Shareholders' equity

12 Months Ended

Dec. 31, 2014

Equity [Abstract]

Shareholders' equity

9 · Shareholders’ equity

Reserved shares.  As of December 31, 2014, HEI had reserved (a) a total of 18,372,187 shares of common stock for future issuance under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP), the 1987 Stock Option and Incentive Plan, the HEI 2011 Nonemployee Director Stock Plan, the ASB 401(k) Plan and the 2010 Executive Incentive Plan and (b) a total of 4.7 million shares of common stock for future issuance in connection with the equity forward transaction described below.

Equity forward transaction.  On March 19, 2013, HEI entered into an equity forward transaction in connection with a public offering on that date of 6.1 million shares of HEI common stock at $26.75 per share. On March 19, 2013, HEI common stock closed at $27.01 per share. On March 20, 2013, the underwriters exercised their over-allotment option in full and HEI entered into an equity forward transaction in connection with the resulting additional 0.9 million shares of HEI common stock.

The use of an equity forward transaction substantially eliminates future equity market price risk by fixing a common equity offering sales price under the then existing market conditions, while mitigating immediate share dilution resulting from the offering by postponing the actual issuance of common stock until funds are needed in accordance with the Company’s capital investment plans. Pursuant to the terms of these transactions, a forward counterparty borrowed 7 million shares of HEI’s common stock from third parties and sold them to a group of underwriters for $26.75 per share, less an underwriting discount equal to $1.00312 per share. Under the terms of the equity forward transactions, to the extent that the transactions are physically settled, HEI would be required to issue and deliver shares of HEI common stock to the forward counterparty at the then applicable forward sale price. The forward sale price was initially determined to be $25.74688 per share at the time the equity forward transactions were entered into, and the amount of cash to be received by HEI upon physical settlement of the equity forward is subject to certain adjustments in accordance with the terms of the equity forward transactions. Initially, the equity forward transactions had to be settled fully by March 25, 2015, but an amendment extended this date to December 31, 2015. Except in specified circumstances or events that would require physical settlement, HEI is able to elect to settle the equity forward transactions by means of physical, cash or net share settlement, in whole or in part, at any time on or prior to December 31, 2015.

The equity forward transactions had no initial fair value since they were entered into at the then market price of the common stock. HEI receives proceeds from the sale of common stock when the equity forward transactions are settled and records the proceeds at that time in equity. HEI concluded that the equity forward transactions were equity instruments based on the accounting guidance in ASC Topic 480, "Distinguishing Liabilities from Equity," and ASC Topic 815, "Derivatives and Hedging," and that they qualified for an exception from derivative accounting under ASC Topic 815 because the forward sale transactions were indexed to its own stock. On December 19, 2013, HEI settled 1.3 million shares under the equity forward for proceeds of $32.1 million (net of the underwriting discount of $1.3 million), which funds were ultimately used to purchase Hawaiian Electric shares. On July 14, 2014, HEI settled 1.0 million shares for proceeds of $23.9 million (net of underwriting discount of $1.0 million), which funds were ultimately used to purchase Hawaiian Electric shares.

At December 31, 2014, the equity forward transactions could have been settled with delivery to the forward counterparty of (a) 4.7 million shares in exchange for cash of $106 million, (b) cash of approximately $51 million (which amount includes $5 million of underwriting discount), or (c) approximately 1.5 million shares.

Prior to their settlement, the shares remaining under the equity forward transactions will be reflected in HEI’s diluted EPS calculations using the treasury stock method. Under this method, the number of shares of HEI’s common stock used in calculating diluted EPS for a reporting period would be increased by the number of shares, if any, that would be issued upon physical settlement of the equity forward transactions less the number of shares that could be purchased by HEI in the market (based on the average market price during that reporting period) using the proceeds receivable upon settlement of the equity forward transactions (based on the adjusted forward sale price of $22.63 as of December 31, 2014). The excess number of shares is weighted for the portion of the reporting period in which the equity forward transactions are outstanding.

Accordingly, before physical or net share settlement of the equity forward transactions, and subject to the occurrence of certain events, HEI anticipates that the forward sale agreement and additional forward sale agreement will have a dilutive effect on HEI’s EPS only during periods when the applicable average market price per share of HEI’s common stock is above the per share adjusted forward sale price, as described above. However, if HEI decides to physically or net share settle the forward sale agreement and additional forward sale agreement, any delivery by HEI of shares upon settlement could result in dilution to HEI’s EPS.

For 2014 and 2013, the equity forward transactions did not have a material dilutive effect on HEI’s EPS.

Accumulated other comprehensive income/(loss).  Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:

	HEI Consolidated												Hawaiian Electric Consolidated
(in thousands)	Net unrealized gains (losses) on securities			Unrealized losses on derivatives			Retirement benefit plans			AOCI			AOCI -retirement benefit plans
Balance, December 31, 2011	$	9,886		$	(996	)	$	(28,027	)	$	(19,137	)	$	(32	)
Current period other comprehensive income (loss)	875			236			(8,397		)	(7,286		)	(938		)
Balance, December 31, 2012	10,761			(760		)	(36,424		)	(26,423		)	(970		)
Current period other comprehensive income (loss)	(14,424		)	235			23,862			9,673			1,578
Balance, December 31, 2013	(3,663		)	(525		)	(12,562		)	(16,750		)	608
Current period other comprehensive income (loss)	4,125			236			(14,989		)	(10,628		)	(563		)
Balance, December 31, 2014	$	462		$	(289	)	$	(27,551	)	$	(27,378	)	$	45

Reclassifications out of AOCI were as follows:

	Amount reclassified from AOCI
Years ended December 31	2014			2013			2012			Affected line item in the Statement of Income
(in thousands)
HEI consolidated
Net realized gains on securities	$	(1,715	)	$	(738	)	$	(81	)	Revenues-bank (net gains on sales of securities)
Derivatives qualified as cash flow hedges
Interest rate contracts (settled in 2011)	236			235			236			Interest expense
Retirement benefit plan items
Amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost	11,344			23,280			15,291			See Note 10 for additional details
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets	207,833			(222,595		)	75,471			See Note 10 for additional details
Total reclassifications	$	217,698		$	(199,818	)	$	90,917
Hawaiian Electric consolidated
Retirement benefit plan items
Amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost	$	10,212		$	20,694		$	13,673		See Note 10 for additional details
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets	207,833			(222,595		)	75,471			See Note 10 for additional details
Total reclassifications	$	218,045		$	(201,901	)	$	89,144