ora20140331_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 March 31, 2014

   
 

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 May 8, 2014, the number of outstanding shares of common stock, par value $0.001 per share, was 45,478,717.



 

 
 

 

 

ORMAT TECHNOLOGIES, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2014

 

PART I — FINANCIAL INFORMATION

 
     

ITEM 1.

 FINANCIAL STATEMENTS

     

ITEM 2.

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

24

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

50

     

ITEM 4.

CONTROLS AND PROCEDURES

50

     

PART II — OTHER INFORMATION

 
     

ITEM 1.

LEGAL PROCEEDINGS

51

     

ITEM 1A.

RISK FACTORS

51

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

51

     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

51

     

ITEM 4.

MINE SAFETY DISCLOSURES

51

     

ITEM 5.

OTHER INFORMATION

51

     

ITEM 6.

EXHIBITS

51

     

SIGNATURES

52

 

 
 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)

 

   

March 31,

   

December 31,

 
   

2014

   

2013

 
   

(Dollars in thousands)

 

ASSETS

 

Current assets:

               

Cash and cash equivalents

  $ 47,927     $ 57,354  

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

    74,406       51,065  

Receivables:

               

Trade

    55,676       95,365  

Related entity

    442       442  

Other

    28,756       11,049  

Due from Parent

    534       382  

Inventories

    22,671       22,289  

Costs and estimated earnings in excess of billings on uncompleted contracts

    27,789       21,217  

Deferred income taxes

    684       523  

Prepaid expenses and other

    33,728       29,654  
                 

Total current assets

    292,613       289,340  

Unconsolidated investments

    7,510       7,076  

Deposits and other

    24,743       22,114  

Deferred income taxes

          891  

Deferred charges

    35,881       36,738  

Property, plant and equipment, net ($1,394,424 and $1,381,083 related to VIEs, respectively)

    1,463,574       1,452,336  

Construction-in-process ($54,535 and $136,947 related to VIEs, respectively)

    249,777       288,827  

Deferred financing and lease costs, net

    29,127       30,178  

Intangible assets, net

    31,122       31,933  

Total assets

  $ 2,134,347     $ 2,159,433  

LIABILITIES AND EQUITY

 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 93,820     $ 98,047  

Short-term revolving credit lines with banks (full recourse)

    34,733        

Billings in excess of costs and estimated earnings on uncompleted contracts

    3,817       7,903  

Current portion of long-term debt:

               

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

               

Senior secured notes

    29,337       31,137  

Other loans

    21,127       20,377  

Full recourse:

    28,994       28,875  
                 

Total current liabilities

    211,828       186,339  

Long-term debt, net of current portion:

               

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

               

Senior secured notes

    256,366       270,310  

Other loans

    305,762       311,078  

Full recourse:

               

Senior unsecured bonds (plus unamortized premium based upon 7% of $1,051)

    250,520       250,596  

Other loans

    49,887       53,467  

Revolving credit lines with banks

    62,467       112,017  

Liability associated with sale of tax benefits

    56,090       60,985  

Deferred lease income

    62,762       63,496  

Deferred income taxes

    59,322       55,035  

Liability for unrecognized tax benefits

    5,132       4,950  

Liabilities for severance pay

    24,182       23,841  

Asset retirement obligation

    19,053       18,679  

Other long-term liabilities

    5,282       3,529  

Total liabilities

    1,368,653       1,414,322  
                 

Commitments and contingencies (Note 10)

               
                 

Equity:

               

The Company's stockholders' equity:

               

Common stock, par value $0.001 per share; 200,000,000 shares authorized; 45,478,717 and 45,460,653 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively

    46       46  

Additional paid-in capital

    736,735       735,295  

Retained earnings (accumulated deficit)

    15,737       (3,088 )

Accumulated other comprehensive income

    451       487  
                 
      752,969       732,740  

Noncontrolling interest

    12,725       12,371  
                 

Total equity

    765,694       745,111  
                 

Total liabilities and equity

  $ 2,134,347     $ 2,159,433  

 

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

 

 
1

 

   

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2014

   

2013

As revised

 
   

(Dollars in thousands, except per share data)

 

Revenues:

               

Electricity

  $ 94,817     $ 68,298  

Product

    47,619       50,608  

Total revenues

    142,436       118,906  

Cost of revenues:

               

Electricity

    57,034       55,088  

Product

    31,943       37,041  

Total cost of revenues

    88,977       92,129  

Gross margin

    53,459       26,777  

Operating expenses:

               

Research and development expenses, net

    (87 )     1,000  

Selling and marketing expenses

    3,379       11,509  

General and administrative expenses

    7,596       6,584  

Operating income

    42,571       7,684  

Other income (expense):

               

Interest income

    111       41  

Interest expense, net

    (20,518 )     (15,863 )

Foreign currency translation and transaction gains (losses)

    (638 )     1,682  

Income attributable to sale of tax benefits

    6,717       3,532  

Other non-operating income, net

    63       1,417  

Income (loss) before income taxes and equity in losses of investees

    28,306       (1,507 )

Income tax provision

    (6,320 )     (4,047 )

Equity in losses of investees

    (197 )      

Income (loss) from continuing operations

    21,789       (5,554 )

Discontinued operations:

               

Income from discontinued operations

          827  

Income tax provision

          (222 )

Total income from discontinued operations

          605  
                 

Net income (loss)

    21,789       (4,949 )

Net income attributable to noncontrolling interest

    (237 )     (85 )

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

  $ 21,552     $ (5,034 )

Comprehensive income (loss):

               

Net income (loss)

    21,789       (4,949 )

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

               

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

    (36 )     (42 )

Comprehensive income (loss)

    21,753       (4,991 )

Comprehensive income attributable to noncontrolling interest

    (237 )     (85 )

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

  $ 21,516     $ (5,076 )
                 

Earnings (loss) per share attributable to the Company's stockholders - basic and diluted:

               

Income (loss) from continuing operations:

  $ 0.47     $ (0.12 )

Discontinued operations:

          0.01  

Net income (loss):

  $ 0.47     $ (0.11 )
                 

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

               

Basic

    45,479       45,431  

Diluted

    45,660       45,431  

 

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

 

 
2

 

  

 

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

   

Comprehensive

           

Noncontrolling

   

Total

 
   

Shares

   

Amount

   

Capital

   

Deficit)

   

Income

   

Total

   

Interest

   

Equity

 
   

(Dollars in thousands, except per share data)

 

Balance at December 31, 2012, as revised

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

Stock-based compensation

                1,543                   1,543             1,543  

Cash paid to noncontrolling interest

                                        (189 )     (189 )

Increase in noncontrolling interest in ORTP LLC

                                        4,906       4,906  

Net income (loss)

                      (5,034 )           (5,034 )     85       (4,949 )

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 $28)

                            (42 )     (42 )           (42 )

Balance at March 31, 2013, as revised

    45,431     $ 46     $ 733,683     $ (49,360 )   $ 609     $ 684,978     $ 11,898     $ 696,876  
                                                                 

Balance at December 31, 2013

    45,461     $ 46     $ 735,295     $ (3,088 )   $ 487     $ 732,740     $ 12,371     $ 745,111  

Stock-based compensation

                1,440                   1,440             1,440  

Exercise of options by employees and directors

    18                                            

Cash paid to noncontrolling interest

                                        (140 )     (140 )

Increase in noncontrolling interest in ORTP LLC

                                        257       257  

Cash dividend paid, $0.06 per share

                      (2,727 )           (2,727 )           (2,727 )

Net income

                      21,552             21,552       237       21,789  

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 $22)

                            (36 )     (36 )           (36 )

Balance at March 31, 2014

    45,479     $ 46     $ 736,735     $ 15,737     $ 451     $ 752,969     $ 12,725     $ 765,694  

 

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

 

 
3

 

  

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2014

   

2013

As revised

 
   

(Dollars in thousands)

 

Cash flows from operating activities:

               

Net income (loss)

  $ 21,789     $ (4,949 )

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

               

Depreciation and amortization

    23,417       23,137  

Amortization of premium from senior unsecured bonds

    (77 )     (77 )

Accretion of asset retirement obligation

    374       376  

Stock-based compensation

    1,440       1,543  

Amortization of deferred lease income

    (671 )     (671 )

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

    (4,472 )     (1,133 )

Equity in losses of investees

    197        

Mark-to-market of derivative instruments

    224       5,760  

Gain (loss) on severance pay fund asset

    17       (372 )

Deferred income tax provision

    5,896       3,720  

Liability for unrecognized tax benefits

    182       515  

Deferred lease revenues

    (63 )     (31 )

Other

    (181 )     (819 )

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

               

Receivables

    43,118       10,571  

Costs and estimated earnings in excess of billings on uncompleted contracts

    (6,572 )     (522 )

Inventories

    (382 )     2,411  

Prepaid expenses and other

    (4,074 )     (144 )

Deposits and other

    (1,229 )     (2,981 )

Accounts payable and accrued expenses

    (7,725 )     (14,765 )

Due from/to related entities, net

          (24 )

Billings in excess of costs and estimated earnings on uncompleted contracts

    (4,086 )     (3,659 )

Liabilities for severance pay

    341       614  

Other long-term liabilities

    765       (231 )

Due from/to Parent

    (152 )     (53 )

Net cash provided by operating activities

    68,076       18,216  

Cash flows from investing activities:

               

Return of investment in unconsolidated investments

          (5 )

Net change in restricted cash and cash equivalents

    (23,341 )     (48,350 )

Cash received from sale of property, plant and equipment

    15,000        

Capital expenditures

    (48,330 )     (49,561 )

Cash grant received from the U.S. Treasury under Section 1603 of the ARRA

    21,811        

Investment in unconsolidated companies

    (631 )     (198 )

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

    168       (130 )

Net cash used in investing activities

    (35,323 )     (98,244 )

Cash flows from financing activities:

               

Proceeds from long-term loans

          45,000  

Proceeds from the sale of limited liability company interest in ORTP LLC

          32,197  

Purchase of OFC Senior Secured Notes

    (12,860 )     (11,888 )

Proceeds from revolving credit lines with banks

    887,583       597,193  

Repayment of revolving credit lines with banks

    (902,400 )     (582,450 )

Repayments of long-term debt

    (10,528 )     (5,195 )

Cash paid to noncontrolling interest

    (3,091 )     (3,783 )

Cash received from non-controlling interest

    2,234        

Deferred debt issuance costs

    (391 )     (47 )

Cash dividends paid

    (2,727 )      

Net cash provided by (used in) financing activities

    (42,180 )     71,027  

Net change in cash and cash equivalents

    (9,427 )     (9,001 )

Cash and cash equivalents at beginning of period

    57,354       66,628  

Cash and cash equivalents at end of period

  $ 47,927     $ 57,627  

Supplemental non-cash investing and financing activities:

               

Decrease in accounts payable related to purchases of property, plant and equipment

  $ (5,641 )   $ (4,950 )

 

The accompanying notes are an integral part of these 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 March 31, 2014, the consolidated results of operations and comprehensive income (loss) for the three-month periods ended March 31, 2014 and 2013 and the consolidated cash flows for the three-month periods ended March 31, 2014 and 2013.

 

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-month period ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014.

 

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, 2013. The condensed consolidated balance sheet data as of December 31, 2013 was derived from the audited consolidated financial statements for the year ended December 31, 2013, 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 an additional $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 was recorded against 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 its Quarterly Report on Form 10-Q for the three months ended March 31, 2013.

 

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 – (Continued)

(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 were revised to correct the errors described above in the Company’s 2013 Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q for the three months ended March 31, 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 – (Continued)

(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

)

 

* These numbers are revised for the correction of the error but prior to the impact of discontinued operations.

  

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 three months ended March 31, 2014 and 2013, the Company reclassified $36,000 and $42,000, respectively, from accumulated other comprehensive income, of which $58,000 and $70,000, respectively, were recorded to reduce interest expense and $22,000 and $28,000, 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 – (Continued)

(Unaudited)

 

Termination fee


          On March 15, 2013, the Company finalized the agreement with Southern California Edison Company (“Southern California Edison”), by which the current G1 and G3 Standard Offer #4 power purchase agreements (“PPAs”) were terminated and a termination fee of $9.0 million was recorded in selling and marketing expenses in the quarter ended March 31, 2013. 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.

 

Solar project sale

 

On March 26, 2014, the Company signed an agreement with RET Holdings, LLC to sell the Heber Solar project in Imperial County, California for $35.25 million. The Company received the first payment of $15.0 million with the remainder expected to be paid in the second quarter of 2014. Due to certain contingencies in the sale agreement, the Company deferred the pre-tax gain of approximately $7.5 million until resolution of such contingencies (which is expected in the second quarter of 2014).

 

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, 2014 and December 31, 2013, the Company had deposits totaling $11,476,000 and $13,805,000, respectively, in seven U.S. financial institutions that were federally insured up to $250,000 per account. At March 31, 2014 and December 31, 2013, the Company’s deposits in foreign countries amounted to approximately $49,438,000 and $56,133,000, respectively.

 

At March 31, 2014 and December 31, 2013, accounts receivable related to operations in foreign countries amounted to approximately $27,075,000 and $32,231,000, respectively. At March 31, 2014 and December 31, 2013, accounts receivable from the Company’s primary customers amounted to approximately 68.3% and 35.0%, respectively, of the Company’s accounts receivable.

 

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 15.3% and 15.5% of the Company’s total revenues for the three months ended March 31, 2014 and 2013, respectively.

 

Southern California Edison accounted for 12.1% and 11.7% of the Company’s total revenues for the three months ended March 31, 2014 and 2013, respectively.

 

Kenya Power and Lighting Co. Ltd. accounted for 14.3% and 8.4% of the Company’s total revenues for the three months ended March 31, 2014 and 2013, 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.

 

 
8

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

 

New accounting pronouncements effective in the three-month period ended March 31, 2014

 

 

Reporting Discontinued Operations and Disclosures

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendment, required to be applied prospectively for reporting periods beginning after December 15, 2014, limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on operations and financial results. The amendment requires expanded disclosures for discontinued operations and also requires additional disclosures regarding disposals of individually significant components that do not qualify as discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. This amendment has no impact on our current disclosures, but will in the future if we dispose of any individually significant components of the Company.

 

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 was applied prospectively to all unrecognized tax benefits that exist on January 1, 2014. The adoption of this guidance did have a material impact on the condensed consolidated financial statements.

 

NOTE 3 — INVENTORIES

 

Inventories consist of the following:

 

   

March 31,

2014

   

December 31,

2013

 
   

(Dollars in thousands)

 

Raw materials and purchased parts for assembly

  $ 6,557     $ 6,326  

Self-manufactured assembly parts and finished products

    16,114       15,963  

Total

  $ 22,671     $ 22,289  

 

 

 
9

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

NOTE 4 — UNCONSOLIDATED INVESTMENTS

 

Unconsolidated investments, mainly in power plants, consist of the following:

 

   

March 31,

2014

   

December 31,

2013

 
   

(Dollars in thousands)

 

Sarulla

  $ 7,510     $ 7,076  

 

The Sarulla Project

 

The Company (through a subsidiary) is a 12.75% equity stake member of a consortium (the “Sarulla” 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, 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 is expected to supply its Ormat Energy Converters (“OECs”) to the power plant. The supply contract was signed on October 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.

 

On March 28, 2014, the consortium signed financing agreements in an aggregate amount of $1.17 billion to finance the development of the Sarulla project with a consortium of lenders comprised of Japan Bank for International Cooperation (“JBIC”), the Asian Development Bank and six commercial banks to obtain construction and term loan under limited-recourse financing package backed by political risk guarantee from JBIC.

 

Upon financing closing, the consortium is expected to begin full scope of construction with the first phase of operations expected to commence in 2016. The remaining two phases of operations are scheduled to commence within 18 months thereafter. The Company will supply its Ormat Energy Converters to the power plant and will add the $254.0 million supply contract to its product segment backlog once the Notice to Proceed is issued, upon closing of the financing. According to the current project plan we expect to recognize revenue from the project over the course of the next three to four years starting in the third quarter of 2014.  

 

During the first quarter of 2014, the Company made additional investment contributions of $0.6 million to the Sarulla project, consistent with its pro rata share in the consortium.

 

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.

 

 
10

 

 

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, 2014 and December 31, 2013 for financial assets and liabilities measured at fair value by level within the fair value hierarchy, as well as carrying value. 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.

 

    Carrying Value     March 31, 2014  
     at March 31,     Fair Value  
     2014    

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 62,946     $ 62,946     $ 62,946     $ -     $ -  

Derivatives:

                                       

Swap transaction on oil price (1)

    663       663       -       663       -  

Swap transaction on natural gas price (2)

    223       223       -       223       -  

Currency forward contracts (3)

    1,113       1,113       -       1,113       -  

Liabilities:

                                       

Current liabilities:

                                       

Derivatives:

                                       

Swap transaction on natural gas price(2)

    (3,941 )     (3,941 )     -       (3,941 )     -  
    $ 61,004     $ 61,004     $ 62,946     $ (1,942 )   $ -  

 

 

 
11

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

    Carrying Value     December 31, 2013  
      at December 31,     Fair Value  
     2013    

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(Dollars in thousands)

 

Assets

                                       

Current assets:

                                       

Cash equivalents (including restricted cash accounts)

  $ 40,015     $ 40,015     $ 40,015     $ -     $ -  

Derivatives:

                                       

Currency forward contracts (3)

    2,290       2,290       -       2,290       -  

Liabilities:

                                       

Current liabilities:

                                       

Derivatives:

                                       

Swap transaction on oil price (1)

    (2,490 )     (2,490 )     -       (2,490 )     -  

Swap transaction on natural gas price(2)

    (341 )     (341 )     -       (341 )     -  
    $ 39,474     $ 39,474     $ 40,015     $ (541 )   $ -  

 


(1)

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" and "accounts payable and accrued expenses" 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 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" and "accounts payable and accrued expenses" 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).

   

(3)

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).

 

The amounts set forth in the tables above include investments in debt instruments, money market funds (which are included in cash equivalents) and short-term bank deposits. 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.

 

 
12

 

 

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 condensed consolidated statements of operations and comprehensive income (loss) on derivative instruments not designated as hedges:

 

 

 

 

 

Amount of recognized gain (loss)

 
       

Three Months Ended March 31,

 
Derivatives not designated as hedging instruments   Location of recognized gain (loss)  

2014

   

2013

 
       

(Dollars in thousands)

 
                     

Put options on oil price

 

Electricity revenues

  $     $ (927 )

Swap transaction on oil price

 

Electricity revenues

    907       (295 )

Swap transaction on natural gas price

 

Electricity revenues

    (3,276 )     (3,390 )

Currency forward contracts

 

Foreign currency translation and transaction gains (losses)

    (231 )     2,035  
        $ (2,600 )   $ (2,577 )

 

On September 3, 2013, the Company entered into an NGI swap contract with a bank for notional volume of approximately 4.4 million MMbtus for settlement effective January 1, 2014 until December 31, 2014, in order to reduce its exposure to NGI below $4.035 per MMbtu under its PPAs with Southern California Edison. The contract did not have up-front costs. Under the terms of this contract, the Company makes floating rate payments to the bank and receives fixed rate payments from the bank on each settlement date. The swap contract has monthly settlement whereby the difference between the fixed price of $4.035 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2014 to December 1, 2014) is being settled on a cash basis.

 

On October 16, 2013, the Company entered into an NGI swap contract with a bank for notional volume of approximately 4.2 million MMbtus for settlement effective January 1, 2014 until December 31, 2014, in order to reduce its exposure to NGI below $4.103 per MMbtu under its PPAs with Southern California Edison. The contract did not have any up-front costs. Under the terms of this contract, the Company makes floating rate payments to the bank and receives fixed rate payments from the bank on each settlement date. The swap contract has monthly settlements whereby the difference between the fixed price of $4.103 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2014 to December 1, 2014) is being settled on a cash basis.

 

On October 16, 2013, the Company entered into a New York Harbor ULSD swap contract with a bank for notional volume of 275,000 BBL effective from January 1, 2014 until December 31, 2014 to reduce the Company’s exposure to fluctuations in the energy rate caused by fluctuations in oil prices under the 25 MW PPA for the Puna complex. The Company entered into this contract because the swap had a high correlation with the avoided costs (which are incremental costs that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others) that HELCO uses to calculate the energy rate. The contract did not have any up-front costs. Under the term of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date ($125.15 per BBL). The swap contract has monthly settlements whereby the difference between the fixed price and the monthly average market price will be settled on a cash basis.

 

On March 6, 2014, the Company entered into an NGI swap contract with a bank for notional volume of approximately 2.2 million MMbtus for settlement effective January 1, 2015 until March 31, 2015, in order to reduce its exposure to NGI below $4.95 per MMbtu under its PPAs with Southern California Edison. The contract did not have any up-front costs. Under the terms of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contract has monthly settlements whereby the difference between the fixed price of $4.95 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2015 to March 1, 2015) will be settled on a cash basis.

 

 
13

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

  

The foregoing swap transactions have not been designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “electricity revenues” in the condensed consolidated statements of operations and comprehensive income (loss). The Company recognized a net loss from these transactions of $2.4 million and $4.6 million in the three months ended March 31, 2014 and March 31, 2013, respectively.

  

There were no transfers of assets or liabilities between Level 1 and Level 2 during the three months ended March 31, 2014.

 

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

 

   

Fair Value

   

Carrying Amount

 
   

March 31,

2014

   

December 31,

2013

   

March 31,

2014

   

December 31,

2013

 
   

(Dollars in millions)

   

(Dollars in millions)

 

Olkaria III Loan - DEG

  $ 40.7     $ 40.3     $ 39.5     $ 39.5  

Olkaria III Loan - OPIC

    280.6       279.6       296.1       299.9  

Amatitlan Loan

    33.7       34.8       30.8       31.5  

Senior Secured Notes:

                               

Ormat Funding LLC ("OFC")

    74.9       83.5       77.6       90.8  

OrCal Geothermal LLC ("OrCal")

    67.1       65.8       66.2       66.2  

OFC 2 LLC ("OFC 2")

    119.1       119.0       141.9       144.4  

Senior Unsecured Bonds

    265.9       270.6       250.5       250.6  

Loans from institutional investors

    18.2       20.1       17.7       19.5  

 

The fair value of OFC Senior Secured Notes is determined using observable market prices as these securities are traded. The fair value of the other 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 other financial instruments, such as revolving lines of credit, deposits, and other long-term debt approximates fair value.

 

The following table presents the fair value of financial instruments as of March 31, 2014:

  

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(Dollars in millions)

 

Olkaria III Loan - DEG

  $     $     $ 40.7     $ 40.7  

Olkaria III Loan - OPIC

                280.6       280.6  

Amatitlan Loan

                33.7       33.7  

Senior Secured Notes:

                               

OFC

          74.9             74.9  

OrCal

                67.1       67.1  

OFC 2

                119.1       119.1  

Senior unsecured bonds

                265.9       265.9  

Loan from institutional investors

                18.2       18.2  

Other long-term debt

          21.7             21.7  

Revolving credit lines with banks

          97.2             97.2  

Deposits

    21.1                   21.1  

 

 

 
14

 

 

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, 2013:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

(Dollars in millions)

 

Olkaria III Loan - DEG

  $     $     $ 40.3     $ 40.3  

Olkaria III Loan - OPIC

                279.6       279.6  

Amatitlan Loan

                34.8       34.8  

Senior Secured Notes:

                               

OFC

          83.5             83.5  

OrCal

                65.8       65.8  

OFC 2

                119.0       119.0  

Senior unsecured bonds

                270.6       270.6  

Loan from institutional investors

                20.1       20.1  

Other long-term debt

          23.3             23.3  

Revolving credit lines with banks

          112.0             112.0  

Deposits

    21.3                   21.3  

 

NOTE 6 — STOCK-BASED COMPENSATION

  

The 2004 Incentive Compensation Plan

 

In 2004, the Company’s Board of Directors adopted the 2004 Incentive Compensation Plan (“2004 Incentive Plan”), which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights (“SARs”), stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2004 Incentive Plan, a total of 3,750,000 shares of the Company’s common stock have been reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2004 Incentive Plan cliff vest and are exercisable from the grant date as follows: 25% after 24 months, 25% after 36 months, and the remaining 50% after 48 months. Options granted to non-employee directors under the 2004 Incentive Plan cliff vest and are exercisable one year after the grant date. Vested stock-based awards may be exercised for up to ten years from the date of grant. The shares of common stock will be issued upon exercise of options or SARs from the Company’s authorized share capital. The 2004 Incentive Plan expired in May 2012 upon adoption of the 2012 Incentive Plan, except as to share based awards outstanding on that date.

 

The 2012 Incentive Compensation Plan

 

In May 2012, the Company’s shareholders adopted the 2012 Incentive Compensation Plan (“2012 Incentive Plan”), which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, SARs, stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2012 Incentive Plan, a total of 4,000,000 shares of the Company’s common stock have been reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2012 Incentive Plan typically vest and become exercisable as follows: 25% vest 24 months after the grant date, an additional 25% vest 36 months after the grant date, and the remaining 50% vest 48 months after the grant date. Options granted to non-employee directors under the 2012 Incentive Plan will vest and become exercisable one year after the grant date. The term of stock-based awards typically ranges from six to ten years from the date of grant. The shares of common stock will be issued upon exercise of options or SARs from the Company’s authorized share capital.

 

 
15

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

  

The 2012 Incentive Plan empowers the Company's Board of Directors, in its discretion, to amend the 2012 Incentive Plan in certain respects. Consistent with its authority to amend the Incentive Plan, in February 2014 the Board adopted and approved certain amendments to the Incentive Plan. The key amendments are as follows:

 

Increase of per grant limit: Section 15(a) of the 2012 Incentive Plan was amended to allow the grant of up to 400,000 shares of the Company's common stock with respect to the initial grant of an equity award to newly hired executive officers in any calendar year. This amendment will become void if not adopted by the Company's stockholders by May 31, 2014; and

 

Acceleration of vesting: Section 15(l) of the 2012 Incentive Plan was amended to clarify the Company ability to provide in the applicable award agreement that part and/or all of the award will be accelerated upon the occurrence of certain predetermined events and/or conditions, such as a "change in control" (as defined in the 2012 Incentive Plan, as amended).

 

On February 11, 2014 the Company granted its Chief Financial Officer stock options to purchase 32,500 shares of common stock under the 2012 Incentive Plan. The exercise price of each option is $24.57, which represented the fair market value of the Company’s common stock on the grant date. Such options will expire five years from the date of grant and will vest in equal annual installments over a period of three years from the grant date, subject to acceleration upon a change of control.

 

The fair value of each SAR on the grant date was $5.78. The Company calculated the fair value of each SAR on the date of grant using the Black-Scholes valuation model based on the following assumptions:

  

Risk-free interest rates

    0.81%  

Expected term (in years)

    3.375  

Dividend yield

    0.80%  

Expected volatility

    33.50%  

 

NOTE 7 — INTEREST EXPENSE, NET

 

The components of interest expense, net, are as follows:

 

   

Three Months Ended March 31,

 
   

2014

   

2013

 
   

(Dollars in thousands)

 

Interest related to sale of tax benefits

  $ 2,579     $ 2,717  

Other