Posted on: Wednesday, January 26, 2005
Accounting error delays HEI report
By Deborah Adamson
Advertiser Staff Writer
Hawaiian Electric Industries' delay in releasing its earnings report is more likely a minor gaffe instead of a sign that there are ongoing accounting irregularities, analysts said yesterday.
"This is a minor embarrassment," said James Bellessa, an analyst at D.A. Davidson in Montana. "They uncovered that they weren't technically following the accounting standard. Somebody must have dug deep."
But he doesn't believe the problem will hurt HEI because the company understated profits instead of inflating the bottom line.
On Monday, the parent of Hawaiian Electric Co. and American Savings Bank said it would push back the date of its fourth-quarter and year-end earnings release to Feb. 7.
The company said the method it used to amortize premiums and discounts on its mortgage-backed securities was "not in strict conformance" with accounting rules. HEI said the error lowered profits by a total of $2 million to $4 million, but it still hasn't determined how many quarters were understated.
Suzy Hollinger, manager of investment relations at HEI, said the error was discovered last Wednesday. There wasn't enough time to correct the earnings report by Monday.
Historically, it has been a red flag when companies delay the release of earnings. But earnings delays have become more common, and they're not always caused by wrongdoing.
"Usually, it's a bad sign — not always, but a majority of the time. But in the last few years, with all the accounting changes, we're seeing a lot of restatements. That's not necessarily all bad," said Chuck Hill, president of Massachusetts investment research firm Veritas et Lux who testified before Congress on Houston-based energy trader Enron's accounting irregularities.
Accounting fraud at Enron, exposed in late 2001, sparked outrage in Congress and among the public. Since then, regulators have cracked down on accounting practices, and auditors have become more cautious, especially after the collapse of Arthur Andersen, Enron's accounting firm.
"Five years ago, you hear something like this and you think 'uh-oh, they did something wrong,' " Hill said. "Today? No."
A company restates earnings when auditors discover an error or when executives come under pressure from the Securities and Exchange Commission to modify overly aggressive accounting methods, he said.
HEI's Hollinger said the SEC did not pressure the company to correct the error. She declined to say how the error was found.
"I don't think there's cause for concern," said Doug Fischer, an analyst at A.G. Edwards in Missouri. "The dollar amount (of the earnings error) was relatively small and the underlying economic reality hasn't changed."
For 2003, HEI's net income was $114.2 million, or $1.52 a share after a two-for-one stock split, on revenue of $1.8 billion.
For 2004, Wall Street analysts expect $1.72 a share in earnings, according to Thomson Financial. For the fourth quarter, the Street consensus was 42 cents.
Shares of Hawaiian Electric rose by 22 cents today to $28.78.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
