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: November 9, 2005


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.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02

Results of Operations and Financial Condition.

The news release dated November 9, 2005 filed under Item 8.01 “Other Events” herein is also furnished pursuant to Item 2.02, “Results of Operations and Financial Condition.”

Item 8.01

Other Events.

On November 9, 2005, HEI issued the following news release:

HAWAIIAN ELECTRIC INDUSTRIES, INC. REPORTS THIRD QUARTER 2005 EARNINGS

HONOLULU — Hawaiian Electric Industries, Inc. (NYSE—HE) today reported net income from continuing operations for the quarter ended September 30, 2005, of $37.5 million, or 46 cents per share, compared with $40.8 million, or 51 cents per share, in the same quarter of 2004. For the nine months ended September 30, 2005, income from continuing operations was $89.9 million or $1.11 per share, compared with $82.9 million or $1.05 per share in the same period last year. The Company’s results for the nine months ended September 30, 2004, included a cumulative $24 million charge to net income (30 cents per share) for an unfavorable tax ruling involving its bank’s real estate investment trust (REIT) subsidiary, which was appealed, but subsequently settled in December 2004.

“Results were down quarter-over-quarter as increased utility operations and maintenance costs continued,” said Robert F. Clarke, HEI’s chairman, president and chief executive officer. “Our systems are being run harder to meet high levels of demand that were set last year. Fortunately, the Hawaii Public Utilities Commission has since granted Hawaiian Electric Company interim rate relief, allowing the utility future recovery of some of the increased costs of operating and maintaining its system,” added Clarke.

Electric utility net income for the third quarter of 2005 was $22.6 million compared with $26.2 million for the same quarter last year. Electric utility net income for the nine months ended September 30, 2005, was $54.6 million compared with $67.9 million for the same period of 2004.

Kilowatthour sales were flat quarter-over-quarter. “We saw demand levels increase significantly last year, so we are comparing sales against a high bar. Also, increases in the number of residential customers in the third quarter of 2005 were offset by lower usage due to less humid weather and more energy conservation,” said Clarke. “Customers may be responding to the utility’s campaign to promote energy conservation and efficiency and possibly reacting to higher fuel prices reflected in electric bills. In addition, several large commercial customers were temporarily off-line for repairs and renovation projects during the quarter, contributing to lower commercial sales.”

Other operations and maintenance expenses for the quarter were higher by $6.7 million due to maintenance necessary to keep the utility system working reliably. Depreciation costs were $2.1 million higher. In light of the higher level of demand set last year, older utility plant and equipment are being used more heavily, requiring longer and more extensive maintenance. Increases in other operations and maintenance costs resulted from 1) $2.3 million higher transmission and distribution maintenance; 2) $1.6 million higher production maintenance due primarily to higher steam generation station maintenance; and 3) $1.6 million higher retirement benefits expense due primarily to a decrease in the discount rate assumption used to calculate the benefit obligation. The remaining increase in operations and maintenance expense of $1.2 million includes increased staffing and other costs to support demand, reliability and customer service programs. Increased operations and maintenance expense is one reason why Hawaiian Electric Company (HECO) filed a request with the Hawaii Public Utilities Commission (HPUC) in November 2004 to increase base rates on Oahu. On September 27, 2005, the HPUC granted HECO an interim net increase in rates of 3.3%, or $41.1 million in net revenues based on current annualized usage, subject to a final decision and order by the HPUC. Increased rates became effective on

September 28, 2005, subject to refund with interest if and to the extent they exceed rates finally approved by the HPUC.

On November 1, 2005, the Company announced that it would release third quarter earnings following the evaluation of the application of Financial Accounting Standards Board Interpretation No. 46R (FIN 46R), “Consolidation of Variable Interest Entities,” to its power purchase agreement with Kalaeloa Partners L.P. (Kalaeloa). FIN 46R addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. As a result of HPUC approval of an amendment to the Kalaeloa power purchase agreement, Kalaeloa provided to HECO the data required to make the required analysis. After performing its FIN 46R analysis, including evaluating the information provided by Kalaeloa, management concluded that no consolidation of Kalaeloa’s financial statements with HECO’s financial statements is necessary.

Bank net income in the third quarter of 2005 was $15.9 million compared to $15.4 million in the third quarter of 2004. Bank net income for the nine months ended September 30, 2005 was $47.2 million, compared with $24.4 million in the same period last year. The bank’s results for the nine months ended September 30, 2004, included a cumulative $24 million charge in June 2004, related to an unfavorable tax court ruling involving the bank’s REIT subsidiary described above.

“The bank proved to be a winner again this quarter against the flat yield curve,” said Clarke. Bank net interest income increased to $52.9 million in the third quarter of 2005 compared with $48.6 million in the third quarter of 2004. “Strong growth in loans and core deposits, as well as increased yields on loans and mortgage-related securities more than offset margin compression pressure from the flattening yield curve and the continued suspension of dividends paid on the bank’s Federal Home Loan Bank stock investment,” said Clarke. The bank’s interest rate spread increased to 3.26% in the third quarter of 2005, compared with 3.09% in the third quarter of 2004.

“Continued strong asset quality offset the need to increase the provision for loan losses despite the additional loan growth in the third quarter of 2005,” said Clarke. “Comparatively, the bank released $3.8 million of loan loss reserves in the third quarter of 2004 as asset quality was strong and loan balances were stable.”

Bank general and administrative expenses for the quarter ended September 30, 2005, increased by $1.4 million from the same period in 2004. Compensation and employee benefits and services increased $1.9 million quarter-over-quarter as the bank continued investment in its strategic plan to become a full-service community bank.

In December 2004, the bank’s preferred stock of $75 million held by HEI was converted to common equity. Accordingly, preferred stock dividends payable to HEI were lower by $1.4 million in the third quarter of 2005 compared with the same quarter of 2004.

The holding and other companies’ results from continuing operations were $(1.0) million in the third quarter of 2005 versus $(0.8) million in the same quarter of 2004. The holding and other companies’ results from continuing operations for the nine months ended September 30, 2005, were $(11.9) million compared with $(9.4) million for the same period of 2004. Third quarter 2005 results from continuing operations include an unrealized gain on held-for-sale investment securities, net of taxes, of $4.2 million compared with a $3.6 million realized gain on sale of investments, net of taxes, in the third quarter of 2004. However, third quarter 2005 results from continuing operations were lower than for the same quarter of 2004 due in part to the reduction of preferred dividends from the bank described above.

HEI supplies power to over 400,000 customers or 93% of the Hawaii market through its electric utilities, Hawaiian Electric Company, Hawaii Electric Light Company and Maui Electric Company and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, the state’s third largest financial institution based on asset size.

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 “Cautionary Statements and Risk Factors that May Affect Future Results” discussion (which is incorporated by reference herein) set forth on page iv of HEI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, 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 September 30,						Nine months ended September 30,						Twelve months ended September 30,
(in thousands, except per share amounts)	2005			2004			2005			2004			2005			2004
Revenues
Electric utility	$	491,339		$	410,077		$	1,295,844		$	1,127,295		$	1,719,220		$	1,481,289
Bank		97,431			90,296			286,601			269,536			381,349			359,281
Other		7,145			6,386			8,360			8,836			8,626			19,318

		595,915			506,759			1,590,805			1,405,667			2,109,195			1,859,888

Expenses
Electric utility		443,806			357,364			1,174,058			984,528			1,566,298			1,292,153
Bank		71,493			63,765			209,508			193,886			274,932			260,779
Other		3,377			3,944			11,880			10,784			18,115			15,696

		518,676			425,073			1,395,446			1,189,198			1,859,345			1,568,628

Operating income (loss)
Electric utility		47,533			52,713			121,786			142,767			152,922			189,136
Bank		25,938			26,531			77,093			75,650			106,417			98,502
Other		3,768			2,442			(3,520	)		(1,948	)		(9,489	)		3,622

		77,239			81,686			195,359			216,469			249,850			291,260

Interest expense–other than bank		(18,990	)		(18,376	)		(56,955	)		(58,929	)		(75,202	)		(75,047	)
Allowance for borrowed funds used during construction		558			859			1,460			2,236			1,766			2,765
Preferred stock dividends of subsidiaries		(471	)		(475	)		(1,421	)		(1,425	)		(1,897	)		(1,927	)
Preferred securities distributions of trust subsidiaries		—			—			—			—			—			(4,009	)
Allowance for equity funds used during construction		1,406			1,934			3,675			5,056			4,413			6,248

Income from continuing operations before income taxes		59,742			65,628			142,118			163,407			178,930			219,290
Income taxes		22,252			24,869			52,198			80,478			64,200			98,922

Income from continuing operations		37,490			40,759			89,920			82,929			114,730			120,368
Discontinued operations - gain (loss) on disposal, net of income taxes		—			1,913			(755	)		1,913			(755	)		1,913

Net income	$	37,490		$	42,672		$	89,165		$	84,842		$	113,975		$	122,281

Per common share
Basic earnings (loss) - Continuing operations	$	0.46		$	0.51		$	1.11		$	1.05		$	1.42		$	1.54
- Discontinued operations		—			0.02			(0.01	)		0.02			(0.01	)		0.02

	$	0.46		$	0.53		$	1.10		$	1.07		$	1.41		$	1.56

Diluted earnings (loss) - Continuing operations	$	0.46		$	0.51		$	1.11		$	1.05		$	1.42		$	1.54
- Discontinued operations		—			0.02			(0.01	)		0.02		$	(0.01	)		0.02

	$	0.46		$	0.53		$	1.10		$	1.07		$	1.41		$	1.56

Dividends	$	0.31		$	0.31		$	0.93		$	0.93		$	1.24		$	1.24

Weighted-average number of common shares outstanding		80,903			80,509			80,795			79,204			80,745			78,283

Adjusted weighted-average shares		81,354			80,828			81,192			79,449			81,111			78,480

Income (loss) from continuing operations by segment
Electric utility	$	22,587		$	26,175		$	54,616		$	67,933		$	67,860		$	90,272
Bank		15,911			15,378			47,224			24,356			63,930			38,340
Other		(1,008	)		(794	)		(11,920	)		(9,360	)		(17,060	)		(8,244	)

Income from continuing operations	$	37,490		$	40,759		$	89,920		$	82,929		$	114,730		$	120,368

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, 2004 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, 2005, June 30, 2005 and September 30, 2005 (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 June 2004, ASB recorded a cumulative after-tax charge to net income of $24 million for an unfavorable tax ruling involving its real estate investment trust subsidiary, which was settled in December 2004. As a result of the settlement, ASB recognized $3 million in additional net income in the fourth quarter of 2004.

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2005			2004			2005			2004
Operating revenues	$	489,877		$	408,766		$	1,292,374		$	1,124,103

Operating expenses
Fuel oil		182,663			128,584			447,064			340,166
Purchased power		122,086			105,985			329,671			292,491
Other operation		41,974			39,151			125,084			110,297
Maintenance		21,141			17,219			58,916			50,125
Depreciation		30,655			28,586			92,297			86,074
Taxes, other than income taxes		44,990			37,588			120,254			104,670
Income taxes		13,754			16,788			33,785			43,454

		457,263			373,901			1,207,071			1,027,277

Operating income		32,614			34,865			85,303			96,826

Other income
Allowance for equity funds used during construction		1,406			1,934			3,675			5,056
Other, net		1,191			1,157			2,811			2,886

		2,597			3,091			6,486			7,942

Income before interest and other charges		35,211			37,956			91,789			104,768

Interest and other charges
Interest on long-term debt		10,731			10,821			32,296			31,716
Amortization of net bond premium and expense		545			578			1,658			1,724
Other interest charges		1,408			743			3,183			4,135
Allowance for borrowed funds used during construction		(558	)		(859	)		(1,460	)		(2,236	)
Preferred stock dividends of subsidiaries		228			228			686			686

		12,354			11,511			36,363			36,025

Income before preferred stock dividends of HECO		22,857			26,445			55,426			68,743
Preferred stock dividends of HECO		270			270			810			810

Net income for common stock	$	22,587		$	26,175		$	54,616		$	67,933

OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)		2,672			2,675			7,538			7,516
Cooling degree days (Oahu)		1,649			1,651			3,900			3,883
Average fuel cost per barrel	$	59.72		$	42.72		$	52.85		$	40.38

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, 2004 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, 2005, June 30, 2005 and September 30, 2005 (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.

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)	2005		2004			2005			2004
Interest and dividend income
Interest and fees on loans	$	52,649	$	45,504		$	151,819		$	137,745
Interest on mortgage-related securities		29,711		29,608			90,175			84,244
Interest and dividends on investment securities		1,178		1,619			3,100			5,032

		83,538		76,731			245,094			227,021

Interest expense
Interest on deposit liabilities		13,355		11,660			37,832			35,334
Interest on Federal Home Loan Bank advances		11,393		11,143			33,509			31,987
Interest on securities sold under repurchase agreements		5,885		5,345			18,410			15,822

		30,633		28,148			89,751			83,143

Net interest income		52,905		48,583			155,343			143,878
Reversal of allowance for loan losses		—		(3,800	)		(3,100	)		(8,400	)

Net interest income after reversal of allowance for loan losses		52,905		52,383			158,443			152,278

Other income
Fees from other financial services		6,512		5,980			18,708			17,722
Fee income on deposit liabilities		4,311		4,619			12,574			13,276
Fee income on other financial products		2,191		2,328			6,780			7,950
Gain (loss) on sale of securities		—		(86	)		175			(70	)
Other income		879		724			3,270			3,637

		13,893		13,565			41,507			42,515

General and administrative expenses
Compensation and employee benefits		17,275		16,044			51,343			47,503
Occupancy		4,356		4,201			12,462			12,730
Equipment		3,413		3,319			10,114			10,364
Data processing		2,491		2,949			8,039			8,549
Services		3,986		3,292			11,594			9,013
Interest on income taxes		14		461			3,096			5,785
Other		9,325		9,151			26,209			25,199

		40,860		39,417			122,857			119,143

Income before minority interests and income taxes		25,938		26,531			77,093			75,650
Minority interests		—		24			45			73
Income taxes		10,027		9,776			29,820			47,163

Income before preferred stock dividends		15,911		16,731			47,228			28,414
Preferred stock dividends		—		1,353			4			4,058

Net income for common stock	$	15,911	$	15,378		$	47,224		$	24,356

Interest rate spread (%)		3.26		3.09			3.18			3.07

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/ Tayne S. Y. Sekimura
Eric K. Yeaman				Tayne S. Y. Sekimura
Financial Vice President, Treasurer and Chief Financial Officer				Financial Vice President
(Principal Financial Officer of HEI)				(Principal Financial Officer of HECO)
Date: November 9, 2005				Date: November 9, 2005