Edgar Filing: HAWAIIAN ELECTRIC INDUSTRIES INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2018

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



Exact Name of Registrant as	Commission	I.R.S. Employer
Specified in Its Charter	File Number	Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.	1-8503	99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.	1-4955	99-0040500

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.



Hawaiian Electric Industries, Inc. Yes x No o		Hawaiian Electric Company, Inc. Yes x No o

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).



Hawaiian Electric Industries, Inc. Yes x No o		Hawaiian Electric Company, Inc. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.



Hawaiian Electric Industries, Inc.	Large accelerated filer x	Hawaiian Electric Company, Inc.	Large accelerated filer o
	Accelerated filer o		Accelerated filer o
	Non-accelerated filer o		Non-accelerated filer x
	(Do not check if a smaller reporting company)		(Do not check if a smaller reporting company)
	Smaller reporting company o		Smaller reporting company o
	Emerging growth company o		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Hawaiian Electric Industries, Inc. o		Hawaiian Electric Company, Inc. o

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



Hawaiian Electric Industries, Inc. Yes o No x		Hawaiian Electric Company, Inc. Yes o No x

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 27, 2018
Hawaiian Electric Industries, Inc. (Without Par Value)		108,879,245 Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)		16,142,216 Shares (not publicly traded)

Hawaiian Electric Industries, Inc. (HEI) is the sole holder of Hawaiian Electric Company, Inc. (Hawaiian Electric) common stock.

This combined Form 10-Q is separately filed by HEI and Hawaiian Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to Hawaiian Electric is also attributed to HEI.

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended June 30, 2018

TABLE OF CONTENTS



Page No.
ii	Glossary of Terms
iv	Cautionary Note Regarding Forward-Looking Statements

	PART I. FINANCIAL INFORMATION
1	Item 1.	Financial Statements
		Hawaiian Electric Industries, Inc. and Subsidiaries
1		Condensed Consolidated Statements of Income (unaudited) - three and six months ended June 30, 2018 and 2017
2		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and six months ended June 30, 2018 and 2017
3		Condensed Consolidated Balance Sheets (unaudited) - June 30, 2018 and December 31, 2017
4		Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - six months ended June 30, 2018 and 2017
5		Condensed Consolidated Statements of Cash Flows (unaudited) - six months ended June 30, 2018 and 2017
		Hawaiian Electric Company, Inc. and Subsidiaries
6		Condensed Consolidated Statements of Income (unaudited) - three and six months ended June 30, 2018 and 2017
6		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and six months ended June 30, 2018 and 2017
7		Condensed Consolidated Balance Sheets (unaudited) - June 30, 2018 and December 31, 2017
8		Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited) - six months ended June 30, 2018 and 2017
9		Condensed Consolidated Statements of Cash Flows (unaudited) - six months ended June 30, 2018 and 2017
10		Notes to Condensed Consolidated Financial Statements (unaudited)
62	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
62		HEI consolidated
66		Electric Utilities
78		Bank
86	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
87	Item 4.	Controls and Procedures

	PART II.	OTHER INFORMATION
87	Item 1.	Legal Proceedings
87	Item 1A.	Risk Factors
88	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
88	Item 5.	Other Information
89	Item 6.	Exhibits
90	Signatures

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended June 30, 2018

GLOSSARY OF TERMS



Terms		Definitions
ADIT		Accumulated deferred income tax balances
AES Hawaii		AES Hawaii, Inc.
AFUDC		Allowance for funds used during construction
AOCI		Accumulated other comprehensive income/(loss)
ASC		Accounting Standards Codification
ASB		American Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii, Inc.
ASB Hawaii		ASB Hawaii, Inc. (formerly 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
CIAC		Contributions in aid of construction
CIP CT-1		Campbell Industrial Park 110 MW combustion turbine No. 1
Company		Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; Pacific Current, LLC and its subsidiaries, Hamakua Holdings, LLC (and its subsidiary, Hamakua Energy, LLC) and Mauo Holdings, LLC (and its subsidiary, Mauo, LLC); The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.); and HEI Properties, Inc. (dissolved in 2015 and wound up in 2017)
Consumer Advocate		Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
CBRE		Community-based renewable energy
DER		Distributed energy resources
D&O		Decision and order from the PUC
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOH		Department of Health of the State of Hawaii
DRIP		HEI Dividend Reinvestment and Stock Purchase Plan
ECAC		Energy cost adjustment clause
ECRC		Energy cost recovery clause
EIP		2010 Equity and Incentive Plan, as amended and restated
EPA		Environmental Protection Agency — federal
EPS		Earnings per share
ERP/EAM		Enterprise Resource Planning/Enterprise Asset Management
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
GAAP		Accounting principles generally accepted in the United States of America

GLOSSARY OF TERMS, continued



Terms		Definitions
GNMA		Government National Mortgage Association
Hawaii Electric Light		Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
Hawaiian Electric		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.
Hamakua Energy		Hamakua Energy, LLC, an indirect subsidiary of HEI and successor in interest to Hamakua Energy Partners, L.P., an affiliate of Arclight Capital Partners (a Boston based private equity firm focused on energy infrastructure investments) and successor in interest to Encogen Hawaii, L.P.
HEI		Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc., HEI Properties, Inc. (dissolved in 2015 and wound up in 2017), The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.) and Pacific Current, LLC
HEIRSP		Hawaiian Electric Industries Retirement Savings Plan
HELOC		Home equity line of credit
HPOWER		City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP		Independent power producer
Kalaeloa		Kalaeloa Partners, L.P.
KWH		Kilowatthour/s (as applicable)
LTIP		Long-term incentive plan
Maui Electric		Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MPIR		Major Project Interim Recovery
MSR		Mortgage servicing right
Mauo		Mauo, LLC, an indirect subsidiary of HEI
MW		Megawatt/s (as applicable)
NEM		Net energy metering
NII		Net interest income
NPBC		Net periodic benefit costs
NPPC		Net periodic pension costs
O&M		Other operation and maintenance
OCC		Office of the Comptroller of the Currency
OPEB		Postretirement benefits other than pensions
Pacific Current		Pacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings, LLC and Mauo Holdings, LLC
PIMs		Performance incentive mechanisms
PPA		Power purchase agreement
PPAC		Purchased power adjustment clause
PSIPs		Power Supply Improvement Plans
PUC		Public Utilities Commission of the State of Hawaii
PV		Photovoltaic
RAM		Rate adjustment mechanism
RBA		Revenue balancing account
RFP		Request for proposals
ROACE		Return on average common equity
RORB		Return on rate base
RPS		Renewable portfolio standards
SEC		Securities and Exchange Commission
See		Means the referenced material is incorporated by reference
Tax Act		2017 Tax Cuts and Jobs Act (H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018)
TDR		Troubled debt restructuring
Trust III		HECO Capital Trust III
Utilities		Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIE		Variable interest entity

iii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) 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 “will,” “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, political 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 and political 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 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; 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; the conflict in Syria; the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; terrorist acts; potential conflict or crisis with North Korea; and potential pandemics);


•	the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling, monetary policy, trade policy and tariffs, and other policy and regulation changes advanced or proposed by President Trump and his administration;


•	weather and natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the potential effects of climate change, such as more severe storms and rising sea levels), including their impact on the Company's and Utilities' 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 and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue 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 (including tax 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 potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet renewable portfolio standards (RPS) goals and the impacts of implementation of the renewable energy proposals on future costs of electricity;

•

the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans (PSIPs), Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC, the PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC;


•	capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, 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, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs);


•	the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;


•	the ability of the Utilities to achieve performance incentive mechanisms currently in place;


•	the impact from the PUC’s implementation of performance-based ratemaking for the Utilities pursuant to Senate Bill No. 2939 SD2, including the potential addition of new performance incentive mechanisms, third party proposals to the PUC’s implementation of PBR, and the implications of not achieving performance incentive goals;


•	the impact of fuel price volatility on customer satisfaction and political and regulatory support for the Utilities;


•	the risks associated with increasing reliance on renewable energy, 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 growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities' electric systems and as customers reduce their energy usage;


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


•	the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;


•	the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements;


•	new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels;

•

cyber security risks and the potential for cyber incidents, including potential incidents at HEI, its third-party vendors, and its subsidiaries (including at ASB branches and 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;


•	any failure in the implementation of the ERP/EAM system could adversely affect the Utilities’ ability to timely and accurately report financial information and make payments to vendors and employees;

•

federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas 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);


•	developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;


•	discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;


•	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 RPS);

•

potential enforcement actions by the Office of the Comptroller of the Currency (OCC), 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 Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by RAMs;


•	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 and its subsidiaries, including the adoption of 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/finance lease or on-balance-sheet operating lease accounting for PPAs with IPPs;


•	changes by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric 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 provision for loan losses, 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 and its 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);


•	the ability of the Company’s non-regulated subsidiary, Pacific Current, LLC, to achieve its performance and growth objectives, which in turn could affect its ability to service its non-recourse debt;


•	the Company’s reliance on third parties and the risk of their non-performance; 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 Hawaiian Electric 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, Hawaiian Electric, ASB, Pacific Current and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands, except per share amounts)	2018			2017			2018			2017
Revenues
Electric utility	$	608,126		$	556,875		$	1,178,553		$	1,075,486
Bank	77,104			75,329			152,523			148,185
Other	47			77			75			172
Total revenues	685,277			632,281			1,331,151			1,223,843
Expenses
Electric utility	552,982			500,393			1,072,040			968,643
Bank	50,187			50,332			100,719			98,833
Other	3,309			3,754			7,704			8,827
Total expenses	606,478			554,479			1,180,463			1,076,303
Operating income (loss)
Electric utility	55,144			56,482			106,513			106,843
Bank	26,917			24,997			51,804			49,352
Other	(3,262		)	(3,677		)	(7,629		)	(8,655		)
Total operating income	78,799			77,802			150,688			147,540
Retirement defined benefits expense—other than service costs	(1,564		)	(1,906		)	(3,397		)	(3,782		)
Interest expense, net—other than on deposit liabilities and other bank borrowings	(22,001		)	(20,440		)	(43,519		)	(40,008		)
Allowance for borrowed funds used during construction	1,365			1,143			2,809			2,032
Allowance for equity funds used during construction	2,983			3,027			6,277			5,426
Income before income taxes	59,582			59,626			112,858			111,208
Income taxes	13,055			20,492			25,611			37,408
Net income	46,527			39,134			87,247			73,800
Preferred stock dividends of subsidiaries	473			473			946			946
Net income for common stock	$	46,054		$	38,661		$	86,301		$	72,854
Basic earnings per common share	$	0.42		$	0.36		$	0.79		$	0.67
Diluted earnings per common share	$	0.42		$	0.36		$	0.79		$	0.67
Dividends declared per common share	$	0.31		$	0.31		$	0.62		$	0.62
Weighted-average number of common shares outstanding	108,842			108,750			108,830			108,712
Net effect of potentially dilutive shares	121			47			223			157
Weighted-average shares assuming dilution	108,963			108,797			109,053			108,869

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands)	2018			2017			2018			2017
Net income for common stock	$	46,054		$	38,661		$	86,301		$	72,854
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on available-for-sale investment securities:
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of tax benefits (taxes) of $1,592, $(1,334), $6,459 and $(1,482), respectively	(4,348		)	2,021			(17,645		)	2,244
Derivatives qualifying as cash flow hedges:
Reclassification adjustment to net income, net of tax benefits of nil, nil, nil and $289, respectively	—			—			—			454
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,862, $2,508, $3,654 and $5,010, respectively	5,350			3,930			10,496			7,851
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,674, $2,281, $3,277 and $4,582, respectively	(4,827		)	(3,581		)	(9,449		)	(7,194		)
Other comprehensive income (loss), net of taxes	(3,825		)	2,370			(16,598		)	3,355
Comprehensive income attributable to Hawaiian Electric Industries, Inc.	$	42,229		$	41,031		$	69,703		$	76,209

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)



(dollars in thousands)	June 30, 2018			December 31, 2017
Assets
Cash and cash equivalents	$	254,665		$	261,881
Accounts receivable and unbilled revenues, net	299,771			263,209
Available-for-sale investment securities, at fair value	1,409,528			1,401,198
Held-to-maturity investment securities, at amortized cost	62,630			44,515
Stock in Federal Home Loan Bank, at cost	10,158			9,706
Loans held for investment, net	4,721,941			4,617,131
Loans held for sale, at lower of cost or fair value	5,248			11,250
Property, plant and equipment, net of accumulated depreciation of $2,615,259 and $2,553,295 at June 30, 2018 and December 31, 2017, respectively	4,611,949			4,460,248
Regulatory assets	860,410			869,297
Other	565,614			513,535
Goodwill	82,190			82,190
Total assets	$	12,884,104		$	12,534,160
Liabilities and shareholders’ equity
Liabilities
Accounts payable	$	213,832		$	193,714
Interest and dividends payable	27,594			25,837
Deposit liabilities	6,116,109			5,890,597
Short-term borrowings—other than bank	202,857			117,945
Other bank borrowings	126,930			190,859
Long-term debt, net—other than bank	1,783,009			1,683,797
Deferred income taxes	375,832			388,430
Regulatory liabilities	905,216			880,770
Defined benefit pension and other postretirement benefit plans liability	494,541			509,514
Other	500,873			521,018
Total liabilities	10,746,793			10,402,481
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: 108,879,245 shares and 108,787,807 shares at June 30, 2018 and December 31, 2017, respectively	1,665,901			1,662,491
Retained earnings	495,656			476,836
Accumulated other comprehensive loss, net of tax benefits	(58,539		)	(41,941		)
Total shareholders’ equity	2,103,018			2,097,386
Total liabilities and shareholders’ equity	$	12,884,104		$	12,534,160

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)



	Common stock				Retained			Accumulated other comprehensive
(in thousands)	Shares	Amount			Earnings			income (loss)			Total
Balance, December 31, 2017	108,788	$	1,662,491		$	476,836		$	(41,941	)	$	2,097,386
Net income for common stock	—	—			86,301			—			86,301
Other comprehensive loss, net of tax benefits	—	—			—			(16,598		)	(16,598		)
Issuance of common stock, net of expenses	91	3,410			—			—			3,410
Common stock dividends	—	—			(67,481		)	—			(67,481		)
Balance, June 30, 2018	108,879	$	1,665,901		$	495,656		$	(58,539	)	$	2,103,018
Balance, December 31, 2016	108,583	$	1,660,910		$	438,972		$	(33,129	)	$	2,066,753
Net income for common stock	—	—			72,854			—			72,854
Other comprehensive income, net of taxes	—	—			—			3,355			3,355
Issuance of common stock, net of expenses	202	(507		)	—			—			(507		)
Common stock dividends	—	—			(67,426		)	—			(67,426		)
Balance, June 30, 2017	108,785	$	1,660,403		$	444,400		$	(29,774	)	$	2,075,029

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)



	Six months ended June 30
(in thousands)	2018			2017
Cash flows from operating activities
Net income	$	87,247		$	73,800
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	106,063			100,062
Other amortization	20,603			6,101
Provision for loan losses	6,304			6,741
Loans originated and purchased, held for sale	(78,313		)	(69,595		)
Proceeds from sale of loans, held for sale	77,382			79,944
Deferred income taxes	(9,672		)	17,047
Share-based compensation expense	4,414			3,285
Allowance for equity funds used during construction	(6,277		)	(5,426		)
Other	(147		)	246
Changes in assets and liabilities
Increase in accounts receivable and unbilled revenues, net	(41,526		)	(12,394		)
Increase in fuel oil stock	(19,867		)	(5,962		)
Decrease (increase) in regulatory assets	(19,600		)	8,179
Increase in accounts, interest and dividends payable	31,784			43,530
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes	(26,558		)	(37,954		)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	(871		)	420
Change in other assets and liabilities	(22,695		)	(33,922		)
Net cash provided by operating activities	108,271			174,102
Cash flows from investing activities
Available-for-sale investment securities purchased	(133,698		)	(295,510		)
Principal repayments on available-for-sale investment securities	108,379			99,663
Purchases of held-to-maturity investment securities	(20,450		)	—
Principal repayments of held-to-maturity investment securities	2,270			—
Purchase of stock from Federal Home Loan Bank	(7,533		)	(2,868		)
Redemption of stock from Federal Home Loan Bank	7,080			2,380
Net increase in loans held for investment	(111,521		)	(20,326		)
Proceeds from sale of commercial loans	7,149			13,493
Proceeds from sale of real estate acquired in settlement of loans	589			185
Capital expenditures	(259,898		)	(210,325		)
Contributions in aid of construction	13,573			17,571
Contributions to low income housing investments	(3,279		)	—
Other	5,919			8,216
Net cash used in investing activities	(391,420		)	(387,521		)
Cash flows from financing activities
Net increase in deposit liabilities	123,137			175,457
Net increase in short-term borrowings with original maturities of three months or less	84,881			49,789
Net increase in retail repurchase agreements	38,446			9,048
Proceeds from other bank borrowings	177,000			59,500
Repayments of other bank borrowings	(177,000		)	(73,034		)
Proceeds from issuance of long-term debt	100,000			265,000
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds	(878		)	(265,000		)
Withheld shares for employee taxes on vested share-based compensation	(996		)	(3,787		)
Common stock dividends	(67,481		)	(67,426		)
Preferred stock dividends of subsidiaries	(946		)	(946		)
Other	(230		)	(3,253		)
Net cash provided by financing activities	275,933			145,348
Net decrease in cash and cash equivalents	(7,216		)	(68,071		)
Cash and cash equivalents, beginning of period	261,881			278,452
Cash and cash equivalents, end of period	$	254,665		$	210,381

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands)	2018			2017			2018			2017
Revenues	$	608,126		$	556,875		$	1,178,553		$	1,075,486
Expenses
Fuel oil	171,717			141,259			338,685			285,529
Purchased power	160,738			153,067			300,648			280,191
Other operation and maintenance	112,642			104,939			220,252			203,756
Depreciation	50,361			48,156			100,827			96,372
Taxes, other than income taxes	57,524			52,972			111,628			102,795
Total expenses	552,982			500,393			1,072,040			968,643
Operating income	55,144			56,482			106,513			106,843
Allowance for equity funds used during construction	2,983			3,027			6,277			5,426
Retirement defined benefits expense—other than service costs	(988		)	(1,435		)	(2,252		)	(2,858		)
Interest expense and other charges, net	(18,160		)	(18,214		)	(35,854		)	(35,718		)
Allowance for borrowed funds used during construction	1,365			1,143			2,809			2,032
Income before income taxes	40,344			41,003			77,493			75,725
Income taxes	8,676			14,860			17,851			27,618
Net income	31,668			26,143			59,642			48,107
Preferred stock dividends of subsidiaries	229			229			458			458
Net income attributable to Hawaiian Electric	31,439			25,914			59,184			47,649
Preferred stock dividends of Hawaiian Electric	270			270			540			540
Net income for common stock	$	31,169		$	25,644		$	58,644		$	47,109

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)



	Three months ended June 30						Six months ended June 30
(in thousands)	2018			2017			2018			2017
Net income for common stock	$	31,169		$	25,644		$	58,644		$	47,109
Other comprehensive income (loss), net of taxes:
Derivatives qualifying as cash flow hedges:
Reclassification adjustment to net income, net of tax benefits of nil, nil, nil and $289, respectively	—			—			—			454
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $1,683, $2,306, $3,297 and $4,610, respectively	4,853			3,621			9,506			7,239
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,674, $2,281, $3,277 and $4,582, respectively	(4,827		)	(3,581		)	(9,449		)	(7,194		)
Other comprehensive income, net of taxes	26			40			57			499
Comprehensive income attributable to Hawaiian Electric Company, Inc.	$	31,195		$	25,684		$	58,701		$	47,608

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)



(dollars in thousands, except par value)	June 30, 2018			December 31, 2017
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	52,914		$	53,177
Plant and equipment	6,652,982			6,401,040
Less accumulated depreciation	(2,534,428		)	(2,476,352		)
Construction in progress	165,608			263,094
Utility property, plant and equipment, net	4,337,076			4,240,959
Nonutility property, plant and equipment, less accumulated depreciation of $1,253 as of June 30, 2018 and $1,251 as of December 31, 2017	7,581			7,580
Total property, plant and equipment, net	4,344,657			4,248,539
Current assets
Cash and cash equivalents	20,860			12,517
Customer accounts receivable, net	157,260			127,889
Accrued unbilled revenues, net	110,839			107,054
Other accounts receivable, net	6,896			7,163
Fuel oil stock, at average cost	107,016			86,873
Materials and supplies, at average cost	57,941			54,397
Prepayments and other	29,240			25,355
Regulatory assets	103,566			88,390
Total current assets	593,618			509,638
Other long-term assets
Regulatory assets	756,844			780,907
Other	108,595			91,529
Total other long-term assets	865,439			872,436
Total assets	$	5,803,714		$	5,630,613
Capitalization and liabilities
Capitalization
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 16,142,216 shares at June 30, 2018 and December 31, 2017)	$	107,634		$	107,634
Premium on capital stock	614,667			614,675
Retained earnings	1,131,185			1,124,193
Accumulated other comprehensive loss, net of tax benefits	(1,162		)	(1,219		)
Common stock equity	1,852,324			1,845,283
Cumulative preferred stock — not subject to mandatory redemption	34,293			34,293
Long-term debt, net	1,418,474			1,318,516
Total capitalization	3,305,091			3,198,092
Commitments and contingencies (Note 3)
Current liabilities
Current portion of long-term debt	49,983			49,963
Short-term borrowings from non-affiliates	91,880			4,999
Accounts payable	153,759			159,610
Interest and preferred dividends payable	22,684			22,575
Taxes accrued, including revenue taxes	172,063			199,101
Regulatory liabilities	9,787			3,401
Other	59,203			59,456
Total current liabilities	559,359			499,105
Deferred credits and other liabilities
Deferred income taxes	388,875			394,041
Regulatory liabilities	895,429			877,369
Unamortized tax credits	92,798			90,369
Defined benefit pension and other postretirement benefit plans liability	457,953			472,948
Other	104,209			98,689
Total deferred credits and other liabilities	1,939,264			1,933,416
Total capitalization and liabilities	$	5,803,714		$	5,630,613

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited)



	Common stock			Premium on capital			Retained			Accumulated other comprehensive
(in thousands)	Shares	Amount		stock			earnings			income (loss)			Total
Balance, December 31, 2017	16,142	$	107,634	$	614,675		$	1,124,193		$	(1,219	)	$	1,845,283
Net income for common stock	—	—		—			58,644			—			58,644
Other comprehensive income, net of taxes	—	—		—			—			57			57
Common stock dividends	—	—		—			(51,652		)	—			(51,652		)
Common stock issuance expenses	—	—		(8		)	—			—			(8		)
Balance, June 30, 2018	16,142	$	107,634	$	614,667		$	1,131,185		$	(1,162	)	$	1,852,324
Balance, December 31, 2016	16,020	$	106,818	$	601,491		$	1,091,800		$	(322	)	$	1,799,787
Net income for common stock	—	—		—			47,109			—			47,109
Other comprehensive income, net of taxes	—	—		—			—			499			499
Common stock dividends	—	—		—			(43,884		)	—			(43,884		)
Common stock issuance expenses	—	—		(5		)	—			—			(5		)
Balance, June 30, 2017	16,020	$	106,818	$	601,486		$	1,095,025		$	177		$	1,803,506

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)



	Six months ended June 30
(in thousands)	2018			2017
Cash flows from operating activities
Net income	$	59,642		$	48,107
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	100,827			96,372
Other amortization	13,021			4,262
Deferred income taxes	(8,343		)	23,599
Allowance for equity funds used during construction	(6,277		)	(5,426		)
Other	978			1,615
Changes in assets and liabilities
Increase in accounts receivable	(34,068		)	(1,729		)
Increase in accrued unbilled revenues	(3,785		)	(11,903		)
Increase in fuel oil stock	(20,143		)	(5,962		)
Increase in materials and supplies	(3,544		)	(3,420		)
Decrease (increase) in regulatory assets	(19,600		)	8,179
Increase in accounts payable	18,284			39,716
Change in prepaid and accrued income taxes, tax credits and revenue taxes	(31,061		)	(40,910		)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	(1,961		)	302
Change in other assets and liabilities	5,866			(14,047		)
Net cash provided by operating activities	69,836			138,755
Cash flows from investing activities
Capital expenditures	(213,220		)	(190,159		)
Contributions in aid of construction	13,573			17,571
Other	4,301			6,250
Net cash used in investing activities	(195,346		)	(166,338		)
Cash flows from financing activities
Common stock dividends	(51,652		)	(43,884		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(998		)	(998		)
Proceeds from issuance of long-term debt	100,000			265,000
Funds transferred for redemption of special purpose revenue bonds	—			(265,000		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	86,881			43,990
Other	(378		)	(3,229		)
Net cash provided by (used in) financing activities	133,853			(4,121		)
Net increase (decrease) in cash and cash equivalents	8,343			(31,704		)
Cash and cash equivalents, beginning of period	12,517			74,286
Cash and cash equivalents, end of period	$	20,860		$	42,582

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 · Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (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 unaudited condensed consolidated 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 condensed 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 and Hawaiian Electric’s Form 10-K for the year ended December 31, 2017.

In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of June 30, 2018 and December 31, 2017 and the results of their operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

Recent accounting pronouncements.

Revenues from contracts with customers. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance in ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company and Hawaiian Electric adopted ASU No. 2014-09 (and subsequently issued revenue-related ASUs, as applicable) in the first quarter of 2018. There was no cumulative effect adjustment and no impact on the timing or pattern of revenue recognition, but ASU No. 2014-09 required changes with respect to the Company’s and Hawaiian Electric’s revenue disclosures. See Note 7.

Financial instruments. In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which, among other things:


•	Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.


•	Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.


•	Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables).


•	Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.

The Company adopted ASU No. 2016-01 in the first quarter of 2018 and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated financial statements.

Cash flows. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on eight specific cash flow issues - debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.

The Company adopted ASU No. 2016-15 in the first quarter of 2018 using a retrospective transition method and there was no impact from the adoption to the Company’s and Hawaiian Electric’s consolidated statements of cash flows.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Restricted cash. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

The Company adopted ASU No. 2016-18 in the first quarter of 2018 using a retrospective transition method and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated statements of cash flows.

Definition of a Business. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations—Clarifying the Definition of a Business.” This update clarifies the definition of a business and adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted ASU No. 2017-01 in the first quarter of 2018 and the impact of adoption was not material to the Company’s and Hawaiian Electric’s consolidated financial statements.

Net periodic pension cost and net periodic postretirement benefit cost. In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost (NPPC) and net periodic postretirement benefit cost (NPBC) as defined in paragraphs 715-30-35-4 and 715-60-35-9 to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization under GAAP, when applicable.

The Company adopted ASU No. 2017-07 in the first quarter of 2018: (1) retrospectively for the presentation in the income statement of the service cost component and the other components of NPPC and NPBC, and (2) prospectively for the capitalization in assets of the service cost component of NPPC and NPBC for Hawaiian Electric and its subsidiaries. HEI and ASB do not capitalize pension and OPEB costs.

In settlement agreements in the 2018 Maui Electric, 2017 Hawaiian Electric and 2016 Hawaii Electric Light rate cases, Maui Electric, Hawaiian Electric and Hawaii Electric Light, respectively, and the Consumer Advocate agreed to the deferral of the non-service cost components of NPPC and NPBC, which would have been capitalized prior to ASU No. 2017-07, as part of the pension tracking mechanism. The PUC approved this treatment in the final decision and order (D&O) in the Hawaiian Electric and Hawaii Electric Light rate cases. The treatment under the settlement agreements was followed beginning in 2018 until each utility’s next rate case. In each utility’s next rate case, rates established would include recovery of the deferred non-service cost components and seek to adopt the capitalization policy which reflects the requirements of ASU No. 2017-07 (i.e., only the service cost components of NPPC and NPBC will be capitalized).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Thus, the adoption of ASU 2017-07 in the first quarter of 2018 does not have a net income impact. The following table summarizes the impact to the prior period financial statements of the adoption of ASU No. 2017-07:



	Three months ended June 30, 2017									Six months ended June 30, 2017
(in thousands)	As previously filed			Adjustment from adoption of ASU No. 2017-07			As currently reported			As previously filed			Adjustment from adoption of ASU No. 2017-07			As currently reported
HEI Condensed Consolidated Income Statement
Expenses
Electric utility	$	501,828		$	(1,435	)	$	500,393		$	971,501		$	(2,858	)	$	968,643
Bank	50,533			(201		)	50,332			99,229			(396		)	98,833
Other	4,024			(270		)	3,754			9,355			(528		)	8,827
Total expenses	556,385			(1,906		)	554,479			1,080,085			(3,782		)	1,076,303
Operating income
Electric utility	55,047			1,435			56,482			103,985			2,858			106,843
Bank	24,796			201			24,997			48,956			396			49,352
Other	(3,947		)	270			(3,677		)	(9,183		)	528			(8,655		)
Total operating income	75,896			1,906			77,802			143,758			3,782			147,540
Retirement defined benefits expense--other than service costs	—			(1,906		)	(1,906		)	—			(3,782		)	(3,782		)
Hawaiian Electric Condensed Consolidated Income Statement
Other operation and maintenance	106,374			(1,435		)	104,939			206,614			(2,858		)	203,756
Total expense	501,828			(1,435		)	500,393			971,501			(2,858		)	968,643
Operating income	55,047			1,435			56,482			103,985			2,858			106,843
Retirement defined benefits expense--other than service costs	—			(1,435		)	(1,435		)	—			(2,858		)	(2,858		)
Hawaiian Electric Condensed Consolidating Income Statement (in Note 3)
Hawaiian Electric (parent only)
Other operation and maintenance	70,961			(1,302		)	69,659			138,239			(2,587		)	135,652
Total expense	357,575			(1,302		)	356,273			690,763			(2,587		)	688,176
Operating income	36,839			1,302			38,141			66,494			2,587			69,081
Retirement defined benefits expense--other than service costs	—			(1,302		)	(1,302		)	—			(2,587		)	(2,587		)
Hawaii Electric Light
Other operation and maintenance	17,558			85			17,643			33,074			168			33,242
Total expense	72,903			85			72,988			141,400			168			141,568
Operating income	8,807			(85		)	8,722			19,292			(168		)	19,124
Retirement defined benefits expense--other than service costs	—			85			85			—			168			168
Maui Electric
Other operation and maintenance	17,855			(218		)	17,637			35,301			(439		)	34,862
Total expense	71,350			(218		)	71,132			139,338			(439		)	138,899
Operating income	9,415			218			9,633			18,220			439			18,659
Retirement defined benefits expense--other than service costs	—			(218		)	(218		)	—			(439		)	(439		)
ASB Statements of Income Data (in Note 4)
Compensation and employee benefits	24,742			(201		)	24,541			47,979			(396		)	47,583
Other expense	4,705			201			4,906			9,016			396			9,412

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Derivatives and Hedging. In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which is intended to improve and simplify accounting rules around hedge accounting. The amendments in ASU No. 2017-12 improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The amendments also expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the new guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, but early adoption is permitted. The Company early adopted ASU No. 2017-12 in the second quarter of 2018, with an effective date of April 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Leases. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires that lessees recognize a liability to make lease payments (the lease liability) and a right-of-use asset, representing its right to use the underlying asset for the lease term, for all leases (except short-term leases) at the commencement date. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election and recognize lease expense for such leases generally on a straight-line basis over the lease term. For finance leases, a lessee is required to recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of income. For operating leases, a lessee is required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.

The Company plans to adopt ASU No. 2016-02 in the first quarter of 2019 and is currently analyzing the potential impact of adoption, including the impact of electing certain practical expedients available under the standard. The Company has reviewed its agreements and has compiled a preliminary inventory of its operating leases and other arrangements that meet the definition of a lease under the new standard. The Company is in the process of analyzing the measurement provisions of the new standard and their impact to its existing lease arrangements that fall within the scope of ASU No. 2016-02.

Credit losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU No. 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date (based on historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale (AFS) debt securities and purchased financial assets with credit deterioration. The other-than-temporary impairment model of accounting for credit losses on AFS debt securities will be replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. The AFS debt security model will also require the use of an allowance to record the estimated losses (and subsequent recoveries). The accounting for the initial recognition of the estimated expected credit losses for purchased financial assets with credit deterioration would be recognized through an allowance for credit losses with an offset to the cost basis of the related financial asset at acquisition (i.e., there is no impact to net income at initial recognition).

The Company plans to adopt ASU No. 2016-13 in the first quarter of 2020. The guidance is to be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application. The Company has assembled a project team that meets regularly to evaluate the provisions of this ASU, identify additional data requirements necessary and determine an approach for implementation. The team has assigned roles and responsibilities and developed key tasks to complete and a general timeline to be followed. The Company is evaluating the effect that this ASU will have on the consolidated financial statements and disclosures. Economic conditions and the composition of the Company’s loan portfolio at the time of adoption will influence the extent of the adopting accounting adjustment.

Condensed Consolidated Statements of Cash Flows error. Subsequent to the issuance of interim Condensed Consolidated Financial Statements (unaudited) for the quarter ended June 30, 2017, the Company and the Utilities identified an error within their previously reported interim Condensed Consolidated Statements of Cash Flows (unaudited). The timing of certain capital expenditure payments, including those that had retainage balances or were related to certain capitalized amounts were not reflected timely. The Company and the Utilities have evaluated the effect of the error, both qualitatively and quantitatively, and concluded that it is immaterial to their respective previously issued condensed consolidated financial statements. For the six months ended June 30, 2017, the correction of this error resulted in decreases in Net Cash Provided by Operating Activities

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

(impacting the change in Accounts, Interest and Dividends Payable for the Company and Accounts Payable for the Utilities) and Net Cash Used in Investing Activities (impacting the Capital Expenditures for the Company and the Utilities) of $12 million.

Reclassifications. Reclassifications made to prior year-end financial statements to conform to 2018 presentation include a reclassification of contributions in aid of construction (CIAC) balances to “Property, plant and equipment, net” and “Total property, plant and equipment, net” for the Company and Hawaiian Electric, respectively, which reduced the amounts of the respective balances.

Note 2 · Segment financial information



(in thousands)	Electric utility		Bank		Other			Total
Three months ended June 30, 2018
Revenues from external customers	$	608,112	$	77,104	$	61		$	685,277
Intersegment revenues (eliminations)	14		—		(14		)	—
Revenues	$	608,126	$	77,104	$	47		$	685,277
Income (loss) before income taxes	$	40,344	$	26,514	$	(7,276	)	$	59,582
Income taxes (benefit)	8,676		5,953		(1,574		)	13,055
Net income (loss)	31,668		20,561		(5,702		)	46,527
Preferred stock dividends of subsidiaries	499		—		(26		)	473
Net income (loss) for common stock	$	31,169	$	20,561	$	(5,676	)	$	46,054
Six months ended June 30, 2018
Revenues from external customers	$	1,178,526	$	152,523	$	102		$	1,331,151
Intersegment revenues (eliminations)	27		—		(27		)	—
Revenues	$	1,178,553	$	152,523	$	75		$	1,331,151
Income (loss) before income taxes	$	77,493	$	51,014	$	(15,649	)	$	112,858
Income taxes (benefit)	17,851		11,493		(3,733		)	25,611
Net income (loss)	59,642		39,521		(11,916		)	87,247
Preferred stock dividends of subsidiaries	998		—		(52		)	946
Net income (loss) for common stock	$	58,644	$	39,521	$	(11,864	)	$	86,301
Total assets (at June 30, 2018)	$	5,803,714	$	6,983,583	$	96,807		$	12,884,104
Three months ended June 30, 2017
Revenues from external customers	$	556,836