ora20131028_10q.htm

 

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, 2013

   

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)

   
6225 Neil Road, Reno, Nevada 89511-1136
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

(Do not check if a smaller reporting company)

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 6, 2013, the number of outstanding shares of common stock, par value $0.001 per share, was 45,453,801.

 

 
 

 

 

ORMAT TECHNOLOGIES, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2013

 

PART I — FINANCIAL INFORMATION

 
   

ITEM 1.

FINANCIAL STATEMENTS

1

     

ITEM 2.

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

23

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

54

     

ITEM 4.

CONTROLS AND PROCEDURES

54

     

PART II — OTHER INFORMATION

 
   

ITEM 1.

LEGAL PROCEEDINGS

55

     

ITEM 1A.

RISK FACTORS

55

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

55

     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

55

     

ITEM 4.

MINE SAFETY DISCLOSURES

55

     

ITEM 5.

OTHER INFORMATION

56

     

ITEM 6.

EXHIBITS

56

     

SIGNATURES

57

 

 
i

 

 

 

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.

 

 
ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

September 30,

2013

   

December 31,

2012

 
           

As Revised

 
   

(Dollars in thousands)

 

ASSETS

 

Current assets:

               

Cash and cash equivalents

  $ 35,435     $ 66,628  

Short-term bank deposit

          3,010  

Restricted cash, cash equivalents and marketable securities (all related to variable interest entities ("VIEs"))

    84,197       76,537  

Receivables:

               

Trade

    60,526       55,680  

Related entity

    442       373  

Other

    24,643       8,632  

Due from Parent

    373       311  

Inventories

    20,396       20,669  

Costs and estimated earnings in excess of billings on uncompleted contracts

    36,201       9,613  

Deferred income taxes

    162       637  

Prepaid expenses and other

    36,724       34,144  

Total current assets

    299,099       276,234  

Unconsolidated investments

    5,419       2,591  

Deposits and other

    31,110       36,187  

Deferred income taxes

    15,966       21,283  

Deferred charges

    34,635       35,351  

Property, plant and equipment, net ($1,310,022 and $1,188,721 related to VIEs, respectively)

    1,383,353       1,252,873  

Construction-in-process ($99,806 and $253,775 related to VIEs, respectively)

    335,915       396,141  

Deferred financing and lease costs, net

    29,806       31,371  

Intangible assets, net

    33,032       35,492  

Total assets

  $ 2,168,335     $ 2,087,523  

LIABILITIES AND EQUITY

 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 83,751     $ 98,001  

Deferred income taxes

    20,428       20,392  

Billings in excess of costs and estimated earnings on uncompleted contracts

    12,708       25,408  

Current portion of long-term debt:

               

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

               

Senior secured notes

    30,059       28,231  

Other loans

    18,288       11,453  

Full recourse

    28,875       28,649  

Total current liabilities

    194,109       212,134  

Long-term debt, net of current portion:

               

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

               

Senior secured notes

    286,786       312,926  

Other loans

    272,710       242,815  

Full recourse:

               

Senior unsecured bonds (plus unamortized premium based upon 7% of $1,205)

    250,674       250,904  

Other loans

    64,414       82,344  

Revolving credit lines with banks

    123,288       73,606  

Liability associated with sale of tax benefits

    65,402       51,126  

Deferred lease income

    64,217       66,398  

Deferred income taxes

    52,233       45,059  

Liability for unrecognized tax benefits

    8,878       7,280  

Liabilities for severance pay

    23,642       22,887  

Asset retirement obligation

    20,436       19,289  

Other long-term liabilities

    4,576       5,148  
                 

Total liabilities

    1,431,365       1,391,916  
                 

Commitments and contingencies (Note 10)

               
                 

Equity:

               

The Company's stockholders' equity:

               

Common stock, par value $0.001 per share; 200,000,000 shares authorized; 45,453,801 shares issued and outstanding as of September 30, 2013 and December 31, 2012

    46       46  

Additional paid-in capital

    737,125       732,140  

Accumulated deficit

    (13,066 )     (44,326 )

Accumulated other comprehensive income

    527       651  
                 
      724,632       688,511  

Noncontrolling interest

    12,338       7,096  
                 

Total equity

    736,970       695,607  
                 

Total liabilities and equity

  $ 2,168,335     $ 2,087,523  

 

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

 

 
1

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2013

   

2012

   

2013

   

2012

 
   

(Dollars in thousands, except per share data)

   

(Dollars in thousands, except per share data)

 

Revenues:

                               

Electricity

  $ 88,994     $ 77,612     $ 245,005     $ 238,837  

Product

    41,755       54,685       157,329       149,616  

Total revenues

    130,749       132,297       402,334       388,453  

Cost of revenues:

                               

Electricity

    61,356       59,924       175,085       172,785  

Product

    29,637       42,130       110,335       108,575  

Total cost of revenues

    90,993       102,054       285,420       281,360  

Gross margin

    39,756       30,243       116,914       107,093  

Operating expenses:

                               

Research and development expenses

    838       1,436       3,446       3,948  

Selling and marketing expenses

    2,575       3,346       17,861       12,752  

General and administrative expenses

    6,546       6,132       20,264       20,163  

Impairment charge

          7,264             7,264  

Write-off of unsuccessful exploration activities

                      1,919  

Operating income

    29,797       12,065       75,343       61,047  

Other income (expense):

                               

Interest income

    742       280       870       1,004  

Interest expense, net

    (18,459 )     (15,400 )     (51,826 )     (44,541 )

Foreign currency translation and transaction gains (losses)

    1,258       615       3,844       (1,127 )

Income attributable to sale of tax benefits

    5,027       2,311       14,342       7,417  

Other non-operating income, net

    137       215       1,583       344  

Income before income taxes and equity in losses of investees

    18,502       86       44,156       24,144  

Income tax provision

    (5,201 )     (1,088 )     (15,028 )     (10,148 )

Equity in losses of investees

    (158 )     (1,245 )     (149 )     (1,542 )

Income (loss) from continuing operations

    13,143       (2,247 )     28,979       12,454  

Discontinued operations:

                               

Income from discontinued operations (including gain on disposal of $0, $0, $3,646 and $0, respectively)

          2,123       5,311       4,875  

Income tax provision

          (391 )     (614 )     (1,097 )

Total income from discontinued operations

          1,732       4,697       3,778  
                                 

Net income (loss)

    13,143       (515 )     33,676       16,232  

Net income attributable to noncontrolling interest

    (193 )     (67 )     (600 )     (278 )

Net income (loss) attributable to the Company's stockholders

  $ 12,950     $ (582 )   $ 33,076     $ 15,954  

Comprehensive income (loss):

                               

Net income (loss)

    13,143       (515 )     33,676       16,232  

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

                               

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

    (40 )     (47 )     (124 )     (140 )

Change in fair value of marketable securities available-for-sale

          262             242  

Comprehensive income (loss)

    13,103       (300 )     33,552       16,334  

Comprehensive income attributable to noncontrolling interest

    (193 )     (67 )     (600 )     (278 )

Comprehensive income (loss) attributable to the Company's stockholders

  $ 12,910     $ (367 )   $ 32,952     $ 16,056  
                                 

Earnings (loss) per share attributable to the Company's stockholders:

                               

Basic:

                               

Income (loss) from continuing operations

  $ 0.29     $ (0.05 )   $ 0.62     $ 0.27  

Discontinued operations

          0.04       0.10       0.08  

Net income (loss)

  $ 0.29     $ (0.01 )   $ 0.72     $ 0.35  
                                 

Diluted:

                               

Income (loss) from continuing operations

  $ 0.28     $ (0.05 )   $ 0.62     $ 0.27  

Discontinued operations

          0.04       0.10       0.08  

Net income (loss)

  $ 0.28     $ (0.01 )   $ 0.72     $ 0.35  
                                 

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

                               

Basic

    45,438       45,431       45,433       45,431  

Diluted

    45,494       45,431       45,454       45,438  

Dividend per share declared

  $ 0.04     $ 0.04     $ 0.08     $ 0.08  

 

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

 

 
2

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

   

The Company's Stockholders' Equity

                 
   

Common Stock

                                                 
   

Shares

   

Amount

   

Additional

Paid-in

Capital

   

Retained

Earnings

(Accumulated

Deficit)

   

Accumulated

Other

Comprehensive

Income

   

Total

   

Non-

controlling

Interest

   

Total

Equity

 
   

(Dollars in thousands, except per share data)

 

Balance at December 31, 2011

    45,431     $ 46     $ 725,746     $ 172,331     $ 595     $ 898,718     $ 7,926     $ 906,644  

Stock-based compensation

                4,837                   4,837             4,837  

Cash paid to noncontrolling interest

                                        (1,025 )     (1,025 )

Cash dividend paid, $0.08 per share

                      (3,636 )           (3,636 )           (3,636 )

Net income

                      15,954             15,954       278       16,232  

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

                                                               

Amortization of gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $88)

                            (140 )     (140 )           (140 )

Change in fair value of marketable securities available-for-sale (net of related tax of $0)

                            242       242             242  

Balance at September 30, 2012

    45,431     $ 46     $ 730,583     $ 184,649     $ 697     $ 915,975     $ 7,179     $ 923,154  
                                                                 

Balance at December 31, 2012

    45,431     $ 46     $ 732,140     $ (44,326 )   $ 651     $ 688,511     $ 7,096     $ 695,607  

Stock-based compensation

                4,548                   4,548             4,548  

Cash paid to noncontrolling interest

                                        (509 )     (509 )

Cash dividend paid, $0.04 per share

                      (1,816 )           (1,816 )           (1,816 )

Exercise of options by employees

    23             437                   437             437  

Increase in noncontrolling interest due to sale of equity interest in ORTP LLC

                                        5,151       5,151  

Net income

                      33,076             33,076       600       33,676  

Other comprehensive income, net of related taxes:

                                                               

Amortization of gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $76)

                            (124 )     (124 )           (124 )

Balance at September 30, 2013

    45,454     $ 46     $ 737,125     $ (13,066 )   $ 527     $ 724,632     $ 12,338     $ 736,970  

 

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

 

 
3

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months Ended September 30,

 
   

2013

   

2012

 
   

(Dollars in thousands)

 

Cash flows from operating activities:

               

Net income

  $ 33,676     $ 16,232  

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

               

Depreciation and amortization

    70,911       75,812  

Amortization of premium from senior unsecured bonds

    (231 )     (231 )

Accretion of asset retirement obligation

    1,147       1,264  

Stock-based compensation

    4,548       4,837  

Amortization of deferred lease income

    (2,014 )     (2,014 )

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

    (6,621 )     (2,775 )

Equity in losses of investees

    149       442  

Mark-to-market of derivative instruments

    3,487        

Write-off of unconsolidated investment

          1,100  

Write-off of unsuccessful exploration activities

          1,919  

Impairment charge

          7,264  

Loss (gain) on severance pay fund asset

    (399 )     332  

Gain on sale of a subsidiary

    (3,646 )      

Deferred income tax provision

    14,235       5,894  

Liability for unrecognized tax benefits

    1,598       1,264  

Deferred lease revenues

    (167 )     110  

Other

    (819 )      

Changes in operating assets and liabilities:

               

Receivables

    (23,181 )     (29,742 )

Costs and estimated earnings in excess of billings on uncompleted contracts

    (26,588 )     (3,738 )

Inventories

    273       (5,245 )

Prepaid expenses and other

    (6,175 )     (12,825 )

Deposits and other

    4,296       (5,356 )

Accounts payable and accrued expenses

    (21,449 )     9,523  

Due from/to related entities, net

    (69 )     (64 )

Billings in excess of costs and estimated earnings on uncompleted contracts

    (12,700 )     (558 )

Liabilities for severance pay

    1,068       271  

Other long-term liabilities

    959       (1,396 )

Due from/to Parent

    (62 )     64  

Net cash provided by operating activities

    32,226       62,384  

Cash flows from investing activities:

               

Marketable securities, net

          18,763  

Short-term deposit

    3,010       (3,008 )

Net change in restricted cash, cash equivalents and marketable securities

    (7,660 )     (775 )

Cash received from sale of a subsidiary

    7,699        

Capital expenditures

    (144,637 )     (186,332 )

Cash grant received

    14,685       119,199  

Investment in unconsolidated companies

    (2,467 )     (1,260 )

Increase (decrease) in severance pay fund asset, net of payments made to retired employees

    1,172       (198 )

Net cash used in investing activities

    (128,198 )     (53,611 )

Cash flows from financing activities:

               

Proceeds from issuance of senior unsecured bonds

          1,171  

Proceeds from long-term loans

    45,000        

Proceeds from exercise of options by employees

    437        

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

    31,376        

Purchase of OFC Senior Secured Notes

    (11,888 )      

Proceeds from revolving credit lines with banks

    2,170,287       2,134,887  

Repayment of revolving credit lines with banks

    (2,120,605 )     (2,161,462 )

Repayments of long-term debt

    (37,480 )     (28,927 )

Cash paid to non-controlling interest

    (10,184 )     (10,991 )

Deferred debt issuance costs

    (348 )     (2,177 )

Cash dividends paid

    (1,816 )     (3,636 )

Net cash provided by (used in) financing activities

    64,779       (71,135 )

Net change in cash and cash equivalents

    (31,193 )     (62,362 )

Cash and cash equivalents at beginning of period

    66,628       99,886  

Cash and cash equivalents at end of period

  $ 35,435     $ 37,524  

Supplemental non-cash investing and financing activities:

               

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

  $ 7,744     $ (18,119 )

Accrued liabilities related to financing activities

  $ (1,347 )   $  

 

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

 

 
4

 

 

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, 2013, the consolidated results of operations and comprehensive income (loss) for the three and nine-month periods ended September 30, 2013 and 2012 and the consolidated cash flows for the nine-month periods ended September 30, 2013 and 2012.

 

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, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

 

These condensed 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, 2012. The condensed consolidated balance sheet data as of December 31, 2012 was derived from the audited consolidated financial statements for the year ended December 31, 2012, 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.

 

Revision of previously issued financial statements

 

The Company identified an error in the second quarter of 2013 related to the calculation and presentation of income tax provision and the related deferred tax asset for the year ended December 31, 2012 and the three months ended March 31, 2013, which was a direct result of the deferred tax effects of the non-cash asset impairment charge recorded in the fourth quarter of 2012. The Company understated the valuation allowance against the U.S. deferred tax assets by $32.7 million and $3.1 million at December 31, 2012 and March 31, 2013, respectively. As a result, for the year ended December 31, 2012 the Company revised the valuation allowance by $32.7 million, of which $26.1 million was recorded against property, plant and equipment where the Company recognized the deferred tax effects of grants received during 2012 and the remaining $6.6 million to the income tax provision. For the three months ended March 31, 2013, the Company revised the valuation allowance by an additional $3.1 million which also increased the tax provision for the period by the same amount.

 

The Company assessed the materiality of this error in accordance with the SEC’s Staff Accounting Bulletin 99 and concluded that the previously issued financial statements were not materially misstated. However, if the entire correction of the error was recorded during the second quarter of fiscal 2013, the impact would be significant to the quarter ended June 30, 2013. In accordance with the SEC’s Staff Accounting Bulletin 108, the Company corrected these errors by revising the affected financial statements previously included in the Company’s 2012 Annual Report on Form 10-K and March 31, 2013 Quarterly Report on Form 10-Q.

 

This revision had no impact on the Company’s revenues, gross margin, operating income (loss), income (loss) before taxes and equity income (loss) of investees. There was also no impact on the Company’s consolidated net operating, investing or financing cash flows; however, the revisions impacted line items within the balance sheet at December 31, 2012 and March 31, 2013 and cash flows from operating activities for the year ended December 31, 2012 and the three months ended March 31, 2013. The revision impacted the Company income tax benefit (provision), net income (loss) from continuing operations, net income (loss) attributable to the Company’s stockholders, comprehensive income (loss) and earnings (loss) per share (“EPS”) in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2012 and the three months ended March 31, 2013.

 

 
5

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The consolidated statement of operations and comprehensive income (loss), consolidated balance sheet, and consolidated statement of cash flows for the year ended December 31, 2012 will be revised in the Company’s 2013 Annual Report on Form 10-K and for the three months ended March 31, 2013 will be revised to correct the errors described above prospectively in the quarterly report on Form 10-Q for the first quarter of 2014.

 

The effect of the revision on the line items within the Company’s consolidated balance sheet as of December 31, 2012 is as follows:

 

   

As of December 31, 2012

 
   

As reported

   

Adjustment

   

As revised

 
   

(Dollars in thousands)

 
                         

Deferred income taxes

  $ 53,989     $ (32,706 )   $ 21,283  

Property, plant and equipment, net

    1,226,758       26,115       1,252,873  

Total assets

    2,094,114       (6,591 )     2,087,523  

Accumulated deficit

    (37,735 )     (6,591 )     (44,326 )

Total equity

    702,189       (6,591 )     695,607  

Total liabilities and equity

    2,094,114       (6,591 )     2,087,523  

 

The effect of the revision on the line items within the Company’s consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2012 is as follows:

 

   

Year Ended December 31, 2012

 
   

As reported

   

Adjustment

   

As revised

 
   

(Dollars in thousands, except per share data)

 
                         

Income tax benefit (provision)

  $ 3,500     $ (6,591 )   $ (3,091 )

Loss from continuing operations

    (206,016 )     (6,591 )     (212,607 )
                         

Net loss

    (206,016 )     (6,591 )     (212,607 )

Net loss attributable to the Company's stockholders

  $ (206,430 )   $ (6,591 )   $ (213,021 )

Comprehensive loss

    (205,960 )     (6,591 )     (212,551 )

Comprehensive loss attributable to the Company's stockholders

  $ (206,374 )   $ (6,591 )   $ (212,965 )

Loss per share attributable to the Company's stockholders:

                       

Basic and diluted

  $ (4.54 )   $ (0.15 )   $ (4.69 )

 

The effect of the revision on the line items within the Company’s consolidated statements of cash flows for the year ended December 31, 2012 is as follows:

 

   

Year Ended December 31, 2012

 
   

As reported

   

Adjustment

   

As revised

 
   

(Dollars in thousands)

 

Cash flows from operating activities:

                       

Net loss

  $ (206,016 )   $ (6,591 )   $ (212,607 )

Deferred income tax provision (benefit)

    (11,327 )     6,591       (4,736 )

Net cash provided by operating activities

  $ 89,471     $ -     $ 89,471  

 

 
6

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The effect of the revision on the line items within the Company’s consolidated balance sheet as of March 31, 2013 is as follows:

 

   

As of March 31, 2013

 
   

As reported

   

Adjustment

   

As revised

 
   

(Dollars in thousands)

 
                         

Deferred income taxes

  $ 52,939     $ (35,758 )   $ 17,181  

Property, plant and equipment, net

    1,207,410       26,115       1,233,525  

Total assets

    2,143,568       (9,643 )     2,133,925  

Accumulated deficit

    (39,717 )     (9,643 )     (49,360 )

Total equity

    706,519       (9,643 )     696,876  

Total liabilities and equity

    2,143,568       (9,643 )     2,133,925  

 

The effect of the revision on the line items within the Company’s consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2013 is as follows:

 

   

Three Months Ended March 31, 2013

 
   

As reported

   

Adjustment

   

As revised

 
   

(Dollars in thousands)

 
                         

Income tax benefit (provision)

  $ (1,217 )   $ (3,052 )   $ (4,269 )

Loss from continuing operations

    (1,897 )     (3,052 )     (4,949 )
                         

Net loss

    (1,897 )     (3,052 )     (4,949 )

Net loss attributable to the Company's stockholders

  $ (1,982 )   $ (3,052 )   $ (5,034 )

Comprehensive loss:

                       

Net loss

    (1,897 )     (3,052 )     (4,949 )

Comprehensive loss

    (1,939 )     (3,052 )     (4,991 )

Comprehensive loss attributable to the Company's stockholders

  $ 2,024     $ (3,052 )   $ (5,076 )

Loss per share attributable to the Company's stockholders:

                       

Basic and diluted

  $ (0.04 )   $ (0.07 )   $ (0.11 )

 

The effect of the revision on the line items within the Company’s consolidated statements of cash flows for the three months ended March 31, 2013 is as follows:

 

   

Three Months Ended March 31, 2013

 
   

As reported

   

Adjustment

   

As revised

 
   

(Dollars in thousands)

 

Cash flows from operating activities:

                       

Net loss

  $ (1,897 )   $ (3,052 )   $ (4,949 )

Deferred income tax provision

    668       3,052       3,720  

Net cash provided by operating activities

  $ 18,216     $ -     $ 18,216  

 

Other comprehensive income

 

For the nine months ended September 30, 2013 and 2012, the Company classified $124,000 and $140,000, respectively, from other comprehensive income, of which $200,000 and $228,000, respectively, were recorded to reduce interest expense and $76,000 and $88,000, 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, 2013 and 2012, the Company reclassified out $40,000 and $47,000, respectively, from other comprehensive income, of which $65,000 and $76,000, respectively, were recorded to reduce interest expense and $25,000 and $29,000, respectively, were recorded against the income tax provision, in the condensed consolidated statements of operations and comprehensive income.

 

 

 
7

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Termination fee

 

On March 15, 2013, the Company finalized the agreement with Southern California Edison Company (“Southern California Edison”), by which the G1 and G3 Standard Offer #4 power purchase agreements (“PPAs”) were terminated and a termination fee of $9.0 million was recorded in the first quarter of 2013 in selling and marketing expenses. Under the agreement, the Company will continue to sell power from G2, the third plant of the Mammoth complex, under its existing PPA with Southern California Edison, with the term of the contract extended by an additional six years until early 2027.

 

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 September 30, 2013 and December 31, 2012, the Company had deposits totaling $14,065,000 and $41,231,000, respectively, in seven U.S. financial institutions that were federally insured up to $250,000 per account. At September 30, 2013 and December 31, 2012, the Company’s deposits in foreign countries amounted to approximately $40,320,000 and $33,215,000, respectively.

 

At September 30, 2013 and December 31, 2012, accounts receivable related to operations in foreign countries amounted to approximately $23,272,000 and $17,606,000, respectively. At September 30, 2013 and December 31, 2012, accounts receivable from the Company’s primary customers (listed below) amounted to approximately 62.0% and 45.0% of the Company’s accounts receivable, respectively.

 

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 15.3% and 14.5% of the Company’s total revenues for the three months ended September 30, 2013 and 2012, respectively, and 17.0% and 14.2% for the nine months ended September 30, 2013 and 2012, respectively.

 

Southern California Edison accounted for 20.9% and 20.4% of the Company’s total revenues for the three months ended September 30, 2013 and 2012, respectively, and 14.9% and 19.2% for the nine months ended September 30, 2013 and 2012, respectively.

 

Kenya Power and Lighting Co. Ltd. accounted for 13.8% and 8.8% of the Company’s total revenues for the three months ended September 30, 2013 and 2012, respectively, and 10.9% and 8.0% for the nine months ended September 30, 2013 and 2012, respectively.

 

The Company performs ongoing credit evaluations of its customers’ financial condition. The Company has historically been able to collect on all of its receivable balances, and 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, 2013

 

Disclosures about Offsetting Assets and Liabilities

 

In December 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance to amend the existing disclosure requirements for offsetting financial assets and liabilities to enhance current disclosures, as well as to improve the comparability of balance sheets prepared under GAAP and those prepared under International Financial Reporting Standards. In January 2013, the FASB issued additional guidance on the scope of these disclosures. The revised disclosure guidance applies to derivative instruments and securities borrowing and lending transactions that are subject to an enforceable master netting arrangement or similar agreement. The revised disclosure guidance is effective on a retrospective basis for interim and annual periods beginning January 1, 2013. As this guidance only imposes additional disclosure requirements, its adoption did not have a material impact on the Company’s consolidated financial statements.

 

 
8

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Amounts Reclassified Out of Accumulated Other Comprehensive Income

 

In February 2013, the FASB updated accounting guidance to add new disclosure requirements for items reclassified out of accumulated other comprehensive income. Although the update does not change the current requirements for reporting net income or other comprehensive income in financial statements, it does require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes thereto, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The amendments included in this guidance are required to be applied on a retrospective basis for interim and annual periods beginning January 1, 2013. As this guidance only imposes additional disclosure requirements, its adoption did not have a material impact on the Company’s consolidated financial statements.

 

Presentation of Unrecognized Tax Benefits

 

In July 2013, the FASB clarified the accounting guidance on presentation of the unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit (or a portion thereof) should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except for certain exceptions specified in the guidance. The exceptions include when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to reduce any income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and is to be made assuming the disallowance of the tax position at the reporting date. This accounting update is effective for fiscal periods after December 15, 2013. The provision is to be applied prospectively to all unrecognized tax benefits that exist at the effective date, and can be applied retroactively. The Company is currently evaluating the potential impact, if any, of the adoption of this guidance on its consolidated financial statements.

 

NOTE 3 — INVENTORIES

Inventories consist of the following:

   

September 30,

2013

   

December 31,

2012

 
   

(Dollars in thousands)

 

Raw materials and purchased parts for assembly

  $ 10,034     $ 9,775  

Self-manufactured assembly parts and finished products

    10,362       10,894  

Total

  $ 20,396     $ 20,669  

 

NOTE 4 — UNCONSOLIDATED INVESTMENTS

 

Unconsolidated investments consist of the following:

 

   

September 30,

2013

   

December 31,

2012

 
   

(Dollars in thousands)

 

Sarulla

  $ 5,419     $ 2,591  

 

 

 
9

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Sarulla Project

 

The Company is a 12.75% member of a consortium which is in the process of developing the Sarulla geothermal power project in Indonesia with expected generating capacity of approximately 330 megawatts (“MW”). The Sarulla project is located in Tapanuli Utara, North Sumatra, Indonesia and will be owned and operated by the consortium members under the framework of a Joint Operating Contract (“JOC”) and Energy Sales Contract (“ESC”) that were signed on April 4, 2013. Under the JOC, PT Pertamina Geothermal Energy (“PGE”), the concession holder for the project, has provided the consortium with the right to use the geothermal field, and under the ESC, PT PLN, the state electric utility, will be the off-taker at Sarulla for a period of 30 years. In addition to its equity holdings in the consortium, the Company designed the Sarulla plant and will supply its Ormat Energy Converters (“OECs”) to the power plant. The supply contract has not been signed as of September 30, 2013. 

 

The consortium has started preliminary testing and development activities at the site and signed an engineering procurement and construction agreement (“EPC”) with an unrelated third party. The project will be constructed in three phases of 110 MW each, utilizing both steam and brine extracted from the geothermal field to increase the power plant’s efficiency. Construction is expected to begin after the consortium obtains financing, which is expected to take approximately one year from the signing of the JOC and ESC. The first phase is scheduled to commence operation in 2016, and the remaining two phases are scheduled to be completed in stages within 18 months thereafter.

 

The Company’s share in the results of operations of the Sarulla project was not significant for each of the periods presented in these condensed consolidated financial statements.

  

Watts & More Ltd.

 

In December 2012, the Company acquired additional shares in Watts & More Ltd. (“W&M”) and as a result holds 60% of W&M’s outstanding ordinary shares and W&M was consolidated as of December 31, 2012.

 

The Company’s investment in W&M prior to its consolidation was not significant for the related period presented in these consolidated financial statements.

 

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).

 

 
10

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table sets forth certain fair value information at September 30, 2013 and December 31, 2012 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.

 

           

Fair Value at September 30, 2013

 
     

Cost or

Amortized

Cost at September 30, 2013

   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 67,234     $ 67,234     $ 67,234     $     $  

Derivatives:

                                       

Put options on oil price(1)

          142             142        

Currency forward contracts(2)

          2,952             2,952        

Swap transaction on natural gas price(3)

          1,353             1,353        
    $ 67,234     $ 71,681     $ 67,234     $ 4,447     $  

 

           

Fair Value at December 31, 2012

 
       

Cost or

Amortized

Cost at

December 31, 2012

   

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 54,298     $ 54,298     $ 54,298     $     $  

Derivatives:

                                       

Put options on oil price(1)

          1,842             1,842        

Currency forward contracts(2)

          1,675             1,675        

Swap transaction on natural gas price(3)

          2,804             2,804        

Swap transaction on oil price(4)

          336             336        
    $ 54,298     $ 60,955     $ 54,298     $ 6,657     $  

 

                                   
                                   

(1)

This amount relates to derivatives which represent European put transactions on oil prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within "prepaid expenses and other" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "electricity revenues" in the condensed consolidated statement of operations and comprehensive income (loss).

   

(2)

This amount relates to derivatives which represent currency forward contracts, valued primarily based on observable inputs, including forward and spot prices for currencies, netted against contracted rates and then multiplied against notational amounts, and are included within "prepaid expenses and other" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "foreign currency translation and transaction gains (losses)" in the condensed consolidated statement of operations and comprehensive income (loss).

   

 

 
11

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3)

This amount relates to derivatives which represent swap contracts on natural gas prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within "prepaid expenses and other" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "electricity revenues" in the condensed consolidated statement of operations and comprehensive income (loss).

   

(4)

This amount relates to derivatives which represent swap contracts on oil prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within "prepaid expenses and other" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "electricity revenues" in the condensed consolidated statement of operations and comprehensive income (loss).

 

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

 

     

Amount of recognized gain (loss)

 

Derivatives not designated

as hedging instruments

Location of recognized

gain (loss)

 

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
     

2013

   

2012

   

2013