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Posted on: Wednesday, January 24, 2001

Philippines venture a loser for HEI

By John Duchemin
Advertiser Staff Writer

Hawaiian Electric Industries Inc., owner of the state’s largest power company and savings bank, lost $24.4 million in the fourth quarter 2000 as gains at its banking and utility subsidiaries were offset by a write-off of its investment in a Philippines power company.


If a company sees a bleak future for some of its assets, it may perform an accounting move known as a write-off that essentially takes those assets "off the books." The company still owns the assets, but it considers them to be of zero value.

A write-off usually forces the company take a one-time hit to its earnings, but often is counter-balanced by a tax deduction. In HEI’s case, the write-off of Philippines assets costs $39 million, but lets HEI take a $28.8 million tax deduction.

The loss compared with income of $31.7 million in fourth-quarter 1999.

The write-off capped a year of international problems for Hawaiian Electric, which saw net income for all of last year drop to $45.7 million, or $1.41 a share, down from $96.8 million, or $3.01 a share, in 1999.

The primary drag on earnings has been HEI Power Corp., the company’s overseas venture operation. While two other subsidiaries, Hawaiian Electric Co. and American Savings Bank, had strong years, HEI Power Corp. lost $103.6 million in 2000, compared with $5.1 million in losses in 1999.

With the write-off, Hawaiian Electric has erased its $87.5 million investment in the East Asia Power Resources Corp., an electricity company operating in Manila and Cebu. Hawaiian Electric accounted for the write-off with a $36.6 million one-time charge against fourth-quarter earnings.

HEI invested in East Asia Power in March 2000. The company’s largest international venture, East Asia Power ran into problems as oil prices rose and political turmoil forced the Philippines economy into a tailspin.

"Unfortunately, civil unrest in the Philippines, the impeachment trial of (Philippines President Joseph Estrada), severe devaluation of the peso and volatile fuel prices worked against us," said Robert F. Clarke, Hawaiian Electric’s chairman, president and chief executive officer. "The decision to write off the company’s remaining investment in (East Asia Power) is in the best interest of our shareholders, because it limits HEI’s exposure in the Philippines."

The write-off continued a problematic history for HEI’s international expansion efforts.

A $25 million investment in a 200-megawatt power plant in China has stalled as the project has been delayed for a year while the company wrangles with Chinese government and regional power officials over the plant, which would generate power for steel company Baotou Iron and Steel (Group) Co. Ltd.

Suzy Hollinger, HEI’s director of investor relations, said a new agreement is almost ready and could be signed in February.

Late last year, HEI placed a moratorium on new investments outside of Hawaii.

Despite the international problems, HEI’s Hawaii operations saw income increase in 2000. American Savings Bank earned $10.2 million in net income in fourth-quarter 2000, up from $9.3 million in fourth-quarter 1999. For the year, it made $40.6 million, up from $35.4 million in 1999.

Hawaiian Electric Co. saw net income drop to $14.5 million in fourth-quarter 2000, down from $18.6 million. But for the year, income was $87.3 million, up from $75.2 million in 1999.

Correction: Because of erroneous information from a news source, the amount of tax deduction Hawaiian Electric Industries received from its write-off of a Philippines investment was misstated in a previous version of this story. The actual tax deduction is $39 million.

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