Edgar Filing: HAWAIIAN ELECTRIC INDUSTRIES INC

Current Report on 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: October 27, 2003

Exact Name of Registrant

as Specified in Its Charter

Commission

File Number

I.R.S. Employer

Identification No.

Hawaiian Electric Industries, Inc.

Hawaiian Electric Company, Inc.

1-8503

1-4955

99-0208097

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 October 27, 2003, HEI issued the following news release:

HAWAIIAN ELECTRIC INDUSTRIES, INC. REPORTS THIRD QUARTER 2003 EARNINGS

HONOLULU — Hawaiian Electric Industries, Inc. (NYSE – HE) today reported net income for the three months ended September 30, 2003, of $30.5 million, or 81 cents per share, compared with $33.5 million, or 92 cents per share in the same quarter of 2002. For the nine months ended September 30, 2003, income from continuing operations was $80.6 million, or $2.16 per share, compared with $91.8 million, or $2.54 per share in the same period last year.

“Kilowatthour sales were strong, bank net income was up 4 percent and the holding and other companies’ net losses were down 24 percent this quarter,” said Robert F. Clarke, HEI chairman, president and chief executive officer. “However, retirement benefits expense continues to negatively impact earnings.”

Electric utility net income during the quarter was $20.4 million versus $25.6 million in the same quarter last year. Electric utility net income for the first nine months of 2003 was $56.6 million versus $69.8 million in the same period of 2002.

Kilowatthour sales were up 3 percent compared with the same quarter last year largely due to warmer weather and higher residential and neighbor island commercial usage. More than offsetting the impact of higher sales were retirement benefits expenses that were $5.5 million ($3.4 million, net) higher than in the third quarter of 2002 and a previously reported notice of violation and proposed penalty of $1.6 million from the State of Hawaii Department of Health on two of our Maui generating units. In addition, the timing and larger scope of overhauls lowered utility operating income by $2.3 million and depreciation expense was $1.3 million higher than in the third quarter of 2002.

Bank net income in the third quarter was $15.3 million compared to $14.7 million in the same quarter last year. Bank net income for the nine months ended September 30, 2003, was $42.3 million versus $42.8 million in the same period in 2002.

Bank earnings rose slightly in the third quarter of 2003 as compared with the same quarter of 2002, helped by lower loan loss provisioning, securities gains and improvement in the value of the bank’s mortgage servicing asset which offset continued margin compression and higher general and administrative expenses. The bank’s interest rate spread was lower at 3.01% compared with the third quarter of last year when it was 3.28% and net interest income declined by $3 million quarter over quarter. The strong Hawaii real estate market and low interest rates continued to have a positive effect on credit quality, allowing the bank to lower its provision for loan losses by $0.9 million as compared with the third quarter of 2002. Also contributing to the bank’s positive quarter were increased fee income from other financial services and deposit liabilities ($10.4 million in the third quarter versus $9.5 million in the third quarter of 2002) and better results on sales of securities ($1.7 million gain in the third quarter versus a $0.9 million loss in the third quarter of 2002). The reversal of an allowance related to purchased mortgage servicing rights contributed further because prepayments of loans slowed as interest rates increased over the quarter, improving the value of the servicing asset ($1.9 million in the third quarter compared with a $1.3 million provision in the third quarter of 2002). The bank incurred higher general and administrative costs quarter over quarter as retirement benefit expenses increased by $0.8 million and the bank continued implementation of its strategic plan to transform to a full-service community bank.

Net losses for the holding and other companies in the third quarter were $5.1 million compared with $6.8 million in the same quarter last year. Holding and other companies’ net losses from continuing operations for the first nine months of 2003 were $18.2 million versus $20.8 million in the same period of 2002. Lower losses were due in part to the fact that there were no investment writedowns in the third quarter of 2003 compared with $1.7 million of writedowns in the same quarter last year.

HEI strives to provide value to its shareholders, its customers and the Hawaii community through a unique combination of operating companies – a utility and a bank. HEI provides 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 June 30, 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 September 30,						Nine months ended September 30,						Twelve months ended September 30,
(in thousands, except per share amounts)	2003			2002			2003			2002			2003			2002
Revenues
Electric utility	$	359,250		$	333,636		$	1,042,691		$	919,643		$	1,380,224		$	1,235,487
Bank		93,770			99,722			281,575			300,633			380,197			409,197
Other		683			(1,798	)		2,829			(2,278	)		2,377			(7,377	)

		453,703			431,560			1,327,095			1,217,998			1,762,798			1,637,307

Expenses
Electric utility		312,614			280,047			912,495			769,497			1,205,218			1,043,756
Bank		68,654			75,156			211,672			229,527			288,517			313,201
Other		4,200			4,619			14,152			12,006			20,822			15,894

		385,468			359,822			1,138,319			1,011,030			1,514,557			1,372,851

Operating income (loss)
Electric utility		46,636			53,589			130,196			150,146			175,006			191,731
Bank		25,116			24,566			69,903			71,106			91,680			95,996
Other		(3,517	)		(6,417	)		(11,323	)		(14,284	)		(18,445	)		(23,271	)

		68,235			71,738			188,776			206,968			248,241			264,456

Interest expense–other than bank		(19,233	)		(17,751	)		(55,092	)		(54,618	)		(72,766	)		(73,883	)
Allowance for borrowed funds used during construction		496			549			1,385			1,392			1,848			1,939
Preferred stock dividends of subsidiaries		(501	)		(501	)		(1,504	)		(1,504	)		(2,006	)		(2,006	)
Preferred securities distributions of trust subsidiaries		(2,090	)		(4,008	)		(10,108	)		(12,026	)		(14,117	)		(16,035	)
Allowance for equity funds used during construction		1,098			1,162			3,075			2,977			4,052			3,998

Income from continuing operations before income taxes		48,005			51,189			126,532			143,189			165,252			178,469
Income taxes		17,483			17,677			45,923			51,347			58,268			61,423

Income from continuing operations		30,522			33,512			80,609			91,842			106,984			117,046
Discontinued operations, net of income taxes
Loss from operations		—			—			(3,870	)		—			(3,870	)		—
Net loss on disposals		—			—			—			—			—			(1,966	)

Loss from discontinued operations		—			—			(3,870	)		—			(3,870	)		(1,966	)

Net income	$	30,522		$	33,512		$	76,739		$	91,842		$	103,114		$	115,080

Per common share
Basic earnings (loss)
Continuing operations	$	0.81		$	0.92		$	2.16		$	2.54		$	2.88		$	3.27
Discontinued operations		—			—			(0.10	)		—			(0.10	)		(0.05	)

	$	0.81		$	0.92		$	2.06		$	2.54		$	2.78		$	3.22

Diluted earnings (loss)
Continuing operations	$	0.81		$	0.91		$	2.15		$	2.53		$	2.87		$	3.25
Discontinued operations		—			—			(0.10	)		—			(0.10	)	$	(0.05	)

	$	0.81		$	0.91		$	2.05		$	2.53		$	2.77		$	3.20

Dividends	$	0.62		$	0.62		$	1.86		$	1.86		$	2.48		$	2.48

Weighted-average number of common shares outstanding		37,516			36,435			37,205			36,150			37,067			35,770

Adjusted weighted-average shares		37,676			36,627			37,364			36,350			37,232			35,957

Income (loss) from continuing operations by segment
Electric utility	$	20,360		$	25,610		$	56,572		$	69,819		$	76,958		$	88,283
Bank		15,275			14,652			42,277			42,815			55,687			58,192
Other		(5,113	)		(6,750	)		(18,240	)		(20,792	)		(25,661	)		(29,429	)

Income from continuing operations	$	30,522		$	33,512		$	80,609		$	91,842		$	106,984		$	117,046

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, June 30, 2003 and September 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 in the fourth quarter using data 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 September 30,
(in thousands, except per share amounts)	2003		2002
Consolidated
Reported net income	$	103,114	$	115,080
Goodwill amortization, net of tax benefits		—		968

Adjusted net income	$	103,114	$	116,048

Per common share
Reported basic earnings	$	2.78	$	3.22
Goodwill amortization, net of tax benefits		—		0.03

Adjusted basic earnings	$	2.78	$	3.25

Per common share
Reported diluted earnings	$	2.77	$	3.20
Goodwill amortization, net of tax benefits		—		0.03

Adjusted diluted earnings	$	2.77	$	3.23

Bank
Reported net income	$	55,687	$	58,192
Goodwill amortization, net of tax benefits		—		968

Adjusted net income	$	55,687	$	59,160

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2003			2002			2003			2002
Operating revenues	$	358,435		$	332,453		$	1,039,781		$	916,402

Operating expenses
Fuel oil		101,296			85,311			294,303			218,901
Purchased power		92,543			87,123			273,161			240,744
Other operation		37,760			33,888			114,604			95,573
Maintenance		18,025			15,705			47,783			45,727
Depreciation		27,625			26,340			82,870			79,063
Taxes, other than income taxes		33,636			31,287			97,523			88,769
Income taxes		13,974			16,287			36,865			44,110

		324,859			295,941			947,109			812,887

Operating income		33,576			36,512			92,672			103,515

Other income
Allowance for equity funds used during construction		1,098			1,162			3,075			2,977
Other, net		(889	)		858			747			2,435

		209			2,020			3,822			5,412

Income before interest and other charges		33,785			38,532			96,494			108,927

Interest and other charges
Interest on long-term debt		11,891			10,127			32,651			30,430
Amortization of net bond premium and expense		579			498			1,620			1,505
Preferred securities distributions of trust subsidiaries		—			1,918			3,838			5,756
Other interest charges		953			430			1,702			1,313
Allowance for borrowed funds used during construction		(496	)		(549	)		(1,385	)		(1,392	)
Preferred stock dividends of subsidiaries		228			228			686			686

		13,155			12,652			39,112			38,298

Income before preferred stock dividends of HECO		20,630			25,880			57,382			70,629
Preferred stock dividends of HECO		270			270			810			810

Net income for common stock	$	20,360		$	25,610		$	56,572		$	69,819

OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)		2,583			2,515			7,269			7,117
Cooling degree days (Oahu)		1,639			1,539			3,750			3,611
Average fuel cost per barrel	$	35.62		$	30.68		$	36.75		$	27.52

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

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2003		2002			2003		2002
Interest and dividend income
Interest and fees on loans	$	49,657	$	50,210		$	150,555	$	152,300
Interest on mortgage-related securities		24,876		35,503			80,176		103,634
Interest and dividends on investment securities		1,428		1,880			4,736		5,979

		75,961		87,593			235,467		261,913

Interest expense
Interest on deposit liabilities		13,099		17,833			41,182		57,331
Interest on Federal Home Loan Bank advances		11,449		14,905			37,067		43,327
Interest on securities sold under repurchase agreements		5,287		5,683			16,059		15,256

		29,835		38,421			94,308		115,914

Net interest income		46,126		49,172			141,159		145,999
Provision for loan losses		600		1,500			2,775		8,000

Net interest income after provision for loan losses		45,526		47,672			138,384		137,999

Other income
Fees from other financial services		6,015		5,416			17,964		15,381
Fee income on deposit liabilities		4,423		4,091			12,257		11,717
Fee income on other financial products		2,426		2,592			7,660		7,647
Fee income on loans serviced for others, net		1,952		(882	)		508		(369	)
Gain (loss) on sale of securities		1,719		(913	)		4,085		(640	)
Other income		1,274		1,825			3,634		4,984

		17,809		12,129			46,108		38,720

General and administrative expenses
Compensation and employee benefits		16,917		14,753			49,711		44,046
Occupancy and equipment		8,019		7,896			22,687		22,387
Data processing		2,549		2,579			7,956		8,228
Consulting		899		1,582			5,076		4,374
Other		9,835		8,425			29,159		26,578

		38,219		35,235			114,589		105,613

Income before minority interests and income taxes		25,116		24,566			69,903		71,106
Minority interests		48		42			114		131
Income taxes		8,440		8,519			23,454		24,102

Income before preferred stock dividends		16,628		16,005			46,335		46,873
Preferred stock dividends		1,353		1,353			4,058		4,058

Net income for common stock	$	15,275	$	14,652		$	42,277	$	42,815

Interest rate spread (%)		3.01		3.28			3.06		3.28

Item 12. Results of Operations and Financial Condition.

The information filed under Item 5, “Other Events,” 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/ CURTIS Y. HARADA		/s/ ERNEST T. SHIRAKI

Curtis Y. Harada Controller (Chief Accounting Officer of HEI) Date: October 27, 2003		Ernest T. Shiraki Controller (Chief Accounting Officer of HECO) Date: October 27, 2003