Toggle SGML Header (+)


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

ora20190331_10q.htm
 

 

Table of Contents



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 March 31, 2019

 

 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) 

 

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 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 May 6, 2019, the number of outstanding shares of common stock, par value $0.001 per share, was 50,752,101.

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

ORA

NYSE

 

 

 

 

 

ORMAT TECHNOLOGIES, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

 

PART I — FINANCIAL INFORMATION

 

 ITEM 1.

 

FINANCIAL STATEMENTS

4

 ITEM 2.

 

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

27

 ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

45

 ITEM 4.

 

CONTROLS AND PROCEDURES

45

PART II — OTHER INFORMATION

 

 ITEM 1.

 

LEGAL PROCEEDINGS

46

 ITEM 1A.

 

RISK FACTORS

46

 ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

46

 ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

46

 ITEM 4.

 

MINE SAFETY DISCLOSURES

46

 ITEM 5.

 

OTHER INFORMATION

46

 ITEM 6.

 

EXHIBITS

46

SIGNATURES

47

 

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)

   

March 31,

   

December 31,

 
   

2019

   

2018

 
    (Dollars in thousands)  
ASSETS  

Current assets:

               

Cash and cash equivalents

  $ 79,366     $ 98,802  

Restricted cash and cash equivalents (primarily related to VIEs)

    93,098       78,693  

Receivables:

               

Trade

    139,870       137,581  

Other

    18,319       19,393  

Inventories

    42,982       45,024  

Costs and estimated earnings in excess of billings on uncompleted contracts

    29,762       42,130  

Prepaid expenses and other

    18,224       51,441  

Total current assets

    421,621       473,064  

Investment in an unconsolidated company

    71,885       71,983  

Deposits and other

    18,154       18,209  

Deferred income taxes

    109,821       113,760  

Property, plant and equipment, net ($1,843,823 and $1,859,228 related to VIEs, respectively)

    1,962,580       1,959,578  

Construction-in-process ($110,907 and $104,085 related to VIEs, respectively)

    266,083       261,690  

Operating leases right of use

    60,656        

Finance leases right of use ($8,396 related to VIEs)

    14,433        

Deferred financing and lease costs, net

    1,733       3,242  

Intangible assets, net

    196,125       199,874  

Goodwill

    20,123       19,950  

Total assets

  $ 3,143,214     $ 3,121,350  
LIABILITIES AND EQUITY  

Current liabilities:

               

Accounts payable and accrued expenses

  $ 108,309     $ 116,362  

Short term revolving credit lines with banks (full recourse)

    60,900       159,000  

Billings in excess of costs and estimated earnings on uncompleted contracts

    15,508       18,402  

Current portion of long-term debt:

               

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

               

Senior secured notes

    33,639       33,493  

Other loans

    29,687       29,687  

Full recourse

    9,368       5,000  

Operating lease liabilities

    7,532        

Finance lease liabilities

    3,147        

Total current liabilities

    268,090       361,944  

Long-term debt, net of current portion:

               

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

               

Senior secured notes (less deferred financing costs of $7,149 and $7,434, respectively)

    367,142       375,337  

Other loans (less deferred financing costs of $9,262 and $9,354, respectively)

    312,779       320,242  

Full recourse:

               

Senior unsecured bonds (less deferred financing costs of $706 and $758, respectively)

    353,626       303,575  

Other loans (less deferred financing costs of $1,483 and $921, respectively)

    78,149       41,579  

Operating lease liabilities

    17,667        

Finance lease liabilities

    11,954        

Liability associated with sale of tax benefits

    68,852       69,893  

Deferred lease income

    47,658       48,433  

Deferred income taxes

    68,005       61,323  

Liability for unrecognized tax benefits

    12,482       11,769  

Liabilities for severance pay

    18,400       17,994  

Asset retirement obligation

    41,246       39,475  

Other long-term liabilities

    5,464       16,087  

Total liabilities

    1,671,514       1,667,651  

Commitments and contingencies (Note 10)

               

Redeemable noncontrolling interest

    8,705       8,603  

Equity:

               

The Company's stockholders' equity:

               

Common stock, par value $0.001 per share; 200,000,000 shares authorized; 50,752,101 and 50,699,781 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

    51       51  

Additional paid-in capital

    903,723       901,363  

Retained earnings

    442,531       422,222  

Accumulated other comprehensive income (loss)

    (5,956 )     (3,799 )

Total stockholders' equity attributable to Company's stockholders

    1,340,349       1,319,837  

Noncontrolling interest

    122,646       125,259  

Total equity

    1,462,995       1,445,096  

Total liabilities, redeemable noncontrolling interest and equity

  $ 3,143,214     $ 3,121,350  

 

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

 

4

Table of Contents

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2019

   

2018

 
   

(Dollars in thousands, except per share data)

 

Revenues:

               

Electricity

  $ 142,908     $ 132,489  

Product

    52,128       48,672  

Other

    4,002       2,862  

Total revenues

    199,038       184,023  

Cost of revenues:

               

Electricity

    77,543       73,482  

Product

    42,106       33,726  

Other

    5,210       3,443  

Total cost of revenues

    124,859       110,651  

Gross profit

    74,179       73,372  

Operating expenses:

               

Research and development expenses

    900       1,108  

Selling and marketing expenses

    3,865       3,699  

General and administrative expenses

    15,689       13,849  

Write-off of unsuccessful exploration activities

          123  

Operating income

    53,725       54,593  

Other income (expense):

               

Interest income

    293       113  

Interest expense, net

    (21,223 )     (14,344 )

Derivatives and foreign currency transaction gains (losses)

    472       (1,599 )

Income attributable to sale of tax benefits

    7,764       7,361  

Other non-operating income (expense), net

    91       (20 )

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

    41,122       46,104  

Income tax (provision) benefit

    (14,039 )     26,942  

Equity in earnings (losses) of investees, net

    1,047       1,210  

Net income 

    28,130       74,256  

Net income attributable to noncontrolling interest

    (2,184 )     (4,748 )

Net income attributable to the Company's stockholders

  $ 25,946     $ 69,508  

Comprehensive income:

               

Net income

    28,130       74,256  

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

               

Change in foreign currency translation adjustments

    (1,348 )     1,528  

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

    (1,145 )     2,634  

Loss in respect of derivative instruments designated for cash flow hedge

    22       20  

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

    (8 )     (15 )

Comprehensive income

    25,651       78,423  

Comprehensive income attributable to noncontrolling interest

    (1,862 )     (5,118 )

Comprehensive income attributable to the Company's stockholders

  $ 23,789     $ 73,305  

Earnings per share attributable to the Company's stockholders:

               

Basic:

               

Net income

  $ 0.51     $ 1.37  

Diluted:

               

Net income

  $ 0.51     $ 1.36  

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

               

Basic

    50,709       50,614  

Diluted

    51,012       51,051  

 

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

 

5

Table of Contents

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED 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, 2017

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

Cumulative effect of changes in accounting principles

                    25,635             25,635             25,635  

Adjusted balance as of the beginning of the year

  50,609       51       888,778       352,890       (4,706 )     1,237,013       84,322       1,321,335  

Stock-based compensation

              1,707                   1,707             1,707  

Exercise of options by employees and directors

  8                                            

Cash paid to noncontrolling interest

                                      (4,674 )     (4,674 )

Cash dividend declared, $0.23 per share

                    (11,640 )           (11,640 )           (11,640 )

Net income

                    69,508             69,508       4,482       73,990  

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

                                                             

Currency translation adjustment

                          1,158       1,158       370       1,528  

Loss in respect of derivative instruments designated for cash flow hedge (net of related tax of $13)

                          20       20             20  

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)

                          2,634       2,634             2,634  

Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $9)

                          (15 )     (15 )           (15 )

Balance at March 31, 2018

  50,617     $ 51     $ 890,485     $ 410,758     $ (909 )   $ 1,300,385     $ 84,500     $ 1,384,885  

Balance at December 31, 2018

  50,700     $ 51     $ 901,363     $ 422,222     $ (3,799 )   $ 1,319,837     $ 125,259     $ 1,445,096  

Cumulative effect of changes in accounting principles

                    (58 )           (58 )           (58 )

Adjusted balance as of the beginning of the year

  50,700       51       901,363       422,164       (3,799 )     1,319,779       125,259       1,445,038  

Stock-based compensation

              2,360                   2,360             2,360  

Exercise of options by employees and directors

  52                                            

Cash paid to noncontrolling interest

                                      (4,146 )     (4,146 )

Cash dividend declared, $0.11 per share

                    (5,579 )           (5,579 )           (5,579 )

Net income

                    25,946             25,946       1,855       27,801  

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

                                                             

Currency translation adjustment

                          (1,026 )     (1,026 )     (322 )     (1,348 )

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

                          22       22             22  
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)                           (1,145 )     (1,145 )           (1,145 )

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

                          (8 )     (8 )           (8 )

Balance at March 31, 2019

  50,752     $ 51     $ 903,723     $ 442,531     $ (5,956 )   $ 1,340,349     $ 122,646     $ 1,462,995  

 

Dividend per share of $0.11 and $0.23 was declared for the three months ended March 31, 2019 and 2018, respectively.

 

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

 

6

Table of Contents

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2019

   

2018

 
      (Dollars in thousands)  

Cash flows from operating activities:

               

Net income

  $ 28,130     $ 74,256  

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

               

Depreciation and amortization

    36,901       30,553  

Accretion of asset retirement obligation

    651       529  

Stock-based compensation

    2,360       1,707  

Amortization of deferred lease income

    (775 )     (775 )

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

    (4,314 )     (6,295 )

Equity in losses (earnings) of investees

    (1,047 )     (1,210 )

Mark-to-market of derivative instruments

    (1,209 )     962  

Loss on disposal of property, plant and equipment

    377        

Write-off of unsuccessful exploration activities

          123  

Loss (gain) on severance pay fund asset

    (330 )     129  

Deferred income tax provision

    10,469       (29,467 )

Liability for unrecognized tax benefits

    713       184  

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

               

Receivables

    (1,119 )     9,777  

Costs and estimated earnings in excess of billings on uncompleted contracts

    12,368       (189 )

Inventories

    2,018       (503 )

Prepaid expenses and other

    (2,105 )     (2,005 )
Operating lease right of use asset     1,698        

Deposits and other

    26       62  

Accounts payable and accrued expenses

    (4,271 )     (49,027 )

Billings in excess of costs and estimated earnings on uncompleted contracts

    (2,894 )     (9,783 )

Liabilities for severance pay

    406       (267 )

Other long-term liabilities

    (616 )     1,008  

Net cash provided by operating activities

    77,437       19,769  

Cash flows from investing activities:

               

Capital expenditures

    (51,303 )     (66,962 )

Investment in unconsolidated companies

          (1,275 )

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

    359       203  

Net cash used in investing activities

    (50,944 )     (68,034 )

Cash flows from financing activities:

               

Proceeds from long-term loans, net of transaction costs

    91,500       100,000  

Proceeds from revolving credit lines with banks

    914,700       860,800  

Repayment of revolving credit lines with banks

    (1,012,800 )     (873,800 )

Cash received from noncontrolling interest

    3,346       4,134  

Repayments of long-term debt

    (15,757 )     (16,687 )

Cash paid to noncontrolling interest

    (4,459 )     (4,674 )

Payments of finance leases

    (767 )     (436 )

Deferred debt issuance costs

    (1,223 )     (1,020 )

Cash dividends paid

    (5,579 )     (11,640 )

Net cash provided by (used in) financing activities

    (31,039 )     56,677  

Effect of exchange rate changes

    (485 )      

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

    (5,031 )     8,412  

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

    177,495       96,643  

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

  $ 172,464     $ 105,055  

Supplemental non-cash investing and financing activities:

               

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

  $ 153     $ (1,673 )

Accrued liabilities related to financing activities

  $ 2,154     $  

 

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

 

7

Table of Contents

 

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 March 31, 2019, the consolidated results of operations and comprehensive income (loss), consolidated statements of equity and consolidated statements of cash flows for the three-month periods ended March 31, 2019 and 2018.

 

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 periods presented are not necessarily indicative of the results to be expected for the year.

 

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 for the year ended December 31, 2018. The condensed consolidated balance sheet data as of December 31, 2018 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2018 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.

 

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 stopped flowing, the lava covered the wellheads of three geothermal wells, monitoring wells and the substation of the Puna complex and an adjacent warehouse that stored a drilling rig that was also consumed by the lava. The insurance policy coverage for property and business interruption is provided by a consortium of insurers. All the insurers accepted and started paying for the costs to rebuild the destroyed substation, and during the first quarter of 2019, we received an additional $1.5 million of such proceeds. However only some of the insurers accepted that the business interruption coverage started in May 2018 and during the first quarter of 2019, we recorded an additional $1.3 million of such proceeds which were included under cost of revenues in the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2019. The Company is still in discussions to reach an understanding with all insurers to start paying for the business interruption as of May 2018. In April 2019 the Company reached an agreement with another insurance company and received an additional $4.1 million for current and future business interruption loss. The business interruption coverage compensates the Company for the loss of profits that resulted from the inability of the on-surface property to generate electricity.

 

The Company is still assessing the damages in the Puna facilities and continue to coordinate with Hawaii Electric Light Company (“HELCO”) and local authorities to bring the power plant back to operation. 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 lava event at 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. 

 

DEG 3 Loan

 

On January 4, 2019, an indirect subsidiary of the Company (“OrPower 4”) entered into an additional $41.5 million subordinated loan agreement with DEG (the “DEG 3 Loan Agreement”) and on February 28, 2019, OrPower 4 completed a drawdown of the full loan amount, with a fixed interest rate of 6.04% for the duration of the loan (the “DEG 3 Loan”). The DEG 3 Loan will be repaid in 19 equal semi-annual principal installments commencing June 21, 2019, with a final maturity date of  June 21, 2028. Proceeds of the DEG 3 Loan were used by OrPower 4 to refinance upgrades to Plant 1 of the Olkaria III Complex, which were originally financed using equity. The DEG 3 Loan is subordinated to the senior loan provided by OPIC for Plants 1-3 of the Olkaria III Complex. The DEG 3 Loan is guaranteed by the Company.

 

8

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Migdal Senior Unsecured Loan

 

On March 25, 2019, the Company entered into a first addendum (“First Addendum”) to the 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 dated March 22, 2018. The First Addendum provides for an additional loan by the lenders to the Company in an aggregate principal amount of $50.0 million (the “Additional Migdal Loan”). The Additional Migdal Loan will be repaid in 15 semi-annual payments of $2.1 million each, commencing on September 15, 2021, with a final payment of $18.5 million on March 15, 2029. The Additional Migdal Loan bears interest at a fixed rate of 4.6% per annum, payable semi-annually, subject to adjustment in certain circumstances as described below.

 

The Additional Migdal Loan was entered into under substantially the same terms and conditions of the Migdal Loan Agreement as disclosed in the Company’s Form 10-K for the year ended December 31, 2018.

 

Write-offs of unsuccessful exploration activities

 

There were no write-offs of unsuccessful exploration activities for the three months ended March 31, 2019. Write-offs of unsuccessful exploration activities for the three months ended March 31, 2018 were $0.1 million.

 

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:

 

   

March 31,

   

December 31,

   

March 31,

 
   

2019

   

2018

   

2018

 
   

(Dollars in thousands)

         

Cash and cash equivalents

  $ 79,366     $ 98,802     $ 54,723  

Restricted cash and cash equivalents

    93,098       78,693     $ 50,332  

Total Cash and cash equivalents and restricted cash and cash equivalents

  $ 172,464     $ 177,495     $ 105,055  

 

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.

 

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 March 31, 2019 and December 31, 2018, the Company had deposits totaling $28.6 million and $31.3 million, respectively, in ten U.S. financial institutions that were federally insured up to $250,000 per account. At March 31, 2019 and December 31, 2018, the Company’s deposits in foreign countries amounted to approximately $75.9 million and $93.9 million, respectively.

 

At March 31, 2019 and December 31, 2018, accounts receivable related to operations in foreign countries amounted to approximately $106.8 million and $102.0 million, respectively. At March 31, 2019 and December 31, 2018, accounts receivable from the Company’s primary customers amounted to approximately 55% and 56% of the Company’s accounts receivable, respectively.

 

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 18.2% and 17.4% of the Company’s total revenues for the three months ended March 31, 2019 and 2018, respectively.

 

Southern California Public Power Authority (“SCPPA”) accounted for 19.4% and 16.3% of the Company’s total revenues for the three months ended March 31, 2019 and 2018, respectively.

 

9

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Kenya Power and Lighting Co. Ltd. accounted for 15.3% and 15.1% of the Company’s total revenues for the three months ended March 31, 2019 and 2018, respectively.

 

We have historically been able to collect on substantially all of our receivable balances. Recently, we have been receiving late payments from KPLC in Kenya related to our Olkaria Complex and from ENNE in Honduras related to our Platanares power plant. As of March 31, 2019, the amounts overdue are $29.4 million and $18.0 million related to KPLC and ENNE, respectively, of which $20.4 million and $3.0 million, respectively, were paid during April 2019. As we believe we will be able to collect all past due amounts, no provision for doubtful accounts has been recorded.

 

Additionally, Pacific Gas and Electric Corporation (“PG&E Corporation”) and its subsidiary Pacific Gas and Electric Company (“PG&E”), which accounts for 1.2% of our total revenues for the three months ended March 31, 2019, are facing extraordinary challenges relating to a series of catastrophic wildfires that occurred in Northern California in 2017 and 2018. As a result, on January 29, 2019, PG&E Corporation and its subsidiary, PG&E, voluntarily filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. We are closely monitoring our PG&E account to ensure cash receipts are received timely each month. Our monthly invoice relating to January 2019 was not paid as it occurred before PG&E filed for reorganization under Chapter 11 bankruptcy, but cash was received for the February and March invoices.

 

 

Revenues from Contracts with Customers

 

Contract assets related to our Product segment reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities related to our Product segment reflect 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 March 31, 2019 and December 31, 2018 are as follows:

 

   

March 31,

   

December 31,

 
   

2019

   

2018

 
   

(Dollars in thousands)

 

Contract assets (*)

  $ 29,762     $ 42,130  

Contract liabilities (*)

    (15,508 )     (18,402 )

Contract assets, net

  $ 14,254     $ 23,728  

 

(*) 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 sheets.

 

On March 31, 2019, we had approximately $226.1 million of remaining performance obligations not yet satisfied or partly satisfied related to our Product segment. We expect to recognize approximately 100% of this amount as Product revenues during the next 24 months.

 

 

 

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

 

New accounting pronouncements effective in the three-month period ended March 31, 2019

 

Leases

 

 In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new standard introduced a number of changes and simplified previous guidance, primarily the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. The new standard retained the distinction between finance leases and operating leases and the classification criteria between the two types remains substantially similar. Also, lessor accounting remained largely unchanged from previous guidance. However, key aspects of the new standard were aligned with the revenue recognition guidance in Topic 606. Additionally, the new standard defined 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. The Company adopted this new standard as of January 1, 2019 using the modified retrospective approach and accordingly recognized a cumulative-effect adjustment to the opening balance of retained earnings, which was an immaterial amount, with no restatement of comparative information.

 

10

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

In accordance with the new standard, for agreements in which the Company is the lessee, the Company applies a unified accounting model by which it recognizes a right-of-use asset ("ROU") and a lease liability at the commencement date of the lease contract for all the leases in which the Company has a right to control identified assets for a specified period of time. The classification of the lease as a finance lease or an operating lease determines the subsequent accounting for the lease arrangement.

 

Upon the adoption of the new standard the Company, both as a lessee and as a lessor, chose to apply the following permitted practical expedients:

 

 

1.

Not reassess whether any existing contracts are or contain a lease;

 

 

2.

Not reassess the classification of leases that commenced before the effective date (for example, all existing leases that were classified as operating leases in accordance with Topic 840 will continue to be classified as operating leases, and all existing leases that were classified as capital leases in accordance with Topic 840 will continue to be classified as finance leases);

 

 

3.

Exclude initial direct costs from measurement of the ROU asset at the date of initial application;

 

 

4.

Applying the practical expedient (for a lessor) to not separate non-lease components accounted for under Topic 606 from lease components and, instead, to account for each separate lease component and the non-lease components associated with that lease component as a single component. If the non-lease components are the predominant components, the Company will account for the combined component as a single performance obligation entirely in accordance with Topic 606. Otherwise, the combined component will be accounted as an operating lease entirely in accordance with the new standard.

 

 

5.

Applying the practical expedient (for a lessee) regarding the recognition and measurement of short-term leases, for leases for a period of up to 12 months from the commencement date. Instead, the Company will continue to recognize the lease payments for those leases in statement of operations on a straight-line basis over the lease term.

 

Since the Company elected to apply the practical expedients above, it applied the new standard to all contracts entered into before January 1, 2019 and identified as leases in accordance with Topic 840.

 

The new significant accounting policies regarding leases that were applied as from January 1, 2019 following the application of the new standard are as follows:

 

 

1.

Determining whether an arrangement contains a lease

 

On the inception date of the lease, the Company determines whether the arrangement is a lease or contains a lease, while examining if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

 

2.

The Company as a lessee

 

 

a.

Lease classification:

 

At the commencement date, a lease is a finance lease if it meets any one of the criteria below; otherwise the lease is an operating lease:

 

 

The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

 

The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

 

The lease term is for the major part of the remaining economic life of the underlying asset.

 

The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset.

 

The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of lease term.

 

11

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

b.

Leased assets and lease liabilities - initial recognition

 

Upon initial recognition, the Company recognizes a liability at the present value of the lease payments to be made over the lease term, and concurrently recognizes a ROU asset at the same amount of the liability, adjusted for any prepaid or accrued lease payments, plus initial direct costs incurred in respect of the lease. Since the interest rate implicit in the lease is not readily determinable, the incremental borrowing rate of the Company is used. The subsequent measurement depends of whether the lease is classified as a finance lease or an operating lease.

 

 

c.

The lease term

 

The lease term is the non-cancellable period of the lease plus periods covered by an extension or termination option if it is reasonably certain that the Company will exercise the option.

 

 

d.

Subsequent measurement of operating leases

 

After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event).

 

The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term and any unamortized initial direct costs.

 

Further, the Company will recognize lease expense on a straight-line basis over the lease term.

 

 

e.

Subsequent measurement of finance leases

 

After lease commencement, the Company measures the lease liability by increasing the carrying amount to reflect interest on the lease liability and reducing the carrying amount to reflect the lease payments made during the period. The Company shall determine the interest on the lease liability in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the liability, taking into consideration the reassessment requirements.

 

After lease commencement, the Company measures the ROU assets at cost less any accumulated amortization and any accumulated impairment losses, taking into consideration the reassessment requirements. The Company amortizes the ROU asset on a straight-line basis, unless another systematic basis better represents the pattern in which the Company expects to consume the ROU asset’s future economic benefits. The ROU asset is amortized over the shorter of the lease term or the useful life of the ROU asset as follows:

 

    (in years)  

Land

  1 - 35  

Automobiles

    5    

Building

    15    

 

The total periodic expense (the sum of interest and amortization expense) of a finance lease is typically higher in the early periods and lower in the later periods.

 

12

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

f.

Variable lease payments:

 

Variable lease payments that depend on an index or a rate

 

On the commencement date, the lease payments shall include variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate), initially measured using the index or rate at the commencement date.

 

The Company does not remeasure the lease liability for changes in future lease payments arising from changes in an index or rate unless the lease liability is remeasured for another reason. Therefore, after initial recognition, such variable lease payments are recognized in profit or loss as they are incurred.

 

Other variable lease payments:

 

Variable payments that depends on performance or use of the underlying asset are not included in the lease payments. Such variable payments are recognized in profit or loss in the period in which the event or condition that triggers the payment occurs.

 

 

3.

The Company as a lessor

 

At lease commencement, the Company as a lessor classifies leases as either finance or operating leases. Finance leases are further classified as a sales-type lease or as a direct financing lease.

 

Under an operating lease, the Company recognizes the lease payment as income over the lease term, generally on a straight-line basis.

 

 

4.

Impact of the new standard

 

 

a)

Effects of the initial application of the new standard on the Company's consolidated balance sheet as of January 1, 2019:

 

   

According to

the previous

accounting

policy

   

The change

   

As presented

according to

Topic 842

 
   

(Dollars in thousands)

 
                         

As of January 1, 2019:

                       
                         

Prepaid expenses and other

  $ 51,441     $ (35,385 )   $ 16,056  

Deferred financing and lease costs, net

    3,242       (1,659 )     1,583  

Property, plant and equipment, net

    1,959,578       (12,855 )     1,946,723  

Operating leases right of use

    -       62,244       62,244  

Finance leases right of use

    -       13,476       13,476  
                         

Accounts payable and accrued expenses

    116,362       (2,860 )     113,502  

Current maturity of operating lease liabilities

    -       7,532       7,532  

Current maturity of finance lease liabilities

    -       2,841       2,841  
                         

Other long-term liabilities

    16,087       (9,970 )     6,117  

Long term portion of operating lease liabilities

    -       17,668       17,668  

Long term portion of finance lease liabilities

    -       10,668       10,668  
                         

Retained earnings

    422,222       (58 )     422,164  

 

 

The Operating leases right of use is higher than the related lease liabilities as a result of prepayments of leases, including the Puna lease and deferred financing lease costs.

 

 

b)

A weighted-average nominal incremental interest rate of 5% and 7% was used to discount future lease payments in the calculation of the operating and finance lease liabilities, respectively.

 

13

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

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. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

 

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 from 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. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

 

New accounting pronouncements effective in future periods 

 

Financial Instruments—Credit Losses

 

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective beginning on January 1, 2020, including interim periods within that year. The Company is currently evaluating the potential effect on its consolidated financial statements. 

 

 

 

NOTE 3 — INVENTORIES

 

Inventories consist of the following:

 

   

March 31,

   

December 31,

 
   

2019

   

2018

 
   

(Dollars in thousands)

 

Raw materials and purchased parts for assembly

  $ 28,749     $ 26,914  

Self-manufactured assembly parts and finished products

    14,233       18,110  

Total

  $ 42,982     $ 45,024  

 

14

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

NOTE 4 — LEASES

 

A.

Leases in which the Company is a lessee

 

The table below presents the effects on the amounts relating to the Company’s total lease cost:

 

   

Three months ended

March 31,

 
   

2019

 
   

(Dollars in thousands)

 

Lease cost

       

Finance lease cost:

       

Amortization of right-of-use assets

  $ 787  

Interest on lease liabilities

    306  

Operating lease cost

    2,134  

Variable lease cost

    278  

Total lease cost

  $ 3,505  
         

Other information

       
Cash paid for amounts included in the measurement of lease liabilities:        

Operating cash flows from finance leases

  $ -  

Operating cash flows from operating leases

    1,012  

Financing cash flows from finance leases

    767  

Right-of-use assets obtained in exchange for new finance lease liabilities

    2,154  

Right-of-use assets obtained in exchange for new operating lease liabilities

    -  

Weighted-average remaining lease term — finance leases

    4.0  

Weighted-average remaining lease term — operating leases

    5.7  

 

 

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

   

Operating Leases

   

Finance Leases

 
   

(Dollars in thousands)

 

Year ending December 31,

               

2019 (excluding the three months ended March 31, 2019)

  $ 7,513     $ 3,400  

2020

    4,109       3,715  

2021

    3,400       2,720  

2022

    2,419       2,421  

2023

    1,590       1,834  

Thereafter

    12,061       2,692  

Total future minimum lease payments

    31,092       16,782  

Less imputed interest

    5,893       1,681  

Total

  $ 25,199     $ 15,101  

 

15

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

Future minimum lease payments under non-cancellable leases as of December 31, 2018, under ASC 840, Leases were as follows:

 

   

(Dollars in thousands)

 

Year ending December 31,

       

2019

  $ 10,889  

2020

    7,515  

2021

    5,758  

2022

    4,415  

2023

    2,910  

Thereafter

    9,292  

Total

  $ 40,779  

 

  

B.

Leases in which the Company is a lessor

 

The table below presents the revenues accounted under ASC 842, Leases, as lessors:

 

 

 

Three months ended March 31, 2019

 
   

(Dollars in thousands)

 

Revenues accounted under ASC 842, Leases

    125,908  

Lease income relating to variable lease payments not included in the measurement of the lease

    -  

Total

    125,908  

 

16

 

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 March 31, 2019 and December 31, 2018 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.

 

           

March 31, 2019

 
           

Fair Value

 
   

Carrying

Value at

March 31,

2019

   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets:

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 21,552     $ 21,552     $ 21,552     $     $  

Derivatives:

                                       

Contingent receivable (1)

    101       101                   101  

Currency forward contracts (2)

    169       169             169        

Liabilities:

                                       

Current liabilities:

                                       

Derivatives:

                                       

Contingent payable (1)

    (3,351 )     (3,351 )                 (3,351 )
    $ 18,471     $ 18,471     $ 21,552     $ 169     $ (3,250 )

 

17

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

           

December 31, 2018

 
           

Fair Value

 
   

Carrying

Value at

December 31,

2018

   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 18,787     $ 18,787     $ 18,787     $     $  

Derivatives:

                                       

Contingent receivable (1)

    104       104                   104  

Liabilities:

                                       

Current liabilities:

                                       

Derivatives:

                                       

Contingent payable (1)

    (3,424 )     (3,424 )                 (3,424 )

Currency forward contracts (2)

    (1,040 )     (1,040 )           (1,040 )      
    $ 14,427     $ 14,427     $ 18,787     $ (1,040 )   $ (3,320 )

 

(1)

These amounts relate to contingent receivables and payables relating to acquisition of the Guadeloupe power plant, 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 March 31, 2019 and December 31, 2018 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 March 31, 2019 and December 31, 2018, 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.

 

18

 

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

hedging instruments

 

Location of recognized gain

(loss)

 

Three Months Ended March 31,

 
       

2019

   

2018

 
                     
                     

Currency forward contracts

 

Derivative and foreign currency and transaction gains (losses)

  $ 1,083     $ (546 )
        $ 1,083     $ (546 )

 

The foregoing 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 three months ended March 31, 2019.

 

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

 

   

Fair Value

   

Carrying Amount

 
   

March 31,

2019

   

December 31,

2018

   

March 31,

2019

   

December 31,

2018

 
   

(Dollars in millions)

   

(Dollars in millions)

 

Olkaria III Loan - OPIC

    210.0       211.8       206.1       210.6  

Olkaria IV Loan - DEG 2

    48.6       47.2       47.5       47.5  

Olkaria IV Loan - DEG 3

    42.5             41.5        

Platanares Loan - OPIC

    118.5       119.1       110.6       112.7  

Amatitlan Loan

    29.0       29.9       28.9       29.8  

Senior Secured Notes:

                               

OrCal Geothermal Inc. ("OrCal")

 

 

19.2    

 

19.0       18.7       18.7  

OFC 2 LLC ("OFC 2")

    213.4       214.5       213.2       217.8  

Don A. Campbell 1 ("DAC 1")

    78.6       78.8       81.7       83.3  

USG Prudential - NV

    29.9       29.4       27.8       27.8  

USG Prudential - ID

    18.0       18.6       18.4       18.9  

USG DOE

    47.3       48.3       49.8       51.4  

Senior Unsecured Bonds

    199.3       199.4       204.3       204.3  

Senior Unsecured Loan

    153.6       102.2       150.0       100.0  

Other long-term debt

    5.3       5.4       6.2       6.2  

 

19

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

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 March 31, 2019:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(Dollars in millions)

 

Olkaria III - OPIC

                210.0       210.0  

Olkaria IV - DEG 2

                48.6       48.6  
Olkaria IV Loan - DEG 3                 42.5       42.5  

Platanares Loan - OPIC

                118.5       118.5  

Amatitlan Loan

          29.0             29.0  

Senior Secured Notes:

                               

OrCal Senior Secured Notes

                19.2       19.2  

OFC 2 Senior Secured Notes

                213.4       213.4  

DAC 1 Senior Secured Notes

                78.6       78.6  

USG Prudential - NV

                29.9       29.9  

USG Prudential - ID

                18.0       18.0  

USG DOE

                47.3       47.3  

Senior Unsecured Bonds

                199.3       199.3  

Senior Unsecured Loan

                153.6       153.6  

Other long-term debt

                5.3       5.3  

Revolving lines of credit

          60.9             60.9  

Deposits

    11.9                   11.9  

 

20

 

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, 2018:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(Dollars in millions)

 

Olkaria III Loan - OPIC

                211.8       211.8  

Olkaria IV - DEG 2

                47.2       47.2  

Platanares Loan - OPIC

                119.1       119.1  

Amatitlan Loan

          29.9             29.9  

Senior Secured Notes:

                               

OrCal Senior Secured Notes

                19.0       19.0  

OFC 2 Senior Secured Notes

                214.5       214.5  

DAC 1 Senior Secured Notes

                78.8       78.8  

USG Prudential - NV

                29.4       29.4  

USG Prudential - ID

                18.6       18.6  

USG DOE

                48.3       48.3  

Senior Unsecured Bonds

                199.4       199.4  
Senior Unsecured Loan                 102.2       102.2  

Other long-term debt

                5.4       5.4  

Revolving lines of credit

          159.0             159.0  

Deposits

    12.0                   12.0  

 

 

 

NOTE 6 — STOCK-BASED COMPENSATION

 

No material grants were provided under the 2018 Incentive Plan during the first quarter of 2019.

 

 

 

NOTE 7 — INTEREST EXPENSE, NET

 

The components of interest expense are as follows:

 

   

Three Months Ended March 31,

 
   

2019

   

2018

 
    (Dollars in thousands)  

Interest related to sale of tax benefits

  $ 3,661     $ 1,409  

Interest expense

    17,562       13,306  

Less — amount capitalized

          (371 )
    $ 21,223     $ 14,344  

 

21

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

 

NOTE 8 — EARNINGS PER SHARE

 

Basic earnings per share attributable to the Company’s stockholders is computed by dividing net income or loss attributable to the Company’s stockholders by the weighted average number of shares of common stock outstanding for the period. The Company does not have any equity instruments that are dilutive, except for employee stock-based awards.

 

The table below shows the reconciliation of the number of shares used in the computation of basic and diluted earnings per share (in thousands):

 

   

Three Months Ended March 31,

 
   

2019

   

2018

 
                 

Weighted average number of shares used in computation of basic earnings per share

    50,709       50,614  

Add:

               

Additional shares from the assumed exercise of employee stock options

    303       437  
                 

Weighted average number of shares used in computation of diluted earnings per share

    51,012       51,051  

 

The number of stock-based awards that could potentially dilute future earnings per share and that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive was 249,908 and 62,409 for the three months ended March 31, 2019 and 2018, respectively.

 

22

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

 

NOTE 9 — BUSINESS SEGMENTS

 

The Company has three reporting segments: the Electricity segment, the Product segment and the Other segment. These segments are managed and reported separately as each offers different products and serves different markets. The Electricity segment is engaged in the sale of electricity from the Company’s power plants pursuant to PPAs. The Product segment is engaged in the manufacture, including design and development, of turbines and power units for the supply of electrical energy and in the associated construction of power plants utilizing the power units manufactured by the Company to supply energy from geothermal fields and other alternative energy sources. The Other segment is engaged in management of curtailable customer loads under contracts with U.S. retail energy providers and directly with large commercial and industrial customers as well as battery storage as a service.

 

Transfer prices between the operating segments are determined based on current market values or cost-plus markup of the seller’s business segment.

 

Summarized financial information concerning the Company’s reportable segments is shown in the following tables:

 

   

Electricity

   

Product

   

Other

   

Consolidated

 
   

(Dollars in thousands)

 

Three Months Ended March 31, 2019:

                               

Revenues from external customers:

                               

United States (1)

  $ 91,528     $ 11,243     $ 4,002     $ 106,773  

Foreign (2)

    51,380       40,885             92,265  

Net revenues from external customers

    142,908       52,128       4,002       199,038  

Intersegment revenues

          18,261             18,261  

Operating income (loss)

    51,551       4,252       (2,078 )     53,725  

Segment assets at period end (3) (*)

    2,950,444       125,248       67,522       3,143,214  

* Including unconsolidated investments

    71,885                   71,885  
                                 

Three Months Ended March 31, 2018:

                               

Revenues from external customers:

                               

United States (1)

  $ 83,683     $ 194     $ 2,862     $ 86,739  

Foreign (2)

    48,806       48,478             97,284  

Net revenues from external customers

    132,489       48,672       2,862       184,023  

Intersegment revenues

          24,827             24,827  

Operating income

    46,412       9,553       (1,372 )     54,593  

Segment assets at period end (3) (*)

    2,542,154       114,815       53,848       2,710,817  

* Including unconsolidated investments

    63,109                   63,109  

 

 

 

(1) 

Electricity segment revenues in the United States are all accounted under ASC 842, Leases, except for $17.0 million in the three months ended March 31, 2019 that are accounted under ASC 606. For the three months ended March 31, 2018, Electricity segment revenues in the United States are all accounted under ASC 840, Leases, except for $6.7 million that are accounted under ASC 606.
     
 

(2) 

For the three months ended March 31, 2019, Electricity segment revenues in foreign countries are all accounted under ASC 842, Leases, and Product revenues in foreign countries are accounted under ASC 606. For the three months ended March 31, 2018, Electricity segment revenues in foreign countries are all accounted under ASC 840, Leases, and Product revenues in foreign countries are accounted under ASC 606.
     
 

(3) 

Electricity segment assets include goodwill in the amount of $20.1 million and $7.8 million as of March 31, 2019 and 2018, respectively. Other segment assets include goodwill in the amount of $13.5 million as of March 31, 2018. No goodwill is included in the Other segments assets as of March 31, 2019.

 

23

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

Reconciling information between reportable segments and the Company’s consolidated totals is shown in the following table:

 

   

Three Months Ended March 31,

 
   

2019

   

2018

 
      (Dollars in thousands)  

Revenue:

               

Total segment revenue

  $ 199,038     $ 184,023  

Intersegment revenue

    18,261       24,827  

Elimination of intersegment revenue

    (18,261 )     (24,827 )

Total consolidated revenue

  $ 199,038     $ 184,023  
                 

Operating income:

               

Operating income

  $ 53,725     $ 54,593  

Interest income

    293       113  

Interest expense, net

    (21,223 )     (14,344 )

Derivatives and foreign currency transaction gains (losses)

    472       (1,599 )

Income attributable to sale of tax benefits

    7,764       7,361  

Other non-operating income (expense), net

    91       (20 )

Total consolidated income from operations before income taxes and equity in earnings of investees

  $ 41,122     $ 46,104  

 

24

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

 

NOTE 10 — COMMITMENTS AND CONTINGENCIES

 

 

On May 21, 2018, a motion to certify a class action was filed in Tel Aviv District Court against Ormat Technologies, Inc. and 11 officers and directors.  The alleged class is defined as "All persons who purchased Ormat shares on the Tel Aviv Stock Exchange between August 3, 2017 and May 13, 2018". The motion alleges that the Company violated  Sections 31(a)(1) and 38C of the Israeli Securities Law because it allegedly: (1) misled investors by stating in its financial statements that it maintains effective internal controls over its accounting policies and procedures, however the Company's internal controls had material weaknesses which led to erroneous accounting in its 2017 unaudited quarterly reports that had to be restated, including adjustments to the Company’s net income and shareholders’ equity; and (2) failed to issue an immediate report in Israel until May 16, 2018, analogous to the report that was released in the United States on May 11, 2018 stating, inter alia, that the errors in its financial reports affected its balance sheet and would be remedied in its 2017 annual report. The Company filed an agreed motion to the Tel Aviv District Court to stay the proceedings in Israel until a final decision in the U.S. case (Mac Costas) is adjudicated.

 

 

On June 11, 2018, a putative class action was filed by Mac Costas on behalf of alleged shareholders that purchased or acquired the Company's ordinary shares between August 8, 2017 and May 15, 2018 was commenced in the U.S. District Court for the District of Nevada against the Company and its Chief Executive Officer and Chief Financial Officer.  The complaint asserts claim against all defendants pursuant to Section 10(b) of the Exchange Act, as amended, and Rule 10b-5 thereunder and against its officers pursuant to Section 20(a) of the Exchange Act.  The complaint alleges that the Company's Form 10-K for the years ended December 31, 2016 and 2017, and Form 10-Qs for each of the quarters in the nine months ended September 30, 2017 contained material misstatements or omissions, among other things, with respect to the Company’s tax provisions and the effectiveness of its internal control over financial reporting, and that, as a result of such alleged misstatements and omissions, the plaintiffs suffered damages. Following the Mac Costas filing and in accordance with the terms of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), a number of law firms filed applications on behalf of entities purporting to hold shares in the Company, seeking to be appointed as lead plaintiff and lead counsel in the action. On March 12, 2019 the court appointed Phoenix Insurance Company Ltd. (“Phoenix Insurance”) as lead plaintiff and approved their selection of lead counsel. Pursuant to a scheduling stipulation entered between the parties, Phoenix Insurance must file a consolidated amended complaint by May 13, 2019, the Company’s motion to dismiss must be filed by July 12, 2019, Phoenix Insurance must file their Opposition by August 26, 2019, and the Company must file their reply by September 25, 2019. The Company believes that it has valid defenses under law and intends to defend itself vigorously. 

 

 

On September 11, 2018, the Klein derivative action (“Klein Action”) was filed against the Company, our board and our Chief Executive Officer and Chief Financial Officer in the U.S. District Court for the District of Nevada, and on October 22, 2018, the Matthew derivative action (“Matthew Action”) was filed against the company, certain named present and former board members (Barniv, Beck, Boehm, Clark, Falk, Freeland, Granot, Joyal, Nishigori, Sharir, Stern and Wong) in the U.S. District Court, District of Nevada.  The Klein complaint asserts four derivative causes of action generally arising from Ormat's restatement of its financial statements: (i) the individual defendants allegedly breached their fiduciary duties by allowing the company to improperly report its financials; (ii) the individual defendants allegedly were unjustly enriched by being compensated while breaching their fiduciary duties; (iii) the individual defendants allegedly committed corporate waste in paying officers and directors and by incurring legal costs and potential liability; and (iv) the director defendants allegedly breached Section 14(a) of the Exchange Act in connection with the issuance of 2018 proxy. The Matthew complaint similarly alleges derivatively a breach of fiduciary duties, abuse of control, gross mismanagement, and corporate waste by the named directors. On January 24, 2019, the Nevada Court entered an order consolidating the Klein Action and Matthew Action, and staying all deadlines and hearings in the consolidated action pending entry of an order on the motion to dismiss in the Mac Costas putative class action. Within thirty days of entry of an order on the motion to dismiss in the Mac Costas putative class action, the parties are required to meet and confer and to submit a proposed schedule for further proceedings in the consolidated action.

 

25

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  – (Continued)

(Unaudited)

 

 

Following the announcement of the Company’s acquisition of U.S. Geothermal Inc. (“USG”), a number of putative shareholder class action complaints were initially filed on behalf of USG shareholders between March 8, 2018 and March 30, 2018 against USG and the individual members of the USG board of directors.  All of the purported class action suits filed in Federal Court in Idaho have been voluntarily dismissed.  The single remaining class action complaint is a purported class action filed in the Delaware Chancery Court, entitled Riche v. Pappas, et al., Case No. 2018-0177 (Del. Ch., Mar. 12, 2018). An amended complaint was filed on May 24, 2018 under seal, under a confidentiality agreement that was executed by plaintiff.   The amended Riche complaint alleges state law claims for breach of fiduciary duty against former USG directors and seeks post-closing damages. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

 

 

On August 5, 2016, George Douvris, Stephanie Douvris, Michael Hale, Cheryl Cacocci, Hillary E. Wilt and Christina Bryan, acting for themselves and on behalf of all other similarly situated residents of the lower Puna District, filed a complaint in the Third Circuit Court for the State of Hawaii seeking certification of a class action for preliminary and permanent injunctive relief, consequential and punitive damages, attorney’s fees and statutory interest against Puna Geothermal Venture (“PGV”) and other presently unknown defendants. HELCO and other parties were later joined as co-defendants. The Parties have reached an amicable settlement in an immaterial amount which, on April 4, 2019, was recorded by the Court, and the claim dismissed.

 

 

On March 29, 2016, a former local sales representative in Chile, Aquavant, S.A., filed a claim on the basis of unjust enrichment against Ormat’s subsidiaries in the 27th Civil Court of Santiago, Chile. The claim requests that the court order Ormat to pay Aquavant $4.6 million in connection with its activities in Chile, including the EPC contract for the Cerro Pabellon project and various geothermal concessions, plus 3.75% of Ormat geothermal products sales in Chile over the next 10 years. Pursuant to various motions submitted by the defendants and the plaintiffs to various courts, including the Court of Appeals, the case was removed from the original court and then refiled before the 11th Civil Court of Santiago.   The Civil Court has heard oral testimonies and the “factual” stage of the proceedings are completed. The Company believes that it has valid defenses under law and intends to defend itself vigorously.

 

 

 

In addition, from time to time, the Company is named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of our business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings, the Company accrues reserves when a loss is probable, and the amount of such loss can be reasonably estimated. It is the opinion of the Company’s management that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.

 

 

 

NOTE 11 — INCOME TAXES

 

The Company’s effective tax rate expense (benefit) for the three months ended March 31, 2019 and 2018 was 34.1% and (58.4)%, respectively. The effective rate differs from the federal statutory rate of 21% for the three months ended March 31, 2019 due to: (i) the impact of the recently enacted global intangible low tax income (“GILTI”); (ii) the increase in the valuation allowance on the deferred tax assets related to the limitation on interest expense under the recently enacted IRC section 163(j); (iii) withholding taxes on future dividend distributions; (iv) mix of business in various countries with higher and lower statutory rates than the federal rate; partially offset by (v) forecasted generation of production tax credits.

 

The Company is required by the Tax Act to include in U.S. taxable income amounts on related to GILTI. The Company elected as an accounting policy in 2018 to treat taxes due on future U.S, inclusions in taxable income under GILTI as a period cost when incurred. The Company has elected and applied the tax law ordering approach when considering GILTI as part of the Company’s valuation allowance.

 

As a result of the Tax Act, the Company is also subject to certain statutory restrictions on its interest deductions under IRC section 163(j) which limits the interest deductions to business interest income plus 30% of adjusted taxable income. Disallowed interest expense does not expire but can only be utilized in future years when an adjusted taxable income provides excess limitation. The Company is projecting an $8.8 million interest expense carryforward attribute which has a full valuation allowance.

 

 

 

NOTE 12 — SUBSEQUENT EVENTS

 

Cash dividend

 

On May 6, 2019, the Board of Directors of the Company declared, approved and authorized payment of a quarterly dividend of $5.6 million ($0.11 per share) to all holders of the Company’s issued and outstanding shares of common stock on May 20, 2019, payable on May 28, 2019.

 

26

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Note Regarding Forward-Looking Statements

 

This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this quarterly report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this quarterly report on Form 10-Q, the words “may”, “will”, “could”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “projects”, “potential”, or “contemplate” or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors”, and “Notes to Condensed Consolidated Financial Statements”, but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report on Form 10-Q completely and with the understanding that actual future results and developments may be materially different from what we expect attributable to a number of risks and uncertainties, many of which are beyond our control.

 

Specific factors that might cause actual results to differ from our expectations include, but are not limited to:

 

 

significant considerations, risks and uncertainties discussed in this quarterly report;

 

 

geothermal resource risk (such as the heat content, useful life and geological formation of the reservoir);

 

 

operating risks, including equipment failures and the amounts and timing of revenues and expenses;

 

 

financial market conditions and the results of financing efforts;

 

 

weather and other natural phenomena including earthquakes, volcanic eruption, drought and other natural disasters;

 

 

political, legal, regulatory, governmental, administrative and economic conditions and developments in the United States (“U.S.”), Turkey and other countries in which we operate and, in particular, possible import tariffs, possible late payments, the impact of recent and future federal, state and local regulatory proceedings and changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, public policies and government incentives that support renewable energy and enhance the economic feasibility of our projects at the federal and state level in the U.S., Turkey and elsewhere, and carbon-related legislation;

 

 

risks and uncertainty with respect to our internal control over financial reporting, including the identification of a material weakness which, if not timely remediated, may adversely affect the accuracy and reliability of our financial statements;

 

 

the impact of fluctuations in oil and natural gas prices under certain of our power purchase agreements (“PPAs”)

 

 

the competition with other renewable sources or a combination of renewable sources on the energy price component under future PPAs;

 

 

risks and uncertainties with respect to our ability to implement strategic goals or initiatives in segments of the clean energy industry or new or additional geographic focus areas;