 million in the second quarter of 2004 versus $6.3 million in same quarter of 2003. The holding and other companies’ net expenses for the six months ended June 30, 2004, were $8.6 million compared with $13.1 million for the same period of 2003. Second quarter net expenses decreased compared with the same quarter of 2003 due in part to the impact of lower interest rates and lower legal expenses.

HEI and its subsidiaries are a critical part of Hawaii’s economy. HEI supplies power to over 400,000 customers or 93% of the Hawaii market through its electric utilities and provides a wide array of banking and other financial services to consumers and businesses through the state’s third largest financial institution.

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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, 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. (HEI) 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)	2004			2003			2004			2003			2004			2003
Revenues
Electric utility	$	370,605		$	354,529		$	717,218		$	683,441		$	1,430,462		$	1,354,610
Bank		89,982			92,703			179,240			187,805			362,755			386,149
Other		1,211			1,524			2,450			2,146			13,615			(104	)

		461,798			448,756			898,908			873,392			1,806,832			1,740,655

Expenses
Electric utility		324,691			311,944			627,164			599,881			1,247,403			1,172,651
Bank		66,971			70,342			130,121			143,018			265,668			295,019
Other		3,190			5,017			6,840			9,952			15,952			21,241

		394,852			387,303			764,125			752,851			1,529,023			1,488,911

Operating income (loss)
Electric utility		45,914			42,585			90,054			83,560			183,059			181,959
Bank		23,011			22,361			49,119			44,787			97,087			91,130
Other		(1,979	)		(3,493	)		(4,390	)		(7,806	)		(2,337	)		(21,345	)

		66,946			61,453			134,783			120,541			277,809			251,744

Interest expense–other than bank		(19,106	)		(17,879	)		(40,553	)		(35,859	)		(73,986	)		(71,284	)
Allowance for borrowed funds used during construction		733			446			1,377			889			2,402			1,901
Preferred stock dividends of subsidiaries		(475	)		(501	)		(950	)		(1,003	)		(1,953	)		(2,006	)
Preferred securities distributions of trust subsidiaries		—			(4,009	)		—			(8,018	)		(8,017	)		(16,035	)
Allowance for equity funds used during construction		1,673			989			3,122			1,977			5,412			4,116

Income from continuing operations before income taxes		49,771			40,499			97,779			78,527			201,667			168,436
Income taxes		38,533			14,739			55,609			28,440			91,536			58,462

Income from continuing operations		11,238			25,760			42,170			50,087			110,131			109,974
Loss from discontinued operations, net of income taxes		—			(3,870	)		—			(3,870	)		—			(3,870	)

Net income	$	11,238		$	21,890		$	42,170		$	46,217		$	110,131		$	106,104

Per common share
Basic earnings (loss) - Continuing operations	$	0.14		$	0.34		$	0.54		$	0.67		$	1.43		$	1.49
- Discontinued operations		—			(0.05	)		—			(0.05	)		—			(0.05	)

	$	0.14		$	0.29		$	0.54		$	0.62		$	1.43		$	1.44

Diluted earnings (loss) - Continuing operations	$	0.14		$	0.34		$	0.53		$	0.67		$	1.43		$	1.48
- Discontinued operations		—			(0.05	)		—			(0.05	)		—			(0.05	)

	$	0.14		$	0.29		$	0.53		$	0.62		$	1.43		$	1.43

Dividends	$	0.31		$	0.31		$	0.62		$	0.62		$	1.24		$	1.24

Weighted-average number of common shares outstanding		80,350			74,390			78,544			74,094			76,906			73,590

Adjusted weighted-average shares		80,707			74,754			78,895			74,444			77,136			73,956

Income (loss) from continuing operations by segment
Electric utility	$	21,735		$	18,556		$	41,758		$	36,212		$	84,457		$	82,208
Bank		(6,949	)		13,494			8,978			27,002			38,237			55,064
Other		(3,548	)		(6,290	)		(8,566	)		(13,127	)		(12,563	)		(27,298	)

Income from continuing operations	$	11,238		$	25,760		$	42,170		$	50,087		$	110,131		$	109,974

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, 2003 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, 2004 and June 30, 2004 (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. In April 2004, the HEI Board of Directors approved a 2-for-1 stock split in the form of a 100% stock dividend with a distribution date of June 10, 2004. All share and per share information above reflects the stock split.

In the first quarter of 2004, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” and deconsolidated Hawaiian Electric Industries Capital Trust I, HEI Preferred Funding, LP, HECO Capital Trust I and HECO Capital Trust II. The Company did not elect to restate previously issued financial statements. Due to the deconsolidation, for the three and six months ended June 30, 2004, the Company’s consolidated statement of income reflected equity in earnings of Hawaiian Electric Industries Capital Trust I, HEI Preferred Funding, LP, HECO Capital Trust I and HECO Capital Trust II of $0.1 million and $0.6 million, respectively, interest expense from borrowings related to these entities of $0.8 million and $5.4 million, respectively, and no preferred securities distributions of trust subsidiaries. The trust preferred securities of Hawaiian Electric Industries Capital Trust I and HECO Capital Trusts I and II were redeemed in April 2004. In March 2004, HECO Capital Trust III issued $50 million of trust preferred securities, which were never consolidated.

In 1998, ASB formed a subsidiary, which elects to be taxed as a real estate investment trust (REIT). The State of Hawaii Department of Taxation (DOT) challenged ASB’s tax position and issued notices of tax assessment. In 2002, ASB filed an appeal with the State Board of Review, First Taxation District, which issued its decision in favor of the DOT in 2003. ASB filed a notice of appeal with the Hawaii Tax Appeal Court. In May 2004, the DOT and ASB each filed a Motion for Summary Judgment, and in June 2004, the Hawaii Tax Appeal Court ruled in favor of the DOT and against ASB. ASB continues to believe that its tax position is proper and has appealed the decision. However, as a result of the Court’s decision, ASB recorded a charge to net income (i.e., net of federal tax benefits) in the second quarter of 2004 of approximately $24 million for the potential cumulative bank franchise tax liability ($21 million) and interest ($3 million) since the REIT was formed through March 31, 2004.

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
(in thousands)	2004			2003			2004			2003
Operating revenues	$	369,393		$	353,385		$	715,337		$	681,346

Operating expenses
Fuel oil		114,496			102,168			211,582			193,007
Purchased power		94,267			95,264			186,506			180,618
Other operation		36,877			38,317			71,146			76,844
Maintenance		15,910			15,476			32,906			29,758
Depreciation		28,744			27,633			57,488			55,245
Taxes, other than income taxes		34,198			32,810			67,082			63,887
Income taxes		13,779			11,676			26,666			22,891

		338,271			323,344			653,376			622,250

Operating income		31,122			30,041			61,961			59,096

Other income
Allowance for equity funds used during construction		1,673			989			3,122			1,977
Other, net		1,088			869			1,729			1,636

		2,761			1,858			4,851			3,613

Income before interest and other charges		33,883			31,899			66,812			62,709

Interest and other charges
Interest on long-term debt		10,825			10,436			20,895			20,760
Amortization of net bond premium and expense		577			528			1,146			1,041
Preferred securities distributions of trust subsidiaries		—			1,919			—			3,838
Other interest charges		980			407			3,392			749
Allowance for borrowed funds used during construction		(733	)		(446	)		(1,377	)		(889	)
Preferred stock dividends of subsidiaries		229			229			458			458

		11,878			13,073			24,514			25,957

Income before preferred stock dividends of HECO		22,005			18,826			42,298			36,752
Preferred stock dividends of HECO		270			270			540			540

Net income for common stock	$	21,735		$	18,556		$	41,758		$	36,212

OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)		2,473			2,407			4,841			4,686
Cooling degree days (Oahu)		1,320			1,283			2,232			2,111
Average fuel cost per barrel	$	40.43		$	38.76		$	39.08		$	37.36

This information 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, 2003 and the consolidated financial statements and the notes thereto in HECO’s Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 (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.

In the first quarter of 2004, HECO and its subsidiaries adopted the provisions of Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” and deconsolidated HECO Capital Trust I and HECO Capital Trust II. HECO and its subsidiaries did not elect to restate previously issued financial statements. Due to the deconsolidation, for the three and six months ended June 30, 2004, HECO’s consolidated statement of income reflected equity in earnings of HECO Capital Trust I and HECO Capital Trust II of $30 thousand and $0.1 million, respectively, interest expense from borrowings related to these trusts of $0.4 million and $2.4 million, respectively, and no preferred securities distributions of trust subsidiaries. The trust preferred securities of HECO Capital Trusts I and II were redeemed in April 2004. In March 2004, HECO Capital Trust III issued $50 million of trust preferred securities, which were never consolidated.

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)	2004			2003			2004			2003
Interest and dividend income
Interest and fees on loans	$	45,832		$	50,425		$	92,241		100,898
Interest on mortgage-related securities		27,559			26,023			54,636		55,300
Interest and dividends on investment securities		1,665			1,551			3,413		3,308

		75,056			77,999			150,290		159,506

Interest expense
Interest on deposit liabilities		11,464			13,653			23,674		28,083
Interest on Federal Home Loan Bank advances		10,347			12,052			20,844		25,618
Interest on securities sold under repurchase agreements		5,231			5,431			10,477		10,772

		27,042			31,136			54,995		64,473

Net interest income		48,014			46,863			95,295		95,033
Provision for loan losses		(3,000	)		1,025			(4,600	)	2,175

Net interest income after provision for loan losses		51,014			45,838			99,895		92,858

Other income
Fees from other financial services		6,160			6,264			11,742		11,949
Fee income on deposit liabilities		4,276			3,964			8,657		7,834
Fee income on other financial products		2,646			2,379			5,622		5,234
Fee income on loans serviced for others, net		907			(442	)		577		(1,444	)
Gain on sale of securities		—			1,554			16		2,366
Other income		937			985			2,336		2,360

		14,926			14,704			28,950		28,299

General and administrative expenses
Compensation and employee benefits		15,704			16,701			31,459		32,794
Occupancy		4,273			4,082			8,529		7,916
Equipment		3,378			3,394			7,045		6,752
Data processing		2,777			2,603			5,600		5,407
Professional services		2,221			2,303			3,861		5,500
Interest on income taxes		5,324			195			5,324		195
Other		9,252			8,903			17,908		17,806

		42,929			38,181			79,726		76,370

Income before minority interests and income taxes		23,011			22,361			49,119		44,787
Minority interests		23			32			49		66
Income taxes		28,584			7,483			37,387		15,014

Income before preferred stock dividends		(5,596	)		14,846			11,683		29,707
Preferred stock dividends		1,353			1,352			2,705		2,705

Net income for common stock	$	(6,949	)	$	13,494		$	8,978		27,002

Interest rate spread (%)		3.08			3.02			3.06		3.08

In 1998, ASB formed a subsidiary, which elects to be taxed as a real estate investment trust (REIT). The State of Hawaii Department of Taxation(DOT) challenged ASB’s tax position and issued notices of tax assessment. In 2002, ASB filed an appeal with the State Board of Review, First Taxation District, which issued its decision in favor of the DOT in 2003. ASB filed a notice of appeal with the Hawaii Tax Appeal Court. In May 2004, the DOT and ASB each filed a Motion for Summary Judgment, and in June 2004, the Hawaii Tax Appeal Court ruled in favor of the DOT and against ASB. ASB continues to believe that its tax position is proper and has appealed the decision. However, as a result of the Court’s decision, ASB recorded a charge to net income (i.e., net of federal tax benefits) in the second quarter of 2004 of approximately $24 million for the potential cumulative bank franchise tax liability ($21 million) and interest ($3 million) since the REIT was formed through March 31, 2004.

Item 12. Results of Operations and Financial Condition

The news release dated July 19, 2004 filed under Item 5, “Other Events and Regulation FD Disclosure,” herein is also furnished pursuant to Item 12, “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 and Chief Financial Officer		Financial Vice President
(Principal Financial Officer of HEI)		(Principal Financial Officer of HECO)
Date: July 19, 2004		Date: July 19, 2004