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Share-based compensation | 9 Months Ended
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Sep. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Share-based compensation | Share-based compensation Under the 2010 Equity and Incentive Plan, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights (SARs), restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan was amended and restated (EIP) effective March 1, 2014 and an additional 1.5 million shares was added to the shares available for issuance under these programs. As of September 30, 2014, approximately 3.6 million shares were available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated 1.1 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels). Under the 1987 Stock Option and Incentive Plan, as amended (SOIP), there are possible future issuances of an estimated 1,000 shares upon the exercise of outstanding SARs, based on the market price of shares on September 30, 2014. As of May 11, 2010 (when the 2010 Equity and Incentive Plan became effective), no new awards may be granted under the SOIP. After the shares of common stock for the outstanding SOIP grants and awards are issued or such grants and awards expire, the remaining shares registered under the SOIP will be deregistered and delisted. Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of September 30, 2014, there were 169,290 shares remaining available for future issuance under the 2011 Director Plan. Share-based compensation expense and the related income tax benefit were as follows:
|  | Three months ended September 30 |  | Nine months ended September 30
(in millions) |  | 2014 |  | 2013 |  | 2014 |  | 2013
HEI consolidated |  |  |  |  |  |  |  |
Share-based compensation expense 1 |  | $ | 2.0 |  |  | $ | 2.5 |  |  | $ | 7.2 |  |  | $ | 6.0 |
Income tax benefit |  | 0.7 |  |  | 0.9 |  |  | 2.6 |  |  | 2.2 |
Hawaiian Electric consolidated |  |  |  |  |  |  |  |
Share-based compensation expense 1 |  | 0.6 |  |  | 0.8 |  |  | 2.2 |  |  | 1.9 |
Income tax benefit |  | 0.2 |  |  | 0.3 |  |  | 0.9 |  |  | 0.7 |
1 | $0.04 million and $0.03 million of this share-based compensation expense was capitalized in the third quarter of 2014 and 2013, respectively. $0.12 million and $0.09 million of this share-based compensation expense was capitalized in the nine months ended September 30, 2014 and 2013, respectively.
Stock awards. HEI granted HEI common stock to nonemployee directors of HEI, Hawaiian Electric and ASB under the 2011 Director Plan as follows:
| Nine months ended September 30
($ in millions) | 2014 |  | 2013
Shares granted | 33,170 |  |  | 33,184 |
Fair value | $ | 0.8 |  |  | $ | 0.8 |
Income tax benefit | 0.3 |  |  | 0.3 |
The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI Common Stock on the grant date. Nonqualified stock options. Since April 9, 2013, there were no nonqualified stock options (NQSOs) outstanding. NQSO activity and statistics were as follows:
(dollars in thousands, except prices) |  | Three months ended September 30, 2013 |  | Nine months ended September 30, 2013
Shares exercised |  | — |  |  | 14,000 |
Weighted-average exercise price |  | $ | — |  |  | $ | 20.49 |
Cash received from exercise |  | $ | — |  |  | $ | 287 |
Intrinsic value of shares exercised 1 |  | $ | — |  |  | $ | 128 |
Tax benefit realized for the deduction of exercises |  | $ | — |  |  | $ | 50 |
1 Intrinsic value is the amount by which the fair market value of the underlying stock and the related dividend equivalents exceeds the exercise price of the option. Stock appreciation rights. Information about HEI’s SARs was as follows:
September 30, 2014 | Outstanding & Exercisable (Vested)
Year of grant |  | Number of shares underlying SARs |  | Weighted-average remaining contractual life |  | Weighted-average exercise price
2005 |  | 102,000 |  |  | 0.5 |  | $ | 26.18 |
As of December 31, 2013, the shares underlying SARs outstanding totaled 164,000, with a weighted-average exercise price of $26.12. As of September 30, 2014, all SARs outstanding were exercisable and had an aggregate intrinsic value of $38,000. In April 2014, the shares underlying SARs totaling 62,000, with a weighted-average exercise price of $26.02, expired. Restricted shares. As of September 30, 2014 and December 31, 2013, the outstanding restricted shares totaled 4,503 with a weighted-average exercise price of $22.21. For the first nine months of 2014 and 2013, there was no activity relating to restricted shares. As of September 30, 2014, there was $21,000 of total unrecognized compensation cost related to nonvested restricted shares and restricted stock awards. The cost is expected to be recognized over a weighted-average period of 0.2 years. Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:
| Three months ended September 30 |  | Nine months ended September 30
| 2014 |  | 2013 |  | 2014 |  | 2013
| Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1)
Outstanding, beginning of period | 264,326 |  |  | $ | 25.74 |  |  | 300,313 |  |  | $ | 25.15 |  |  | 288,151 |  |  | $ | 25.17 |  |  | 315,094 |  |  | $ | 22.82 |
Granted | 2,750 |  |  | 24.48 |  |  | 4,000 |  |  | 26.48 |  |  | 117,786 |  |  | 25.17 |  |  | 111,231 |  |  | 26.88 |
Vested | (3,500 | ) |  | 23.50 |  |  | (2,500 | ) |  | 22.31 |  |  | (142,361 | ) |  | 24.07 |  |  | (116,544 | ) |  | 20.39 |
Forfeited | — |  |  | — |  |  | (11,321 | ) |  | 25.88 |  |  | — |  |  | — |  |  | (19,289 | ) |  | 25.62 |
Outstanding, end of period | 263,576 |  |  | $ | 25.76 |  |  | 290,492 |  |  | $ | 25.16 |  |  | 263,576 |  |  | $ | 25.76 |  |  | 290,492 |  |  | $ | 25.16 |
Total weighted-average grant-date fair value of shares granted ($ millions) | $ | 0.1 |  |  |  |  | $ | 0.1 |  |  |  |  | $ | 3.0 |  |  |  |  | $ | 3.0 |  |  |
(1) | Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
As of September 30, 2014, there was $5.1 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.6 years. For the first nine months of 2014 and 2013, total restricted stock units that vested and related dividends had a fair value of $4.1 million and $3.6 million, respectively, and the related tax benefits were $1.3 million and $1.0 million, respectively. Long-term incentive plan payable in stock. The 2012-2014 long-term incentive plan (LTIP), 2013-2015 LTIP and 2014-2016 LTIP, provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals considered to be a market condition and service conditions. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made subject to the achievement of specified performance levels. The potential payout varies from 0% to 200% of the number of target shares depending on achievement of the goals. The LTIP performance goals for the LTIP periods include awards with a market goal based on total return to shareholders (TRS) of HEI stock as a percentile to the Edison Electric Institute Index over the applicable three-year period. In addition, the 2012-2014 LTIP, 2013-2015 LTIP and 2014-2016 LTIP have performance goals related to levels of HEI consolidated net income, HEI consolidated return on average common equity (ROACE), Hawaiian Electric consolidated net income, Hawaiian Electric consolidated ROACE, ASB net income and ASB return on assets — all based on the applicable three-year averages, and ASB return on assets relative to performance peers. LTIP linked to TRS. Information about HEI’s LTIP grants linked to TRS was as follows:
| Three months ended September 30 |  | Nine months ended September 30
| 2014 |  | 2013 |  | 2014 |  | 2013
| Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1)
Outstanding, beginning of period | 257,956 |  |  | $ | 28.45 |  |  | 235,064 |  |  | $ | 32.87 |  |  | 232,127 |  |  | $ | 32.88 |  |  | 239,256 |  |  | $ | 29.12 |
Granted (target level) | — |  |  | — |  |  | 1,505 |  |  | 32.69 |  |  | 97,524 |  |  | 22.95 |  |  | 91,038 |  |  | 32.69 |
Vested (issued or unissued and cancelled) | — |  |  | — |  |  | — |  |  | — |  |  | (70,189 | ) |  | 35.46 |  |  | (87,753 | ) |  | 22.45 |
Forfeited | — |  |  | — |  |  | (4,442 | ) |  | 32.40 |  |  | (1,506 | ) |  | 28.32 |  |  | (10,414 | ) |  | 32.72 |
Outstanding, end of period | 257,956 |  |  | $ | 28.45 |  |  | 232,127 |  |  | $ | 32.88 |  |  | 257,956 |  |  | $ | 28.45 |  |  | 232,127 |  |  | $ | 32.88 |
Total weighted-average grant-date fair value of shares granted ($ millions) | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 2.2 |  |  |  |  | $ | 3.0 |  |  |
(1) | Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.
The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and estimated future stock volatility and dividends of HEI and its peers over the remaining three-year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three-year historic stock volatility, and the annual dividend yield assumptions were based on dividend yields calculated on the basis of daily stock prices over the same three-year historical period. The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TRS and the resulting fair value of LTIP awards granted:
| 2014 |  | 2013
Risk-free interest rate | 0.66 | % |  | 0.38 | %
Expected life in years | 3 |  |  | 3 |
Expected volatility | 17.8 | % |  | 19.4 | %
Range of expected volatility for Peer Group | 12.4% to 23.3% |  |  | 12.4% to 25.3% |
Grant date fair value (per share) | $ | 22.95 |  |  | $ | 32.69 |
For the nine months ended September 30, 2014 and 2013, total vested LTIP awards linked to TRS and related dividends had a fair value of nil and $2.2 million, respectively, and the related tax benefits were nil and $0.9 million, respectively. For the nine months ended September 30, 2014, all of the shares vested (which were granted at target level based on the satisfaction of TRS performance) for the 2011-2013 LTIP lapsed. As of September 30, 2014, there was $2.7 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TRS. The cost is expected to be recognized over a weighted-average period of 1.3 years. LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:
| Three months ended September 30 |  | Nine months ended September 30
| 2014 |  | 2013 |  | 2014 |  | 2013
| Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1)
Outstanding, beginning of period | 359,782 |  |  | $ | 26.01 |  |  | 304,473 |  |  | $ | 26.12 |  |  | 296,843 |  |  | $ | 26.14 |  |  | 247,175 |  |  | $ | 25.04 |
Granted (target level) | — |  |  | — |  |  | 1,504 |  |  | 27.11 |  |  | 129,603 |  |  | 25.18 |  |  | 120,399 |  |  | 26.89 |
Vested (issued) | — |  |  | — |  |  | — |  |  | — |  |  | (65,089 | ) |  | 24.95 |  |  | (18,280 | ) |  | 18.95 |
Cancelled | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (37,346 | ) |  | 24.96 |
Forfeited | — |  |  | — |  |  | (4,881 | ) |  | 26.53 |  |  | (1,575 | ) |  | 26.07 |  |  | (10,852 | ) |  | 26.20 |
Outstanding, end of period | 359,782 |  |  | $ | 26.01 |  |  | 301,096 |  |  | $ | 26.12 |  |  | 359,782 |  |  | $ | 26.01 |  |  | 301,096 |  |  | $ | 26.12 |
Total weighted-average grant-date fair value of shares granted (at target performance levels) ($ millions) | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 3.3 |  |  |  |  | $ | 3.2 |  |  |
(1) | Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For the nine months ended September 30, 2014 and 2013, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $1.9 million and $0.6 million and the related tax benefits were $0.8 million and $0.2 million, respectively. As of September 30, 2014, there was $4.0 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TRS. The cost is expected to be recognized over a weighted-average period of 1.3 years.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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