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Financial report summary
?Risks
- The pending Merger is contingent on a number of conditions and may not be completed timely or at all.
- While the Merger is pending, the Company will be subject to risks and uncertainties and contractual restrictions that could disrupt our business or negatively impact our common unit price.
- As a result of prior sales of operating businesses we have fewer assets and the size of our Company may be sub-scale and more susceptible to adverse events.
- Fluctuations in economic, equity, and credit market conditions may have a material adverse effect on our results of operations, our liquidity, or our ability to obtain credit on acceptable terms.
- The documents governing our debt impose significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.
- If borrowing costs increase or if debt terms become more restrictive, the cost of refinancing and servicing our debt will increase, reducing our profitability, and ability to freely deploy capital. We and any of our existing or future subsidiaries may incur substantially more indebtedness. This could further exacerbate the risks to our business as described herein.
- The interest rates under our credit facilities may be adjusted for the phase-out of LIBOR.
- The operations of our business are subject to a variety of competitive pressures and the actions of competitors could have a material adverse effect on operating results.
- Our business relies on its SNG plant, including its transmission pipeline, for a significant portion of its sales. Disruptions at that facility could adversely affect our ability to serve customers.
- Our business obtains its feedstock for its SNG plant from a refinery located on Oahu and sources its LPG supply from an off-island distributor. Supply disruptions may have an adverse effect on the operations of the business.
- Our business is subject to risks associated with volatility in the Hawaii economy.
- Reductions in U.S. military spending could result in a reduction in demand for gas in Hawaii.
- Because of its geographic location, Hawaii, and in turn our business, are subject to earthquakes, volcanos, and certain weather risks that could materially disrupt operations.
- Fluctuations in commodity prices could adversely impact revenue, cost of services/goods sold, and gross margin of our business.
- Our business experiences a measure of seasonality and such seasonality may cause fluctuations in our results of operations.
- We seek to increase our use of renewable feedstocks and to increase the percentage of RNG distributed to our customers. This initiative exposes us to new technology, supply, counterparty, and regulatory risks that could impact the performance of our business.
- Energy efficiency and technology advances, as well as conservation efforts and changes in the sources and types of energy produced in the U.S. may result in reduced demand for our products and services.
- Our business is subject to environmental risks that may impact our future profitability.
- Unfavorable publicity or public perception of the industry in which we operate could adversely impact our operating results and our reputation.
- We are dependent on certain key personnel, and the loss of key personnel, or the inability to retain or replace qualified employees, could have an adverse effect on our business, results of operations, cash flows, and financial condition.
- Because of its geographic location and the unique economy of Hawaii, our business is subject to challenges in hiring and maintaining staff with specialized skill sets.
- Prolonged work stoppages by employees who are subject to a collective bargaining agreement could adversely affect our financial position.
- Our operations on the islands of Hawaii, Maui and Kauai rely on LPG that is transported from Oahu to those islands by Jones Act qualified barges and by non-Jones Act vessels from off-island ports. Disruptions to service by those vessels could adversely affect the financial performance of our business.
- Generation underperformance at individual projects within our business could lead to financial penalties or contract terminations under existing off-take agreements.
- Certain projects depend on electric interconnection and transmission facilities that we do not own or control and that are potentially subject to transmission constraints. If these facilities fail to provide adequate transmission capacity, the projects may be restricted in their ability to deliver electricity to customers.
- Our business depends on counterparties, including operation and maintenance ("O&M") providers and power purchasers, performing in accordance with their agreements. If they fail to so perform, our business could incur losses of revenue or additional expenses and business disruptions.
- Development and investment in our business involves various construction, operational, and regulatory risks that could materially adversely affect our financial results.
- Warranties provided by our suppliers and contractors may be limited or insufficient to compensate our losses or may not cover the nature of our losses incurred.
- Security breaches or interruptions in our information technology systems, the loss or misappropriation of confidential information, or cyber-attacks on our facilities or those of third parties on which we rely, could materially adversely affect our business.
- Our utility operations are subject to regulation by the HPUC and actions by the HPUC or changes to the regulatory environment may constrain the operation or profitability of the business.
- Natural gas has increasingly been the subject of political and public scrutiny, including a desire by some to further limit or eliminate reliance on natural gas as an energy source. The enactment of state legislation in 2018 requiring Hawaii to be carbon neutral by 2045 or a potential Renewable Portfolio Standard ("RPS") for utility gas usage or supply, similar to the one implemented for electric utility generation, could result in supply disruptions, increased energy costs to ratepayers or a negative impact on the future financial performance of our business.
- Our income may be adversely affected if additional compliance costs are required as a result of new safety, health, and/or environmental regulation.
- Our business is dependent on our contractual and regulatory relationships with government entities that may have significant leverage over us. Government entities may be influenced by political considerations to take actions adverse to us.
- Government agencies may determine the prices we charge and may be able to restrict our ability to operate our businesses to maximize profitability.
- Failure to comply with government regulations could result in loss of franchise contract terminations or we may be unable to enter into future government contracts.
- Delays in the government budget process or a government shutdown may adversely affect our operating results.
- Climate change, climate change regulations, and greenhouse effects may adversely impact our operations and markets.
- We are subject to the terms and conditions of the Management Services Agreement and Disposition Agreement between us and our Manager, which limit our ability to take certain actions and may make strategic transactions more costly.
- Our Manager owns a significant portion of our outstanding common units. A sale of all or a portion of the common units owned by our Manager could be interpreted by the equity markets as a lack of confidence in our prospects.
- Outside of the construct created by our pursuit of strategic alternatives, and the execution of the Disposition Agreement, certain provisions of our Management Services Agreement, articles of organization, and operating agreement would otherwise make it difficult for third parties to acquire control of our Company and could deprive investors of the opportunity to obtain a takeover premium for their shares of common units.
- Our Manager’s decision to reinvest its monthly base management fees and quarterly performance fees, if any, in common units or retain the cash will affect equity holders differently.
- Our Manager is not required to offer all acquisition opportunities to us and may offer such opportunities to other entities. Our management may waive investment opportunities presented by our Manager.
- Our Manager can resign with 90 days’ notice, and our CEO or CFO could be removed by our Manager, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations, which could adversely affect our financial results and negatively impact the market price of our common units.
- Our externally managed model may not be viewed favorably by investors.
- Our Manager’s affiliation with Macquarie Group Limited and the Macquarie Group may result in conflicts of interest or a decline in the market price of our common units.
- In the event of the underperformance of our Manager, we may be unable to remove our Manager, which could limit our ability to improve our performance and could adversely affect the market price of our common units.
- The market price and marketability of our common units may from time to time be significantly affected by numerous factors beyond our control, which may adversely affect our ability to raise capital through future equity financings.
- Actions of activist equity holders could have an adverse impact on the value of our securities.
- The price of our common units may be vulnerable to actions of market participants whose strategies may not involve buying and holding our securities in pursuit of an attractive return.
- We previously identified a material weakness in our internal control over financial reporting, and the failure to maintain an effective system of internal controls in the future could result in loss of investor confidence and adversely impact our common unit price.
- Our reported Income per Unit, as defined under GAAP, does not reflect the cash generated by our business and may result in unfavorable comparisons with other businesses.
- Our total assets include a substantial amount of goodwill and other intangible assets. The write-off of a significant portion of intangible assets would negatively affect our reported earnings.
- Our total assets include a substantial amount of intangible assets and fixed assets. The depreciation and amortization of these assets may negatively impact our reported earnings.
- The current treatment of qualified dividend income and long-term capital gains under U.S. federal income tax law may be changed in the future.
- The treatment of depreciation and other tax deductions under current U.S. federal income tax law may be adversely affected, changed, or repealed in the future.
- Our Company could be adversely affected by changes in tax laws and/or changes in the interpretation of existing tax laws.
- Our property taxes could increase due to reassessment or property tax rate changes.
- Our Company is subject to examinations and challenges by taxing authorities.
Management Discussion
- Our business includes Hawaii Gas and smaller operations collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. We generate revenue primarily from the provision of gas to commercial, residential, and governmental customers and the generation of power.
- Our financial performance is a function of the number of customers served, their consumption of energy and the prices achieved on sales by each of Hawaii Gas’s utility and non-utility operations and under power purchase agreements. The amount of gas consumed is positively correlated with visitor arrivals and general economic activity over the long term. Consumption trends and prices are a function of, among other factors, energy efficiency, weather, the range of competitive energy sources, and commodity input costs.
- We continue to closely monitor the effects of COVID-19 and are actively managing our response by placing a priority on the health and safety of our employees and their families, contractors, customers, and the broader communities in which we operate. Our business' operations are classified as providers of essential services, are fully operational, and are adhering to pandemic response plans and are following guidance from the Centers for Disease Control and Prevention ("CDC") as well as federal, state, and local governments with respect to conducting operations safely.