Hawaiian Electric Industries Inc (HE) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2009 Hawaiian Electric Industries Incorporated earnings conference call. My name is Tom and I'll be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I'd now like to turn the presentation over to Shelee Kimura, Manager for Investor Relations and Strategic Planning. Please go ahead.

Aloha and good morning. Thank you for joining us for an update on HEI. Here with me from our senior management team and speaking today are Connie Lau, HEI President and CEO, and Jim Ajello, HEI CFO. Dick Rosenblum, HECO President and CEO, and Tim Schools, ASB President, and other members of Senior Management are also on the call. Connie will begin the presentation with a Strategic Update and Jim will take you through economic and financial highlights. Connie will then discuss key investment points and then open it up for Q&A. In today's presentation, management will be using non-GAAP financial measures to describe the bank's operating performance. Management believes these measures provide a clearer picture of the bank's operating performance and are a better indicator of the bank's ongoing core operating activities.

We have provided more detailed information about management views of non-GAAP financial measures, including detailed reconciliations from equivalent GAAP measures to the non-GAAP financial measures used in the presentation and the accompanying disclosure and schedule to today's presentation slides that are posted on our website. Forward-looking statements will also be made on today's call. Please reference pages IV and V of our third quarter Form 10-Q that was filed today for information about forward-looking statements. You may also reference the accompanying disclosure to the webcast slides located on our website. Let me ask Connie to begin the presentation.

Aloha, everyone. Good morning and thank you for joining us today. For the third quarter, we earned $0.37 a share compared to $0.44 a share for the same quarter last year. We are pleased with our company's overall performance, given our expectations at the outset of the quarter for continued pressure on earnings given the continuing difficult economic conditions and delays in the regulatory process. Disciplined efforts to control costs at our operating Company contributed significantly to mitigating these effects in the quarter. As a result of this and other factors, our results are trending better than we guided in the second quarter but still lower than we had originally forecast for the year. Last quarter, we indicated that expense controls at the utility should at least keep utility earnings for the second half of 2009 at the same suppressed level as in the first half.

Swift and aggressive management action to implement short-term cost deferrals and reductions helped us manage through delays and rate relief and in the implementation of new regulatory mechanisms. However, while a small portion of these reductions are sustainable, the majority of the reductions are temporary cost containment efforts which cannot be sustained long-term without impacting operations. In addition, kilowatt hour sales, although still below budget for the year, benefited from more normal weather than we saw in the first half of the year. At the bank, at the end of the second quarter, we expected strong revenue and additional reductions in non-interest expenses to continue to help offset elevated credit costs. During the quarter, the bank experienced strong core deposit account and balance growth and continued expense reductions and benefited from lower loan loss provisions and a gain on sale of a large commercial credit.

This was offset by higher other than temporary impairment, or OTTI, charges from our securities portfolio. While we have made tactical adjustments to account for the current challenges, we continue to stay focused on our longer term financial strategy of resetting the regulatory model at the utility and improving profitability at the bank. Implementing a new regulatory model consistent with the Hawaii Clean Energy Initiative Agreement we signed last year is the foundation for the utilities long-term strategy. This will enable us to be a catalyst for the state's renewable energy goals, benefiting our state and our customers, as well as providing long-term value creation for our investors. In the next few slides I will share with you our progress on key regulatory initiatives including sales (inaudible), which I know is on your mind. First, let me give you an update on the 2009 Oahu rate case. Evidentiary hearings commenced last week and are expected to conclude this week.

On August 3rd, the PUC granted approval to implement a partial interim increase in annualized revenues of $61.1 million. The partial interim rate increase did not include several significant items which had been stipulated to with the consumer advocate and the department of defense and were instead deferred for consideration in the ongoing evidentiary hearing. Chief among the deferred items was roughly $13 million of revenue requirement for our new Oahu generating unit, CT-1. We completed all utility requirements for system operations of CT-1 on August 3rd. In addition, after the PUC denied approval of the Imperium biofuels contract for CT-1, management expedited a two part process to select new biofuel suppliers. The first contract providing fuel for testing has been submitted for PUC approval and due to the use of an alternative feedstock provides for more favorable pricing than the Imperium contract.

We expect to have a second two year operations contract submitted to the PUC by the end of this month. In the evidentiary hearing, we will request a second interim decision to include the CT-1 cost in rates. While there is no statutory deadline, we are hoping for a decision by the end of the year. The hearings also include a range of other items, including an updated recommendation to our requested return on equity of 10.75% from the 11% we were asking for earlier. Continuing with our regulatory initiatives, Maui Electric filed a 2010 test year rate case on September 30th requesting an overall revenue increase of 9.7% or $28.2 million. The request is based on a 10.75% return on common equity and an 8.57% return on rate base. This case is intended to set the basis for sales to coupling, which I will discuss shortly. The statutory deadline for an interim decision from the PUC expires in the third quarter of 2010.

Let me now update you on decoupling, starting with a recap of the three main components of the Company's and consumer advocates joint proposal. First is the revenue balancing account, which is the mechanism to delink revenues from electricity usage and allow for a periodic true-up of sales revenues. Second is the revenue adjustment mechanism for expenses, which is an annual index adjustment in rates to account for changes in costs. Last is the revenue adjustment mechanism for capital additions, which adjusts our rates in a more timely fashion to account for additions during the year. Mechanisms would significantly improve the utilities ability to earn its allowed rates of return by reducing the regulatory lag that has been weighing on earnings, credit ratings and value creation for our investors. The decoupling docket is currently awaiting PUC decision, which we hope to receive by the end of this year. However, we cannot predict the PUCs timing and actions.

Another key regulatory initiative supporting our clean energy goal is the clean energy infrastructure surcharge, which is also awaiting PUC approval. This surcharge would be used to recover costs associated with approved initiatives in support of renewable energy. We would need to file for recovery through the surcharge on a project by project basis. Due to the ongoing economic challenges and management's efforts to prudently manage costs, we are currently deferring non-time critical renewable energy spending. While the regulatory process is taking longer than we had hoped, we recognize the difficult economic environment, heavy work load, and complexity of major regulatory policies being considered. We continue to believe the Hawaii Commission is supportive of our new regulatory initiative.

At the bank we continue to make significant strides in our performance improvement project. As we have discussed in the past, this initiative is designed to improve our profitability over a multi-year period concluding at the end of 2010 with full results anticipated in 2011. Our success with our market leading checking account introduced last year has continued, with core deposits increasing almost $249 million year-to-date and $57 million in the third quarter. The associated fee income from these new deposits led to strong revenue growth, excluding this quarter's recognition of OTTI. Management continues to identify opportunities to reduce the bank's cost structure largely through improved processes and procedures. This is helping substantially to offset currently elevated credit expenses. At the end of the third quarter, our bank team achieved a $148 million annualized adjusted non-interest expense run rate just in reach of its target of $140 million to $145 million by the end of 2010. At that point our efficiency ratio should be in the low 50% range and will be in-line with high performance peers.

As a result of the success to date on these initiatives, our annualized adjusted pretax, pre-provision income has increased quarter-over-quarter to approximately 21% or $22 million to $129 million. Notably, $9 million of that growth or 7% occurred in the third quarter. We are focusing on pretax, pre-provision income because we believe it is the best indicator of the bank's core operating performance. We've adjusted this metric to exclude the impact of OTTI charges related to the credit cycle, a gain on sale of a commercial loan, a special FDIC assessment and certain costs associated with the performance improvement project. This provides an apples-to-apples comparison for each of the five quarters shown. We have provided a reconciliation of our adjustments from GAAP in the Appendices. This level of core operating performance provides a solid foundation for earnings growth as the economy recovers. Let me break here and ask Jim to update you on the Hawaii economy, our key performance drivers and [some] national position.

Thanks, Connie. I'll start with an update of the state of our local economy, touch on earnings and move to on update of our expectations for key performance drivers. I'll end by discussing support for the dividend, liquidity, and capital. First the economic back drop. Hawaii's tourism industry is a significant driver of Hawaii's economy and it is also one of our largest utility customer segments. You can see from this slide the significant impact of the declines in the US and Japanese economies on our visitor industry. However, arrivals appear to have stabilized near the 2002-2003 level and, in fact, increased 7% in September over the same month last year. Local economists expect visitor arrivals and expenditures to achieve modest gains in 2010 of between 1.2% to 3.2% and 2.9% respectively. Unemployment rose dramatically over the last year from 4.4% in September, 2008 to 7.2% in September, 2009. However, it still remains well below the national average of 9.8%.

The Oahu housing market saw slight improvement in September, 2009, with increases to both home sale prices and volumes over the same period last year. The median resale price for Oahu homes was $600,000 in September, 2009, up 1.7% from the same period last year. While volumes for the month were up compared to the same month last year, year-to-date volumes were 16.2% lower. Local authorities note that while the housing market is still weak, there are indications that the Oahu market may have passed the bottom. This slide shows local economists expectations for key economic indicators. Based on their projections, we expect the impacts of Hawaii's weak economic conditions on electric sales and bank credit provisions to persist. Despite this economic back drop, HEI earned $33.5 million or $0.37 per share in the quarter compared to $37.3 million or $0.44 per share for the third quarter of 2008. Utility earned $26.5 million for the quarter compared to $25.9 million in the third quarter of 2008.

Primary after-tax differences were $5.8 million for two months of incremental interim rate relief for Oahu, offset by $1.1 million lower sales and $4.6 million higher O&M. While both sales and O&M had negative effects on the third quarter net income, they were better than we had expected. At the bank earnings were $11.3 million for the quarter compared to $15.4 million from the same quarter last year. Overall, these results reflect on an after-tax basis increases in deposit fee and other income of $3.1 million and $1.7 million of reductions in non-interest expenses, which were more than offset by a $1.1 million decrease in net interest income, $1.9 million of increased provisions for loan losses and $5.9 million of OTTI charges related to our private label mortgage-backed securities portfolio. Let me first turn to the key drivers for our utility results starting with sales. Sales for the quarter were 0.8% lower in the third quarter of 2008 and 3.7% year-to-date compared to the same period last year.

This quarter's decline improved significantly as weather normalized compared to the effects of weather in the first half of the year. We continue to see the impact of customer conservation and a declining Hawaii economy on sales. Assuming this trend continues in the fourth quarter with normalized weather we expect sales for the year to be slightly better than the 4% year-over-year decline we were predicting at the end of the second quarter. Absent sales decoupling, every 1% decline in sales represents about a $5 million annual decline in net income. Moving on to O&M. Last quarter we revised our original forecast for expected O&M from an increase of 13% year-over-year down to 10%, as we continue to pursue cost reduction measures to mitigate the effects of delays in the regulatory recovery. Quarter-over-quarter, O&M expenses were up $0.4 million or 0.4%. On a year-to-date basis, O&M increased 7.6%.

Results are favorable to our expectations due to, in large part, the short-term cost control measures implemented in the third quarter. This offset higher O&M costs related to renewable initiatives, CT-1 and our aging infrastructure. As a result we have improved our O&M outlook for the year and now expect the annual increase to be approximately 6% year-over-year, much lower than the 13% and 10% annual increases we estimated earlier in the year. While a small portion of these reductions are sustainable, the majority of the reductions are temporary cost containment efforts, which cannot be sustained long-term without impacting operations. I should re-emphasize for those modeling these increases, all of our O&M estimates have included and continue to include the impact of demand side management cost consistent with our Income Statement presentation.

The energy efficiency portion of these programs were transferred to a third party at the end of the second quarter, thus, the related cost decreased from $9.5 million in the third quarter of 2008 to $2.4 million in the third quarter of 2009. Since these costs are recovered in a surcharge, there is a corresponding reduction in revenues. We expect fourth quarter DSM expenses to be similar to third quarter levels. Finally, we continue to evaluate the timing and scope of our capital expenditure plans in light of the interim order.

Turning to the bank, the bank's net interest margin expanded in the quarter to 4.23% and remains above high performing pure bank averages. Our margin is driven by our large, high quality funding base. At the end of the third quarter over 25% of our assets were funded with free or low cost checking accounts. This is an extremely strong number in the banking industry. Equally strong, 60% of our assets are funded with core deposits and 84% are funded with customer deposits.

When you consider our equity levels, we essentially have a very -- very little wholesale funding, which increases our margin and markedly reduces the liquidity risk of the bank. In addition, funding costs continue to decrease, with core deposits at 22 basis points and total deposits at 70 basis points, down 11 and 15 basis points respectively from the second quarter. Because of the historically low interest rate environment the bank elected last year to begin selling its originations of one to four family mortgages. Booking these loans would not only hurt the net interest margin, but would more importantly increase interest rate risk. Along with the normal cash flows and payments and other loans and limited investment opportunities, our decision to sell the recent mortgage production has increased cash balances, which likely will put temporary downward pressure on net interest margin and income.

To mitigate some of these effects, management has taken proactive actions to reduce higher costing CD balances, putting the bank's cash to use without taking additional credit risk. In the third quarter the bank recorded $5.2 million in provisions for loan losses, compared to $13.5 million in the second quarter. While this brings year-to-date provisions to $27 million, it is important to note that we only charged off $16.9 million year-to-date of which $10 million is one credit. This leaves only $7 million of charge-offs on a $4 billion loan portfolio. In addition, a large component of the provision in prior quarters relating to a single commercial credit that was sold in September for a pretax gain of $3 million. The sale also reduced nonperforming assets by $10 million in the quarter. Higher delinquencies in our residential loan portfolio and one to four family mortgages comprise the majority of the third quarter's provisions. For our bank and the banking industry as a whole, the key uncertainty is around credit related provisions.

We believe our credit risk portfolio is on the conservative side compared with other banks because we have a high concentration of lower risk, one to four family mortgage loans and significantly less exposure than other banks to higher risk commercial real estate construction, residential construction, auto, and credit card loans. In total our performing assets ratio increased 6 basis points in the third quarter to 161 basis points. This is significantly below the third quarter 2009 median rate of 299 basis points recently cited by KBW for a sample of 39 banking institutions. ASB's third quarter increase reflects a rise in nonperforming residential lot, residential one to four family loans, especially on neighbor island mortgages, partially offset by the sale of a single commercial credit. Our net loan charge-off ratio was 19 basis points in the third quarter compared to 31 basis points in the second quarter, excluding the single commercial credit and 7 basis points in the third quarter of last year.

We continue to believe in the quality of our assets and that our primary credit risks are in the $380 million of neighbor island one to four family mortgages produced from 2005 to 2007, $126 million of mainland residential loans purchased in 2007 and $108 million of lot loans, which have a three year life, and $201 million of private mortgage-backed related securities net of unrealized losses. The $3 million gain on sale of the single commercial credit discussed previously was included in non-interest income. In addition, non-interest income includes other than temporary impairment charges totaling $9.9 million in the third quarter. As we said previously, these charges are difficult to predict and are driven by the underlying credit quality of the mortgage loans collateralizing the private issue mortgage securities. Further deterioration in the US residential housing market continues to pressure these securities, which make up 36% of the investment securities portfolio and 4% of interest earning assets.

Total pretax unrealized losses, losses in the private issued portfolio were $32 million on a gross book value of $233 million at the end of the third quarter. While management has been cautiously optimistic regarding the recoverability of these securities, the difficult real estate market has persisted longer than we expected. Management continues to watch these securities closely and based on the estimated credit losses, we are putting additional focus and attention on this portfolio to evaluate the situation, similar to what we have done with our lot loans. A key profitability driver for the bank is efficiency. Over the last year we have achieved improvements in both revenue as well as expense. The largest impact has been a lower expense base driven by improved processes and procedures. As you can see, on an adjusted basis third quarter 2009 non-interest expense are running at about $37 million for the quarter, $148 million annualized and the efficiency ratio is at 53%.

This is nice progress towards the bank's goal of $140 million to $145 million annualized adjusted non-interest expense by the end of 2010. The conversion of the bank system to Fiserv is expected to provide another $6 million annually in cost savings beginning June 1st and we expect to incur $2.3 million of related implementation costs in the first half of the year. In addition, in lieu of previously proposed special assessment that we discussed on our second quarter call, the FDIC recently announced that banks would be required to pay three years of FDIC quarterly assessments in December, 2009 to help recapitalize the deposit insurance fund. While there is no P&L impact as the assessment will be recorded as a prepaid asset and amortized over a three year period, revenues can be hurt from lost interest income on these funds. The Company has a strong capital base, with both operating companies solidly capitalized.

Our overall consolidated equity, including preferred stock, to total capitalization is at 51% at the end of the third quarter. The utility's equity layer is at 52%. At the bank its leverage ratio was 9.1% at the end of the third quarter, 73 basis points higher than the same quarter last year. Its total risk-based capital ratio was 13.2%. We continue to have very good access to liquidity and the capital markets. HEI and HECO have $275 million of syndicated credit facilities, all of which were available at quarter end. HECO closed on its $150 million revenue bond offering on July 30th and proceeds went to reimbursed HECO for previously incurred capital expenditures and to repay short-term borrowings. Now let me update you on support for the dividend. This slide shows the simple sources and uses of cash at the holding Company level. As you can see we expect primary support for the dividend to come from the subsidiary companies.

We will be financing uncovered portions and holding Company expenses with equity issuances through our dividend reinvestment plan and via short-term borrowings. You may also recall that we raised a little over $100 million in equity last December and used it to paydown short-term debt at the holding Company, pending the PUCs approval of HECO's application to sell common equity to HEI. HECO received approval on October 23rd. Thus, HEI will be contributing approximately $100 million of equity by the end of the year. That brings me to the fourth quarter dividend. The Board declared a dividend payable on December 10th to holders of record on November 16th. The ex-dividend date is November 12th. Let me turn the call back over to Connie.

Thanks, Jim. We continue to see the opportunity for investment in our Company as multi-fold. You take a moment to frame the primary investment points before opening it up to your questions. At our utility we are working hard with the consumer advocate, the PUC and their staff towards a new regulatory model which will help us significantly close the gap between our earned and allowed rates of return. At the same time, we will continue to seek recovery of costs and return on investments through the traditional rate case process. In addition to the Maui Electric 2010 rate case we recently filed, we expect to file a HELCO rate case before the end of year. Filing these cases is also consistent with the Hawaii Clean Energy Initiative Agreement, as they are intended to set the base for decoupling for HELCO and MECO.

Pending the outcome and timing of the decision on the outstanding items in the 2009 HECO rate case and the decoupling docket, we are also anticipating a 2011 test year rate case for Oahu. At the bank, the core business is performing very well. Given our profitability improvements to date and expectations over the next year, the bank has the possibility to go from earning roughly $50 million per year as it did in 2007 and on an adjusted basis in 2008 to $65 million to $70 million with an ROA of about 1.4% when credit expenses normalize. This estimate is subject to no material changes in the yield curve which could affect net interest income. We believe we are making good progress in realizing these opportunities, which will provide support for the dividend. We continue to recognize the importance of the dividend to our investors. At 7%, our current dividend yield remains attractive. Thank you all for your attention and I'll now open it up for your questions.

(Operator Instructions) And your first question comes from the line of Paul Patterson with Glenrock Associates. Please proceed.

Good morning, guys.

Good morning, hi, Paul.

How you doing?

Okay.

The deferral on the O&M, how should we think about that coming back and how will decoupling deal with that I guess?

Paul, Dick Rosenblum is here and I'm going to let Dick address that for you.

Hi, this is Dick Rosenblum. There is sort of two categories of the O&M reductions. One are reductions we would expect to sustain through future years and that's primarily as a result of renegotiating some contracts. We've taken all contracts, service contracts I should say, that are more than six months old and asked for decreases and as you would expect in this economy we're seeing some of those. The majority of the reduction, however, is pushing off work and reducing things that will in fact come back in future years. So you would expect the majority of the reduction to show up in later years and it really consists of things like outages on power plants that because of lower sales were rescheduled into out years, minor maintenance that was rescheduled into outer years.

Let me just correct, the overhauls.

I'm sorry, overhauls.

Yes, overhauls.

Okay, but how does decoupling work with that? In the absence of a base rate case, how do you get recovery of that? I know on the -- you've got some stuff for DSM and what have you, but how should we think about that O&M and how it would impact the bottom-line assuming that a decoupling order similar to the settlement that you guys have is enacted by the beginning of the year.

Paul, in each case, the base level of O&M would be set in the rate case and then the rate adjustment mechanism will actually pick it up on an index level, so that's how the financial side of it would work.

Okay, so in the absence of base rate cases, we're going to have a higher O&M in 2010, is that correct?

That is correct and then that's the reason why we're anticipating that we would be filing a 2011 rate case as well, that would then reset that base.

Right, but that would -- when would that come about?

The 2011 case would have to be filed before the middle of the year in 2010.

Okay and so it would be the middle of 2011 that we get relief, correct?

Correct.

Okay. And then as far as the decoupling case, are you guys still - you guys mentioned that you guys hope to have one by the end of the year, but is there anything else that we should think about in terms of watching that process?

I don't believe so. I'm looking at Dick, too, and we don't think that there's anything additional that would be coming with that.

Okay. And then on the -- the OTTI stuff, it seems to be increasing and in the loan loss provisions if you could just address them a little bit more. That private mortgage security issue, what do you think is causing this impact in the third quarter and just give us a little more flavor as to what's happening in the third quarter versus the second quarter in terms of the performance of the securities.

Sure. Sure. Paul, let me ask Tim if he will address that question.

Hi, Tim.

Hi, Paul, it's Tim. Directly to your question, what happened was delinquencies continued to go up and then the loss factors of the loans that have actually been foreclosed from those pools were higher than they were earlier in the year. And the way that works is if you are not familiar with these is banks generate these mortgages, you sell them in the secondary market, capital markets creates these pools you can buy into, so we have roughly say 50 different securities that we bought and in each of those would be a bunch of mortgages, right? One may be in Tampa, one may be in Wisconsin, one in California, one in Oklahoma, wherever. It's got a bunch of mortgages and you get data back from the servicer every month and private mortgage-backed securities basically mean they are not fully guaranteed or insured by the government, like agency securities.

So we knew we had these and we've been monitoring them and then you can buy different tranches. So if you buy into this, the first tranche comes with -- you take the losses first, the second tranche you take them second and the third tranche you take third. In most of these, we're in the lessed risk tranche. We're typically in the last tranche, which is the best. But in a couple of them we are not, we're in the first tranche. And anyway in second quarter news started coming out in the market that there was more market for these securities, prices were coming back. And second quarter also was the first quarter that you started hearing wow, home prices linked month were starting to plateau or come up.

Home sales were starting to plateau or come up. So instead of realizing a loss, we said let's hold off another quarter and see what happens, but when we got our third quarter data, the trajectory of delinquencies continued on the same path. It's basically about a 30-degree or 35-degree angle if you look at the last 15 months, it's just continuing up on delinquencies. And then of all the loans that they foreclosed, the loss rates on those, they're staggering. They're 50% to 60%. When they take in a loan the value of those loans are losing 50% to 60%. So as Dick said in his comments, we've been evaluating this every month for the last 15 months, but as we study this it does not look like the national mortgage market is going to bounce back quickly, so we think that it's going to go sideways to potentially slightly worse, so there are prospects for more OTTI.

Why wouldn't it be, I guess, why wouldn't it be even worse? I mean -- I mean, as opposed to flat, if these loan loss -- if the numbers are so bad on the recovery, what -- wouldn't that indicate that like you might see more delinquencies or what would make you think it would be plateauing?

I'm [chasing] one of the two. I mean, I don't know. Just like I haven't been able to call it the last 15 months. I would definitely, as you're saying, I would suggest there's three options, right? It's going to get better, it's going to stay flat or it's going to get worse. I think definitely one of the other two and -- and as I just said, our -- our delinquencies have been a straight 30-degree rise. It has not slowed down at all, so it's been this straight 30-degree rise. We were optimistic in hearing the second quarter news, hey, maybe with these -- I don't know where people report these link quarter increases in housing prices and housing sales. We are seeing some plateauing in Hawaii, but the national data we're getting out of our pools, it's not happening. And really what hurt it worse in third quarter was the loss experience. It's all a function of your delinquency and then your actual losses and up until second quarter, the houses that had foreclosed were losing about 30% of their value. The houses that foreclosed in third quarter lost 50% of their value.

Paul, that's the reason why, as we said, there are two areas in our assets that we continually monitor. One is the residential lot loans that we've talked about previously and then these private mortgage-backed securities. And just like -- Tim has put together a strategy to work the residential lot loans much more closely so that we can work with the borrowers to restructure those credits or pay down some of those loans, we're doing the same thing on the private mortgage-backed side and we're looking for strategies to mitigate this risk and to manage that portfolio better.

Okay, great. Thanks a lot guys.

(Operator Instructions) Ladies and Gentlemen, to ask a question please press star 1.

Gee, Paul, looks like you may have asked everyone's questions.

Ladies and gentlemen, this concludes the question and answer session for today's conference. I would like to turn the call back over to Shelee Kimura from any closing remarks.

Thank you for being on the call today. If you have follow-up questions, please contact me at 808-543-7384 or via e-mail at Skimura@HEI.com. Thank you, everyone.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.