10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32347
ORMAT TECHNOLOGIES,
INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
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88-0326081
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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6225 Neil Road, Reno, Nevada
89511-1136
(Address of principal executive
offices)
Registrants telephone number, including area code:
(775) 356-9029
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 þ No o
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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o
Yes þ
No
As of the date of this filing, the number of outstanding shares
of common stock of Ormat Technologies, Inc. is
45,342,670 par value $0.001 per share.
ORMAT
TECHNOLOGIES, INC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER30, 2008
2
Certain
Definitions
Unless the context otherwise requires, all references in this
quarterly report to Ormat, the Company,
we, us, our company,
Ormat Technologies or our refer to Ormat
Technologies, Inc. and its consolidated subsidiaries.
3
PART I
UNAUDITED FINANCIAL INFORMATION
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ITEM 1.
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CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
Unaudited
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September 30,
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December 31,
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2008
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2007
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(In thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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38,143
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$
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47,227
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Marketable securities
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13,489
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Restricted cash, cash equivalents and marketable securities
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48,284
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29,236
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Receivables:
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Trade
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68,600
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46,519
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Related entity
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734
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|
385
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Other
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12,572
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9,008
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Due from Parent
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1,276
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253
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Inventories, net
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12,196
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10,312
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Costs and estimated earnings in excess of billings on
uncompleted contracts
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4,057
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3,608
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Deferred income taxes
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1,601
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|
1,732
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Prepaid expenses and other
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10,508
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7,059
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Total current assets
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197,971
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168,828
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Long-term marketable securities
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2,848
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2,762
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Restricted cash, cash equivalents and marketable securities
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3,919
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5,605
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Unconsolidated investments
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29,916
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30,560
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Deposits and other
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19,444
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15,294
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Deferred income taxes
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11,932
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12,427
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Property, plant and equipment, net
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825,069
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743,386
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Construction-in-process
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429,660
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234,014
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Deferred financing and lease costs, net
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13,034
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14,044
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Intangible assets, net
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45,641
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47,989
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Total assets
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$
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1,579,434
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$
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1,274,909
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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115,706
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$
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75,836
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Billings in excess of costs and estimated earnings on
uncompleted contracts
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21,371
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4,818
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Current portion of long-term debt:
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Limited and non-recourse
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6,579
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7,667
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Full recourse
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1,000
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Senior secured notes (non-recourse)
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21,655
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25,475
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Due to Parent, including current portion of notes payable to
Parent
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32,652
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31,695
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Total current liabilities
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197,963
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146,491
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Long-term debt, net of current portion:
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Limited and non-recourse
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9,521
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14,490
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Senior secured notes (non-recourse)
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266,136
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273,840
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Notes payable to Parent, net of current portion
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9,600
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26,200
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Deferred lease income
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74,774
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76,198
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Deferred income taxes
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25,185
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20,680
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Liability for unrecognized tax benefits
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5,817
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5,330
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Liabilities for severance pay
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19,104
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15,201
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Asset retirement obligation
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14,429
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13,014
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Total liabilities
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622,529
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591,444
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Minority interest
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120,340
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65,382
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Commitments and contingencies
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Stockholders equity:
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Common stock, par value $0.001 per share;
200,000,000 shares authorized; 45,342,670 and
41,530,071 shares issued and outstanding, respectively
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45
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41
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Additional paid-in capital
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699,883
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513,109
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Retained earnings
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135,037
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103,545
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Accumulated other comprehensive income
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1,600
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1,388
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|
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Total stockholders equity
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836,565
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618,083
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Total liabilities and stockholders equity
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$
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1,579,434
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$
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1,274,909
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE
INCOME
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Three Months Ended
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September 30,
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Nine Months Ended September 30,
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2008
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2007
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2008
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2007
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(In thousands, except per share data)
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(In thousands, except per share data)
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(Unaudited)
|
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Revenues:
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|
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|
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Electricity:
|
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|
|
|
|
|
|
|
|
|
|
|
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Energy and capacity
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|
$
|
27,731
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|
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$
|
23,081
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|
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$
|
76,682
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|
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$
|
67,481
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|
Lease portion of energy and capacity
|
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|
40,435
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|
|
|
37,654
|
|
|
|
111,434
|
|
|
|
90,929
|
|
Lease income
|
|
|
671
|
|
|
|
671
|
|
|
|
2,014
|
|
|
|
2,014
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total electricity
|
|
|
68,837
|
|
|
|
61,406
|
|
|
|
190,130
|
|
|
|
160,424
|
|
Products
|
|
|
30,889
|
|
|
|
18,061
|
|
|
|
59,204
|
|
|
|
64,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues
|
|
|
99,726
|
|
|
|
79,467
|
|
|
|
249,334
|
|
|
|
225,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and capacity
|
|
|
26,135
|
|
|
|
17,184
|
|
|
|
69,085
|
|
|
|
60,969
|
|
Lease portion of energy and capacity
|
|
|
17,296
|
|
|
|
16,960
|
|
|
|
51,907
|
|
|
|
45,604
|
|
Lease expense
|
|
|
1,311
|
|
|
|
1,311
|
|
|
|
3,932
|
|
|
|
3,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total electricity
|
|
|
44,742
|
|
|
|
35,455
|
|
|
|
124,924
|
|
|
|
110,505
|
|
Products
|
|
|
23,730
|
|
|
|
15,046
|
|
|
|
47,484
|
|
|
|
55,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
68,472
|
|
|
|
50,501
|
|
|
|
172,408
|
|
|
|
165,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
31,254
|
|
|
|
28,966
|
|
|
|
76,926
|
|
|
|
59,577
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1,894
|
|
|
|
952
|
|
|
|
3,375
|
|
|
|
2,717
|
|
Selling and marketing expenses
|
|
|
2,647
|
|
|
|
2,043
|
|
|
|
8,186
|
|
|
|
7,851
|
|
General and administrative expenses
|
|
|
7,587
|
|
|
|
4,979
|
|
|
|
19,539
|
|
|
|
15,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19,126
|
|
|
|
20,992
|
|
|
|
45,826
|
|
|
|
33,121
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
637
|
|
|
|
1,171
|
|
|
|
2,735
|
|
|
|
4,207
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
(790
|
)
|
|
|
(1,397
|
)
|
|
|
(2,790
|
)
|
|
|
(4,544
|
)
|
Other
|
|
|
(6,086
|
)
|
|
|
(7,074
|
)
|
|
|
(18,488
|
)
|
|
|
(21,119
|
)
|
Less amount capitalized
|
|
|
6,017
|
|
|
|
1,487
|
|
|
|
13,949
|
|
|
|
3,827
|
|
Foreign currency translation and transaction losses
|
|
|
(1,028
|
)
|
|
|
(96
|
)
|
|
|
(2,570
|
)
|
|
|
(771
|
)
|
Impairment of auction rate securities
|
|
|
(2,045
|
)
|
|
|
|
|
|
|
(2,373
|
)
|
|
|
|
|
Other non-operating income (expense)
|
|
|
(21
|
)
|
|
|
247
|
|
|
|
328
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
15,810
|
|
|
|
15,330
|
|
|
|
36,617
|
|
|
|
15,316
|
|
Income tax provision
|
|
|
(3,187
|
)
|
|
|
(2,300
|
)
|
|
|
(7,871
|
)
|
|
|
(2,297
|
)
|
Minority interest
|
|
|
2,916
|
|
|
|
1,280
|
|
|
|
8,071
|
|
|
|
1,585
|
|
Equity in income of investees
|
|
|
372
|
|
|
|
1,452
|
|
|
|
1,319
|
|
|
|
3,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
15,911
|
|
|
|
15,762
|
|
|
|
38,136
|
|
|
|
18,468
|
|
Other comprehensive income, net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge
|
|
|
(69
|
)
|
|
|
(81
|
)
|
|
|
(218
|
)
|
|
|
(245
|
)
|
Reclassification of unrealized losses on marketable securities
available-for-sale to other income (expense)
|
|
|
840
|
|
|
|
|
|
|
|
479
|
|
|
|
|
|
Change in unrealized gains or losses on marketable securities
available-for-sale
|
|
|
|
|
|
|
(5
|
)
|
|
|
(49
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
16,682
|
|
|
$
|
15,676
|
|
|
$
|
38,348
|
|
|
$
|
18,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted
|
|
$
|
0.35
|
|
|
$
|
0.41
|
|
|
$
|
0.87
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,337
|
|
|
|
38,125
|
|
|
|
43,782
|
|
|
|
38,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,483
|
|
|
|
38,251
|
|
|
|
43,921
|
|
|
|
38,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend per share declared
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.15
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are in integral part of these condensed
consolidated financial statements.
5
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
|
(Unaudited)
|
|
|
Balance at December 31, 2007
|
|
|
41,530
|
|
|
$
|
41
|
|
|
$
|
513,109
|
|
|
$
|
103,545
|
|
|
$
|
1,388
|
|
|
$
|
618,083
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,193
|
|
|
|
|
|
|
|
|
|
|
|
3,193
|
|
Cash dividend declared, $0.15 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,644
|
)
|
|
|
|
|
|
|
(6,644
|
)
|
Issuance of shares of common stock in a block trade transaction
|
|
|
3,100
|
|
|
|
3
|
|
|
|
149,652
|
|
|
|
|
|
|
|
|
|
|
|
149,655
|
|
Issuance of unregistered shares of common stock to the Parent in
a private placement
|
|
|
694
|
|
|
|
1
|
|
|
|
33,314
|
|
|
|
|
|
|
|
|
|
|
|
33,315
|
|
Exercise of options by employees
|
|
|
19
|
|
|
|
|
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
547
|
|
Tax benefit on exercise of options by employees
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,136
|
|
|
|
|
|
|
|
38,136
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge (net of related tax
of $136,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
(218
|
)
|
Reclassification of unrealized losses on marketable securities
available-for-sale to other income (expense) (net of related tax
of $294,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
479
|
|
|
|
479
|
|
Change in unrealized gains or losses on marketable securities
available-for-sale (net of related tax of $32,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
45,343
|
|
|
$
|
45
|
|
|
$
|
699,883
|
|
|
$
|
135,037
|
|
|
$
|
1,600
|
|
|
$
|
836,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
38,136
|
|
|
$
|
18,468
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
44,318
|
|
|
|
37,303
|
|
Accretion of asset retirement obligation
|
|
|
785
|
|
|
|
864
|
|
Stock-based compensation
|
|
|
3,193
|
|
|
|
2,604
|
|
Amortization of deferred lease income
|
|
|
(2,014
|
)
|
|
|
(2,014
|
)
|
Minority interest
|
|
|
(8,071
|
)
|
|
|
(1,585
|
)
|
Equity in income of investees
|
|
|
(1,319
|
)
|
|
|
(3,864
|
)
|
Impairment of auction rate securities
|
|
|
2,373
|
|
|
|
|
|
Distributions from unconsolidated investments
|
|
|
1,317
|
|
|
|
9,736
|
|
Changes in unrealized loss in respect of derivative instruments,
net
|
|
|
|
|
|
|
199
|
|
Gain on severance pay fund asset
|
|
|
(2,187
|
)
|
|
|
(747
|
)
|
Deferred income tax provision (benefit)
|
|
|
4,193
|
|
|
|
(1,595
|
)
|
Liability for unrecognized tax benefits
|
|
|
487
|
|
|
|
554
|
|
Deferred revenues
|
|
|
590
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(25,645
|
)
|
|
|
(17,646
|
)
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
(449
|
)
|
|
|
8,230
|
|
Inventories, net
|
|
|
(1,884
|
)
|
|
|
(3,057
|
)
|
Prepaid expenses and other
|
|
|
(3,449
|
)
|
|
|
(1,882
|
)
|
Deposits and other
|
|
|
(946
|
)
|
|
|
(85
|
)
|
Accounts payable and accrued expenses
|
|
|
20,428
|
|
|
|
(9,711
|
)
|
Due from/to related entities, net
|
|
|
(349
|
)
|
|
|
545
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
16,553
|
|
|
|
2,788
|
|
Liabilities for severance pay
|
|
|
3,903
|
|
|
|
873
|
|
Due from/to Parent
|
|
|
(66
|
)
|
|
|
3,490
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
89,897
|
|
|
|
43,468
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated investments
|
|
|
1,433
|
|
|
|
|
|
Marketable securities, net
|
|
|
12,590
|
|
|
|
87,575
|
|
Net change in restricted cash, cash equivalents and marketable
securities
|
|
|
(18,232
|
)
|
|
|
(283
|
)
|
Capital expenditures
|
|
|
(298,571
|
)
|
|
|
(145,037
|
)
|
Intangible asset acquired
|
|
|
|
|
|
|
(1,150
|
)
|
Increase in severance pay fund asset, net
|
|
|
(1,017
|
)
|
|
|
(12
|
)
|
Repayment from unconsolidated investment
|
|
|
95
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(303,702
|
)
|
|
|
(58,812
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Due to Parent, net
|
|
|
(16,600
|
)
|
|
|
(16,600
|
)
|
Proceeds from sale of interest rate caps
|
|
|
|
|
|
|
277
|
|
Proceeds from public offerings, net of issuance costs
|
|
|
149,655
|
|
|
|
|
|
Proceeds from issuance of unregistered shares of common stock to
the Parent
|
|
|
33,315
|
|
|
|
|
|
Proceeds from exercise of options by employees
|
|
|
547
|
|
|
|
403
|
|
Proceeds from the sale of limited liability company interest in
OPC LLC, net of transaction costs
|
|
|
63,029
|
|
|
|
69,218
|
|
Repayments of long-term debt
|
|
|
(18,581
|
)
|
|
|
(31,397
|
)
|
Cash dividends paid
|
|
|
(6,644
|
)
|
|
|
(6,480
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
204,721
|
|
|
|
15,421
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(9,084
|
)
|
|
|
77
|
|
Cash and cash equivalents at beginning of period
|
|
|
47,227
|
|
|
|
20,254
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
38,143
|
|
|
$
|
20,331
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Increase in accounts payable related to purchases of property,
plant and equipment
|
|
$
|
19,185
|
|
|
$
|
5,135
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities related to financing activities
|
|
$
|
257
|
|
|
$
|
216
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in asset retirement cost and asset
retirement obligation
|
|
$
|
630
|
|
|
$
|
(5,416
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE 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 (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, the unaudited condensed consolidated interim
financial statements reflect all adjustments, which include
normal recurring adjustments, necessary for a fair statement of
the Companys consolidated financial position as of
September 30, 2008, the consolidated results of operations
for the three and nine-month periods ended September 30,
2008 and 2007, and the consolidated cash flows for the
nine-month periods ended September 30, 2008 and 2007.
The financial data and other information disclosed in the notes
to the condensed consolidated interim financial statements
related to these periods are unaudited. The results for the
three and nine-month period ended September 30, 2008 are
not necessarily indicative of the results to be expected for the
year ending December 31, 2008.
These condensed consolidated interim financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys
annual report on
Form 10-K
for the year ended December 31, 2007. The condensed
consolidated balance sheet data as of December 31, 2007 was
derived from the audited consolidated financial statements for
the year ended December 31, 2007, 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.
Issuance
of stock
On January 8, 2008, the Company completed an unregistered
sale of 693,750 shares of common stock to Ormat Industries
Ltd. (the Parent), at a price of $48.02 per share.
The proceeds from the unregistered sale were approximately
$33.3 million.
On May 14, 2008, the Company completed a sale of
3,100,000 shares of common stock to Lehman Brothers Inc. in
a block trade at a price of $48.36 per share (net of
underwriting fees and commissions), under the Companys
shelf registration statement. Net proceeds to the Company after
deducting underwriting fees and commissions and offering
expenses associated with the offering were approximately
$149.7 million.
OPC tax
monetization transaction second closing
On April 17, 2008, a wholly owned subsidiary of the
Company, Ormat Nevada Inc. (Ormat Nevada), concluded
the second closing under a 2007 transaction to monetize
production tax credits and other favorable tax attributes, such
as accelerated depreciation, generated from certain of its
geothermal power projects. The first closing of the transaction
occurred on June 7, 2007. Pursuant to the transaction,
affiliates of Morgan Stanley & Co. Incorporated and
Lehman Brothers Inc. (which has since been acquired by Barclays)
became institutional equity investors in a newly formed
subsidiary of Ormat Nevada, OPC LLC (OPC). Under
this second closing, Ormat Nevada transferred the Galena 3
geothermal project to OPC, and received from the institutional
equity investors $63.0 million, net of transaction costs.
As operator of all of the projects in the OPC portfolio, Ormat
Nevada will continue to operate and maintain the Galena 3
project.
8
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Concentration
of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of temporary
cash investments, marketable securities 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, 2008 and December 31, 2007, the Company
had deposits totaling $5,464,000 and $21,322,000, respectively,
in six U.S. financial institutions that were federally
insured up to $250,000 per account (after December 31,
2009, the deposits will be insured up to $100,000 per account).
At September 30, 2008 and December 31, 2007, the
Companys deposits in foreign countries amounted to
approximately $15,251,000 and $13,248,000, respectively.
At September 30, 2008 and December 31, 2007, accounts
receivable related to operations in foreign countries amounted
to approximately $21,336,000 and $17,140,000, respectively. At
September 30, 2008 and December 31, 2007, accounts
receivable from the Companys major customers that have
generated 10% or more of its revenues amounted to approximately
59% and 39% of the Companys accounts receivable,
respectively.
Southern California Edison Company (SCE) accounted
for 29.8% and 41.3% of the Companys total revenues for the
three months ended September 30, 2008 and 2007,
respectively, and 30.2% and 32.3% of the Companys total
revenues for the nine months ended September 30, 2008 and
2007, respectively. SCE is also the power purchaser and revenue
source for the Companys Mammoth project, which is
accounted for separately under the equity method.
Hawaii Electric Light Company accounted for 16.1% and 15.1% of
the Companys total revenues for the three months ended
September 30, 2008 and 2007, respectively, and 17.6% and
14.1% of the Companys total revenues for the nine months
ended September 30, 2008 and 2007, respectively.
Sierra Pacific Power Company accounted for 7.6% and 7.0% of the
Companys total revenues for the three months ended
September 30, 2008 and 2007, respectively, and 9.7% and
8.6% of the Companys total revenues for the nine months
ended September 30, 2008 and 2007, 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 three-month period
ended September 30, 2008
SFAS No. 157
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosure of fair value measurements. SFAS No. 157
applies under other accounting pronouncements that require or
permit fair value measurements and accordingly, does not require
any new fair value measurements. SFAS No. 157 is
effective for fiscal years beginning after November 15,
2007 (January 1, 2008 for the Company) for financial assets
and liabilities. The adoption by the Company of
SFAS No. 157, effective January 1, 2008, did not
have any impact on its results of operations or financial
position. The disclosures required under SFAS No. 157
are set forth in Note 6.
In accordance with the provisions of FSP
No. 157-2,
Effective Date of FASB Statement No. 157, the
Company has elected to defer implementation of
SFAS No. 157 as it relates to the Companys
non-financial assets and liabilities that are recognized and
disclosed at fair value on a nonrecurring basis in the financial
statements until January 1, 2009. The Company is currently
evaluating the potential impact, if any, on the
9
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys non-financial assets and liabilities not measured
on a nonrecurring basis. The major categories of assets and
liabilities that are recognized at fair value for which the
Company has not applied FAS No. 157 are mainly asset
retirement obligations and impairment of long-lived assets.
In October 2008, the FASB released FASB Staff Position
(FSP)
FAS No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active, which clarifies the
application of SFAS No. 157 in situations in which the
market for a financial asset is inactive. FSP
FAS No. 157-3
was effective on September 30, 2008, but did not have a
material impact on the Companys financial position or
results of operations.
SFAS No. 159
The Fair Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 permits entities to
choose to measure certain financial assets and liabilities and
other eligible items at fair value, which are not otherwise
currently required to be measured at fair value. Under
SFAS No. 159, the decision to measure items at fair
value is made at specified election dates on an irrevocable
instrument-by-instrument
basis. Entities electing the fair value option would be required
to recognize changes in fair value in earnings and to expense
upfront cost and fees associated with the item for which the
fair value option is elected. Entities electing the fair value
option are required to distinguish on the face of the statement
of financial position, the fair value of assets and liabilities
for which the fair value option has been elected and similar
assets and liabilities measured using another measurement
attribute. If elected, SFAS No. 159 is effective as of
the beginning of the first fiscal year that begins after
November 15, 2007 (January 1, 2008 for the Company)
with earlier adoption permitted provided that the entity also
early adopts all of the requirements of SFAS No. 159.
The Company decided not to elect the option provided for in this
standard.
SAB No. 110
In December 2007, the SEC issued Staff Accounting Bulletin
(SAB) No. 110 relating to the use of a
simplified method in developing an estimate of the
expected term of plain vanilla share options.
SAB No. 107, which was applied by the Company for
estimating the expected term of employees stock options,
previously allowed the use of the simplified method until
December 31, 2007. SAB No. 110 allows, under
certain circumstances, entities to continue to accept the use of
the simplified method beyond December 31, 2007. The Company
has continued to use the simplified method to estimate the
expected term of its stock options.
New
accounting pronouncements effective in future periods
SFAS No. 160
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB
No. 51
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51.
SFAS No. 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in
the consolidated financial statements. SFAS No. 160
requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other
requirements of SFAS No. 160 shall be applied
prospectively. SFAS No. 160 is effective for fiscal
years beginning after December 15, 2008
10
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(January 1, 2009 for the Company). The Company is currently
evaluating the potential impact, if any, of the adoption of
SFAS No. 160 on its consolidated financial statements.
SFAS No. 141
(revised 2007) Business Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree. SFAS No. 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business
combination and determines what information to disclose to
enable users of the financial statements to evaluate the nature
and financial effects of the business combination.
SFAS No. 141R is effective for fiscal years beginning
after December 15, 2008 (January 1, 2009 for the
Company).The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS No. 141R on
its consolidated financial statements.
SFAS No. 161
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133. SFAS No. 161 amends
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities and requires companies with
derivative instruments to disclose information that should
enable financial statement users to understand how and why a
company uses derivative instruments, how derivative instruments
and related hedged items are accounted for under
SFAS No. 133, and how derivative instruments and
related hedged items affect a companys financial position,
financial performance, and cash flows. The required disclosures
include the fair value of derivative instruments and their gains
or losses in tabular format, information about
credit-risk-related contingent features in derivative
agreements, counterparty credit risk, and the companys
strategies and objectives for using derivative instruments.
SFAS No. 161 expands the current disclosure framework
in SFAS No. 133. SFAS No. 161 is effective
prospectively for fiscal years and interim periods beginning
after November 15, 2008 (January 1, 2009 for the
Company). The Company is currently evaluating the impact of
SFAS No. 161, and has not yet determined the potential
impact, if any, that its adoption will have on its financial
position, results of operations and cash flows.
|
|
NOTE 3
|
EARNINGS
PER SHARE
|
Basic earnings per share is computed by dividing net income
available to common stockholders by the weighted average number
of shares of common stock outstanding for the period. The
Company does not have any equity instruments that are dilutive,
except for employee stock options.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Raw materials and purchased parts for assembly
|
|
$
|
6,314
|
|
|
$
|
3,613
|
|
Self-manufactured assembly parts and finished products
|
|
|
5,882
|
|
|
|
6,699
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,196
|
|
|
$
|
10,312
|
|
|
|
|
|
|
|
|
|
|
11
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 5
|
UNCONSOLIDATED
INVESTMENTS
|
Unconsolidated investments in power plant projects consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Mammoth
|
|
$
|
29,456
|
|
|
$
|
29,979
|
|
OLCL
|
|
|
460
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,916
|
|
|
$
|
30,560
|
|
|
|
|
|
|
|
|
|
|
From time to time, the unconsolidated power plants make
distributions to their owners. Such distributions are deducted
from the investments in such power plants.
The
Mammoth Project
The Company has a 50% interest in the Mammoth Project
(Mammoth), which is comprised of three geothermal
power plants located near the city of Mammoth, California. The
purchase price was less than the underlying net equity of
Mammoth by approximately $9.3 million. As such, the basis
difference will be amortized over the remaining useful life of
the property, plant and equipment and the power purchase
agreements (PPAs), which range from 12 to
17 years. The Company operates and maintains the geothermal
power plants under an operating and maintenance
(O&M) agreement. The Companys 50%
ownership interest in Mammoth is accounted for under the equity
method of accounting as the Company has the ability to exercise
significant influence, but not control, over Mammoth.
The condensed financial position and results of operations of
Mammoth are summarized below:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Condensed balance sheets:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
6,406
|
|
|
$
|
4,181
|
|
Non-current assets
|
|
|
71,058
|
|
|
|
74,417
|
|
Current liabilities
|
|
|
1,326
|
|
|
|
826
|
|
Non-current liabilities
|
|
|
3,117
|
|
|
|
3,004
|
|
Partners capital
|
|
|
73,021
|
|
|
|
74,768
|
|
12
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Condensed statements of operations:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,568
|
|
|
$
|
12,731
|
|
Gross margin
|
|
|
3,985
|
|
|
|
3,069
|
|
Net income
|
|
|
3,752
|
|
|
|
2,842
|
|
Companys equity in income of Mammoth:
|
|
|
|
|
|
|
|
|
50% of Mammoth net income
|
|
$
|
1,876
|
|
|
$
|
1,421
|
|
Plus amortization of basis difference
|
|
|
445
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,321
|
|
|
|
1,866
|
|
Less income taxes
|
|
|
(881
|
)
|
|
|
(639
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,440
|
|
|
$
|
1,227
|
|
|
|
|
|
|
|
|
|
|
The Leyte
Project
The Company holds an 80% interest in Ormat Leyte Co. Ltd.
(OLCL). OLCL is a limited partnership established
for the purpose of developing, financing, operating, and
maintaining a geothermal power plant in Leyte Provina, the
Philippines. Upon the adoption of FIN No. 46R,
Consolidation of Variable Interest Entities (revised December
2003) an interpretation of ARB No. 51, on
March 31, 2004, the Company concluded that OLCL should not
be consolidated. As a result of such conclusion, the
Companys 80% ownership interest in OLCL is accounted for
under the equity method of accounting.
Pursuant to a Build, Operate, and Transfer (BOT)
agreement with PNOC-Energy Development Corporation
(PNOC), OLCL transferred the Leyte projects
four geothermal power generation plants to PNOC for no further
consideration on September 25, 2007.
The condensed financial position and results of operations of
OLCL are summarized below:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Condensed balance sheets:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
470
|
|
|
$
|
1,327
|
|
Non-current assets
|
|
|
324
|
|
|
|
371
|
|
Current liabilities
|
|
|
265
|
|
|
|
1,018
|
|
Stockholders equity
|
|
|
529
|
|
|
|
680
|
|
13
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Condensed statements of operations:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
11,224
|
|
Gross margin
|
|
|
|
|
|
|
5,940
|
|
Net income (loss)
|
|
|
(151
|
)
|
|
|
2,744
|
|
Companys equity in income (loss) of OLCL:
|
|
|
|
|
|
|
|
|
80% of OLCL net income (loss)
|
|
$
|
(121
|
)
|
|
$
|
2,195
|
|
Plus amortization of deferred revenue on intercompany profit
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(121
|
)
|
|
$
|
2,637
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
As described in Note 1, the provisions of
SFAS No. 157 were adopted by the Company on
January 1, 2008 for financial assets and liabilities, and
will be adopted by the Company on January 1, 2009 for
non-financial assets and liabilities.
SFAS No. 157 clarifies that fair value is an exit
price, representing the amount that would be received to sell an
asset or paid to transfer 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. SFAS No. 157 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 SFAS No. 157 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).
14
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the Companys financial
assets and liabilities measured at fair value by level within
the fair value hierarchy. As required by SFAS No. 157,
assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value
measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2008
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including restricted cash accounts)
|
|
$
|
56,564
|
|
|
$
|
56,564
|
|
|
$
|
|
|
|
$
|
|
|
Non current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illiquid auction rate securities (including restricted cash
accounts), see below
|
|
|
6,767
|
|
|
|
|
|
|
|
|
|
|
|
6,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,331
|
|
|
$
|
56,564
|
|
|
$
|
|
|
|
$
|
6,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys marketable debt securities (including
restricted cash accounts) at September 30, 2008 include
investments in auction rate securities and money market funds
(which are included in cash equivalents). Those securities,
except for illiquid auction rate securities, are classified
within Level 1 of the fair value hierarchy because they are
valued using quoted market prices in an active market. As of
September 30, 2008, all of the Companys auction rate
securities are associated with failed auctions. These failed
auction rate securities have been in a loss position for less
than 12 months. Historically, the carrying value of auction
rate securities approximated fair value due to the frequent
resetting of the interest rates. While the Company continues to
earn interest on these investments at the contractual rates, the
estimated market value of these auction rate securities no
longer approximates fair value. The Company has estimated the
fair value of these illiquid auction rate securities based,
among other things, on the following: (i) the underlying
structure of each security; (ii) the present value of
future principal and interest payments discounted at rates
considered to reflect the uncertainty of current market
conditions; (iii) consideration of the probabilities of
default, auction failure, or repurchase at par for each period;
and (iv) estimates of the recovery rates in the event of
default for each security. These estimated fair values could
change significantly based on future market conditions.
Therefore, such auction rate securities have been classified as
Level 3 in the fair value hierarchy.
The table below sets forth a summary of changes in the fair
value of the Companys financial assets classified as
Level 3 (i.e., illiquid auction rate securities) for
the nine months ended September 30, 2008.
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance as of January 1, 2008
|
|
$
|
8,367
|
|
Total unrealized losses:
|
|
|
|
|
Included in net income
|
|
|
(2,373
|
)
|
Unrealized losses included in other comprehensive income in 2007
and expensed in 2008
|
|
|
773
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
$
|
6,767
|
|
|
|
|
|
|
Based on available information, the Company concluded that the
fair market value of these failed auction rate securities at
September 30, 2008 was $6.8 million, a decline of
$4.4 million from par value of $11.2 million. The
decline in fair market value during the nine months ended
September 30, 2008 was $1.6 million. As of
June 30, 2008 and December 31, 2007, an amount of
$1.4 million and $0.8 million was deemed temporary.
During the six months ended June 30, 2008, the Company
recorded an unrealized loss on these securities of
$0.6 million in other comprehensive income (loss). Due to
the recent deterioration in market
15
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
conditions and the significant decline in the fair value of the
auction rate securities, the Company has now concluded that the
decline is other-than-temporary and recorded an impairment
charge of $2.4 million in other income (expense) for the
nine months ended September 30, 2008. Such amount includes
$0.8 million of unrealized losses that were included in
other comprehensive income (loss) as of December 31, 2007.
The funds invested in auction rate securities that have
experienced failed auctions will not be accessible until a
successful auction occurs, a buyer is found outside of the
auction process or the underlying securities reach maturity. As
a result, the Company has classified those securities with
failed auctions as long-term assets in the consolidated balance
sheets as of September 30, 2008 and December 31, 2007.
The Company continues to monitor the market for auction rate
securities and to consider the markets impact (if any) on
the fair market value of the Companys investments. If
current market conditions deteriorate further, or the
anticipated recovery in market values does not occur, the
Company may be required to record additional impairment charges
in the fourth quarter of 2008.
|
|
NOTE 7
|
STOCK-BASED
COMPENSATION
|
On April 8, 2008, the Company granted to employees
incentive stock options, under the Companys 2004 Incentive
Plan, to purchase 450,000 shares of common stock at an
exercise price of $45.78 per share, which amount represented the
fair market value of the Companys common stock on the date
of grant. Such options will expire seven years from the date of
grant and will 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. The
fair value of each option on the date of grant was $16.96 per
share.
The Company calculated the fair value of each option on the date
of grant using the Black-Scholes valuation model based on the
following assumptions:
|
|
|
|
|
Risk-free interest rates
|
|
|
2.7
|
%
|
Expected term (in years)
|
|
|
5.1
|
|
Dividend yield
|
|
|
0.37
|
%
|
Expected volatility
|
|
|
38.5
|
%
|
Forfeiture rate
|
|
|
13.0
|
%
|
On November 5, 2008, the Company granted options to
purchase 30,000 shares of common stock under the 2004
Incentive Plan (see Note 12).
|
|
NOTE 8
|
BUSINESS
SEGMENTS
|
The Company has two reporting segments: Electricity and Products
Segments. Such segments are managed and reported separately as
each offers different products and serves different markets. The
Electricity Segment is engaged in the sale of electricity from
the Companys power plants pursuant to PPAs. The Products
Segment is engaged in the manufacture, including design and
development, of turbines and power units for the supply of
electrical energy and in the associated construction of power
plants utilizing the power units manufactured by the Company to
supply energy from geothermal fields and other alternative
energy sources. Transfer prices between the operating segments
are determined based on current market values or cost plus
markup of the sellers business segment.
16
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized financial information concerning the Companys
reportable segments is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
Products
|
|
Consolidated
|
|
|
(Dollars in thousands)
|
|
Three Months Ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
68,837
|
|
|
$
|
30,889
|
|
|
$
|
99,726
|
|
Intersegment revenues
|
|
|
|
|
|
|
44,278
|
|
|
|
44,278
|
|
Operating income
|
|
|
16,914
|
|
|
|
2,212
|
|
|
|
19,126
|
|
Segment assets at period end*
|
|
|
1,506,883
|
|
|
|
72,551
|
|
|
|
1,579,434
|
|
Three Months Ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
61,406
|
|
|
$
|
18,061
|
|
|
$
|
79,467
|
|
Intersegment revenues
|
|
|
|
|
|
|
22,988
|
|
|
|
22,988
|
|
Operating income
|
|
|
20,398
|
|
|
|
594
|
|
|
|
20,992
|
|
Segment assets at period end*
|
|
|
1,089,168
|
|
|
|
98,815
|
|
|
|
1,187,983
|
|
Nine Months Ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
190,130
|
|
|
$
|
59,204
|
|
|
$
|
249,334
|
|
Intersegment revenues
|
|
|
|
|
|
|
77,619
|
|
|
|
77,619
|
|
Operating income
|
|
|
43,586
|
|
|
|
2,240
|
|
|
|
45,826
|
|
Segment assets at period end*
|
|
|
1,506,883
|
|
|
|
72,551
|
|
|
|
1,579,434
|
|
Nine Months Ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
160,424
|
|
|
$
|
64,842
|
|
|
$
|
225,266
|
|
Intersegment revenues
|
|
|
|
|
|
|
41,465
|
|
|
|
41,465
|
|
Operating income
|
|
|
33,013
|
|
|
|
108
|
|
|
|
33,121
|
|
Segment assets at period end*
|
|
|
1,089,168
|
|
|
|
98,815
|
|
|
|
1,187,983
|
|
|
|
|
* |
|
Segment assets of the Electricity Segment include unconsolidated
investments. |
Reconciling information between reportable segments and the
Companys consolidated totals is shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Operating income
|
|
$
|
19,126
|
|
|
$
|
20,992
|
|
|
$
|
45,826
|
|
|
$
|
33,121
|
|
Interest expense, net
|
|
|
(222
|
)
|
|
|
(5,813
|
)
|
|
|
(4,594
|
)
|
|
|
(17,629
|
)
|
Non-operating income (expense) and other, net
|
|
|
(3,094
|
)
|
|
|
151
|
|
|
|
(4,615
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated income before income taxes, minority interest
and equity in income of investees
|
|
$
|
15,810
|
|
|
$
|
15,330
|
|
|
$
|
36,617
|
|
|
$
|
15,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 26, 2008, the Companys Nicaraguan
subsidiary, Ormat Momotombo Power Company (OMPC),
received notice of an administrative order issued by the
Ministry of Natural Resources and Environment of Nicaragua
(MARENA) relating to alleged violations of
environmental regulations under Nicaraguan law in connection
with OMPCs operation of the Momotombo geothermal power
plant in that country. The order was issued following an
administrative hearing in the first instance at which OMPC was
17
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
found liable for the environmental and other infractions. OMPC
appealed the order to MARENA. OMPCs appeal was denied on
July 15, 2008, and OMPC was sanctioned with a nominal fine.
The order and denial of appeal by MARENA are subject to further
appeal in the Nicaraguan judicial courts. The Company disagrees
with the MARENA order finding OMPC liable for significant
environmental infractions and on August 6, 2008, the
Company pursued the judicial appeal process. On August 14,
2008, the Court of Appeal of the Judicial District of Managua
admitted the motion of appeal filed by OMPC against MARENA and
MARENAs administrative order. The Court of Appeal issued a
compulsory order of suspension of the legal effects of the
appealed administrative resolution and submitted the motion and
judicial records to the knowledge of the Constitutional Chamber
of the Supreme Court of Justice for its consideration and final
ruling on the merits of the case. In addition, this dispute is
subject to the dispute resolution provisions contained in the
Foreign Investment Contract entered into between OMPC and the
Nicaraguan government in June 1999. All penalties incurred by
OMPC as a result of these violations are stayed until OMPC has
exhausted the legal remedies available to it under Nicaraguan
law. If the administrative order is upheld at the end of these
review processes in a final non-appealable decision, OMPC may be
required to suspend indefinitely its operating activities
relating to the project and implement a plan of environmental
remediation. The net book value of the geothermal power plant as
of September 30, 2008 is $15.9 million.
The Company is a defendant in various legal and regulatory
proceedings in the ordinary course of business. It is the
opinion of the Companys management that the expected
outcome of these matters, individually or in the aggregate, will
not have a material effect on the results of operations and
financial condition of the Company.
On February 26, 2008, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.1 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on March 14, 2008. Such dividend was paid on
March 27, 2008.
On May 6, 2008, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.3 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on May 20, 2008. Such dividend was paid on
May 27, 2008.
On August 5, 2008, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.3 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on August 19, 2008. Such dividend was paid on
August 29, 2008.
The Companys effective tax rate for the three and nine
months ended September 30, 2008 was 20.2% and 21.5%,
respectively, which differs from the federal statutory rate of
35% primarily due to: (i) the benefit of production tax
credits for new power plants placed in service since 2005;
(ii) lower tax rates in Israel; and (iii) a tax credit
related to the Companys subsidiaries in Guatemala.
The liability for unrecognized tax benefits was $5,817,000 and
$5,330,000 at September 30 2008 and December 31, 2007,
respectively. Such amounts would impact the Companys
effective tax rate, if recognized.
|
|
NOTE 12
|
SUBSEQUENT
EVENTS
|
Shelf
registration statement
On September 17, 2008, the Company filed a universal shelf
registration statement on
Form S-3,
which was declared effective by the SEC on October 2, 2008.
The shelf registration statement replaces the Companys
former shelf registration statement, which would have expired on
January 31, 2009, and provides
18
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTE TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company with the opportunity to issue various types of
securities, including debt securities, common stock, warrants
and units of the Company, from time to time, in one or more
offerings up to a total dollar amount of $1.5 billion.
Pursuant to the shelf registration statement, the Company may
periodically offer one or more of the registered securities in
amounts, at prices, and on terms to be announced when, and if,
the securities are offered. At the time any offering is made
under the shelf registration statement, the offering specifics
will be set out in a prospectus supplement.
Cash
dividend
On November 5, 2008, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.3 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on November 19, 2008, payable on December 2,
2008.
Options
Grant
On November 5, 2008, the Company granted to four
non-employee directors non-qualified stock options, under the
2004 Incentive Plan, to purchase 30,000 shares of common
stock (7,500 shares each) at an exercise price which is
equal to the closing price of the Companys common stock on
November 6, 2008 (since the Company released its quarterly
results on November 5, 2008). Such options will expire
seven years from the date of grant and will vest on the first
anniversary of the date of grant.
19
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This quarterly report on
Form 10-Q
includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts,
included in this quarterly report that address activities,
events or developments that we expect or anticipate will or may
occur in the future, including such matters as our projections
of annual revenues, expenses and debt service coverage with
respect to our debt securities, future capital expenditures,
business strategy, competitive strengths, goals, development or
operation of generation assets, market and industry developments
and the growth of our business and operations, are
forward-looking statements. When used in this quarterly report
on
Form 10-Q,
the words may, will, could,
should, expects, plans,
anticipates, believes,
estimates, predicts,
projects, potential, or
contemplate or the negative of these terms or other
comparable terminology are intended to identify forward-looking
statements, although not all forward-looking statements contain
such words or expressions. The forward-looking statements in
this quarterly report are primarily located in the material set
forth under the headings Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Risk Factors, and Notes to Condensed
Consolidated Financial Statements, but are found in other
locations as well. These forward-looking statements generally
relate to our plans, objectives and expectations for future
operations and are based upon managements current
estimates and projections of future results or trends. Although
we believe that our plans and objectives reflected in or
suggested by these forward-looking statements are reasonable, we
may not achieve these plans or objectives. You should read this
quarterly report on
Form 10-Q
completely and with the understanding that actual future results
and developments may be materially different from what we expect
due to a number of risks and uncertainties, many of which are
beyond our control. We will not update forward-looking
statements even though our situation may change in the future.
Specific factors that might cause actual results to differ from
our expectations include, but are not limited to:
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|
|
|
|
significant considerations, risks and uncertainties discussed in
this quarterly report;
|
|
|
|
operating risks, including equipment failures and the amounts
and timing of revenues and expenses;
|
|
|
|
geothermal resource risk (such as the heat content of the
reservoir, useful life and geological formation);
|
|
|
|
environmental constraints on operations and environmental
liabilities arising out of past or present operations, including
the risk that we may not have, and in the future may be unable
to procure, any necessary permits or other environmental
authorization;
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|
|
|
construction or other project delays or cancellations;
|
|
|
|
financial market conditions and the results of financing efforts;
|
|
|
|
political, legal, regulatory, governmental, administrative and
economic conditions and developments in the United States and
other countries in which we operate;
|
|
|
|
the enforceability of the long-term power purchase agreements
for our projects;
|
|
|
|
contract counterparty risk;
|
|
|
|
weather and other natural phenomena;
|
|
|
|
the impact of recent and future federal and state regulatory
proceedings and changes, including legislative and regulatory
initiatives regarding deregulation and restructuring of the
electric utility industry and incentives for the production of
renewable energy in the United States and elsewhere;
|
|
|
|
changes in environmental and other laws and regulations to which
our company is subject, as well as changes in the application of
existing laws and regulations;
|
|
|
|
current and future litigation;
|
20
|
|
|
|
|
our ability to successfully identify, integrate and complete
acquisitions;
|
|
|
|
competition from other similar geothermal energy projects,
including any such new geothermal energy projects developed in
the future, and from alternative electricity producing
technologies;
|
|
|
|
the effect of and changes in economic conditions in the areas in
which we operate;
|
|
|
|
market or business conditions and fluctuations in demand for
energy or capacity in the markets in which we operate;
|
|
|
|
the direct or indirect impact on our companys business
resulting from terrorist incidents or responses to such
incidents, including the effect on the availability of and
premiums on insurance;
|
|
|
|
the effect of and changes in current and future land use and
zoning regulations, residential, commercial and industrial
development and urbanization in the areas in which we operate;
|
|
|
|
the risk factors set forth in our annual report on
Form 10-K
for the year ended December 31, 2007 and any updates
contained herein which may have a significant impact on our
business, operating results or financial condition;
|
|
|
|
other uncertainties which are difficult to predict or beyond our
control and the risk that we incorrectly analyze these risks and
forces or that the strategies we develop to address them could
be unsuccessful; and
|
|
|
|
other risks and uncertainties detailed from time to time in our
filings with the Securities and Exchange Commission (SEC).
|
Investors are cautioned that these forward-looking statements
are inherently uncertain. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially
from those described herein. We undertake no obligation to
update forward-looking statements even though our situation may
change in the future. Given these risks and uncertainties,
readers are cautioned not to place undue reliance on such
forward-looking statements.
The following discussion and analysis of our financial condition
and results of operations should be read together with our
condensed consolidated financial statements and related notes
included elsewhere in this report and the Risk
Factors section of our annual report on
Form 10-K
for the year ended December 31, 2007 and any updates
contained herein as well as those set forth in our reports and
other filings made with the SEC.
General
Overview
We are a leading vertically integrated company engaged in the
geothermal and recovered energy power business. We design,
develop, build, own and operate clean, environmentally friendly
geothermal and recovered energy-based power plants using
equipment that we design and manufacture.
Our geothermal power plants include both power plants that we
have built and power plants that we have acquired, while all of
our recovered energy-based plants have been constructed by us.
We conduct our business activities in two business segments,
which we refer to as our Electricity Segment and Products
Segment. In our Electricity Segment, we develop, build, own and
operate geothermal and recovered energy-based power plants in
the United States and geothermal power plants in other countries
around the world and sell the electricity they generate. In our
Products Segment, we design, manufacture and sell equipment for
geothermal and recovered energy-based electricity generation,
remote power units and other power generating units and provide
services relating to the engineering, procurement, construction,
operation and maintenance of geothermal and recovered energy
power plants. Both our Electricity Segment and Products Segment
operations are conducted in the United States and throughout the
world. We currently own or control, as well as operate,
geothermal projects in the United States, Guatemala, Kenya
Nicaragua and New Zealand, as well as recovered energy
generation (REG) plants in the United States. During the nine
months ended September 30, 2008 and 2007, our
U.S. power plants generated 1,620,596 MWh and
1,461,153 MWh, respectively.
21
For the nine months ended September 30, 2008, our
Electricity Segment represented approximately 76.3% of our total
revenues, while our Products Segment represented approximately
23.7% of our total revenues during such period.
During the nine months ended September 30, 2008, our total
revenues increased by 10.7% (from $225.3 million to
$249.3 million) over the same period last year. Revenues
from the Electricity Segment increased by 18.5%, while revenues
from the Products Segment decreased by 8.7%.
For the nine months ended September 30, 2008, total
Electricity Segment revenues from the sale of electricity by our
consolidated power plants were $190.1 million. In addition,
revenues from our 50% ownership of the Mammoth project for the
nine months ended September 30, 2008 were
$7.3 million. This additional data is a Non-Generally
Accepted Accounting Principles (Non-GAAP) financial measure, as
defined by the SEC. There is no comparable GAAP measure.
Management believes that such Non-GAAP data is useful to the
readers as it provides a more complete view of the scope of
activities of the power plants that we operate. Our investment
in the Mammoth project is accounted for in our consolidated
financial statements under the equity method and the revenues
are not included in our consolidated revenues for the nine
months ended September 30, 2008.
During the nine months ended September 30, 2008, revenues
attributable to our Products Segment were $59.2 million, as
compared to $64.8 million during the nine months ended
September 30, 2007.
From the beginning of the year, we received purchase orders for
the supply and construction of geothermal and REG plants in a
total amount of $179 million. Of this amount, approximately
$19 million is subject to a notice to proceed, which we
expect to receive in the near future.
REG continues to present opportunities for us in the United
States and throughout the world. During the nine months ended
September 30, 2008, we recognized revenues in our Products
Segment of approximately $11.1 million from REG compared to
$28.4 million during the nine months ended
September 30, 2007.
Revenues from our Electricity Segment are relatively
predictable, as they are derived from sales of electricity
generated by our power plants pursuant to long-term power
purchase agreements. The price for electricity under all but one
of our power purchase agreements is effectively a fixed price at
least through May 2012. The power purchase agreement of the
Puna project has a variable energy rate based on the local
utilitys short run avoided costs, which are the
incremental costs that the power purchaser avoids by not having
to generate such electrical energy itself or purchase it from
others. In the nine months ended September 30, 2008, 78.6%
of our electricity revenues were derived from contracts with
fixed energy rates, and therefore most of our electricity
revenues were not affected by the fluctuations in energy
commodity prices. However, electricity revenues are subject to
seasonal variations and can be affected by higher-than-average
ambient temperatures, as described below under the heading
Seasonality. Revenues attributable to our Products
Segment are based on the sale of equipment and the provision of
various services to our customers. These revenues may vary from
period to period because of the timing of our receipt of
purchase orders and the progress of our execution of each
project.
Our management assesses the performance of our two segments of
operation differently. In the case of our Electricity Segment,
when making decisions about potential acquisitions or the
development of new projects, we typically focus on the internal
rate of return of the relevant investment, relevant technical
and geological matters and other relevant business
considerations. We evaluate our operating projects based on
revenues and expenses, and our projects that are under
development based on costs attributable to each such project. By
contrast, we evaluate the performance of our Products Segment
based on the timely delivery of our products, performance
quality of our products and costs actually incurred to complete
customer orders as compared to the costs originally budgeted for
such orders.
Recent
Developments
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|
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|
|
On October 29, 2008, our subsidiary, Ormat Funding Corp.
(OFC), successfully consummated a consent solicitation, which
was launched on October 16, 2008, relating to OFCs
8.25% Senior Secured Notes due 2020. The consent
solicitation grants OFC approval: (i) to replace an aging
power plant at the
|
22
|
|
|
|
|
Mammoth project with a new larger plant,
and/or to
construct a new plant while maintaining the existing power
plants at the Mammoth project; (ii) for possible
construction and installation of solar power generation
equipment to enhance the Brady and Ormesa projects; and
(iii) to enter into an equity transaction whereby
OFCs parent, Ormat Nevada Inc. (Ormat Nevada), will sell a
portion of its equity interest in OFC to an institutional
investor that is able to utilize certain income tax benefits.
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|
In October 2008, together with the U.S. Department of
Energy, we started the testing phase of a geothermal power
project at a producing oil well. The project, which was
conducted at the Oil Test Center near Caspar, WY uses Ormat
Organic Rankine Cycle (ORC) power generation system and provides
fuel-free power that is intended to increase productivity and
extend the longevity of oil wells. We are now assessing the
feasibility of utilizing these wells to support on site
generation by employing Ormats factory integrated
sub-megawatt geothermal power units, based on our proprietary
ORC technology.
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|
In the third quarter of 2008, we completed the construction of
an 8.3MW power plant located in Kawerau, New Zealand. We have a
49% ownership interest in the project and we have an option to
acquire the remaining 51% at a nominal value. We intend to
exercise this option before the end of 2008.
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|
In the third quarter of 2008, we received from ENAGAS, S.A. of
Madrid, Spain, a notice to proceed with the construction of one
OEC unit for a REG plant specially designed to use the residual
energy from the vaporization process at a liquefied natural gas
regasification terminal located in Huelva, Spain.
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|
In October 2008, we successfully completed the Steamboat 2/3
upgrade project. The upgrade included the replacement of the
four Rotoflow turbines originally installed at these plants with
direct drive gearless 11 MW axial turbines, each designed
and manufactured by us specifically for geothermal use. With the
completion of this project and the installation of field-proven
turbines, we believe that there will be significant improvement
in both the performance and availability of these two plants,
which have been experiencing high maintenance costs and low run
time of the replaced turbines.
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|
On September 17, 2008, we filed a universal shelf
registration statement on
Form S-3,
which was declared effective by the SEC on October 2, 2008.
The shelf registration statement replaces our former shelf
registration statement, which would have expired in January
2009, and provides us with the opportunity to issue various
types of securities, including debt securities, common stock,
warrants and units of our company, from time to time for a
period of three years, in one or more offerings up to a total
dollar amount of $1.5 billion. Pursuant to the shelf
registration statement, we may periodically offer one or more of
the registered securities in amounts, at prices, and on terms to
be announced when, and if, the securities are offered. At the
time any offering is made under the shelf registration
statement, the offering specifics will be set out in a
prospectus supplement.
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|
In September 2008, we secured geothermal rights for
approximately 35,000 acres of land to explore geothermal
resources in the vicinity of Anchorage, Alaskas largest
city. We won 15 of the 16 tracts offered for lease on Mount
Spurr, a snowcapped 11,070-foot volcano, 75 miles west of
Anchorage.
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|
In July 2008, we secured three new lease agreements covering
approximately 20,000 acres of federal land in Nevada and
California.
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|
In July 2008, the Public Utilities Commission of Nevada (PUCN)
approved a Joint Ownership Agreement (JOA) with Nevada Power
Company, a subsidiary of Sierra Pacific Resources, and an
amendment to the existing power purchase agreement. The JOA was
signed in March 2008 for the Carson Lake geothermal project
located in Churchill County, Nevada, that is currently under
development by us. We will develop the project on our own until
the resource is sufficiently defined at a level that is capable
of supporting at least 30 MW and Nevada Power Company has
received regulatory approval to acquire its 50 percent
ownership interest. Following Nevada Power Companys
acquisition of its 50 percent interest, we will continue to
develop the project on behalf of the owners. If the development
results in a resource that cannot support at least 30 MW,
the parties are not obligated to close the acquisition and we
may continue to develop the project by ourselves. Under the JOA
each
|
23
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|
party will own a 50 percent undivided interest in the
project as
tenants-in-common.
To acquire its project interest, Nevada Power Company will pay
50 percent of the costs expended to the closing date of the
acquisition plus a fee. Drilling, construction, and operating
and maintenance (O&M) costs going forward will be governed
by the JOA and separate Drilling Services, EPC and O&M
agreements.
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In July 2008, PT Perusahaan Listrik Negara, the state owned
Indonesian power company, accepted the entry of Kyushu Electric
to the Sarulla consortium, which currently is comprised of a
wholly owned subsidiary of ours, a subsidiary of Medco Energi
Internasional Tbk, Itochu Corporation of Japan and Kyushu
Electric. The entry of Kyushu Electric reduced our ownership
interest in the consortium to 12.75%.
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In June 2008, two of our subsidiaries entered into an
Engineering, Procurement and Construction (EPC) contract with
Contact Energy Ltd. of New Zealand for the construction of the
Centennial Binary Plant, a new geothermal plant to be
constructed in the Tauhara Geothermal field in New Zealand. The
contracts value is approximately $42.0 million and
construction of the power plant is expected to be completed
within 23 months from the contract date. Contact Energy
Ltd. is New Zealands largest geothermal power plant owner
and operator, as well as the countrys largest wholesaler
and retailer of natural gas and liquid petroleum gas.
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In June 2008, we entered into a supply contract with
MEGE Menderes Geothermal Elektrik Uretim, A.S. for
the supply of equipment for a new geothermal power plant to be
constructed in Turkey. The contracts value is
approximately $16.0 million and delivery is expected to be
completed within 16 months from the contract date.
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On May 14, 2008, we completed a sale of
3,100,000 shares of common stock to Lehman Brothers Inc. in
a block trade at a price of $48.36 per share (net of
underwriting fees and commissions), under our shelf registration
statement filed in early 2006. Net proceeds to us, after
deducting underwriting fees and commissions and estimated
offering expenses associated with the offering, were
approximately $149.7 million.
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In April 2008, we entered into an EPC contract with
Montana-Dakota Utilities Co. for a 5.3 MW REG power plant
to be located on the Northern Border Pipeline compressor station
in Morton County, North Dakota. Subject to regulatory
approvals, the project is scheduled to be completed in the
fourth quarter of 2009.
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In April 2008, we commenced commercial operation of the Heber
South geothermal project located in the Imperial Valley,
California.
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In April 2008, our wholly owned subsidiary, Ormat Nevada,
concluded the second closing under a 2007 transaction to
monetize production tax credits and other favorable tax
attributes, such as accelerated depreciation, generated from
certain of its geothermal power projects. The first closing of
the transaction occurred on June 7, 2007. Pursuant to the
transaction, affiliates of Morgan Stanley & Co.
Incorporated and Lehman Brothers Inc. (which has since been
acquired by Barclays) became institutional equity investors in a
newly formed subsidiary of Ormat Nevada, OPC LLC (OPC). Under
this second closing, Ormat Nevada transferred the Galena 3
geothermal project to OPC, and received from the institutional
equity investors $63.0 million, net of transaction costs.
As operator of all of the projects in the OPC portfolio, Ormat
Nevada will continue to operate and maintain the Galena 3
project.
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In March 2008, we signed a new
20-year
power purchase agreement with Great River Energy, a Minnesota
Cooperative Corporation of Elk River, Minnesota, for the sale of
electricity generated from a 5.3 MW Ormat REG facility to
be constructed at a compressor station along the Northern Border
natural gas pipeline. The new facility will convert the
recovered waste heat from the exhaust of an existing gas turbine
into electricity. We have already secured the rights to the
waste heat for the new facility. We expect the plant to be
commissioned in 2009 or early 2010.
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24
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In March 2008, we entered into an EPC contract with Nevada
Geothermal Power (NGP) for the supply and construction of a
49.5 MW power plant, consisting of three Ormat Energy
Converters units, which are guaranteed to produce 16.5 MW
(gross) each, at NGPs Blue Mountain geothermal project in
Nevada. The total EPC contract value is $76 million and the
project is scheduled to be completed in the fourth quarter of
2009.
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In March 2008, we entered into an EPC contract with Nevada Power
Company for a 6 MW REG power plant in the Goodsprings area,
approximately 35 miles south of Las Vegas, Nevada. The
project is subject to a notice to proceed and is scheduled to be
completed in 2010.
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In March 2008, the California Public Utilities Commission
approved a new
20-year
power purchase agreement that we entered into in June 2007 with
Southern California Edison Company (Southern California
Edison) for the sale of 50 MW of energy to be produced from
the North Brawley project, which we are currently constructing
in Imperial County, California. The power purchase agreement
includes an option to increase the capacity of the plant and the
amount of energy to be sold up to 100 MW at our discretion.
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In March 2008, the PUCN approved the agreement we reached in May
2007 with Sierra Pacific Power Company and Nevada Power Company,
the purchasers of electricity generated by our existing and
planned geothermal power projects in Nevada, regarding certain
amendments to the power purchase agreements for a number of our
existing geothermal projects in operation and some of our
geothermal projects under development and construction. These
amendments (i) provided for a mechanism to share production
tax credits with the relevant purchaser pursuant to a reduction
in the price for electricity paid by the power purchaser under
the relevant power purchase agreement, bringing additional power
purchase agreements in line with the production tax credit
sharing arrangements included in other power purchase agreements
with these purchasers in Nevada, (ii) revised certain
generation thresholds based on a more definitive understanding
of the geothermal resource at the respective projects, and
(iii) addressed certain delays in meeting contract
milestones as a result of ordinary course project construction
delays.
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In February 2008, we commenced commercial operation of the
Galena 3 project at the Steamboat complex in Nevada.
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On January 8, 2008, we completed an unregistered sale of
693,750 shares of common stock to our parent, Ormat
Industries Ltd., at a price of $48.02 per share, or
approximately $33.3 million in the aggregate. The proceeds
of that sale are being used for general corporate purposes,
including construction of geothermal and recovered energy
generation power plants and other investments, and the financing
of possible acquisitions.
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Trends
and Uncertainties
The geothermal industry in the United States has historically
experienced significant growth followed by a consolidation of
owners and operators of geothermal power plants. During the
1990s, growth and development in the geothermal industry
occurred primarily in foreign markets and only minimal growth
and development occurred in the United States. Since 2001, there
has been increased demand for energy generated from geothermal
resources in the United States as production costs for
electricity generated from geothermal resources have become more
competitive relative to fossil fuel generation. This is partly
due to increasing natural gas and oil prices and newly enacted
legislative and regulatory incentives, such as state renewable
portfolio standards. We see the increasing demand for energy
generated from geothermal and other renewable resources in the
United States and the further introduction of renewable
portfolio standards as the most significant trends affecting our
industry today and in the immediate future. Our operations and
the trends that from time to time impact our operations are
subject to market cycles.
25
Although other trends, factors and uncertainties may impact our
operations and financial condition, including many that we do
not or cannot foresee, we believe that our results of operations
and financial condition for the foreseeable future will be
affected by the following trends, factors and uncertainties:
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The recent worldwide financial and credit crisis has reduced the
availability of liquidity and credit to fund the continuation
and expansion of industrial business operations worldwide. We
have sufficient financial resources to fund our projected
activities for 2009 and therefore, we did not change our current
investment plans. If economic conditions worsen, the cost of
obtaining financing for our project needs may increase
significantly or such financing may not be available at all. See
further discussion under Exposure to Market Risks.
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Our primary focus continues to be the implementation of our
organic growth through the construction of new projects and
enhancements of several of our existing projects. We expect that
this investment in organic growth will increase our total
generating capacity, consolidated revenues and operating income
attributable to our Electricity Segment year over year. We are
also looking at acquisition opportunities that may arise as a
result of the current financial crisis.
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Until the end of the third quarter we experienced increases in
the cost of raw materials, labor and transportation costs
required for our equipment manufacturing activities and
equipment used in our power plants, as well as for sale to third
parties. We also experienced an increase in drilling costs and a
shortage in drilling equipment. We believe this was the result
of the increased drilling activity in the marketplace in a high
oil price environment. The recent decrease in the price of oil
and other commodities may reduce such costs in the future.
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In the United States, we expect to continue to benefit from the
increasing demand for renewable energy. Thirty-three states and
the District of Columbia, including California, Nevada and
Hawaii (where we have been most active in geothermal development
and where all of our U.S. geothermal projects are located)
have adopted renewable portfolio standards, renewable portfolio
goals or other similar laws. These laws require that an
increasing percentage of the electricity supplied by electric
utility companies operating in such states be derived from
renewable energy resources until certain pre-established goals
are met. We expect that the additional demand for renewable
energy from utilities in such states will outpace a possible
reduction in general demand for energy due to the potential
economic slow down and will continue to create opportunities for
us to expand existing projects and build new power plants.
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We expect that the increased awareness of climate change may
result in significant changes in the business and regulatory
environments, which may create business opportunities for us
going forward. For example, several federal and state climate
change proposals are being considered or were recently passed,
such as the Lieberman-Warner Climate Security Act (S. 2191),
which was approved by the United States Senate Environment and
Public Works Committee on December 5, 2007 and placed on
Senate Legislative Calendar under General Orders. Calendar
No. 740, and the California Global Warming Solutions Act of
2006 (the Act), which was signed into law in September 2006. The
Act regulates most sources of greenhouse gas emissions and aims
to reduce greenhouse gas emissions to 1990 levels by 2020,
representing an approximately thirty-percent reduction in
greenhouse gas emissions. Measures for implementing the Act will
be in place by 2012. Californias long-term climate change
goals are reflected in Executive Order
S-3-05,
which requires an 80% reduction of greenhouse gases from 1990
levels by 2050. In addition to California, eighteen other states
have set greenhouse gas emissions targets (Arizona, Connecticut,
Florida, Hawaii, Illinois, Massachusetts, Maine, Minnesota, New
Hampshire, New Jersey, New Mexico, New York, Oregon, Rhode
Island, Utah, Vermont, Virginia and Washington). Regional
initiatives, such as the Western Climate Initiative (which
includes seven U.S. states and four Canadian provinces),
the Regional Greenhouse Gas Initiative, and the Midwest
Greenhouse Gas Reduction Accord, are also being developed to
reduce greenhouse gas emissions and develop trading systems for
renewable energy credits. It is expected that regulation for
carbon trading will be in place in 2009. Although it is
currently difficult to quantify the direct economic benefit of
these efforts to reduce greenhouse gas emissions, we believe
they will prove advantageous to us.
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26
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Outside of the United States, we expect that a variety of
governmental initiatives, will create new opportunities for the
development of new projects, as well as create additional
markets for our products. These initiatives include the award of
long-term contracts to independent power generators, the
creation of competitive wholesale markets for selling and
trading energy, capacity and related energy products and the
adoption of programs designed to encourage clean
renewable and sustainable energy sources.
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We expect to continue to generate the majority of our revenues
from our Electricity Segment through the sale of electricity
from our power plants. All of our current revenues from the sale
of electricity are derived from fully-contracted payments under
long-term power purchase agreements. We also intend to continue
to pursue growth in our recovered energy business.
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We expect competition from the wind and solar power generation
industry to continue. While the current demand for renewable
energy is large enough that this increased competition has not
impacted our ability to obtain new power purchase agreements, it
may contribute to a reduction in electricity prices. Despite
increased competition from the wind and solar power generation
industry, we believe that baseload electricity, such as
geothermal-based energy, will emerge as the preferred source of
renewable energy.
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We expect increased competition from new entrants to the
geothermal industry, both in the power generation space and in
the lease of geothermal resources. While the current demand for
renewable energy is large enough that increased competition has
not impacted our ability to obtain new power purchase agreements
and new leases, increased competition in the power generation
space may contribute to a reduction in electricity prices, and
increased competition in geothermal leasing may contribute to an
increase in lease costs.
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The viability of our geothermal power plants depends on various
factors such as the heat content of the geothermal reservoir,
useful life of the reservoir (the term during which such
geothermal reservoir has sufficient extractable fluids for our
operations) and operational factors relating to the extraction
of the geothermal fluids. Our geothermal power plants may
experience an unexpected decline in the capacity of their
respective geothermal wells. Such factors, together with the
possibility that we may fail to find commercially viable
geothermal resources in the future, represent significant
uncertainties we face in connection with our operations.
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As our power plants age, they may require increased maintenance
with a resulting decrease in their availability.
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Our foreign operations are subject to significant political,
economic and financial risks, which vary by country. These risks
include the partial privatization of the electricity sector in
Guatemala, labor unrest in Nicaragua and the political
uncertainty currently prevailing in some of the countries in
which we operate. Although we maintain political risk insurance
to mitigate these risks, insurance does not provide complete
coverage with respect to all such risks.
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The United States extended a tax subsidy and increased the
amount of the tax subsidy for companies that use geothermal
steam or fluid to generate electricity as part of the Energy
Policy Act of 2005 that became law on August 8, 2005. In
October 2008, the United States extended the tax subsidy by an
additional two years. The tax subsidy is a production tax
credit, which in 2008 is 2.1 cents per kWh and is adjusted
annually for inflation. The production tax credit may be claimed
for ten years on the electricity output of new geothermal power
plants put into service by December 31, 2010.
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The Energy Policy Act of 2005 authorizes the Federal Energy
Regulatory Commission (FERC) to revise the Public Utility
Regulatory Policies Act (PURPA) so as to terminate the
obligation of electric utilities to purchase the output of a
Qualifying Facility if FERC finds that there is an accessible
competitive market for energy and capacity from the Qualifying
Facility. The legislation does not affect existing power
purchase agreements. We do not expect this change in law to
affect our U.S. projects significantly, as all except one
of our current contracts (our Steamboat 1 project, which sells
its electricity to Sierra Pacific Power Company on a
year-by-year
basis) are long-term. FERC issued a final rule that makes it
easier to eliminate the utilities purchase obligation in
four regions of the
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27
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country. None of those regions includes a state in which our
current projects operate. However, FERC has the authority under
the Energy Policy Act of 2005 to act, on a
case-by-case
basis, to eliminate the mandatory purchase obligation in other
regions. If the utilities in the regions in which our domestic
projects operate were to be relieved of the mandatory purchase
obligation, they would not be required to purchase energy from
us upon termination of their respective existing power purchase
agreements, which could have an adverse effect on our revenues.
|
Revenues
We generate our revenues from the sale of electricity from our
geothermal and recovered energy-based power plants; the design,
manufacturing and sale of equipment for electricity generation;
and the construction, installation and engineering of power
plant equipment.
Revenues attributable to our Electricity Segment are relatively
predictable as they are derived from the sale of electricity
from our power plants pursuant to long-term power purchase
agreements. However, such revenues are subject to seasonal
variations, as more fully described below in the section
entitled Seasonality. Electricity Segment revenues
may also be affected by higher-than-average ambient
temperatures, which could cause a decrease in the generating
capacity of our power plants, and by unplanned major maintenance
activities related to our power plants.
Our power purchase agreements generally provide for the payment
of energy payments, or energy and capacity payments. Generally,
capacity payments are payments calculated based on the amount of
time that our power plants are available to generate
electricity. Some of our power purchase agreements provide for
bonus payments in the event that we are able to exceed certain
target levels and the potential forfeiture of payments if we
fail to meet minimum target levels. Energy payments, on the
other hand, are payments calculated based on the amount of
electrical energy delivered to the relevant power purchaser at a
designated delivery point. The rates applicable to such payments
are either fixed (subject, in certain cases, to certain
adjustments) or are based on the relevant power purchasers
short run avoided costs (the incremental costs that the power
purchaser avoids by not having to generate such electrical
energy itself or purchase it from others). Our more recent power
purchase agreements provide generally for energy payments alone
with an obligation to compensate the off-taker for its
incremental costs as a result of shortfalls in our supply.
The lease income related to the Puna lease transactions, which
are accounted for as operating leases, is included as a separate
line item in our Electricity Segment revenues (See
Liquidity and Capital Resources). For management
purposes, we analyze such revenue on a combined basis with other
revenues in our Electricity Segment.
As required by Emerging Issues Task Force (EITF) Issue
No. 01-8,
Determining Whether an Arrangement Contains a Lease, we
have assessed all of our power purchase agreements agreed to,
modified or acquired in business combinations on or after
July 1, 2003, and concluded that all such agreements
contain a lease element requiring lease accounting. Accordingly,
revenue related to the lease element of the agreements is
presented as lease portion of energy and capacity
revenue, with the remaining revenue related to the production
and delivery of the energy presented as energy and
capacity revenue in our consolidated financial statements.
As the lease revenue and the energy and capacity revenues are
derived from the same arrangement and both fall within our
Electricity Segment, we analyze such revenues, and related
costs, on a combined basis for management purposes.
Revenues attributable to our Products Segment are generally less
predictable than revenues from our Electricity Segment. This is
because larger customer orders for our products are typically a
result of our participating in, and winning, tenders issued by
potential customers in connection with projects they are
developing. Such projects often take a long time to design and
develop and are often subject to various contingencies such as
the customers ability to raise the necessary financing for
a project. As a result, we are generally unable to predict the
timing of such orders for our products and may not be able to
replace existing orders that we have completed with new ones. As
a result, our revenues from our Products Segment fluctuate (and
at times, extensively) from period to period.
28
The following table sets forth a breakdown of our revenues for
the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
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Revenues in Thousands
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|
|
% of Revenues for Period Indicated
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|
|
|
Three Months
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|
Nine Months
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|
Three Months
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|
Nine Months
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|
|
|
Ended
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|
|
Ended
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|
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Ended
|
|
|
Ended
|
|
|
|
September 30,
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|
September 30,
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|
September 30,
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|
|
September 30,
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|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
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|
|
2008
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|
|
2007
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|
|
Revenues
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
|
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|
|
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Electricity Segment
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$
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68,837
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$
|
61,406
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|
$
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190,130
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|
$
|
160,424
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|
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69.0
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%
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|
|
77.3
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%
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|
|
76.3
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%
|
|
|
71.2
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%
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Products Segment
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30,889
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18,061
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59,204
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|
64,842
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|
|
|
31.0
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|
|
|
22.7
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|
|
23.7
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|
|
28.8
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|
|
|
|
|
|
|
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|
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Total
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$
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99,726
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|
|
$
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79,467
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|
|
$
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249,334
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|
|
$
|
225,266
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
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Geographical
Breakdown of Revenues
For the three months ended September 30, 2008, 83.1% of our
revenues attributable to our Electricity Segment were generated
in the United States, as compared to 87.6% for the same period
in 2007. For the nine months ended September 30, 2008,
82.0% of our revenues attributable to our Electricity Segment
were generated in the United States, as compared to 83.5% for
the same period in 2007.
The following table sets forth the geographic breakdown of the
revenues attributable to our Electricity Segment for the periods
indicated:
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|
|
|
|
|
|
|
|
|
|
|
Revenues in Thousands
|
|
|
% of Revenues for Period Indicated
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|
|
|
Three Months
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|
|
Nine Months
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|
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Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
United States
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|
$
|
57,195
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|
|
$
|
53,814
|
|
|
$
|
155,958
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|
|
$
|
133,968
|
|
|
|
83.1
|
%
|
|
|
87.6
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%
|
|
|
82.0
|
%
|
|
|
83.5
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%
|
Foreign
|
|
|
11,642
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|
|
|
7,592
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|
|
|
34,172
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|
|
|
26,456
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|
|
|
16.9
|
|
|
|
12.4
|
|
|
|
18.0
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|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
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|
$
|
68,837
|
|
|
$
|
61,406
|
|
|
$
|
190,130
|
|
|
$
|
160,424
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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For the three months ended September 30, 2008, 51.9% of our
revenues attributable to our Products Segment were generated in
the United States, as compared to 22.6% for the same period in
2007. For the nine months ended September 30, 2008, 39.7%
of our revenues attributable to our Products Segment were
generated in the United States, as compared to 31.8% for the
same period in 2007.
Seasonality
The prices paid for the electricity generated by our domestic
projects pursuant to our power purchase agreements are subject
to seasonal variations. The prices paid for electricity under
the power purchase agreements with Southern California Edison,
the Heber 1 and 2 projects, the Mammoth project and the Ormesa
project and the prices that will be paid for the electricity
under the power purchase agreement for the North Brawley project
are higher in the months of June through September. As a result,
we receive and will receive in the future higher revenues during
such months. The prices paid for electricity pursuant to the
power purchase agreements of our projects in Nevada have no
significant changes during the year. In the winter, due
principally to the lower ambient temperature, our power plants
produce more energy and as a result we receive higher energy
revenues. However, the higher capacity payments payable by
Southern California Edison in California in the summer months
have a more significant impact on our revenues than that of the
higher energy revenues generally generated in winter due to
increased efficiency. As a result, our revenues are generally
higher in the summer than in the winter. The prices paid for
electricity pursuant to the power purchase agreement of the Puna
project are tied to the price of oil. Accordingly, our revenues
for that project, which accounted for approximately 17.6% of our
total revenues for the nine months ended September 30,
2008, may be volatile.
29
Breakdown
of Cost of Revenues
Electricity
Segment
The principal cost of revenues attributable to our operating
projects include operation and maintenance expenses such as
depreciation and amortization, salaries and related employee
benefits, equipment expenses, costs of parts and chemicals,
costs related to third-party services, lease expenses,
royalties, startup and auxiliary electricity purchases, property
taxes and insurance and, for the California projects,
transmission charges, scheduling charges and purchases of sweet
water for use in our plant cooling towers. Some of these
expenses, such as parts, third-party services and major
maintenance, are not incurred on a regular basis. This results
in fluctuations in our expenses and our results of operations
for individual projects from quarter to quarter. The lease
expense related to the Puna lease transactions is included as a
separate line item in our Electricity Segment cost of revenues
(See Liquidity and Capital Resources). For
management purposes we analyze such costs on a combined basis
with other cost of revenues in our Electricity Segment.
Payments made to government agencies and private entities on
account of site leases where plants are located are included in
cost of revenues. Royalty payments, included in cost of
revenues, are made as compensation for the right to use certain
geothermal resources and are paid as a percentage of the
revenues derived from the associated geothermal rights. For the
nine months ended September 30, 2008, royalties constituted
approximately 5.3% of the Electricity Segment revenues, compared
to approximately 4.4% for the same period in 2007.
Products
Segment
The principal expenses attributable to our Products Segment
include materials, salaries and related employee benefits,
expenses related to subcontracting activities, transportation
expenses, and sales commissions to sales representatives. Some
of the principal expenses attributable to our Products Segment,
such as a portion of the costs related to labor, utilities and
other support services are fixed, while others, such as
materials, construction, transportation and sales commissions,
are variable and may fluctuate significantly, depending on
market conditions. As a result, the cost of revenues
attributable to our Products Segment, expressed as a percentage
of total revenues, fluctuates. Another reason for such
fluctuation is that in responding to bids for our products, we
price our products and services in relation to existing
competition and other prevailing market conditions, which may
vary substantially from order to order.
Cash,
Cash Equivalents and Marketable Securities
Our cash, cash equivalents and marketable securities as of
September 30, 2008 decreased to $38.1 million from
$60.7 million as of December 31, 2007. This decrease
is principally due to our use during the first nine months of
2008 of $298.6 million of cash resources to fund capital
expenditures and $35.2 million to repay long-term debt to
our parent and to third parties. The decrease in our cash
resources was partially offset by the $149.7 million of net
proceeds from our sale of 3,100,000 shares of common stock
to Lehman Brothers in a block trade in May 2008 at a price of
$48.36 per share (net of underwriters fees and commissions), the
$33.3 million net proceeds from our unregistered sale of
693,750 shares to our parent at a price of $48.02 per share
on January 8, 2008, the $63.0 million net proceeds
from the second closing of the OPC tax monetization transaction,
and the $89.9 million derived from operating activities in
the first nine months of 2008. In addition, we have
$2.8 million of marketable securities as of
September 30, 2008 and December 31, 2007 classified as
non-current assets. This classification is due to failed
auctions in the fourth quarter of 2007 and prior quarters of
2008 of certain auction rate securities in our portfolio, as
described below in the section entitled Exposure to Market
Risks. Our corporate borrowing capacity has increased to
$310 million under committed lines of credit with different
commercial banks, as described below in the section entitled
Liquidity and Capital Resources.
30
Critical
Accounting Policies
A comprehensive discussion of our critical accounting policies
is included in the Managements Discussion and
Analysis of Financial Condition and Results of Operations
section in our annual report on
Form 10-K
for the year ended December 31, 2007.
New
Accounting Pronouncements
See Note 2 to our condensed consolidated financial
statements set forth in Item 1 of this quarterly report for
information regarding new accounting pronouncements.
31
Results
of Operations
Our historical operating results in dollars and as a percentage
of total revenues are presented below. A comparison of the
different periods described below may be of limited utility as a
result of each of the following: (i) our recent
construction of new projects and enhancement of acquired
projects; (ii) fluctuation in revenues from our Products
Segment; and (iii) an accumulation of operational issues in
the first quarter of 2007 that resulted in both reduced revenues
and increased costs for such quarter.
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Three Months
|
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|
Nine Months
|
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|
|
Ended
|
|
|
Ended
|
|
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|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
(In thousands, except
|
|
|
|
|
|
|
per share data)
|
|
|
Statements of Operations Historical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
$
|
68,837
|
|
|
$
|
61,406
|
|
|
$
|
190,130
|
|
|
$
|
160,424
|
|
Products Segment
|
|
|
30,889
|
|
|
|
18,061
|
|
|
|
59,204
|
|
|
|
64,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,726
|
|
|
|
79,467
|
|
|
|
249,334
|
|
|
|
225,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
44,742
|
|
|
|
35,455
|
|
|
|
124,924
|
|
|
|
110,505
|
|
Products Segment
|
|
|
23,730
|
|
|
|
15,046
|
|
|
|
47,484
|
|
|
|
55,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,472
|
|
|
|
50,501
|
|
|
|
172,408
|
|
|
|
165,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
24,095
|
|
|
|
25,951
|
|
|
|
65,206
|
|
|
|
49,919
|
|
Products Segment
|
|
|
7,159
|
|
|
|
3,015
|
|
|
|
11,720
|
|
|
|
9,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,254
|
|
|
|
28,966
|
|
|
|
76,926
|
|
|
|
59,577
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1,894
|
|
|
|
952
|
|
|
|
3,375
|
|
|
|
2,717
|
|
Selling and marketing expenses
|
|
|
2,647
|
|
|
|
2,043
|
|
|
|
8,186
|
|
|
|
7,851
|
|
General and administrative expenses
|
|
|
7,587
|
|
|
|
4,979
|
|
|
|
19,539
|
|
|
|
15,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19,126
|
|
|
|
20,992
|
|
|
|
45,826
|
|
|
|
33,121
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
637
|
|
|
|
1,171
|
|
|
|
2,735
|
|
|
|
4,207
|
|
Interest expense
|
|
|
(859
|
)
|
|
|
(6,984
|
)
|
|
|
(7,329
|
)
|
|
|
(21,836
|
)
|
Foreign currency translation and transaction losses
|
|
|
(1,028
|
)
|
|
|
(96
|
)
|
|
|
(2,570
|
)
|
|
|
(771
|
)
|
Impairment of auction rate securities
|
|
|
(2,045
|
)
|
|
|
|
|
|
|
(2,373
|
)
|
|
|
|
|
Other non-operating income (expense)
|
|
|
(21
|
)
|
|
|
247
|
|
|
|
328
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
15,810
|
|
|
|
15,330
|
|
|
|
36,617
|
|
|
|
15,316
|
|
Income tax provision
|
|
|
(3,187
|
)
|
|
|
(2,300
|
)
|
|
|
(7,871
|
)
|
|
|
(2,297
|
)
|
Minority interest
|
|
|
2,916
|
|
|
|
1,280
|
|
|
|
8,071
|
|
|
|
1,585
|
|
Equity in income of investees
|
|
|
372
|
|
|
|
1,452
|
|
|
|
1,319
|
|
|
|
3,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,911
|
|
|
$
|
15,762
|
|
|
$
|
38,136
|
|
|
$
|
18,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted
|
|
$
|
0.35
|
|
|
$
|
0.41
|
|
|
$
|
0.87
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,337
|
|
|
|
38,125
|
|
|
|
43,782
|
|
|
|
38,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,483
|
|
|
|
38,251
|
|
|
|
43,921
|
|
|
|
38,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Statements of Operations Percentage Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
69.0
|
%
|
|
|
77.3
|
%
|
|
|
76.3
|
%
|
|
|
71.2
|
%
|
Products Segment
|
|
|
31.0
|
|
|
|
22.7
|
|
|
|
23.7
|
|
|
|
28.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
65.0
|
|
|
|
57.7
|
|
|
|
65.7
|
|
|
|
68.9
|
|
Products Segment
|
|
|
76.8
|
|
|
|
83.3
|
|
|
|
80.2
|
|
|
|
85.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.7
|
|
|
|
63.5
|
|
|
|
69.1
|
|
|
|
73.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
35.0
|
|
|
|
42.3
|
|
|
|
34.3
|
|
|
|
31.1
|
|
Products Segment
|
|
|
23.2
|
|
|
|
16.7
|
|
|
|
19.8
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.3
|
|
|
|
36.5
|
|
|
|
30.9
|
|
|
|
26.4
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1.9
|
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.2
|
|
Selling and marketing expenses
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
3.3
|
|
|
|
3.5
|
|
General and administrative expenses
|
|
|
7.6
|
|
|
|
6.3
|
|
|
|
7.8
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19.2
|
|
|
|
26.4
|
|
|
|
18.4
|
|
|
|
14.7
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.6
|
|
|
|
1.5
|
|
|
|
1.1
|
|
|
|
1.9
|
|
Interest expense
|
|
|
(0.9
|
)
|
|
|
(8.8
|
)
|
|
|
(2.9
|
)
|
|
|
(9.7
|
)
|
Foreign currency translation and transaction losses
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
|
|
(1.0
|
)
|
|
|
(0.3
|
)
|
Impairment of auction rate securities
|
|
|
(2.1
|
)
|
|
|
0.0
|
|
|
|
(1.0
|
)
|
|
|
0.0
|
|
Other non-operating income (expense)
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
15.9
|
|
|
|
19.3
|
|
|
|
14.7
|
|
|
|
6.8
|
|
Income taxprovision
|
|
|
(3.2
|
)
|
|
|
(2.9
|
)
|
|
|
(3.2
|
)
|
|
|
(1.0
|
)
|
Minority interest
|
|
|
2.9
|
|
|
|
1.6
|
|
|
|
3.2
|
|
|
|
0.7
|
|
Equity in income of investees
|
|
|
0.4
|
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
16.0
|
%
|
|
|
19.8
|
%
|
|
|
15.3
|
%
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of the Three Months Ended September 30, 2008 and the Three
Months Ended September 30, 2007
Total
Revenues
Total revenues for the three months ended September 30,
2008 were $99.7 million, as compared with
$79.5 million for the three months ended September 30,
2007, which represented a 25.5% increase in total revenues. This
increase is attributable both to our Electricity and Products
Segments whose revenues increased by 12.1% and 71.0%,
respectively, over the same period in 2007.
Electricity
Segment
Revenues attributable to our Electricity Segment for the three
months ended September 30, 2008 were $68.8 million, as
compared with $61.4 million for the three months ended
September 30, 2007, which
33
represented a 12.1% increase in such revenues. This increase is
primarily attributable to additional revenues of
$3.4 million generated in the United States resulting from:
(i) an increase in our generating capacity and energy
generation in the United States from 501,389 MWh in the
three months ended September 30, 2007 to 508,141 MWh
in the three months ended September 30, 2008; and
(ii) an increase in the energy rates in the Puna project
(due to higher oil prices). The increase in Electricity Segment
revenues in the third quarter of 2008 is also attributable to a
net increase of $4.0 million in revenues from our
international plants as a result of increased revenues generated
from our Amatitlan project in Guatemala and from our Momotombo
project in Nicaragua. The increase in our United States
electricity revenues is mainly the result of additional
generation from new power plants placed in service, offset by:
(i) a decrease in the generation of the Ormesa complex as a
result of a generator failure, which was repaired in October
2008; (ii) expiration of the adder, an
additional energy rate, paid to us under the Heber 2 power
purchase agreement; (iii) a decrease in the generation of
the OREG 1 project as a result of lower than expected heat
availability due to operation of the compressor stations at a
lower than expected load; and (iv) a decrease in the
generation of the Steamboat 2/3 project as a result of the shut
down of the Steamboat 2/3 project during part of the third
quarter of 2008 in order to replace the project turbines with
new turbines manufactured by us. The replacement of the turbines
was completed and the project returned to full operation in the
beginning of October 2008.
Products
Segment
Revenues attributable to our Products Segment for the three
months ended September 30, 2008 were $30.9 million, as
compared with $18.1 million for the three months ended
September 30, 2007, which represented a 71.0% increase in
such revenues. This increase is principally attributable to the
volatility and the timing of our receipt of purchase orders, and
the timing of revenue recognition in accordance with the
percentage of completion method for each of our geothermal and
recovered energy generation products.
Total
Cost of Revenues
Total cost of revenues for the three months ended
September 30, 2008 was $68.5 million, as compared with
$50.5 million for the three months ended September 30,
2007, which represented a 35.6% increase in total cost of
revenues. This increase is attributable both to our Electricity
and Products Segments. As a percentage of total revenues, our
total cost of revenues for the three months ended
September 30, 2008 was 68.7% compared with 63.5% for the
same period in 2007.
Electricity
Segment
Total cost of revenues attributable to our Electricity Segment
for the three months ended September 30, 2008 was
$44.7 million, as compared with $35.5 million for the
three months ended September 30, 2007, which represented a
26.2% increase in total cost of revenues for such segment. This
increase from the same period last year is due to:
(i) costs relating to new projects placed into service
(including depreciation); (ii) increase in labor and
materials costs in existing plants; and (iii) the write off
of the old Steamboat 2/3 turbines. As a percentage of total
electricity revenues, the total cost of revenues attributable to
our Electricity Segment for the three months ended
September 30, 2008 was 65.0% compared with 57.7% for the
three months ended September 30, 2007.
Products
Segment
Total cost of revenues attributable to our Products Segment for
the three months ended September 30, 2008 was
$23.7 million, as compared with $15.0 million for the
three months ended September 30, 2007, which represented a
57.7% increase in total cost of revenues related to such
segment. This increase is attributable to the increase in our
product revenues, as described above, as well as a different
product mix. As a percentage of total Products Segment revenues,
our total cost of revenues attributable to this segment for the
three months ended September 30, 2008 was 76.8% as compared
with 83.3% for the three months ended September 30, 2007.
34
Research
and Development Expenses
Research and development expenses for the three months ended
September 30, 2008 were $1.9 million, as compared with
$1.0 million for the three months ended September 30,
2007, which represented a 98.9% increase. Such increase is
primarily due to expenses incurred in connection with our
research and development of Enhanced Geothermal Systems (EGS)
and the supply of a geothermal power unit for testing at a
producing oil well located at the Oil Test Center near Caspar,
WY.
Selling
and Marketing Expenses
Selling and marketing expenses for the three months ended
September 30, 2008 were $2.6 million, as compared with
$2.0 million for the three months ended September 30,
2007, which represented a 29.6% increase. The increase was due
primarily to an increase in Products Segment revenues. Selling
and marketing expenses for the three months ended
September 30, 2008 constituted 2.7% of total revenues for
such period, as compared with 2.6% for the three months ended
September 30, 2007.
General
and Administrative Expenses
General and administrative expenses for the three months ended
September 30, 2008 were $7.6 million, as compared with
$5.0 million for the three months ended September 30,
2007, which represented a 52.4% increase. Such increase is
primarily attributable to: (i) costs related to a potential
acquisition of geothermal assets that we ultimately decided not
to pursue; and (ii) an increase in personnel expenses due
in part to the devaluation of the U.S. dollar. General and
administrative expenses for the three months ended
September 30, 2008 increased to 7.6% of total revenues for
such period, from 6.3% for the three months ended
September 30, 2007.
Operating
Income
Operating income for the three months ended September 30,
2008 was $19.1 million, as compared with $21.0 million
for the three months ended September 30, 2007. Operating
income attributable to our Electricity Segment for the three
months ended September 30, 2008 was $16.9 million, as
compared with $20.4 million for the three months ended
September 30, 2007. Operating income attributable to our
Products Segment for the three months ended September 30,
2008 was $2.2 million, as compared with $0.6 million
for the three months ended September 30, 2007.
Interest
Income
Interest income for the three months ended September 30,
2008 was $0.6 million, as compared with $1.2 million
for the three months ended September 30, 2007, which
represented a 45.6% decrease. The decrease is primarily due to a
decrease in interest rates payable on liquid investments.
Interest
Expense
Interest expense for the three months ended September 30,
2008 was $0.9 million, as compared with $7.0 million
for the three months ended September 30, 2007, which
represented a 87.7% decrease. The $6.1 million decrease is
primarily due to principal repayments and to an increase of
$4.5 million in interest capitalized to projects as a
result of increased projects under construction.
Impairment
of Auction Rate Securities
In the three months ended September 30, 2008, we recorded
$2.0 million of impairment as a result of an
other-than-temporary decline in the value of auction rate
securities. This amount includes $1.4 million which was
previously deemed temporary. See also Note 6 to our
condensed consolidated financial statements set forth in
Item 1 of this quarterly report.
35
Income
Taxes
Income tax provision for the three months ended
September 30, 2008 was $3.2 million as compared with
$2.3 million for the three months ended September 30,
2007. The effective tax rate for the three months ended
September 30, 2008 and 2007 was 20.2% and 15.0%,
respectively. The increase in the effective tax rate resulted
from a transaction to monetize production tax credits and other
favorable tax attributes generated from certain of our
geothermal projects.
Minority
interest
Minority interest for the three months ended September 30,
2008 and 2007 includes income of $2.9 million, and
$1.3 million, respectively, from the sale of limited
liability company interests in OPC to institutional equity
investors in June 2007 and in April 2008.
Equity
in Income of Investees
Our participation in the income generated from our investees for
the three months ended September 30, 2008 was
$0.4 million, as compared with $1.5 million for the
three months ended September 30, 2007. On
September 25, 2007, our equity investee, Ormat Leyte Co.
Ltd. (Leyte) transferred its power plants to
PNOC-Energy
Development Corporation pursuant to a Build, Operate, and
Transfer agreement. We did not incur any material financial loss
as a result of such transfer, although this transfer reduced our
owned foreign generation capacity by 39 MW, with a
commensurate impact on equity in income of investees and net
income. Our equity in income of investees for the three months
ended September 30, 2008 includes an immaterial loss from
Leyte, while in the three months ended September 30, 2007
we had $0.9 million of income from Leyte.
Net
Income
Net income for the three months ended September 30, 2008
was $15.9 million, as compared with $15.8 million for
the three months ended September 30, 2007, which represents
an increase of 0.9%. Such increase in net income was principally
attributable to: (i) a $6.1 million decrease in
interest expense; and (ii) a $1.6 million increase in
minority interest as described above. This was partially offset
by: (i) a $2.0 million impairment of auction rate
securities; (ii) a $1.9 million decrease in operating
income; (iii) a $0.9 million increase in income tax
provision; (iv) a $0.5 million decrease in interest
income; (v) a $0.9 million increase in foreign
currency translation and transaction losses; and (vi) a
$1.1 million decrease in equity in income of investees. Net
income for the three months ended September 30, 2008
includes stock-based compensation related to stock options of
$1.1 million, as compared with $1.0 million for the
three months ended September 30, 2007.
Comparison
of the Nine Months Ended September 30, 2008 and the Nine
Months Ended September 30, 2007
Total
Revenues
Total revenues for the nine months ended September 30, 2008
were $249.3 million, as compared with $225.3 million
for the nine months ended September 30, 2007, which
represented a 10.7% increase in total revenues. This increase is
attributable to our Electricity Segment whose revenues increased
by 18.5%, offset by a decrease of 8.7% in our Products Segment
revenues over the same period in 2007.
Electricity
Segment
Revenues attributable to our Electricity Segment for the nine
months ended September 30, 2008 were $190.1 million,
as compared with $160.4 million for the nine months ended
September 30, 2007, which represented a 18.5% increase in
such revenues. This increase is primarily attributable to
additional revenues of $22.0 million generated in the
United States resulting from: (i) an increase in our
generating capacity and energy generation in the United States
from 1,461,153 MWh in the nine months ended
September 30, 2007 to 1,620,596 MWh in the nine months
ended September 30, 2008; and (ii) an increase in the
energy rates in the Puna project (due to higher oil prices) and
in our Standard Offer #4 power purchase agreements payable
by
36
Southern California Edison. The increase in Electricity Segment
revenues in the first nine months of 2008 is also attributable
to a net increase of $7.7 million in revenues from our
international plants as a result of revenues generated from our
Amatitlan project in Guatemala and from our Momotombo project in
Nicaragua. The increase in our United States generating capacity
is mainly the result of additional generation from new power
plants placed in service, as well as the enhanced performance of
our existing power plants. The increase in our United States
electricity revenues was offset by: (i) a decrease in the
generation of the Steamboat 2/3 project as a result of the shut
down required to replace the project turbines;
(ii) expiration of the adder, an additional
energy rate, paid to us under the Heber 2 power purchase
agreement; (iii) a decrease in the generation of the Ormesa
complex as a result of a generator failure, which was repaired
in October 2008 and (iv) a decrease in the generation of
the OREG 1 project as a result of lower than expected heat
availability due to operation of the compressor stations at a
lower than expected load. The replacement of the turbines in the
Steamboat 2/3 project was completed and the project returned to
full operation in the beginning of October 2008.
Products
Segment
Revenues attributable to our Products Segment for the nine
months ended September 30, 2008 were $59.2 million, as
compared with $64.8 million for the nine months ended
September 30, 2007, which represented an 8.7% decrease in
such revenues. This decrease is principally attributable to
volatility and the timing of our receipt of purchase orders, and
the timing of revenue recognition in accordance with the
percentage of completion method for each of our geothermal and
recovered energy generation products.
Total
Cost of Revenues
Total cost of revenues for the nine months ended
September 30, 2008 was $172.4 million, as compared
with $165.7 million for the nine months ended
September 30, 2007, which represented a 4.1% increase in
total cost of revenues. The increase is attributable to an
increase in our Electricity Segment, offset by decreased costs
in our Products Segment, as discussed below. As a percentage of
total revenues, our total cost of revenues for the nine months
ended September 30, 2008 was 69.1% as compared with 73.6%
for the same period in 2007.
Electricity
Segment
Total cost of revenues attributable to our Electricity Segment
for the nine months ended September 30, 2008 was
$124.9 million, as compared with $110.5 million for
the nine months ended September 30, 2007, which represented
a 13.0% increase in total cost of revenues for such segment. The
increase in our costs in this segment during the first nine
months of 2008 over the same period in 2007 reflects:
(i) costs relating to new and enhanced projects placed into
service (including depreciation); (ii) an increase in labor
and materials costs in existing plants; and (iii) the write
off of the old Steamboat 2/3 turbines. As a percentage of total
electricity revenues, the total cost of revenues attributable to
our Electricity Segment for the nine months ended
September 30, 2008 was 65.7% compared with 68.9% for the
nine months ended September 30, 2007.
Products
Segment
Total cost of revenues attributable to our Products Segment for
the nine months ended September 30, 2008 was
$47.5 million, as compared with $55.2 million for the
nine months ended September 30, 2007, which represented a
14.0% decrease in total cost of revenues related to such
segment. This decrease is attributable to the decrease in our
product revenues, as described above, as well as a different
product mix. This decrease was partially offset by an increase
in labor, material, construction and transportation costs, as
well as costs resulting from the devaluation of the
U.S. dollar. As a percentage of total Products Segment
revenues, our total cost of revenues attributable to this
segment for the nine months ended September 30, 2008 was
80.2% as compared with 85.1% for the nine months ended
September 30, 2007.
37
Research
and Development Expenses
Research and development expenses for the nine months ended
September 30, 2008 were $3.4 million, as compared with
$2.7 million for the nine months ended September 30,
2007, which represented a 24.2% increase. Such increase is
primarily due to expenses incurred in connection with our
research and development of EGS and the supply of a geothermal
power unit for testing at a producing oil well located at the
Oil Test Center near Caspar, WY.
Selling
and Marketing Expenses
Selling and marketing expenses for the nine months ended
September 30, 2008 were $8.2 million, as compared with
$7.9 million for the nine months ended September 30,
2007, which represented a 4.3% increase. Selling and marketing
expenses for the nine months ended September 30, 2008
constituted 3.3% of total revenues for such period, as compared
with 3.5% for the nine months ended September 30, 2007.
General
and Administrative Expenses
General and administrative expenses for the nine months ended
September 30, 2008 were $19.5 million, as compared
with $15.9 million for the nine months ended
September 30, 2007, which represented a 23.0% increase.
Such increase is primarily attributable to: (i) costs
related to a potential acquisition of geothermal assets that we
ultimately decided not to pursue; and (ii) an increase in
personnel expenses due in part to the devaluation of the
U.S. dollar. General and administrative expenses for the
nine months ended September 30, 2008 increased to 7.8% of
total revenues for such period, from 7.1% for the nine months
ended September 30, 2007.
Operating
Income
Operating income for the nine months ended September 30,
2008 was $45.8 million, as compared with $33.1 million
for the nine months ended September 30, 2007. Such increase
in operating income was principally attributable to an increase
in the gross margin in our Electricity Segment due to the
significant increase in revenues during the nine months ended
September 30, 2008, as described above. Operating income
attributable to our Electricity Segment for the nine months
ended September 30, 2008 was $43.6 million, as
compared with $33.0 million for the nine months ended
September 30, 2007. Operating income attributable to our
Products Segment for the nine months ended September 30,
2008 was $2.2 million, as compared with $0.1 million
for the nine months ended September 30, 2007.
Interest
Income
Interest income for the nine months ended September 30,
2008 was $2.7 million, as compared with $4.2 million
for the nine months ended September 30, 2007, which
represented a 35.0% decrease. The decrease is primarily due to a
decrease in interest rates payable on liquid investments.
Interest
Expense
Interest expense for the nine months ended September 30,
2008 was $7.3 million, as compared with $21.8 million
for the nine months ended September 30, 2007, which
represented a 66.4% decrease. The $14.5 million decrease is
primarily due to principal repayments and to an increase of
$10.1 million in interest capitalized to projects as a
result of increased projects under construction.
Impairment
of Auction Rate Securities
In the nine months ended September 30, 2008, we recorded
$2.4 million of impairment as a result of an
other-than-temporary decline in the value of certain auction
rate securities. This amount includes $0.8 million, which
was deemed temporary as of December 31, 2007. See also
Note 6 to our condensed consolidated financial statements
set forth in Item 1 of this quarterly report.
38
Income
Taxes
Income tax provision for the nine months ended
September 30, 2008 was $7.9 million as compared with
$2.3 million for the nine months ended September 30,
2007. The effective tax rate for the nine months ended
September 30, 2008 and 2007 was 21.5% and 15.0%,
respectively. The increase in the effective tax rate resulted
from a transaction to monetize production tax credits and other
favorable tax attributes generated from certain of our
geothermal projects.
Minority
interest
Minority interest for the nine months ended September 30,
2008 and 2007 includes income of $8.1 million, and
$1.6 million, respectively, from the sale of limited
liability company interests in OPC to institutional equity
investors in June 2007 and in April 2008.
Equity
in Income of Investees
Our participation in the income generated from our investees for
the nine months ended September 30, 2008 was
$1.3 million, as compared with $3.9 million for the
nine months ended September 30, 2007. On September 25,
2007, our equity investee, Ormat Leyte Co. Ltd. (Leyte),
transferred its power plants to
PNOC-Energy
Development Corporation pursuant to a Build, Operate, and
Transfer agreement. We did not incur any material financial loss
as a result of such transfer, although going forward this will
reduce our owned foreign generation capacity by 39 MW with
a commensurate impact on equity in income of investees and net
income. Our equity in income of investees for the nine months
ended September 30, 2008 includes an immaterial loss from
Leyte, while in the nine months ended September 30, 2007 we
had $2.6 million of income from Leyte.
Net
Income
Net income for the nine months ended September 30, 2008 was
$38.1 million, as compared with $18.5 million for the
nine months ended September 30, 2007, which represents an
increase of 106.5%. Such increase in net income was principally
attributable to: (i) an increase in our operating income of
$12.7 million; (ii) a $14.5 million decrease in
interest expense; and (iii) a $6.5 million increase in
minority interest as described above. This was partially offset
by: (i) a $5.6 million increase in income tax
provision; (ii) a $2.5 million decrease in equity in
income of investees; (iii) a $2.4 million impairment
of auction rate securities; (iv) a $1.5 million
decrease in interest income; and (v) a $1.8 million
increase in foreign currency translation and transaction losses.
Net income for the nine months ended September 30, 2008
includes stock-based compensation related to stock options of
$3.2 million as compared with $2.6 million for the
nine months ended September 30, 2007.
Liquidity
and Capital Resources
Our principal sources of liquidity have been derived from cash
from operations, proceeds from parent company loans, third party
debt in the form of borrowings under credit facilities, issuance
by Ormat Funding and OrCal Geothermal of their Senior Secured
Notes, project financing (including the Puna lease and the OPC
Tax Monetization Transactions described below) and the issuance
of our common stock in public and private offerings. We have
utilized this cash to fund our acquisitions, develop and
construct power generation plants and meet our other cash and
liquidity needs.
As of September 30, 2008, we had access to the following
sources of funds: (i) $38.1 million in cash and cash
equivalents; and (ii) $160.0 million of corporate
borrowing capacity under existing committed lines of credit with
different commercial banks. In October and November 2008, we
secured additional committed lines of credit in the total amount
of $150 million with commercial banks.
Our estimated capital needs for the rest of 2008 include
approximately $102.0 million for capital expenditures on
new projects in development or construction, exploration
activity, operating projects, and machinery and equipment, as
well as $30.6 million for debt repayment (including to our
parent).
39
We expect to finance these requirements with: (i) the
sources of liquidity described above; (ii) cash flows from
our operations; (iii) additional borrowing capacity under future
lines of credit with commercial banks that are under
negotiations; (iv) future project financing and
refinancing; and (v) potential future tax monetization
transaction. Our management believes that these sources will
address our anticipated liquidity, capital expenditures and
other investment requirements. Our shelf registration statement
on
Form S-3,
which was declared effective on October 2, 2008, provides
us with the ability to raise additional capital of up to
$1.5 billion through the issuance of securities.
Issuance
of stock
As described in Recent Developments, on
January 8, 2008, we completed an unregistered sale of
693,750 shares of common stock to our parent at a price of
$48.02 per share. The proceeds from this unregistered sale were
approximately $33.3 million.
As described in Recent Developments, on May 14,
2008, we completed a sale of 3,100,000 shares of common
stock to Lehman Brothers Inc. in a block trade at a price of
$48.36 per share (net of underwriting fees and commissions),
under our shelf registration statement filed in early 2006. Net
proceeds to us, after deducting underwriting fees and
commissions and estimated offering expenses associated with the
offering, were approximately $149.7 million.
The proceeds from these sales are being used for general
corporate purposes, which may include construction of geothermal
and recovered energy generation power plants and other
investments and financing activities.
Loan
Agreements with our Parent
In 2003, we entered into a loan agreement with Ormat Industries
Ltd. (our parent company), which was further amended on
September 20, 2004. Pursuant to this loan agreement, Ormat
Industries agreed to make a loan to us in one or more advances
not exceeding a total aggregate amount of $150.0 million.
The proceeds of the loan are to be used to fund our general
corporate activities and investments. We are required to repay
the loan and accrued interest in full and in accordance with an
agreed-upon
repayment schedule and in any event on or prior to June 5,
2010. Interest on the loan is calculated on the balance from the
date of the receipt of each advance until the date of payment
thereof at a fixed rate per annum equal to Ormat
Industries average effective cost of funds plus 0.3% in
dollars, which represents a rate of 7.5% per annum. All
computations of interest shall be made by Ormat Industries on
the basis of a year consisting of 360 days. As of
September 30, 2008, the outstanding balance of the loan was
approximately $41.2 million compared to $57.8 million,
as of December 31, 2007.
Third
Party Debt
Our third party debt is composed of two principal categories.
The first category consists of project finance debt or
acquisition financing that we or our subsidiaries have incurred
for the purpose of developing and constructing, refinancing or
acquiring our various projects, which are described under the
heading Non-Recourse and Limited-Recourse Third Party
Debt. The second category consists of debt incurred by us
or our subsidiaries for general corporate purposes, which are
described under the heading Full-Recourse Third Party
Debt.
Non-Recourse
and Limited-Recourse Third Party Debt
OrCal
Geothermal Senior Secured Notes
Non-Recourse
On December 8, 2005, OrCal Geothermal Inc. (OrCal), one of
our subsidiaries, issued $165.0 million, 6.21% Senior
Secured Notes (OrCal Senior Secured Notes) in an offering
subject to Rule 144A and Regulation S of the
Securities Act of 1933, as amended, for the purpose of
refinancing the acquisition cost of the Heber projects. The
OrCal Senior Secured Notes have been rated BBB- by Fitch. The
OrCal Senior Secured Notes have a final maturity date of
December 30, 2020. Principal and interest on the OrCal
Senior
40
Secured Notes are payable in semi-annual payments that commenced
on June 30, 2006. The OrCal Senior Secured Notes are
collateralized by substantially all of the assets of OrCal and
those of its wholly owned subsidiaries and are fully and
unconditionally guaranteed by all of the wholly owned
subsidiaries of OrCal. There are various restrictive covenants
under the OrCal Senior Secured Notes, which include limitations
on additional indebtedness and payment of dividends. As of
September 30, 2008, we were in compliance with the
covenants under the OrCal Senior Secured Notes. As of
September 30, 2008, there were $126.8 million of OrCal
Senior Secured Notes outstanding.
Ormat
Funding Senior Secured Notes Non Recourse
On February 13, 2004, Ormat Funding Corp. (OFC), one of our
subsidiaries, issued $190.0 million,
81/4% Senior
Secured Notes (OFC Senior Secured Notes) in an offering subject
to Rule 144A and Regulation S of the Securities Act of
1933, as amended, for the purpose of refinancing the acquisition
cost of the Brady, Ormesa and Steamboat 1/1A projects, and the
financing of the acquisition cost of the Steamboat 2/3 project.
The OFC Senior Secured Notes have a final maturity date of
December 30, 2020. Principal and interest on the OFC Senior
Secured Notes are payable in semi-annual payments which
commenced on June 30, 2004. The OFC Senior Secured Notes
are collateralized by substantially all of the assets of OFC and
those of its wholly owned subsidiaries and are fully and
unconditionally guaranteed by all of the wholly owned
subsidiaries of OFC. There are various restrictive covenants
under the OFC Senior Secured Notes, which include limitations on
additional indebtedness and payment of dividends. As of
September 30, 2008, we were in compliance with the
covenants under the OFC Senior Secured Notes. As of
September 30, 2008, there were $161.0 million of OFC
Senior Secured Notes outstanding.
On October 29, 2008, OFC successfully consummated a consent
solicitation, which was launched on October 16, 2008,
relating to its Senior Secured Notes. The consent solicitation
grants OFC approval: (i) to replace an aging power plant at
the Mammoth project with a new larger plant,
and/or to
construct a new plant while maintaining the existing power
plants at the Mammoth project; (ii) for a possible
construction and installation of solar power generation
equipment to enhance the Brady and Ormesa projects; and
(iii) to enter into an equity transaction whereby
OFCs parent, Ormat Nevada, will sell a portion of its
equity interest in OFC to an institutional investor that is able
to utilize certain income tax benefits.
Senior
Loans from International Finance Corporation (IFC) and
Commonwealth Development Corporation (CDC)
Non-Recourse
Orzunil I de Electricidad, Limitada (Orzunil), a wholly owned
subsidiary in Guatemala, has senior loan agreements with IFC and
CDC. The first loan from IFC, of which $4.9 million was
outstanding as of September 30, 2008, has a fixed annual
interest rate of 11.775%, and matures on November 15, 2011.
The second loan from IFC, was fully repaid on May 15, 2008.
The loan from CDC, of which $5.0 million was outstanding as
of September 30, 2008, has a fixed annual interest rate of
10.300%, and matures on August 15, 2010. There are various
restrictive covenants under the Senior Loans, which include
limitations on Orzunils ability to make distributions to
its shareholders. As of September 30, 2008, Orzunil is in
compliance with the covenants under these senior loans.
Credit
Facility Agreement (The Momotombo project) Limited
Recourse
Ormat Momotombo Power Company (Momotombo), a wholly owned
subsidiary in Nicaragua, has a loan agreement with Bank
Hapoalim, of which $6.2 million was outstanding as of
September 30, 2008, bearing an interest rate of
3-month
LIBOR plus 2.375% per annum on tranche one of the loan and
3-month
LIBOR plus 3.0% per annum on tranche two of the loan. Tranche
one of the loan matures on September 5, 2010, and is
payable in 32 quarterly installments of $298,000 and tranche two
of the loan matures on December 5, 2010, and is payable in
28 quarterly installments of $424,000. There are various
restrictive covenants under this loan, which include limitations
on Momotombos ability to make distributions to its
shareholders.
Due to a failure of a turbine that was not manufactured by
Ormat, the Momotombo project had not been in full operation from
June 2007 through October 2007. As a result, Momotombo did not
meet the debt
41
service coverage ratio required at December 31, 2007,
and therefore, distributions from the project were restricted.
The turbine has been repaired and the power plant returned to
full operation in November 2007. In October 2007, Momotombo
reached an agreement with Bank Hapoalim, pursuant to which Bank
Hapoalim allowed Momotombo to use the funds in the Debt
Service Reserve Account for the repair of the damaged
turbine. As a result, Momotombo did not comply with the required
Debt Service Reserve Account. In accordance with the
terms of the credit facility, Momotombo had a
180-day
period to replenish the Debt Service Reserve
Account. On February 24, 2008, Bank Hapoalim granted
Momotombo an extension to replenish the Debt Service
Reserve Account until August 31, 2009. As of
September 30, 2008, Momotombo was in compliance with the
Debt Service Reserve Account covenant.
New
financing of our projects
Financing
of the Amatitlan Project
We intend to refinance our equity investment in the construction
of the Amatitlan project in Guatemala. We terminated the
exclusivity of the mandate letter with a bank in Guatemala and
are currently in discussions with another financial institution.
Financing
of the Olkaria III Project
We have engaged a financial institution that is leading a
syndicate for the purpose of arranging long-term financing to
refinance our equity investment in the Olkaria III project
in Kenya. We are in the process of negotiating and preparing the
documentation for the financing. Several of the lenders obtained
final approval for the financing during the third quarter of
2008 and the remaining syndicate members expect to obtain final
approval in the fourth quarter of 2008.
Financing
of the Brawley Project
We are in the midst of negotiations to raise capital through a
tax monetization transaction for the North Brawley project.
Full-Recourse
Third Party Debt
We entered into certain agreements with various commercial
banks. Under these agreements, we and our Israeli subsidiary,
Ormat Systems Ltd. (Ormat Systems), have agreed to certain
negative covenants, including, but not limited to, a prohibition
on: (i) creating any floating charge or any permanent
pledge, charge or lien over our assets without obtaining the
prior written approval of the lender; (ii) guaranteeing the
liabilities of any third party without obtaining the prior
written approval of the lender; and (iii) selling,
assigning, transferring, conveying or disposing of all or
substantially all of our assets. In some cases, we have agreed
to maintain certain financial ratios such as a debt service
coverage ratio and a debt to equity ratio. In addition, we have
guaranteed all of the debt, if any, of Ormat Systems with such
banks. We do not expect that these covenants or ratios, which
apply to us on a consolidated basis, will materially limit our
ability to execute our future business plans or our operations.
The failure to perform or observe any of the covenants set forth
in such agreements, subject to various cure periods, would
result in the occurrence of an event of default and would enable
the lenders to accelerate all amounts due under each such
agreement.
We do not expect that any third party debt that we, or any of
our subsidiaries, will incur in the future will be guaranteed by
our parent.
Most of the loan agreements to which we or our subsidiaries are
a party contain cross-default provisions with respect to other
material indebtedness owed by us or them to any third party.
On February 15, 2006, our subsidiary, Ormat Nevada, entered
into a $25.0 million credit agreement with Union Bank of
California (UBOC). Under the credit agreement, Ormat Nevada can
request extensions of credit in the form of loans
and/or the
issuance of one or more letters of credit. UBOC is currently the
sole lender and issuing bank under the credit agreement, but is
also designated as an administrative agent on behalf of banks
that may, from time to time in the future, join the credit
agreement as parties thereto. In connection
42
with this transaction, we have entered into a guarantee in favor
of the administrative agent for the benefit of the banks,
pursuant to which we agreed to guarantee Ormat Nevadas
obligations under the credit agreement. Ormat Nevadas
obligations under the credit agreement are otherwise unsecured
by any of its (or any of its subsidiaries) assets.
Loans and draws under the letters of credit (if any) under the
credit agreement will bear interest at the floating rate based
on the Eurodollar plus a margin. There are various restrictive
covenants under the credit agreement, which include maintaining
certain levels of tangible net worth, leverage ratio, minimum
coverage ratio, and a distribution coverage ratio. In addition,
there are restrictions on dividend distributions in the event of
a payment default or noncompliance with such ratios.
As of September 30, 2008, eight letters of credit in the
amount of $13.7 million remained issued and outstanding
under this credit agreement with UBOC.
In 2007, we entered into credit agreements with three commercial
banks in the aggregate amount of $110 million. In addition,
in May, October and November 2008, we entered into additional
credit agreements with other commercial banks in the total
amount of $200 million. Under these credit agreements, we
or our Israeli subsidiary, Ormat Systems, can request extensions
of credit in the form of loans
and/or the
issuance of one or more letters of credit. Each of the credit
agreements has a term of three years.
Loans and draws under the credit agreements or under any letters
of credit will bear interest at the respective banks cost
of funds or LIBOR plus a margin. Our (or Ormat Systems)
obligations under the credit agreements are unsecured, but we
are subject to a negative pledge in favor of the banks and
certain other customary restrictive covenants.
As of September 30, 2008, no loans or letters of credits
were outstanding under such credit agreements.
Our management believes that we are currently in compliance with
our covenants with respect to our third-party debt.
Letters
of Credit
Some of our customers require our project subsidiaries to post
letters of credit in order to guarantee their respective
performance under relevant contracts. We are also required to
post letters of credit to secure our obligations under various
leases and licenses and may, from time to time, decide to post
letters of credit in lieu of cash deposits in reserve accounts
under certain financing arrangements. In addition, our
subsidiary, Ormat Systems, is required from time to time to post
performance letters of credit in favor of our customers with
respect to orders of products.
Bank Hapoalim and Bank Leumi have issued such performance
letters of credit in favor of our customers from time to time.
As of September 30, 2008, Bank Hapoalim and Bank Leumi have
agreed to make available to us letters of credit totaling
$36.2 million and $7.8 million, respectively. As of
such date, Bank Hapoalim and Bank Leumi have issued letters of
credit in the amount of $14.1 million and
$7.8 million, respectively.
In addition, we and certain of our subsidiaries may request
letters of credit under the credit agreements with UBOC and four
other commercial banks as described above under
Full-Recourse Third Party Debt. As of
September 30, 2008, eight letters of credit in the amount
of $13.7 million remained issued and outstanding under the
UBOC credit agreement.
Puna
Project Lease Transactions
On May 19, 2005, our subsidiary in Hawaii, Puna Geothermal
Ventures (PGV), entered into a transaction involving the Puna
geothermal power plant located on the Big Island of Hawaii. The
transaction was concluded with financing parties by means of a
leveraged lease transaction. A secondary stage of the lease
transaction relating to two new geothermal wells that PGV
drilled in the second half of 2005 (for production and
injection) was completed on December 30, 2005. Pursuant to
a 31-year
head lease, PGV leased its geothermal power plant to the
abovementioned financing parties in return for deferred lease
payments by such financing parties to PGV in the aggregate
amount of $83.0 million.
43
OPC
Tax Monetization Transactions
On June 7, 2007, a wholly owned subsidiary of the Company,
Ormat Nevada, concluded a transaction to monetize production tax
credits and other favorable tax attributes, such as accelerated
depreciation, generated from certain of its geothermal power
projects. Pursuant to the transaction, affiliates of Morgan
Stanley & Co. Incorporated and Lehman Brothers
Inc.(which has since been acquired by Barclays) became
institutional equity investors in a newly formed subsidiary of
Ormat Nevada. The projects involved in the transaction include
Desert Peak 2, Steamboat Hills, and Galena 2, all located in
Nevada.
Under the transaction structure, Ormat Nevada transferred the
aforementioned geothermal power projects to the newly formed
subsidiary, OPC LLC (OPC), and sold limited liability company
interests in OPC to the institutional equity investors for
$71.8 million. Ormat Nevada will continue to operate and
maintain the projects and will receive initially all of the
distributable cash flow generated by the projects until it
recovers the capital that it has invested in the projects, while
the institutional equity investors will receive substantially
all of the production tax credits and the taxable income or
loss, and the distributable cash flow after Ormat Nevada has
recovered its capital. The institutional equity investors
return is limited by the term of the transaction. Once the
investors reach a target after-tax yield on their investment in
OPC (the Flip Date), Ormat Nevada will receive 95% of both
distributable cash and taxable income and the investors will
receive 5% of both distributable cash and taxable income on a
going forward basis. Following the Flip Date, Ormat Nevada also
has the option to buy out the investors remaining interest
in OPC at the then-current fair market value or, if greater, the
investors capital account balances in OPC. Should Ormat
Nevada exercise this purchase option, it would thereupon revert
to being sole owner of the projects.
On April 17, 2008, a second closing of the transaction was
concluded. Under this second closing, Ormat Nevada
transferred the Galena 3 geothermal project to OPC, and received
from the institutional equity investors $63.0 million, net
of transaction costs.
Liquidity
Impact of Uncertain Tax positions
As discussed in Note 11 to our Condensed Consolidated
Financial Statements set forth in Item 1 of this quarterly
report, we have a liability associated with unrecognized tax
benefits and related interest and penalties in the amount of
approximately $5.8 million as of September 30, 2008.
This liability is included in long-term liabilities in our
consolidated balance sheet, because we generally do not
anticipate that settlement of the liability will require payment
of cash within the next twelve months. We are not able to
reasonably estimate when we will make any cash payments required
to settle this liability, but do not believe that the ultimate
settlement of our obligations will materially effect our
liquidity.
Dividend
The following are the dividends declared by us during the past
two years:
|
|
|
|
|
|
|
|
|
|
|
Dividend Amount
|
|
|
|
|
|
Date Declared
|
|
per Share
|
|
|
Record Date
|
|
Payment Date
|
|
February 27, 2007
|
|
$
|
0.07
|
|
|
March 21, 2007
|
|
March 29, 2007
|
May 8, 2007
|
|
$
|
0.05
|
|
|
May 22, 2007
|
|
May 29, 2007
|
August 8, 2007
|
|
$
|
0.05
|
|
|
August 22, 2007
|
|
August 29, 2007
|
November 6, 2007
|
|
$
|
0.05
|
|
|
November 28, 2007
|
|
December 12, 2007
|
February 26, 2008
|
|
$
|
0.05
|
|
|
March 14, 2008
|
|
March 27, 2008
|
May 6, 2008
|
|
$
|
0.05
|
|
|
May 20, 2008
|
|
May 27, 2008
|
August 5, 2008
|
|
$
|
0.05
|
|
|
August 19, 2008
|
|
August 29, 2008
|
November 5, 2008
|
|
$
|
0.05
|
|
|
November 19, 2008
|
|
December 2, 2008
|
44
Historical
Cash Flows
The following table sets forth the components of our cash flows
for the relevant periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
89,897
|
|
|
$
|
43,468
|
|
Net cash used in investing activities
|
|
|
(303,702
|
)
|
|
|
(58,812
|
)
|
Net cash provided by financing activities
|
|
|
204,721
|
|
|
|
15,421
|
|
Net change in cash and cash equivalents
|
|
|
(9,084
|
)
|
|
|
77
|
|
For the
Nine Months ended September 30, 2008
Net cash provided by operating activities for the nine months
ended September 30, 2008 was $89.9 million, as
compared with $43.5 million for the nine months ended
September 30, 2007. Such net increase of $46.4 million
resulted primarily from: (i) the increase in net income to
$38.1 million in the nine months ended September 30,
2008, as compared with $18.5 million in the nine months
ended September 30, 2007, mainly as a result of the
increase in gross margin, as described above; and (ii) an
increase of $20.4 million in accounts payable and accrued
expenses, in the nine months ended September 30, 2008, as
compared to a decrease of $9.7 million in the nine months
ended September 30, 2007 .
Net cash used in investing activities for the nine months ended
September 30, 2008 was $303.7 million, as compared
with $58.8 million for the nine months ended
September 30, 2007. The principal factors that affected our
cash flow used in investing activities during the nine months
ended September 30, 2008 were capital expenditures of
$298.6 million, primarily for our facilities under
construction and an $18.2 million increase in restricted
cash, cash equivalents and marketable securities, offset by a
$12.6 million decrease in marketable securities. The
principal factors that affected the net cash used in investing
activities during the nine months ended September 30, 2007
were capital expenditures of $145.0 million, primarily for
our power facilities under construction, offset by an
$87.6 million decrease in marketable securities.
Net cash provided by financing activities for the nine months
ended September 30, 2008 was $204.7 million, as
compared with $15.4 million for the nine months ended
September 30, 2007. The principal factors that affected the
cash flow provided by financing activities during the nine
months ended September 30, 2008 were: (i) the net
proceeds of $149.7 million from the sale of
3,100,000 shares in a block trade; (ii) the
$33.3 million net proceeds from our sale of
693,750 shares to our parent; and (iii) the
$63.0 million in net proceeds received from the
institutional equity investors in OPC for the transfer of the
Galena 3 geothermal project to OPC, relating to the second
closing of the OPC tax monetization transaction, offset by:
(i) the repayment of long-term debt in the amount of
$18.6 million, (ii) the repayment of debt to our
parent in the amount of $16.6 million; and (iii) the
payment of a dividend to our shareholders in the amount of
$6.6 million. The principal factors that affected the net
cash provided by financing activities during the nine months
ended September 30, 2007 were $69.2 million in net
proceeds from the sale of OPC interest relating to the OPC tax
monetization transaction, offset by the repayment of long-term
debt in the amount of $31.4 million, the repayment of debt
to our parent in the amount of $16.6 million, and the
payment of a dividend to our shareholders in the amount of
$6.5 million.
Capital
Expenditures
Our capital expenditures primarily relate to two principal
components: the enhancement of our existing power plants and the
development of new power plants. We expect that the following
enhancements of our existing power plants and the construction
of new power plants will be funded initially from internally
generated cash or other available corporate resources, which we
expect to subsequently refinance with limited or non-recourse
debt or tax monetization at the subsidiary level. We currently
do not contemplate obtaining any new loans from our parent
company.
45
Phase II of the Olkaria III
Project. We have completed the construction
of Phase II of the Olkaria III 35 MW project. The
project has begun the
start-up
phase, which we expect to complete in the fourth quarter of 2008.
Puna Project. An enhancement program
for the Puna project is intended to increase the output of the
project by an estimated 8 MW through the construction of an
OEC unit. We expect that such enhancement program will be
completed in 2009. We have not yet entered into a power purchase
agreement for the supply of energy from this planned addition.
North Brawley Project. The North
Brawley project will deliver approximately 50 MW of power
generation under an existing power purchase agreement with
Southern California Edison. Construction work and drilling
activities are proceeding in parallel with the projects
start-up
phase. We expect to complete these activities by the end of 2008.
OREG 2 Project. In connection with the
OREG 2 recovered energy project, we plan to construct four power
plants along the Northern Border natural gas pipeline. Each of
the four facilities will have a net capacity of 5.5 MW. We
are in advanced construction activities for two of the
facilities, which will be completed by the end of 2008 or early
2009. The other two facilities are scheduled to be completed by
the end of 2009.
Peetz Project. We are in advanced
construction activities for the Peetz recovered energy project,
a 4 MW power plant along a natural gas pipeline near
Denver, Colorado. The facility is scheduled to be commissioned
in mid-2009.
East Brawley. We plan to construct and
have begun manufacturing equipment and exploration drilling for
an additional power plant with capacity of up to 50 MW
power plant in the Brawley known geothermal resource area in
Imperial County, California, adjacent to the North Brawley
project. Completion of the project is projected for the end of
2009.
GRE Project. We are developing a
5.3 MW recovered energy generation project for Great River
Energy, which will be located along the Northern Border pipeline
in Martin County, Minnesota. We recently signed a
20-year
power purchase agreement with Great River Energy. We expect this
facility to be commissioned in late 2009 or early 2010.
We have budgeted approximately $705 million for the
projects described above and have invested approximately
$318 million of such budget as of September 30, 2008,
and expect to invest approximately $80 million during the
rest of 2008.
In addition to the above projects, our operating projects have
capital expenditure requirements for the rest of 2008 and in
2009 of approximately $64 million. We plan to start other
construction and enhancement of additional projects, and we have
various leases for geothermal resources, in which we have
started exploration activity, for a total investment amount of
approximately $49 million for the rest of 2008 and 2009. We
also plan to invest approximately $5 million in machinery
and equipment, including drilling equipment, in the rest of 2008
and in 2009.
We do not anticipate material capital expenditures in the near
term for any of our operating projects, other than those
described above and other than new projects beyond 2008.
Exposure
to Market Risks
The recent worldwide financial and credit crisis has reduced the
availability of liquidity and credit to fund the continuation
and expansion of industrial business operations worldwide. The
shortage of liquidity and credit combined with recent
substantial losses in worldwide equity markets could lead to an
extended worldwide economic recession. While, based on current
conditions, we believe that we have sufficient financial
resources to fund our activities and execute our business plan
during the next twelve months, if worldwide economic conditions
worsen, the cost of obtaining financing for our project needs
may increase significantly or such financing may not be
available at all. In addition, a prolonged economic slowdown
could reduce worldwide demand for energy, including our
geothermal energy, REG and other products.
46
One market risk to which power plants are typically exposed is
the volatility of electricity prices. However, our exposure to
such market risk is limited currently because our long-term
power purchase agreements have fixed or escalating rate
provisions that limit our exposure to changes in electricity
prices. However, beginning in May 2012, the energy payments
under the power purchase agreements for the Heber 1 and 2
projects, the Ormesa project and the Mammoth project will be
determined by reference to the relevant power purchasers
short run avoided costs. The Puna project is currently
benefiting from energy prices which are higher than the floor
under the Puna power purchase agreement, as a result of the high
fuel costs that impact Hawaii Electric Light Companys
avoided costs. In addition, under certain of the power purchase
agreements for our projects in Nevada, the price that Sierra
Pacific Power Company pays for energy and capacity is based upon
California-Oregon border power market pricing.
As of September 30, 2008, 98.2% of our consolidated
long-term debt (including amounts owed to our parent) was in the
form of fixed rate securities and therefore not subject to
interest rate volatility risk. As of such date, 1.8% of our debt
was in the form of a floating rate instrument, exposing us to
changes in interest rates in connection therewith. As of
September 30, 2008, $6.2 million of our debt remained
subject to some floating rate risk. As such, our exposure to
changes in interest rates with respect to our long-term
obligations is immaterial.
We currently maintain our surplus cash in short-term,
interest-bearing bank deposits, money market securities,
commercial paper (with a minimum investment grade rating of AA
by Standard & Poors Ratings Services).
Our cash equivalents and our portfolio of marketable securities
are subject to market risk due to changes in interest rates.
Fixed rate securities may have their market value adversely
impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment
income may fall short of expectation due to changes in interest
rates or we may suffer losses in principal if we are forced to
sell securities that decline in market value due to changes in
interest rates. However because we classify our debt securities
as available-for-sale, no gains or losses are
recognized due to changes in interest rates unless such
securities are sold prior to maturity or declines in fair value
are determined to be other-than-temporary.
Auction rate securities are securities that are structured with
short-term interest rate reset dates of generally less than
ninety days but with contractual maturities that can be well in
excess of ten years. At the end of each reset period, which
depending on the security can occur on a daily, weekly, or
monthly basis, investors can sell or continue to hold the
securities at par. These securities are subject to fluctuations
in fair value depending on the supply and demand at each auction.
In the fourth quarter of 2007 and prior quarters of 2008,
certain auction rate securities failed auction due to sell
orders exceeding buy orders. While we continue to earn interest
on these investments at the contractual rates, the estimated
market value of these auction rate securities no longer
approximates par value. We concluded that the fair value of
these auction rate securities at September 30, 2008 and
December 31, 2007 was $6.8 million and
$8.4 million, respectively, a decline of $4.4 million
and $2.8 million, respectively, from par value of
$11.2 million. Of this amount, $0.8 million as of
December 31, 2007 was deemed temporary, as we believed the
decline in market value was due to general market conditions.
Based upon our evaluation of available information, we believed
these investments generally to be of high credit quality, as
substantially all of the investments carried an AA credit
rating. In addition, we had the intent and ability to hold these
investments until anticipated recovery in market value occurs.
Accordingly, we recorded an unrealized loss on these securities
of $0.6 million in the six months ended June 30, 2008
and $0.8 million in the year ended December 31, 2007
in other comprehensive loss. We concluded that an amount of
$0.3 million in the six months ended June 30, 2008,
and $2.0 million in the year ended December 31, 2007
of the decline was other-than-temporary and recorded impairment
charges for these amounts. In the third quarter of 2008, due to
the recent deterioration in market conditions and the
significant decline in the fair value indicated for the auction
rate securities, we concluded that the decline is now
other-than-temporary and recorded an impairment charge of
$2.4 million in other non-operating income (expense) for
the nine months ended September 30, 2008. Such amount
includes $0.8 million, which had been included in other
comprehensive loss as of December 31, 2007.
47
Another market risk to which we are exposed is primarily related
to potential adverse changes in foreign currency exchange rates,
in particular the fluctuation of the U.S. dollar versus the
New Israeli Shekel (NIS). Risks attributable to fluctuations in
currency exchange rates can arise when any of our foreign
subsidiaries borrows funds or incurs operating or other expenses
in one type of currency but receives revenues in another. In
such cases, an adverse change in exchange rates can reduce such
subsidiarys ability to meet its debt service obligations,
reduce the amount of cash and income we receive from such
foreign subsidiary or increase such subsidiarys overall
expenses. Risks attributable to fluctuations in foreign currency
exchange rates can also arise when the currency denomination of
a particular contract is not the U.S. dollar. All of our
power purchase agreements in the international markets are
either U.S. dollar-denominated or linked to the
U.S. dollar. Our construction contacts from time to time
contemplate costs which are incurred in local currencies. The
way we often mitigate such risk is to receive part of the
proceeds from the sale contract in the currency in which the
expenses are incurred. In the past, we have not used any
material foreign currency exchange contracts or other derivative
instruments to reduce our exposure to this risk. In the future,
we may use such foreign currency exchange contracts and other
derivative instruments to reduce our foreign currency exposure
to the extent we deem such instruments to be the appropriate
tool for managing such exposure. We do not believe that our
exchange rate exposure has or will have a material adverse
effect on our financial condition, results of operations or cash
flows.
Concentration
of Credit Risk
Our credit risk is currently concentrated with a limited number
of major customers: Southern California Edison, Hawaii Electric
Light Company and Sierra Pacific Power Company. If any of these
electric utilities fails to make payments under its power
purchase agreements with us, such failure would have a material
adverse impact on our financial condition.
Southern California Edison accounted for 29.8% and 41.3% of our
total revenues for the three months ended September 30,
2008 and 2007, respectively, and 30.2% and 32.3% of our total
revenues for the nine months ended September 30, 2008 and
2007, respectively. Southern California Edison is also the power
purchaser and revenue source for our Mammoth project, which we
account for separately under the equity method of accounting.
Hawaii Electric Light Company accounts for 16.1% and 15.1% of
our total revenues for the three months ended September 30,
2008 and 2007, respectively, and 17.6% and 14.1% of our total
revenues for the nine months ended September 30, 2008 and
2007, respectively.
Sierra Pacific Power Company accounted for 7.6% and 7.0% of our
total revenues for the three months ended September 30,
2008 and 2007, respectively, and 9.7% and 8.6% of our total
revenues for the nine months ended September 30, 2008 and
2007, respectively.
Government
Grants and Tax Benefits
The U.S. government encourages production of electricity
from geothermal resources through certain tax subsidies. We are
permitted to claim approximately 10% of the cost of each new
geothermal power plant in the United States as an investment tax
credit against our federal income taxes. Alternatively, we are
permitted to claim a production tax credit, which in
2008 is 2.1 cents per kWh and which is adjusted annually for
inflation. The production tax credit may be claimed on the
electricity output of new geothermal power plants put into
service by December 31, 2010. Credit may be claimed for ten
years on the output from any new geothermal power plants put
into service prior to December 31, 2010. The owner of the
project must choose between the production tax credit and the
10% investment tax credit described above. In either case, under
current tax rules, any unused tax credit has a
1-year carry
back and a
20-year
carry forward. Whether we claim the production tax credit or the
investment credit, we are also permitted to depreciate most of
the plant for tax purposes over five years on an accelerated
basis, meaning that more of the cost maybe deducted in the first
few years than during the remainder of the depreciation period.
If we claim the investment credit, our tax base in
the plant that we can recover through depreciation must be
reduced by half of the tax credit; if we claim a production tax
credit; there is no reduction in the tax basis for depreciation.
48
Our subsidiary, Ormat Systems, received Benefited
Enterprise status under Israels Law for
Encouragement of Capital Investments, 1959 (the Investment Law),
with respect to two of its investment programs. As a Benefited
Enterprise, Ormat Systems was exempt from Israeli income taxes
with respect to income derived from the first benefited
investment for the period from July 1, 2004 to
June 30, 2006, and thereafter such income is subject to
reduced Israeli income tax rates of 25% for an additional five
years. Ormat Systems is also exempt from Israeli income taxes
with respect to income derived from the second benefited
investment for the period from January 1, 2007 to
December 31, 2008, and thereafter such income is subject to
reduced Israeli income tax rates of 25% for an additional five
years. These benefits are subject to certain conditions,
including among other things, that all transactions between
Ormat Systems and our affiliates are at arms length, and that
the management and control of Ormat Systems will be from Israel
during the whole period of the tax benefits. A change in control
should be reported to the Israeli Tax Authorities in order to
maintain the tax benefits. In addition, as an industrial
company, Ormat Systems is entitled to accelerated depreciation
on equipment used for its industrial activities. Under the
provisions of certain tax regulations published in Israel in
2005, industrial companies whose operations are mostly
Eligible Operations are entitled to claim
accelerated depreciation at the rate of 100% on machinery and
equipment acquired from July 1, 2005 to December 31,
2006. Accelerated depreciation is to be claimed over two years.
In the year in which the equipment was acquired, the regular
depreciation rate is to be claimed, with the remainder to be
claimed in the second year. Under the provisions of certain tax
regulations published in Israel in July 2008, industrial
companies whose operations are mostly Eligible
Operations are entitled to claim accelerated depreciation
at the rate of 50% on machinery and equipment acquired from
June 1, 2008 to May 31, 2009 and placed in service at
the later of six months after acquisition or before May 31,
2009.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We incorporate by reference the information appearing under
Exposure to Market Risks and Concentration of
Credit Risk in Part I, Item 2 of this quarterly
report on
Form 10-Q.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
|
|
a.
|
Evaluation
of disclosure controls and procedures
|
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures to ensure that the
information required to be disclosed in our filings pursuant to
Rule 13a-15
under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms and to ensure that such
information is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial
Officer as appropriate to allow timely decisions regarding
required disclosure. Based on that evaluation as of
September 30, 2008, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls
and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) were
effective.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
|
|
b.
|
Changes
in internal controls over financial reporting
|
There were no changes in our internal controls over financial
reporting in the third quarter of 2008 that have materially
affected or are reasonably likely to materially affect our
internal controls over financial reporting.
49
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
There were no material developments in any legal proceedings to
which the Company is a party during the three months period
ended September 30, 2008 other than as described below.
On April 26, 2008, our Nicaraguan subsidiary, Ormat
Momotombo Power Company (OMPC), received notice of an
administrative order issued by the Ministry of Natural Resources
and Environment of Nicaragua (MARENA) relating to alleged
violations of environmental regulations under Nicaraguan law in
connection with OMPCs operation of the Momotombo
geothermal power plant in that country. The order was issued
following an administrative hearing in the first instance at
which OMPC was found liable for the environmental and other
infractions. OMPC appealed the order to MARENA. OMPCs
appeal was denied on July 15, 2008, and OMPC was sanctioned
with a nominal fine. The order and denial of appeal by MARENA
are subject to further appeal in the Nicaraguan judicial courts.
We disagree with the MARENA order finding OMPC liable for
significant environmental infractions and on August 6,
2008, we pursued the judicial appeal process. On August 14,
2008, the Court of Appeal of the Judicial District of Managua
admitted the motion of appeal filed by OMPC against MARENA and
MARENAs administrative order. The Court of Appeal issued a
compulsory order of suspension of the legal effects of the
appealed administrative resolution and submitted the motion and
judicial records to the knowledge of the Constitutional Chamber
of the Supreme Court of Justice for its consideration and final
ruling on the merits of the case. In addition, this dispute is
subject to the dispute resolution provisions contained in the
Foreign Investment Contract entered into between OMPC and the
Nicaraguan government in June 1999. All penalties incurred by
OMPC as a result of these violations are stayed until OMPC has
exhausted the legal remedies available to it under Nicaraguan
law. If the administrative order is upheld at the end of these
review processes in a final non-appealable decision, OMPC may be
required to suspend indefinitely its operating activities
relating to the project and implement a plan of environmental
remediation. The net book value of the geothermal power plant as
of September 30, 2008 is $15.9 million.
From time to time, we (and our subsidiaries) are a party to
various lawsuits, claims and other legal and regulatory
proceedings that arise in the ordinary course of our (and their)
business. These actions typically seek, among other things,
compensation for alleged personal injury, breach of contract,
property damage, punitive damages, civil penalties or other
losses, or injunctive or declaratory relief. With respect to
such lawsuits, claims and proceedings, we accrue reserves in
accordance with accounting principles generally accepted in the
U.S. We do not believe that any of these proceedings,
individually or in the aggregate, would materially and adversely
affect our business, financial condition, future results and
cash flows.
A comprehensive discussion of our risk factors is included in
the Risk Factors section of our annual report on
Form 10-K
for the year ended December 31, 2007 filed with the SEC on
March 5, 2008, which is further updated by the addition of
the risk factor discussed below.
A global
recession and continued credit constraints could adversely
affect us.
Recent disruption in the global credit markets, failures or
material business deterioration of investment banks, commercial
banks, and other financial institutions and intermediaries in
the United States and elsewhere around the world, and
significant reductions in asset values across businesses,
households and individuals, combined with other financial and
economic indicators, raise significant concerns of a potential
global recession. If these conditions continue or worsen, they
may result in reduced worldwide demand for energy and
difficulties in obtaining financing, which may adversely affect
both our Electricity and Products Segments. Risks we might face
could include:
|
|
|
|
|
potential declines in revenues in our Products Segment due to
reduced orders or other factors caused by economic challenges
faced by our customers and prospective customers;
|
50
|
|
|
|
|
potential declines in revenues from some of our existing
geothermal power projects as a result of curtailed electricity
demand;
|
|
|
|
potential adverse impacts on our ability to access credit and
other financing sources (and the cost thereof) beyond the
approved credit lines we have. This may impact our ability to
finance future acquisitions or significant capital expenditures
relating to new projects; and
|
|
|
|
potential adverse impacts on our customers ability to pay,
when due, amounts payable to us and related increases in our
cost of capital associated with any increased working capital or
borrowing needs we may have if this occurs, or to collect
amounts payable to us in full (or at all) if any of our
customers fail or seek protection under applicable bankruptcy or
insolvency laws.
|
Any such impacts could adversely affect our business, financial
condition, operating results and cash flow.
|
|
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
There were no unregistered sales of equity securities of the
Company during the third fiscal quarter of 2008.
|
|
ITEM 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
Our management believes that we are currently in compliance with
our covenants with respect to our third-party debt except as
described under Liquidity and Capital Resources
regarding the Bank Hapoalim credit facility.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders in
the quarter ended on September 30, 2008.
|
|
ITEM 5.
|
OTHER
INFORMATION
|
None.
51
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation,
incorporated by reference to Exhibit 3.1 to Ormat Technologies,
Inc. Registration Statement on Form S-1 (File No. 333-117527) to
the Securities and Exchange Commission on July 20, 2004.
|
|
3
|
.2
|
|
Second Amended and Restated By-laws, incorporated by reference
to Exhibit 3.2 to Ormat Technologies, Inc. Registration
Statement Amendment No. 2 on Form S-1 (File No.
333-117527)
to the Securities and Exchange Commission on October 22, 2004.
|
|
3
|
.3
|
|
Amended and Restated Limited Liability Company Agreement of OPC
LLC dated June 7, 2007, by and among Ormat Nevada Inc., Morgan
Stanley Geothermal LLC, and Lehman-OPC LLC, incorporated by
reference to Exhibit 3.1 to Ormat Technologies, Inc. Current
Report on Form 8-K to the Securities and Exchange Commission on
June 13, 2007.
|
|
4
|
.3
|
|
Form of Rights Agreement by and between Ormat Technologies, Inc.
and American Stock Transfer & Trust Company, incorporated
by reference to Exhibit 4.3 to Ormat Technologies, Inc.
Registration Statement Amendment No. 2 on Form S-1 (File No.
333-117527) to the Securities and Exchange Commission on October
22, 2004.
|
|
4
|
.4
|
|
Indenture for Senior Debt Securities, dated as of January 16,
2006, between Ormat Technologies, Inc. and Union Bank of
California, incorporated by reference to Exhibit 4.2 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1 on
Form S-3 (File No. 333-131064) to the Securities and Exchange
Commission on January 26, 2006.
|
|
4
|
.5
|
|
Indenture for Subordinated Debt Securities, dated as of January
16, 2006, between Ormat Technologies, Inc. and Union Bank of
California, incorporated by reference to Exhibit 4.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1 on
Form S-3 (File No. 333-131064) to the Securities and Exchange
Commission on January 26, 2006.
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ORMAT TECHNOLOGIES, INC.
Name: Joseph Tenne
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: November 5, 2008
53
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation,
incorporated by reference to Exhibit 3.1 to Ormat Technologies,
Inc. Registration Statement on Form S-1 (File No. 333-117527) to
the Securities and Exchange Commission on July 20, 2004.
|
|
3
|
.2
|
|
Second Amended and Restated By-laws, incorporated by reference
to Exhibit 3.2 to Ormat Technologies, Inc. Registration
Statement Amendment No. 2 on Form S-1 (File No.
333-117527)
to the Securities and Exchange Commission on October 22, 2004.
|
|
3
|
.3
|
|
Amended and Restated Limited Liability Company Agreement of OPC
LLC dated June 7, 2007, by and among Ormat Nevada Inc., Morgan
Stanley Geothermal LLC, and Lehman-OPC LLC, incorporated by
reference to Exhibit 3.1 to Ormat Technologies, Inc. Current
Report on Form 8-K to the Securities and Exchange Commission on
June 13, 2007.
|
|
4
|
.3
|
|
Form of Rights Agreement by and between Ormat Technologies, Inc.
and American Stock Transfer & Trust Company, incorporated
by reference to Exhibit 4.3 to Ormat Technologies, Inc.
Registration Statement Amendment No. 2 on Form S-1 (File No.
333-117527) to the Securities and Exchange Commission on October
22, 2004.
|
|
4
|
.4
|
|
Indenture for Senior Debt Securities, dated as of January 16,
2006, between Ormat Technologies, Inc. and Union Bank of
California, incorporated by reference to Exhibit 4.2 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1 on
Form S-3 (File No. 333-131064) to the Securities and Exchange
Commission on January 26, 2006.
|
|
4
|
.5
|
|
Indenture for Subordinated Debt Securities, dated as of January
16, 2006, between Ormat Technologies, Inc. and Union Bank of
California, incorporated by reference to Exhibit 4.3 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on Form S-3 (File No.
333-131064)
to the Securities and Exchange Commission on January 26, 2006.
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
|
54