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Section 1: 10-Q (FORM 10-Q)

ora20180930_10q.htm
 

 

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

  

 

Form 10-Q

____________________________

 

 

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

   
 

For the quarterly period ended September 30, 2018

   

or

   

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

   
 

For the transition period from              to              

 

Commission file number: 001-32347

 

ORMAT TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

88-0326081

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

   
6140 Plumas Street, Reno, Nevada 89519-6075
(Address of principal executive offices) (Zip Code)

 

(775) 356-9029

(Registrant’s telephone number, including area code)

 

6225 Neil Road, Reno, Nevada 89511-1136

(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.  Yes ☑     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).  Yes ☑     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Exchange Act:

 

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐   Smaller reporting company ☐
       
Emerging growth company ☐      

 

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.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes     ☑ No

 

As of November 6, 2018, the number of outstanding shares of common stock, par value $0.001 per share, was 50,672,520.



 

 

 

 

ORMAT TECHNOLOGIES, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

 

PART I — FINANCIAL INFORMATION

 
     

ITEM 1.

FINANCIAL STATEMENTS

4

     

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

34

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

71

     

ITEM 4.

CONTROLS AND PROCEDURES

71

   

PART II — OTHER INFORMATION

 
   

ITEM 1.

LEGAL PROCEEDINGS

73

     

ITEM 1A.

RISK FACTORS

73

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

75

     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

75

     

ITEM 4.

MINE SAFETY DISCLOSURES

75

     

ITEM 5.

OTHER INFORMATION

75

     

ITEM 6.

EXHIBITS

75

     

SIGNATURES

76

 

ii

 

Certain Definitions

 

Unless the context otherwise requires, all references in this quarterly report to “Ormat”, “the Company”, “we”, “us”, “our company”, “Ormat Technologies” or “our” refer to Ormat Technologies, Inc. and its consolidated subsidiaries.

 

iii

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Dollars in thousands)

 
ASSETS

Current assets:

               

Cash and cash equivalents

  $ 71,965     $ 47,818  

Restricted cash and cash equivalents (primarily related to VIEs)

    83,101       48,825  

Receivables:

               

Trade

    118,675       110,410  

Other

    18,328       13,828  

Inventories

    37,442       19,551  

Costs and estimated earnings in excess of billings on uncompleted contracts

    47,811       40,945  

Prepaid expenses and other

    44,452       40,269  

Total current assets

    421,774       321,646  

Investment in an unconsolidated company

    67,739       34,084  

Deposits and other

    20,109       21,599  

Deferred income taxes

    113,363       57,337  

Deferred charges

          49,834  

Property, plant and equipment, net ($1,744,299 and $1,631,900 related to VIEs, respectively)

    1,835,939       1,734,691  

Construction-in-process ($106,977 and $142,717 related to VIEs, respectively)

    351,288       293,542  

Deferred financing and lease costs, net

    5,878       4,674  

Intangible assets, net

    203,382       85,420  

Goodwill

    40,111       21,037  

Total assets

  $ 3,059,583     $ 2,623,864  
LIABILITIES AND EQUITY

Current liabilities:

               

Accounts payable and accrued expenses

  $ 105,351     $ 153,796  

Short term revolving credit lines with banks (full recourse)

    209,500       51,500  

Billings in excess of costs and estimated earnings on uncompleted contracts

    21,760       20,241  

Current portion of long-term debt:

               

Limited and non-recourse (primarily related to VIEs):

               

Senior secured notes

    33,259       33,226  

Other loans

    21,495       21,495  

Full recourse

    5,000       3,087  

Total current liabilities

    396,365       283,345  

Long-term debt, net of current portion:

               

Limited and non-recourse (primarily related to VIEs):

               

Senior secured notes (less deferred financing costs of $7,758 and $8,113, respectively)

    386,379       311,668  

Other loans (less deferred financing costs of $4,823 and $5,258, respectively)

    225,782       242,385  

Full recourse:

               

Senior unsecured bonds (less deferred financing costs of $804 and $580, respectively)

    303,528       203,752  

Other loans (less deferred financing costs of $1,058 and $1,011, respectively)

    43,942       46,489  

Liability associated with sale of tax benefits

    69,071       44,634  

Deferred lease income

    49,203       51,520  

Deferred income taxes

    56,753       61,961  

Liability for unrecognized tax benefits

    10,139       8,890  

Liabilities for severance pay

    19,903       21,141  

Asset retirement obligation

    37,946       27,110  

Other long-term liabilities

    22,354       18,853  

Total liabilities

    1,621,365       1,321,748  

Commitments and contingencies (Note 10)

               
                 

Redeemable noncontrolling interest

    8,522       6,416  
                 

Equity:

               

The Company's stockholders' equity:

               

Common stock, par value $0.001 per share; 200,000,000 shares authorized; 50,672,520 and 50,609,051 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

    51       51  

Additional paid-in capital

    896,160       888,778  

Retained earnings

    410,870       327,255  

Accumulated other comprehensive income (loss)

    (1,386 )     (4,706 )

Total stockholders' equity attributable to Company's stockholders

    1,305,695       1,211,378  

Noncontrolling interest

    124,001       84,322  

Total equity

    1,429,696       1,295,700  

Total liabilities, redeemable noncontrolling interest and equity

  $ 3,059,583     $ 2,623,864  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2018

   

2017

   

2018

   

2017

 
   

(Dollars in thousands,

except per share data)

   

(Dollars in thousands,

except per share data)

 

Revenues:

                               

Electricity

  $ 116,891     $ 110,876     $ 371,559     $ 337,548  

Product

    48,439       44,912       152,026       186,621  

Other

    1,150       1,397       5,217       2,278  

Total revenues

    166,480       157,185       528,802       526,447  

Cost of revenues:

                               

Electricity

    79,845       64,444       234,563       193,676  

Product

    35,669       32,218       106,968       125,102  

Other

    2,174       1,330       7,645       3,573  

Total cost of revenues

    117,688       97,992       349,176       322,351  

Gross profit

    48,792       59,193       179,626       204,096  

Operating expenses:

                               

Research and development expenses

    706       716       3,065       2,368  

Selling and marketing expenses

    8,578       3,630       15,989       12,083  

General and administrative expenses

    13,606       10,877       43,325       33,027  

Write-off of unsuccessful exploration activities

                119        

Operating income

    25,902       43,970       117,128       156,618  

Other income (expense):

                               

Interest income

    214       255       516       861  

Interest expense, net

    (18,700 )     (11,692 )     (48,890 )     (41,155 )

Derivatives and foreign currency transaction gains (losses)

    (383 )     (1,001 )     (2,511 )     2,040  

Income attributable to sale of tax benefits

    4,066       3,506       14,983       14,019  

Other non-operating income (expense), net

    309       (1,592 )     7,662       (1,678 )

Income from continuing operations before income taxes and equity in earnings (losses) of investees

    11,408       33,446       88,888       130,705  

Income tax (provision) benefit

    (1,184 )     (6,224 )     (3,347 )     (49,993 )

Equity in earnings (losses) of investees, net

    (117 )     337       1,481       (1,690 )

Income from continuing operations

    10,107       27,559       87,022       79,022  

Net income attributable to noncontrolling interest

    474       (3,599 )     (7,276 )     (11,228 )

Net income attributable to the Company's stockholders

  $ 10,581     $ 23,960     $ 79,746     $ 67,794  

Comprehensive income:

                               

Net income

    10,107       27,559       87,022       79,022  

Other comprehensive income (loss), net of related taxes:

                               

Change in foreign currency translation adjustments

    (91 )     1,005       (1,059 )     2,544  

Change in unrealized gains or losses in respect of the Company's share in derivatives instruments of unconsolidated investment

    1,012       618       4,175       271  

Loss in respect of derivative instruments designated for cash flow hedge

    20       20       60       113  

Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge

    (14 )     (18 )     (44 )     (57 )

Comprehensive income

    11,034       29,184       90,154       81,893  

Comprehensive income attributable to noncontrolling interest

    458       (4,006 )     (7,088 )     (11,950 )

Comprehensive income attributable to the Company's stockholders

  $ 11,492     $ 25,178     $ 83,066     $ 69,943  

Earnings per share attributable to the Company's stockholders:

                               

Basic:

                               

Net income

  $ 0.21     $ 0.48     $ 1.58     $ 1.36  

Diluted:

                               

Net income

  $ 0.21     $ 0.47     $ 1.56     $ 1.34  

Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders:

                               

Basic

    50,645       50,367       50,627       49,942  

Diluted

    50,963       50,867       50,985       50,669  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

   

The Company's Stockholders' Equity

                 
                           

Retained

   

Accumulated

                         
                   

Additional

   

Earnings

   

Other

                         
   

Common Stock

   

Paid-in

   

(Accumulated

   

Income

           

Noncontrolling

   

Total

 
   

Shares

   

Amount

   

Capital

   

Deficit)

   

(Loss)

   

Total

   

Interest

   

Equity

 
                                                                 
   

(Dollars in thousands, except per share data)

 
                                                                 

Balance at December 31, 2016

    49,667     $ 50     $ 869,463     $ 215,352     $ (8,175 )   $ 1,076,690     $ 91,582     $ 1,168,272  
                                                                 

Stock-based compensation

                7,204                   7,204             7,204  

Exercise of options by employees and directors

    930       1       16,382                   16,383             16,383  

Cash paid to noncontrolling interest

                                        (18,032 )     (18,032 )

Cash dividend declared, $0.33 per share

                      (16,612 )           (16,612 )           (16,612 )

Buyout of class B membership in ORTP

                2,956                   2,956       (6,964 )     (4,008 )

Net income

                      67,794             67,794       10,154       77,948  

Other comprehensive income (loss), net of related taxes:

                                                               

Currency translation adjustment

                            1,822       1,822       722       2,544  

Loss in respect of derivative instruments designated for cash flow hedge

                            113       113             113  

Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment (net of related tax of $0)

                            271       271             271  

Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $35)

                            (57 )     (57 )           (57 )

Balance at September 30, 2017

    50,597     $ 51     $ 896,005     $ 266,534     $ (6,026 )   $ 1,156,564     $ 77,462     $ 1,234,026  
                                                                 

Balance at December 31, 2017

    50,609     $ 51     $ 888,778     $ 327,255     $ (4,706 )   $ 1,211,378     $ 84,322     $ 1,295,700  
                                                                 

Stock-based compensation

                7,382                   7,382             7,382  

Exercise of options by employees and directors

    21                                            

Cumulative effect of changes in accounting principles

                      25,635             25,635             25,635  

Cash paid to noncontrolling interest

                                        (7,902 )     (7,902 )

Cash dividend declared, $0.43 per share

                      (21,766 )           (21,766 )           (21,766 )

Increase in noncontrolling interest in Guadeloupe

                                        5,339       5,339  

Increase in noncontrolling interest in Tungsten

                                        996       996  

Increase in noncontrolling interest in U.S. Geothermal

                                        34,898       34,898  

Net income

                      79,746             79,746       6,536       86,282  

Other comprehensive income (loss), net of related taxes:

                                                               

Currency translation adjustment

                            (871 )     (871 )     (188 )     (1,059 )

Loss in respect of derivative instruments designated for cash flow hedge (net of related tax of $24)

                            60       60             60  

Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment (net of related tax of $0)

                            4,175       4,175             4,175  

Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $18)

                            (44 )     (44 )           (44 )

Balance at September 30, 2018

    50,630     $ 51     $ 896,160     $ 410,870     $ (1,386 )   $ 1,305,695     $ 124,001     $ 1,429,696  

 

Dividend per share of $0.10 and $0.08 was declared for the three months ended September 30, 2018 and 2017, respectively.

 

The accompanying notes are an integral part of the consolidated financial statements.

 

6

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months Ended September 30,

 
   

2018

   

2017

 
   

(Dollars in thousands)

 

Cash flows from operating activities:

               

Net income

  $ 87,022     $ 79,022  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    98,371       81,010  

Accretion of asset retirement obligation

    1,826       1,392  

Stock-based compensation

    7,382       7,204  

Amortization of deferred lease income

    (2,014 )     (2,014 )

Income attributable to sale of tax benefits, net of interest expense

    (9,806 )     (8,851 )

Equity in losses (earnings) of investees

    (1,774 )     1,690  

Mark-to-market of derivative instruments

    1,202       (764 )

Loss on disposal of property, plant and equipment

    5,365        

Write-off of unsuccessful exploration activities

    119        

Loss (gain) on severance pay fund asset

    630       (1,463 )

Deferred income tax provision and deferred charges

    (6,612 )     38,123  

Liability for unrecognized tax benefits

    1,249       568  

Deferred lease revenues

    (303 )     (274 )

Gain from insurance recoveries

    (7,150 )      

Other

          501  

Changes in operating assets and liabilities, net of amounts acquired:

               

Receivables

    (9,704 )     (10,808 )

Costs and estimated earnings in excess of billings on uncompleted contracts

    (6,866 )     10,111  

Inventories

    (1,728 )     (209 )

Prepaid expenses and other

    (4,183 )     (636 )

Deposits and other

    10       1,231  

Accounts payable and accrued expenses

    (50,056 )     (3,655 )

Billings in excess of costs and estimated earnings on uncompleted contracts

    1,519       (25,344 )

Liabilities for severance pay

    (1,238 )     1,764  

Other long-term liabilities

    (105 )     (2,065 )

Net cash provided by operating activities

    103,156       166,533  

Cash flows from investing activities:

               

Capital expenditures

    (200,657 )     (177,410 )

Cash received from insurance recoveries related to destroyed equipment

    7,150        

Investment in unconsolidated companies

    (3,800 )     (37,867 )

Buyout of Class B membership in ORTP

          (2,357 )

Cash paid for acquisition of controlling interest in a subsidiary, net of cash acquired

    (95,093 )     (35,300 )

Intangible assets acquired

          (868 )

Decrease (increase) in severance pay fund asset, net of payments made to retired employees

    850       529  

Net cash used in investing activities

    (291,550 )     (253,273 )

Cash flows from financing activities:

               

Proceeds from sale of membership interests to noncontrolling interest, net of transaction costs

    3,174        

Proceeds from long-term loans, net of transaction costs

    100,000        

Proceeds from exercise of options by employees

          16,382  

Proceeds from the sale of limited liability company interest in Tungsten, net of transaction costs

    32,403        

Purchase of OFC Senior Secured Notes

          (14,270 )

Proceeds from revolving credit lines with banks

    2,819,800       695,600  

Repayment of revolving credit lines with banks

    (2,661,800 )     (661,700 )

Cash received from noncontrolling interest

    4,134       2,017  

Repayments of long-term debt

    (41,858 )     (55,226 )

Cash paid to noncontrolling interest

    (9,555 )     (18,032 )

Payments of capital leases

    (1,706 )     (1,472 )

Deferred debt issuance costs

    (3,002 )     (4,652 )

Cash dividends paid

    (21,766 )     (16,612 )

Net cash provided by (used in) financing activities

    219,824       (57,965 )

Net change in cash and cash equivalents and restricted cash and cash equivalents

    31,430       (144,705 )

Restricted cash and cash equivalents acquired in a business combination

    26,993        

Cash and cash equivalents and restricted cash and cash equivalents at beginning of period

    96,643       264,476  

Cash and cash equivalents and restricted cash and cash equivalents at end of period

  $ 155,066     $ 119,771  

Supplemental non-cash investing and financing activities:

               

Increase (decrease) in accounts payable related to purchases of property, plant and equipment

  $ (10,390 )   $ 982  

Accrued liabilities related to financing activities

  $ 5,864     $  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

7

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ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 — GENERAL AND BASIS OF PRESENTATION

 

These unaudited condensed consolidated interim financial statements of Ormat Technologies, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2018, the consolidated results of operations and comprehensive income (loss) for the three and nine-month periods ended September 30, 2018 and 2017 and the consolidated cash flows for the nine-month periods ended September 30, 2018 and 2017.

 

The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three and nine-month period ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

 

These condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2017. The condensed consolidated balance sheet data as of December 31, 2017 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2017 but does not include all disclosures required by U.S. GAAP.

 

Dollar amounts, except per share data, in the notes to these financial statements are rounded to the closest $1,000.

 

Galena 2 Power Purchase Agreement (“PPA”) Termination

 

On September 30, 2018, the Company signed a termination agreement with NV Energy, Inc for the Galena 2 PPA under which it agreed to pay a termination fee of approximately $5 million. The Company entered into this termination agreement as it designated the Galena 2 geothermal power plant as a facility under the portfolio PPA with Southern California Public Power Authority (“SCPPA”). The Company expects to start selling electricity from the Galena 2 plant under the SCPPA portfolio in March 2019. The termination fee was included under “Selling and marketing expenses” for the three and nine months ended September 30, 2018 in the condensed consolidated statements of operations and comprehensive income.

 

Tungsten Mountain partnership transaction  

 

On May 17, 2018, one of the Company’s wholly-owned subsidiaries that indirectly owns the 26 MW Tungsten Mountain Geothermal power plant entered into a partnership agreement with a private investor. Under the transaction documents, the private investor acquired membership interests in the Tungsten Mountain Geothermal power plant project for an initial purchase price of approximately $33.4 million and for which it will pay additional installments that are expected to amount to approximately $13 million. The Company will continue to operate and maintain the power plant and will receive substantially all the distributable cash flow generated by the power plant.

 

Under the agreements, prior to December 31, 2026 (“Target Flip Date”), the Company’s fully owned subsidiary, Ormat Nevada Inc. ("Ormat Nevada"), receives substantially all of the distributable cash flow generated by the project, while the private investor receives substantially all of the tax attributes of the project. Following the later of the Target Flip Date and the date in which the private investor reaches its target return, Ormat Nevada will receive 97.5% of the distributable cash and 95.0% of the taxable income, on a going forward basis.

 

On the Target Flip Date, Ormat Nevada has the option to purchase the private investor’s interests at the then-current fair market value, plus an amount that may be needed to cause the private investor to reach its target return, if needed. If Ormat Nevada exercises this purchase option, it will become the sole owner of the project again.

 

8

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Puna

 

On May 3, 2018, the Kilauea volcano located in close proximity to our Puna 38 MW geothermal power plant in the Puna district of Hawaii's Big Island erupted following a significant increase in seismic activity in the area. Before it recently stopped flowing, the lava covered the wellheads of three geothermal wells, the substation of the Puna complex and an adjacent warehouse that stored a drilling rig that was also consumed by the lava, all of which had a carrying value of approximately $4.9 million that was written-off during the second quarter of 2018. These property damages are expected to be covered by the Company’s insurance policies and therefore the Company recorded a provision for such recoveries out of which approximately $7.2 million was received and included in “Other income” as excess recoveries over the carrying value of the rig which was destroyed by the lava. The write-off and related insurance recoveries, excluding the excess portion, were recorded under “Electricity cost of revenues” in the condensed consolidated statements of operations and comprehensive income. The Company is in negotiations with the insurance companies regarding the reimbursement for loss of profits, damage to the property and the timing of when the loss of profit coverage comes into effect. The Company is currently assessing the damages to the Puna facilities, and continues to coordinate with Hawaii Electric Light Company ("HELCO") and local authorities to bring the power plant back to operation. The Company is in the process of building access roads to the site, opening the monitoring wells, removing the plugs from the production well and rebuilding the electrical substation. The Company continues to assess the accounting implications of this event on the assets and liabilities on its balance sheet and whether an impairment will be required. Any significant damage to the geothermal resource or continued shut-down following the recent stop of the lava of, the Puna facilities could have an adverse impact on the power plant's electricity generation and availability, which in turn could have a material adverse impact on our business and results of operations. 

 

U.S. Geothermal (“USG”) transaction

 

On April 24, 2018, the Company completed the acquisition of USG. The total cash consideration (exclusive of transaction expenses) was approximately $110 million, comprised of approximately $106 million funded from available cash of Ormat Nevada Inc. (to acquire the outstanding shares of common stock of USG) and approximately $4 million funded from available cash of USG (to cash-settle outstanding in-the-money options for common stock of USG). As a result of the acquisition, USG became an indirect wholly owned subsidiary of Ormat, and Ormat indirectly acquired, among other things, interests held by USG and its subsidiaries in:

 

•     three operating power plants at Neal Hot Springs, Oregon; San Emidio, Nevada; and Raft River, Idaho with a total net generating capacity of approximately 38 MW; and

•     development assets which include a project at the Geysers, California; a second phase project at San Emidio, Nevada; a greenfield project in Crescent Valley, Nevada; and the El Ceibillo project located near Guatemala City, Guatemala.

 

As a result of the acquisition, the Company expanded its overall generation capacity and expects to improve the profitability of the purchased assets through cost reduction and synergies. The Company accounted for the transaction in accordance with Accounting Standard Codification ASC 805, Business Combinations and following the transaction, the Company consolidates USG, in accordance with Accounting Standard Codification ASC 810, Consolidation. Accounting guidance provides that the allocation of the purchase price may be modified for up to one year from the date of the acquisition to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. The Company deemed that the adoption of ASU 2017-01, Business Combinations, as further described under Note 2 to the condensed consolidated financial statements, did not have an effect on the USG transaction.

 

The Company deemed the transaction to not meet the significant subsidiary threshold and as a result did not provide certain additional related information, that otherwise would have been required. 

 

The following table summarizes the purchase price allocation to the fair value of the assets acquired and liabilities assumed (in millions):

 

Cash and cash equivalents and restricted cash

  $ 37.9  

Property, plant and equipment and construction-in-process

    77.3  

Intangible assets (1)

    127.0  

Goodwill (2)

 

19.3

 

Total assets acquired

  $ 261.5  
         

Other working capital

  $ (8.2

)

Deferred tax liability

    (4.9

)

Long-term term debt

    (98.3

)

Asset retirement obligation

    (9.0

)

Noncontrolling interest

    (34.9

)

Total liabilities assumed

  $ (155.3

)

         

Total assets acquired, and liabilities assumed, net

  $ 106.2  

 

 

(1)

Intangible assets are primarily related to long-term electricity power purchase agreements and depreciated over an average of 19 years.

 

(2)

Goodwill is primarily related to the expected synergies in operations as a result of the purchase transaction and allocated to the Electricity segment.

 

9

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The fair value of the noncontrolling interest of $34.9 million reflects the 40% minority interests in the Neal Hot Springs project that was evaluated using the income approach. The fair value of the noncontrolling interest is based on the following significant inputs: (i) forecasted cash flows assumed to be generated in correspondence with the remaining life of the related power purchase agreement which is approximately 20 years; (ii) revenues were estimated in accordance with the price and generation capacity of the related power purchase agreement; (iii) assumed terminal value based on the realizable value of the project at the end of the power purchase agreement term; and (iv) assumed discount rate of approximately 9%.     

 

Total Electricity segment revenues and operating profit related to the three USG power plants of approximately $7.3 million and $1.6 million, respectively, for the three months ended September 30, 2018 and revenues and operating loss of approximately $10.7 million and $2.6 million, respectively, for the nine months ending September 30, 2018 were included in the Company’s consolidated statements of operations and comprehensive income for the same periods. The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2017:

 

   

Pro forma for the

three months ended

September 30, 2018

   

Pro forma for the

three months ended

September 30, 2017

   

Pro forma for the

nine months ended

September 30, 2018

   

Pro forma for the

nine months ended

September 30, 2017

 
   

(Dollars in thousands)

 

Electricity revenues

  $ 116,891     $ 117,688     $ 382,856     $ 359,108  

Total revenues

    166,480       157,185       540,099       548,007  

Operating income

    25,902       43,210       115,582       157,609  

 

Migdal Senior Unsecured Loan

 

On March 22, 2018, the Company entered into a definitive loan agreement (the "Migdal Loan Agreement") with Migdal Insurance Company Ltd., Migdal Makefet Pension and Provident Funds Ltd. and Yozma Pension Fund of Self-Employed Ltd., all entities within the Migdal Group, a leading insurance company and institutional investor in Israel. The Migdal Loan Agreement provides for a loan by the lenders to the Company in an aggregate principal amount of $100 million (the “Migdal Loan”). The Migdal Loan will be repaid in 15 semi-annual payments of $4.2 million each, commencing on September 15, 2021, with a final payment of $37 million on March 15, 2029. The Migdal Loan bears interest at a fixed rate of 4.8% per annum, payable semi-annually, subject to adjustment in certain circumstances as described below.

 

The Migdal Loan is subject to early redemption by the Company prior to maturity from time to time (but not more frequently than once per quarter) and at any time in whole or in part, at a redemption price set forth in the Migdal Loan Agreement. If the rating of the Company is downgraded to "ilA-", by Standard and Poor’s Global Ratings Maalot Ltd. (“Maalot”), the interest rate applicable to the Migdal Loan will be increased by 0.50%. If the rating of the Company is further downgraded to a lower level, the interest rate applicable to the Migdal Loan will be increased by 0.25% for each additional downgrade. In no event will the cumulative increase in the interest rate applicable to the Migdal Loan exceed 1% regardless of the cumulative rating downgrade. A subsequent upgrade or reinstatement of a rating by Maalot will reduce the interest rate applicable to the Migdal Loan by 0.25% for each upgrade (but in no event will the interest rate applicable the Migdal Loan fall below the base interest rate of 4.8%). Additionally, if the ratio between short-term and long-term debt to financial institutions and bondholders, deducting cash and cash equivalents to EBITDA is equal to or higher than 4.5, the interest rate on all amounts then outstanding under the Migdal Loan shall be increased by 0.5% per annum over the interest rate then-applicable to the Migdal Loan.

 

10

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Migdal Loan constitutes senior unsecured indebtedness of the Company and will rank equally in right of payment with any existing and future senior unsecured indebtedness of the Company, and effectively junior to any existing and future secured indebtedness, to the extent of the security therefore.

 

The Migdal Loan Agreement includes various affirmative and negative covenants, including a covenant that the Company maintain (i) a debt to adjusted EBITDA ratio below 6, (ii) a minimum equity amount (as shown on its consolidated financial statements, excluding noncontrolling interests) of not less than $650 million, and (iii) an equity attributable to Company's stockholders to total assets ratio of not less than 25%. In addition, the Migdal Loan Agreement restricts the Company from making dividend payments if its equity falls below $800 million and otherwise restricts dividend payments in any one year to not more than 50% of the net income of the Company of such year as shown on the Company’s consolidated annual financial statements as long as any of the Company's bonds issued in Israel prior to March 27, 2018 remain outstanding. The Migdal Loan Agreement includes other customary affirmative and negative covenants and events of default. As of September 30, 2018, the Company was in compliance with all such covenants.

 

Other comprehensive income

 

For the nine months ended September 30, 2018 and 2017, the Company classified $16,000 and $56,000, respectively, related to derivative instruments designated as cash flow hedges, from accumulated other comprehensive income, of which $22,000 and $21,000, respectively, were recorded to reduce interest expense and $5,000 and $(35,000), respectively, were recorded against the income tax provision, in the condensed consolidated statements of operations and comprehensive income. For the three months ended September 30, 2018 and 2017, the Company classified $6,000 and $2,000, respectively, related to derivative instruments designated as cash flow hedges, from accumulated other comprehensive income, of which $6,000 and $(9,000), respectively, were recorded to reduce interest expense and $0 and $(11,000), respectively, were recorded against the income tax provision, in the condensed consolidated statements of operations and comprehensive income. The accumulated net loss included in Other comprehensive income as of September 30, 2018 is $0.9 million.

 

Write-offs of unsuccessful exploration activities

 

Write-offs of unsuccessful exploration activities for the three and nine months ended September 30, 2018 were $0 and $0.1 million, respectively. There were no write-offs of unsuccessful exploration activities for the three and nine months ended September 30, 2017.

 

Reconciliation of Cash and cash equivalents and Restricted cash and cash equivalents

 

The following table provides a reconciliation of Cash and cash equivalents and Restricted cash and cash equivalents reported on the balance sheet that sum to the total of the same amounts shown on the statement of cash flows:

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Dollars in thousands)

 

Cash and cash equivalents

  $ 71,965     $ 47,818  

Restricted cash and cash equivalents

    83,101       48,825  

Total Cash and cash equivalents and restricted cash and cash equivalents

  $ 155,066     $ 96,643  

 

Concentration of credit risk

 

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of temporary cash investments and accounts receivable.

 

11

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Company places its temporary cash investments with high credit quality financial institutions located in the United States (“U.S.”) and in foreign countries. At September 30, 2018 and December 31, 2017, the Company had deposits totaling $20.9 million and $21.2 million, respectively, in ten U.S. financial institutions that were federally insured up to $250,000 per account. At September 30, 2018 and December 31, 2017, the Company’s deposits in foreign countries amounted to approximately $76.8 million and $32.8 million, respectively.

 

At September 30, 2018 and December 31, 2017, accounts receivable related to operations in foreign countries amounted to approximately $92.6 million and $78.1 million, respectively. At September 30, 2018 and December 31, 2017, accounts receivable from the Company’s primary customers amounted to approximately 53% and 57% of the Company’s accounts receivable, respectively.

 

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 13.6% and 16.3% of the Company’s total revenues for the three months ended September 30, 2018 and 2017, respectively, and 15.7% and 17.4% of the Company’s total revenues for the nine months ended September 30, 2018 and 2017, respectively.

 

Southern California Public Power Authority (“SCPPA”) accounted for 13.7% and 9.1% of the Company’s total revenues for the three months ended September 30, 2018 and 2017, respectively, and 14.9% and 8.9% of the Company’s total revenues for the nine months ended September 30, 2018 and 2017.

 

Kenya Power and Lighting Co. Ltd. accounted for 18.6% and 17.6% of the Company’s total revenues for the three months ended September 30, 2018 and 2017, respectively, and 16.7% and 15.7% of the Company’s total revenues for the nine months ended September 30, 2018 and 2017, respectively.

 

The Company has historically been able to collect on substantially all of its receivable balances and believes it will continue to be able to collect all amounts due. Accordingly, no provision for doubtful accounts has been made. 

 

 

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

 

New accounting pronouncements effective in the nine-month period ended September 30, 2018

 

Income Taxes

 

In March 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-05, Income Taxes (Topic 740). The amendments in this update add several SEC paragraphs pursuant to the issuance of the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) in December 2017. The amendments in this update are effective immediately. For additional information, see Note 11 to the consolidated financial statements.

 

Revenues from Contracts with Customers

 

In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers, Topic 606, which was a joint project of the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The update provides that an entity should recognize revenue in connection with the transfer of 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. Specifically, an entity is required to apply each of the following steps: (1) identify the contract(s) with the customer; (2) identify the performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also prescribes additional financial presentations and disclosures. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations. This update did not change the core principles of the guidance and was intended to clarify the implementation guidance on principal versus agent considerations. When another entity is involved in providing goods or services to a customer, an entity is required to determine if the nature of its promise is to provide the specific good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). The guidance included indicators to assist an entity in determining whether it acts as a principal or agent in a specified transaction.

 

12

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

  The Company adopted this update effectively as of January 1, 2018 using the modified retrospective approach with one-time cumulative adjustment to the opening balance of retained earnings as further described below and applied the five-step model described above on identified outstanding contracts at the date of adoption, under which revenues are generated. Under ASC 606, an entity must identify the performance obligations in a contract, determine the transaction price and allocate the price to specific performance obligations and recognize the revenue when the obligation is completed. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The standard also requires disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flow arising from contracts.

 

The adoption of ASC 606, Revenues from Contracts with Customers, as described above, did not have an impact on our Electricity, Product and Other segment revenues in 2018, however, the adoption did have an impact on our accounting for investment in an unconsolidated company as further described in the following table and in the disclosure under the heading "Investment in an unconsolidated company" within this note below. Additionally, the following table below summarizes the impact of the adoption of ASC 606 on the Company’s consolidated financial statements as of January 1, 2018, followed by further information for each of the line items in the table:

 

   

(Dollars in

millions)

 

Electricity segment revenues

  $  

Product segment revenues

     

Other segment revenues

     

Investment in an unconsolidated company

    24.0  

 

Electricity segment revenues: Electricity revenues are primarily related to sale of electricity from geothermal and recovered energy-based power plants owned and operated by the Company. Revenues related to the sale of electricity from geothermal and recovered energy-based power plants and capacity payments are recorded based upon output delivered and capacity provided at rates specified under relevant contract terms. For power purchase agreements (“PPAs”) agreed to, modified, or acquired in business combinations on or after July 1, 2003, the Company determines whether such PPAs contain a lease element requiring lease accounting. Revenue from such PPAs is accounted for in electricity revenues. The lease element of the PPAs is also assessed in accordance with the revenue arrangements with multiple deliverables guidance, which requires that revenues be allocated to the separate earnings processes based on their relative fair value. PPAs with minimum lease rentals which vary over time are generally recognized on the straight-line basis over the term of the PPAs. PPAs with contingent rentals are recognized when earned. In the Electricity segment, revenues for all but three power plants are accounted for under ASC 840 (Leases) as operating leases, and therefore equipment related to geothermal and recovered energy generation power plants is considered held for leasing. For power plants in the scope of ASC 606, the Company identified electricity as a separate performance obligation. Performance obligations identified were evaluated and determined to be satisfied over time and qualified for the invoicing practical expedient since the invoiced amounts reasonably represented the value to customers of performance obligations fulfilled to date. The transaction price is determined based on the price per actual mega-watt output or available capacity as agreed to in the respective PPA. Customers are generally billed on a monthly basis and payment is typically due within 30 to 60 days after the issuance of the invoice.

 

Product segment revenues: Product segment revenues are primarily related to sale of geothermal and recovered energy-based power plants, including equipment, engineering, construction and installation and operating services. Revenues from the supply and/or construction of geothermal and recovered energy-based power plant equipment and other equipment to third parties are recognized over time since control is transferred continuously to our customers. The majority of our contracts include a single performance obligation which is essentially the promise to transfer the individual goods or services that are not separately identifiable from other promises in the contracts and therefore deemed as not distinct. Performance obligations are satisfied over-time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being constructed, or if the product being produced for the customer has no alternative use and we have a contractual right to payment. In our Product segment, revenues are spread over a period of one to two years and are recognized over time based on the cost incurred to date in ratio to total estimated costs which represents the input method that best depicts the transfer of control over the performance obligation to the customer. Costs include direct material, labor, and indirect costs. Selling, marketing, general, and administrative costs are expensed as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

 

13

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

In contracts for which we determine that control is not transferred continuously to the customer, we recognized revenues at the point in time when the customer obtains control of the asset. Revenues for such contracts are recorded upon delivery and acceptance by the customer. This generally is the case for the sale of spare parts, generators or similar products.

 

Accounting for product contracts that are satisfied over time includes use of several estimates such as variable consideration related to bonuses and penalties and total estimated cost for completing the contract. The estimated amount of variable consideration will be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are based on historical experience, anticipated performance and our best judgment at the time.

 

The nature of our product contracts give rise to several modifications or change requests by our customers. Substantially all of the modifications are treated as cumulative catch-ups to revenues since the additional goods are not distinct from those already provided. We include the additional revenues related to the modifications in our transaction price when both parties to the contract approved the modification. As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in Product revenues on contracts under the cumulative catch-up method. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period in which it is identified.

 

The Company generally provides a one-year warranty against defects in workmanship and materials related to the sale of products for electricity generation. The Company considered the warranty as an assurance type warranty since the warranty provides the customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in operating expenses in the period in which the related revenue is recognized. Such charges are immaterial for the three and nine months ended September 30, 2018 and 2017.

 

Contract Assets and Liabilities related to our Product segment: Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of September 30, 2018 and December 31, 2017 are as follows:

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Dollars in thousands)

 

Contract assets (*)

  $ 47,811     $ 40,945  

Contract liabilities (*)

    (21,760 )     (20,241 )

Contract assets, net

  $ 26,051     $ 20,704  

 

(*) Contract assets and contract liabilities are presented as "Costs and estimated earnings in excess of billings on uncompleted contracts" and "Billings in excess of costs and estimated earnings on uncompleted contracts", respectively, on the consolidated balance sheet.

 

The following table presents the significant changes in the contract assets and contract liabilities for the nine months ended September 30, 2018:

 

   

Contract

assets

   

Contract

liabilities

 
   

(Dollars in thousands)

 

Recognition of contract liabilities as revenue as a result of performance obligations satisfied

  $ -     $ 22,504  

Cash received in advance for which revenues have not yet recognized, net expenditures made

    -       (29,796 )

Reduction of contract assets as a result of rights to consideration becoming unconditional

    (87,510 )     -  

Contract assets recognized, net of recognized receivables

    100,150       -  

Net change in contract assets and contract liabilities

    12,640       (7,292 )

 

14

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets and contract liabilities on the condensed consolidated balance sheet. In our Products segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, or upon achievement of contractual milestones. Generally, billing occurs subsequent to the recognition of revenue, resulting in contract assets. However, we sometimes receive advances or deposits from our customers before revenue can be recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. The timing of billing our customers and receiving advance payments vary from contract to contract. We typically receive a down payment of between 10% and 20% of total contract consideration upon signing, followed by additional milestone payments for which timing varies from contract to contract. The majority of payments are received no later than the completion of the project and satisfaction of our performance obligation.

 

On September 30, 2018, we had approximately $226.4 million of remaining performance obligations not yet satisfied or partly satisfied related to our Product segment. We expect to recognize approximately 99% of this amount as Product revenues during the next 24 months and the rest will be recognized thereafter.

 

The following schedule reconciles revenues accounted for under ASC 840, Leases, and ASC 606, Revenues from Contracts with Customers, to total consolidated revenues for the three and nine months ended September 30, 2018:

 

   

Three Months

Ended

September 30,

2018

   

Nine Months

Ended

September 30,

2018

 
   

(Dollars in

thousands)

   

(Dollars in

thousands)

 

Electricity Revenues accounted under ASC 840, Leases

  $ 111,114     $ 353,859  

Electricity and Product revenues accounted under ASC 606

    55,366       174,943  

Total consolidated revenues

  $ 166,480     $ 528,802  

 

Disaggregated revenues from contracts with customers for the three and nine months ended September 30, 2018 are shown under Note 9 – Business Segments, to the condensed consolidated financial statements. 

 

Investment in an unconsolidated company: The Company also reviewed the impact of the adoption of ASC 606 on its investment in an unconsolidated company. As a result of the adoption, the Company recorded one-time cumulative credit adjustment to the opening balance of retained earnings of approximately $24.0 million as of January 1, 2018. This impact is a result of the unconsolidated company’s variable consideration related to the construction of its power plant for which, under the new guidance, is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. As such, the comparative information will not be restated and shall continue to be reported under the accounting standards in effect for those periods.

 

The following schedule quantifies the impact of adopting ASC 606 on the statement of operations for the three and nine months ended September 30, 2018:

 

   

Three months

ended

September 30,

2018 under

previous

standard

   

Effect of the

New

Revenue

Standard

   

As

reported for the

three months

ended

September 30,

2018

 
   

(Dollars in thousands)

 

Equity in earnings (losses) of investees, net

  $ (15 )   $ (102 )   $ (117 )

Income from continuing operations

    10,209       (102 )     10,107  

Net income attributable to the Company’s stockholders

    10,683       (102 )     10,581  

Retained earnings as of the end of the period

    410,972       (102 )     410,870  

 

15

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

   

Nine months

ended

September 30,

2018 under

previous

standard

   

Effect of the

New

Revenue

Standard

   

As

reported for the

nine months

ended

September 30,

2018

 
   

(Dollars in thousands)

 

Equity in earnings (losses) of investees, net

  $ (1,308

)

  $ 2,789     $ 1,481  

Income from continuing operations

    84,233       2,789       87,022  

Net income attributable to the Company’s stockholders

    76,957       2,789       79,746  

Retained earnings as of the end of the period

    408,081       2,789       410,870  

 

Other segment revenues: Other segment revenues are primarily related to energy storage, demand-response and energy management related services. Revenues are recorded based on energy management of load curtailment capacity delivered or service provided at rates specified under the relevant contract terms. The Company determined that the Other segment revenues are in the scope of ASC 606 and identified energy management as a separate performance obligation. Performance obligations are satisfied once the Company provides verification to the electric power grid operator or utility of its ability to meet the committed capacity or power curtailment requirements and thus entitled to cash proceeds. Such verification may be provided by the Company bi-weekly, monthly or under any other frequency as set by the related program and are typically followed by a payment shortly after. Performance obligations identified were evaluated and determined to be satisfied over time and qualified for the invoicing practical expedient since the amounts included in the verification document reasonably represent the value of performance obligations fulfilled to date. The transaction price is determined based on mechanisms specified in the contract with the customer.

 

Compensation - Stock Compensation

 

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update require that an entity should account for the effects of a modification unless all of the following are met: (1) The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements under Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

Business Combinations

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805). The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update primarily provide a screen to determine when a set of assets and activities is not a business and by that reduces the number of transactions that need to be further evaluated. The amendments in this update should be applied prospectively and are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance did not have an impact on the Company’s condensed consolidated financial statements.

 

16

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

Statement of Cash Flow

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. The amendments in this update require that a statement of cash flows explain the changes during the period in total cash, cash equivalents, and the amounts generally described as restricted cash or cash equivalents. Therefore, amounts of restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update should be applied retrospectively for each period presented and are effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company adopted this guidance retrospectively in its consolidated financial statements for the three month period ending March 31, 2018 and adjusted its disclosure accordingly.

 

Intra-Entity Transfers of Assets Other than Inventory 

 

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. The amendments in this update require that the entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers on inventory. The amendments in this update should be applied for each period presented and are effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The modified retrospective approach is required for transition to the new guidance, with cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. The Company adopted this guidance in its consolidated financial statements for the three months ending March 31, 2018 using the modified retrospective approach and recorded a net cumulative-effect adjustment to retained earnings of approximately $1.8 million with a corresponding adjustment to deferred charges and deferred income taxes on the condensed consolidated balance sheet of approximately $49.8 million and $51.6 million, respectively.

 

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash payments (Topic 230)

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash-Flows (Topic 230). This update addresses eight specific cash flow classification issues with the objective of reducing diversity in practice. One of the issues addressed in this update is debt prepayment or debt extinguishment costs which under the new guidance should be classified as cash outflows for financing activities. Additionally, the update addressed contingent consideration payments made after a business combination. Such cash payments made soon after the acquisition date to settle a contingent consideration liability should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The amendments in this update are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company adopted this guidance and expects that the impact from the adoption of the update will result in a reclassification of approximately $8.0 million of cash paid for achievement of production threshold in Guadeloupe during the fourth quarter of 2017 from cash outflows from investing activities to cash outflows from financing activities as required by this update.

  

Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The update primarily requires that an entity present separately, in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The application of this update should be by means of cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

 

17

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

New accounting pronouncements effective in future periods

 

Derivatives and Hedging

 

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The amendments in this update better align 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. To meet that objective, the amendments 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. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. The Company is currently evaluating the potential impact, if any, of the adoption of these amendments on its consolidated financial statements.

 

Intangibles –Goodwill and Other

 

 In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update require the entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider the income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This update eliminated Step 2 from the goodwill impairment test under the current guidance. Step 2 measures a goodwill impairment loss by comparing the implied fair value of reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in this update should be applied on a prospective basis. An entity is also required to disclose the nature of and the reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and the interim period within the first annual period when the entity initially adopts the amendments in this update. The amendments in this update are effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the potential impact, if any, of the adoption of these amendments on its consolidated financial statements.

 

Leases

 

 In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update introduces a number of changes and simplifies previous guidance, primarily the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. The update retains the distinction between finance leases and operating leases and the classification criteria between the two types remains substantially similar. Also, lessor accounting remains largely unchanged from previous guidance. However, key aspects of the update were aligned with the revenue recognition guidance in Topic 606. Additionally, the update defines a lease as a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. This update requires the modified retrospective transition approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The modified retrospective approach includes a number of optional practical expedients related to identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with the previous generally accepted accounting principles in the United States unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining  minimum rental payments that were tracked and disclosed under previous generally accepted accounting principles in the United States.  In July 2018, the FASB issued ASU 2018-11, Leases, which provided an additional optional transition method for the adoption of the standard as well as additional codification improvements. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the comparative periods presented in the financial statements in which the standard is adopted will continue to be in accordance with the current GAAP. The amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods. Early adoption is permitted. The Company is currently in the process of performing a comprehensive evaluation of the impact from adopting the standard on its financial statements which includes, among others, utilizing internal resources to lead the implementation efforts and supplementing them with external resources and accounting professionals, reviewing the Company’s existing lease portfolio and assessing the impact to its business processes and internal control over financial reporting. As the review process is underway, the Company is still evaluating the impact of the adoption of these amendments on its consolidated financial statements. The Company expects that there will be an increase to assets and liabilities related to the recognition of a lease asset and a liability on its existing lease portfolio, however, it does not expect the adoption of the standard to have a material impact on its consolidated statement of operations and comprehensive income.

 

18

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income

 

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting for the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The guidance is effective for the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of these amendments on its consolidated financial statements, however, such impact, if any, is not expected to be material.

 

 

NOTE 3 — INVENTORIES

 

Inventories consist of the following:

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Dollars in thousands)

 

Raw materials and purchased parts for assembly

  $ 26,604     $ 12,007  

Self-manufactured assembly parts and finished products

    10,838       7,544  

Total

  $ 37,442     $ 19,551  

 

19

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

 

NOTE 4 — INVESTMENT IN AN UNCONSOLIDATED COMPANY

 

Unconsolidated investments consist of the following:

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Dollars in thousands)

 

Sarulla

  $ 67,739     $ 34,084  

 

The Sarulla Project

 

The Company holds a 12.75% equity interest in a consortium that developed the 330 MW Sarulla geothermal power plant project in Tapanuli Utara, North Sumatra, Indonesia. The Sarulla project is comprised of three separately constructed 110 MW units, the most recent of which, NIL 2, was completed in April 2018. The Sarulla project is owned and operated by the consortium members under the framework of a joint operating contract and energy sales contract that were both executed on April 4, 2013. Under the joint operating contract, PT Pertamina Geothermal Energy, the concession holder for the project, provided the consortium with the right to use the geothermal field, and under the energy sales contract, PT PLN, the state electric utility, is the off-taker at Sarulla for a period of 30 years.

 

During the three and nine months ended September 30, 2018, the Company made additional cash equity investments in the Sarulla project of approximately $0 and $3.8 million, respectively, for a total of $62.0 million since inception.

 

The Sarulla consortium entered into interest rate swap agreements with various international banks, effective as of June 4, 2014, and accounted for the interest rate swap as a cash flow hedge upon which changes in the fair value of the hedging instrument, relative to the effective portion, are recorded in other comprehensive income. The Company’s share of such gains (losses) recorded in other comprehensive income (loss) are as follows:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2018

   

2017

   

2018

   

2017

 
    (Dollars in thousands)     (Dollars in thousands)  

Change, net of deferred tax, in unrealized gains (losses) in respect of the Company’s share in derivative instruments of unconsolidated investment

  $ 1,012     $ 618     $ 4,175     $ 271  

 

The related accumulated loss recorded by the Company in other comprehensive income (loss) as of September 30, 2018 is $0.9 million.

 

As further described above under the heading “New accounting pronouncement effective in the nine-month period ended September 30, 2018” in Note 2 to the condensed consolidated financial statements, the Company adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2018. The impact of the adoption of this standard on its investment in an unconsolidated company amounted to $24.0 million at January 1, 2018. This impact was a result of the unconsolidated company’s variable consideration related to the construction of its power plant for which, under the new guidance, is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company adopted the new standard using the modified retrospective approach with a one-time cumulative adjustment to the opening balance of retained earnings of approximately $24.0 million at January 1, 2018, the date of initial application.

 

20

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

 

NOTE 5— FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received upon selling an asset or paid upon transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:

 

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

 

Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

The following table sets forth certain fair value information at September 30, 2018 and December 31, 2017 for financial assets and liabilities measured at fair value by level within the fair value hierarchy, as well as cost or amortized cost. As required by the fair value measurement guidance, assets and liabilities are classified in their entirety based on the lowest level of inputs that is significant to the fair value measurement.

 

           

September 30, 2018

 
           

Fair Value

 
   

Carrying

Value at

September 30,

2018

   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets:

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 15,941     $ 15,941     $ 15,941     $     $  

Derivatives:

                                       

Contingent receivable (1)

    105       105                   105  

Liabilities:

                                       

Current liabilities:

                                       

Derivatives:

                                       

Contingent payables (1)

    (13,798 )     (13,798 )                 (13,798 )

Currency forward contracts (2)

    (210 )     (210 )           (210 )      
    $ 2,038     $ 2,038     $ 15,941     $ (210 )   $ (13,693 )

 

21

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

           

December 31, 2017

 
           

Fair Value

 
   

Carrying

Value at

December 31,

2017

   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 18,359     $ 18,359     $ 18,359     $     $  

Derivatives:

                                       

Contingent receivable (1)

    108       108                   108  

Currency forward contracts (2)

    992       992             992        

Liabilities:

                                       

Current liabilities:

                                       

Derivatives:

                                       

Contingent payables (1)

    (13,904 )     (13,904 )                 (13,904 )

Warrants (1)

    (3,967 )     (3,967 )                 (3,967 )
    $ 1,588     $ 1,588     $ 18,359     $ 992     $ (17,763 )

 

(1) These amounts relate to contingent receivables and payables and warrants relating to acquisition of substantially all of the assets of Viridity Energy, Inc. and to the Guadeloupe power plant purchase transaction, valued primarily based on unobservable inputs and are included within “Prepaid expenses and other”, “Accounts payable and accrued expenses” and “Other long-term liabilities” on September 30, 2018 and 2017 in the consolidated balance sheets with the corresponding gain or loss being recognized within Derivatives and foreign currency transaction gains (losses) in the consolidated statement of operations and comprehensive income.
   

(2)

These amounts relate to currency forward contracts valued primarily based on observable inputs, including forward and spot prices for currencies, net of contracted rates and then multiplied by notional amounts, and are included within “Prepaid expenses and other” and “Accounts payable and accrued expenses”, as applicable, on September 30, 2018 and December 31, 2017, in the consolidated balance sheet with the corresponding gain or loss being recognized within “Derivatives and foreign currency transaction gains (losses)” in the consolidated statement of operations and comprehensive income.

 

The amounts set forth in the tables above include investments in debt instruments and money market funds (which are included in cash equivalents). Those securities and deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market. 

 

22

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

The following table presents the amounts of gain (loss) recognized in the consolidated statements of operations and comprehensive income on derivative instruments not designated as hedges (in thousands):

 

       

Amount of recognized gain (loss)

 

Derivatives not designated as

 

Location of recognized gain

 

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
hedging instruments   (loss)  

2018

   

2017

   

2018

   

2017

 
                                     
                                     

Put options on natural gas price

 

Derivatives and foreign currency transaction gains (losses)

          (121 )           (362 )

Contingent considerations

 

Derivative and foreign currency transaction gains (losses)

          (19 )           (114 )

Currency forward contracts

 

Derivative and foreign currency and transaction gains (losses)

    (198 )     (887 )     (1,655 )     2,832  
        $ (198 )   $ (1,027 )   $ (1,655 )   $ 2,356  

 

In January 2017, the Company entered into Henry Hub Natural Gas Future contracts under which it bought a number of put options covering a notional quantity of approximately 4.1 million British Thermal Units with exercise prices of $3 per put option and expiration dates ranging from January 26, 2017 until November 27, 2017 in order to reduce its exposure to fluctuations in natural gas prices under its PPAs with Southern California Edison. The Company paid an aggregate amount of approximately $0.7 million for these put options.

 

The foregoing future and forward transactions were not designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “Derivatives and foreign currency transaction gains (losses)”.

 

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2018.

 

23

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

The fair value of the Company’s long-term debt approximates its carrying amount, except for the following:

 

   

Fair Value

   

Carrying Amount

 
   

September 30,

2018

   

December 31,

2017

   

September 30,

2018

   

December 31,

2017

 
   

(Dollars in millions)

   

(Dollars in millions)

 

Olkaria III Loan - OPIC

    214.2       234.6       215.1       228.6  

Olkaria IV Loan - DEG 2

    50.1       50.7       50.0       50.0  

Amatitlan Loan

    30.8       32.8       30.6       33.3  

Senior Secured Notes:

                               

OrCal Geothermal Inc. ("OrCal")

    24.7       34.2       24.0       32.1  

OFC 2 LLC ("OFC 2")

    215.9       234.6       221.8       232.5  

Don A. Campbell 1 ("DAC 1")

    79.0       85.5       84.7       88.3  

USG Prudential - NV

    29.4             28.2        

USG Prudential - ID

    18.7             18.9        

USG DOE

    47.2             51.4        

Senior Unsecured Bonds

    195.7       200.3       204.3       204.3  

Senior Unsecured Loan

    99.7             100.0        

Other long-term debt

    5.4       7.0       6.4       7.9  

 

The fair value of the long-term debt is determined by a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of current borrowing rates. The fair value of revolving lines of credit is determined using a comparison of market-based price sources that are reflective of similar credit ratings to those of the Company.

 

The carrying value of financial instruments such as revolving lines of credit and deposits approximates fair value.

 

The following table presents the fair value of financial instruments as of September 30, 2018:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(Dollars in millions)

 

Olkaria III - OPIC

                214.2       214.2  

Olkaria IV - DEG 2

                50.1       50.1  

Amatitlan Loan

          30.8             30.8  

Senior Secured Notes:

                               

OrCal Senior Secured Notes

                24.7       24.7  

OFC 2 Senior Secured Notes

                215.9       215.9  

DAC 1 Senior Secured Notes

                79.0       79.0  

USG Prudential - NV

                29.4       29.4  

USG Prudential - ID

                18.7       18.7  

USG DOE

                47.2       47.2  

Senior Unsecured Bonds

                195.7       195.7  

Senior Unsecured Loan

                99.7       99.7  

Other long-term debt

                5.4       5.4  

Revolving lines of credit

          209.5             209.5  

Deposits

    14.2                   14.2  

 

24

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

The following table presents the fair value of financial instruments as of December 31, 2017:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(Dollars in millions)

 

Olkaria III Loan - OPIC

  $     $     $ 234.6     $ 234.6  

Olkaria IV - DEG 2

                    50.7       50.7  

Amatitlan Loan

          32.8             32.8  

Senior Secured Notes:

                               

OFC Senior Secured Notes

                       

OrCal Senior Secured Notes

                34.2       34.2  

OFC 2 Senior Secured Notes

                234.6       234.6  

DAC 1 Senior Secured Notes

                85.5       85.5  

Senior Unsecured Bonds

                200.3       200.3  

Other long-term debt

                7.0       7.0  

Revolving lines of credit

          51.5             51.5  

Deposits

    15.6                   15.6  

 

 

NOTE 6 — STOCK-BASED COMPENSATION

 

The 2012 Incentive Compensation Plan

 

In May 2012, the Company’s shareholders adopted the 2012 Incentive Plan, which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights “(SARs”), stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2012 Incentive Plan, a total of 4,000,000 shares of the Company’s common stock were reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2012 Incentive Plan typically vest and become exercisable as follows: 25% vest 24 months after the grant date, an additional 25% vest 36 months after the grant date, and the remaining 50% vest 48 months after the grant date. Options granted to non-employee directors under the 2012 Incentive Plan will vest and become exercisable one year after the grant date. Restricted stock units granted to directors and members of senior management vest according to a vesting schedule as follows: for the directors, 100% on the first anniversary of the grant date and for members of senior management, 25% on each of the first, second, third and fourth anniversaries of the grant date.  The term of stock-based awards typically ranges from six to ten years from the grant date. The shares of common stock issued in respect of awards under the 2012 Incentive Plan are issued from the Company’s authorized share capital upon exercise of options or SARs. The 2012 Incentive Plan expired in May 2018 upon adoption of the 2018 Incentive Compensation Plan (“2018 Incentive Plan”), except as to stock-based awards outstanding under the 2012 Incentive Plan on that date.

 

The 2018 Incentive Compensation Plan

 

On May 7, 2018, the Company held its 2018 Annual Meeting of Stockholders at which the Company's stockholders approved the 2018 Incentive Plan. The 2018 Incentive Plan provides for the grant of the following types of awards: incentive stock options, restricted stock units (“RSUs”), SARs, stock units, performance awards, phantom stock, incentive bonuses and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2018 Incentive Plan, a total of 5,000,000 shares of the Company’s common stock were authorized and reserved for issuance, all of which could be issued as options or as other forms of awards. SARs and RSUs granted to employees under the 2018 Incentive Plan typically vest and become exercisable as follows: 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date.  SARs and Restricted stock units granted to directors under the 2018 Incentive Plan typically vest and become exercisable (100%) on the first anniversary of the grant date. The term of stock-based awards typically ranges from six to ten years from the grant date. The shares of common stock issued in respect of awards under the 2018 Incentive Plan are issued from the Company’s authorized share capital upon exercise of options or SARs.

 

On May 8, 2018, the Company granted an aggregate of 295,671 SARs and 40,489 RSUs to the CEO and one of the directors under the Company’s 2018 Incentive Plan. The exercise price of each SAR is $55.16, which represented the fair market value of the Company’s common stock on the grant date. The SARs and RSUs will expire in five and a half years from the date of grant and will vest according to a vesting schedule as follows: for the directors, 100% after a half year from the grant date and for the CEO, 22% on each of the first and second anniversaries of the grant date and 28% on the third and fourth anniversaries of the grant date.

 

25

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

The fair value of each SAR for the director and the CEO on the grant date was $14.56 and $14.57, respectively. The fair value of each RSU for the director and the CEO on the grant date was $54.92 and $54.23, respectively. The Company calculated the fair value of each SAR and RSU on the grant date using the Exercise Multiple-Based Lattice Pricing model based on the following assumptions:

 

Risk-free interest rate

    2.84