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 September 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 October 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 September 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 nine months ended September 30, 2018 and 2017
2		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and nine months ended September 30, 2018 and 2017
3		Condensed Consolidated Balance Sheets (unaudited) - September 30, 2018 and December 31, 2017
4		Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - nine months ended September 30, 2018 and 2017
5		Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended September 30, 2018 and 2017
		Hawaiian Electric Company, Inc. and Subsidiaries
6		Condensed Consolidated Statements of Income (unaudited) - three and nine months ended September 30, 2018 and 2017
6		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and nine months ended September 30, 2018 and 2017
7		Condensed Consolidated Balance Sheets (unaudited) - September 30, 2018 and December 31, 2017
8		Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited) - nine months ended September 30, 2018 and 2017
9		Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended September 30, 2018 and 2017
10		Notes to Condensed Consolidated Financial Statements (unaudited)
64	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
64		HEI consolidated
68		Electric Utilities
79		Bank
87	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
88	Item 4.	Controls and Procedures

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

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended September 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 adopted by the PUC in its 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;


•	failure in addressing issues in the stabilization of the ERP/EAM system implementation 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 September 30						Nine months ended September 30
(in thousands, except per share amounts)	2018			2017			2018			2017
Revenues
Electric utility	$	687,409		$	598,769		$	1,865,962		$	1,674,255
Bank	80,496			74,289			233,019			222,474
Other	143			127			218			299
Total revenues	768,048			673,185			2,099,199			1,897,028
Expenses
Electric utility	613,373			510,272			1,685,413			1,478,915
Bank	53,232			47,313			153,951			146,146
Other	3,379			4,127			11,083			12,954
Total expenses	669,984			561,712			1,850,447			1,638,015
Operating income (loss)
Electric utility	74,036			88,497			180,549			195,340
Bank	27,264			26,976			79,068			76,328
Other	(3,236		)	(4,000		)	(10,865		)	(12,655		)
Total operating income	98,064			111,473			248,752			259,013
Retirement defined benefits expense—other than service costs	(1,276		)	(1,928		)	(4,673		)	(5,710		)
Interest expense, net—other than on deposit liabilities and other bank borrowings	(22,523		)	(19,227		)	(66,042		)	(59,235		)
Allowance for borrowed funds used during construction	1,006			1,339			3,815			3,371
Allowance for equity funds used during construction	1,962			3,482			8,239			8,908
Income before income taxes	77,233			95,139			190,091			206,347
Income taxes	10,862			34,595			36,473			72,003
Net income	66,371			60,544			153,618			134,344
Preferred stock dividends of subsidiaries	471			471			1,417			1,417
Net income for common stock	$	65,900		$	60,073		$	152,201		$	132,927
Basic earnings per common share	$	0.61		$	0.55		$	1.40		$	1.22
Diluted earnings per common share	$	0.60		$	0.55		$	1.40		$	1.22
Weighted-average number of common shares outstanding	108,879			108,786			108,847			108,737
Net effect of potentially dilutive shares	176			79			243			172
Weighted-average shares assuming dilution	109,055			108,865			109,090			108,909

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 September 30						Nine months ended September 30
(in thousands)	2018			2017			2018			2017
Net income for common stock	$	65,900		$	60,073		$	152,201		$	132,927
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 $1,876, $(137), $8,335 and $(1,619), respectively	(5,123		)	208			(22,768		)	2,452
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 $1,832, $2,516, $5,486 and $7,526, respectively	5,259			3,942			15,755			11,793
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,639, $2,290, $4,916 and $6,872, respectively	(4,725		)	(3,596		)	(14,174		)	(10,790		)
Other comprehensive income (loss), net of taxes	(4,589		)	554			(21,187		)	3,909
Comprehensive income attributable to Hawaiian Electric Industries, Inc.	$	61,311		$	60,627		$	131,014		$	136,836

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)	September 30, 2018			December 31, 2017
Assets
Cash and cash equivalents	$	172,054		$	261,881
Accounts receivable and unbilled revenues, net	336,309			263,209
Available-for-sale investment securities, at fair value	1,387,571			1,401,198
Held-to-maturity investment securities, at amortized cost	102,498			44,515
Stock in Federal Home Loan Bank, at cost	8,158			9,706
Loans held for investment, net	4,700,232			4,617,131
Loans held for sale, at lower of cost or fair value	1,036			11,250
Property, plant and equipment, net of accumulated depreciation of $2,651,109 and $2,553,295 at September 30, 2018 and December 31, 2017, respectively	4,694,101			4,460,248
Regulatory assets	830,924			869,297
Other	596,481			513,535
Goodwill	82,190			82,190
Total assets	$	12,911,554		$	12,534,160
Liabilities and shareholders’ equity
Liabilities
Accounts payable	$	167,192		$	193,714
Interest and dividends payable	30,280			25,837
Deposit liabilities	6,130,415			5,890,597
Short-term borrowings—other than bank	203,359			117,945
Other bank borrowings	71,110			190,859
Long-term debt, net—other than bank	1,782,242			1,683,797
Deferred income taxes	385,651			388,430
Regulatory liabilities	932,352			880,770
Defined benefit pension and other postretirement benefit plans liability	496,753			509,514
Other	545,862			521,018
Total liabilities	10,745,216			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 September 30, 2018 and December 31, 2017, respectively	1,667,371			1,662,491
Retained earnings	527,802			476,836
Accumulated other comprehensive loss, net of tax benefits	(63,128		)	(41,941		)
Total shareholders’ equity	2,132,045			2,097,386
Total liabilities and shareholders’ equity	$	12,911,554		$	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	—	—		152,201			—			152,201
Other comprehensive loss, net of tax benefits	—	—		—			(21,187		)	(21,187		)
Issuance of common stock, net of expenses	91	4,880		—			—			4,880
Common stock dividends (93¢ per share)	—	—		(101,235		)	—			(101,235		)
Balance, September 30, 2018	108,879	$	1,667,371	$	527,802		$	(63,128	)	$	2,132,045
Balance, December 31, 2016	108,583	$	1,660,910	$	438,972		$	(33,129	)	$	2,066,753
Net income for common stock	—	—		132,927			—			132,927
Other comprehensive income, net of taxes	—	—		—			3,909			3,909
Issuance of common stock, net of expenses	203	582		—			—			582
Common stock dividends (93¢ per share)	—	—		(101,149		)	—			(101,149		)
Balance, September 30, 2017	108,786	$	1,661,492	$	470,750		$	(29,220	)	$	2,103,022

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)



	Nine months ended September 30
(in thousands)	2018			2017
Cash flows from operating activities
Net income	$	153,618		$	134,344
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	159,646			150,123
Other amortization	31,473			15,362
Provision for loan losses	12,337			7,231
Loans originated and purchased, held for sale	(105,956		)	(105,816		)
Proceeds from sale of loans, held for sale	109,335			119,731
Deferred income taxes	10,823			21,397
Share-based compensation expense	5,891			4,383
Allowance for equity funds used during construction	(8,239		)	(8,908		)
Other	(4,524		)	(1,350		)
Changes in assets and liabilities
Increase in accounts receivable and unbilled revenues, net	(79,128		)	(26,250		)
Decrease (increase) in fuel oil stock	(5,060		)	6,177
Decrease (increase) in regulatory assets	(6,474		)	3,922
Increase (decrease) in accounts, interest and dividends payable	(7,122		)	18,581
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes	(32,006		)	2,828
Increase in defined benefit pension and other postretirement benefit plans liability	7,517			670
Change in other assets and liabilities	15,548			(22,311		)
Net cash provided by operating activities	257,679			320,114
Cash flows from investing activities
Available-for-sale investment securities purchased	(190,411		)	(369,467		)
Principal repayments on available-for-sale investment securities	168,334			155,026
Purchases of held-to-maturity investment securities	(62,096		)	—
Principal repayments of held-to-maturity investment securities	4,007			—
Purchase of stock from Federal Home Loan Bank	(9,933		)	(2,868		)
Redemption of stock from Federal Home Loan Bank	11,480			4,380
Net decrease (increase) in loans held for investment	(96,212		)	13,188
Proceeds from sale of commercial loans	7,149			31,427
Proceeds from sale of real estate acquired in settlement of loans	589			411
Capital expenditures	(404,984		)	(343,375		)
Contributions in aid of construction	24,361			40,603
Contributions to low income housing investments	(7,714		)	—
Other	13,669			1,345
Net cash used in investing activities	(541,761		)	(469,330		)
Cash flows from financing activities
Net increase in deposit liabilities	137,443			203,397
Net increase in short-term borrowings with original maturities of three months or less	85,369			24,498
Net increase in retail repurchase agreements	32,626			24,469
Proceeds from other bank borrowings	237,000			59,500
Repayments of other bank borrowings	(287,000		)	(123,034		)
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	(1,867		)	(265,000		)
Withheld shares for employee taxes on vested share-based compensation	(996		)	(3,796		)
Common stock dividends	(101,235		)	(101,149		)
Preferred stock dividends of subsidiaries	(1,417		)	(1,417		)
Other	(5,668		)	(9,531		)
Net cash provided by financing activities	194,255			72,937
Net decrease in cash and cash equivalents	(89,827		)	(76,279		)
Cash and cash equivalents, beginning of period	261,881			278,452
Cash and cash equivalents, end of period	$	172,054		$	202,173

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 September 30						Nine months ended September 30
(in thousands)	2018			2017			2018			2017
Revenues	$	687,409		$	598,769		$	1,865,962		$	1,674,255
Expenses
Fuel oil	206,551			146,258			545,236			431,787
Purchased power	177,590			160,347			478,238			440,538
Other operation and maintenance	113,553			98,681			333,805			302,437
Depreciation	50,983			48,206			151,810			144,578
Taxes, other than income taxes	64,696			56,780			176,324			159,575
Total expenses	613,373			510,272			1,685,413			1,478,915
Operating income	74,036			88,497			180,549			195,340
Allowance for equity funds used during construction	1,962			3,482			8,239			8,908
Retirement defined benefits expense—other than service costs	(682		)	(1,421		)	(2,934		)	(4,279		)
Interest expense and other charges, net	(18,968		)	(16,907		)	(54,822		)	(52,625		)
Allowance for borrowed funds used during construction	1,006			1,339			3,815			3,371
Income before income taxes	57,354			74,990			134,847			150,715
Income taxes	7,144			27,005			24,995			54,623
Net income	50,210			47,985			109,852			96,092
Preferred stock dividends of subsidiaries	228			228			686			686
Net income attributable to Hawaiian Electric	49,982			47,757			109,166			95,406
Preferred stock dividends of Hawaiian Electric	270			270			810			810
Net income for common stock	$	49,712		$	47,487		$	108,356		$	94,596

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 September 30						Nine months ended September 30
(in thousands)	2018			2017			2018			2017
Net income for common stock	$	49,712		$	47,487		$	108,356		$	94,596
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 $1,648, $2,306, $4,945 and $6,916, respectively	4,753			3,618			14,259			10,857
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $1,639, $2,290, $4,916 and $6,872, respectively	(4,725		)	(3,596		)	(14,174		)	(10,790		)
Other comprehensive income, net of taxes	28			22			85			521
Comprehensive income attributable to Hawaiian Electric Company, Inc.	$	49,740		$	47,509		$	108,441		$	95,117

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)	September 30, 2018			December 31, 2017
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	53,515		$	53,177
Plant and equipment	6,720,046			6,401,040
Less accumulated depreciation	(2,567,708		)	(2,476,352		)
Construction in progress	193,086			263,094
Utility property, plant and equipment, net	4,398,939			4,240,959
Nonutility property, plant and equipment, less accumulated depreciation of $1,254 as of September 30, 2018 and $1,251 as of December 31, 2017	7,580			7,580
Total property, plant and equipment, net	4,406,519			4,248,539
Current assets
Cash and cash equivalents	7,224			12,517
Customer accounts receivable, net	178,785			127,889
Accrued unbilled revenues, net	127,702			107,054
Other accounts receivable, net	3,378			7,163
Fuel oil stock, at average cost	91,822			86,873
Materials and supplies, at average cost	58,507			54,397
Prepayments and other	60,732			25,355
Regulatory assets	89,430			88,390
Total current assets	617,580			509,638
Other long-term assets
Regulatory assets	741,494			780,907
Other	116,534			91,529
Total other long-term assets	858,028			872,436
Total assets	$	5,882,127		$	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 September 30, 2018 and December 31, 2017)	$	107,634		$	107,634
Premium on capital stock	614,667			614,675
Retained earnings	1,155,070			1,124,193
Accumulated other comprehensive loss, net of tax benefits	(1,134		)	(1,219		)
Common stock equity	1,876,237			1,845,283
Cumulative preferred stock — not subject to mandatory redemption	34,293			34,293
Long-term debt, net	1,418,631			1,318,516
Total capitalization	3,329,161			3,198,092
Commitments and contingencies (Note 3)
Current liabilities
Current portion of long-term debt	49,993			49,963
Short-term borrowings from non-affiliates	85,913			4,999
Accounts payable	122,932			159,610
Interest and preferred dividends payable	28,258			22,575
Taxes accrued, including revenue taxes	195,776			199,101
Regulatory liabilities	10,159			3,401
Other	81,054			59,456
Total current liabilities	574,085			499,105
Deferred credits and other liabilities
Deferred income taxes	401,069			394,041
Regulatory liabilities	922,193			877,369
Unamortized tax credits	93,073			90,369
Defined benefit pension and other postretirement benefit plans liability	460,279			472,948
Other	102,267			98,689
Total deferred credits and other liabilities	1,978,881			1,933,416
Total capitalization and liabilities	$	5,882,127		$	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	—	—		—			108,356			—			108,356
Other comprehensive income, net of taxes	—	—		—			—			85			85
Common stock dividends	—	—		—			(77,479		)	—			(77,479		)
Common stock issuance expenses	—	—		(8		)	—			—			(8		)
Balance, September 30, 2018	16,142	$	107,634	$	614,667		$	1,155,070		$	(1,134	)	$	1,876,237
Balance, December 31, 2016	16,020	$	106,818	$	601,491		$	1,091,800		$	(322	)	$	1,799,787
Net income for common stock	—	—		—			94,596			—			94,596
Other comprehensive income, net of taxes	—	—		—			—			521			521
Common stock dividends	—	—		—			(65,825		)	—			(65,825		)
Common stock issuance expenses	—	—		(4		)	—			—			(4		)
Balance, September 30, 2017	16,020	$	106,818	$	601,487		$	1,120,571		$	199		$	1,829,075

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)



	Nine months ended September 30
(in thousands)	2018			2017
Cash flows from operating activities
Net income	$	109,852		$	96,092
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	151,810			144,578
Other amortization	19,823			6,118
Deferred income taxes	12,835			29,537
Allowance for equity funds used during construction	(8,239		)	(8,908		)
Other	(1,952		)	526
Changes in assets and liabilities
Increase in accounts receivable	(53,139		)	(8,087		)
Increase in accrued unbilled revenues	(20,648		)	(18,014		)
Decrease (increase) in fuel oil stock	(4,949		)	6,177
Increase in materials and supplies	(4,110		)	(2,280		)
Decrease (increase) in regulatory assets	(6,474		)	3,922
Increase (decrease) in accounts payable	(8,712		)	6,130
Change in prepaid and accrued income taxes, tax credits and revenue taxes	(37,137		)	5,291
Increase in defined benefit pension and other postretirement benefit plans liability	5,888			453
Change in other assets and liabilities	38,874			(2,662		)
Net cash provided by operating activities	193,722			258,873
Cash flows from investing activities
Capital expenditures	(334,730		)	(306,975		)
Contributions in aid of construction	24,361			40,603
Other	9,811			8,114
Net cash used in investing activities	(300,558		)	(258,258		)
Cash flows from financing activities
Common stock dividends	(77,479		)	(65,825		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(1,496		)	(1,496		)
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	80,914			6,000
Other	(396		)	(3,593		)
Net cash provided by (used in) financing activities	101,543			(64,914		)
Net decrease in cash and cash equivalents	(5,293		)	(64,299		)
Cash and cash equivalents, beginning of period	12,517			74,286
Cash and cash equivalents, end of period	$	7,224		$	9,987

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 September 30, 2018 and December 31, 2017 and the results of their operations for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 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.

The PUC approved in the Utilities’ rate cases, stipulated agreements to defer non-service cost components of NPPC and NPBC, which would have been capitalized prior to ASU No. 2017-07, as part of each utility’s pension tracking mechanisms. Such treatment is effective starting in 2018 and continues 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 each utility plans to seek to capitalize only the service components of NPPC and NPBC going forward, which reflects the requirements of ASU No. 2017-07.

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 September 30, 2017									Nine months ended September 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	$	511,693		$	(1,421	)	$	510,272		$	1,483,194		$	(4,279	)	$	1,478,915
Bank	47,525			(212		)	47,313			146,754			(608		)	146,146
Other	4,422			(295		)	4,127			13,777			(823		)	12,954
Total expenses	563,640			(1,928		)	561,712			1,643,725			(5,710		)	1,638,015
Operating income
Electric utility	87,076			1,421			88,497			191,061			4,279			195,340
Bank	26,764			212			26,976			75,720			608			76,328
Other	(4,295		)	295			(4,000		)	(13,478		)	823			(12,655		)
Total operating income	109,545			1,928			111,473			253,303			5,710			259,013
Retirement defined benefits expense--other than service costs	—			(1,928		)	(1,928		)	—			(5,710		)	(5,710		)
Hawaiian Electric Condensed Consolidated Income Statement
Other operation and maintenance	100,102			(1,421		)	98,681			306,716			(4,279		)	302,437
Total expense	511,693			(1,421		)	510,272			1,483,194			(4,279		)	1,478,915
Operating income	87,076			1,421			88,497			191,061			4,279			195,340
Retirement defined benefits expense--other than service costs	—			(1,421		)	(1,421		)	—			(4,279		)	(4,279		)
Hawaiian Electric Condensed Consolidating Income Statement (in Note 3)
Hawaiian Electric (parent only)
Other operation and maintenance	66,221			(1,225		)	64,996			204,460			(3,812		)	200,648
Total expense	367,619			(1,225		)	366,394			1,058,382			(3,812		)	1,054,570
Operating income	61,648			1,225			62,873			128,142			3,812			131,954
Retirement defined benefits expense--other than service costs	—			(1,225		)	(1,225		)	—			(3,812		)	(3,812		)
Hawaii Electric Light
Other operation and maintenance	16,593			15			16,608			49,667			183			49,850
Total expense	71,292			15			71,307			212,692			183			212,875
Operating income	13,042			(15		)	13,027			32,334			(183		)	32,151
Retirement defined benefits expense--other than service costs	—			15			15			—			183			183
Maui Electric
Other operation and maintenance	17,288			(211		)	17,077			52,589			(650		)	51,939
Total expense	72,782			(211		)	72,571			212,120			(650		)	211,470
Operating income	12,416			211			12,627			30,636			650			31,286
Retirement defined benefits expense--other than service costs	—			(211		)	(211		)	—			(650		)	(650		)
ASB Statements of Income Data (in Note 4)
Compensation and employee benefits	23,724			(212		)	23,512			71,703			(608		)	71,095
Other expense	5,050			212			5,262			14,066			608			14,674

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. The Company plans to elect the practical expedient package provided by the new standard under which the Company will not have to reassess whether any expired or existing contracts are or contain leases, whether there is a change in lease classification for any expired or existing leases under the new standard, or whether there were initial direct costs for any existing leases that would be treated differently under the new standard. The Company also plans to elect the additional adoption method to initially apply the new requirements as of the effective date, i.e., January 1, 2019, by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Additionally, the Company will continue to report comparative periods presented in the financial statements in the period of adoption under ASC 840, including the required disclosures under ASC 840.

The Company is in the process of analyzing the measurement provisions of the new standard and their impact on 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Compensation-defined benefit plans. In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” that makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The new guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020. The Company is evaluating the impact of the adoption of ASU No. 2018-14 on its financial statement disclosures, but does not expect it to have a material impact.

Cloud computing implementation costs. In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU No. 2018-15 is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the impact of the adoption of ASU No. 2018-15 on its consolidated financial statements.

Condensed Consolidated Statements of Cash Flows error. Subsequent to the issuance of interim Condensed Consolidated Financial Statements (unaudited) for the quarter ended September 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 nine months ended September 30, 2017, the correction of this error resulted in increases in Net Cash Provided by Operating Activities (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 $29 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 2 · Segment financial information



(in thousands)	Electric utility		Bank		Other			Total
Three months ended September 30, 2018
Revenues from external customers	$	687,396	$	80,496	$	156		$	768,048
Intersegment revenues (eliminations)	13		—		(13		)	—
Revenues	$	687,409	$	80,496	$	143		$	768,048
Income (loss) before income taxes	$	57,354	$	26,831	$	(6,952	)	$	77,233
Income taxes (benefit)	7,144		5,610		(1,892		)	10,862
Net income (loss)	50,210		21,221		(5,060		)	66,371
Preferred stock dividends of subsidiaries	498		—		(27		)	471
Net income (loss) for common stock	$	49,712	$	21,221	$	(5,033	)	$	65,900
Nine months ended September 30, 2018
Revenues from external customers	$	1,865,922	$	233,019	$	258		$	2,099,199
Intersegment revenues (eliminations)	40		—		(40		)	—
Revenues	$	1,865,962	$	233,019	$	218		$	2,099,199
Income (loss) before income taxes	$	134,847	$	77,845	$	(22,601	)	$	190,091
Income taxes (benefit)	24,995		17,103		(5,625		)	36,473
Net income (loss)	109,852		60,742		(16,976		)	153,618
Preferred stock dividends of subsidiaries	1,496		—		(79		)	1,417
Net income (loss) for common stock	$	108,356	$	60,742	$	(16,897	)	$	152,201
Total assets (at September 30, 2018)	$	5,882,127	$	6,929,456	$	99,971		$	12,911,554
Three months ended September 30, 2017
Revenues from external customers	$	598,756	$	74,289	$	140