HAWAIIAN ELECTRIC INDUSTRIES INC - Quarter Report: 2013 June (Form 10-Q)

Table of Contents

 

 

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 June 30, 2013

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

State of Hawaii

(State or other jurisdiction of incorporation or organization)

 

Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900, Honolulu, Hawaii  96813

Hawaiian Electric Company, Inc. – 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)

 

Not applicable

(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.

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.

 

Class of Common Stock		Outstanding July 31, 2013
Hawaiian Electric Industries, Inc. (Without Par Value)		99,128,257 Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)		14,665,264 Shares (not publicly traded)

 

 

Table of Contents

 

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended June 30, 2013

 

INDEX

 

Page No.
ii		Glossary of Terms
iv		Forward-Looking Statements
		PART I. FINANCIAL INFORMATION
1		Item 1.	Financial Statements
			Hawaiian Electric Industries, Inc. and Subsidiaries
1			Consolidated Statements of Income - three and six months ended June 30, 2013 and 2012
2			Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2013 and 2012
3			Consolidated Balance Sheets - June 30, 2013 and December 31, 2012
4			Consolidated Statements of Changes in Shareholders’ Equity - six months ended June 30, 2013 and 2012
5			Consolidated Statements of Cash Flows - six months ended June 30, 2013 and 2012
6			Notes to Consolidated Financial Statements
			Hawaiian Electric Company, Inc. and Subsidiaries
30			Consolidated Statements of Income - three and six months ended June 30, 2013 and 2012
30			Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2013 and 2012
31			Consolidated Balance Sheets - June 30, 2013 and December 31, 2012
32			Consolidated Statements of Changes in Common Stock Equity - six months ended June 30, 2013 and 2012
33			Consolidated Statements of Cash Flows - six months ended June 30, 2013 and 2012
34			Notes to Consolidated Financial Statements
54		Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
54			HEI Consolidated
59			Electric Utilities
68			Bank
78		Item 3.	Quantitative and Qualitative Disclosures About Market Risk
79		Item 4.	Controls and Procedures
		PART II.	OTHER INFORMATION
80		Item 1.	Legal Proceedings
80		Item 1A.	Risk Factors
80		Item 5.	Other Information
81		Item 6.	Exhibits
82		Signatures

 

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Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended June 30, 2013

 

GLOSSARY OF TERMS

 

Terms		Definitions
AFTAP		Adjusted Funding Target Attainment Percentage
AFUDC		Allowance for funds used during construction
AOCI		Accumulated other comprehensive income/(loss)
ARO		Asset retirement obligation
ASB		American Savings Bank, F.S.B., a wholly-owned subsidiary of American Savings Holdings, Inc.
ASHI		American Savings Holdings, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
ASU		Accounting Standards Update
CIP CT-1		Campbell Industrial Park 110 MW combustion turbine No. 1
CIS		Customer Information System
Company		Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under HECO); American Savings Holdings, Inc. and its subsidiary, American Savings Bank, F.S.B.; HEI Properties, Inc.; Hawaiian Electric Industries Capital Trust II and Hawaiian Electric Industries Capital Trust III (inactive financing entities); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.).
Consumer Advocate		Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
DBEDT		State of Hawaii Department of Business, Economic Development and Tourism
D&O		Decision and order
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act
DOH		Department of Health of the State of Hawaii
DRIP		HEI Dividend Reinvestment and Stock Purchase Plan
DSM		Demand-side management
ECAC		Energy cost adjustment clauses
EIP		2010 Equity and Incentive Plan
EGU		Electrical generating unit
Energy Agreement		Agreement dated October 20, 2008 and signed by the Governor of the State of Hawaii, the State of Hawaii Department of Business, Economic Development and Tourism, the Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs, and HECO, for itself and on behalf of its electric utility subsidiaries committing to actions to develop renewable energy and reduce dependence on fossil fuels in support of the HCEI
EPA		Environmental Protection Agency — federal
EPS		Earnings per share
ERISA		Employee Retirement Income Security Act of 1974, as amended
EVE		Economic value of equity
Exchange Act		Securities Exchange Act of 1934
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
federal		U.S. Government
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FNMA		Federal National Mortgage Association
FRB		Federal Reserve Board

 

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GLOSSARY OF TERMS, continued

 

Terms		Definitions
GAAP		U.S. generally accepted accounting principles
GHG		Greenhouse gas
GNMA		Government National Mortgage Association
HCEI		Hawaii Clean Energy Initiative
HECO		Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, HECO Capital Trust III (unconsolidated financing subsidiary), Renewable Hawaii, Inc. and Uluwehiokama Biofuels Corp.
HEI		Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., American Savings Holdings, Inc., HEI Properties, Inc., Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital Trust III and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSP		Hawaiian Electric Industries Retirement Savings Plan
HELCO		Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
HPOWER		City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP		Independent power producer
IRP		Integrated resource planning
Kalaeloa		Kalaeloa Partners, L.P.
KW		Kilowatt
KWH		Kilowatthour
LTIP		Long-term incentive plan
MAP-21		Moving Ahead for Progress in the 21st Century Act
MECO		Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MW		Megawatt/s (as applicable)
NII		Net interest income
NQSO		Nonqualified stock option
O&M		Other operation and maintenance
OCC		Office of the Comptroller of the Currency
OPEB		Postretirement benefits other than pensions
PPA		Power purchase agreement
PPAC		Purchased power adjustment clause
PUC		Public Utilities Commission of the State of Hawaii
RAM		Revenue adjustment mechanism
RBA		Revenue balancing account
RFP		Request for proposal
REIP		Renewable Energy Infrastructure Program
RHI		Renewable Hawaii, Inc., a wholly owned subsidiary of Hawaiian Electric Company, Inc.
ROACE		Return on average common equity
RORB		Return on average rate base
RPS		Renewable portfolio standard
SAR		Stock appreciation right
SEC		Securities and Exchange Commission
See		Means the referenced material is incorporated by reference
SOIP		1987 Stock Option and Incentive Plan, as amended
TDR		Troubled debt restructuring
UBC		Uluwehiokama Biofuels Corp., a non-regulated subsidiary of Hawaiian Electric Company, Inc.
VIE		Variable interest entity

 

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FORWARD-LOOKING STATEMENTS

 

This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (HECO) and their subsidiaries 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, ongoing business strategies or prospects or possible future actions 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 the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), 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.

 

Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:

 

·            international, national and local economic conditions, including the state of the Hawaii tourism, defense and construction industries, the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by American Savings Bank, F.S.B. (ASB), which could result in higher loan loss provisions and write-offs), decisions concerning the extent of the presence of the federal government and military in Hawaii (including the effects of sequestration), the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions, and the potential impacts of global developments (including global economic conditions and uncertainties, unrest, conflict and the overthrow of governmental regimes in North Africa and the Middle East, terrorist acts, the war on terrorism, continuing U.S. presence in Afghanistan and potential conflict or crisis with North Korea or Iran);

·            weather and natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes and the potential effects of climate change, such as more severe storms and rising sea levels), including their impact on Company operations and the economy;

·            the timing and extent of changes in interest rates and the shape of the yield curve;

·            the ability of the Company to access credit markets to obtain commercial paper and other short-term and long-term debt financing (including lines of credit) and to access capital markets to issue HEI common stock under volatile and challenging market conditions, and the cost of such financings, if available;

·            the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale;

·            changes in laws, regulations, market conditions and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;

·            the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated;

·            increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);

·            the implementation of the Energy Agreement with the State of Hawaii and Consumer Advocate (Energy Agreement), setting forth the goals and objectives of a Hawaii Clean Energy Initiative (HCEI), and the fulfillment by the electric utilities of their commitments under the Energy Agreement (given the Public Utilities Commission of the State of Hawaii (PUC) approvals needed; the PUC’s potential delay in considering (and potential disapproval of actual or proposed) HCEI-related costs; reliance by the Company on outside parties such as the state, independent power producers (IPPs) and developers; potential changes in political support for the HCEI; and uncertainties surrounding wind power, proposed undersea cables, biofuels, environmental assessments and the impacts of implementation of the HCEI on future costs of electricity);

·            capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management (DSM), distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;

·            fuel oil price changes, performance by suppliers of their fuel oil delivery obligations and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs);

·            the continued availability to the electric utilities of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), revenue adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales;

·            the impact of fuel price volatility on customer satisfaction and political and regulatory support for the utilities;

 

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·            the risks associated with increasing reliance on renewable energy, as contemplated under the Energy Agreement, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;

·            the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);

·            the ability of the electric utilities to negotiate, periodically, favorable fuel supply and collective bargaining agreements;

·            new technological developments that could affect the operations and prospects of HEI and its subsidiaries (including HECO and its subsidiaries and ASB) or their competitors;

·            cyber security risks and the potential for cyber incidents, including potential incidents at HEI, ASB and HECO and their subsidiaries (including at ASB branches and at the electric utility plants) and incidents at data processing centers they use, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls;

·            federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, HECO, ASB and their subsidiaries (including changes in taxation, increases in capital requirements, regulatory changes resulting from the HCEI, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas (GHG) emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);

·            decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);

·            decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or renewable portfolio standards (RPS));

·            potential enforcement actions by the Office of the Comptroller of the Currency, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);

·            the ability of the electric utilities to recover increasing costs and earn a reasonable return on capital investments not covered by revenue adjustment mechanisms;

·            the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);

·            changes in accounting principles applicable to HEI, HECO, ASB and their subsidiaries, including the possible adoption of International Financial Reporting Standards or new U.S. accounting standards, the potential discontinuance of regulatory accounting and the effects of potentially required consolidation of variable interest entities (VIEs) or required capital lease accounting for PPAs with IPPs;

·            changes by securities rating agencies in their ratings of the securities of HEI and HECO and the results of financing efforts;

·            faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;

·            changes in ASB’s loan portfolio credit profile and asset quality which may increase or decrease the required level of allowance for loan losses and charge-offs;

·            changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;

·            the final outcome of tax positions taken by HEI, HECO, ASB and their subsidiaries;

·            the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits); and

·            other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or 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. Except to the extent required by the federal securities laws, HEI, HECO, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)

 

		Three months						Six months
		ended June 30						ended June 30
(in thousands, except per share amounts)		2013			2012			2013			2012
Revenues
Electric utility		$	730,688		$	789,552		$	1,449,961		$	1,539,162
Bank		66,027			64,721			130,783			129,973
Other		15			(5		)	50			(7		)
Total revenues		796,730			854,268			1,580,794			1,669,128
Expenses
Electric utility		669,550			728,056			1,335,870			1,420,412
Bank		41,322			42,847			84,327			85,187
Other		3,488			3,959			7,570			8,307
Total expenses		714,360			774,862			1,427,767			1,513,906
Operating income (loss)
Electric utility		61,138			61,496			114,091			118,750
Bank		24,705			21,874			46,456			44,786
Other		(3,473		)	(3,964		)	(7,520		)	(8,314		)
Total operating income		82,370			79,406			153,027			155,222
Interest expense—other than on deposit liabilities and other bank borrowings		(19,613		)	(20,199		)	(39,401		)	(38,738		)
Allowance for borrowed funds used during construction		398			893			1,128			1,763
Allowance for equity funds used during construction		1,560			1,997			2,775			3,937
Income before income taxes		64,715			62,097			117,529			122,184
Income taxes		23,654			22,824			42,316			44,122
Net income		41,061			39,273			75,213			78,062
Preferred stock dividends of subsidiaries		473			473			946			946
Net income for common stock		$	40,588		$	38,800		$	74,267		$	77,116
Basic earnings per common share		$	0.41		$	0.40		$	0.75		$	0.80
Diluted earnings per common share		$	0.41		$	0.40		$	0.75		$	0.80
Dividends per common share		$	0.31		$	0.31		$	0.62		$	0.62
Weighted-average number of common shares outstanding		98,660			96,693			98,399			96,430
Net effect of potentially dilutive shares		589			286			562			389
Adjusted weighted-average shares		99,249			96,979			98,961			96,819

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

 

		Three months ended June 30						Six months ended June 30
(in thousands)		2013			2012			2013			2012
Net income for common stock		$	40,588		$	38,800		$	74,267		$	77,116
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period, net of (taxes) benefits of $5,485 and ($721) for the three months ended June 30, 2013 and 2012 and $6,032 and ($572) for the six months ended June 30, 2013 and 2012, respectively		(8,307		)	1,093			(9,135		)	867
Less: reclassification adjustment for net realized gains included in net income, net of taxes of $488 and $53 for the three months ended June 30, 2013 and 2012 and $488 and $53 for the six months ended June 30, 2013 and 2012, respectively		(738		)	(81		)	(738		)	(81		)
Derivatives qualified as cash flow hedges:
Less: reclassification adjustment to net income, net of tax benefits of $38 for the three months ended June 30, 2013 and 2012 and $75 for the six months ended June 30, 2013 and 2012		59			59			118			118
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $3,630 and $2,405 for the three months ended June 30, 2013 and 2012 and $7,476 and $4,878 for the six months ended June 30, 2013 and 2012, respectively		5,680			3,768			11,701			7,641
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $3,184 and $2,095 for the three months ended June 30, 2013 and 2012 and $6,568 and $4,257 for the six months ended June 30, 2013 and 2012, respectively		(4,999		)	(3,289		)	(10,312		)	(6,684		)
Other comprehensive income (loss), net of taxes		(8,305		)	1,550			(8,366		)	1,861
Comprehensive income attributable to Hawaiian Electric Industries, Inc.		$	32,283		$	40,350		$	65,901		$	78,977

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)

 

(dollars in thousands)		June 30, 2013						December 31, 2012
Assets
Cash and cash equivalents					$	153,712					$	219,662
Accounts receivable and unbilled revenues, net					359,259						362,823
Available-for-sale investment and mortgage-related securities					560,172						671,358
Investment in stock of Federal Home Loan Bank of Seattle					94,281						96,022
Loans receivable held for investment, net					3,912,630						3,737,233
Loans held for sale, at lower of cost or fair value					34,073						26,005
Property, plant and equipment, net of accumulated depreciation of $2,161,681 in 2013 and $2,125,286 in 2012					3,701,905						3,594,829
Regulatory assets					885,025						864,596
Other					454,898						494,414
Goodwill					82,190						82,190
Total assets					$	10,238,145					$	10,149,132
Liabilities and shareholders’ equity
Liabilities
Accounts payable					$	175,038					$	212,379
Interest and dividends payable					25,503						26,258
Deposit liabilities					4,276,243						4,229,916
Short-term borrowings—other than bank					125,786						83,693
Other bank borrowings					187,884						195,926
Long-term debt, net—other than bank					1,422,877						1,422,872
Deferred income taxes					474,197						439,329
Regulatory liabilities					336,065						322,074
Contributions in aid of construction					419,337						405,520
Defined benefit pension and other postretirement benefit plans liability					639,898						656,394
Other					496,375						526,613
Total liabilities					8,579,203						8,520,974
Preferred stock of subsidiaries - not subject to mandatory redemption					34,293						34,293
Commitments and contingencies (Notes 3 and 4)
Shareholders’ equity
Preferred stock, no par value, authorized 10,000,000 shares; issued: none					—						—
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 99,044,053 shares in 2013 and 97,928,403 shares in 2012					1,429,371						1,403,484
Retained earnings					230,067						216,804
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains on securities		$	888					$	10,761
Unrealized losses on derivatives		(642		)				(760		)
Retirement benefit plans		(35,035		)	(34,789		)	(36,424		)	(26,423		)
Total shareholders’ equity					1,624,649						1,593,865
Total liabilities and shareholders’ equity					$	10,238,145					$	10,149,132

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

 

		Common stock					Retained			Accumulated other comprehensive
(in thousands, except per share amounts)		Shares		Amount			Earnings			loss			Total
Balance, December 31, 2012		97,928		$	1,403,484		$	216,804		$	(26,423	)	$	1,593,865
Net income for common stock		—		—			74,267			—			74,267
Other comprehensive loss, net of tax benefits		—		—			—			(8,366		)	(8,366		)
Issuance of common stock, net		1,116		25,887			—			—			25,887
Common stock dividends ($0.62 per share)		—		—			(61,004		)	—			(61,004		)
Balance, June 30, 2013		99,044		$	1,429,371		$	230,067		$	(34,789	)	$	1,624,649
Balance, December 31, 2011		96,038		$	1,349,446		$	198,397		$	(19,137	)	$	1,528,706
Net income for common stock		—		—			77,116			—			77,116
Other comprehensive income, net of taxes		—		—			—			1,861			1,861
Issuance of common stock, net		985		27,980			—			—			27,980
Dividend equivalents paid on equity-classified awards		—		—			(96		)	—			(96		)
Common stock dividends ($0.62 per share)		—		—			(59,791		)	—			(59,791		)
Balance, June 30, 2012		97,023		$	1,377,426		$	215,626		$	(17,276	)	$	1,575,776

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

 

Six months ended June 30		2013			2012
(in thousands)
Cash flows from operating activities
Net income		$	75,213		$	78,062
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation of property, plant and equipment		79,843			75,517
Other amortization		2,868			2,999
Provision for loan losses		899			5,924
Loans receivable originated and purchased, held for sale		(128,276		)	(161,344		)
Proceeds from sale of loans receivable, held for sale		148,243			161,713
Change in deferred income taxes		40,403			41,541
Change in excess tax benefits from share-based payment arrangements		(445		)	(40		)
Allowance for equity funds used during construction		(2,775		)	(3,937		)
Changes in assets and liabilities
Decrease (increase) in accounts receivable and unbilled revenues, net		3,564			(42,428		)
Decrease (increase) in fuel oil stock		43,974			(35,893		)
Increase in regulatory assets		(37,586		)	(35,476		)
Increase (decrease) in accounts, interest and dividends payable		(43,384		)	3,578
Change in prepaid and accrued income taxes and utility revenue taxes		(33,822		)	(12,998		)
Contributions to defined benefit pension and other postretirement benefit plans		(41,521		)	(53,356		)
Other increase in defined benefit pension and other postretirement benefit plans liability		41,191			31,204
Change in other assets and liabilities		(17,597		)	(58,638		)
Net cash provided by (used in) operating activities		130,792			(3,572		)
Cash flows from investing activities
Available-for-sale investment and mortgage-related securities purchased		(39,721		)	(93,808		)
Principal repayments on available-for-sale investment and mortgage-related securities		62,819			75,407
Proceeds from sale of available-for-sale investment and mortgage-related securities		71,367			3,548
Net increase in loans held for investment		(201,184		)	(61,214		)
Proceeds from sale of real estate acquired in settlement of loans		5,712			6,036
Capital expenditures		(158,830		)	(145,263		)
Contributions in aid of construction		17,188			26,981
Other		2,364			—
Net cash used in investing activities		(240,285		)	(188,313		)
Cash flows from financing activities
Net increase in deposit liabilities		46,326			66,709
Net increase in short-term borrowings with original maturities of three months or less		42,093			27,419
Net decrease in retail repurchase agreements		(8,054		)	(14,556		)
Proceeds from other bank borrowings		25,000			—
Repayments of other bank borrowings		(25,000		)	—
Proceeds from issuance of long-term debt		50,000			417,000
Repayment of long-term debt		(50,000		)	(328,500		)
Change in excess tax benefits from share-based payment arrangements		445			40
Net proceeds from issuance of common stock		11,994			11,909
Common stock dividends		(48,921		)	(47,851		)
Preferred stock dividends of subsidiaries		(946		)	(946		)
Other		606			(2,055		)
Net cash provided by financing activities		43,543			129,169
Net decrease in cash and cash equivalents		(65,950		)	(62,716		)
Cash and cash equivalents, beginning of period		219,662			270,265
Cash and cash equivalents, end of period		$	153,712		$	207,549

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

 

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 U.S. generally accepted accounting principles (GAAP) for interim financial information, 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 and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s Form 10-K for the year ended December 31, 2012 and the unaudited consolidated financial statements and the notes thereto in HEI’s Quarterly Report on SEC Form 10-Q for the quarter ended March 31, 2013.

 

In the opinion of HEI’s management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to fairly state the Company’s financial position as of June 30, 2013 and December 31, 2012, the results of its operations for the three and six months ended June 30, 2013 and 2012 and its cash flows for the six months ended June 30, 2013 and 2012. 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 the prior period’s consolidated financial statements to conform to the current presentation.

 

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Table of Contents

 

2 · Segment financial information

 

(in thousands)		Electric utility			Bank			Other			Total
Three months ended June 30, 2013
Revenues from external customers		$	730,682		$	66,027		$	21		$	796,730
Intersegment revenues (eliminations)		6			—			(6		)	—
Revenues		730,688			66,027			15			796,730
Income (loss) before income taxes		47,517			24,705			(7,507		)	64,715
Income taxes (benefit)		18,325			8,786			(3,457		)	23,654
Net income (loss)		29,192			15,919			(4,050		)	41,061
Preferred stock dividends of subsidiaries		499			—			(26		)	473
Net income (loss) for common stock		28,693			15,919			(4,024		)	40,588
Six months ended June 30, 2013
Revenues from external customers		$	1,449,949		$	130,783		$	62		$	1,580,794
Intersegment revenues (eliminations)		12			—			(12		)	—
Revenues		1,449,961			130,783			50			1,580,794
Income (loss) before income taxes		86,839			46,457			(15,767		)	117,529
Income taxes (benefit)		32,719			16,383			(6,786		)	42,316
Net income (loss)		54,120			30,074			(8,981		)	75,213
Preferred stock dividends of subsidiaries		998			—			(52		)	946
Net income (loss) for common stock		53,122			30,074			(8,929		)	74,267
Assets (at June 30, 2013)		5,161,819			5,068,771			7,555			10,238,145
Three months ended June 30, 2012
Revenues from external customers		$	789,539		$	64,721		$	8		$	854,268
Intersegment revenues (eliminations)		13			—			(13		)	—
Revenues		789,552			64,721			(5		)	854,268
Income (loss) before income taxes		48,501			21,873			(8,277		)	62,097
Income taxes (benefit)		18,626			7,684			(3,486		)	22,824
Net income (loss)		29,875			14,189			(4,791		)	39,273
Preferred stock dividends of subsidiaries		499			—			(26		)	473
Net income (loss) for common stock		29,376			14,189			(4,765		)	38,800
Six months ended June 30, 2012
Revenues from external customers		$	1,539,113		$	129,973		$	42		$	1,669,128
Intersegment revenues (eliminations)		49			—			(49		)	—
Revenues		1,539,162			129,973			(7		)	1,669,128
Income (loss) before income taxes		93,708			45,337			(16,861		)	122,184
Income taxes (benefit)		36,034			15,271			(7,183		)	44,122
Net income (loss)		57,674			30,066			(9,678		)	78,062
Preferred stock dividends of subsidiaries		998			—			(52		)	946
Net income (loss) for common stock		56,676			30,066			(9,626		)	77,116
Assets (at December 31, 2012)		5,108,793			5,041,673			(1,334		)	10,149,132

 

Intercompany electricity sales of the electric utilities to the bank and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by consolidated HECO, the profit on such sales is nominal and the elimination of electric sales revenues and expenses could distort segment operating income and net income for common stock.

 

Bank fees that ASB charges the electric utility and “other” segments are not eliminated because those segments would pay fees to another financial institution if they were to bank with another institution, the profit on such fees is nominal and the elimination of bank fee income and expenses could distort segment operating income and net income for common stock.

 

3 · Electric utility subsidiary

 

For consolidated HECO financial information, including its commitments and contingencies, see HECO’s consolidated financial statements beginning on page 30 through Note 10 on page 44.

 

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