10-K
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 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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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
Securities Registered Pursuant
to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Ormat Technologies, Inc. Common Stock $0.001 Par Value
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New York Stock Exchange
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Securities Registered Pursuant
to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange Act.
Yes o No x
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 x No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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 x
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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).
Yes o No x
As of June 30, 2008, the last business day of the
registrants most recently completed second fiscal quarter,
the aggregate market value of the registrants common stock
held by non-affiliates of the registrant was $977,767,006 based
on the closing price as reported on the New York Stock Exchange.
The number of outstanding shares of common stock of the
registrant, as of February 24, 2009, was 45,353,120.
Documents Incorporated by Reference: Part III
(Items 10, 11, 12, 13 and 14) incorporates by
reference portions of the Registrants Proxy Statement for
its Annual Meeting of Stockholders, which will be filed not
later than 120 days after December 31, 2008.
ORMAT
TECHNOLOGIES, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2008
TABLE OF CONTENTS
2
Cautionary
Note Regarding Forward-Looking Statements
This annual report 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 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
annual report, 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 report are
primarily located in the material set forth under the headings
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in
Part II, Item 7, Risk Factors contained in
Part I, Item IA, and Notes to Financial
Statements contained in Part II, Item 8 of this
annual report, 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 annual report 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 annual report;
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operating risks, including equipment failures and the amounts
and timing of revenues and expenses;
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geothermal resource risk (such as the heat content of the
reservoir, useful life and geological formation);
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financial market conditions and the results of financing efforts;
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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;
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political, legal, regulatory, governmental, administrative and
economic conditions and developments in the United States and
other countries in which we operate;
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the enforceability of the long-term power purchase agreements
for our projects;
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contract counterparty risk;
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weather and other natural phenomena;
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the impact of recent and future federal, state and local
regulatory proceedings and changes, including legislative and
regulatory initiatives regarding deregulation and restructuring
of the electric utility industry and incentives for the
production of renewable energy in the United States and
elsewhere;
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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;
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current and future litigation;
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our ability to successfully identify, integrate and complete
acquisitions;
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3
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competition from other similar geothermal energy projects,
including any such new geothermal energy projects developed in
the future, and from alternative electricity producing
technologies;
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the effect of and changes in economic conditions in the areas in
which we operate;
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market or business conditions and fluctuations in demand for
energy or capacity in the markets in which we operate;
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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;
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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; and
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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.
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4
PART I
Certain
Definitions
Unless the context otherwise requires, all references in this
annual report to Ormat, the Company,
we, us, our company,
Ormat Technologies or our refer to Ormat
Technologies, Inc. and its consolidated subsidiaries. The
OFC Senior Secured Notes refers to the
81/4% Senior
Secured Notes due 2020 that were issued in February 2004 by our
subsidiary, Ormat Funding Corp. The OrCal Senior Secured
Notes refers to the 6.21% Senior Secured Notes due
2020 that were issued in December 2005 by our subsidiary, OrCal
Geothermal Inc. OPC Tax Monetization Transaction
refers to a financing transaction involving four of our Nevada
power plants in which institutional equity investors purchased
an interest in our special purpose subsidiary that owns such
plants, with a view to obtaining certain tax benefits.
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, usually
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. Our current generating portfolio includes geothermal
plants in the United States, Guatemala, Kenya, Nicaragua and New
Zealand, as well as recovered energy generation (REG) plants in
the United States.
The charts below show the relative contributions of the
Electricity Segment and the Products Segment to our consolidated
revenues and the geographical breakdown of our segment revenues
for our fiscal year ended December 31, 2008. Additional
information concerning our segment operations, including
year-to-year comparisons of revenues, the geographical breakdown
of revenues, cost of revenues, results of operations, and trends
and uncertainties is provided below in Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Item 8 Financial Statements and
Supplementary Data.
5
The following chart sets forth a breakdown of revenues for the
year ended December 31, 2008:
The following chart sets forth the geographical breakdown of the
revenues attributable to our Electricity Segment for the year
ended December 31, 2008:
6
The following chart sets forth the geographical breakdown of the
revenues attributable to our Products Segment for the year ended
December 31, 2008:
Most of the projects that we currently own or operate produce
electricity from geothermal energy sources. Geothermal energy is
a clean, renewable and generally sustainable form of energy
derived from the natural heat of the earth. Unlike electricity
produced by burning fossil fuels, electricity produced from
geothermal energy sources is produced without emissions of
certain pollutants such as nitrogen oxide, and with far lower
emissions of other pollutants such as carbon dioxide. Therefore,
electricity produced from geothermal energy sources contributes
significantly less to local and regional incidences of acid rain
and global warming than energy produced by burning fossil fuels.
Geothermal energy is also an attractive alternative to other
sources of energy as part of a national diversification strategy
to avoid dependence on any one energy source or politically
sensitive supply sources.
In addition to our geothermal energy business, we manufacture
products that produce electricity from recovered energy or
so-called waste heat. We also construct, own, and
operate recovered energy projects. Recovered energy represents
residual heat that is generated as a by-product of gas
turbine-driven compressor stations and a variety of industrial
processes, such as cement manufacturing. Such residual heat,
that would otherwise be wasted, may be captured in the recovery
process and used by recovered energy power plants to generate
electricity without burning additional fuel and without
additional emissions.
Company
Contact and Sources of Information
We file annual, quarterly and periodic reports, proxy statements
and other information with the Securities and Exchange
Commission, which we refer to as the SEC. You may obtain and
copy any document we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Room 1580,
Washington D.C. 20549. You may obtain information on the
operation of the SECs Public Reference Room by calling the
SEC at
1-800-SEC-0330.
The SEC maintains an internet website at
http://www.sec.gov
that contains reports, proxy and other information
statements, and other information regarding issuers that file
electronically with the SEC. Our SEC filings are accessible via
the Internet at that website.
On May 14, 2008, we submitted to the New York Stock
Exchange (NYSE) an Annual Written Affirmation, in the prescribed
form and with no qualifications, regarding our compliance with
the NYSEs Corporate Governance listing standards. In
addition, our reports on
Form 10-K,
10-Q and
8-K, and
amendments to those reports are available at our website
www.ormat.com for downloading, free of charge, as
7
soon as reasonably practicable after these reports are filed
with the SEC. Our Code of Business Conduct and Ethics, Code of
Ethics Applicable to Senior Executives, Audit Committee Charter,
Corporate Governance Guidelines, Nominating and Corporate
Governance Committee Charter, Compensation Committee Charter,
and Insider Trading Policy, as amended, are also available at
our website address mentioned above. The content of our website,
however, is not part of this annual report.
You may request a copy of our SEC filings, as well as the
foregoing corporate documents, at no cost to you, by writing to
the Company address appearing in this annual report or by
calling us at
(775) 356-9029.
Our Power
Generation Business
We own or control, and operate geothermal and recovered energy
projects in the United States. We also own or control, and
operate geothermal projects in Guatemala, Kenya, Nicaragua and
New Zealand. We continue to pursue opportunities to acquire and
develop similar projects throughout the world. Most of our
projects are located in regions where there is, or is expected
to be, demand for additional generating capacity. During the
year ended December 31, 2008, we substantially completed
the construction of power plants that added an additional
capacity of approximately 109 megawatts (MW). This increase in
our owned generating capacity is primarily attributable to the
following:
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The 10 MW Heber South plant at the Heber Complex in
California, which commenced operation in April 2008.
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The 8 MW GDL project in New Zealand, which commenced
commercial operation in September 2008.
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An increase of 35 MW, attributable to Phase II of
Olkaria III in Kenya. The construction and testing was
substantially completed in December 2008 and the project
commenced commercial operation in January 2009.
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A 5.5 MW recovered energy generation unit at the OREG 2
project in North Dakota, which commenced commercial operation in
December 2008.
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The 50 MW North Brawley project in California. The
construction was substantially completed in December 2008 and we
expect to reach commercial operation and sale of power in
commercial quantities in the second quarter of 2009.
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Offset by:
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A 2 MW decrease in the Momotombo project as a result of a
decline in the geothermal reservoir.
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A 1 MW decrease in the Brady project as a result of decline
in the geothermal reservoir.
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8
Projects
in Operation
The table below summarizes certain key non-financial information
relating to our projects that are in operation and, in the case
of North Brawley,
start-up
phase, as of December 31, 2008:
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Ormat
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Share in
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Generating
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Capacity
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Power
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Contracts
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Project
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Location
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Ownership(1)
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(in
MW)(2)
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Purchaser
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Expiration
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Domestic
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Ormesa Complex
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East Mesa,
California
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100%
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57
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Southern California Edison Company
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2018
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Heber
Complex(3)
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Heber, California
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100%
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92
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(4)
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Southern California Edison
Company and Southern
California Power Public Authority
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2015/2023/2031
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Steamboat
Complex(5)
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Steamboat,
Nevada
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100%
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84
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NV Energy, Inc.
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2018/
2022/2026/2028
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Mammoth Complex
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Mammoth Lakes,
California
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50%
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14.5
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Southern California Edison Company
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2014/2020
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Puna
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Puna, Hawaii
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100%
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30
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Hawaii Electric Light
Company
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2027
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Brady Complex
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Churchill County,
Nevada
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100%
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22
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NV Energy, Inc.
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2022/2027
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North
Brawely(6)
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Imperial County, California
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100%
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50
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Southern California Edison Company
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2029
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OREG 1
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North and South
Dakota
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100%
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22
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Basin Electric Power
Cooperative
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2031
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OREG 2
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North Dakota
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100%
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5.5
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(7)
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Basin Electric Power
Cooperative
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2033
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Total For Domestic
Projects under Ownership
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377
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Foreign
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Momotombo
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Nicaragua
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100%
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28
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DISNORTE/DISSUR
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2014
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Zunil
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Guatemala
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100%
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24
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Instituto Nacional de
Electricidad
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2019
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Olkaria III Complex(8)
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Kenya
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100%
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48
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Kenya Power and Lighting Co. Ltd.
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2029
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Amatitlan
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Guatemala
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100%
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20
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(9)
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Instituto Nacional De
Electricidad
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2026
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GDL
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New Zealand
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100%
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8
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Norske Skog Tasman Ltd.
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2015
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Total For Foreign
Projects under Ownership
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128
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Total For Projects under
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Ownership:
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505
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(1) |
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We own and operate all but three of
our projects. Those exceptions are: the Momotombo project in
Nicaragua, which we do not own but which we control and operate
through a concession arrangement with the Nicaraguan government;
the GDL project in New Zealand, which we own but is operated by
a third party under an operating and maintenance (O&M)
agreement; and the Mammoth project, in which we have a 50%
ownership interest. Two financial institutions hold equity
interests in one of our subsidiaries that owns the Desert Peak
2, Steamboat Hills, Galena 2 and Galena 3 projects. In this
chart, we show these projects as being 100% owned because all of
the generating capacity is owned by our consolidated
subsidiaries and we control the operation of the projects. The
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nature of the equity interests held
by the financial institutions is described in Item 7 under
the heading OPC Tax Monetization Transaction.
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(2) |
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References to generating capacity
refers to the gross capacity less auxiliary power, in the case
of all of our existing domestic projects and the Momotombo,
Amatitlan, Olkaria III and GDL projects (four of our
foreign projects), and to the generating capacity that is
subject to the take or pay power purchase agreements
in the case of the Zunil project (one of our foreign projects).
We determine the generating capacity figures in any given year
from available historical operational data of our operating
projects taking into account resource capabilities. This column
represents our net ownership in such generating capacity.
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In any given year, the actual power
generation of a particular project may differ from that
projects generating capacity due to variations in ambient
temperature and operational issues affecting performance during
that year. In 2008, the total actual power generation of the
projects we operate in the U.S. was approximately
234,000 MWh lower than the energy potential commensurate
with our generating capacity due to operational factors
discussed elsewhere in this annual report.
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(3) |
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The Heber complex includes the
Heber 1 and 2 projects and the Heber South project.
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(4) |
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Subject to drilling of an
additional well for the Heber South project.
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(5) |
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The Steamboat complex includes the
Steamboat 1A project, the Steamboat 2 and 3 projects, the
Burdette project, the Steamboat Hills project, the Galena 2
project, and the Galena 3 project.
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(6) |
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We substantially completed the
construction of the North Brawley project in December 2008 and
expect to reach commercial operation and sale of power in
commercial quantities during the second quarter of 2009. Until
then the plant is expected to run at partial load.
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(7) |
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One out of four units of the OREG 2
project reached commercial operation in December 2008 and an
additional unit came on line in January 2009. The remaining two
units of the project are expected to come on line by the end of
2009.
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The Olkaria Complex includes
13 MW Phase I and the 35 MW Phase II, which reached
commercial operation in January 2009.
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(9) |
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Currently the project operates at
17 MW and we are in the process of drilling another well.
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Projects
under Construction
The table below summarizes certain key non-financial information
relating to projects that were under construction as of
December 31, 2008:
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Ormat Share
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Projected
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in Projected
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Commercial
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Generating
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Operation
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Capacity
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Project
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Location
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Ownership
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Date
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(in MW)
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Power Purchaser
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Contract Expiration
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OREG II
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North Dakota,
Montana and
Minnesota
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100
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%
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2009(1)
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16.5
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Basin Electric Power
Cooperative
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25 years from January 1st,
following
commissioning of the
project
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Peetz
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Denver,
Colorado
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100
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Early 2009
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4
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Highline Electric
Association
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20 years following
commercial operation
date(2)
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Puna
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Puna, Hawaii
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100
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%
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End 2009
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8
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Hawaii Electric Light
Company(3)
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N/A
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GRE(4)
|
|
Minnesota
|
|
|
100
|
%
|
|
End 2009
|
|
|
5.3
|
|
|
Great River Energy
|
|
20 years following
commercial operation
date
|
East Brawley
|
|
Imperial
County,
California
|
|
|
100
|
%
|
|
2010
|
|
|
30
|
|
|
Southern California
Power Public
Authority(5)
|
|
N/A
|
Jersey Valley
|
|
Nevada
|
|
|
100
|
%
|
|
2010/2011
|
|
|
18-30
|
|
|
NV Energy, Inc.
|
|
20 years following
commercial operation
date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
82-94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
One unit out of the four units of
the OREG 2 project reached commercial operation in December,
2008 and an additional unit came on line in January, 2009. The
remaining two units of the project are expected to come on line
by the end of 2009.
|
|
(2) |
|
The power purchase agreement for
the Peetz project will expire the earlier of 20 years from
the commercial operation date or the end of 2029.
|
|
(3) |
|
The power purchase agreement is
currently under negotiation with Hawaii Electric Light Company.
|
|
(4) |
|
The GRE project is a recovered
energy generation power plant.
|
|
(5) |
|
The power purchase agreement is
currently under negotiation with Southern California Power
Public Authority.
|
10
Projects
under Development
The table below summarizes certain key non-financial information
relating to projects that are under development, which, if
implemented, will come on line after 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ormat Share
|
|
|
|
|
|
|
|
|
|
|
|
in Projected
|
|
|
|
|
|
|
|
|
|
|
|
Generating
|
|
|
|
|
|
|
|
|
|
|
|
Capacity
|
|
Power
|
|
|
Project
|
|
Location
|
|
Ownership
|
|
|
(in MW)
|
|
Purchaser
|
|
Contract Expiration
|
|
Carson
Lake(1)
|
|
Nevada
|
|
|
100
|
%
|
|
18-30
|
|
NV Energy, Inc.
|
|
20 years following
commercial operation
date
|
Mammoth
|
|
Mammoth Lakes,
California
|
|
|
50
|
%
|
|
10-15
|
|
Southern
California(2)
Edison Company
|
|
NA
|
Imperial Valley
|
|
Imperial County,
California
|
|
|
100
|
%
|
|
50
|
|
Southern California
Edison Company
|
|
20 years following
commercial operation
date
|
Sarulla
|
|
Indonesia
|
|
|
12.75
|
%
|
|
43
|
|
PT Perusahaan Listrik
Negara
|
|
NA(3)
|
McGinness Hills
|
|
Nevada
|
|
|
100
|
%
|
|
30
|
|
NA
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
151-168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The recent exploration results show
that the deep resource cannot support a commercial project. We
are currently evaluating the shallow resource at this location.
|
|
(2) |
|
We are currently negotiating a
power purchase agreement with Southern California Edison Company.
|
|
|
|
(3) |
|
The contract will expire
360 months after completion of the last stage of the
project, and in all cases, 504 months after the effective
date of the contract, which is subject to financing closing.
|
In addition to the projects listed above, we have other projects
in early development.
Substantially all of the revenues that we currently derive from
the sale of electricity are pursuant to long-term power purchase
agreements. Approximately 74.0% of our total revenues in the
year ended December 31, 2008 from the sale of electricity
by our domestic projects were derived from power purchasers that
currently have investment grade credit ratings. The purchasers
of electricity from our foreign projects are either state-owned
or private entities. We have obtained political risk insurance
from the Multilateral Investment Guarantee Agency of the World
Bank Group (MIGA) or from Zurich Re, a private sector political
risk insurer, for all of our foreign projects (with the
exception of a portion of the Zunil project for which we are
currently negotiating insurance coverage) in order to cover a
portion of any loss that we may suffer upon the occurrence of
certain political events covered by such insurance.
Development, Construction and Acquisition. We
have experienced significant growth in recent years, principally
through development and construction of new power plants and the
expansion and enhancement of our existing projects. We currently
expect to continue growing our power generation business through:
|
|
|
|
|
the development and construction of new geothermal and recovered
energy-based power plants;
|
|
|
|
|
|
acquiring geothermal leases for future development and
exploration;
|
|
|
|
|
|
entering into new host agreements for development of recovered
energy generation projects;
|
|
|
|
|
|
the expansion and enhancement of our existing projects; and
|
|
|
|
|
|
the acquisition of additional geothermal assets from third
parties.
|
As part of these efforts, we regularly monitor requests for
proposals from, and submit bids to, investor-owned and other
electric utilities in the United States to provide additional
generating capacity, primarily in the western United States
where geothermal resources are generally concentrated. During
2008, we responded to several requests for proposals issued by
different utilities interested in purchasing renewable energy.
There can be no assurance, however, that we will succeed in
negotiating power purchase agreements with the various
utilities. We also respond to international tenders issued by
foreign state-owned electric utilities for the
11
development, construction and operation of new geothermal power
plants. In addition, we apply our technological expertise to
upgrade the facilities of our existing geothermal power plants
and to continuously monitor and manage our existing geothermal
resources in order to increase the efficiency and generating
capacity of such facilities.
We are currently in various stages of development of new
projects and construction of new and existing projects. Based on
our current development and construction schedule, which is
subject to change at any time and which may not be met in its
entirety, in 2009 and 2010 we expect to bring on line between
82 MW and 94 MW in generating capacity from recovered
energy power plants and from geothermal power plants in the
United States.
The total of owned generating capacity that we have under
construction and under development is between 233 MW and
262 MW.
We are a member in a consortium which is in the process of
developing a geothermal power project in Indonesia of
approximately 340 MW. The consortium is currently
negotiating a power purchase agreement with a local utility. We
estimate that our minority interest in the project will be
equivalent to 43 MW, taking into account our 12.75%
ownership in the consortium. The project is currently expected
to come on line in phases between 2011 and 2013, without taking
into account any additional delays associated with either the
negotiation of the power purchase agreement or the financing of
the project.
Our
Products Business
We design, manufacture and sell products for electricity
generation and provide the related services described below.
Generally, we manufacture products only against customer orders
and do not manufacture products for our own inventory.
Power Units for Geothermal Power Plants. We
design, manufacture and sell power units for geothermal
electricity generation, which we refer to as Ormat Energy
Converters or OECs. Our customers include
contractors and geothermal plant owners and operators.
Power Units for Recovered Energy-Based Power
Generation. We design, manufacture and sell power
units used to generate electricity from recovered energy or
so-called waste heat. That heat is generated as a
residual by-product of gas turbine-driven compressor stations
and a variety of industrial processes, such as cement
manufacturing, and is not otherwise used for any purpose. Our
existing and target customers include interstate natural gas
pipeline owners and operators, gas processing plant owners and
operators, cement plant owners and operators, and other
companies engaged in other energy-intensive industrial processes.
Remote Power Units and Other Generators. We
design, manufacture and sell fossil fuel powered
turbo-generators with a capacity ranging between 200 watts and
5,000 watts, which operate unattended in extreme climate
conditions, whether hot or cold. Our customers include
contractors installing gas pipelines in remote areas. In
addition, we design, manufacture and sell generators for various
other uses, including heavy duty direct-current generators.
Engineering, Procurement and Construction (EPC) of Power
Plants. We engineer, procure and construct, as an
EPC contractor, geothermal and recovered energy power plants on
a turnkey basis, using power units we design and manufacture.
Our customers are geothermal power plant owners as well as the
same customers described above that we target for the sale of
our power units for recovered energy-based power generation.
Unlike many other companies that provide EPC services, we have
an advantage in that we are using our own manufactured equipment
and thus have better control over the timing and delivery of
required equipment and its costs.
History
We were formed by Ormat Industries Ltd. (also referred to in
this annual report as the Parent, Ormat
Industries, the parent company or our
parent) in 1994 in the State of Delaware for the purpose
of investing and holding ownership interests in power projects,
as well as constructing and operating power plants
12
owned by us and by third parties. Ormat Industries, which is
based in Israel, is an international power systems company whose
predecessor, Ormat Turbines Ltd., was founded in 1965 by Lucien
and Dita Bronicki for the principal purpose of developing
equipment for the production of a clean, renewable and generally
sustainable form of energy. Ormat Industries sold to us its
business relating to the manufacturing and sale of
energy-related equipment and services. Following this sale, we
now hold all of Ormat Industries power generation products
business. Ormat Industries owns approximately 56.1% of our
outstanding common stock.
Industry
Background
Geothermal
Energy
Most of our projects in operation produce electricity from
geothermal energy. Geothermal energy is a clean and generally
renewable energy source that, because it does not utilize
combustion of fossil fuels in the production of electricity,
releases significantly lower levels of emissions than those that
result from energy generation based on the burning of fossil
fuels.
Hydrothermal geothermal-electricity generation
Hydrothermal geothermal energy is derived from naturally
occurring hydrothermal reservoirs that are formed when water
comes sufficiently close to hot rock to heat the water to
temperatures of 300 degrees Fahrenheit or more. The heated water
then ascends toward the surface of the earth where, if
geological conditions are suitable for its commercial
extraction, it can be extracted by drilling geothermal wells.
The energy necessary to operate a geothermal power plant is
typically obtained from several such wells which are drilled
using established technology that is in some respects similar to
that employed in the oil and gas industry. Geothermal production
wells are normally located within approximately one to two miles
of the power plant as geothermal fluids cannot be transported
economically over longer distances due to heat and pressure
loss. The geothermal reservoir is a renewable source of energy
if natural ground water sources and reinjection of extracted
geothermal fluids are adequate over the long-term to replenish
the geothermal reservoir following the withdrawal of geothermal
fluids and if the well field is properly operated. Geothermal
energy projects typically have higher capital costs (primarily
as a result of the costs attributable to well field development)
but tend to have significantly lower variable operating costs,
principally consisting of maintenance expenditures, than fossil
fuel-fired power plants that require ongoing fuel expenses. In
addition, because geothermal energy projects produce 24hr/day
weather independent power, the variable operating costs are
lower.
Enhanced Geothermal Systems (EGS) An Enhanced
Geothermal Systems (or EGS) has been broadly defined as a
subsurface system that may be artificially created to extract
heat from hot rock where the characteristics required for a
hydrothermal system, i.e., permeability and aquifers, are non
existent. A project that uses EGS techniques would recover the
thermal energy from the subsurface rocks by creating or
accessing a system of open fractures in the rock through which
water can be injected, heated through contact with the hot rock,
returned to the surface in production wells and transferred to a
power unit. Ormat is currently working on two EGS research and
development projects where it is testing the myriad of
technologies that are required to create such subsurface systems.
Co-produced Geothermal from Oil and Gas fields,
geo-pressurized resources Another source of
geothermal energy is hot water produced from oil and gas
production. This application is referred to as Co-produced
Fluids. In some oil and gas fields, water is produced as a
by product of the oil and gas extraction. When the wells are
deep the fluids are often at high temperatures and if the water
volume is significant, the hot water can be used for power
generation in equipment similar to a geothermal power plant.
Geothermal
Power Plant Technologies
Geothermal power plants generally employ either binary systems
or conventional flash systems, as described below. In our
projects, we also employ our proprietary technology of combined
geothermal cycle systems. See Our Technology.
13
Binary
System
In a plant using a binary system, geothermal fluid, either hot
water (also called brine) or steam or both, is extracted from
the underground reservoir and flows from the wellhead through a
gathering system of insulated steel pipelines to a heat
exchanger, which heats a secondary working fluid which has a low
boiling point. This is typically an organic fluid, such as
isopentane or isobutene, which is vaporized and is used to drive
the turbine. The organic fluid is then condensed in a condenser
which may be cooled by air or by water from a cooling tower. The
condensed fluid is then recycled back to the heat exchanger,
closing the cycle within the sealed system. The cooled
geothermal fluid is then reinjected back into the reservoir. The
binary technology is depicted in the graphic below.
Flash
Design System
In a plant using flash design, geothermal fluid is extracted
from the underground reservoir and flows from the wellhead
through a gathering system of insulated steel pipelines to flash
tanks and/or
separators. There, the steam is separated from the brine and is
sent to a demister in the plant, where any remaining water
droplets are removed. This produces a stream of dry saturated
steam, which drives a turbine generator to produce electricity.
In some cases, the brine at the outlet of the separator is
flashed a second time (dual flash), providing additional steam
at lower pressure used in the low pressure section of the steam
turbine to produce additional electricity. Steam exhausted from
the steam turbine is condensed in a surface or direct contact
condenser cooled by cold water from a cooling tower. The
non-condensable gases (such as carbon dioxide) are removed
through the removal system in order to optimize the performance
of the steam turbines. The condensate is used to provide
make-up
water for the cooling tower. The hot brine remaining after
separation
14
of steam is injected back into the geothermal resource through a
series of injection wells. The flash technology is depicted in
the graphic below.
In some instances, the wells directly produce dry steam (the
flashing occurring under ground). In such cases, the steam is
fed directly to the steam turbine and the rest of the system is
similar to the flash power plant described above.
Market
Opportunity
The geothermal energy industry in the United States experienced
significant growth in the 1970s and 1980s, followed by a period
of consolidation of owners and operators of geothermal assets in
the 1990s. The industry, once dominated by large oil companies
and investor-owned electric utilities, now includes several
independent power producers. During the 1990s, growth and
development in the geothermal energy industry occurred primarily
in foreign markets, and only minimal growth and development
occurred in the United States. Since 2001, there has been
renewed interest in geothermal energy in the United States as
production costs for electricity generated from geothermal
resources have become more competitive relative to fossil
fuel-based electricity generation, due to the increasing cost of
natural gas, and as legislative and regulatory incentives, such
as state renewable portfolio standards, have become more
prevalent.
Although electricity generation from geothermal resources is
currently concentrated in California, Nevada, Hawaii, Idaho and
Utah, there are opportunities for development in other states
such as Alaska, Arizona, New Mexico and Oregon due to the
availability of geothermal resources and, in some cases, a
favorable regulatory environment in such states.
The Western Governors Association (WGA) estimates that
13,000 MW of identified resources will be developed by
2025. Of that amount, 5,600 MW is expected to be added by
2015, assuming geothermal generated electricity remains at
competitive prices (taking into account production tax credits).
In January 2007, the Massachusetts Institute of Technology
published a study that projects a potential of 100,000 MW
of generating capacity from geothermal power plants if the
development of enhanced geothermal systems is successful.
An additional factor fueling recent growth in the renewable
energy industry is global concern about the environment. Power
plants that use fossil fuels generate higher levels of air
pollution and their emissions have been linked to acid rain and
global warming. In response to an increasing demand for
green energy, many countries have adopted
legislation requiring, and providing incentives for, electric
utilities to sell electricity generated from renewable energy
sources. In the United States, Arizona, California, Colorado,
Connecticut,
15
Delaware, Hawaii, Illinois, Iowa, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, Montana, New
Hampshire, Nevada, New Jersey, New Mexico, New York, North
Carolina, North Dakota, Oregon, Ohio, Pennsylvania, Rhode
Island, South Dakota, Texas, Utah, Virginia, Vermont,
Washington, Wisconsin and the District of Colombia have all
adopted renewable portfolio standards (RPS), renewable portfolio
goals, or similar laws requiring or encouraging electric
utilities in such states to generate or buy a certain percentage
of their electricity from renewable energy sources or recovered
heat sources. Florida, Indiana, Kentucky, Nebraska and Oklahoma
have either proposed or are studying the adoption of RPS or
similar laws. Twenty six states (including California, Nevada
and Hawaii, where we have been the most active in our geothermal
energy development and in which all of our U.S. geothermal
projects are located) and the District of Columbia define
geothermal resources as renewables. According to the
U.S. Environmental Protection Agency (EPA), twelve states
have enacted RPS and Alternative Portfolio Standards (APS) that
include some form of combined heat and power
and/or waste
heat recovery. The twelve states are: Colorado, Connecticut,
Hawaii, Massachusetts, Nevada, North Carolina, North Dakota,
Ohio, Pennsylvania, South Dakota, Utah and Washington. We
believe that these legislative measures and initiatives present
a significant market opportunity for us. For example, California
generally requires that each investor-owned electric utility
company operating within the state increase the amount of
renewable generation in its resource mix by at least 1% of its
retail sales annually so that 20% of its retail sales are
procured from eligible renewable energy sources by 2010. In
November 2008, California, by executive order, adopted a goal
for all retailers of electricity to serve 33% of their load with
renewable energy by 2020. Californias three large electric
utilities collectively served 12.7% of their 2007 electricity
retail sales with renewable power. Nevadas renewable
portfolio standard requires each Nevada electric utility to
obtain 9% of its annual energy requirements from renewable
energy sources in
2007-2008,
which requirement thereafter increases by 3% every two years
until 2015, when 20% of such annual energy requirements must be
provided from renewable energy sources or energy efficiency
projects. As of December 2007, 9.4% of the electricity
retail sales in Nevada were from renewable energy sources.
Hawaiis renewable portfolio standard requires each
Hawaiian electric utility to obtain 10% of its net electricity
sales from renewable energy sources by December 31, 2010,
15% by December 31, 2015; and 20% by December 31,
2020. In 2007, Hawaiian Electric Company and its subsidiaries
achieved a consolidated renewable portfolio standard of 15.9%.
Regional Initiatives are also being developed to reduce
greenhouse gas emissions and develop trading systems for
renewable energy credits. For example, ten Northeast and
Mid-Atlantic states are part of the Regional Greenhouse Gas
Initiative (RGGI), a regional cap-and trade system to limit
carbon dioxide. RGGI is the first mandatory, market-based carbon
dioxide emissions reduction program in the United States. The
first-in-the-nation
auction of carbon dioxide allowances was held in September 2008.
Under RGGI, the ten participating states plan to stabilize power
sector carbon emissions at their capped level, and then reduce
the cap by 10% at a rate of 2.5% each year between 2015 and 2018.
In addition to RGGI, other states have also established the
Midwestern Regional Greenhouse Gas Reduction Accord and the
Western Climate Initiative. Although individual and regional
programs will take some time to develop, their requirements,
particularly the creation of any market-based trading mechanism
to achieve compliance with emissions caps, should be
advantageous to in-state and in-region (and, in some cases, such
as RGGI and the state of California, inter-regional) energy
generating sources that have low carbon emissions such as
geothermal energy. Although it is currently hard to quantify the
direct economic benefit of these efforts to reduce greenhouse
gas emissions, we believe they will prove advantageous to us.
The federal government also encourages production of electricity
from geothermal resources through certain tax subsidies. Under
the recently enacted American Recovery and Reinvestment Act
(ARRA), we are permitted to claim 30% of the cost of the
equipment of each new geothermal power plant in the United
States when such plant is placed in service as an investment tax
credit against our federal income taxes. Alternatively, we are
permitted to claim a production tax credit, which in
2008 was 2.1 cents per kWh and which is adjusted annually for
inflation. The production tax credit may be claimed for ten
years on the electricity output from any new geothermal power
plants put into service prior to December 31, 2013. The
owner of the project must choose between the production tax
credit and the 30% investment tax credit described above. In
either case, under current tax rules, any unused tax credit has
a one-year carry back and a twenty-year carry forward.
16
Another alternative available in 2009 and 2010 is a grant in
lieu of investment tax credit, for the amount of the investment
tax credit. Whether we claim the production tax credit or the
investment tax 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 may be deducted in the
first few years than during the remainder of the depreciation
period. If we claim the investment tax 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.
Collectively, these tax benefits (to the extent fully utilized)
have a present value equivalent to approximately 30% to 40% of
the capital cost of a new project.
Production of electricity from geothermal resources is also
supported under the new Temporary Program For Rapid
Deployment of Renewable Energy and Electric Power Transmission
Projects established with the U.S. Department of
Energy as part of the Department of Energys existing
Innovative Technology Loan Guarantee Program. The new program:
(i) extends the scope of the existing federal loan
guarantee program to cover renewable energy projects, renewable
energy component manufacturing facilities and electricity
transmission projects that embody established commercial, as
well as innovative, technologies; and (ii) provides an
appropriation to cover the credit subsidy costs of
such projects (meaning the estimated average costs to the
federal government from issuing the loan guarantee, equivalent
to a lending banks loan loss reserve).
To be eligible for a guarantee under the new program, a
supported project must break ground, and the guarantee must be
issued, by September 30, 2011. A project supported by the
federal guarantee under the new program must pay prevailing
federal wages.
Based on the appropriation of $6 billion dollars to pay the
credit subsidy costs of guarantees issued under the new program,
it is likely that between $60 billion to $120 billion
of financing (assuming average subsidy requirements between 10%
and 5%, respectively) will be available to eligible projects,
including geothermal power plants.
On December 15, 2007, delegates from nearly 190 nations,
including the U.S., announced in Bali the adoption of a plan
that will be negotiated through 2009 and ultimately would
succeed the Kyoto Protocol following 2012.
Outside of the United States, the majority of power generating
capacity has historically been owned and controlled by
governments. Since the early 1990s, however, many foreign
governments have privatized their power generation industries
through sales to third parties and have encouraged new capacity
development
and/or
refurbishment of existing assets by independent power
developers. These foreign governments have taken a variety of
approaches to encourage the development of competitive power
markets, including awarding long-term contracts for energy and
capacity to independent power generators and creating
competitive wholesale markets for selling and trading energy,
capacity and related products. Some countries have also adopted
active governmental programs designed to encourage clean
renewable energy power generation. Several Latin American
countries have rural electrification programs and renewable
energy programs. For example, Guatemala, where our Zunil and
Amatitlan projects are located, approved in November 2003 a law
which creates incentives for power generation from renewable
energy sources by, among other things, providing economic and
fiscal incentives such as exemptions from taxes on the
importation of relevant equipment and various tax exemptions for
companies implementing renewable energy projects. Another
example is New Zealand, where Ormat has been actively designing
and supplying geothermal power solutions since 1986 and where
our GDL project is located. The New Zealand governments
policies to fight climate change include the establishment of an
emissions trading scheme to put a price on greenhouse gas with
the goal of increasing renewable electricity generation to
ninety per cent of New Zealands total electricity
generation by 2025.
We believe that these developments and governmental plans will
create opportunities for us to acquire and develop geothermal
power generation facilities internationally as well as create
additional opportunities for our Products Segment.
17
In addition to our geothermal power generation activities, we
are pursuing recovered energy-based power generation
opportunities in North America and the rest of the world. We
believe recovered energy-based power generation will benefit
from the increased attention to energy efficiency. For example,
in the United States, the Federal Energy Regulatory Commission
(FERC) has indicated its position that the primary goal of
natural gas pipeline design should be the efficient, low-cost
transportation of fuel, including the use of waste heat
(recovered energy) from combustion turbines or reciprocating
engines that drive station compressors to generate electricity
for use at compressor stations or for commercial sale. FERC has
requested natural gas pipeline operators filing for a
certificate of approval for new pipeline construction or
expansion projects to discuss opportunities to enhance
efficiencies for any energy consumption processes in the
development and operation of the new pipeline. We have
initially targeted the North American market, where we have
begun to build power plants, which generate electricity from
waste heat from gas turbine-driven compressor
stations along interstate natural gas pipelines, from midstream
gas processing facilities, and from processing industries in
general.
Further supporting recovered energy-based power generation,
several states, as well as the federal government, have
recognized the environmental benefits of recovered energy-based
power generation. For example, Colorado, Connecticut, Hawaii,
Massachusetts, Nevada, North Carolina, North Dakota, Ohio,
Pennsylvania, South Dakota, Utah and Washington allow electric
utilities to include recovered energy-based power generation in
calculating their compliance with renewable portfolio standards.
In addition, North Dakota, South Dakota and the
U.S. Department of Agriculture (through the Rural Utilities
Service) have approved recovered energy-based power generation
units as renewable energy resources, which qualifies recovered
energy-based power generators (whether in those two states or
elsewhere in the United States) for federally funded, low
interest loans. We believe that the European market has similar
potential and we expect to leverage our early success in North
America in order to expand into Europe and other markets
worldwide. In North America alone, we estimate the potential
total market for recovered energy-based power generation to be
over 1,000 MW.
Competitive
Strengths
Competitive Assets. Our assets are competitive
for the following reasons:
|
|
|
|
|
Contracted Generation. Virtually all of the
electricity generated by our geothermal power plants is
currently sold pursuant to long-term power purchase agreements,
providing generally predictable cash flows.
|
|
|
|
Baseload Generation. All of our geothermal
power plants supply all or a part of the baseload capacity of
the electric system in their respective markets. This means they
supply electric power on an around-the-clock basis. We have a
competitive advantage over other renewable energy sources, such
as wind power, solar power or hydro-electric power (to the
extent dependent on precipitation), which compete with us to
meet electric utilities renewable portfolio requirements
but which cannot serve baseload capacity because of their
weather dependence and thus intermittent nature of these other
renewable energy sources.
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Competitive Pricing. Geothermal power plants,
while site specific, are economically feasible to develop,
construct, own and operate in many locations, and the
electricity they generate is generally price competitive as
compared to electricity generated from fossil fuels or other
renewable sources under existing economic conditions and
existing tax and regulatory regimes.
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Ability to Finance Our Activities from Internally Generated
Cash Flow. The cash flow generated by our
portfolio of operating geothermal and REG power plants provides
us with a robust and predictable base for our exploration,
development and construction activities, to a certain level
without the need to tap into external liquidity sources. We
believe that this gives us a competitive advantage over certain
competitors whose activities are dependent on external credit
and financing sources, particularly in light of the current
global credit and financial crisis.
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Growing Legislative Demand for Environmentally-Friendly
Renewable Resource Assets. Most of our currently
operating projects produce electricity from geothermal energy
sources. Geothermal energy is a clean, renewable and generally
sustainable energy source. Unlike electricity produced by
burning fossil fuels, electricity produced from geothermal
energy sources is produced without emissions of certain
pollutants such as nitrogen oxide, and with far lower emissions
of other pollutants such as carbon dioxide. Such clean and
sustainable characteristics of geothermal energy give us a
competitive advantage over fossil fuel-based electricity
generation as countries increasingly seek to balance
environmental concerns with demands for reliable sources of
electricity.
High Efficiency from Vertical
Integration. Unlike our competitors in the
geothermal industry, we are a fully-integrated geothermal
equipment, services and power provider. We design, develop and
manufacture most of the equipment we use in our geothermal power
plants. Our intimate knowledge of the equipment that we use in
our operations allows us to operate and maintain our projects
efficiently and to respond to operational issues in a timely and
cost-efficient manner. Moreover, given the efficient
communications among our subsidiary that designs and
manufactures the products we use in our operations and our
subsidiaries that own and operate our projects, we are able to
quickly and cost effectively identify and repair mechanical
issues and to have technical assistance and replacement parts
available to us as and when needed.
Highly Experienced Management Team. We have a
highly qualified senior management team with extensive
experience in the geothermal power sector. Key members of our
senior management team have worked in the power industry for
most of their careers and average over 25 years of industry
experience.
Technological Innovation. We have been granted
75 U.S. patents relating to various processes and renewable
resource technologies. All of our patents are internally
developed and therefore costs related thereto are expensed as
incurred. Our ability to draw upon internal resources from
various disciplines related to the geothermal power sector, such
as geological expertise relating to reservoir management, and
equipment engineering relating to power units, allows us to be
innovative in creating new technologies and technological
solutions.
No Exposure to Fuel Price Risk. A geothermal
power plant does not need to purchase fuel (such as coal,
natural gas, or fuel oil) in order to generate electricity.
Thus, once the geothermal reservoir has been identified and
estimated to be sufficient for use in a geothermal power plant
and the drilling of wells is complete, the plant is not exposed
to fuel price or fuel delivery risk apart from the impact fuel
prices may have on the price at which we sell power under power
purchase agreements that are based on the relevant power
purchasers avoided cost.
Business
Strategy
Our strategy is to continue building a geographically balanced
portfolio of geothermal and recovered energy assets, and to
continue to be a leading manufacturer and provider of products
and services related to renewable energy. We intend to implement
this strategy through:
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Development and Construction of New Projects
continuously seeking out commercially exploitable geothermal
resources, developing and constructing new geothermal and
recovered energy-based power projects and entering into
long-term power purchase agreements providing stable cash flows
in jurisdictions where the regulatory, tax and business
environments encourage or provide incentives for such
development and which meet our investment criteria;
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Developing Recovered Energy Projects
establishing a first-to-market leadership position in
recovered energy projects in North America and building on that
experience to expand into other markets worldwide;
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Acquisition of New Assets acquiring from
third parties additional geothermal and other renewable assets
that meet our investment criteria;
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Increasing Output from Our Existing Projects
increasing output from our existing geothermal power
projects by adding additional generating capacity, upgrading
plant technology, and improving geothermal reservoir operations,
including improving methods of heat source supply and
delivery; and
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Technological Expertise investing in research
and development of renewable energy technologies including in
the solar energy field and leveraging our technological
expertise to continuously improve power plant components, reduce
operations and maintenance costs, develop competitive and
environmentally friendly products for electricity generation and
target new service opportunities.
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Operations
of our Power Generation Segment
How We Own Our Power Plants. We customarily
establish a separate subsidiary to own interests in each power
plant. Our purpose in establishing a separate subsidiary for
each plant is to ensure that the plant, and the revenues
generated by it, will be the only source for repaying
indebtedness, if any, incurred to finance the construction or
the acquisition (or to refinance the acquisition) of the
relevant plant. If we do not own all of the interest in a power
plant, we enter into a shareholders agreement or a partnership
agreement that governs the management of the specific subsidiary
and our relationship with our partner in connection with our
project. Our ability to transfer or sell our interest in certain
projects may be restricted by certain purchase options or rights
of first refusal in favor of our project partners or the
projects power purchasers
and/or
certain change of control and assignment restrictions in the
underlying project and financing documents. All of our domestic
projects, with the exception of the Puna project, which is an
Exempt Wholesale Generator (EWG), are Qualifying Facilities
under the Public Utility Regulatory Policies Act of 1978 (PURPA)
and are eligible for regulatory exemptions from most provisions
of the Federal Power Act (FPA) and certain state laws and
regulations.
How We Obtain Development Sites and Geothermal
Resources. For domestic projects, we either lease
or own the sites on which our power plants are located. In our
foreign projects, our lease rights for the plant site are
generally contained in the terms of a concession agreement or
other contract with the host government or an agency thereof. In
certain cases, we also enter into one or more geothermal
resource leases (or subleases) or a concession or other
agreement granting us the exclusive right to extract geothermal
resources from specified areas of land, with the owners (or
sublessors) of such land. A geothermal resource lease (or
sublease) or a concession or other agreement will usually give
us the right to explore, develop, operate and maintain the
geothermal field including, among other things, the right to
drill wells (and if there are existing wells in the area, to
alter them) and build pipelines for transmitting geothermal
fluid. In certain cases, the holder of rights in the geothermal
resource is a governmental entity and in other cases a private
entity. Usually, the terms of the lease (or sublease) and
concession agreement correspond to the terms of the relevant
power purchase agreement. In certain other cases, we own the
land where the geothermal resource is located, in which case
there are few restrictions on its utilization. Leasehold
interests in federal land in the United States are regulated by
the Bureau of Land Management and the Minerals Management
Service. These agencies have rules governing the geothermal
leasing process. The rules include, among other things, a
requirement that geothermal resources be offered through a
competitive lease process; rules governing royalty and rental
payments and lease terms and extensions; and production
incentives for new facilities and qualified expansion
facilities that are put into commercial operation by
August 8, 2011.
How We Explore and Evaluate Geothermal
Resources. Historically we have located and
developed proven geothermal resources. In 2006, we expanded our
activities to include the exploration and identification of
geothermal resources. After entering into an appropriate lease
we carry out several tests followed by exploratory drilling
first to validate and then to quantify the size of the potential
geothermal resource. Resource validation and exploratory
drilling is a long process that requires substantial capital
investment, as it may necessitate the drilling of shallow
temperature-gradient wells, slim holes, exploration
wells, and production-sized exploration wells. We do not expect
to succeed in developing every resource that undergoes
exploration activity and will cease exploration activities on
potential geothermal resources that will not support commercial
operations.
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How We Sell Electricity. In the United States,
the purchasers of power from our projects are typically
investor-owned electric utility companies. Outside of the United
States, the purchaser is typically a state-owned utility or a
privately-owned entity and we typically operate our facilities
pursuant to rights granted to us by a governmental agency
pursuant to a concession agreement. In each case, we enter into
long-term contracts (typically called power purchase agreements)
for the sale of electricity or the conversion of geothermal
resources into electricity. A projects revenues under a
power purchase agreement usually consist of two payments: energy
payments and capacity payments (although our recent power
purchase agreements provide for energy payments only). Energy
payments are normally based on a projects electrical
output actually delivered to the purchaser measured in kilowatt
hours, with payment rates either fixed or indexed to the power
purchasers avoided costs (i.e., the costs the
power purchaser would have incurred itself had it produced the
power it is purchasing from third parties, such as us). Capacity
payments are normally calculated based on the generating
capacity or the declared capacity of a project available for
delivery to the purchaser, regardless of the amount of
electrical output actually produced or delivered. In addition,
most of our domestic projects located in California are eligible
for capacity bonus payments under the respective power purchase
agreements upon reaching certain levels of generation.
How We Operate and Maintain Our Power
Plants. We usually employ one of our
subsidiaries, (Ormat Nevada Inc., for our domestic projects) to
act as operator of our power plants pursuant to the terms of an
operation and maintenance agreement. Our operations and
maintenance practices are designed to minimize operating costs
without compromising safety or environmental standards while
maximizing plant flexibility and maintaining high reliability.
Our approach to plant management emphasizes the operational
autonomy of our individual plant managers and staff to identify
and resolve operations and maintenance issues at their
respective projects; however, each project draws upon our
available collective resources and experience and that of our
subsidiaries. We have organized our operations such that
inventories, maintenance, backup and other operational functions
are pooled within each project complex and provided by one
operation and maintenance provider. This approach enables us to
realize cost savings and enhances our ability to meet our
project availability goals.
We currently own 505 MW of generating capacity (See
Note (2) on page 9) for an explanation of how we
determine the generating capacity of our projects). As a result
of our vertical integration, our proprietary technology and our
operational and maintenance expertise, we have been successful
in increasing the capacity, efficiency and performance of most
of our acquired facilities in California, Hawaii and Nevada, and
were able to use the staff required to operate these facilities
more efficiently. For example, we have been able to increase the
output of the Ormesa project by approximately 10 MW
following its acquisition in 2002. We have also increased the
capacity of the Heber complex by 20 MW.
Safety is a key area of concern to us. We believe that the most
efficient and profitable performance of our projects can only be
accomplished within a safe working environment for our
employees. Our compensation and incentive program includes
safety as a factor in evaluating our employees, and we have a
well-developed reporting system to track safety and
environmental incidents at our projects.
How We Finance Our Power Plants. Historically
we have funded our projects with a combination of non-recourse
or limited recourse debt, lease financing, parent company loans
(funds for which are derived from various liquidity sources
available to us, as discussed in Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations under the heading
Liquidity and Capital Resources) and internally
generated cash. Such leveraged financing permits the development
of projects with a limited amount of equity contributions, but
also increases the risk that a reduction in revenues could
adversely affect a particular projects ability to meet its
debt obligations. Leveraged financing also means that
distributions of dividends or other distributions by plant
subsidiaries to us are contingent on compliance with financial
and other covenants contained in the financing documents.
Non-recourse debt or lease financing refers to debt or lease
arrangements involving debt repayments or lease payments that
are made solely from the projects revenues (rather than
our revenues or revenues of any other project) and generally are
secured by the projects physical assets, major contracts
and agreements, cash accounts and, in many cases, our ownership
interest in that project affiliate. These forms of financing are
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referred to as project financing. Project financing
transactions generally are structured so that all revenues of a
project are deposited directly with a bank or other financial
institution acting as escrow or security deposit agent. These
funds then are payable in a specified order of priority set
forth in the financing documents to ensure that, to the extent
available, they are used first to pay operating expenses, senior
debt service (including lease payments) and taxes and to fund
reserve accounts. Thereafter, subject to satisfying debt service
coverage ratios and certain other conditions, available funds
may be disbursed for management fees or dividends or, where
there are subordinated lenders, to the payment of subordinated
debt service.
In the event of a foreclosure after a default, our project
affiliate owning the project would only retain an interest in
the assets, if any, remaining after all debts and obligations
have been paid in full. In addition, incurrence of debt by a
project may reduce the liquidity of our equity interest in that
project because the interest is typically subject both to a
pledge in favor of the projects lenders securing the
projects debt and to transfer and change of control
restrictions set forth in the relevant financing agreements.
Limited recourse debt refers to project financing as described
above with the addition of our agreement to undertake limited
financial support for the project affiliate in the form of
certain limited obligations and contingent liabilities. These
obligations and contingent liabilities take the form of
guarantees of certain specified obligations, indemnities,
capital infusions and agreements to pay certain debt service
deficiencies. To the extent we become liable under such
guarantees and other agreements in respect of a particular
project, distributions received by us from other projects and
other sources of cash available to us may be required to be used
to satisfy these obligations. To the extent of these limited
recourse obligations, creditors of a project financing of a
particular project may have direct recourse to us.
We have also used a financing structure to monetize production
tax credits and other favorable tax benefits derived from the
financed projects and an operating lease arrangement for one of
our projects.
The chart below summarizes the financing arrangements, if any,
we are currently using for our operating power plant projects.
As used below, corporate funds includes internally
generated funds, borrowings under corporate credit lines,
proceeds from sales of securities and other sources of
liquidity. Additional information about these financing
arrangements is in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations under the heading Liquidity and Capital
Resources and the footnotes of our financial statements.
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Name of Project
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Financing
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Ormesa Complex
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OFC Senior Secured Notes
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Heber Complex
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OrCal Senior Secured Notes
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Steamboat Complex
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OPC Tax Monetization (Steamboat Hills, Galena 2 and Galena 3),
and OFC Senior Secured Notes (Steamboat 1A, Steamboat 2/3 and
Burdette)
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Mammoth Complex
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OFC Senior Secured Notes
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Brady Complex
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OPC Tax Monetization (Desert Peak 2), and OFC Senior Secured
Notes (Brady)
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Puna Project
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Operating Lease
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OREG 1 Project
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Corporate Funds
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North Brawley
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Corporate Funds
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OREG 2 Projects
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Corporate Funds
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Momotombo Project
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Project Finance
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Olkaria III Project
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Corporate Funds expected to be partially refinanced by Committed
Senior Secured Project Finance Loan from group of European
Development Finance Institutions.
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Zunil Project
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Senior Secured Project Loan from International Finance
Corporation (IFC) Commonwealth Development Corporation (CDC)
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Amatitlan Project
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Corporate Funds
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GDL Project
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Corporate Funds
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The current economic crisis could adversely affect our ability
to obtain the kind of financing arrangements we have used in the
past, and even if those arrangements are still available, the
pricing and other terms of such arrangements may not be as
favorable to us as in the past.
How We Mitigate International Political
Risk. We generally purchase insurance policies to
cover our exposure to certain political risks involved in
operating in developing countries, as described below under the
heading Insurance. To date, our political risk
insurance contracts are with MIGA, a member of the World Bank
Group, and Zurich Re, a private insurance and re-insurance
company. Such insurance policies generally cover, subject to the
limitations and restrictions contained therein, 80% to 90% of
our revenue loss derived from a specified governmental act such
as confiscation, expropriation, riots, the inability to convert
local currency into hard currency, and, in certain cases, the
breach of agreements. We have obtained such insurance for all of
our foreign projects in operation with the exception of a
portion of the Zunil project, for which we are currently
negotiating insurance coverage.
Recent
Developments
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In January 2009, we signed a contract with Banco Centroamericano
de Integración Económica (BCIE) for the supply,
supervision of installation,
start-up and
testing of the Las Pailas Geothermal Plant, a new geothermal
power plant that is to be constructed in the Las Pailas Field,
Costa Rica. The plant will be utilized by Instituto
Costarricense de Electricidad, the Costa Rican national
electricity and telecommunications company. The contract is
valued at approximately $65.0 million and the supply
portion of the contract is expected to be completed within
18 months from the contract start date.
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In January 2009, our wholly owned subsidiary, OrPower 4 Inc.,
signed loan documents for project financing of up to
$105 million to refinance its investment in the 48 MW
Olkaria III geothermal power plant located in Kenya. The
loans are to be provided by a group of European Development
Finance Institutions arranged by DEG Deutsche
Investitions und Entwicklungsgesellschaft mbH (DEG).
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In January 2009, we declared commercial operation of
Phase II of the Olkaria III power plant in Kenya, the
construction of which was completed in December 2008. The new
power plant added 35 MW to the existing 13 MW plant
that has been in continuous operation since 2001.
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During 2008, we secured geothermal rights for approximately
150,000 acres of land to explore geothermal resources in 12
sites that are located in Alaska, California, Hawaii, Nevada,
Oregon and Utah.
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In December 2008, we brought on line the first 5.5 MW unit
of OREG 2 and in January 2009 we brought on-line the second
5.5 MW unit of OREG 2. Both units are located in North
Dakota and sell the electric output to Basin Electric Power
Cooperative.
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In December 2008, the Executive Board of the United Nations
Framework Convention on Climate Change (UNFCCC) officially
registered Ormats Amatitlan Geothermal Project in
Guatemala as a Clean Development Mechanism (CDM).The CDM program
was designed to provide businesses from developed countries with
an economic incentive to help reduce carbon emissions and
increase sustainable development in countries that do not have
emission reduction targets. The project is expected to offset
emissions of approximately 83,000 tons of
CO2
per year. With Amatitlan registered under the CDM, the project
will be eligible to receive certified emission reduction
credits, each equivalent to one ton of carbon dioxide, which can
be traded or sold. The project has a long term contract to sell
all of its emission reduction credits to a European buyer.
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In December 2008, we exercised an option to acquire for a
nominal amount the remaining 51% in the company that owns the
GDL power plant located in Kawerau, New Zealand. The project,
which was completed in the third quarter of 2008, sells its
electrical output under a long term contract with Norske Skog
Tasman Ltd., and we expect annual revenues from the project of
approximately NZ $4 million.
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On October 29, 2008, Ormat Funding Corp. 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.
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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, Wyoming, uses OEC
to provide power without the use of any sort of fuel.
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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.
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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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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 lets us issue various types of
securities in registered offerings 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.
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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 NV Energy, Inc. (formerly known as
Sierra Pacific Resources), and an amendment to the existing
power purchase agreement. The JOA was
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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,
Nevada Power Company is not obligated to close the acquisition
and we may continue to develop the project by ourselves. Under
the JOA each 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 through 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. The results of the exploration drilling so
far do not support a 30 MW project based on the deep
geothermal resources. We are currently evaluating the shallow
resource.
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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. As a result, the consortium is
currently 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.
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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 second half of
2009.
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In April 2008, our wholly owned subsidiary, Ormat Nevada,
concluded the second closing of a transaction to monetize
production tax credits and other favorable tax attributes, such
as accelerated depreciation, generated from certain of its
geothermal power projects, associated with the Galena 3
geothermal project. We received $63.0 million, net of
transaction costs from the second closing. We 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 late 2009 or early 2010.
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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
Converter units 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
which 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 is located 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
(subsidiaries of NV Energy, Inc.), 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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Description
of Our Projects
In the year ended December 31, 2008, revenues from the sale
of electricity by our domestic geothermal and recovered energy
projects were $206.8 million, constituting 82% of our total
revenues from the sale of electricity, and revenues from the
sale of electricity by our foreign geothermal projects were
$45.5 million, constituting 18% of our total revenues from
the sale of electricity.
Domestic
Projects
Our projects in operation in the United States have a generating
capacity of approximately 377 MW. Our current domestic
projects are located in California, Nevada, Hawaii, North
Dakota, and South Dakota. We also have geothermal projects under
construction or enhancement in California, Nevada and Hawaii and
recovered energy projects under construction in Montana,
Minnesota and Colorado.
The
Ormesa Complex
The Ormesa complex is located in East Mesa, Imperial County,
California. The Ormesa complex consists of six plants. The
various plants commenced commercial operations between 1987 and
1989. The plants utilize binary and flash systems. The Ormesa
complex had a generating capacity of 47 MW, which we
successfully increased to 57 MW in the first quarter of
2007. The Ormesa complex sells its electrical output to Southern
California Edison Company (Southern California Edison) under an
amended power purchase agreement, which consolidated the
previous power purchase agreements dated June 13, 1984 and
July 18, 1984, respectively. The amended power purchase
agreement, which will expire in 2018, preserved the material
terms of the previous agreements; however, the amended agreement
provides for the supply of an additional 10MW of electrical
output.
26
The
Heber Complex
The Heber complex consists of the Heber 1 project, the Heber 2
project and the Heber South project.
The Heber 1 Project. The Heber 1 project is
located in Heber, Imperial County, California. The Heber 1
project includes one power plant, which commenced commercial
operations in 1985, and a geothermal resource field. The plant
utilizes a dual flash system and had a generating capacity of
approximately 38 MW. An Ormat Integrated Two
Level Unit (ITLU) that was added in 2006 (which we formerly
referred to as the Gould project) increased the generating
capacity to 46 MW. The Heber 1 project sells its electrical
output to Southern California Edison under a long-term power
purchase agreement, which will expire in 2015. In certain
circumstances, Southern California Edison and its affiliated
entities have a right of first refusal to acquire the power
plant. Upon satisfaction of certain conditions specified in the
power purchase agreement and subject to receipt of requisite
approvals and negotiations between the parties, our project
subsidiary will have the right to demand that Southern
California Edison purchase the power plant.
The Heber 2 Project. The Heber 2 project is
also located in Heber, Imperial County, California. The Heber 2
project includes one power plant which commenced commercial
operations in 1993. The plant utilizes a binary system and had a
generating capacity of approximately 34 MW. A
bottoming-cycle OEC that was added in 2006 (which we formerly
referred to as the Gould project) increased the generating
capacity to 36 MW. The Heber 2 project sells its electrical
output to Southern California Edison under a long-term power
purchase agreement, which will expire in 2023.
The Heber South Project. The Heber South
project is located in Heber, Imperial County, California. The
project commenced commercial operation in April 2008. The plant
utilizes a binary system and has a generating capacity of
10 MW. The project sells its electrical output under a
long-term power purchase agreement with Southern California
Public Power Authority. The project is currently performing at a
level that is lower than its generation capacity and we plan to
drill an additional well in 2009 to bring the generating
capacity to the design capacity.
The
Steamboat Complex
The Steamboat complex, located in Washoe County, Nevada,
consists of the Steamboat 1A project, the Steamboat 2/3 project,
the Burdette project, the Steamboat Hills project, the Galena 2
project and the Galena 3 project.
The complex is comprised of 7 power plants with a combined
generating capacity of 84 MW. The Steamboat 1A, Steamboat
2/3, Burdette, Steamboat Hills, and Galena 3 projects sell their
electrical output to Sierra Pacific Power Company under separate
long-term power purchase agreements, which expire in 2018, 2022,
2026, 2018 and 2028, respectively. The Galena 2 project sells
its electrical output to Nevada Power Company under a long-term
power purchase agreement which expires in 2027. Except for
Steamboat Hills, which utilizes a single flash system, all of
the projects in the Steamboat complex utilize a binary system.
The Steamboat Hills, Galena 2 and Galena 3 projects were
refinanced with the proceeds from the OPC Tax Monetization
transaction. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations for a further description of the OPC Tax
Monetization transaction.
We have experienced protracted failures of two of the Steamboat
2/3 projects turbines, which were not manufactured by us.
We replaced the four turbines of this project during 2008 and
successfully upgraded the project and brought the project back
to its original capacity. As a consequence of the failure,
Sierra Pacific Power Company raised certain contractual issues
that we are addressing with them. We do not expect that these
issues will have a material effect on our business or results of
operation.
The
Mammoth Complex
The Mammoth complex is located in Mammoth Lakes, California. The
Mammoth complex is comprised of three plants, which commenced
commercial operations between 1985 and 1990. The Mammoth complex
utilizes a binary system and has a generating capacity of
29 MW, including 4 MW that we added during the
27
course of 2006. Our project subsidiary, OrMammoth, Inc., owns a
50% partnership interest in Mammoth-Pacific, L.P., which owns
100% of the Mammoth complex. The other 50% partnership interest
is owned by an unrelated third party. The Mammoth complex sells
its electrical output to Southern California Edison under three
separate power purchase agreements, one of which expires in 2014
and the other two in 2020.
The
Brady Complex
The Brady complex, located in Churchill County, Nevada, consists
of the Brady project and the Desert Peak 2 project.
The Brady Project. The Brady project utilizes
flash and binary systems. It originally had a generating
capacity of approximately 19 MW. Following the shutdown of
the Desert Peak 1 plant and as a result of cooling that we have
experienced in the geothermal reservoir, the Brady project has a
generating capacity of 11 MW, and sells its electrical
output to Sierra Pacific Power Company under a long-term power
purchase agreement that will expire in 2022. We are examining
several alternatives to increase the Brady projects
generating capacity; however, there is no assurance that we will
be successful.
The Desert Peak 2 Project. The Desert Peak 2
project includes a water cooled unit and an air cooled unit,
utilizing our OEC units. The Desert Peak 2 project has a
generating capacity of 11 MW. The project commenced
commercial operation in the first quarter of 2007. The Desert
Peak 2 project sells its electrical output to Nevada Power
Company under a power purchase agreement that has a
20-year term
ending on December 31, 2027.
The
Puna Project
The Puna project is located in the Puna district, Big Island,
Hawaii. The Puna plant commenced commercial operations in 1993.
The Puna plant utilizes an Ormat geothermal combined cycle
system, and has a generating capacity of 30 MW. The Ormat
geothermal combined cycle system consists of a back pressure
steam turbine, in which the lower pressure steam exhausted from
the turbine is condensed in a binary system. This system assures
a higher efficiency of geothermal steam, with a resulting lower
steam rate, in resources producing steam above 150psi (10 bar),
or even 100psi if the steam has a high non-condensable gas
content. The Puna project sells its electrical output to Hawaii
Electric Light Company under two power purchase agreements,
which expire in 2027. Although the Puna project has significant
geothermal resources, because of existing geological conditions,
these resources are difficult to manage. In the past, the Puna
project required extensive levels of investment mainly to
address problems with the production and injection wells related
to the geothermal resources.
The
OREG 1 Project
The OREG 1 project is a REG project that consists of four power
plants constructed on gas compressor stations along a natural
gas pipeline in North and South Dakota. The project came on line
during the third quarter of 2006 and has a generating capacity
of 22 MW. Our project subsidiary has entered into a
25-year
power purchase agreement with Basin Electric Power Cooperative
(Basin Electric) pursuant to which the project sells the
electrical output to Basin Electric.
The
North Brawley Project
The North Brawley project is located in the Brawley KGRA in
Imperial County, California. The project utilizes a binary
system and has a generating capacity of 50 MW. The binary
system consists of five identical OEC units, which utilize water
cooled condensers. The project will sell its electrical output
to Southern California Edison under a
20-year
power purchase agreement.
Construction of the project was substantially completed in
December 2008. During the
start-up
testing we have encountered larger quantities of sand in the
geothermal reservoir than initially expected, which required
modification of the power plant. As a result, commercial
operation of the power plant and sale of power in
28
commercial quantities is currently expected in the second
quarter of 2009. Until then the plant is expected to run at
partial load.
The
OREG 2 Projects
We have entered into four power purchase agreements with Basin
Electric Power Cooperative (Basin Electric) regarding four new
REG power plants, with a total generating capacity of
22 MW, along the Northern Border Pipeline. Under these
agreements, we will sell electricity that will be produced by
four new Ormat REG facilities that will have a net capacity of
5.5 MW each. These facilities will convert the recovered
waste heat from the exhaust of existing gas turbines at
compressor sites located on the Northern Border natural gas
pipeline into clean energy. We brought on line two of the four
units and the project is currently generating a total of
approximately 11 MW. The remaining two units are expected
to be commissioned by the end of 2009. We have secured the
rights to the waste heat for all four new facilities.
Foreign
Projects
Our projects in operation outside of the United States have a
generating capacity of approximately 128 MW.
The
Momotombo Project (Nicaragua)
The Momotombo project is located in Momotombo, Nicaragua. The
Momotombo project is comprised of one plant and a geothermal
field. The plant was already in existence when we signed the
concession agreement for the project in March 1999, and had
commenced commercial operations in the mid-1980s utilizing a
dual flash system. The concession expires in 2014. During 2006
we increased the output of the Momotombo project by 3 MW
through a work-over of the projects existing wells,
bringing the generating capacity to approximately 30 MW.
During 2008, the project experienced a decline in the geothermal
reservoir and as a result, its generating capacity was reduced
by 2 MW to 28 MW. The Momotombo project has a power
purchase agreement with Empresa Distribuidora de Electricidad
del Norte (DISNORTE) and Empresa Distribuidora de Electricidad
del Sur (DISSUR), two corporations which own the power
distribution rights in Nicaragua. Our project subsidiary, which
operates the Momotombo project, has an outstanding loan from
Bank Hapoalim B.M.
The
Olkaria III Project (Kenya)
The Olkaria III project is located in Naivasha, Kenya. The
48 MW Olkaria III project is comprised of binary OEC
units and a geothermal field. Phase I commenced commercial
operation in August 2000 with three units with a generating
capacity of 13 MW. Phase II added three units with a
generating capacity of 35 MW and commenced commercial
operation in January 2009. The Olkaria III project has a
power purchase agreement with the Kenya Power and Lighting Co.
Ltd. (KPLC), the Kenyan parastatal electricity transmission and
distribution company, which will expire in 2029. Our project
subsidiary leases the site on which the geothermal resources and
the plant facilities are located from the Kenyan government,
pursuant to an agreement which will expire in 2040. The Kenyan
government granted our project subsidiary a license giving it
exclusive rights of use and possession of the relevant
geothermal resources for an initial period of 30 years,
expiring in 2029, which initial period may be extended by us for
two additional five-year terms. The Kenyan Minister of Energy
has the right to terminate or revoke the license in the event
our project subsidiary ceases work in or under the license area
during a period of six months, or has failed to comply with the
terms of the license or the provisions of the law relating to
geothermal resources. Our project subsidiary is obligated to pay
the Kenyan government monthly royalties based on the amount of
power supplied to KPLC.
The
Zunil Project (Guatemala)
The Zunil project is located in Zunil, Guatemala. The Zunil
project is comprised of one plant which commenced commercial
operations in 1999. The plant utilizes a binary system
consisting of Ormat Energy Converters and has a generating
capacity of 24 MW. The project is owned by Orzunil I de
Electricidad,
29
Limitada, which owns 100% of the Zunil project. Another of our
subsidiaries provides operation and maintenance services to the
project. The Zunil project sells its generating capacity to
Instituto Nacional de Electrification pursuant to a power supply
agreement, which expires in 2019.
The
Amatitlan Project (Guatemala)
Our project subsidiary has completed the construction and owns a
geothermal power plant in Amatitlan, Guatemala on a build,
own and operate or BOO basis. The project is
comprised of one power plant, with a generating capacity of
20 MW, and rights to various geothermal production and
reinjection wells. The Amatitlan plant uses our Ormat Energy
Converters. During 2007, we commenced commercial operation of
the project, which currently generates approximately 17 MW.
We are in the process of drilling additional wells to bring the
project up to its 20 MW generating capacity and to explore
the potential of the resource for future expansion.
The term of the power purchase agreement expires in 2028. At any
time prior to the third quarter of 2009, subject to the results
of a reservoir and economic evaluation, our project subsidiary
may continue further developments to increase the power
generating capacity of the Amatitlan Geothermal Field by up to
30 MW through the drilling of additional wells. We
currently sell approximately 10 MW to Instituto Nacional de
Electrification according to the rate under the power purchase
agreement and approximately 4 MW to a local purchaser at
the same rate. The remaining 3 MW is sold on the spot
market at prevailing market rates.
The
GDL project (New Zealand)
The GDL project is located in Kawerau, New Zealand. The project
utilizes a binary system and has a generating capacity of
8 MW. The binary system consists of one OEC and one
production well. The project sells the electricity produced to
Norske Skog Tasman Ltd. under a
seven-year
power purchase agreement. During 2009, we plan to drill another
well as a backup to ensure the sufficient availability of the
resource.
The former shareholder of GDL has a call option to purchase from
us our shares in GDL. The option is exercisable annually within
a period of 91 days, commencing the date of project
completion under the agreement (September 15,
2008) and on the anniversary of that date in each
subsequent year. The option price is set in the agreement for
each annual exercise period, and the agreement requires that
prior to the exercise of the option, the option holder will
repay any obligation of GDL to us. We and the former shareholder
(following the exercise of the option), may not transfer or sell
the shares of GDL to a third party without a written consent of
the other party, which may exercise a right of first refusal for
any such sale.
Projects
under Construction
We are in varying stages of construction or enhancement of
projects, both domestic and foreign. Based on our current
construction schedule, we expect to add new generating capacity
of between 82 MW and 94 MW by the end of 2010. The
following is a description of the projects currently undergoing
construction:
The
Puna Project (U.S.)
We are currently pursuing enhancement activity in the Puna
project. We plan to add 8 MW through the construction of
OEC units in 2009. We are in discussions with Hawaii Electric
Light Company for the sale of additional electrical power from
the Puna project.
The
Peetz Project (U.S.)
We are in final completion of the Peetz REG plant, which is
expected to have a generating capacity of 4 MW. Our project
subsidiary has entered into a
20-year
power purchase agreement with Highline Electric Association, a
consumer-owned cooperative serving load in Colorado and
Nebraska, pursuant to which the project will sell its electrical
output to Highline Electric Association. The power plant is
being constructed on a gas compressor station along a natural
gas pipeline near Denver, Colorado. The facility will convert
the
30
recovered waste heat from the exhaust of existing gas turbines
into clean energy, and is expected to be commissioned in the
first quarter of 2009.
The
East Brawley Project (U.S.)
We plan to construct a 30 MW power plant in the Brawley
known geothermal resource area in Imperial County, California,
adjacent to the North Brawley project, and have begun
manufacturing equipment and exploration drilling. Completion of
the project was initially projected for the end of 2009. We are
still awaiting the required construction permits and therefore
the projects completion will be delayed until 2010.
The
GRE project (U.S.)
We are developing the 5.5 MW recovered energy generation
GRE project, which will be located along the Northern Boarder
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.
The
Jersey Valley Project (U.S.)
We are currently developing the Jersey Valley project on Bureau
of Land Management leases located in Nevada. The project will
deliver between 18 MW to 30 MW of power generation
under a
20-year
power purchase agreement with Nevada Power Company.
Projects
under Development and Future Projects
We also have projects under development in the United States and
Indonesia. We expect to continue to explore these and other
opportunities for expansion so long as they continue to meet our
business objectives and investment criteria. The following is a
description of the projects currently under various stages of
development that are expected to come on-line beyond 2010:
The
Carson Lake Project (U.S.)
We are currently developing the Carson Lake project, located in
Churchill County, Nevada. If completed, the project is expected
to deliver between 18 MW to 30 MW of power generation
under a
20-year
power purchase agreement with Nevada Power Company. We have
obtained some of the leases through an agreement with the
U.S. Department of the Navy and the remaining leases (on
federal land) through an agreement with the Bureau of Land
Management.
We recently completed the drilling of two wells to reach the
deep resource. The results of the drilling showed high
temperature but no brine was found. We are now evaluating the
feasibility of utilizing the shallow reservoir.
As described in Recent Developments, in March 2008,
we signed a JOA with Nevada Power Company (a subsidiary of NV
Energy, Inc.) for this project. Under the agreement, Nevada
Power Company has the right to acquire a 50% ownership interest
in the Carson Lake project if the development results indicate
that the reservoir will support at least a 30 MW project.
The recent exploration results show that the deep geothermal
reservoir cannot support a 30 MW project, as noted above.
The
Imperial Valley Project (U.S.)
We are conducting exploration activities as part of the
development of the Imperial Valley project on private leases
located in Imperial County, California. If completed, the
project is expected to deliver 50 MW of power generation
under a
20-year
power purchase agreement with Southern California Edison. We are
in the process of obtaining drill permits to continue the
exploration activity in this project.
31
Mammoth
Phase II (U.S.)
We are currently developing Phase II of the Mammoth project
located in Mammoth Lakes, California. If completed,
Phase II of the project is expected to deliver between
20 MW to 30 MW of power generation under a long term
contract that we are negotiating with Southern California Edison
Company. We have a 50% ownership interest in the project and the
other 50% is owned by an unrelated third party.
The
McGinness Hills Project (U.S).
We are currently developing and conducting exploration activity
on the McGinness Hills project on Bureau of Land Management
leases located in Nevada. If completed, we expect the project to
deliver approximately 30 MW of power generation.
The
Sarulla Project (Indonesia)
We are a member of a consortium which is in the process of
developing a geothermal power project in Indonesia of
approximately 340 MW. We own 12.75% of the Indonesian
special purpose company that will operate the project.
The project, located in Tapanuli Utara, North Sumatra,
represents the largest single-contract geothermal power project
to date, and reflects the large scale, high productivity and
potential of Indonesian geothermal resources. The project will
be owned and operated by the consortium members under the
framework of the Joint Operating Contract with PT Pertamina
Geothermal Energy PGE, and is to be constructed in three phases
over five years, with each phase utilizing Ormat designed and
supplied power generation units of 110 to 120 MW. The
consortium is currently negotiating certain amendments to the
power purchase agreement, including an adjustment of commercial
terms, and intends to proceed with the project after those
amendments have become effective.
Exploration
Activity
In addition to the geothermal projects under construction,
advanced exploration and development, we have various leases for
geothermal resources, in which we have started exploration
activity. These geothermal resources include the following:
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Gabbs Valley Nevada
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Dead Horse Nevada;
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Smith Creek Nevada;
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Glass Mountain Oregon; and
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As described under How We Explore and Evaluate
Geothermal Resources section on page 20, we carry
out exploration activity first to validate and then to quantify
the size of the potential geothermal resources. The foregoing
development inventories are in various stages of evaluation,
permitting
and/or
cancelation for lack of viable geothermal resources. The North
Brawley project is our first project that has advanced from
exploration activities to project construction phase. We began
our exploration activity in 2006 and have increased these
efforts in 2007 and 2008. In 2009, we plan to carry out parallel
exploratory drilling, which we believe will enable us to
increase the rate of evaluation and development of new
commercially viable projects. We do not expect, however, that
our exploration activities will lead to a commercially viable
project in each case and some of the geothermal leases that we
explore have been, and will be, abandoned.
Development
Inventory
In addition to the geothermal projects under construction,
development or exploration, we have various geothermal leases
for future development in the United States and other
development rights outside of the United States. These
geothermal leases and rights cover approximately
220,000 acres, approximately
32
120,000 acres of which were secured during 2008. The
geothermal leases in the United States are located in
California, Nevada, Hawaii, Oregon, Idaho and Utah. Outside the
United States we have leases in Guatemala.
Operations
of our Products Segment
Power Units for Geothermal Power Plants. We
design, manufacture and sell power units for geothermal
electricity generation, which we refer to as Ormat Energy
Converters or OECs. Our customers include contractors and
geothermal plant owners and operators.
The consideration for the power units is usually paid in
installments, in accordance with milestones set in the supply
agreement. Sometimes we agree to provide the purchaser with
spare parts (or alternatively, with a non-exclusive license to
manufacture such parts). We provide the purchaser with at least
a 12-month
warranty for such products. We usually also provide the
purchaser (often, upon receipt of advances made by the
purchaser) with a guarantee, which expires in part upon delivery
of the equipment to the site and fully expires at the
termination of the warranty period. The guarantees are at times
covered by letters of credit. We have not received any claims
under the performance guarantees to date.
Power Units for Recovered Energy-Based Power
Generation. We design, manufacture and sell power
units used to generate electricity from recovered energy or
so-called waste heat. That heat is generated as a
residual by-product of gas turbine-driven compressor stations
and a variety of industrial processes, such as cement
manufacturing, and is not otherwise used for any purpose. Our
existing and target customers include interstate natural gas
pipeline owners and operators, gas processing plant owners and
operators, cement plant owners and operators, and other
companies engaged in other energy-intensive industrial
processes. We view recovered energy generation as a significant
market opportunity for us, and plan to utilize two different
business models in connection with such business opportunity.
The first business model, which is similar to the model utilized
in our geothermal power generation business, consists of the
development, construction, ownership and operation of recovered
energy-based generation power plants. In this case, we will
enter into agreements to purchase industrial waste
heat, and enter into long-term power purchase agreements
with off-takers to sell the electricity generated by the
recovered energy generation unit that utilizes such industrial
waste heat. The power purchasers in such cases generally are
investor-owned electric utilities or local electrical
cooperatives, such as our power purchase agreement with Great
River Energy for power from our REG facility on the Northern
Border natural gas pipeline. Pursuant to the second business
model, we construct and sell the power units for recovered
energy-based power generation to third parties for use in
inside-the-fence installations or otherwise. Our
customers include gas processing plant owners and operators,
cement plant owners and operators and companies in the process
industry. The Neptune recovered energy project is an example of
such a model. There, we installed one of our recovered
energy-based generation units at Enterprise Products
Neptune gas processing plant in Louisiana. The unit utilizes
exhaust gas from two gas turbines at the plant and is providing
electrical power that is consumed internally by the facility
(although a portion of the generated electricity is also sold to
the local electric utility). Our recovered energy generation
units, if structured properly, may be eligible for favorable tax
treatment, such as the seven-year modified accelerated cost
recovery under relevant U.S. federal tax rules.
Remote Power Units and other Generators. We
design, manufacture and sell fossil fuel powered
turbo-generators with a capacity ranging between 200 watts and
5,000 watts, which operate unattended in extreme climate
conditions, whether hot or cold. The remote power units supply
energy for remote and unmanned installations and along
communications lines and cathodic protection along gas and oil
pipelines. Our customers include contractors installing gas
pipelines in remote areas. In addition, we manufacture and sell
generators for various other uses, including heavy duty direct
current generators. The terms of sale of the turbo-generators
are similar to those for the power units produced for power
plants.
Engineering, Procurement and Construction (EPC) of Power
Plants. We engineer, procure and construct, as an
EPC contractor, geothermal and recovered energy power plants on
a turnkey basis, using power units we design and manufacture.
Our customers are geothermal power plant owners as well as the
same customers described above that we target for the sale of
our power units for recovered energy-based power
33
generation. Unlike many other companies that provide EPC
services, we have an advantage in that we are using our own
manufactured equipment and thus have better control over the
timing and delivery of required equipment and its costs. The
consideration for such services is usually paid in installments,
in accordance with milestones set in the EPC contract and
related documents. We usually provide performance guarantees or
letters of credit securing our obligations under the contract.
Upon delivery of the plant to its owner, such guarantees are
replaced with a warranty guarantee, usually for a period ranging
from 12 months to 36 months. The EPC contract usually
places a cap on our liabilities for failure to meet our
obligations thereunder. We also design and construct the
recovered energy generation units on a turnkey basis, and may
provide a long-term agreement to supply non-routine maintenance
for such units. Our customers are interstate natural gas
pipeline owners and operators, gas processing plant owners and
operators, cement plant owners and operators, and companies
engaged in the process industry.
In connection with the sale of our power units for geothermal
power plants, power units for recovered energy-based power
generation and remote power units and other generators, we, from
time to time, enter into sales agreements for the marketing and
sale of such products pursuant to which we are obligated to pay
commissions to such representatives upon the sale of our
products in the relevant territory covered by such agreements by
such representatives or, in some cases, by other representatives
in such territory.
Our manufacturing operations and products are certified ISO
9001, ISO 14001, ASME, and TÜV, and we are an approved
supplier to many electric utilities around the world.
Backlog
We have a products backlog of $194.0 million as of
February 24, 2009, which includes revenues for the period
between January 1, 2009 and February 24, 2009, compared to
$64.2 million as of February 26, 2008. The following
is a breakdown of the Products Segment backlog:
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Sales Expected
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to be
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Recognized in
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Expected Sales
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Expected
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Sales Expected to
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the Years
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until the End
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Completion
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be Recognized in 2009
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following 2009
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of the Contract
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of the Contract
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(in millions)
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(in millions)
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(in millions)
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Geothermal
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20092010
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$99.5
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$55.3
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$154.8
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Recovered Energy
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20092010
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13.7
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15.6
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29.3
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Remote Power Units
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2009
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3.0
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3.0
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Other
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20092010
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3.9
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3.0
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6.9
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Total Products Backlog
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$120.1
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$73.9
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$194.0
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We expect that our revenues from electricity for the 2009 fiscal
year will be between $280 million and $290 million
from our wholly owned projects and approximately $9 million
from our subsidiary accounted for by the equity method.
Our
Technology
Our proprietary technology covers power plants operating
according to the Organic Rankine Cycle only or in combination
with the Steam Rankine Cycle and Brayton Cycle, as well as
integration of power plants with energy sources such as
geothermal, recovered energy, biomass, solar energy and fossil
fuels. Specifically, our technology involves original designs of
turbines, pumps, and heat exchangers, as well as formulation of
organic motive fluids. All of our motive fluids are
non-ozone-depleting substances. Using advanced computerized
fluid dynamics and other computer aided design, or CAD, software
as well as our test facilities, we continuously seek to improve
power plant components, reduce operations and maintenance costs,
and increase the range of our equipment and applications. In
particular, we are examining ways to increase the output of our
plants by utilizing evaporative cooling, cold reinjection,
performance simulation programs, and topping turbines. In the
geothermal as well as the recovered energy (waste heat) areas,
we are examining two-level recovered energy systems and new
motive fluids.
34
We also construct combined cycle geothermal plants in which the
steam first produces power in a backpressure steam turbine and
is subsequently condensed in a vaporizer of a binary plant,
which produces additional power.
In the conversion of geothermal energy into electricity, our
technology has a number of advantages compared with conventional
geothermal steam turbine plants. A conventional geothermal steam
turbine plant consumes significant quantities of water, causing
depletion of the aquifer, and also requires cooling water
treatment with chemicals and thus a need for the disposition of
such chemicals. A conventional geothermal steam turbine plant
also creates a significant visual impact in the form of an
emitted plume from the cooling tower during cold weather. By
contrast, our binary and combined cycle geothermal power plants
have a low profile with minimum visual impact and do not emit a
plume when they use air cooled condensers. Our binary and
combined cycle geothermal power plants reinject all of the
geothermal fluids utilized in the respective processes into the
geothermal reservoir. Consequently, such processes generally
have no emissions.
Other advantages of our technology include simplicity of
operation and easy maintenance, low RPM, temperature and
pressure in the Ormat Energy Converter, a high efficiency
turbine and the fact that there is no contact between the
turbine itself and often corrosive geothermal fluids.
We use the same elements of our technology in our recovered
energy products. The heat source could be exhaust gases from a
simple cycle gas turbine, low pressure steam or, medium
temperature liquid found in the process industry. In most cases,
we attach an additional heat exchanger in which we circulate
thermal oil to transfer the heat into the Ormat Energy
Converters own vaporizer in order to provide greater
operational flexibility and control. Once this stage of each
recovery is completed, the rest of the operation is identical to
the Ormat Energy Converter used in our geothermal power plants.
The same advantages of using the Organic Rankine Cycle apply
here as well. In addition, our technology allows for better load
following than a
35
conventional steam turbine can exhibit, requires no water
treatment as it is air cooled, and does not require the
continuous presence of a steam licensed operator on site.
More than 75 United States patents (and about 14 pending
patents) cover our products (mainly power units based on the
Organic Rankine Cycle) and systems (mainly geothermal power
plants and industrial waste heat recovery for electricity
production). The systems-related patents cover not only a
particular component but also the overall effectiveness of the
plants systems from the fuel (i.e. geothermal
fluid, waste heat, biomass or solar) to generated electricity.
The duration of such patents ranges from one year to
14 years. No single patent on its own is material to our
business.
The products-related patents cover components such as turbines,
heat exchanges, seals and controls. The system patents cover
subjects such as disposal of non-condensable gases present in
geothermal fluids, power plants for very high pressure
geothermal resources and use of two-phase fluids. A number of
patents cover the combined cycle geothermal power plants, in
which the steam first produces power in a backpressure steam
turbine and is subsequently condensed in a vaporizer of a binary
plant, which produces additional power.
We are also involved in developing new technology (Enhanced
Geothermal Systems or EGS) to extract heat from the earth by
circulating fluid through an enhanced or man-made reservoir
created in naturally low permeable rocks as well as from
co-produced hot water from oil and gas fields. We are
undertaking this development in cooperation with GeothermEx
Inc., the University of Utah, Energy & Geoscience
Institute, the University of Nevada-Reno and the Great Basin
Center for Geothermal Energy, with funding support from the
36
United States Department of Energy. The projects are being
developed at our Desert Peak 2 and the Brady plants in Nevada.
In our Electricity Segment, we face competition from geothermal
power plant owners and developers as well as other renewable
energy providers.
In our Products Segment, we face competition from power plant
equipment manufacturers and suppliers.
Electricity
Segment
Our main competitors among geothermal power plant owners and
developers in the United States are CalEnergy, Calpine,
Terra-Gen Power LLC, ENEL SpA and other
smaller-sized developers such as U.S. Geothermal Inc.,
Nevada Geothermal Power Corp., Raser Technologies Inc., and
Vulcan Power. Some of these companies are also active outside of
the United States. Other competitors outside of the United
States, aside from these companies, include affiliates of
Chevron Corporation. We may also face competition from national
electric utilities or state-owned oil companies.
Our competitors among renewable energy providers include
companies engaged in the power generation business from
renewable energy sources other than geothermal energy, such as
wind power, biomass, solar power and hydro-electric power. In
the last few years, competition from the wind and solar power
generation industries has increased significantly. However,
current demand for renewable energy is large enough that this
increased competition has not materially impacted our ability to
obtain new power purchase agreements. We cannot ascertain at
this time whether the competition from wind and solar energy
will have an impact on electricity prices for new renewable
projects.
In the recovered energy generation business, our competitors are
Siemens AG of Germany, as well as other manufacturers of
conventional steam turbines; although we believe that our
recovered energy generation system has technological and
economical advantages over the Siemens/Kalina technology and,
under certain conditions, conventional steam technology.
37
Products
Segment
Our main competitors among power plant equipment suppliers are
Mitsubishi, Fuji and Toshiba of Japan, GE/Nuovo Pignone, Ansaldo
Energia and Turboden s.r.l. of Italy, Siemens AG of Germany,
Alstom S.A. of France, OAO Kaluga Energo of Russia and United
Technology Company for small units.
In the recovered energy generation business, our competitors are
Siemens AG of Germany, as well as other manufacturers of
conventional steam turbines as described above for our
Electricity Segment.
In the remote power unit business, we face competition from
Global Thermoelectric, as well as from manufacturers of diesel
generator sets.
None of our competitors competes with us both in the sale of
electricity and in the products business.
Customers
Most of our revenues from the sale of electricity in the year
ended December 31, 2008 were derived from fully-contracted
energy
and/or
capacity payments under long-term power purchase agreements with
governmental and private utility companies. Southern California
Edison, Hawaii Electric Light Company, Sierra Pacific Power
Company and Nevada Power Company, and Southern California Power
Public Authority accounted for 27.6%, 16.7%, 12.6% and 1.3% of
revenues, respectively, for the year ended December 31,
2008. Based on publicly available information, as of
December 31, 2008, the issuer ratings of Southern
California Edison, Hawaii Electric Light Company, Sierra Pacific
Power Company, Nevada Power Company and Southern California
Power Public Authority were as set forth below:
|
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|
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Issuer
|
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Standard & Poors Ratings Services
|
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Moodys Investors Service Inc.
|
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Southern California Edison
|
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BBB+ (stable outlook)
|
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A3 (stable outlook)
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Hawaii Electric Light Company
|
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BBB (stable outlook)
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Baa1 (stable outlook)
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Sierra Pacific Power Company
|
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BB (stable outlook)
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Ba3 (stable outlook)
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Nevada Power Company
|
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BB (stable outlook)
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Ba3 (stable outlook)
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Southern California Power Public Authority
|
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A+ (stable outlook)
|
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A1 (stable outlook)
|
The credit ratings of any power purchaser may decrease from time
to time. There is no publicly available information with respect
to the credit rating or stability of the power purchasers under
the power purchase agreements for our foreign power projects.
Our revenues from the products business were derived from
contractors or owners or operators of power plants, process
companies and pipelines.
Raw
Materials, Suppliers and Subcontractors
In connection with our manufacturing activities, we use raw
materials such as steel and aluminum. We do not rely on any one
supplier for the raw materials used in our manufacturing
activities, as all of such raw materials are readily available
from various suppliers.
Since 2005 we have increased the volume of work ordered from
subcontractors for some of the manufacturing for our products
components and for construction activities of our power plants,
which allowed us to expand our construction and development
capacity on an as-needed basis. We are not dependent on any one
subcontractor and expect to be able to replace any
subcontractor, or assume such manufacturing and construction
activities of our projects ourselves without adverse effect to
our operations.
Employees
As of December 31, 2008, we employed 1,069 employees,
of which 454 were located in the United States, 467 were located
in Israel and 148 were located in other countries. We expect
that future growth in the number of our employees will be mainly
attributable to the purchase
and/or
development of new power plants.
38
None of our employees (other than the Momotombo project
employees) are represented by a labor union, and we have never
experienced any labor dispute, strike or work stoppage. We
consider our relations with our employees to be satisfactory. We
believe our future success will depend on our continuing ability
to hire, integrate and retain qualified personnel.
We have no collective bargaining agreements with respect to our
Israeli employees. However, by order of the Israeli Ministry of
Industry, Trade and Labor the provisions of a collective
bargaining agreement between the Histadrut (the General
Federation of Labor in Israel) and the Coordination Bureau of
Economic Organizations (which includes the Industrialists
Association) may apply to some of our non-managerial, finance
and administrative, and sales and marketing personnel. This
collective bargaining agreement principally concerns cost of
living increases, length of the workday, minimum wages,
insurance for work-related accidents, procedures for dismissing
employees, annual and other vacation, sick pay, determination of
severance pay, pension contributions and other conditions of
employment. We currently provide such employees with benefits
and working conditions which are at least as favorable as the
conditions specified in the collective bargaining agreement.
Insurance
We maintain business interruption insurance, casualty insurance,
including flood and earthquake coverage, and primary and excess
liability insurance, as well as customary workers
compensation and automobile insurance and such other insurance,
if any, as is generally carried by companies engaged in similar
businesses and owning similar properties in the same general
areas or as may be required by any lease, financing arrangement
or other contract. To the extent any such casualty insurance
covers both us
and/or our
projects, on the one hand, and any other person
and/or
plants, on the other hand, we generally have specifically
designated as applicable solely to us and our projects all
risk property insurance coverage in an amount based upon
the estimated full replacement value of our projects (provided
that earthquake and flood coverage may be subject to annual
aggregate limits depending on the type and location of the
project) and business interruption insurance in an amount that
also varies from project to project.
We generally purchase insurance policies to cover our exposure
to certain political risks involved in operating in developing
countries. Political risk insurance policies are generally
issued by entities which specialize in such policies, such as
the Multilateral Investment Guarantee Agency (a member of the
World Bank Group), and from private sector providers, such as
Zurich Re and other such companies. To date all of our political
risk insurance contracts are with the Multilateral Investment
Guarantee Agency and with Zurich Re. We have obtained such
insurance for all of our foreign projects with the exception of
a portion of the Zunil project for which we are currently
negotiating insurance coverage. Such insurance policies
generally cover, subject to the limitations and restrictions
contained therein, 80% to 90% of our revenue loss derived from a
specified governmental act, such as confiscation, expropriation,
riots, and the inability to convert local currency into hard
currency and, in certain cases, the breach of agreements.
Regulation
of the Electric Utility Industry in the United States
The following is a summary overview of the electric utility
industry and applicable federal and state regulations, and
should not be considered a full statement of the law or all
issues pertaining thereto.
PURPA
PURPA provides certain benefits described below, if a project is
a Qualifying Facility. A small power production
facility is a Qualifying Facility if (i) the facility does
not exceed 80 megawatts, (ii) the primary energy
source of the facility is biomass, waste, renewable resources,
or any combination thereof, and 75% of the total energy input of
the facility is from these sources, and fossil fund input is
limited to specified uses; and (iii) the facility has filed
with FERC a notice of self-certification of qualifying status,
or has filed with FERC an application for FERC certification of
qualifying status, that has been granted. The 80 MW size
limitation, however, does not apply to a facility if (i) it
produces electric energy solely by the use, as a primary energy
input, of solar, wind, waste or geothermal resources; and
(ii) an application for certification or
39
a notice of self-certification of qualifying status of the
facility was submitted to the FERC prior to December 21,
1994, and construction of the facility commenced prior to
December 31, 1999.
PURPA exempts Qualifying Facilities from regulation under the
Public Utility Holding Company Act of 2005 (PUHCA) and exempts
Qualifying Facilities from most provisions of the Federal Power
Act (FPA) and state laws relating to the financial, organization
and rate regulation of electric utilities. In addition,
FERCs regulations promulgated under PURPA require that
electric utilities offer to purchase electricity generated by
Qualifying Facilities at a rate based on the purchasing
utilitys incremental cost of purchasing or producing
energy (also known as avoided cost).
Following passage of the Energy Policy Act of 2005, FERC issued
a final rule that requires Qualifying Facilities to obtain
market-based rate authority pursuant to the FPA for sales of
energy or capacity (i) from facilities larger than
20 MW in size; (ii) pursuant to a contract executed
after March 17, 2006 that is not a contract made pursuant
to a state regulatory authoritys implementation of PURPA;
or (iii) not pursuant to another provision of a state
regulatory authoritys implementation of PURPA. The
practical effect of this final rule is to require Qualifying
Facilities that are larger than 20 MW in size that seek to
engage in non-PURPA sales of power (i.e. power that is sold in a
manner that is not pursuant to a pre-existing contract or state
implementation of PURPA) to obtain market-based rate authority
from FERC for these non-PURPA sales. However, the rule protects
a Qualifying Facilitys rights under any contract or
obligation for the sale of energy in effect or pending approval
before the appropriate state regulatory authority or
non-regulated electric utility on August 8, 2005. Until
that contract expires, the Qualifying Facility will not be
required to file for market based rates.
The Energy Policy Act of 2005 also allows FERC to terminate a
utilitys obligation to purchase energy from Qualifying
Facilities upon a finding that Qualifying Facilities have
nondiscriminatory access to either (i) independently
administered, auction-based day ahead and real time markets for
energy and wholesale markets for long-term sales of capacity;
(ii) transmission and interconnection services provided by
a FERC-approved regional transmission entity and administered
under an open-access transmission tariff that affords
nondiscriminatory treatment to all customers, and competitive
wholesale markets that provide a meaningful opportunity to sell
capacity and energy, including long and short term sales; or
(iii) wholesale markets for the sale of capacity and energy
that are at a minimum of comparable competitive quality as
markets described in (i) and (ii) above. FERC issued a
rule to implement these provisions of the Energy Policy Act of
2005. This rule gives utilities the right to apply to eliminate
the mandatory purchase obligation. The rule also creates a
rebuttable presumption that a utility provides nondiscriminatory
access if it has an open access transmission tariff in
compliance with FERCs pro forma open access transmission
tariff. Further, the rule provides a procedure for utilities
that are not members of the four named regional transmission
organizations to file to obtain relief from the mandatory
purchase obligation on a service territory-wide basis, and
establishes procedures for affected Qualifying Facilities to
seek reinstatement of the purchase obligation. The rule protects
a Qualifying Facilitys rights under any contract or
obligation involving purchases or sales that are entered into
before FERC has determined that the contracting utility is
entitled to relief from the mandatory purchase obligation.
In addition, the Energy Policy Act of 2005 eliminated the
restriction on utility ownership of a Qualifying Facility. Prior
to the Energy Policy Act of 2005, electric utilities or electric
utility holding companies could not own more than a 50% equity
interest in a Qualifying Facility. Under the Energy Policy Act
of 2005, electric utilities or holding companies may own up to
100% of the equity interest in a Qualifying Facility.
We expect that our projects in the United States will continue
to meet all of the criteria required for Qualifying Facilities
under PURPA. However, since the Heber Projects have power
purchase agreements with Southern California Edison that require
Qualifying Facility status to be maintained, maintaining
Qualifying Facility status remains a key obligation. If any of
the Heber Projects loses its Qualifying Facility status our
operations could be adversely affected. Loss of Qualifying
Facility status would eliminate the Heber Projects
exemption from the FPA and thus, among other things, the rates
charged by the Heber Projects in the power purchase agreements
with Southern California Edison and SCPPA would become subject
to FERC regulation. Further, it is possible that the utilities
that purchase power from the projects could successfully obtain
an
40
elimination of the mandatory-purchase obligation in their
service territories. If this occurs, the Projects existing
power purchase agreements will not be affected, but the
utilities will not be obligated under PURPA to renew these power
purchase agreements or execute new power purchase agreements
upon the existing power purchase agreements expiration.
PUHCA
The Public Utility Act of 1935, (PUHCA) was repealed, effective
February 8, 2006, pursuant to the Energy Policy Act of
2005. Although PUHCA was repealed, the Energy Policy Act of 2005
created a new Public Utility Holding Company Act of 2005 (PUHCA
2005). Under PUHCA 2005, the books and records of a utility
holding company, its affiliates, associate companies, and
subsidiaries are subject to FERC and state commission review
with respect to transactions that are subject to the
jurisdiction of either FERC or the state commission or costs
incurred by a jurisdictional utility in the same holding company
system. If a company is a utility holding company solely with
respect to Qualifying Facilities, exempt wholesale generators,
or foreign utility companies, it will not be subject to review
of books and records by FERC under PUHCA 2005. Qualifying
Facilities that make only wholesale sales of electricity are not
subject to state commissions rate, financial and
organizational regulations and, therefore, in all likelihood
would not be subject to any review of their books and records by
state commissions pursuant to PUHCA 2005 as long as the
Qualifying Facility is not part of a holding company system that
includes a utility subject to regulation in that state.
FPA
Pursuant to the FPA, the FERC has exclusive rate-making
jurisdiction over wholesale sales of electricity and
transmission in interstate commerce. These rates may be based on
a cost of service approach or may be determined on a market
basis through competitive bidding or negotiation. Qualifying
Facilities are exempt from most provisions of the FPA. If any of
the projects were to lose its Qualifying Facility status, such
project could become subject to the full scope of the FPA and
applicable state regulations. The application of the FPA and
other applicable state regulations to the projects could require
our projects to comply with an increasingly complex regulatory
regime that may be costly and greatly reduce our operational
flexibility. Even if a project does not lose Qualifying Facility
status, if a power purchase agreement with a project is
terminated or otherwise expires, the project will become subject
to rate regulation under the Federal Power Act.
If a project in the United States was to become subject to
FERCs ratemaking jurisdiction under the FPA as a result of
loss of Qualifying Facility status and the power purchase
agreement remains in effect, the FERC may determine that the
rates currently set forth in the power purchase agreement are
not appropriate and may set rates that are lower than the rates
currently charged. In addition, the FERC may require that the
project refund a portion of amounts previously paid by the
relevant power purchaser to such project. Such events would
likely result in a decrease in our future revenues or in an
obligation to disgorge revenues previously received from the
project, either of which would have an adverse effect on our
revenues.
Moreover, the loss of the Qualifying Facility status of any of
our projects selling energy to Southern California Edison could
also permit Southern California Edison, pursuant to the terms of
its power purchase agreement, to cease taking and paying for
electricity from the relevant project and to seek refunds for
past amounts paid. In addition, the loss of any such status
would result in the occurrence of an event of default under the
indenture for the OFC Senior Secured Notes and the OrCal Senior
Secured Notes and hence would give the indenture trustee the
right to exercise remedies pursuant to the indenture and the
other financing documents.
State
Regulation
Our projects in California and Nevada, by virtue of being
Qualifying Facilities that make only wholesale sales of
electricity, are not subject to rate, financial and
organizational regulations applicable to electric utilities in
those states. The projects each sell or will sell their
electrical output under power purchase agreements to electric
utilities (Sierra Pacific Power Company, Nevada Power Company,
Southern California Edison or Southern California Public Power
Authority). All of the utilities except Southern California
Public
41
Power Authority are regulated by their respective state public
utility commissions. Sierra Pacific Power Company and Nevada
Power Company are regulated by the Public Utility Commission of
Nevada. Southern California Edison and a small portion of Sierra
Pacific Power Company in the Lake Tahoe area are regulated by
the California Public Utility Commission.
Under Hawaii law, non-fossil generators are not subject to
regulation as public utilities. Hawaii law provides that a
geothermal power producer is to negotiate the rate for its
output with the public utility purchaser. If such rate cannot be
determined by mutual accord, the Hawaii Public Utility
Commission will set a just and reasonable rate. If a non-fossil
generator in Hawaii is a Qualifying Facility, federal law
applies to such Qualifying Facility and the utility is required
to purchase the energy and capacity at its avoided cost. The
rates for our project in Hawaii are established under a
long-term power purchase agreement with Hawaii Electric Light
Company.
Regulation
of the Electric Utility Industry in our Foreign Countries of
Operation
The following is a summary overview of certain aspects of the
electric industry in the foreign countries in which we have an
operating geothermal power project and should not be considered
a full statement of the laws in such countries or all of the
issues pertaining thereto.
Nicaragua. In 1998 two laws were approved by
Nicaraguan authorities, Law
No. 272-98
and Law
No. 271-98,
which define the structure of the energy sector in the country.
Law
No. 272-98
provides for the establishment of a National Energy Commission,
which we refer to as CNE, responsible for setting policies,
strategies and objectives as well as approving indicative plans
for the energy sector. Law
No. 271-98
formally assigned regulatory, supervisory, inspection and
oversight functions to the Nicaraguan Institute of Energy, which
we refer to as INE.
In 2002, the National Congress enacted Law No. 443 to
regulate the granting of exploration and exploitation
concessions for geothermal fields. The INE adopted this law.
In 2007, Nicaragua passed Law No. 612 amending Law
No. 290, which governs the organization of the executive
branch. Among other matters, the new law established a new
ministry of energy and mining, which has assumed all of the
functions and responsibilities of the National Energy Commission
(CNE). The new ministry of energy and mining is responsible for
administrating Law No. 443 described above, and is also
responsible for granting concessions and permits relating to the
exploration or exploitation of any energy source, as well as
concessions and licensing for generation, transmission and
distribution of energy.
The Nicaraguan energy sector has been restructured and partially
privatized. Following such restructuring and privatization, the
government retained title and control of the transmission assets
and created the Empresa Nicaraguense de Transmision (ENATREL),
which is in charge of the operation of the transmission system
in the country and of the new wholesale market. As part of the
restructuring, most of the distribution facilities previously
owned by the Nicaraguan Electricity Company, the
government-owned vertically-integrated monopoly, were
transferred to two companies, Empresa Distribuidora de
Electricidad del Norte (DISNORTE) and Empresa Distribuidora de
Electricidad del Sur (DISSUR), which in turn were privatized and
acquired by an affiliate of Union Fenosa, a large Spanish
utility. Following such privatization, the power purchase
agreement for our Momotombo project was assigned by the
Nicaraguan Electricity Company to DISNORTE and DISSUR. In
addition, a National Dispatch Center was created to work with
ENATREL and provide for dispatch and wholesale market
administration.
Guatemala. The General Electricity Law of
1996, Decree
93-96,
created a wholesale electricity market in Guatemala and
established a new regulatory framework for the electricity
sector. The law created a new regulatory commission, the
National Electric Energy Commission (CNEE), and a new wholesale
power market administrator, the Administrator of the Wholesale
Market (AMM), for the regulation and administration of the
sector. The AMM is a private not-for-profit entity. The CNEE
functions as an independent agency under the Ministry of Energy
and Mines and is in charge of regulating, supervising and
controlling compliance with the electricity law, overseeing the
market and setting rates for transmission services and
distribution to medium and small customers. All distribution
companies must supply electricity to such customers pursuant to
long-
42
term contracts with electricity generators. Large customers can
contract directly with the distribution companies, electricity
generators or power marketers, or buy energy in the spot market.
Guatemala has approved a Law of Incentives for the Development
of Renewable Energy Projects, Decree
52-2003, in
order to promote the development of renewable energy projects in
Guatemala. This law provides certain benefits to companies
utilizing renewable energy, including a
10-year
exemption from corporate income tax and VAT on imports and
customs duties.
Kenya. Kenyas Electric Power Act of 1997
restructured the electricity sector in the country. Among other
things, the Act provides for the licensing of electricity power
producers and public electricity suppliers or distributors.
Kenya Power and Lighting Co. Ltd. (KPLC) is the only licensed
public electricity supplier and has a monopoly in the
transmission and distribution of electricity in the country. The
Act permitted independent power producers (IPPs) to install
power generators and sell electricity to KPLC, which is owned by
various private, and government entities and which currently
purchases energy and capacity from two other IPPs in addition to
our Olkaria III project. The Act also created the
Electricity Regulation Board, as an independent regulator
for the electricity sector. KPLCs retail electricity rates
are subject to approval by the Electricity
Regulation Board. The Electric Power Act of 1997 has now
been repealed by the Energy Act of 2006, which came into effect
on July 7, 2007. One of the main changes introduced by the
Energy Act was the reconstitution of the Electricity Regulatory
Board as the Energy Regulatory Commission (ERC), with an
expanded mandate to regulate not just the electric power sector
but the entire energy sector in Kenya. Further re-organization
of KPLC is now underway with the formation of a new company
known as Kenya Electricity Transmission Company Limited to
undertake power transmission. This re-organization is in
accordance with the National Energy Policy (Sessional Paper
No. 4 of 2004), one highlight of which is the unbundling of
KPLC into two entities, one for transmission, which will be 100%
state owned, and the other for distribution, which will be
privately owned. No announcement has been made as to whether
KPLCs transmission assets will be transferred to the new
company.
New Zealand. The electricity industry in New
Zealand has four main components: (i) generation;
(ii) transmission (the high voltage network known as the
national grid); (iii) distribution (local lines companies);
and (iv) retail (electricity retail companies which buy
wholesale electricity and compete to sell it to consumers). The
Electricity Act of 1992 created a new regulatory commission, the
Electricity Commission, to oversee New Zealands
electricity industry and markets. The Electricity Commission,
which began operating in September 2003, has exclusive authority
to regulate the operation of the electricity industry and
markets (wholesale and retail) in accordance with the terms of
the Electricity Act 1992 and government energy policy. The
Electricity Commissions principal objective, as set out in
the Electricity Act of 1992, is to ensure that electricity is
produced and delivered to all classes of consumers in an
efficient, fair, reliable and environmentally sustainable
manner. The Electricity Commissions regulatory framework
for participants in the electricity industry is set out in the
Electricity Governance Rules, which became effective on
March 1, 2004. Electricity generators are obliged to
register with the Electricity Commission as market participants
and to comply with the Electricity Governance Rules.
The Electricity Industry Reform Act 1998 requires full ownership
separation between electricity lines (distribution) businesses,
and electricity generation and retail businesses. Since the
introduction of the Act, however, amendments have allowed lines
businesses to own some generation and to sell the output from
those generation plants directly to consumers.
Permit
Status
Our projects are required to comply with numerous domestic and
foreign federal, regional, state and local statutory and
regulatory environmental standards and to maintain numerous
environmental permits and governmental approvals that are
required for their operation. Some of the environmental permits
and governmental approvals that have been issued to the projects
contain conditions and restrictions, including restrictions or
limits on emissions and discharges of pollutants and
contaminants, or may have limited terms.
For example, while our power generation operations produce
electricity without emissions of certain pollutants such as
nitrogen oxide, and with far lower emissions of other pollutants
such as carbon dioxide,
43
some of our projects do emit air pollutants in quantities that
are subject to regulation under applicable environmental air
pollution laws. Such operations typically require air permits.
Especially critical to our geothermal operations are those
permits and standards applicable to the construction and
operation of geothermal wells and brine reinjection wells. In
the United States, injection wells are regulated under the
federal Safe Drinking Water Act Underground Injection Control,
which we refer to as UIC, program. Because fluids are reinjected
to enhance utilization of the geothermal resource, our injection
wells typically fall into UIC Class V, one of the least
regulated categories.
Our operations are designed and conducted to comply with
applicable permit requirements. Non-compliance with any such
requirements could result in fines or other penalties. We are
not aware of any non-compliance with such requirements that
would be likely to result in material fines or penalties.
However, the Heber 1 and 2 projects received a notice from the
California Division of Oil, Gas and Geothermal Resources that
the pressure levels at some of the geothermal fluid injection
wells were too high.
As of the date of this annual report, all of the material
permits and approvals currently required to operate our projects
have been obtained and are currently valid. As of the date of
this annual report, we have obtained and are in compliance with
all of the material permits and approvals currently required for
our projects that are under construction or enhancement. There
are some permits that need to be obtained in the future. We
believe we will be able to obtain those permits and approvals
without material delay and without incurring additional material
costs.
Environmental
Laws and Regulations
Geothermal operations can produce significant quantities of
brine and scale, which builds up on metal surfaces in our
equipment with which the brine comes into contact. These waste
materials, some of which are currently reinjected into the
subsurface, can contain materials (such as arsenic, lead and
naturally occurring radioactive materials) in concentrations
that exceed regulatory limits used to define hazardous waste. We
also use various substances, including isopentane, and
industrial lubricants, that could become potential contaminants
and are generally flammable. Hazardous materials are also used
and generated in connection with our equipment manufacturing
operations in Israel. As a result, our projects are subject to
numerous domestic and foreign federal, state and local statutory
and regulatory standards relating to the use, storage, fugitive
emissions and disposal of hazardous substances. The cost of any
investigation, remediation
and/or
cleanup activities in connection with a spill or other release
of such contaminants could be significant.
Although we are not aware of any mismanagement of these
materials, including any mismanagement prior to the acquisition
of some of our projects, that has materially impaired any of the
project sites, any disposal or release of these materials onto
project sites, other than by means of permitted injection wells,
could lead to contamination of the environment and result in
material cleanup requirements or other responsive obligations
under applicable environmental laws. We believe that at one time
there may have been a gas station located on the Mammoth project
site (which we lease), but because of significant surface
disturbance and construction since that time further physical
evaluation of the environmental condition of the former gas
station site has been impractical. We believe that, given the
subsequent surface disturbance and construction activity in the
vicinity of the suspected location of the service station, it is
likely that environmental contamination, if any, associated with
the former facilities and any associated underground storage
tanks would have already been encountered if they still existed.
Because of the following factors, as well as other variables
affecting our business, operating results or financial
condition, past financial performance may not be a reliable
indicator of future performance, and historical trends should
not be used to anticipate results or trends in future periods.
44
Our
financial performance depends on the successful operation of our
geothermal power and recovered energy generation plants, which
is subject to various operational risks.
Our financial performance depends on the successful operation of
our subsidiaries geothermal and recovered energy
generation power plants. In connection with such operations, we
derived approximately 73.2% of our total revenues for the year
ended December 31, 2008 from the sale of electricity. The
cost of operation and maintenance and the operating performance
of our subsidiaries geothermal power and recovered energy
generation plants may be adversely affected by a variety of
factors, including some that are discussed elsewhere in these
risk factors and the following:
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regular and unexpected maintenance and replacement expenditures;
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shutdowns due to the breakdown or failure of our equipment or
the equipment of the transmission serving utility;
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the presence of hazardous materials on our project sites;
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catastrophic events such as fires, explosions, earthquakes,
landslides, floods, releases of hazardous materials, severe
storms or similar occurrences affecting our projects or any of
the power purchasers or other third parties providing services
to our projects; and
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the aging of power plants may reduce their availability and
increase the cost of their maintenance.
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Any of these events could significantly increase the expenses
incurred by our projects or reduce the overall generating
capacity of our projects and could significantly reduce or
entirely eliminate the revenues generated by one or more of our
projects, which in turn would reduce our net income and could
materially and adversely affect our business, financial
condition, future results and cash flow.
As mentioned above, the aging of our power plants may reduce
their availability and increase maintenance costs due to the
need to repair or replace our equipment. For example, in 2008,
we experienced protracted failures of two of the Steamboat
2/3
projects turbines, which were not manufactured by us. We
replaced the turbines and successfully upgraded the project.
Such major maintenance activities impact both the capacity
factor of the affected power plant and its operating costs.
Our
exploration, development, and operation of geothermal energy
resources is subject to geological risks and uncertainties,
which may result in decreased performance or increased costs for
our projects.
Our business involves the exploration, development and operation
of geothermal energy resources. These activities are subject to
uncertainties, which vary among different geothermal reservoirs
and are in some respects similar to those typically associated
with oil and gas exploration, development and exploitation, such
as dry holes, uncontrolled releases and pressure and temperature
decline, all of which can increase our operating costs and
capital expenditures or reduce the efficiency of our power
plants. Prior to our acquisition of the Steamboat Hills project,
one of the wells related to the project experienced an
uncontrolled release. In addition, the high temperature and high
pressure in the Puna projects geothermal energy resource
requires special reservoir management and monitoring. Further,
since the commencement of their operations, several of our
projects have experienced geothermal resource cooling in the
normal course of operations such as in the case of the Brady and
Momotombo projects. Because geothermal reservoirs are complex
geological structures, we can only estimate their geographic
area and sustainable output. The viability of geothermal
projects depends on different factors directly related to the
geothermal resource, such as the heat content (the relevant
composition of temperature and pressure) of the geothermal
reservoir, the useful life (commercially exploitable life) of
the reservoir and operational factors relating to the extraction
of geothermal fluids. Our geothermal energy projects may suffer
an unexpected decline in the capacity of their respective
geothermal wells and are exposed to a risk of geothermal
reservoirs not being sufficient for sustained generation of the
electrical power capacity desired over time. In addition, we may
fail to find commercially viable geothermal resources in the
expected quantities and temperatures, which would adversely
affect our development of geothermal power projects.
45
Another aspect of geothermal operations is the management and
stabilization of subsurface impacts caused by fluid injection
pressures of production and injection fluids to mitigate
subsidence. In the case of the geothermal resource supplying the
Heber complex, pressure drawdown in the center of the well field
has caused some localized ground subsidence, while pressure in
the peripheral areas has caused localized ground inflation.
Inflation and subsidence, if not controlled, can adversely
affect farming operations and other infrastructure at or near
the land surface. Potential costs, which cannot be estimated and
may be significant, of failing to stabilize site pressures in
the Heber complex area include repair and modification of
gravity-based farm irrigation systems and municipal sewer piping
and possible repair or replacement of a local road bridge
spanning an irrigation canal.
Additionally, active geothermal areas, such as the areas in
which our projects are located, are subject to frequent
low-level seismic disturbances. Serious seismic disturbances are
possible and could result in damage to our projects or equipment
or degrade the quality of our geothermal resources to such an
extent that we could not perform under the power purchase
agreement for the affected project, which in turn could reduce
our net income and materially and adversely affect our business,
financial condition, future results and cash flow. If we suffer
a serious seismic disturbance, our business interruption and
property damage insurance may not be adequate to cover all
losses sustained as a result thereof. In addition, insurance
coverage may not continue to be available in the future in
amounts adequate to insure against such seismic disturbances.
Reduced
levels of recovered energy required for the operation of our
recovered energy generation power plants may result in decreased
performance of such projects.
Our recovered energy generation power plants generate
electricity from recovered energy or so-called waste
heat that is generated as a residual by-product of gas
turbine-driven compressor stations and a variety of industrial
processes. Any interruption in the supply of the recovered
energy source, such as a result of reduced gas flows in the
pipelines or reduced level of operation at the compressor
stations, or in the output levels of the various industrial
processes, may cause an unexpected decline in the capacity and
performance of our recovered energy power plants.
Our
business development activities may not be successful and our
projects under construction may not commence operation as
scheduled.
We are currently in the process of developing and constructing a
number of new power plants. Our success in developing a
particular project is contingent upon, among other things,
negotiation of satisfactory engineering and construction
agreements and power purchase agreements, receipt of required
governmental permits, obtaining adequate financing, and the
timely implementation and satisfactory completion of
construction. We may be unsuccessful in accomplishing any of
these matters or doing so on a timely basis. Although we may
attempt to minimize the financial risks attributable to the
development of a project by securing a favorable power purchase
agreement, obtaining all required governmental permits and
approvals and arranging adequate financing prior to the
commencement of construction, the development of a power project
may require us to incur significant expenses for preliminary
engineering, permitting and legal and other expenses before we
can determine whether a project is feasible, economically
attractive or capable of being financed.
Currently, we have power plants under development or
construction in the United States and Indonesia, and we intend
to pursue the expansion of some of our existing plants and the
development of other new plants. Our completion of these
facilities is subject to substantial risks, including:
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unanticipated cost increases;
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shortages and inconsistent qualities of equipment, material and
labor;
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inability to obtain permits and other regulatory matters;
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failure by key contractors and vendors to timely and properly
perform;
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adverse environmental and geological conditions (including
inclement weather conditions); and
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our attention to other projects.
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Any one of which could give rise to delays, cost overruns, the
termination of the plant expansion, construction or development
or the loss (total or partial) of our interest in the project
under development, construction or expansion.
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, have combined to indicate a 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. Among other things, we might
face:
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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 or refinancing existing projects to
recover our cash invested;
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potential adverse impacts on our ability to negotiate with
existing lenders, waivers or modifications of the terms of
existing financing arrangements if and when that might be
necessary;
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potential declines in revenues in our Products Segment due to
reduced or postponed orders or other factors caused by economic
challenges faced by our customers and prospective customers;
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potential declines in revenues from some of our existing
geothermal power projects as a result of curtailed electricity
demand and low oil and gas prices; and
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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.
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Any of these things could adversely affect our business,
financial condition, operating results and cash flow.
We may be
unable to obtain the financing we need to pursue our growth
strategy and any future financing we receive may be less
favorable to us than our current financing arrangements, either
of which may adversely affect our ability to expand our
operations.
Our geothermal power plants generally have been financed using
leveraged financing structures, consisting of non-recourse or
limited recourse debt obligations. As of December 31, 2008,
we had approximately $412.8 million of total consolidated
indebtedness (including indebtedness to our parent company in
the amount of $26.2 million), of which approximately
$286.6 million represented non-recourse debt and limited
recourse debt held by our subsidiaries. Each of our projects
under development or construction and those projects and
businesses we may seek to acquire or construct will require
substantial capital investment. Our continued access to capital
with acceptable terms is necessary for the success of our growth
strategy. Our attempts to obtain future financings may not be
successful or on favorable terms.
Market conditions and other factors may not permit future
project and acquisition financings on terms similar to those our
subsidiaries have previously received. Our ability to arrange
for financing on a substantially non-recourse or limited
recourse basis, and the costs of such financing, are dependent
on numerous factors, including general economic conditions,
conditions in the global capital and credit markets (as
discussed above), investor confidence, the continued success of
current projects, the credit quality of the projects being
financed, the political situation in the country where the
project is located, and the continued existence of tax and
securities laws which are conducive to raising capital. If we
are not able to obtain
47
financing for our projects on a substantially non-recourse or
limited-recourse basis, we may have to finance them using
recourse capital such as direct equity investments, parent
company loans or the incurrence of additional debt by us.
Also, in the absence of favorable financing options, we may
decide not to build new plants or acquire facilities from third
parties. Any of these alternatives could have a material adverse
effect on our growth prospects.
Our
foreign projects expose us to risks related to the application
of foreign laws, taxes, economic conditions, labor supply and
relations, political conditions, and policies of foreign
governments, any of which risks may delay or reduce our ability
to profit from such projects.
We have substantial operations outside of the United States that
generated revenues in the amount of $96.2 million for the
year ended December 31, 2008, which represented 27.9% of
our total revenues for such twelve-month period. Our foreign
operations are subject to regulation by various foreign
governments and regulatory authorities and are subject to the
application of foreign laws. Such foreign laws or regulations
may not provide for the same type of legal certainty and rights,
in connection with our contractual relationships in such
countries, as are afforded to our projects in the United States,
which may adversely affect our ability to receive revenues or
enforce our rights in connection with our foreign operations.
Furthermore, existing laws or regulations may be amended or
repealed, and new laws or regulations may be enacted or issued.
In addition, the laws and regulations of some countries may
limit our ability to hold a majority interest in some of the
projects that we may develop or acquire, thus limiting our
ability to control the development, construction and operation
of such projects. Our foreign operations are also subject to
significant political, economic and financial risks, which vary
by country, and include:
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changes in government policies or personnel;
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changes in general economic conditions;
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restrictions on currency transfer or convertibility;
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changes in labor relations;
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political instability and civil unrest;
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changes in the local electricity market;
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breach or repudiation of important contractual undertakings by
governmental entities; and
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expropriation and confiscation of assets and facilities.
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In particular, in Guatemala the electricity sector was partially
privatized, and it is currently unclear whether further
privatization will occur in the future. Such developments may
affect our Amatitlan and Zunil projects if, for example, they
result in changes to the prevailing tariff regime or in the
identity and creditworthiness of our power purchasers. In
Nicaragua, subsidiaries of Union Fenosa, which are the
off-takers of our Momotombo project, have been experiencing
difficulties adjusting the tariffs charged to their customers,
thus affecting their ability to pay for electricity they
purchase from power generators. This may adversely affect our
Momotombo project. In addition, recent sentiment in the country
suggests increased opposition to the presence of foreign
investors generally, including in the electricity sector. In
Kenya, the government is continuing to make an effort to deliver
on campaign promises to reduce the price of electricity and is
applying pressure on independent power producers to lower their
tariffs. In addition, further re-organization of KPLC is now
underway with the formation of a new company known as Kenya
Electricity Transmission Company Limited to undertake power
transmission. This re-organization is in accordance with the
National Energy Policy (Sessional Paper No. 4 of 2004), one
highlight of which is the unbundling of KPLC into two entities,
one for transmission, which will be 100% state owned, and the
other for distribution, which will be privately owned. Any
break-up and
potential privatization of Kenya Power and Lighting Co. Ltd. may
adversely affect our Olkaria III project. Although we
generally obtain political risk insurance in connection with our
foreign projects, such political risk insurance does not
mitigate all of the above-mentioned risks. In addition,
insurance
48
proceeds received pursuant to our political risk insurance
policies, where applicable, may not be adequate to cover all
losses sustained as a result of any covered risks and may at
times be pledged in favor of the project lenders as collateral.
Also, insurance may not be available in the future with the
scope of coverage and in amounts of coverage adequate to insure
against such risks and disturbances.
Our
foreign projects and foreign manufacturing operations expose us
to risks related to fluctuations in currency rates, which may
reduce our profits from such projects and operations.
Risks attributable to fluctuations in currency exchange rates
can arise when any of our foreign subsidiaries borrow funds or
incur operating or other expenses in one type of currency but
receive 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. In addition, the imposition
by foreign governments of restrictions on the transfer of
foreign currency abroad, or restrictions on the conversion of
local currency into foreign currency, would have an adverse
effect on the operations of our foreign projects and foreign
manufacturing operations, and may limit or diminish the amount
of cash and income that we receive from such foreign projects
and operations.
A
significant portion of our net revenue is attributed to payments
made by power purchasers under power purchase agreements. The
failure of any such power purchaser to perform its obligations
under the relevant power purchase agreement or the loss of a
power purchase agreement due to a default would reduce our net
income and could materially and adversely affect our business,
financial condition, future results and cash flow.
A significant portion of our net revenue is attributed to
revenues derived from power purchasers under the relevant power
purchase agreements. Southern California Edison, Hawaii Electric
Light Company, and Sierra Pacific Power Company and Nevada Power
Company have accounted for 27.6%, 16.7% and 12.6%, respectively,
of our revenues for the year ended December 31, 2008.
Neither we nor any of our affiliates make any representations as
to the financial condition or creditworthiness of any purchaser
under a power purchase agreement, and nothing in this annual
report should be construed as such a representation.
There is a risk that any one or more of the power purchasers may
not fulfill their respective payment obligations under their
power purchase agreements. For example, as a result of the
energy crisis in California in the early 2000s, Southern
California Edison withheld payments it owed under various of its
power purchase agreements with a number of power generators
(such as the Ormesa, Heber, and Mammoth projects) payable for
certain energy delivered between November 2000 and March 2001
under such power purchase agreements until March 2002. If any of
the power purchasers fails to meet its payment obligations under
its power purchase agreements, it could materially and adversely
affect our business, financial condition, future results and
cash flow.
Seasonal
variations may cause significant fluctuations in our cash flows,
which may cause the market price of our common stock to fall in
certain periods.
Our results of operations are subject to seasonal variations.
This is primarily because some of our domestic projects receive
higher capacity payments under the relevant power purchase
agreements during the summer months, and due to the generally
higher short run avoided costs in effect during the summer
months. Some of our other projects may experience reduced
generation during warm periods due to the lower heat
differential between the geothermal fluid and the ambient
surroundings. Such seasonal variations could materially and
adversely affect our business, financial condition, future
results and cash flow. If our operating results fall below the
publics or analysts expectations in some future
period or periods, the market price of our common stock will
likely fall in such period or periods.
49
Pursuant
to the terms of some of our power purchase agreements with
investor-owned electric utilities in states that have renewable
portfolio standards, the failure to supply the contracted
capacity and energy thereunder may result in the imposition of
penalties.
Under the Burdette, Desert Peak 2, Galena 2, Galena 3, Carson
Lake, Jersey Valley, Grass Valley, North Brawley, and
Imperial Valley power purchase agreements, we may be required to
make payments to the relevant power purchaser in an amount equal
to such purchasers replacement costs for renewable energy
relating to any shortfall amount of renewable energy that we do
not provide as required under the power purchase agreement and
which such power purchaser is forced to obtain from an alternate
source. Four of the seven power purchase agreements were in
commercial operation in 2008 and to date the shortfall amount
has not been material. In addition, we may be required to make
payments to the relevant power purchaser in an amount equal to
its replacement costs relating to any renewable energy credits
we do not provide as required under the relevant power purchase
agreement. We may be subject to certain penalties, and we may
also be required to pay liquidated damages if certain minimum
performance requirements are not met under certain of our power
purchase agreements. With respect to certain of our power
purchase agreements, we may also be required to pay liquidated
damages to our power purchaser if the relevant project does not
maintain availability of at least 85% during applicable peak
periods. The maximum aggregate amount of such liquidated damages
for the Steamboat 2 and Steamboat 3 power purchase agreements
would be approximately $1.5 million for each project. Any
or all of these could materially and adversely affect our
business, financial condition, future results and cash flow.
The short
run avoided costs for our power purchasers may decline, which
would reduce our project revenues and could materially and
adversely affect our business, financial condition, future
results and cash flow.
Under the power purchase agreements for our projects in
California, the price that Southern California Edison pays for
energy is based upon its short run avoided costs, which are the
incremental costs that it would have incurred had it generated
the relevant electrical energy itself or purchased such energy
from others. Under settlement agreements between Southern
California Edison and a number of power generators in California
that are Qualifying Facilities, including our subsidiaries, the
energy price component payable by Southern California Edison has
been fixed through April 2012 and thereafter will be based on
Southern California Edisons short run avoided costs, as
determined by the California Public Utilities Commission. These
short run avoided costs may vary substantially on a monthly
basis, and are expected to be based primarily on natural gas
prices for gas delivered to California as well as other factors.
The levels of short run avoided cost prices paid by Southern
California Edison may decline following the expiration date of
the settlement agreements, which in turn would reduce our
project revenues derived from Southern California Edison under
our power purchase agreements and could materially and adversely
affect our business, financial condition, future results and
cash flow.
If any of
our domestic projects loses its current Qualifying Facility
status under PURPA, or if amendments to PURPA are enacted that
substantially reduce the benefits currently afforded to
Qualifying Facilities, our domestic operations could be
adversely affected.
Most of our domestic projects are Qualifying Facilities pursuant
to the PURPA, which largely exempts the projects from the
Federal Power Act, which we refer to as FPA, and certain state
and local laws and regulations regarding rates and financial and
organizational requirements for electric utilities.
If any of our domestic projects were to lose its Qualifying
Facility status, such project could become subject to the full
scope of the FPA and applicable state regulation. The
application of the FPA and other applicable state regulation to
our domestic projects could require our operations to comply
with an increasingly complex regulatory regime that may be
costly and greatly reduce our operational flexibility.
In addition, pursuant to the FPA, FERC has exclusive rate-making
jurisdiction over wholesale sales of electricity and
transmission of public utilities in interstate commerce. These
rates may be based on a cost of service approach or may be
determined on a market basis through competitive bidding or
negotiation. Qualifying Facilities are largely exempt from the
FPA. If a domestic project were to lose its Qualifying
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Facility status, it would become a public utility under the FPA,
and the rates charged by such project pursuant to its power
purchase agreements would be subject to the review and approval
of FERC. FERC, upon such review, may determine that the rates
currently set forth in such power purchase agreements are not
appropriate and may set rates that are lower than the rates
currently charged. In addition, FERC may require that some or
all of our domestic projects refund amounts previously paid by
the relevant power purchaser to such project. Such events would
likely result in a decrease in our future revenues or in an
obligation to disgorge revenues previously received from our
domestic projects, either of which would have an adverse effect
on our revenues. Even if a project does not lose its Qualifying
Facility status, pursuant to a final rule issued by FERC for
projects above 20 MW, if a projects power purchase
agreement is terminated or otherwise expires, and the subsequent
sales are not made pursuant to a states implementation of
PURPA, that project will become subject to FERCs
ratemaking jurisdiction under the FPA. Moreover, a loss of
Qualifying Facility status also could permit the power
purchaser, pursuant to the terms of the particular power
purchase agreement, to cease taking and paying for electricity
from the relevant project or, consistent with FERC precedent, to
seek refunds of past amounts paid. This could cause the loss of
some or all of our revenues payable pursuant to the related
power purchase agreements, result in significant liability for
refunds of past amounts paid, or otherwise impair the value of
our projects. If a power purchaser were to cease taking and
paying for electricity or seek to obtain refunds of past amounts
paid, there can be no assurance that the costs incurred in
connection with the project could be recovered through sales to
other purchasers or that we would have sufficient funds to make
such payments. In addition, the loss of Qualifying Facility
status would be an event of default under the financing
arrangements currently in place for some of our projects, which
would enable the lenders to exercise their remedies and enforce
the liens on the relevant project.
Pursuant to the Energy Policy Act of 2005, FERC was also given
authority to prospectively lift the mandatory obligation of a
utility under PURPA to offer to purchase the electricity from a
Qualifying Facility if the utility operates in a workably
competitive market. Existing power purchase agreements between a
Qualifying Facility and a utility are not affected. 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 the project in the
region under Federal law upon termination of the existing power
purchase agreement or with respect to new projects, which could
materially and adversely affect our business, financial
condition, future results and cash flow.
Our
financial performance is significantly dependent on the
successful operation of our projects, which is subject to
changes in the legal and regulatory environment affecting our
projects.
All of our projects are subject to extensive regulation and,
therefore, changes in applicable laws or regulations, or
interpretations of those laws and regulations, could result in
increased compliance costs, the need for additional capital
expenditures or the reduction of certain benefits currently
available to our projects. The structure of domestic and foreign
federal, state and local energy regulation currently is, and may
continue to be, subject to challenges, modifications, the
imposition of additional regulatory requirements, and
restructuring proposals. Our power purchasers or we may not be
able to obtain all regulatory approvals that may be required in
the future, or any necessary modifications to existing
regulatory approvals, or maintain all required regulatory
approvals. In addition, the cost of operation and maintenance
and the operating performance of geothermal power plants may be
adversely affected by changes in certain laws and regulations,
including tax laws.
Any changes to applicable laws and regulations could
significantly increase the regulatory-related compliance and
other expenses incurred by the projects and could significantly
reduce or entirely eliminate the revenues generated by one or
more of the projects, which in turn would reduce our net income
and could materially and adversely affect our business,
financial condition, future results and cash flow.
The costs
of compliance with environmental laws and of obtaining and
maintaining environmental permits and governmental approvals
required for construction and/or operation, which currently are
significant, may increase in the future and could materially and
adversely affect our business, financial condition, future
results
51
and cash flow; any non-compliance with such laws or
regulations may result in the imposition of liabilities which
could materially and adversely affect our business, financial
condition, future results and cash flow.
Our projects are required to comply with numerous domestic and
foreign federal, regional, state and local statutory and
regulatory environmental standards and to maintain numerous
environmental permits and governmental approvals required for
construction
and/or
operation. Some of the environmental permits and governmental
approvals that have been issued to the projects contain
conditions and restrictions, including restrictions or limits on
emissions and discharges of pollutants and contaminants, or may
have limited terms. If we fail to satisfy these conditions or
comply with these restrictions, or with any statutory or
regulatory environmental standards, we may become subject to
regulatory enforcement action and the operation of the projects
could be adversely affected or be subject to fines, penalties or
additional costs. In addition, we may not be able to renew,
maintain or obtain all environmental permits and governmental
approvals required for the continued operation or further
development of the projects. As of the date of this report, we
have not yet obtained certain permits and government approvals
required for the completion and successful operation of projects
under construction or enhancement. In addition, a nearby
municipality has informed our Amatitlan project that an
additional building permit should be obtained from such
municipality before construction commences. Our failure to
renew, maintain or obtain required permits or governmental
approvals, including the permits and approvals necessary for
operating projects under construction or enhancement, could
cause our operations to be limited or suspended. Environmental
laws, ordinances and regulations affecting us can be subject to
change and such change could result in increased compliance
costs, the need for additional capital expenditures, or
otherwise adversely affect us.
We could
be exposed to significant liability for violations of hazardous
substances laws because of the use or presence of such
substances at our projects.
Our projects are subject to numerous domestic and foreign
federal, regional, state and local statutory and regulatory
standards relating to the use, storage and disposal of hazardous
substances. We use isobutane, isopentane, industrial lubricants
and other substances at our projects which are or could become
classified as hazardous substances. If any hazardous substances
are found to have been released into the environment at or by
the projects in concentrations that exceed regulatory limits, we
could become liable for the investigation and removal of those
substances, regardless of their source and time of release. If
we fail to comply with these laws, ordinances or regulations (or
any change thereto), we could be subject to civil or criminal
liability, the imposition of liens or fines, and large
expenditures to bring the projects into compliance. Furthermore,
in the United States, we can be held liable for the cleanup of
releases of hazardous substances at other locations where we
arranged for disposal of those substances, even if we did not
cause the release at that location. The cost of any remediation
activities in connection with a spill or other release of such
substances could be significant.
We believe that at one time there may have been a gas station
located on the Mammoth project site, but because of significant
surface disturbance and construction since that time, further
physical evaluation of the environmental condition of the former
gas station site has been impractical. There may be soil or
groundwater contamination and related potential liabilities of
which we are unaware related to this site, which may be
significant and could materially and adversely affect our
business, financial condition, future results and cash flow.
We may
not be able to successfully integrate companies which we may
acquire in the future, which could materially and adversely
affect our business, financial condition, future results and
cash flow.
Our strategy is to continue to expand in the future, including
through acquisitions. Integrating acquisitions is often costly,
and we may not be able to successfully integrate our acquired
companies with our existing operations without substantial
costs, delays or other adverse operational or financial
consequences. Integrating our acquired companies involves a
number of risks that could materially and adversely affect our
business, including:
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failure of the acquired companies to achieve the results we
expect;
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inability to retain key personnel of the acquired companies;
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risks associated with unanticipated events or
liabilities; and
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the difficulty of establishing and maintaining uniform
standards, controls, procedures and policies, including
accounting controls and procedures.
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If any of our acquired companies suffers customer
dissatisfaction or performance problems, the same could
adversely affect the reputation of our group of companies and
could materially and adversely affect our business, financial
condition, future results and cash flow.
The power
generation industry is characterized by intense competition, and
we encounter competition from electric utilities, other power
producers, and power marketers that could materially and
adversely affect our business, financial condition, future
results and cash flow.
The power generation industry is characterized by intense
competition from electric utilities, other power producers and
power marketers. In recent years, there has been increasing
competition in the sale of electricity, in part due to excess
capacity in a number of U.S. markets and an emphasis on
short-term or spot markets, and competition has
contributed to a reduction in electricity prices. For the most
part, we expect that power purchasers interested in long-term
arrangements will engage in competitive bid
solicitations to satisfy new capacity demands. This competition
could adversely affect our ability to obtain power purchase
agreements and the price paid for electricity by the relevant
power purchasers. There is also increasing competition between
electric utilities. This competition has put pressure on
electric utilities to lower their costs, including the cost of
purchased electricity, and increasing competition in the future
will put further pressure on power purchasers to reduce the
prices at which they purchase electricity from us.
The
existence of a prolonged force majeure event or a forced outage
affecting a project could reduce our net income and materially
and adversely affect our business, financial condition, future
results and cash flow.
The operation of our subsidiaries geothermal power plants
is subject to a variety of risks discussed elsewhere in these
risk factors, including events such as fires, explosions,
earthquakes, landslides, floods, severe storms or other similar
events.
If a project experiences an occurrence resulting in a force
majeure event, our subsidiary that owns that project would be
excused from its obligations under the relevant power purchase
agreement. However, the relevant power purchaser may not be
required to make any capacity
and/or
energy payments with respect to the affected project or plant so
long as the force majeure event continues and, pursuant to
certain of our power purchase agreements, will have the right to
prematurely terminate the power purchase agreement.
Additionally, to the extent that a forced outage has occurred,
the relevant power purchaser may not be required to make any
capacity
and/or
energy payments to the affected project, and if, as a result the
project fails to attain certain performance requirements under
certain of our power purchase agreements, the purchaser may have
the right to permanently reduce the contract capacity (and
correspondingly, the amount of capacity payments due pursuant to
such agreements in the future), seek refunds of certain past
capacity payments,
and/or
prematurely terminate the power purchase agreement. As a
consequence, we may not receive any net revenues from the
affected project or plant other than the proceeds from any
business interruption insurance that applies to the force
majeure event or forced outage after the relevant waiting
period, and may incur significant liabilities in respect of past
amounts required to be refunded. Accordingly, our business,
financial condition, future results and cash flows could be
materially and adversely affected.
The
existence of a force majeure event or a forced outage affecting
the transmission system of the Imperial Irrigation District
could reduce our net income and materially and adversely affect
our business, financial condition, future results and cash
flow.
If the transmission system of the Imperial Irrigation District
experiences a force majeure event or a forced outage which
prevents it from transmitting the electricity from the Heber
complex, the Ormesa complex or the North Brawley project to the
relevant power purchaser, the relevant power purchaser would not
be required to
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make energy payments for such non-delivered electricity and may
not be required to make any capacity payments with respect to
the affected project so long as such force majeure event or
forced outage continues. Our revenues for the year ended
December 31, 2008, from the projects utilizing the Imperial
Irrigation District transmission system, were approximately
$99.9 million. The impact of such force majeures would
depend on the duration thereof, with longer outages resulting in
greater revenue loss.
Some of
our leases will terminate if we do not extract geothermal
resources in commercial quantities, thus requiring
us to enter into new leases or secure rights to alternate
geothermal resources, none of which may be available on terms as
favorable to us as any such terminated lease, if at
all.
Most of our geothermal resource leases are for a fixed primary
term, and then continue for so long as geothermal resources are
extracted in commercial quantities or pursuant to
other terms of extension. The land covered by some of our leases
is undeveloped and has not yet produced geothermal resources in
commercial quantities. Leases that cover land which
remains undeveloped and does not produce, or does not continue
to produce, geothermal resources in commercial quantities and
leases that we allow to expire, will terminate. In the event
that a lease is terminated and we determine that we will need
that lease once the applicable project is operating, we would
need to enter into one or more new leases with the owner(s) of
the premises that are the subject of the terminated lease(s) in
order to develop geothermal resources from, or inject geothermal
resources into, such premises or secure rights to alternate
geothermal resources or lands suitable for injection. We may not
be able to do this or may not be able to do so without incurring
increased costs, which could materially and adversely affect our
business, financial condition, future results and cash flow.
Our
Bureau of Land Management leases may be terminated if we fail to
comply with any of the provisions of the Geothermal Steam Act of
1970 or if we fail to comply with the terms or stipulations of
such leases, which may materially and adversely affect our
business, financial condition, future results and cash
flow.
Pursuant to the terms of our Bureau of Land Management (BLM)
leases, we are required to conduct our operations on BLM-leased
land in a workmanlike manner and in accordance with all
applicable laws and BLM directives and to take all mitigating
actions required by the BLM to protect the surface of and the
environment surrounding the relevant land. Additionally, certain
BLM leases contain additional requirements, some of which relate
to the mitigation or avoidance of disturbance of any
antiquities, cultural values or threatened or endangered plants
or animals, the payment of royalties for timber and the
imposition of certain restrictions on residential development on
the leased land. In the event of a default under any BLM lease,
or the failure to comply with such requirements, or any
non-compliance with any of the provisions of the Geothermal
Steam Act of 1970 or regulations issued thereunder, the BLM may,
30 days after notice of default is provided to our relevant
project subsidiary, suspend our operations until the requested
action is taken or terminate the lease, either of which could
materially and adversely affect our business, financial
condition, future results and cash flow.
Some of
our leases (or subleases) could terminate if the lessor (or
sublessor) under any such lease (or sublease) defaults on any
debt secured by the relevant property, thus terminating our
rights to access the underlying geothermal resources at that
location.
The fee interest in the land which is the subject of some of our
leases (or subleases) may currently be or may become subject to
encumbrances securing loans from third party lenders to the
lessor (or sublessor). Our rights as lessee (or sublessee) under
such leases (or subleases) are or may be subject and subordinate
to the rights of any such lender. Accordingly, a default by the
lessor (or sublessor) under any such loan could result in a
foreclosure on the underlying fee interest in the property and
thereby terminate our leasehold interest and result in the
shutdown of the project located on the relevant property
and/or
terminate our right of access to the underlying geothermal
resources required for our operations.
In addition, a default by a sublessor under its lease with the
owner of the property that is the subject of our sublease could
result in the termination of such lease and thereby terminate
our sublease interest and our right to access the underlying
geothermal resources required for our operations.
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Current
and future urbanizing activities and related residential,
commercial and industrial developments may encroach on or limit
geothermal activities in the areas of our projects, thereby
affecting our ability to utilize access, inject and/or transport
geothermal resources on or underneath the affected surface
areas.
Current and future urbanizing activities and related
residential, commercial and industrial development may encroach
on or limit geothermal activities in the areas of our projects,
thereby affecting our ability to utilize, access, inject,
and/or
transport geothermal resources on or underneath the affected
surface areas. In particular, the Heber projects rely on an
area, which we refer to as the Heber Known Geothermal Resource
Area or Heber KGRA, for the geothermal resource necessary to
generate electricity at the Heber projects. Imperial County has
adopted a specific plan area that covers the Heber
KGRA, which we refer to as the Heber Specific Plan
Area. The Heber Specific Plan Area allows commercial,
residential, industrial and other employment oriented
development in a mixed-use orientation, which currently includes
geothermal uses. Several of the landowners from whom we hold
geothermal leases have expressed an interest in developing their
land for residential, commercial, industrial or other surface
uses in accordance with the parameters of the Heber Specific
Plan Area. Currently, Imperial Countys Heber Specific Plan
Area is coordinated with the cities of El Centro and Calexio.
There has been ongoing underlying interest since the early 1990s
to incorporate the community of Heber. While any incorporation
process would likely take several years, if Heber were to be
incorporated, the City of Heber could replace Imperial County as
the governing land use authority, which, depending on its
policies, could have a significant effect on land use and
availability of geothermal resources.
Current and future development proposals within Imperial County
and the City of Calexico, applications for annexations to the
City of Calexico, and plans to expand public infrastructure may
affect surface areas within the Heber KGRA, thereby limiting our
ability to utilize, access, inject
and/or
transport the geothermal resource on or underneath the affected
surface area that is necessary for the operation of our Heber
projects, which could adversely affect our operations and reduce
our revenues.
Current transportation construction works and urban developments
in the vicinity of our Steamboat complex of projects in Nevada
may also affect future permitting for geothermal operations
relating to those projects. Such works and developments include
the extension of an interstate highway (to be named
U.S. 580) by the Nevada Department of Transportation,
the construction of a new casino hotel and other commercial or
industrial developments on land in the vicinity of our Steamboat
complex.
We depend
on key personnel for the success of our business.
Our success is largely dependent on the skills, experience and
efforts of our senior management team and other key personnel.
In particular, our success depends on the continued efforts of
Lucien Bronicki, Dita Bronicki, Nadav Amir, Yoram Bronicki and
other key employees. The loss of the services of any key
employee could materially harm our business, financial
condition, future results and cash flow. Although to date we
have been successful in retaining the services of senior
management and have entered into employment agreements with
Lucien Bronicki, Dita Bronicki and Yoram Bronicki, such members
of our senior management may terminate their employment
agreements without cause and with notice periods ranging from 90
to 180 days. We may also not be able to locate or employ on
acceptable terms qualified replacements for our senior
management or key employees if their services were no longer
available.
Our
projects have generally been financed through a combination of
parent company loans and limited- or non-recourse project
finance debt and lease financing. If our project subsidiaries
default on their obligations under such limited-or non-recourse
debt or lease financing, we may be required to make certain
payments to the relevant debt holders and if the collateral
supporting such leveraged financing structures is foreclosed
upon, we may lose certain of our projects.
Our projects have generally been financed using a combination of
parent company loans and limited- or non-recourse project
finance debt or lease financing. Non-recourse project finance
debt or lease financing refers to financing arrangements that
are repaid solely from the projects revenues and are
secured by the projects physical assets, major contracts,
cash accounts and, in many cases, our ownership interest in the
project subsidiary. Limited-recourse project finance debt refers
to our additional agreement, as part of the
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financing of a project, to provide limited financial support for
the project subsidiary in the form of limited guarantees,
indemnities, capital contributions and agreements to pay certain
debt service deficiencies. If our project subsidiaries default
on their obligations under the relevant debt documents,
creditors of a limited recourse project financing will have
direct recourse to us, to the extent of our limited recourse
obligations, which may require us to use distributions received
by us from other projects, as well as other sources of cash
available to us, in order to satisfy such obligations. In
addition, if our project subsidiaries default on their
obligations under the relevant debt documents (or a default
under such debt documents arises as a result of a cross-default
to the debt documents of some of our other projects) and the
creditors foreclose on the relevant collateral, we may lose our
ownership interest in the relevant project subsidiary or our
project subsidiary owning the project would only retain an
interest in the physical assets, if any, remaining after all
debts and obligations were paid in full.
Changes in costs and technology may significantly impact our
business by making our power plants and products less
competitive.
A basic premise of our business model is that generating
baseload power at geothermal power plants achieves economies of
scale and produces electricity at a competitive price. However,
traditional coal-fired systems and gas-fired systems may under
certain economic conditions produce electricity at lower average
prices than our geothermal plants. In addition, there are other
technologies that can produce electricity, most notably fossil
fuel power systems, hydroelectric systems, fuel cells,
microturbines, windmills and photovoltaic (solar) cells. Some of
these alternative technologies currently produce electricity at
a higher average price than our geothermal plants; however,
research and development activities are ongoing to seek
improvements in such alternate technologies and their cost of
producing electricity is gradually declining. It is possible
that advances will further reduce the cost of alternate methods
of power generation to a level that is equal to or below that of
most geothermal power generation technologies. If this were to
happen, the competitive advantage of our projects may be
significantly impaired.
Our expectations regarding the market potential for the
development of recovered energy-based power generation may not
materialize, and as a result we may not derive any significant
revenues from this line of business.
We have identified recovered energy-based power generation as a
significant market opportunity for us. Demand for our recovered
energy-based power generation units may not materialize or grow
at the levels that we expect. We currently face competition in
this market from manufacturers of conventional steam turbines
and may face competition from other related technologies in the
future. If this market does not materialize at the levels that
we expect, such failure may materially and adversely affect our
business, financial condition, future results and cash flow.
Our intellectual property rights may not be adequate to
protect our business.
Our intellectual property rights may not be adequate to protect
our business. While we occasionally file patent applications,
patents may not be issued on the basis of such applications or,
if patents are issued, they may not be sufficiently broad to
protect our technology. In addition, any patents issued to us or
for which we have use rights may be challenged, invalidated or
circumvented.
In order to safeguard our unpatented proprietary know-how, trade
secrets and technology, we rely primarily upon trade secret
protection and non-disclosure provisions in agreements with
employees and others having access to confidential information.
These measures may not adequately protect us from disclosure or
misappropriation of our proprietary information.
Even if we adequately protect our intellectual property rights,
litigation may be necessary to enforce these rights, which could
result in substantial costs to us and a substantial diversion of
management attention. Also, while we have attempted to ensure
that our technology and the operation of our business do not
infringe other parties patents and proprietary rights, our
competitors or other parties may assert that certain aspects of
our business or technology may be covered by patents held by
them. Infringement or other intellectual property claims,
regardless of merit or ultimate outcome, can be expensive and
time-consuming and can divert managements attention from
our core business.
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We are subject to risks associated with a changing economic
and political environment, which may adversely affect our
financial stability or the financial stability of our
counterparties.
The risk of terrorist attacks in the United States or elsewhere
continues to remain a potential source of disruption to the
nations economy and financial markets in general. The
availability and cost of capital for our business and that of
our competitors has been adversely affected by the bankruptcy of
Enron Corp. and events related to the California electric market
crisis. Additionally, the recent rise in fuel costs may make it
more expensive for our customers to operate their businesses.
These events could constrain the capital available to our
industry and could adversely affect our financial stability and
the financial stability of our transaction counterparties.
Possible fluctuations in the cost of construction, raw
materials and drilling may materially and adversely affect our
business, financial condition, future results and cash flow.
Our manufacturing operations are dependent on the supply of
various raw materials, including primarily steel and aluminum,
and on the supply of various industrial equipment components
that we use. We currently obtain all such materials and
equipment at prevailing market prices. We are not dependent on
any one supplier and do not have any long-term agreements with
any of our suppliers. Future cost increases of such raw
materials and equipment, to the extent not otherwise passed
along to our customers, could adversely affect our profit
margins.
Conditions in Israel, where the majority of our senior
management and all of our production and manufacturing
facilities are located, may adversely affect our operations and
may limit our ability to produce and sell our products or manage
our projects.
Operations in Israel accounted for approximately 28.6%, 26.4%
and 24.1% of our operating expenses in the years ended
December 31, 2008, 2007 and 2006, respectively. Political,
economic and security conditions in Israel directly affect our
operations. Since the establishment of the State of Israel in
1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors, and the continued state of
hostility, varying in degree and intensity, has led to security
and economic problems for Israel.
Since October 2000, there has been a significant increase in
violence, primarily in the West Bank and the Gaza Strip. As a
result, negotiations between Israel and representatives of the
Palestinian Authority have been sporadic and have failed to
result in peace. The establishment in 2006 of a government in
the Gaza territory by representatives of the Hamas militant
group has created additional unrest and uncertainty in the
region. At the end of December 2008, Israel engaged in an armed
conflict with Hamas lasting for over three weeks, which involved
additional missile strikes from the Gaza Strip into Israel and
disrupted most day-to-day civilian activity in the proximity of
the border with the Gaza Strip. Our production facilities in
Israel are located approximately 26 miles from the border
with the Gaza Strip. We could be adversely affected by
hostilities involving Israel, the interruption or curtailment of
trade between Israel and its trading partners, or a significant
downturn in the economic or financial condition of Israel. In
addition, the sale of products manufactured in Israel may be
adversely affected in certain countries by restrictive laws,
policies or practices directed toward Israel or companies having
operations in Israel.
In addition, some of our employees in Israel are subject to
being called upon to perform military service in Israel, and
their absence may have an adverse effect upon our operations.
Generally, unless exempt, male adult citizens of Israel under
the age of 41 are obligated to perform up to 36 days of
military reserve duty annually. Additionally, all such citizens
are subject to being called to active duty at any time under
emergency circumstances.
These events and conditions could disrupt our operations in
Israel, which could materially harm our business, financial
condition, future results and cash flow.
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Failure to comply with certain conditions and restrictions
associated with tax benefits provided to Ormat Systems Ltd. by
the Government of Israel as an approved enterprise
may require us to refund such tax benefits and pay future taxes
in Israel at higher rates.
Our subsidiary, Ormat Systems Ltd., which we refer to as Ormat
Systems, has received Benefited Enterprise status
under Israels Law for Encouragement of Capital
Investments, 1959, with respect to two of its investment
programs. As a Benefited Enterprise, our subsidiary was exempt
from Israeli income taxes with respect to income derived from
the first benefited investment for a period of two years that
started in 2004, and thereafter such income is subject to a
reduced Israeli income tax rate of 25% for an additional five
years. Our subsidiary is also exempt from Israeli income taxes
with respect to income derived from the second benefited
investment for a period of two years that started in 2007, and
thereafter such income is subject to a reduced Israeli income
tax rate of 25% for an additional five years. These benefits are
subject to certain conditions, including among other things, a
requirement that Ormat Systems comply with Israeli intellectual
property law, that all transactions between Ormat Systems and
our affiliates be at arms length, and that there will be no
change in control of, on a cumulative basis, more than 49% of
Ormat Systems capital stock (including by way of a public
or private offering) without the prior written approval of the
Income Tax Authorities. If Ormat Systems does not comply with
these conditions, in whole or in part, it would be required to
refund the amount of tax benefits (as adjusted by the Israeli
consumer price index and for accrued interest) and would no
longer benefit from the reduced Israeli tax rate, which could
have an adverse effect on our business, financial condition,
future results and cash flow. If Ormat Systems distributes
dividends out of revenues derived during the tax exemption
period from the benefited investment program, it will be
subject, in the year in which such dividend is paid, to Israeli
income tax on the distributed dividend.
If our parent defaults on its lease agreement with the Israel
Land Administration, or is involved in a bankruptcy or similar
proceeding, our rights and remedies under certain agreements
pursuant to which we acquired our products business and pursuant
to which we sublease our land and manufacturing facilities from
our parent may be adversely affected.
We acquired our business relating to the manufacture and sale of
products for electricity generation and related services from
our parent, Ormat Industries. In connection with that
acquisition, we entered into a sublease with Ormat Industries
for the lease of the land and facilities in Yavne, Israel where
our manufacturing and production operations are conducted and
where our Israeli offices are located. Under the terms of our
parents lease agreement with the Israel Land
Administration, any sublease for a period of more than five
years may require the prior approval of the Israel Land
Administration. As a result, the initial term of our sublease
with Ormat Industries is for a period of four years and eleven
months beginning on July 1, 2004, extendable to twenty-five
years less one day (which includes the initial term). The
consent of the Israel Land Administration was obtained for a
period of the shorter of (i) 25 years or (ii) the
remaining period of the underlying lease agreement with the
Israel Land Administration, which terminates between 2018 and
2047. On December 3, 2007, our Board of Directors approved
a new lease transaction whereby we will enter into an additional
lease agreement with Ormat Industries for the sublease of
additional manufacturing facilities that will be built adjacent
to the existing facilities. The agreement will expire on the
same date as the abovementioned agreement. If our parent were to
breach its obligations to the Israel Land Administration under
its lease agreement, the Israel Land Administration could
terminate the lease agreement and, consequently, our sublease
would terminate as well.
As part of the acquisition described in the preceding paragraph,
we also entered into a patent license agreement with Ormat
Industries, pursuant to which we were granted an exclusive
license for certain patents and trademarks relating to certain
technologies that are used in our business. If a bankruptcy case
were commenced by or against our parent, it is possible that
performance of all or part of the agreements entered into in
connection with such acquisition (including the lease of land
and facilities described above) could be stayed by the
bankruptcy court in Israel or rejected by a liquidator appointed
pursuant to the Bankruptcy Ordinance in Israel and thus not be
enforceable. Any of these events could have a material and
adverse effect on our business, financial condition, future
results and cash flow.
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We are a
holding company and our revenues depend substantially on the
performance of our subsidiaries and the projects they operate,
most of which are subject to restrictions and taxation on
dividends and distributions.
We are a holding company whose primary assets are our ownership
of the equity interests in our subsidiaries. We conduct no other
business and, as a result, we depend entirely upon our
subsidiaries earnings and cash flow.
The agreements pursuant to which most of our subsidiaries have
incurred debt restrict the ability of these subsidiaries to pay
dividends, make distributions or otherwise transfer funds to us
prior to the satisfaction of other obligations, including the
payment of operating expenses, debt service and replenishment or
maintenance of cash reserves. In the case of some of our
projects, such as the Mammoth project, there may be certain
additional restrictions on dividend distributions pursuant to
our agreements with our partners. Further, if we elect to
receive distributions of earnings from our foreign operations,
we may incur United States taxes on account of such
distributions, net of any available foreign tax credits. In all
of the foreign countries where our existing projects are
located, dividend payments to us are also subject to withholding
taxes. Each of the events described above may reduce or
eliminate the aggregate amount of revenues we can receive from
our subsidiaries.
Some of
our directors and executive officers who also hold positions
with our parent may have conflicts of interest with respect to
matters involving both companies.
Three of our seven directors are directors
and/or
officers of Ormat Industries, namely Lucien Bronicki, Dita
Bronicki and Yoram Bronicki. In addition, four of our executive
officers are also executive officers of Ormat Industries.
Specifically, our Chairman, Director and Chief Technology
Officer, Lucien Bronicki, is the Chairman of our parent; our
Chief Executive Officer and Director, Dita Bronicki, is the
Chief Executive Officer of our parent; our Chief Financial
Officer, Joseph Tenne, is the Chief Financial Officer of our
parent; and our Senior Vice President Contract
Management and Corporate Secretary, Etty Rosner, is the
Corporate Secretary of our parent. These directors and officers
owe fiduciary duties to both companies and may have conflicts of
interest on matters affecting both us and our parent, and in
some circumstances may have interests adverse to our interests.
Our
controlling stockholders may take actions that conflict with
your interests.
Ormat Industries Ltd. holds approximately 56.1% of our common
stock. Bronicki Investments Ltd. holds approximately 35.22% of
the outstanding shares of common stock of Ormat Industries Ltd.
as of February 28, 2008 (35.13% on a fully diluted basis).
Bronicki Investments Ltd. is a privately held Israeli company
and is controlled by Lucien and Dita Bronicki. Because of these
holdings, our parent company will be able to exercise control
over all matters requiring stockholder approval, including the
election of directors, amendment of our certificate of
incorporation and approval of significant corporate
transactions, and they will have significant control over our
management and policies. The directors elected by these
stockholders will be able to significantly influence decisions
affecting our capital structure. This control may have the
effect of delaying or preventing changes in control or changes
in management, or limiting the ability of our other stockholders
to approve transactions that they may deem to be in their best
interest. For example, our controlling stockholders will be able
to control the sale or other disposition of our products
business to another entity or the transfer of such business
outside of the State of Israel; as such action requires the
affirmative vote of at least 75% of our outstanding shares.
The price
of our common stock may fluctuate substantially and your
investment may decline in value.
The market price of our common stock is likely to be highly
volatile and may fluctuate substantially due to many factors,
including:
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actual or anticipated fluctuations in our results of operations
including as a result of seasonal variations in our
electricity-based revenues;
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variance in our financial performance from the expectations of
market analysts;
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conditions and trends in the end markets we serve and changes in
the estimation of the size and growth rate of these markets;
|
|
|
|
|
|
announcements of significant contracts by us or our competitors;
|
|
|
|
|
|
changes in our pricing policies or the pricing policies of our
competitors;
|
|
|
|
|
|
loss of one or more of our significant customers;
|
|
|
|
|
|
changes in market valuation or earnings of our competitors;
|
|
|
|
|
|
the trading volume of our common stock; and
|
|
|
|
|
|
general economic conditions.
|
In addition, the stock market in general, and the New York Stock
Exchange and the market for energy companies in particular, have
experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of particular companies affected. These broad market
and industry factors may materially harm the market price of our
common stock, regardless of our operating performance. In the
past, following periods of volatility in the market price of a
companys securities, securities
class-action
litigation has often been instituted against that company. Such
litigation, if instituted against us, could result in
substantial costs and a diversion of managements attention
and resources, which could materially harm our business,
financial condition, future results and cash flow.
Future sales of common stock by some of our existing
stockholders could cause our stock price to decline.
As of the date of this report, our parent, Ormat Industries
Ltd., holds approximately 56.1% of our outstanding common stock
and some of our directors, officers and employees also hold
shares of our outstanding common stock. Sales of such shares in
the public market, as well as shares we may issue upon exercise
of outstanding options, could cause the market price of our
common stock to decline. On November 10, 2004, we entered
into a registration rights agreement with Ormat Industries
whereby Ormat Industries may require us to register our common
stock held by it or its directors, officers and employees with
the Securities and Exchange Commission or to include our common
stock held by it or its directors, officers and employees in an
offering and sale by us.
Provisions in our charter documents and Delaware law may
delay or prevent acquisition of us, which could adversely affect
the value of our common stock.
Our restated certificate of incorporation and our bylaws contain
provisions that could make it harder for a third party to
acquire us without the consent of our Board of Directors. These
provisions do not permit actions by our stockholders by written
consent. In addition, these provisions include procedural
requirements relating to stockholder meetings and stockholder
proposals that could make stockholder actions more difficult.
Our Board of Directors is classified into three classes of
directors serving staggered, three-year terms and may be removed
only for cause. Any vacancy on the Board of Directors may be
filled only by the vote of the majority of directors then in
office. Our Board of Directors has the right to issue preferred
stock without stockholder approval, which could be used to
institute a poison pill that would work to dilute
the stock ownership of a potential hostile acquirer, effectively
preventing acquisitions that have not been approved by our Board
of Directors. Delaware law also imposes some restrictions on
mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. Although
we believe these provisions provide for an opportunity to
receive a higher bid by requiring potential acquirers to
negotiate with our Board of Directors, these provisions apply
even if the offer may be considered beneficial by some
stockholders.
The
Sarbanes-Oxley Act of 2002 imposes significant regulatory,
corporate and operational requirements on the Company. Failure
to comply with such provisions may have significant adverse
consequences to the Company.
As a public company, we are subject to the Sarbanes-Oxley Act of
2002 (the SOX Act). The SOX Act contains a variety of provisions
affecting public companies, including but not limited to,
corporate governance
60
requirements, our relationship with our auditors, evaluation of
our internal disclosure controls and procedures, and evaluation
of our internal control over financial reporting. See
Managements Report on Internal Control over Financial
Reporting and Item 9A. Controls and
Procedures.
Funds we
have invested in certain auction rate securities have not been
accessible for longer than 12 months and such auction rate
securities experienced a decline in value, which has adversely
affected our income.
Our marketable securities portfolio at December 31, 2008 is
comprised of auction rate securities with a par value of
$11.2 million. 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. In the fourth quarter of 2007 and
in 2008, certain auction rate securities held by us with a par
value of $11.2 million failed auction due to sell orders
exceeding buy orders. As a result, we changed the way we
determine the fair value of some of these investments in our
financial statements for the years ended December 31, 2007
and 2008, as described in Note 1 to our consolidated
financial statements set forth in Part II Item 8 of
this annual report. Among other things, these changes resulted
in asset impairment charges and unrealized losses, which
adversely affected our income and financial position for 2008.
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 have matured.
If the current market conditions deteriorate further, or a
recovery in market values does not occur, we may be required to
record additional unrealized losses in other comprehensive
income or impairment charges in 2009.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
We currently lease corporate offices at 6225 Neil Road, Reno,
Nevada
89511-1136.
We also occupy an approximately 66,000 square meter office
and manufacturing facility located in the Industrial Park of
Yavne, Israel, which we sublease from Ormat Industries. See
Item 13 Certain Relationships and Related
Transactions. We also lease small offices in each of the
countries in which we operate.
We are constructing a new specialized industrial building for
our manufacturing activity. We believe that our current
facilities and the new facility will be adequate for our
operations as currently conducted
Each of our projects is located on property leased or owned by
us or one of our subsidiaries, or is a property that is subject
to a concession agreement.
Information and descriptions of our plants and properties are
included in Item 1 Business, of
this annual report.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
There were no material developments in any legal proceedings to
which the Company is a party during the fiscal year 2008, other
than as described below.
On November 20, 2008, the Constitutional Chamber of the
Supreme Court of Justice ruled in favor of the motion of appeal
filed by our Nicaraguan subsidiary, Ormat Momotombo Power
Company (OMPC), for protection against an administrative order
issued by Nicaraguas 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 Constitutional Chamber of the Supreme
Court of Justice further ruled that all the administrative
orders issued
61
by MARENA during the entire administrative proceeding, both at
the territorial level of the City of Leon and at the Ministerial
level, shall have no legal effect.
The ruling of the Constitutional Chamber of the Supreme Court of
Justice of Nicaragua is of mandatory application from the date
of official service of notice, and is final and not subject to
any further appeal.
From time to time, we (including our subsidiaries) are a party
to various other 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 U.S. generally accepted accounting
principles. 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 or cash
flow.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the quarter ended December 31, 2008.
62
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is traded on the New York Stock Exchange under
the symbol ORA. Public trading of our stock
commenced on November 11, 2004. Prior to that, there was no
public market for our stock. As of February 24, 2009, there
were 15 record holders of the Companys common stock. On
February 24, 2009, our stocks closing price as
reported on the New York Stock Exchange was $29.42 per share.
Dividends:
We have adopted a dividend policy pursuant to which we currently
expect to distribute at least 20% of our annual profits
available for distribution by way of quarterly dividends. In
determining whether there are profits available for
distribution, our Board of Directors will take into account our
business plan and current and expected obligations, and no
distribution will be made that in the judgment of our Board of
Directors would prevent us from meeting such business plan or
obligations.
Notwithstanding this policy, dividends will be paid only when,
as and if approved by our Board of Directors out of funds
legally available therefore. The actual amount and timing of
dividend payments will depend upon our financial condition,
results of operations, business prospects and such other matters
as the board may deem relevant from time to time. Even if
profits are available for the payment of dividends, the Board of
Directors could determine that such profits should be retained
for an extended period of time, used for working capital
purposes, expansion or acquisition of businesses or any other
appropriate purpose. As a holding company, we are dependent upon
the earnings and cash flow of our subsidiaries in order to fund
any dividend distributions and, as a result, we may not be able
to pay dividends in accordance with our policy. Our Board of
Directors may, from time to time, examine our dividend policy
and may, in its absolute discretion, change such policy.
We have declared the following dividends over the past two years:
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
Date Declared
|
|
Amount 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 1, 2008
|
February 24, 2009
|
|
$
|
0.07
|
|
|
March 16, 2009
|
|
March 26, 2009
|
High/Low
Stock Prices:
Ormat Technologies, Inc. (ORA) High and Low Prices
for the years ended December 31, 2007 and 2008, and from
January 1 until February 24, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
January 1 to
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
February 24,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
High:
|
|
$
|
37.00
|
|
|
$
|
33.72
|
|
|
$
|
46.34
|
|
|
$
|
57.00
|
|
|
$
|
56.12
|
|
|
$
|
54.94
|
|
|
$
|
50.43
|
|
|
$
|
35.00
|
|
|
$
|
35.29
|
|
Low:
|
|
$
|
44.59
|
|
|
$
|
41.99
|
|
|
$
|
36.33
|
|
|
$
|
46.82
|
|
|
$
|
39.79
|
|
|
$
|
45.15
|
|
|
$
|
36.33
|
|
|
$
|
22.85
|
|
|
$
|
28.22
|
|
63
Stock
Performance Graph:
The following performance graph represents the cumulative total
shareholder return for the period November 11, 2004 (the
date upon which trading of the Companys common stock
commenced) through December 31, 2008 for our common stock,
as compared to the Standard and Poors Composite 500 Index,
and a peer group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/11/2004
|
|
|
12/31/2004
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
Ormat Technologies Inc
|
|
$
|
100
|
|
|
$
|
109
|
|
|
$
|
174
|
|
|
$
|
245
|
|
|
$
|
367
|
|
|
$
|
212
|
|
Standard & Poors Composite 500 Index
|
|
$
|
100
|
|
|
$
|
108
|
|
|
$
|
111
|
|
|
$
|
126
|
|
|
$
|
131
|
|
|
$
|
80
|
|
IPP Peers*
|
|
$
|
100
|
|
|
$
|
119
|
|
|
$
|
110
|
|
|
$
|
167
|
|
|
$
|
163
|
|
|
$
|
131
|
|
Renewable Peers*
|
|
$
|
100
|
|
|
$
|
126
|
|
|
$
|
202
|
|
|
$
|
170
|
|
|
$
|
327
|
|
|
$
|
102
|
|
|
|
|
*
|
|
Independent Power Producer (IPP)
Peers are The AES Corporation, NRG Energy Inc., Calpine
Corporation and International Power PLC. Renewable Energy
(Renewable) Peers are Acciona S.A., Evergreen Solar Inc., Energy
Conversion Devices Inc., Nevada Geothermal Power Corp., Razer
Technologies Inc. and U.S. Geothermal Inc.
|
The above Stock Performance Graph shall not be deemed to be
soliciting material or to be filed with the SEC under the
Securities Act and the Exchange Act except to the extent that
the Company specifically requests that such information be
treated as soliciting material or specifically incorporates it
by reference into a filing under the Securities Act or the
Exchange Act.
Equity
Compensation Plan Information
For information on our equity compensation plan, refer to
Item 12 Security Ownership of Certain
Beneficial Owners and Management.
64
Unregistered
Sales of Equity Securities and Use of Proceeds from Registered
Securities
Previously reported.
Available
Financial Information
We make available our annual report, Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 free of charge on our website at
www.ormat.com, as soon as reasonably practicable after they are
electronically filed or furnished to the SEC. Additionally,
copies of materials filed by us with the SEC may be accessed at
the SECs Public Reference Room at 100 F Street,
N.E. Washington, D.C. 20549 or at
http://www.sec.gov.
For information about the SECs Public Reference Room, the
public may contact
1-800-SEC-0330.
The contents of our website are not incorporated into, or
otherwise to be regarded as a part of, this annual report.
65
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth our selected consolidated
financial data for the years ended and at the dates indicated.
We have derived the selected consolidated financial data for the
years ended December 31, 2008, 2007 and 2006 and as of
December 31, 2008 and 2007 from our audited consolidated
financial statements set forth in Part II Item 8 of
this annual report. We have derived the selected consolidated
financial data for the years ended December 31, 2005 and
2004, and as of December 31, 2006, 2005 and 2004 from our
audited consolidated financial statements not included herein.
The information set forth below should be read in conjunction
with Item 7 Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements set
forth in Part II Item 8 of this annual report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
252,256
|
|
|
$
|
215,969
|
|
|
$
|
195,483
|
|
|
$
|
177,369
|
|
|
$
|
158,831
|
|
Products
|
|
|
92,577
|
|
|
|
79,950
|
|
|
|
73,454
|
|
|
|
60,623
|
|
|
|
60,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
344,833
|
|
|
|
295,919
|
|
|
|
268,937
|
|
|
|
237,992
|
|
|
|
219,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
170,053
|
|
|
|
148,698
|
|
|
|
124,356
|
|
|
|
103,615
|
|
|
|
89,742
|
|
Products
|
|
|
72,755
|
|
|
|
68,036
|
|
|
|
51,215
|
|
|
|
45,236
|
|
|
|
46,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost revenues
|
|
|
242,808
|
|
|
|
216,734
|
|
|
|
175,571
|
|
|
|
148,851
|
|
|
|
136,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
102,025
|
|
|
|
79,185
|
|
|
|
93,366
|
|
|
|
89,141
|
|
|
|
83,152
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
4,595
|
|
|
|
3,663
|
|
|
|
2,983
|
|
|
|
3,036
|
|
|
|
2,175
|
|
Selling and Marketing expenses
|
|
|
10,885
|
|
|
|
10,645
|
|
|
|
10,361
|
|
|
|
7,876
|
|
|
|
7,769
|
|
General and administrative expenses
|
|
|
25,938
|
|
|
|
21,416
|
|
|
|
18,094
|
|
|
|
14,320
|
|
|
|
11,609
|
|
Gain on sale of geothermal resource rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,607
|
|
|
|
43,461
|
|
|
|
61,928
|
|
|
|
63,909
|
|
|
|
62,444
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,118
|
|
|
|
6,565
|
|
|
|
6,560
|
|
|
|
4,308
|
|
|
|
1,316
|
|
Interest expense
|
|
|
(7,677
|
)
|
|
|
(26,983
|
)
|
|
|
(30,961
|
)
|
|
|
(55,317
|
)
|
|
|
(42,785
|
)
|
Foreign currency translation and transaction loss
|
|
|
(7,721
|
)
|
|
|
(1,339
|
)
|
|
|
(704
|
)
|
|
|
(439
|
)
|
|
|
(146
|
)
|
Impairment of auction rate securities
|
|
|
(4,195
|
)
|
|
|
(2,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income
|
|
|
771
|
|
|
|
890
|
|
|
|
694
|
|
|
|
512
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
44,903
|
|
|
|
20,574
|
|
|
|
37,517
|
|
|
|
12,973
|
|
|
|
20,941
|
|
Income tax provision
|
|
|
(7,962
|
)
|
|
|
(1,822
|
)
|
|
|
(6,403
|
)
|
|
|
(4,690
|
)
|
|
|
(6,609
|
)
|
Minority interest
|
|
|
11,166
|
|
|
|
3,882
|
|
|
|
(813
|
)
|
|
|
|
|
|
|
(108
|
)
|
Equity in income of investees
|
|
|
1,725
|
|
|
|
4,742
|
|
|
|
4,146
|
|
|
|
6,894
|
|
|
|
3,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,832
|
|
|
$
|
27,376
|
|
|
$
|
34,447
|
|
|
$
|
15,177
|
|
|
$
|
17,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands, except per share data)
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.13
|
|
|
$
|
0.71
|
|
|
$
|
1.00
|
|
|
$
|
0.48
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.12
|
|
|
$
|
0.70
|
|
|
$
|
0.99
|
|
|
$
|
0.48
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,182
|
|
|
|
38,762
|
|
|
|
34,593
|
|
|
|
31,563
|
|
|
|
24,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
44,298
|
|
|
|
38,880
|
|
|
|
34,707
|
|
|
|
31,609
|
|
|
|
24,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend per share declared during the year
|
|
$
|
0.2000
|
|
|
$
|
0.2200
|
|
|
$
|
0.1500
|
|
|
$
|
0.1200
|
|
|
$
|
0.1025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of year):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,393
|
|
|
$
|
47,227
|
|
|
$
|
20,254
|
|
|
$
|
26,976
|
|
|
$
|
36,750
|
|
Working capital
|
|
|
3,296
|
|
|
|
22,337
|
|
|
|
34,429
|
|
|
|
36,616
|
|
|
|
50,341
|
|
Property, plant and equipment, net (including construction-in
process)
|
|
|
1,344,687
|
|
|
|
977,400
|
|
|
|
793,164
|
|
|
|
620,091
|
|
|
|
527,003
|
|
Total Assets
|
|
|
1,637,691
|
|
|
|
1,274,909
|
|
|
|
1,160,102
|
|
|
|
914,480
|
|
|
|
850,088
|
|
Long-term debt (including current portion)
|
|
|
386,635
|
|
|
|
322,472
|
|
|
|
372,009
|
|
|
|
365,539
|
|
|
|
384,515
|
|
Notes payable to Parent (including current portion)
|
|
|
26,200
|
|
|
|
57,847
|
|
|
|
140,153
|
|
|
|
171,805
|
|
|
|
193,852
|
|
Stockholders equity
|
|
|
846,428
|
|
|
|
618,083
|
|
|
|
440,794
|
|
|
|
182,259
|
|
|
|
167,914
|
|
67
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
You should read the following discussion and analysis of our
results of operations, financial condition and liquidity in
conjunction with our consolidated financial statements and the
related notes. Some of the information contained in this
discussion and analysis or set forth elsewhere in this annual
report including information with respect to our plans and
strategies for our business, statements regarding the industry
outlook, our expectations regarding the future performance of
our business, and the other non-historical statements contained
herein are forward-looking statements. See Cautionary Note
Regarding Forward-Looking Statements. You should also
review Item 1A Risk Factors for a
discussion of important factors that could cause actual results
to differ materially from the results described herein or
implied by such forward-looking statements.
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, in most
cases 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. Our current generating portfolio includes geothermal
plants in the United States, Guatemala, Kenya, Nicaragua and New
Zealand, as well as recovered energy generation (REG) plants in
the United States. During the years ended December 31, 2008
and 2007, our U.S. power plants generated
2,266,422 MWh and 1,994,263 MWh, respectively.
For the year ended December 31, 2008, our Electricity
Segment represented approximately 73.2% of our total revenues,
while our Products Segment represented approximately 26.8% of
our total revenues during such year.
For the year ended December 31, 2008, our total revenues
increased by 16.5% (from $296.0 million to
$344.8 million) over the previous year. Revenues from the
Electricity Segment increased by 16.8%, while revenues from the
Products Segment increased by 15.8%.
For the year ended December 31, 2008, total Electricity
Segment revenues from the sale of electricity by our
consolidated power plants were $252.3 million, as compared
to $216.0 for the year ended December 31, 2007. In
addition, revenues from our 50% ownership of the Mammoth Project
were $9.6 million for the year ended December 31,
2008. 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 on the scope of the 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 year ended
December 31, 2008.
For the year ended December 31, 2008, revenues attributable
to our Products Segment were $92.6 million, as compared to
$80.0 million during the year ended December 31, 2007,
an increase of 15.8%. Most of the increase in revenues was
derived from two large geothermal projects, the Blue Mountain
project in Nevada and the Centennial Binary Plant in New Zealand.
68
In the year ended December 31, 2008, we received new
purchase orders for the supply and construction of geothermal
and REG plants in a total amount of $245 million. Purchase
orders for geothermal power plants included EPC contracts in the
total amount of $118 million for the Blue Mountain project
in Nevada and the Centennial project in New Zealand. In January
2009 we signed a $65 million supply contract for the Las
Pailas project in Costa Rica.
During the year ended December 31, 2008, we recognized
revenues in our Products Segment of approximately
$16.1 million from REG compared to $37.3 million
during the year ended December 31, 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 exception is the power purchase
agreement of the Puna project. It has a variable energy rate
based on the local utilitys short run avoided costs, which
is the incremental cost that the power purchaser avoids by not
having to generate such electrical energy itself or purchase it
from others. In the year ended December 31, 2008,
approximately 74.0% of our electricity revenues were derived
from contracts with fixed energy rates, and therefore 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. 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.
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 has been
partly due to increasing natural gas and oil prices during much
of this period and more recently due to newly enacted
legislative and regulatory incentives, such as state renewable
portfolio standards and federal tax credits. 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.
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.
69
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:
|
|
|
|
|
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. If economic conditions worsen, the cost of
obtaining financing for our project needs may increase or such
financing may not be available at all. If these conditions
continue or worsen, they may result in reduced worldwide demand
for energy, which may adversely affect both our Electricity and
Products Segments. Among other things, we might face:
(i) 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;
(ii) potential declines in revenues from some of our
existing geothermal power projects as a result of curtailed
electricity demand and low oil and gas prices; and
(iii) potential adverse impacts on our customers
ability to pay, when due, amounts payable to us. In addition, we
may experience related increases in our cost of capital
associated with any increased working capital or borrowing needs
we may have if our customers do not pay, or if we are unable 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.
|
|
|
|
|
|
Our primary focus continues to be the implementation of our
organic growth through exploration, development, the
construction of new projects and enhancements of 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.
|
|
|
|
|
|
Until the end of the third quarter of 2008, we experienced
increases in the cost of raw materials, labor and transportation
costs required for our 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 due to the high
oil price environment. The recent decrease in the price of oil
and other commodities may reduce such costs in the future, which
may serve to partially offset the negative impact of increased
financing cost as described above. Also, this decrease in the
price of oil will reduce our revenues from the Puna project in
2009, since the energy prices in such project are based on
Hawaii Electric Light Companys avoided costs, which are
influenced by the price of oil.
|
|
|
|
|
|
In the United States, we expect to continue to benefit from the
increasing demand for renewable energy. Thirty-three states and
the District of Colombia, including California, Nevada and
Hawaii (where we have been most active in geothermal development
and in which 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 economic slow
down and will continue to create opportunities for us to expand
existing projects and build new power plants.
|
|
|
|
|
|
On February 17, 2009, President Obama signed into law the
American Recovery and Reinvestment Act (ARRA), which extended
the existing tax subsidy for companies that use geothermal steam
or fluid to generate electricity. The existing tax subsidy is a
production tax credit, which in 2008 was 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, 2013. The ARRA also allows companies that
generate electricity from certain renewable sources, including
geothermal steam or fluid, to forego the production tax credit
and elect instead a one-time investment tax credit equal to 30%
of the cost of the renewable energy production facility. The
investment tax credit is claimed when the qualifying facility is
placed in service for federal income tax purposes. Companies
that begin construction on, or place in service qualifying
renewable energy facilities, during 2009 or
|
70
|
|
|
|
|
2010 may choose to apply for a cash grant from the
Department of Treasury in an amount equal to the investment tax
credit. Under the ARRA, the Department of Treasury is instructed
to pay the cash grant within 60 days of the application or
the date on which the qualifying facility is placed in service.
We believe that a number of our new geothermal plants should
qualify for the cash grant from the Department of Treasury.
Although the implementation and scope of the new subsidies under
the ARRA are still uncertain, we expect them to lead to
increased sources of capital for our business.
|
|
|
|
|
|
Production of electricity from geothermal resources is also
supported under the new Temporary Program For Rapid
Deployment of Renewable Energy and Electric Power Transmission
Projects established with the U.S. Department of
Energy as part of the Department of Energys existing
Innovative Technology Loan Guarantee Program. The new program:
(i) extends the scope of the existing federal loan
guarantee program to cover renewable energy projects, renewable
energy component manufacturing facilities and electricity
transmission projects that embody established commercial, as
well as innovative, technologies; and (ii) provides an
appropriation to cover the credit subsidy costs of
such projects (meaning the estimated average costs to the
federal government from issuing the loan guarantee, equivalent
to a lending banks loan loss reserve.
|
To be eligible for a guarantee under the new program, a
supported project must break ground, and the guarantee must be
issued, by September 30, 2011. A project supported by the
federal guarantee under the new program must pay prevailing
federal wages.
Based on the appropriation of $6 billion to pay the credit
subsidy costs of guarantees issued under the new program, it is
likely that between $60 billion to $120 billion of
financing (assuming average subsidy requirements between 10% and
5%, respectively) will be available to eligible projects,
including geothermal power plants.
|
|
|
|
|
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.
|
|
|
|
|
|
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. Although federal legislation addressing climate
change appears likely, several states and regions are already
addressing climate change. For example, the California Global
Warming Solutions Act of 2006 (the Act), which was signed into
law in September 2006, regulates most sources of greenhouse gas
emissions and aims to reduce greenhouse gas emissions to 1990
levels by 2020, representing an approximately 30% 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) and
the Midwest Greenhouse Gas Reduction Accord, are also being
developed to reduce greenhouse gas emissions and develop trading
systems for renewable energy credits. In September 2008, the
first-in-the-nation
auction of
CO2
allowances was held under the Regional Greenhouse Gas Initiative
(RGGI), a regional
cap-and-trade
system, which includes ten Northeast and Mid
Atlantic States. Under RGGI, the ten participating states plan
to stabilize power section carbon emissions at their capped
level, and then reduce the cap by 10 percent at a rate of
2.5 percent each year between 2015 and 2018. In addition,
thirty-three states and the District of Columbia have all
adopted renewable portfolio standards (RPS), renewable portfolio
goals, or similar laws requiring or encouraging electric
utilities in such states to generate or buy a certain percentage
of their electricity from renewable
|
71
energy sources or recovered heat sources. In November 2008,
California, by Executive Order, adopted a goal for all retailers
of electricity to serve 33% of their load with renewable energy
by 2020. 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.
|
|
|
|
|
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
materially 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.
|
|
|
|
|
|
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.
|
|
|
|
|
|
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 or gradual 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.
|
|
|
|
|
|
As our power plants age, they may require increased maintenance
with a resulting decrease in their availability, potentially
leading to the imposition of penalties if we are not able to
meet the requirements under our power purchase agreements as a
result of such decrease in availability.
|
|
|
|
|
|
Our foreign operations are subject to significant political,
economic and financial risks, which vary by country. Those 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.
|
|
|
|
|
|
The Energy Policy Act of 2005 authorizes FERC to revise 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 of
our current contracts are long-term. FERC issued a final rule
that makes it easier to eliminate the utilities purchase
obligation in four regions of the 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 the existing power purchase agreement,
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,
manufacture and sale of equipment for electricity generation;
and the construction, installation and engineering of power
plant equipment.
72
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 temperature,
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 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.
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 or requests
for proposals 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. We may experience 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.
The following table sets forth a breakdown of our revenues for
the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in Thousands
|
|
|
% of Revenues for Period Indicated
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
$
|
252,256
|
|
|
$
|
195,483
|
|
|
$
|
177,369
|
|
|
|
73.2
|
%
|
|
|
72.7
|
%
|
|
|
74.5
|
%
|
Products Segment
|
|
|
92,577
|
|
|
|
73,454
|
|
|
|
60,623
|
|
|
|
26.8
|
|
|
|
27.3
|
|
|
|
25.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
344,833
|
|
|
$
|
268,937
|
|
|
$
|
237,992
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical
breakdown of revenues
For the years ended December 31, 2008, 2007 and 2006,
82.0%, 83.3% and 83.3%, respectively, of the revenues
attributable to our Electricity Segment were generated in the
United States. The following table sets forth the geographic
breakdown of the revenues attributable to our Electricity
Segment for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in Thousands
|
|
|
% of Revenues for Period Indicated
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
206,795
|
|
|
$
|
179,999
|
|
|
$
|
162,844
|
|
|
|
82.0
|
%
|
|
|
83.3
|
%
|
|
|
83.3
|
%
|
Foreign
|
|
|
45,461
|
|
|
|
35,970
|
|
|
|
32,639
|
|
|
|
18.0
|
|
|
|
16.7
|
|
|
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
252,256
|
|
|
$
|
215,969
|
|
|
$
|
195,483
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the years ended December 31, 2008, 2007 and 2006, 45.2%,
28.1% and 14.3%, respectively, of the revenues attributable to
our Products Segments were generated in the United States.
73
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,
for 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 16.7% of our total revenues for the year ended
December 31, 2008, are volatile.
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. 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 year ended
December 31, 2008, royalties constituted approximately 5.1%
of the Electricity Segment revenues, compared to approximately
4.3% in the year ended December 31, 2007.
Products
Segment
The principal cost of revenues 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 Short-Term Marketable
Securities
Our cash, cash equivalents and short-term marketable securities
as of December 31, 2008 decreased to $34.4 million
from $60.7 million as of December 31, 2007. This
decrease is principally due to our use during 2008 of
$416.6 million of cash resources to fund capital
expenditures and $65.8 million to repay long-term debt to
our parent and to third parties. These expenditures were
partially offset by the $149.7 million 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 underwriting fees and commissions), the
$33.3 million net proceeds from our 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,
the utilization of $125.0 million
74
of lines of credit from commercial banks, and the
$116.7 million derived from operating activities in the
year ended December 31, 2008. In addition, we have
$2.0 million and $2.8 million, respectively, of
marketable securities as of December 31, 2008 and
December 31, 2007 classified as non-current assets. This
classification is due to failed auctions in the fourth quarter
of 2007 and in 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 $347.5 million under committed
lines of credit with different commercial banks, as described
below in the section entitled Liquidity and Capital
Resources, of which as of December 31, 2008 we
utilized $125.0 million (including $25.0 million of
letters of credit).
Critical
Accounting Policies
Our significant accounting policies are more fully described in
Note 1 to our audited consolidated financial statements set
forth in Part II Item 8 of this annual report.
However, certain of our accounting policies are particularly
important to the portrayal of our financial position and results
of operations. In applying these critical accounting policies,
our management uses its judgment to determine the appropriate
assumptions to be used in making certain estimates. Such
estimates are based on managements historical experience,
the terms of existing contracts, managements observance of
trends in the geothermal industry, information provided by our
customers and information available to management from other
outside sources, as appropriate. Such estimates are subject to
an inherent degree of uncertainty and, as a result, actual
results could differ from our estimates. Our critical accounting
policies include:
|
|
|
|
|
Revenues and Cost of Revenues. Revenues
related to the sale of electricity from our geothermal and
recovered energy-based power plants and capacity payments paid
in connection with such sales (electricity revenues) are
recorded based upon output delivered and capacity provided by
such power plants at rates specified pursuant to the relevant
power purchase agreements. The power purchase agreements are
exempt from derivative treatment due to the normal purchase and
sale exception. Revenues related to power purchase agreements
accounted for as operating leases under Emerging Issues Task
Force Issue (EITF)
No. 01-8,
Determining whether an Arrangement Contains a Lease, with
minimum lease rentals which vary over time are generally
recognized on a straight-line basis over the term of the power
purchase agreement. Revenues generated from engineering and
operating services and sales of products and parts are recorded
once the service is provided or product delivery is made, as
applicable.
|
Revenues generated from the construction of geothermal and
recovered energy power plant equipment and other equipment on
behalf of third parties (products revenues) are recognized using
the percentage of completion method. The percentage of
completion method requires estimates of future costs over the
full term of product delivery. Such cost estimates are made by
management based on prior operations and specific project
characteristics and designs. If managements estimates of
total estimated costs with respect to our Products Segment are
inaccurate, then the percentage of completion is inaccurate
resulting in an over- or under-estimate of gross margins. As a
result, we review and update our cost estimates on significant
contracts on a quarterly basis, and no less than annually for
all others, or when circumstances change and warrant a
modification to a previous estimate. Changes in job performance,
job conditions, and estimated profitability, including those
arising from the application of penalty provisions in relevant
contracts and final contract settlements, may result in
revisions to costs and revenues and are recognized in the period
in which the revisions are determined. Provisions for estimated
losses relating to contracts are made in the period in which
such losses are determined.
|
|
|
|
|
Property, Plant and Equipment. All costs
associated with the acquisition, development and construction of
power plant facilities are capitalized. Major improvements are
capitalized and repairs and maintenance (including major
maintenance) costs are expensed. We estimate the useful life of
our power plants to range between 25 and 30 years. Such
estimates are made by management based on factors such as prior
operations, the terms of the underlying power purchase
agreements, geothermal resources, the location of the assets and
specific project characteristics and designs. Changes in such
estimates could result in useful lives which are either longer
or shorter than the depreciable lives of such assets. We
periodically re-evaluate the estimated useful life of our power
plants and revise the remaining depreciable life on a
prospective basis.
|
75
We capitalize costs incurred in connection with the exploration
and development of geothermal resources on an
area-of-interest basis. All such costs, which
include dry hole costs and the cost of drilling and equipping
production wells and other directly attributable costs, are
capitalized and amortized over their estimated useful lives when
production commences. Although we do not commence exploration
activities until feasibility studies have determined that the
project is capable of commercial production, it is possible that
economically recoverable reserves will not be found in an
area of interest and exploration activities will be
abandoned. In this case, capitalized exploration costs would be
expensed.
|
|
|
|
|
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of. We evaluate long-lived assets, such
as property, plant and equipment, exploration and drilling
costs, power purchase agreements, and unconsolidated investments
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Factors which could trigger an impairment include,
among others, significant underperformance relative to
historical or projected future operating results, significant
changes in our use of acquired assets or our overall business
strategy, negative industry or economic trends, a determination
that a suspended project is not likely to be completed, legal
factors relating to our business or when we conclude that it is
more likely than not that an asset will be disposed of or sold.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the estimated
future net undiscounted cash flows expected to be generated by
the asset. The significant assumptions that we use in estimating
our undiscounted future cash flows include: (i) projected
generating capacity of the project and rates to be received
under the respective power purchase agreement; and
(ii) projected operating expenses of the relevant project.
Estimates of future cash flows used to test recoverability of a
long-lived asset under development also include cash flows
associated with all future expenditures necessary to develop the
asset.
|
If our assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds their fair value. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Estimates of the fair value of
assets require estimating useful lives and selecting a discount
rate that reflects the risk inherent in future cash flows. If
actual results are not consistent with our assumptions used in
estimating future cash flows and fair values, we may incur
additional losses that could be material to our financial
condition or results of operations.
|
|
|
|
|
Obligations Associated with the Retirement of Long-Lived
Assets. We record the fair market value of legal
liabilities related to the retirement of our assets in the
period in which such liabilities are incurred. Our liabilities
related to the retirement of our assets include our obligation
to plug wells upon termination of our operating activities, the
dismantling of our geothermal power plants upon cessation of our
operations and the performance of certain remedial measures
related to the land on which such operations were conducted.
When a new liability for an asset retirement obligation is
recorded, we capitalize the costs of such liability by
increasing the carrying amount of the related long-lived asset.
Such liability is accreted to its present value each period and
the capitalized cost is depreciated over the useful life of the
related asset. At retirement, we will either settle the
obligation for its recorded amount or will report either a gain
or a loss with respect thereto. Estimates of the costs
associated with asset retirement obligations are based on
factors such as prior operations, the location of the assets and
specific project characteristics. We review and update our cost
estimates periodically and adjust our asset retirement
obligations in the period in which the revisions are determined.
If actual results are not consistent with our assumptions used
in estimating our asset retirement obligations, we may incur
additional losses that could be material to our financial
condition or results of operations.
|
|
|
|
|
|
Marketable Securities. Our marketable
securities consist of debt securities (mainly auction rate
securities and commercial paper). We account for such securities
in accordance with SFAS No. 115, Accounting for
Investments in Debt and Equity Securities. All of our
investments in marketable securities (including marketable
securities which are part of restricted cash accounts) are
treated as available-for-sale under
SFAS No. 115. We report marketable securities at fair
value with the related unrealized gains and losses included in
accumulated other comprehensive income (loss), a component
|
76
|
|
|
|
|
of stockholders equity, net of tax. Net realized gains or
losses are reported in other income (expense). We evaluate our
investments periodically for possible other-than-temporary
impairment by reviewing factors such as the length of time and
extent to which fair value has been below cost basis, the
financial condition of the issuer and our ability and intent to
hold the investment for a period of time which may be sufficient
for anticipated recovery of market value. An impairment charge
is recorded to the extent that the carrying value of
available-for-sale securities exceeds the estimated fair market
value of the securities and the decline in value is 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 in
our case occurs every twenty-eight days, 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 in
2008, some of the auction rate securities we held failed to sell
in the auctions that are held periodically to re-set the
interest rate on those securities. As a result, consistent with
our policies described above, we recorded asset impairment
charges and unrealized losses for certain of the auction rate
securities we held, and classified those securities with failed
auctions as long-term assets in our consolidated balance sheets
as of December 31, 2008 and 2007. These charges and the
amounts involved are set forth in Note 6 to our
consolidated financial statements for the years ended
December 31, 2008 and 2007 set forth in Item 8 of this
annual report. Due to current economic conditions, we may
continue to incur losses associated with our auction rate
securities.
|
|
|
|
|
Accounting for Income Taxes. Significant
estimates are required to arrive at our consolidated income tax
provision and other tax balances. This process requires us to
estimate our actual current tax exposure and to make an
assessment of temporary differences resulting from differing
treatments of items for tax and accounting purposes. Such
differences result in deferred tax assets and liabilities which
are included in our consolidated balance sheets. For those
jurisdictions where the projected operating results indicate
that realization of our net deferred tax assets is not likely, a
valuation allowance is recorded.
|
In assessing the need for a valuation allowance, we estimate
future taxable income, considering the feasibility of ongoing
tax planning strategies and the realization of tax loss
carryforwards. Valuation allowances related to deferred tax
assets can be affected by changes in tax laws, statutory tax
rates and future taxable income. Although realization is not
assured, management believes it is more likely than not that the
deferred tax asset as of December 31, 2008 will be
realized. In the event we were to determine that we would not be
able to realize all or a portion of our deferred tax assets in
the future, we would reduce such amounts through a charge to
income in the period in which that determination is made or when
tax law changes are enacted.
In the ordinary course of business, there is inherent
uncertainty in quantifying our income tax positions. We assess
our income tax positions and record tax benefits for all years
subject to examination based upon managements evaluation
of the facts, circumstances and information available at the
reporting date. For those tax positions where it is more likely
than not that a tax benefit will be sustained, we have recorded
the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate settlement with a
taxing authority that has full knowledge of all relevant
information. For those income tax positions where it is not more
likely than not that a tax benefit will be sustained, no tax
benefit has been recognized in the consolidated financial
statements. Resolution of these uncertainties in a manner
inconsistent with our expectations could have a material impact
on our financial condition or results of operations.
New
Accounting Pronouncements
See Note 1 to our Consolidated Financial Statements set
forth in Item 8 of this annual report for information
regarding new accounting pronouncements.
77
Results
of Operations
Our historical operating results in dollars and as a percentage
of total revenues are presented below. A comparison of the
different years described below may be of limited utility due to
the following: (i) our recent construction of new projects
and enhancement of acquired projects; and (ii) fluctuation
in revenues from our Products Segment. A number of operational
issues in the first quarter of 2007 resulted in both reduced
revenues and increased costs for the year ended
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands, except per share data)
|
|
|
Statements of Operations Historical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
$
|
252,256
|
|
|
$
|
215,969
|
|
|
$
|
195,483
|
|
Products Segment
|
|
|
92,577
|
|
|
|
79,950
|
|
|
|
73,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,833
|
|
|
|
295,919
|
|
|
|
268,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
170,053
|
|
|
|
148,698
|
|
|
|
124,356
|
|
Products Segment
|
|
|
72,755
|
|
|
|
68,036
|
|
|
|
51,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,808
|
|
|
|
216,734
|
|
|
|
175,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
82,203
|
|
|
|
67,271
|
|
|
|
71,127
|
|
Products Segment
|
|
|
19,822
|
|
|
|
11,914
|
|
|
|
22,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,025
|
|
|
|
79,185
|
|
|
|
93,366
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
4,595
|
|
|
|
3,663
|
|
|
|
2,983
|
|
Selling and marketing expenses
|
|
|
10,885
|
|
|
|
10,645
|
|
|
|
10,361
|
|
General and administrative expenses
|
|
|
25,938
|
|
|
|
21,416
|
|
|
|
18,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,607
|
|
|
|
43,461
|
|
|
|
61,928
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,118
|
|
|
|
6,565
|
|
|
|
6,560
|
|
Interest expense
|
|
|
(7,677
|
)
|
|
|
(26,983
|
)
|
|
|
(30,961
|
)
|
Foreign currency translation and transaction losses
|
|
|
(7,721
|
)
|
|
|
(1,339
|
)
|
|
|
(704
|
)
|
Impairment of auction rate securities
|
|
|
(4,195
|
)
|
|
|
(2,020
|
)
|
|
|
|
|
Other non-operating income, net
|
|
|
771
|
|
|
|
890
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
44,903
|
|
|
|
20,574
|
|
|
|
37,517
|
|
Income tax provision
|
|
|
(7,962
|
)
|
|
|
(1,822
|
)
|
|
|
(6,403
|
)
|
Minority interest
|
|
|
11,166
|
|
|
|
3,882
|
|
|
|
(813
|
)
|
Equity in income of investees, net
|
|
|
1,725
|
|
|
|
4,742
|
|
|
|
4,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,832
|
|
|
$
|
27,376
|
|
|
$
|
34,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.13
|
|
|
$
|
0.71
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.12
|
|
|
$
|
0.70
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,182
|
|
|
|
38,762
|
|
|
|
34,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
44,298
|
|
|
|
38,880
|
|
|
|
34,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statements of Operations Percentage Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
73.2
|
%
|
|
|
73.0
|
%
|
|
|
72.7
|
%
|
Products Segment
|
|
|
26.8
|
|
|
|
27.0
|
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
67.4
|
|
|
|
68.9
|
|
|
|
63.6
|
|
Products Segment
|
|
|
78.6
|
|
|
|
85.1
|
|
|
|
69.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70.4
|
|
|
|
73.2
|
|
|
|
65.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
32.6
|
|
|
|
31.1
|
|
|
|
36.4
|
|
Products Segment
|
|
|
21.4
|
|
|
|
14.9
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.6
|
|
|
|
26.8
|
|
|
|
34.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1.3
|
|
|
|
1.2
|
|
|
|
1.1
|
|
Selling and marketing expenses
|
|
|
3.2
|
|
|
|
3.6
|
|
|
|
3.9
|
|
General and administrative expenses
|
|
|
7.5
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
17.6
|
|
|
|
14.7
|
|
|
|
23.0
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.9
|
|
|
|
2.2
|
|
|
|
2.4
|
|
Interest expense
|
|
|
(2.2
|
)
|
|
|
(9.1
|
)
|
|
|
(11.5
|
)
|
Foreign currency translation and transaction losses
|
|
|
(2.2
|
)
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
Impairment of auction rate securities
|
|
|
(1.2
|
)
|
|
|
(0.7
|
)
|
|
|
0.0
|
|
Other non-operating income, net
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
13.0
|
|
|
|
7.0
|
|
|
|
14.0
|
|
Income taxprovision
|
|
|
(2.3
|
)
|
|
|
(0.6
|
)
|
|
|
(2.4
|
)
|
Minority interest
|
|
|
3.2
|
|
|
|
1.3
|
|
|
|
(0.3
|
)
|
Equity in income of investees, net
|
|
|
0.5
|
|
|
|
1.6
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14.5
|
%
|
|
|
9.4
|
%
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of the Year Ended December 31, 2008 and the Year Ended
December 31, 2007
Total
Revenues
Total revenues for the year ended December 31, 2008 were
$344.8 million, as compared with $296.0 million for
the year ended December 31, 2007, which represented a 16.5%
increase in total revenues. This increase is attributable to
both our Electricity and Products Segments whose revenues
increased by 16.8% and 15.8%, respectively, over the same period
in 2007.
Electricity
Segment
Revenues attributable to our Electricity Segment for the year
ended December 31, 2008 were $252.3 million, as
compared with $216.0 million for the year ended
December 31, 2007, which represented a 16.8% increase in
such revenues. This increase is primarily attributable to
additional revenues of $26.8 million generated in the
United States resulting from: (i) an increase in our
electricity generation, as a result of new power plants placed
in service and enhanced performance of existing power plants,
from 1,994,263 MWh in
79
the year ended December 31, 2007 to 2,266,422 MWh in
the year ended December 31, 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 Southern California Edison. The increase
in the Electricity Segment revenues in the year ended
December 31, 2008 is also attributable to a net increase of
$9.5 million in revenues from our international plants as a
result of revenues generated from our Amatitlan project in
Guatemala, which started generating electricity in March 2007
and from our Momotombo project in Nicaragua, which suffered in
the year ended December 31, 2007 from a failure of turbines
that we did not manufacture. 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
temporary shut down required to replace the project turbines
(the project returned to full operation in the beginning of
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 generating
output of the Brady complex as a result of a decline in the
geothermal reservoir; and (iv) a decrease in the generating
output 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.
Products
Segment
Revenues attributable to our Products Segment for the year ended
December 31, 2008 were $92.6 million, as compared with
$80.0 million for the year ended December 31, 2007,
which represented a 15.8% increase in such revenues. Most of the
increase in revenues was derived from two large geothermal
projects, the Blue Mountain project in Nevada and the Centennial
Binary Plant in New Zealand.
Total
Cost of Revenues
Total cost of revenues for the year ended December 31, 2008
was $242.8 million, as compared with $216.7 million
for the year ended December 31, 2007, which represented a
12.0% increase in total cost of revenues. The increase is
attributable to an increase in both our Electricity and Products
Segments, as discussed below. As a percentage of total revenues,
our total cost of revenues for the year ended December 31,
2008 was 70.4% compared with 73.2% for the year ended
December 31, 2007.
Electricity
Segment
Total cost of revenues attributable to our Electricity Segment
for the year ended December 31, 2008 was
$170.1 million, as compared with $148.6 million for
the year ended December 31, 2007, which represented a 14.4%
increase in total cost of revenues for such segment. The
increase in our costs in this segment during the year ended
December 31, 2008 over the same period in 2007 reflects:
(i) increased costs relating to new and enhanced projects
placed in service (including depreciation); (ii) an
increase in labor and materials costs in existing plants; and
(iii) liquidated damages to our customers as a result of
not meeting the capacity targets under certain power purchase
agreements. As a percentage of total electricity revenues, the
total cost of revenues attributable to our Electricity Segment
for the year ended December 31, 2008 was 67.4% compared
with 68.9% for the year ended December 31, 2007.
Products
Segment
Total cost of revenues attributable to our Products Segment for
the year ended December 31, 2008 was $72.8 million as
compared with $68.0 million for the year ended
December 31, 2007, which represented a 6.9% 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 year ended
December 31, 2008 was 78.6% as compared with 85.1% for the
year ended December 31, 2007.
Research
and Development Expenses
Research and development expenses for the year ended
December 31, 2008 were $4.6 million, as compared with
$3.7 million for the year ended December 31, 2007,
which represented a 25.4% increase. Such
80
increase is primarily due to expenses incurred in connection
with our research and development activities relating to:
(i) Enhanced Geothermal Systems (EGS); (ii) a REG
plant specifically designed to use the residual energy from the
vaporization process at a liquefied natural gas regasification
terminals (as a result of receiving a notice to proceed with the
construction of such unit from ENAGAS, S.A. of Madrid, Spain);
(iii) development of a solar thermal system for the
production of electricity; and (iv) the supply of a
geothermal power unit for testing at a producing oil well
located at the Oil Test Center near Caspar, Wyoming. The
research and development expenses are net of grants from the
U.S. Department of Energy in the amount of
$0.6 million with respect to the EGS project.
Selling
and Marketing Expenses
Selling and marketing expenses for the year ended
December 31, 2008 were $10.9 million, as compared with
$10.6 million for the year ended December 31, 2007,
which represented a 2.3% increase. Selling and marketing
expenses for the year ended December 31, 2008 constituted
3.2% of total revenues for such period, as compared with 3.6%
for the year ended December 31, 2007.
General
and Administrative Expenses
General and administrative expenses for the year ended
December 31, 2008 were $25.9 million, as compared with
$21.4 million for the year ended December 31, 2007,
which represented a 21.1% 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 during the
year ended December 31, 2008. General and administrative
expenses for the year ended December 31, 2008 increased to
7.5% of total revenues for such period, from 7.2% for the year
ended December 31, 2007.
Operating
Income
Operating income for the year ended December 31, 2008 was
$60.6 million, as compared with $43.5 million for the
year ended December 31, 2007. Such increase in operating
income was principally attributable to an increase in the gross
margin in both our Electricity and Products Segments due to the
significant increase in revenues during the year ended
December 31, 2008, as described above. Operating income
attributable to our Electricity Segment for the year ended
December 31, 2008 was $54.9 million, as compared with
$43.7 million for the year ended December 31, 2007.
Operating income attributable to our Products Segment for the
year ended December 31, 2008 was $5.7 million, as
compared with an operating loss of $0.2 million for the
year ended December 31, 2007.
Interest
Income
Interest income for the year ended December 31, 2008 was
$3.1 million, as compared with $6.6 million for the
year ended December 31, 2007, which represented a 52.5%
decrease. The decrease is primarily due to a decrease in cash
and cash equivalents, marketable securities and restricted cash
as well as a decrease in interest rates payable on liquid
investments.
Interest
Expense
Interest expense for the year ended December 31, 2008 was
$7.7 million, as compared with $27.0 million for the
year ended December 31, 2007, which represented a 71.5%
decrease. The $19.3 million decrease is primarily due to
principal repayments and to an increase of $14.5 million in
interest capitalized to projects as a result of increased
projects under construction.
Foreign
Currency Translation and Transaction Losses
Foreign currency translation and transaction losses for the year
ended December 31, 2008 were $7.7 million, as compared
with $1.3 million for the year ended December 31,
2007. The $6.4 million increase is primarily due to:
(i) foreign currency translation losses in the amount of
$3.3 million with respect to a loan
81
denominated in New Zealand dollars which was granted to our New
Zealand subsidiary GDL, whose functional currency is the New
Zealand dollar; and (ii) losses on forward foreign exchange
transactions which do not qualify as hedge transactions for
accounting purposes. The foreign currency translation losses in
respect of the loan granted to our New Zealand subsidiary will
decrease the cost of the equipment which was financed by such
loan.
Impairment
of Auction Rate Securities
In the year ended December 31, 2008, we recorded
$4.2 million of impairment charges as a result of an
other-than-temporary
decline in the value of certain auction rate securities as
compared to $2.0 million in the year ended
December 31, 2007. This amount includes $0.8 million,
which was deemed temporary as of December 31, 2007. See
also Note 6 to our consolidated financial statements set
forth in Item 8 of this annual report. The carrying value
of auction rate securities as of December 31, 2008 is
$4.9 million.
Income
Taxes
Income tax provision for the year ended December 31, 2008
was $8.0 million, as compared with $1.8 million for
the year ended December 31, 2007. The effective tax rates
for the years ended December 31, 2008 and 2007 were 17.7%
and 8.9%, 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 and a lower impact on the effective tax rate
from production tax credits in the year ended December 31,
2008 due to an increase in our income before income taxes.
Minority
interest
Minority interest represents income from the sale of limited
liability company interests in OPC to institutional equity
investors in June 2007 and April 2008. Minority interest for the
year ended December 31, 2008 was $11.2 million as
compared to $3.9 million for the years ended
December 31, 2007.
Equity
in Income of Investees
Our participation in the income generated from our investees for
the year ended December 31, 2008 was $1.7 million, as
compared with $4.7 million for the year ended
December 31, 2007. In the year ended December 31, 2008
the amount is derived from our 50% ownership of the Mammoth
project, while in the year ended December 31, 2007 it was
derived from our 50% ownership in the Mammoth project and from
our 80% ownership in our equity investee, Ormat Leyte Co. Ltd.
(Leyte). On September 25, 2007, 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 year ended December 31 2008 includes an immaterial loss from
Leyte, while in the year ended December 31, 2007 we had
$3.1 million of income from Leyte.
Net
Income
Net income for the year ended December 31, 2008 was
$49.8 million, as compared with $27.4 million for the
year ended December 31, 2007, which represents an increase
of 82.0%. Such increase in net income was principally
attributable to: (i) a $17.1 million increase in our
operating income; (ii) a $19.3 million decrease in
interest expense; and (iii) a $7.3 million increase in
minority interest as described above. This was partially offset
by: (i) a $6.1 million increase in income tax
provision; (ii) a $3.0 million decrease in equity in
income of investees; (iii) a $2.2 million increase in
impairment of auction rate securities; (iv) a
$3.4 million decrease in interest income; and (v) a
$6.4 million increase in foreign currency translation and
transaction losses. Net income for the year ended
December 31, 2008 includes stock-based compensation related
to stock options of $4.0 million as compared with
$3.3 million for the year ended December 31, 2007.
82
Comparison
of the Year Ended December 31, 2007 and the Year Ended
December 31, 2006
Total
Revenues
Total revenues for the year ended December 31, 2007 were
$296.0 million, as compared with $268.9 million for
the year ended December 31, 2006, which represented a 10.0%
increase in total revenues. This increase is attributable both
to our Electricity and Products Segments whose revenues
increased by 10.5% and 8.8%, respectively, over the same period
in 2006.
Electricity
Segment
Revenues attributable to our Electricity Segment for the year
ended December 31, 2007 were $216.0 million, as
compared with $195.5 million for the year ended
December 31, 2006, which represented a 10.5% increase in
such revenues. This increase is mainly attributable to
additional revenues of $17.1 million generated in the
United States as a result of an increase in our electricity
generation in the United States from 1,789,794 MWh in the
year ended December 31, 2006 to 1,994,263 MWh in the
year ended December 31, 2007. This increase is mainly the
result of additional generation from new power plants placed in
service, the enhancements of existing power plants and an
increase in the energy rates in Standard Offer #4 power
purchase agreements payable by Southern California Edison. The
increase also is partially attributable to a net increase of
$3.4 million in revenues from our international plants as a
result of revenues generated from our Amatitlan project in
Guatemala, which started generating electricity in March 2007
and an increase in revenues generated from the Zunil project in
Guatemala, which was consolidated as of March 13, 2006. The
increase in revenues from our foreign projects was partially
offset by a decrease of $3.6 million in revenues from our
Momotombo project in Nicaragua as a result of a failure of
turbines that we did not manufacture. The Momotombo power plant
returned to full operation in November 2007.
Products
Segment
Revenues attributable to our Products Segment for the year ended
December 31, 2007 were $80.0 million, as compared with
$73.5 million for the year ended December 31, 2006,
which represented an 8.8% increase in such revenues. This
increase of $6.5 million in the year ended
December 31, 2007 is principally attributable to increased
revenues of our recovered energy generation products.
Total
Cost of Revenues
Total cost of revenues for the year ended December 31, 2007
was $216.7 million, as compared with $175.6 million
for the year ended December 31, 2006, which represented a
23.4% increase in total cost of revenues. As a percentage of
total revenues, our total cost of revenues for the year ended
December 31, 2007 was 73.2% compared with 65.3% for the
year ended December 31, 2006. These increases are
attributable to increased costs in both our Electricity and
Products Segments, as discussed below, as well as the increase
in revenues in both segments.
Electricity
Segment
Total cost of revenues attributable to our Electricity Segment
for the year ended December 31, 2007 was
$148.6 million, as compared with $124.4 million for
the year ended December 31, 2006, which represented a 19.5%
increase in total cost of revenues for such segment. This
increase is primarily due to: (i) costs of
$2.0 million related to a scheduled overhaul in the Heber 1
project (such an overhaul is performed once every four to five
years); (ii) costs relating to new and enhanced projects
placed in service; and (iii) an increase in labor and
materials costs in existing plants. As a percentage of total
electricity revenues, the total cost of revenues attributable to
our Electricity Segment for the year ended December 31,
2007 was 68.9% compared with 63.6% for the year ended
December 31, 2006.
83
Products
Segment
Total cost of revenues attributable to our Products Segment for
the year ended December 31, 2007 was $68.0 million as
compared with $51.2 million for the year ended
December 31, 2006, which represented a 32.8% increase in
total cost of revenues related to such segment. This increase is
attributable to the increase in our Products Segment revenues, a
different product mix, and an increase in labor, material,
construction and transportation costs, which affected our
margins in this segment. As a percentage of total Products
Segment revenues, our total cost of revenues attributable to
this segment for the year ended December 31, 2007 was 85.1%
as compared with 69.7% for the year ended December 31, 2006.
Research
and Development Expenses
Research and development expenses for the year ended
December 31, 2007 were $3.7 million, as compared with
$3.0 million for the year ended December 31, 2006,
which represented a 22.8% increase. Such $0.7 million
increase reflects fluctuations in the timing in which actual
expenses were incurred and is not indicative of a trend towards
increased research and development expenses.
Selling
and Marketing Expenses
Selling and marketing expenses for the year ended
December 31, 2007 were $10.6 million, as compared with
$10.4 million for the year ended December 31, 2006,
which represented a 2.7% increase. The increase was due
primarily to an increase in salaries, offset partially by a
decrease in selling and marketing costs relating to the Products
Segment. Selling and marketing expenses for the year ended
December 31, 2007 constituted 3.6% of total revenues for
such period, as compared with 3.9% for the year ended
December 31, 2006.
General
and Administrative Expenses
General and administrative expenses for the year ended
December 31, 2007 were $21.4 million, as compared with
$18.1 million for the year ended December 31, 2006,
which represented an 18.4% increase. Such increase is
attributable to an increase in personnel expenses and other
administrative expenses as a result of hiring additional
personnel in expectation of our future growth, and as a result
of an increase in salaries. General and administrative expenses
for the year ended December 31, 2007 increased to 7.2% of
total revenues for such period, from 6.7% for the year ended
December 31, 2006.
Operating
Income
Operating income for the year ended December 31, 2007 was
$43.5 million, as compared with $61.9 million for the
year ended December 31, 2006. Such decrease in operating
income was principally attributable to a $14.1 million
decrease in gross margin primarily due to the increase in total
cost of revenues as explained above, and an increase of
$4.3 million in operating expenses. Operating income
attributable to our Electricity Segment for the year ended
December 31, 2007 was $43.7 million, as compared with
operating income of $50.3 million for the year ended
December 31, 2006. Operating loss attributable to our
Products Segment for the year ended December 31, 2007 was
$0.2 million, as compared with operating income of
$11.6 million for the year ended December 31, 2006.
The $11.8 million decrease in operating income in our
Products Segment reflects the 32.8% increase in cost of revenues
offsetting an 8.8% increase in revenues in that segment, both of
which are explained above. We were unable to increase our
revenues in the Products Segment enough to offset the increased
costs because certain long-term supply agreements do not allow
us to escalate project pricing to compensate for increased
project costs.
Interest
Income
Interest income for the years ended December 31, 2007 and
2006 was $6.6 million.
84
Interest
Expense
Interest expense for the year ended December 31, 2007 was
$27.0 million, as compared with $31.0 million for the
year ended December 31, 2006, which represented a 12.8%
decrease. The $4.0 million decrease is primarily due to
principal repayments. The decrease in interest expense was
partially offset by a decrease of $1.2 million in interest
capitalized to projects under construction.
Impairment
of Auction Rate Securities
In the year ended December 31, 2007, we recorded
$2.0 million of impairment, as a result of an
other-than-temporary decline in the value of certain auction
rate securities.
Income
Taxes
Income tax provision for the year ended December 31, 2007
was $1.8 million, as compared with $6.4 million for
the year ended December 31, 2006. The effective tax rates
for the years ended December 31, 2007 and 2006 were 8.9%
and 17.1%, respectively. Our effective tax rate decreased in the
year ended December 31, 2007 compared with the year ended
December 31, 2006 due to the following: (i) an
increase in production tax credits as a result of new power
plants placed in service; (ii) a decrease of 2% in the tax
rate in Israel commencing January 1, 2007; and (iii) a
tax credit related to our subsidiaries in Guatemala.
Effective January 1, 2007, we adopted
FIN No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109. The
impact on the income tax provision for the year ended
December 31, 2007 resulting from the adoption of
FIN No. 48 was $0.8 million.
Minority
interest
Minority interest for the year ended December 31, 2007
includes income of $3.9 million from the sale of limited
liability company interests in OPC to institutional equity
investors in June 2007. Minority interest for the year ended
December 31, 2006 includes $0.8 million minority
interest in earnings of the Zunil project.
Equity
in Income of Investees
Our participation in the income generated from our investees for
the year ended December 31, 2007 was $4.7 million, as
compared with $4.1 million for the year ended
December 31, 2006. On September 25, 2007, our equity
investee, 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.
Net
Income
Net income for the year ended December 31, 2007 was
$27.4 million, as compared with $34.4 million for the
year ended December 31, 2006, a decrease of 20.5%. Such
decrease in net income was principally attributable to an
$18.5 million decrease in operating income as explained
above. This was partially offset by a decrease in our income tax
provision of $4.6 million, a $4.0 million decrease in
interest expense, a $2.0 million impairment of auction rate
securities and a $4.7 million increase in minority interest
as described above. Net income for the year ended
December 31, 2007 includes stock-based compensation related
to stock options of $3.3 million as compared with
$1.5 million for the year ended December 31, 2006.
Stock-based
Compensation
We account for stock-based compensation using the fair value
method whereby compensation cost is measured at the grant date,
based on the calculated fair value of the award, and is
recognized as an expense over the requisite employee service
period (generally the vesting period of the grant).
85
Liquidity
and Capital Resources
Our principal sources of liquidity have been derived from cash
flows from operations, the issuance of our common stock in
public and private offerings, proceeds from third party debt in
the form of borrowings under credit facilities, issuance by
Ormat Funding and OrCal Geothermal of their Senior Secured Notes
and project financing (including the Puna lease and the OPC Tax
Monetization transaction described below) and 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 December 31, 2008, we have access to the following
sources of funds: (i) $34.4 million in cash and cash
equivalents; and (ii) $222.5 million of unused
corporate borrowing capacity under existing lines of credit with
different commercial banks.
Our estimated capital needs for 2009 include approximately
$250 million for capital expenditures on new projects in
development or construction, exploration activity, operating
projects, and machinery and equipment, as well as
$43.4 million for debt repayment (including to our parent).
We expect to finance these requirements with: (i) the
sources of liquidity described above; (ii) proceeds of
$105.0 million from the Olkaria III refinancing
described below; (iii) cash flows from our operations;
(iv) additional borrowing capacity under future lines of
credit with commercial banks and other financial intuitions that
are under negotiations; and (v) future project financing
and refinancing. 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, subject to
market conditions.
Issuance
of stock
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 were used for general corporate
purposes, including 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 were 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 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 December 31, 2008,
the outstanding balance of the loan was approximately
$26.2 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
86
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
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
December 31, 2008, OFC was in compliance with the covenants
under the OFC Senior Secured Notes. In November 2008, we
acquired from an OFC noteholder, OFC Senior Secured Notes with
an outstanding principal amount of $1.7 million and
recognized an immaterial gain. As of December 31, 2008,
there were $155.3 million of OFC Senior Secured Notes
outstanding.
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 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
December 31, 2008, OrCal was in compliance with the
covenants under the OrCal Senior Secured Notes. As of
December 31, 2008, there were $116.8 million of OrCal
Senior Secured Notes outstanding.
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 $4.6 million was
outstanding as of December 31, 2008, has a fixed annual
interest rate of 11.775%, and matures on November 15, 2011.
The second loan from IFC was fully paid on May 15, 2008.
The loan from CDC, of which $4.4 million was outstanding as
of December 31, 2008, has a fixed annual interest rate of
10.300%, and matures on August 15, 2010. There are various
restrictive covenants under these senior loans, which include
limitations on Orzunils ability to make distributions to
its shareholders. As of December 31, 2008, Orzunil was in
compliance with the covenants under these senior loans.
Credit
Facility Agreement (The Momotombo project)
Limited-Recourse
Ormat Momotombo Power Company (Momotombo), our wholly owned
subsidiary in Nicaragua, has a loan agreement with Bank
Hapoalim, of which $5.5 million was outstanding as of
December 31, 2008, bearing an interest rate of
3-month
LIBOR plus 2.375% per annum on tranche one of the loan and
3-month
LIBOR
87
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 each, and tranche two of the
loan matures on December 5, 2010, and is payable in 28
quarterly installments of $424,000 each. There are various
restrictive covenants under this loan, which include limitations
on Momotombos ability to make distributions to its
shareholders. As of December 31, 2008, Momotombo was in
compliance with the covenants under the loan.
New
Financing of our Projects
Financing
of the Olkaria III Project
On January 5, 2009, our wholly owned subsidiary, OrPower 4
Inc., signed loan documents for project financing of up to
$105.0 million to refinance its investment in the
48 MW Olkaria III geothermal power plant located in
Kenya. We initially financed construction of Phase I and
Phase II of the project, as well as the drilling of wells,
with corporate funds. The loans are to be provided by a group of
European Development Finance Institutions (DFIs) arranged by
DEG Deutsche Investitions-und
Entwicklungsgesellschaft mbH (DEG). The loans will mature on
December 15, 2018, and will be payable in 19 equal
semi-annual installments. Interest on the loans is variable
based on
6-month
LIBOR plus 4.0% and we have the option to fix the interest rate
upon closing.
Financing
of the Amatitlan Project
We intend to refinance our equity investment in the construction
cost of the Amatitlan project and we are currently in
discussions with a financial institution regarding such
refinancing.
Financing
of the Brawley Project
We may raise capital through a tax monetization transaction for
the North Brawley project; however, new incentives included in
the American Recovery and Reinvestment Act may affect our
decision.
Full-Recourse
Third Party Debt
On February 15, 2006, our subsidiary, Ormat Nevada Inc.
(Ormat Nevada), entered into a $25.0 million credit
agreement with Union Bank, N.A. (formerly known as Union Bank of
California, N.A. (Union Bank). In December 2008, Ormat Nevada
entered into an amendment to the credit agreement. Under the
amendment the credit termination date was extended to
February 15, 2012, and the aggregate amount available under
the credit agreement was increased to $37.5 million. Under
the credit agreement, as amended, Ormat Nevada can request
extensions of credit in the form of loans
and/or the
issuance of one or more letters of credit. Union Bank 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 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 December 31, 2008, eight letters of credit in the
amount of $25.0 million remain issued and outstanding under
this credit agreement with Union Bank.
We also have credit agreements with five commercial banks for an
aggregate amount of $310.0 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.
88
Loans and draws under the credit agreements or under any letters
of credit will bear interest at the respective banks cost
of funds 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
restrictive covenants. These include, among other things, 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. 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.
Some of the loan agreements contain cross-default provisions
with respect to other material indebtedness owed by us to any
third party. As of December 31, 2008, loans in the amount
of $100.0 million were outstanding under such credit
agreements.
Our management does not believe that the restrictive covenants,
financial ratios or other terms of any of our (or Ormat
Systems) full-recourse bank credit agreements will
materially limit our ability to execute our business plans or
operations.
Our management believes that we are currently in compliance with
our covenants with respect to these credit agreements.
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 December 31, 2008, Bank Hapoalim and Bank Leumi have
agreed to make available to us letters of credit totaling
$35.4 million and $5.9 million, respectively. As of
such date, Bank Hapoalim and Bank Leumi have issued letters of
credit in the amount of $17.3 million and
$5.9 million, respectively.
In addition, we and certain of our subsidiaries may request
letters of credit under the credit agreements with Union Bank
and five other commercial banks as described above under
Full-Recourse Third Party Debt. As of
December 31, 2008, eight letters of credit in the amount of
$25.0 million remained issued and outstanding under the
Union Bank 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 a deferred lease
income in the amount of $83.0 million.
OPC
Tax Monetization Transaction
On June 7, 2007, our wholly owned subsidiary, Ormat Nevada,
entered into agreements with affiliates of Morgan
Stanley & Co. Incorporated and Lehman Brothers Inc.,
under which those investors purchased, for cash, interests in a
newly formed subsidiary of Ormat Nevada, OPC LLC (OPC), giving
them rights to certain
89
tax benefits (such as production tax credits and accelerated
depreciation) and distributable cash associated with four of our
projects. The first closing under the agreements occurred in
2007 and covered our Desert Peak 2, Steamboat Hills and Galena 2
projects. The investors paid $71.8 million at such closing.
The second closing under the agreements occurred in 2008 and
covered our Galena 3 project. The investors paid
$63.0 million for interests in Galena 3.
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 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 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.
Liquidity
Impact of Uncertain Tax positions
As discussed in Note 16 to our Consolidated Financial
Statements set forth in Item 8 of this annual report, we
have a liability associated with unrecognized tax benefits and
related interest and penalties in the amount of approximately
$3.4 million as of December 31, 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 we declared 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 6, 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 1, 2008
|
February 24, 2009
|
|
$0.07
|
|
March 16, 2009
|
|
March 26, 2009
|
90
Historical
Cash Flows
The following table sets forth the components of our cash flows
for the relevant periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
116,949
|
|
|
$
|
58,725
|
|
|
$
|
73,035
|
|
Net cash used in investing activities
|
|
|
(398,991
|
)
|
|
|
(116,311
|
)
|
|
|
(249,147
|
)
|
Net cash provided by financing activities
|
|
|
269,286
|
|
|
|
84,559
|
|
|
|
169,390
|
|
Translation adjustments on cash and cash equivalents
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(12,834
|
)
|
|
|
26,973
|
|
|
|
(6,722
|
)
|
For the
Year Ended December 31, 2008
Net cash provided by operating activities for the year ended
December 31, 2008 was $116.9 million, as compared with
$58.7 million for the year ended December 31, 2007.
Such net increase of $58.2 million resulted primarily from:
(i) the increase in net income to $49.8 million in the
year ended December 31, 2008, as compared with
$27.4 million in the year ended December 31, 2007,
mainly as a result of the increase in operating income, as
described above; and (ii) an increase of $13.5 million
in accounts payable and accrued expenses, in the year ended
December 31, 2008, as compared to a decrease of
$12.2 million in the year ended December 31, 2007.
Net cash used in investing activities for the year ended
December 31, 2008 was $399.0 million, as compared with
$116.3 million for the year ended December 31, 2007.
The principal factors that affected our net cash used in
investing activities during the year ended December 31,
2008 were capital expenditures of $416.6 million, primarily
for our facilities under construction, offset by a
$5.6 million decrease in restricted cash, cash equivalents
and marketable securities, and by a $12.6 million decrease
in marketable securities.
Net cash provided by financing activities for the year ended
December 31, 2008 was $269.3 million, as compared with
$84.6 million for the year ended December 31, 2007.
The principal factors that affected the cash flows provided by
financing activities during the year ended December 31,
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; (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; and
(iv) the $100.0 million proceeds from revolving lines
of credit from banks, offset by: (i) the repayment of
long-term debt in the amount of $34.1 million;
(ii) the repayment of debt to our parent in the amount of
$31.6 million; and (iii) the payment of a dividend to
our shareholders in the amount of $8.9 million.
For the
Year Ended December 31, 2007
Net cash provided by operating activities for the year ended
December 31, 2007 was $58.7 million, as compared with
$73.0 million for the year ended December 31, 2006.
Such net decrease of $14.3 million resulted primarily from
the decrease in net income from $34.4 million in the year
ended December 31, 2006 to $27.4 million in the year
ended December 31, 2007, mainly as a result of the decrease
in gross margin, as described above and a decrease of
$12.2 million in accounts payable as compared to an
increase of $12.1 million in the year ended
December 31, 2006.
Net cash used in investing activities for the year ended
December 31, 2007 was $116.3 million, as compared with
$249.1 million for the year ended December 31, 2006.
The principal factors that affected our cash flows used in
investing activities during the year ended December 31,
2007 were capital expenditures of $216.4 million primarily
for our facilities under construction, offset by a
$79.7 million decrease in marketable securities.
Net cash provided by financing activities for the year ended
December 31, 2007 was $84.6 million, as compared with
$169.4 million for the year ended December 31, 2006.
The principal factors that affected the
91
cash flows provided by financing activities during the year
ended December 31, 2007 were the receipt of net proceeds of
$137.2 million from our sale of shares in a block trade,
the $17.5 million net proceeds from our sale of
381,254 shares to our parent, and the net proceeds of
$69.2 million from the sale of OPC interests, net of
transaction costs, relating to the OPC Tax Monetization
transaction, offset by: (i) the repayment of short-term and
long-term debt in the amount of $49.5 million;
(ii) the repayment of debt to our parent (including the
$50.7 million capital note on December 3, 2007, as
described above) in the total amount of $82.3 million; and
(iii) the payment of a dividend to our shareholders in the
amount of $8.6 million.
Capital
Expenditures
Our capital expenditures primarily relate to two principal
components: (i) the enhancement of our existing power
plants; and (ii) the construction and 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 at the project level.
Puna Project. An enhancement program
for the Puna project is currently planned and is intended to
increase the output of the project by an estimated 8 MW
through the construction of OEC units. We expect that such
enhancement program will be completed by the end of 2009. We are
in discussions with Hawaii Electric Light Company for the sale
of additional electrical power from the Puna project.
OREG 2 Project. In connection with the
OREG 2 recovered energy project for the construction of four
power plants along the Northern Border natural gas pipeline, we
have already brought on line two of the four units, which have a
net capacity of 5.5 MW each. The remaining two units are
expected to be completed by the end of 2009.
Peetz Project. We are in final
completion of the Peetz recovered energy project, a 4 MW
power plant that is being constructed along a natural gas
pipeline near Denver, Colorado. The facility is scheduled to be
commissioned in the first quarter of 2009.
East Brawley Project. We plan to
construct and have begun manufacturing equipment and exploration
drilling for an additional 30 MW power plant in the Brawley
Known Geothermal Resource Area in Imperial County, California,
adjacent to the North Brawley project. Completion of the project
was initially projected for the end of 2009. We are still
awaiting the required construction permits and therefore the
projects completion will be delayed until 2010.
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 by the end of 2009.
Jersey Valley Project. We are currently
developing the Jersey Valley project on Bureau of Land
Management leases located in Nevada. The project is expected to
deliver between 18 MW to 30 MW of power generation
under a
20-year
power purchase agreement with NV Energy, Inc.
We have budgeted approximately $360.0 million for the
projects described above and have invested approximately
$88.0 million of such budget as of December 31, 2008,
and expect to invest approximately $153.0 million in 2009.
In addition to the above projects, our operating projects have
capital expenditure requirements for 2009 of approximately
$18.0 million. We plan to start other construction and
enhancement of additional projects for a total amount of
$22.0 million and we have various leases for geothermal
resources, in which we have started exploration activity, for a
total investment amount of approximately $32.0 million for
2009. We also plan to invest approximately $2.0 million in
machinery and equipment in 2009.
In addition, in order to finalize the construction of the North
Brawley project we plan to invest in such project approximately
$25.0 million in 2009.
92
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 2009.
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 have led to a
worldwide economic recession which may last for an extended
period. 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.
However, 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. If these conditions continue or worsen, they may
result in reduced worldwide demand for energy, which may
adversely affect both our Electricity and Products Segments.
Among other things, we might face: (i) 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; (ii) potential
declines in revenues from some of our existing geothermal power
projects as a result of curtailed electricity demand and low oil
and gas prices; and (iii) potential adverse impacts on our
customers ability to pay, when due, amounts payable to us.
In addition, we may experience related increases in our cost of
capital associated with any increased working capital or
borrowing needs we may have if our customers do not pay, or if
we are unable 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.
One market risk to which power plants are typically exposed is
the volatility of electricity prices. However, our exposure to
such market risk is currently limited 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 of 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.
As of December 31, 2008, 74.5% 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, 25.5% of our
debt was in the form of a floating rate instrument, exposing us
to changes in interest rates in connection therewith. As of
December 31, 2008, $105.5 million of our debt remained
subject to some floating rate risk. Since we plan to refinance
most of those loans with loans bearing fixed interest rates, 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 and auction rate securities (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
93
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 in 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 December 31, 2008 and 2007 was $4.9 million and
$8.4 million, respectively, a decline of $6.3 million
and $2.8 million, respectively, from par value of
$11.2 million. 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 and higher. In addition, we had the
intent and ability to hold these investments until the
anticipated recovery in market value occurred. Accordingly, we
recorded an unrealized loss on these securities of
$0.8 million in the year ended December 31, 2007 in
other comprehensive loss. We also concluded that
$2.0 million of the decline in the year ended
December 31, 2007 was other-than-temporary and recorded an
impairment charge for this amount. 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
$4.2 million in other non-operating income (expense) for
the year ended December 31, 2008. Such amount includes
$0.8 million, which had been included in other
comprehensive loss as of December 31, 2007.
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. Substantially
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 contracts 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.
Effects
of Inflation
We do not expect that inflation will be a significant risk in
the near term, given the current global economic conditions.
However, that could change in the future. To address rising
inflation, some of our contracts include certain mitigating
factors against any inflation risk. In connection with the
Electricity Segment, inflation may directly impact an expense
incurred for the operation of our projects, hence increasing the
overall operating cost to us. The negative impact of inflation
may be partially offset by price adjustments built into some of
our power purchase agreements that could be triggered upon such
occurrences. Energy payments pursuant to the power purchase
agreements for the Mammoth project (after April 2012), the
Ormesa project (after April 2012) and the Heber 1 and 2
projects (after April 2012) will change because of our
power purchasers underlying short run avoided costs. To
the extent that inflation causes an increase in those short run
avoided costs, higher energy payments could have an offsetting
impact to any inflation-driven increase in our expenses.
Similarly, the energy payments pursuant to the power purchase
agreements for the Brady project, the Steamboat 2/3 project, the
Steamboat Hills project, and the Burdette project increase every
year through the end of the relevant terms of such agreements,
though such increases are not directly linked to the CPI. Lease
payments are generally fixed, while royalty payments are
generally determined as a percentage of
94
revenues and therefore are not significantly impacted by
inflation. Overall, we believe that the impact of inflation on
our business will not be significant.
Contractual
Obligations and Commercial Commitments
The following tables set forth our material contractual
obligations as of December 31, 2008, (in thousands):
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
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|
Remaining
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Total
|
|
|
2009
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|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
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|
|
Principal of Long Term Liabilities
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|
$
|
412,835
|
|
|
$
|
43,361
|
|
|
$
|
85,926
|
|
|
$
|
72,700
|
|
|
$
|
20,194
|
|
|
$
|
21,273
|
|
|
$
|
169,381
|
|
Interest on Long Term
Liabilities(1)
|
|
|
133,603
|
|
|
|
21,713
|
|
|
|
19,704
|
|
|
|
17,116
|
|
|
|
15,456
|
|
|
|
14,867
|
|
|
|
44,747
|
|
Future Minimum Operating Lease
|
|
|
95,767
|
|
|
|
8,013
|
|
|
|
7,567
|
|
|
|
8,061
|
|
|
|
8,199
|
|
|
|
8,062
|
|
|
|
55,865
|
|
Benefits Upon
Retirement(2)
|
|
|
11,980
|
|
|
|
2,436
|
|
|
|
147
|
|
|
|
787
|
|
|
|
1,041
|
|
|
|
837
|
|
|
|
6,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
654,185
|
|
|
$
|
75,523
|
|
|
$
|
113,344
|
|
|
$
|
98,664
|
|
|
$
|
44,890
|
|
|
$
|
45,039
|
|
|
$
|
276,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
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Interest on the OFC Senior Secured
Notes due in 2020 is fixed at a rate of 8.25%. Interest on the
OrCal Senior Secured Notes due in 2020 is fixed at a rate of
6.21%. Interest on the Orzunil Senior Loans due in 2010 and 2011
is fixed at rates of 10.300% and 11.775%, respectively. Interest
on the Ormat Industries notes is fixed at the rate of 7.50%.
Interest on the remaining debt is variable (based primarily on
changes in LIBOR rates). Accordingly, for purposes of the above
calculation of interest payments pertaining to variable rate
debt, the methodology used to determine future LIBOR rates was
the use of Constant Maturity Swaps.
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(2)
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The above amounts were determined
based on the employees current salary rates and the number
of years service that will have been accumulated at their
retirement date. These amounts do not include amounts that might
be paid to employees that will cease working with us before
reaching their normal retirement age.
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We purchase raw materials for inventories,
construction-in-process
and services from a variety of vendors. During the normal course
of business, in order to manage manufacturing lead times and
help assure adequate supply, we enter into agreements with
contract manufacturers and suppliers that either allow them to
procure goods and services based upon specifications defined by
us, or that establish parameters defining our requirements. At
December 31, 2008, total obligations related to such
supplier agreements were approximately $104.3 million (out
of which approximately $64.1 million relate to
construction-in-process).
All such obligations are payable in 2009.
The above tables do not reflect unrecognized tax benefits of
$3,425,000 the timing of which is uncertain. Refer to
Note 16 to our Consolidated Financial Statements set forth
in Item 8 of this annual report for additional discussion
of unrecognized tax benefits.
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 and Nevada 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 27.6%, 31.9% and 30.0%
of our total revenues for the three years ended
December 31, 2008, 2007 and 2006, 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 accounted for 16.7%, 14.6% and
15.1% of our total revenues for the three years ended
December 31, 2008, 2007 and 2006, respectively.
95
Sierra Pacific Power Company and Nevada Power Company
(subsidiaries of NV Energy, Inc.) accounted for 12.6%, 10.9% and
13.0% of our total revenues for the three years ended
December 31, 2008, 2007 and 2006, respectively.
Government
Grants and Tax Benefits
The U.S. government encourages production of electricity
from geothermal resources through certain tax subsidies under
the recently enacted American Recovery and Reinvestment Act. We
are permitted to claim 30% 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 was 2.1 cents per kWh and which 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, 2013. The owner of the
project must choose between the production tax credit and the
30% 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 tax 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 tax 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.
Companies that begin construction on, or place qualifying
renewable energy facilities in service, during 2009 or
2010 may choose to apply for a cash grant from the
U.S. Department of Treasury in an amount equal to the
investment tax credit. Under the American Recover and
Reinvestment Act, the U.S. Department of Treasury is
instructed to pay the cash grant within 60 days of the
application or the date on which the qualifying facility is
placed in service.
Production of electricity from geothermal resources is also
supported under the new Temporary Program For Rapid
Deployment of Renewable Energy and Electric Power Transmission
Projects established with the U.S. Department of
Energy as part of the Department of Energys existing
Innovative Technology Loan Guarantee Program. The new program:
(i) extends the scope of the existing federal loan
guarantee program to cover renewable energy projects, renewable
energy component manufacturing facilities and electricity
transmission projects that embody established commercial, as
well as innovative, technologies; and (ii) provides an
appropriation to cover the credit subsidy costs of
such projects (meaning the estimated average costs to the
federal government from issuing the loan guarantee, equivalent
to a lending banks loan loss reserve.
To be eligible for a guarantee under the new program, a
supported project must break ground, and the guarantee must be
issued, by September 30, 2011. A project supported by the
federal guarantee under the new program must pay prevailing
federal wages.
Based on the appropriation of $6 billion dollars to pay the
credit subsidy costs of guarantees issued under the new program,
it is likely that between $60 billion to $120 billion
of financing (assuming average subsidy requirements between 10%
and 5%, respectively) will be available to eligible projects,
including geothermal power plants.
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 a period of two years that started in 2004, 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 a period of two years
that started in 2007, 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
96
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.
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ITEM 7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Information responding to Item 7A is included in
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations,
of this annual report.
97
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ITEM 8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index to
Consolidated Financial Statements of Ormat Technologies, Inc.
and Subsidiaries
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99
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Consolidated Financial Statements as of December 31, 2008
and 2007 and for Each of the Three Years in the Period Ended
December 31, 2008:
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100
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101
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102
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103
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104
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Financial statements of one 50% owned entity have been omitted
because the registrants proportionate share of the income
from continuing operations before income taxes is less than 20%
of the respective consolidated amount, and the investment in and
advances to this entity are less than 20% of consolidated total
assets.
98
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ormat
Technologies, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations and
comprehensive income, of stockholders equity and of cash
flows present fairly, in all material respects, the financial
position of Ormat Technologies, Inc. and its subsidiaries at
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 16 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions in 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
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.
/s/PricewaterhouseCoopers LLP
San Francisco, California
February 27, 2009
99
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,393
|
|
|
$
|
47,227
|
|
Marketable securities
|
|
|
|
|
|
|
13,489
|
|
Restricted cash, cash equivalents and marketable securities
|
|
|
24,439
|
|
|
|
29,236
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade
|
|
|
49,839
|
|
|
|
46,519
|
|
Related entity
|
|
|
338
|
|
|
|
385
|
|
Other
|
|
|
15,654
|
|
|
|
9,008
|
|
Due from Parent
|
|
|
1,085
|
|
|
|
253
|
|
Inventories, net
|
|
|
13,724
|
|
|
|
10,312
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
6,982
|
|
|
|
3,608
|
|
Deferred income taxes
|
|
|
3,003
|
|
|
|
1,732
|
|
Prepaid expenses and other
|
|
|
16,222
|
|
|
|
7,059
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
165,679
|
|
|
|
168,828
|
|
Long-term marketable securities
|
|
|
1,994
|
|
|
|
2,762
|
|
Restricted cash, cash equivalents and marketable securities
|
|
|
2,951
|
|
|
|
5,605
|
|
Unconsolidated investments
|
|
|
30,559
|
|
|
|
30,560
|
|
Deposits and other
|
|
|
16,876
|
|
|
|
15,294
|
|
Deferred income taxes
|
|
|
13,965
|
|
|
|
12,427
|
|
Property, plant and equipment, net
|
|
|
958,186
|
|
|
|
743,386
|
|
Construction-in-process
|
|
|
386,501
|
|
|
|
234,014
|
|
Deferred financing and lease costs, net
|
|
|
16,127
|
|
|
|
14,044
|
|
Intangible assets, net
|
|
|
44,853
|
|
|
|
47,989
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,637,691
|
|
|
$
|
1,274,909
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
103,336
|
|
|
$
|
75,836
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
15,670
|
|
|
|
4,818
|
|
Current portion of long-term debt:
|
|
|
|
|
|
|
|
|
Limited and non-recourse
|
|
|
6,676
|
|
|
|
7,667
|
|
Full recourse
|
|
|
|
|
|
|
1,000
|
|
Senior secured notes (non-recourse)
|
|
|
20,085
|
|
|
|
25,475
|
|
Due to Parent, including current portion of notes payable to
Parent
|
|
|
16,616
|
|
|
|
31,695
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
162,383
|
|
|
|
146,491
|
|
Long-term debt, net of current portion:
|
|
|
|
|
|
|
|
|
Limited and non-recourse
|
|
|
7,814
|
|
|
|
14,490
|
|
Revolving credit lines with banks (full recourse)
|
|
|
100,000
|
|
|
|
|
|
Senior secured notes (non-recourse)
|
|
|
252,060
|
|
|
|
273,840
|
|
Notes payable to Parent, net of current portion
|
|
|
9,600
|
|
|
|
26,200
|
|
Deferred lease income
|
|
|
74,427
|
|
|
|
76,198
|
|
Deferred income taxes
|
|
|
33,231
|
|
|
|
20,680
|
|
Liability for unrecognized tax benefits
|
|
|
3,425
|
|
|
|
5,330
|
|
Liabilities for severance pay
|
|
|
17,640
|
|
|
|
15,201
|
|
Asset retirement obligation
|
|
|
13,438
|
|
|
|
13,014
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
674,018
|
|
|
|
591,444
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
117,245
|
|
|
|
65,382
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001 per share;
200,000,000 shares authorized; 45,353,120 and
41,530,071 shares issued and outstanding, respectively
|
|
|
45
|
|
|
|
41
|
|
Additional paid-in capital
|
|
|
701,273
|
|
|
|
513,109
|
|
Retained earnings
|
|
|
144,465
|
|
|
|
103,545
|
|
Accumulated other comprehensive income
|
|
|
645
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
846,428
|
|
|
|
618,083
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,637,691
|
|
|
$
|
1,274,909
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
100
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
252,256
|
|
|
$
|
215,969
|
|
|
$
|
195,483
|
|
Products
|
|
|
92,577
|
|
|
|
79,950
|
|
|
|
73,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
344,833
|
|
|
|
295,919
|
|
|
|
268,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
170,053
|
|
|
|
148,698
|
|
|
|
124,356
|
|
Products
|
|
|
72,755
|
|
|
|
68,036
|
|
|
|
51,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
242,808
|
|
|
|
216,734
|
|
|
|
175,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
102,025
|
|
|
|
79,185
|
|
|
|
93,366
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
4,595
|
|
|
|
3,663
|
|
|
|
2,983
|
|
Selling and marketing expenses
|
|
|
10,885
|
|
|
|
10,645
|
|
|
|
10,361
|
|
General and administrative expenses
|
|
|
25,938
|
|
|
|
21,416
|
|
|
|
18,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,607
|
|
|
|
43,461
|
|
|
|
61,928
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,118
|
|
|
|
6,565
|
|
|
|
6,560
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
(3,598
|
)
|
|
|
(5,941
|
)
|
|
|
(8,367
|
)
|
Other
|
|
|
(25,391
|
)
|
|
|
(27,877
|
)
|
|
|
(30,674
|
)
|
Less amount capitalized
|
|
|
21,312
|
|
|
|
6,835
|
|
|
|
8,080
|
|
Foreign currency translation and transaction losses
|
|
|
(7,721
|
)
|
|
|
(1,339
|
)
|
|
|
(704
|
)
|
Impairment of auction rate securities
|
|
|
(4,195
|
)
|
|
|
(2,020
|
)
|
|
|
|
|
Other non-operating income, net
|
|
|
771
|
|
|
|
890
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and equity in
income of investees
|
|
|
44,903
|
|
|
|
20,574
|
|
|
|
37,517
|
|
Income tax provision
|
|
|
(7,962
|
)
|
|
|
(1,822
|
)
|
|
|
(6,403
|
)
|
Minority interest
|
|
|
11,166
|
|
|
|
3,882
|
|
|
|
(813
|
)
|
Equity in income of investees, net
|
|
|
1,725
|
|
|
|
4,742
|
|
|
|
4,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
49,832
|
|
|
|
27,376
|
|
|
|
34,447
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge
|
|
|
(293
|
)
|
|
|
(326
|
)
|
|
|
(362
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale
|
|
|
435
|
|
|
|
(590
|
)
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
49,089
|
|
|
$
|
26,460
|
|
|
$
|
34,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.13
|
|
|
$
|
0.71
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.12
|
|
|
$
|
0.70
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,182
|
|
|
|
38,762
|
|
|
|
34,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
44,298
|
|
|
|
38,880
|
|
|
|
34,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend per share declared
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
101
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock-based
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
|
(in thousands, except per share data)
|
|
|
Balance at December 31, 2005
|
|
|
31,563
|
|
|
$
|
31
|
|
|
$
|
124,008
|
|
|
$
|
(153
|
)
|
|
$
|
55,824
|
|
|
$
|
2,549
|
|
|
$
|
182,259
|
|
Reversal of deferred stock based compensation
|
|
|
|
|
|
|
|
|
|
|
(153
|
)
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
1,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,706
|
|
Cash dividend declared, $0.15 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,218
|
)
|
|
|
|
|
|
|
(5,218
|
)
|
Issuance of shares of common stock in a follow-on public offering
|
|
|
4,025
|
|
|
|
4
|
|
|
|
135,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,053
|
|
Issuance of shares of common stock in a block trade transaction
|
|
|
2,500
|
|
|
|
3
|
|
|
|
92,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,411
|
|
Exercise of options by employees
|
|
|
14
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
Tax benefit on exercise of options by employees
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,447
|
|
|
|
|
|
|
|
34,447
|
|
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
benefit of $224,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362
|
)
|
|
|
(362
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale (net of related tax of $100,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
38,102
|
|
|
|
38
|
|
|
|
353,399
|
|
|
|
|
|
|
|
85,053
|
|
|
|
2,304
|
|
|
|
440,794
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,763
|
|
Cash dividend declared, $0.22 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,556
|
)
|
|
|
|
|
|
|
(8,556
|
)
|
Issuance of shares of common stock in a block trade transaction
|
|
|
3,000
|
|
|
|
2
|
|
|
|
137,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,244
|
|
Issuance of unregistered shares of common stock to the Parent in
a private placement
|
|
|
381
|
|
|
|
1
|
|
|
|
17,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
Exercise of options by employees
|
|
|
47
|
|
|
|
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
Tax benefit on exercise of options by employees
|
|
|
|
|
|
|
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463
|
|
Cumulative adjustment from adoption of FIN No. 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
(328
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,376
|
|
|
|
|
|
|
|
27,376
|
|
Other comprehensive loss, net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge (net of related tax
of $204,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326
|
)
|
|
|
(326
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale (net of related tax of $367,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(590
|
)
|
|
|
(590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
41,530
|
|
|
|
41
|
|
|
|
513,109
|
|
|
|
|
|
|
|
103,545
|
|
|
|
1,388
|
|
|
|
618,083
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,444
|
|
Cash dividend declared, $0.20 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,912
|
)
|
|
|
|
|
|
|
(8,912
|
)
|
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
|
|
|
29
|
|
|
|
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602
|
|
Tax benefit on exercise of options by employees
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,832
|
|
|
|
|
|
|
|
49,832
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(885
|
)
|
|
|
(885
|
)
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge (net of related tax
of $181,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293
|
)
|
|
|
(293
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale (net of related tax of $260,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
45,353
|
|
|
$
|
45
|
|
|
$
|
701,273
|
|
|
$
|
|
|
|
$
|
144,465
|
|
|
$
|
645
|
|
|
$
|
846,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
102
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,832
|
|
|
$
|
27,376
|
|
|
$
|
34,447
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
60,128
|
|
|
|
50,482
|
|
|
|
43,439
|
|
Accretion of asset retirement obligation
|
|
|
1,069
|
|
|
|
1,105
|
|
|
|
971
|
|
Stock-based compensation
|
|
|
4,444
|
|
|
|
3,763
|
|
|
|
1,706
|
|
Amortization of deferred lease income
|
|
|
(2,685
|
)
|
|
|
(2,686
|
)
|
|
|
(2,686
|
)
|
Minority interest
|
|
|
(11,166
|
)
|
|
|
(3,882
|
)
|
|
|
813
|
|
Equity in income of investees
|
|
|
(1,725
|
)
|
|
|
(4,742
|
)
|
|
|
(4,146
|
)
|
Impairment of auction rate securities
|
|
|
4,195
|
|
|
|
2,020
|
|
|
|
|
|
Distributions from unconsolidated investments
|
|
|
2,435
|
|
|
|
9,787
|
|
|
|
4,503
|
|
Changes in unrealized loss in respect of derivative instruments,
net
|
|
|
|
|
|
|
199
|
|
|
|
559
|
|
Gain on severance pay fund asset
|
|
|
(324
|
)
|
|
|
(722
|
)
|
|
|
(1,095
|
)
|
Deferred income tax provision (benefit)
|
|
|
6,845
|
|
|
|
(4,930
|
)
|
|
|
(1,528
|
)
|
Liability for unrecognized tax benefits
|
|
|
(188
|
)
|
|
|
1,576
|
|
|
|
|
|
Deferred lease revenues
|
|
|
914
|
|
|
|
|
|
|
|
|
|
Capital gain from purchase of OFC Senior Secured Notes
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(6,327
|
)
|
|
|
(13,787
|
)
|
|
|
(2,502
|
)
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
(3,374
|
)
|
|
|
7,608
|
|
|
|
(2,333
|
)
|
Inventories, net
|
|
|
(3,412
|
)
|
|
|
(2,909
|
)
|
|
|
(2,179
|
)
|
Prepaid expenses and other
|
|
|
(9,163
|
)
|
|
|
(2,148
|
)
|
|
|
(1,573
|
)
|
Deposits and other
|
|
|
(224
|
)
|
|
|
302
|
|
|
|
(184
|
)
|
Accounts payable and accrued expenses
|
|
|
13,521
|
|
|
|
(12,212
|
)
|
|
|
12,094
|
|
Due from/to related entities, net
|
|
|
47
|
|
|
|
494
|
|
|
|
(609
|
)
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
10,852
|
|
|
|
(985
|
)
|
|
|
(6,854
|
)
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
Liabilities for severance pay
|
|
|
2,439
|
|
|
|
1,823
|
|
|
|
1,969
|
|
Due from/to Parent
|
|
|
(761
|
)
|
|
|
1,193
|
|
|
|
(1,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
116,949
|
|
|
|
58,725
|
|
|
|
73,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated investments
|
|
|
316
|
|
|
|
2,500
|
|
|
|
2,794
|
|
Marketable securities, net
|
|
|
12,594
|
|
|
|
78,722
|
|
|
|
(52,654
|
)
|
Net change in restricted cash, cash equivalents and marketable
securities
|
|
|
5,614
|
|
|
|
20,117
|
|
|
|
(16,285
|
)
|
Capital expenditures
|
|
|
(416,606
|
)
|
|
|
(216,358
|
)
|
|
|
(159,497
|
)
|
Cash paid for acquisitions, net of cash received
|
|
|
|
|
|
|
|
|
|
|
(22,760
|
)
|
Intangible asset acquired
|
|
|
|
|
|
|
(1,150
|
)
|
|
|
|
|
Increase in severance pay fund asset, net
|
|
|
(1,034
|
)
|
|
|
(269
|
)
|
|
|
(872
|
)
|
Repayment from unconsolidated investment
|
|
|
125
|
|
|
|
127
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(398,991
|
)
|
|
|
(116,311
|
)
|
|
|
(249,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Parent, net
|
|
|
(31,647
|
)
|
|
|
(31,647
|
)
|
|
|
(31,647
|
)
|
Proceeds from sale of interest rate caps
|
|
|
|
|
|
|
277
|
|
|
|
|
|
Proceeds from public offerings, net of issuance costs
|
|
|
149,655
|
|
|
|
137,244
|
|
|
|
227,464
|
|
Proceeds from issuance of unregistered shares of common stock to
the Parent
|
|
|
33,315
|
|
|
|
17,500
|
|
|
|
|
|
Proceeds from exercise of options by employees
|
|
|
602
|
|
|
|
743
|
|
|
|
215
|
|
Proceeds from the sale of limited liability company interest in
OPC LLC, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
transaction costs
|
|
|
63,029
|
|
|
|
69,200
|
|
|
|
|
|
Purchase of OFC Senior Secured Notes
|
|
|
(1,321
|
)
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit lines with banks
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(34,142
|
)
|
|
|
(49,537
|
)
|
|
|
(20,736
|
)
|
Repayment of capital notes to Parent
|
|
|
|
|
|
|
(50,665
|
)
|
|
|
|
|
Deferred debt issuance costs
|
|
|
(1,293
|
)
|
|
|
|
|
|
|
(688
|
)
|
Cash dividends paid
|
|
|
(8,912
|
)
|
|
|
(8,556
|
)
|
|
|
(5,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
269,286
|
|
|
|
84,559
|
|
|
|
169,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(12,834
|
)
|
|
|
26,973
|
|
|
|
(6,722
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
47,227
|
|
|
|
20,254
|
|
|
|
26,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
34,393
|
|
|
$
|
47,227
|
|
|
$
|
20,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized
|
|
$
|
6,220
|
|
|
$
|
38,068
|
|
|
$
|
14,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net
|
|
|
5,033
|
|
|
$
|
6,990
|
|
|
|
7,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts payable related to purchases of property,
plant and equipment
|
|
$
|
13,368
|
|
|
$
|
18,665
|
|
|
$
|
7,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in asset retirement cost and asset
retirement obligation
|
|
$
|
(645
|
)
|
|
$
|
(4,923
|
)
|
|
$
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
103
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
|
|
NOTE 1
|
BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES
|
Business
Ormat Technologies, Inc. (the Company), a subsidiary
of Ormat Industries Ltd. (the Parent), is engaged in
the geothermal and recovered energy business, including the
supply of equipment that is manufactured by the Company and the
design and construction of power plants for projects owned by
the Company or for third parties. The Company owns and operates
geothermal and recovered energy-based power plants in various
countries, including the United States of America
(U.S.), Kenya, Guatemala, Nicaragua and New Zealand.
The Companys equipment manufacturing operations are
located in Israel.
Most of the Companys domestic power plant facilities are
Qualifying Facilities under the Public Utility Regulatory
Policies Act of 1978 (PURPA). The power purchase
agreements (PPAs) for certain of such facilities are
dependent upon their maintaining Qualifying Facility status.
Management believes that all of the facilities were in
compliance with Qualifying Facility status as of
December 31, 2008.
Cash
dividends
During the years ended December 31, 2008, 2007 and 2006,
the Companys Board of Directors declared, approved and
authorized the payment of cash dividends in the aggregate amount
of $8.9 million ($0.20 per share), $8.6 million ($0.22
per share) and $5.2 million ($0.15 per share),
respectively. Such dividends were paid in the years declared.
Shelf
registration statements and issuance of stock
On January 17, 2006, the Company filed a universal shelf
registration statement on
Form S-3,
which was declared effective by the Securities and Exchange
Commission (SEC) on January 31, 2006. The shelf
registration statement provides 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 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.
On April 10, 2006, the Company completed a follow-on public
offering of 3,500,000 shares of common stock at a price of
$35.50 per share, under the shelf registration statement
mentioned above. In addition, on April 17, 2006, 525,000
additional shares of common stock were sold at the
abovementioned price pursuant to the exercise of the
underwriters over-allotment option. Net proceeds to the
Company after deducting underwriting fees and commissions and
offering expenses associated with the offering were
approximately $135.1 million.
On December 19, 2006, the Company completed a sale of
2,500,000 shares of common stock to Lehman Brothers Inc. in
a block trade at a price of $37.07 per share (net of
underwriting fees and commissions), under the shelf registration
statement mentioned above. Net proceeds to the Company after
deducting underwriting fees and commissions and offering
expenses associated with the offering were approximately
$92.4 million.
On October 26, 2007, the Company completed a sale of
3,000,000 shares of common stock to Lehman Brothers Inc. in
a block trade at a price of $45.90 per share (net of
underwriting fees and commissions), under the shelf registration
statement mentioned above. Net proceeds to the Company after
deducting underwriting fees and commissions and offering
expenses associated with the offering were approximately
$137.2 million.
On October 26, 2007, the Company completed an unregistered
sale of 381,254 shares of common stock to the Parent at a
price of $45.90 per share. The proceeds from the unregistered
sale were approximately $17.5 million. The shares of common
stock issued in the unregistered sale have not been and will not
be
104
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
registered under the Securities Act of 1933, as amended, or any
state securities laws, and may not be offered or sold in the
United States absent registration or an applicable exemption
from the registration requirements of the Securities Act of
1933, as amended.
A portion of the proceeds from the October 26, 2007 block
trade and the unregistered sale of shares was used to repay a
capital note owed to the Parent in the amount of
$50.7 million on December 3, 2007.
On January 8, 2008, the Company completed an unregistered
sale of 693,750 shares of common stock to the Parent, at a
price of $48.02 per share. The proceeds from the unregistered
sale were approximately $33.3 million. The shares of common
stock issued in the unregistered sale have not been and will not
be registered under the Securities Act of 1933, as amended, or
any state securities laws, and may not be offered or sold in the
United States absent registration or an applicable exemption
from the registration requirements of the Securities Act of
1933, as amended.
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.
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 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.
Rounding
Dollar amounts, except per share data, in the notes to these
financial statements are rounded to the closest $1,000, unless
otherwise indicated.
Reclassification
Certain comparative figures have been reclassified to conform to
the current year presentation.
Basis of
presentation
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America and include the accounts of the Company and of
all majority-owned subsidiaries in which the Company exercises
control over operating and financial policies, and variable
interest entities in which the Company has an interest and is
the primary beneficiary. Intercompany accounts and transactions
have been eliminated in consolidation.
Investments in less-than-majority-owned entities or other
entities in which the Company exercises significant influence
over operating and financial policies are accounted for using
the equity method of accounting. Under the equity method,
original investments are recorded at cost and adjusted by the
Companys share of undistributed earnings or losses of such
companies. The Companys earnings in investments accounted
for under the equity method have been reflected as Equity
in income of investees on the Companys consolidated
statements of operations and comprehensive income.
105
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Cash and
cash equivalents
The Company considers all highly liquid instruments, with an
original maturity of three months or less, to be cash
equivalents.
Marketable
securities
Marketable securities consist of debt securities (mainly auction
rate securities and commercial paper). The Company accounts for
such securities in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. The Company determines the appropriate
classification of all marketable securities as held-to-maturity,
available-for-sale or trading at the time of the purchase and
re-evaluates such classification at each balance sheet date. At
December 31, 2008 and 2007, all of the Companys
investments in marketable securities were classified as
available-for-sale securities and as a result, were reported at
their fair value based upon the quoted market prices of such
securities at year end, except for failed auction rate
securities whose fair value was determined based on the factors
discussed in Note 6.
Unrealized gains and losses are included in accumulated other
comprehensive income, a component of stockholders equity,
net of tax. Net realized gains or losses are reported in other
income (expense). The Company evaluates its investments
periodically for possible other-than-temporary impairment by
reviewing factors such as the length of time and extent to which
fair value has been below cost basis, the financial condition of
the issuer and the Companys ability and intent to hold the
investment for a period of time which may be sufficient for
anticipated recovery of market value. An impairment charge is
recorded to the extent that the carrying value of
available-for-sale securities exceeds the estimated fair market
value of the securities and the decline in value is determined
to be other-than-temporary (see also Note 6).
The marketable securities are included in the consolidated
balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Short-term marketable securities
|
|
$
|
|
|
|
$
|
13,489
|
|
Amount presented among short-term restricted cash,
cash equivalents and marketable securities
|
|
|
|
|
|
|
16,219
|
|
Long-term marketable securities auction rate
securities
|
|
|
1,994
|
|
|
|
2,762
|
|
Amount presented among long-term restricted cash,
cash equivalents and marketable securities auction
rate securities
|
|
|
2,951
|
|
|
|
5,605
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,945
|
|
|
$
|
38,075
|
|
|
|
|
|
|
|
|
|
|
The cost of the marketable securities at December 31, 2008
and 2007 was $11,160,000 and $40,685,000, respectively.
Restricted
cash, cash equivalents and marketable securities
Under the terms of certain long-term debt agreements, the
Company is required to maintain certain debt service reserve,
cash collateral and operating fund accounts that have been
classified as restricted cash, cash equivalents and marketable
securities. Funds that will be used to satisfy obligations due
during the next twelve months and are not auction rate
securities are classified as current restricted cash, cash
equivalents and marketable securities, with the remainder
classified as non-current restricted cash, cash equivalents and
106
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
marketable securities (see Note 6). Such amounts are
invested primarily in money market accounts and commercial paper
with a minimum investment grade of AA, and auction
rate securities.
Concentration
of credit risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary
cash investments, marketable securities and accounts receivable.
The Company places its temporary cash investments and marketable
securities with high credit quality financial institutions
located in the U.S. and in foreign countries. At
December 31, 2008 and 2007, the Company had deposits
totaling $23,120,000 and $21,322,000, in seven
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
December 31, 2008 and 2007, the Companys deposits in
foreign countries of approximately $20,377,000 and $13,248,000,
respectively, were not insured.
At December 31, 2008 and 2007, accounts receivable related
to operations in foreign countries amounted to approximately
$14,867,000 and $17,140,000, respectively. At December 31,
2008 and 2007, accounts receivable from the Companys major
customers that have generated 10% or more of its revenues (see
Note 17) amounted to approximately 45% and 39%,
respectively, of the Companys accounts receivable.
Southern California Edison Company (SCE) accounted
for 27.6%, 31.9% and 30.0% of the Companys total revenues
for the years ended December 31, 2008, 2007 and 2006,
respectively. SCE is also the power purchaser and revenue source
for the Mammoth project, which is accounted for separately under
the equity method.
Hawaii Electric Light Company accounted for 16.7%, 14.6% and
15.1% of the Companys total revenues for the years ended
December 31, 2008, 2007 and 2006, respectively.
Sierra Pacific Power Company and Nevada Power Company
(subsidiaries of NV Energy, Inc.) accounted for 12.6%, 10.9%,
and 13.0% of the Companys total revenues for the years
ended December 31, 2008, 2007 and 2006, respectively.
The Company performs ongoing credit evaluations of its
customers financial condition. The Company has
historically been able to collect on substantially all of its
receivable balances, and accordingly, no provision for doubtful
accounts has been made.
Inventories
Inventories consist primarily of raw material parts and sub
assemblies for power units, and are stated at the lower of cost
or market value, using the weighted-average cost method.
Inventories are reduced by a provision for slow-moving and
obsolete inventories, which amount was not significant at
December 31, 2008 and 2007.
Deposits
and other
Deposits and other consist primarily of performance bonds for
construction projects, a long-term insurance contract and
derivative instruments.
Property,
plant and equipment
Property, plant and equipment are stated at cost. All costs
associated with the acquisition, development and construction of
power plants operated by the Company are capitalized. Major
improvements are capitalized and repairs and maintenance
(including major maintenance) costs are expensed. Power plants
operated by the Company are depreciated using the straight-line
method over their estimated useful lives,
107
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
which range from 25 to 30 years (see below). The geothermal
power plant in Zunil, Guatemala is to be fully depreciated over
the term of the PPA. The geothermal power plant in Nicaragua is
to be fully depreciated over the period that the plant is
operated by the Company (see Note 7). The other assets are
depreciated using the straight-line method over the following
estimated useful lives of the assets:
|
|
|
|
|
Leasehold improvements
|
|
|
15-20 years
|
|
Machinery and equipment manufacturing and drilling
|
|
|
10 years
|
|
Machinery and equipment computers
|
|
|
3-5 years
|
|
Office equipment furniture and fixtures
|
|
|
5-15 years
|
|
Office equipment other
|
|
|
5-10 years
|
|
Automobiles
|
|
|
5-7 years
|
|
During the second quarter of 2007, the Company revised the
estimated useful life of certain of its power plants from 20 or
25 years to 30 years to reflect the expected period
these plants will be utilized. The change in estimated useful
life has been accounted for on a prospective basis effective
April 1, 2007. The impact of this change in estimated
useful life was an increase in net income and earnings per share
of $771,000 and $0.02, respectively, in the year ended
December 31, 2007. The cost and accumulated depreciation of
items sold or retired are removed from the accounts. Any
resulting gain or loss is recognized currently and is recorded
in operating income.
The Company capitalizes interest costs as part of constructing
power plant facilities. Such capitalized interest is recorded as
part of the asset to which it relates and is amortized over the
assets estimated useful life. Capitalized interest costs
amounted to $21,312,000, $6,835,000 and $8,080,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
Exploration
and drilling costs
The Company capitalizes costs incurred in connection with the
exploration and development of geothermal resources on an
area-of-interest basis. All such costs, which
include dry hole costs and the cost of drilling and equipping
production wells and other directly attributable costs, are
capitalized and amortized over their estimated useful lives when
production commences. Exploration and drilling costs related to
uncompleted projects are included as
construction-in-process
in the consolidated balance sheets and totaled $52,345,000 and
$16,677,000 at December 31, 2008 and 2007, respectively.
Asset
retirement obligation
The Company records the fair value of a legal liability for an
asset retirement obligation in the period in which it is
incurred. The Companys legal liabilities include plugging
wells and post-closure costs of geothermal power producing
sites. When a new liability for asset retirement obligations is
recorded, the Company capitalizes the costs of the liability by
increasing the carrying amount of the related long-lived asset.
The liability is accreted to its present value each period, and
the capitalized cost is depreciated over the useful life of the
related asset. At retirement, the obligation is settled for its
recorded amount at a gain or loss.
Deferred
financing and lease transaction costs
Deferred financing costs are amortized over the term of the
related obligation using the effective interest method.
Amortization of deferred financing costs is presented as
interest expense in the consolidated statements of operations
and comprehensive income. Accumulated amortization related to
deferred financing costs amounted to $6,922,000 and $5,423,000
at December 31, 2008 and 2007, respectively. Amortization
expense for the years ended December 31, 2008, 2007 and
2006 amounted to $1,499,000, $1,718,000 and $1,920,000,
respectively.
108
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Deferred transaction costs relating to the Puna operating leases
(see Note 11) in the amount of $4,172,000 are
amortized using the straight-line method over the
23-year term
of the lease. Amortization of deferred transaction costs is
presented in cost of revenues in the consolidated statements of
operations and comprehensive income. Accumulated amortization
related to deferred lease costs amounted to $669,000 and
$485,000 at December 31, 2008 and 2007, respectively.
Amortization expense for each of the years ended
December 31, 2008, 2007 and 2006 amounted to $184,000.
Intangible
assets
Intangible assets consist of allocated acquisition costs of
PPAs, which are amortized using the straight-line method over
the 13 to
25-year
terms of the agreements.
Impairment
of long-lived assets and long-lived assets to be disposed
of
Long-lived assets which consist of property, plant and
equipment, exploration and drilling costs, PPAs and
unconsolidated investments are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. Future cash flows
used to test recoverability of a long-lived asset under
development also include cash flows associated with all future
expenditures necessary to develop the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Management believes that no
impairment exists for long-lived assets; however, future
estimates as to the recoverability of such assets may change
based on revised circumstances.
Derivative
instruments
Derivative instruments (including certain derivative instruments
embedded in other contracts) are measured at their fair value
and recorded as either assets or liabilities unless exempted
from derivative treatment as a normal purchase and sale. All
changes in the fair value of derivatives are recognized
currently in earnings unless specific hedge criteria are met,
which requires a company to formally document, designate and
assess the effectiveness of transactions that receive hedge
accounting.
The Company maintains a risk management strategy that
incorporates the use of forward exchange contracts, interest
rate swaps and interest rate caps to minimize significant
fluctuation in cash flows
and/or
earnings that are caused by exchange rate or interest rate
volatility. Gains or losses on contracts that initially qualify
for cash flow hedge accounting, net of related taxes, are
included as a component of other comprehensive income or loss
and are subsequently reclassified into earnings when the hedged
forecasted transaction affects earnings. Gains or losses on
contracts that are not designated to qualify as a cash flow
hedge are included currently in earnings.
Foreign
currency translation
The U.S. dollar is the functional currency for
substantially all of the Companys consolidated operations
and those of its equity affiliates. For those entities, all
gains and losses from currency translations are included in
results of operations. For the subsidiary in New Zealand which
is using a functional currency other than the U.S. dollar,
the cumulative translation effects are included in
accumulated other comprehensive income in the
consolidated balance sheets.
109
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive
income reporting
Comprehensive income includes net income plus other
comprehensive income, which for the Company consists of foreign
currency translation adjustments, unrealized gain or loss on
marketable securities available-for-sale and the mark-to-market
gains or losses on derivative instruments designated as a cash
flow hedge.
Revenues
and cost of revenues
Revenues are primarily related to: (i) sale of electricity
from geothermal and recovered energy power plants owned and
operated by the Company; and (ii) geothermal and recovered
energy power plant equipment engineering, sale, construction and
installation and operating services.
Revenues related to the sale of electricity from geothermal and
recovered energy power plants and capacity payments are recorded
based upon output delivered and capacity provided at rates
specified under relevant contract terms. The PPAs are exempt
from derivative treatment due to the normal purchase and sale
exception. For PPAs agreed to, modified or acquired in business
combinations on or after July 1, 2003 (effective date of
Emerging Issues Task Force Issue (EITF)
No. 01-08,
Determining whether an Arrangement Contains a Lease),
revenues related to the lease element of the PPAs are included
in electricity revenues. The lease element of the PPAs is
determined in accordance with EITF
No. 00-21,
Revenue Arrangements With Multiple Deliverables, which
requires that revenues be allocated to the separate earnings
processes based on their relative fair value. PPAs with minimum
lease rentals which vary over time are generally recognized on
the straight-line basis over the term of the PPA.
The components of electricity revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Energy and capacity
|
|
$
|
100,303
|
|
|
$
|
90,827
|
|
|
$
|
106,682
|
|
Lease portion of energy and capacity
|
|
|
149,268
|
|
|
|
122,456
|
|
|
|
86,115
|
|
Lease income
|
|
|
2,685
|
|
|
|
2,686
|
|
|
|
2,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
252,256
|
|
|
$
|
215,969
|
|
|
$
|
195,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of cost of electricity revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Energy and capacity
|
|
$
|
94,577
|
|
|
$
|
82,620
|
|
|
$
|
77,768
|
|
Lease portion of energy and capacity
|
|
|
70,234
|
|
|
|
60,835
|
|
|
|
41,345
|
|
Lease income
|
|
|
5,242
|
|
|
|
5,243
|
|
|
|
5,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,053
|
|
|
$
|
148,698
|
|
|
$
|
124,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from engineering, operating services, and parts and
product sales are recorded upon providing the service or
delivery of the products and parts. Revenues from the supply
and/or
construction of geothermal and recovered energy power plant
equipment and other equipment to third parties are recognized
using the percentage of completion method. Revenue is recognized
based on the percentage relationship that incurred costs bear to
total estimated costs. Costs include direct material, labor, and
indirect costs. Selling, marketing, general, and administrative
costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability, including those
arising from contract penalty
110
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
provisions and final contract settlements, may result in
revisions to costs and revenues and are recognized in the period
in which the revisions are determined.
Warranty
on products sold
The Company generally provides a one-year warranty against
defects in workmanship and materials related to the sale of
products for electricity generation. Estimated future warranty
obligations are included in operating expenses in the period in
which the related revenue is recognized. Such charges are
immaterial for the years ended December 31, 2008, 2007 and
2006.
Research
and development
Research and development costs incurred by the Company for the
development of existing and new geothermal, recovered energy and
remote power technologies are expensed as incurred. Grants
received from the U.S. Department of Energy are offset
against the related research and development expenses. Such
grants amounted to $554,000, $0 and $252,000 for the years ended
December 31, 2008, 2007, and 2006, respectively.
Stock-based
compensation
The Company accounts for stock-based compensation using the fair
value method whereby compensation cost is measured at the grant
date, based on the calculated fair value of the award, and is
recognized as an expense over the requisite employee service
period (generally the vesting period of the grant).
Income
taxes
Income taxes are accounted for using the asset and liability
approach, which requires the recognition of taxes payable or
refundable for the current year and deferred tax assets and
liabilities for the future tax consequences of events that have
been recognized in the Companys financial statements or
tax returns. The measurement of current and deferred tax assets
and liabilities are based on provisions of the enacted tax law.
The effects of future changes in tax laws or rates are not
anticipated. The Company accounts for investment tax credits and
production tax credits as a reduction to income taxes in the
year in which the credit arises. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax
benefits that, based on available evidence, are more likely than
not expected to be realized. Tax benefits from uncertain tax
positions are recognized only if it is more likely than not that
the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position (see
Note 16).
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 year. The Company
does not have any equity instruments that are dilutive, except
for employee stock options. The stock options granted to
employees of the Company in the Parents stock are not
dilutive to the Companys earnings per share in any year.
Use of
estimates in preparation of financial statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the dates
of such financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual
results could differ from those estimates. The most significant
estimates with regard to the Companys consolidated
financial statements relate to the useful lives of property,
plant and equipment, impairment of
111
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
long-lived assets and assets to be disposed of, revenue
recognition of products sales using the percentage completion
method, asset retirement obligations, valuation of auction rate
securities, and the provision for income taxes.
New
accounting pronouncements
New
accounting pronouncements effective in the year ended
December 31, 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, but does not change the
requirements to apply fair value in existing accounting
standards. SFAS No. 157 was effective and adopted by
the Company as of January 1, 2008 for financial assets and
liabilities. The adoption by the Company of
SFAS No. 157 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 FASB Staff Position
(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 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 SFAS No. 157 are mainly asset
retirement obligations and impairment of long-lived assets.
In October 2008, the FASB released 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. FSB
FAS No. 157-3
was effective upon issuance, including prior periods for which
financial statements had not been issued. The adoption of this
standard 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 was 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.
FSP EITF
99-20-1
Amendments to the Impairment Guidance of EITF Issue No.
99-20
In January 2009, the FASB issued FSP EITF
No. 99-20-1,
Amendments to the Impairment Guidance of EITF Issue
No. 99-20.
This pronouncement amends
EITF 99-20,
Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to
be Held by a
112
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Transferor in Securitized Financial Assets, to achieve a
more consistent determination of whether an other-than-temporary
impairment has occurred. FSP
EITF 99-20-1
also retains and emphasizes the objective of an
other-than-temporary impairment assessment and the related
disclosure requirements in SFAS No. 115 and other
related guidance. FSP
EITF 99-20-1
is effective for interim and annual reporting periods ending
after December 15, 2008 and is required to be applied
prospectively. The adoption of FSP
EITF 99-20-1
did not have an impact on the Companys financial position
or results of operations.
New
accounting pronouncements effective in future
years
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 (January 1,
2009 for the Company). Upon adoption, the Company will
reclassify minority interest related to the tax monetization
transaction to long-term liabilities (see Note 12). The
Company is currently evaluating the potential impact of the
adoption of SFAS No. 160 on other financial statement
items in its consolidated financial statements relating to the
tax monetization transaction.
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,
113
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
2009 for the Company). The Company is currently evaluating the
potential impact, if any, of the adoption of
SFAS No. 161 on its financial statements.
FSP
FAS No. 142-3
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS No. 142-3).
This pronouncement amends SFAS No. 142, Goodwill
and Other Intangible Assets, regarding the factors that
should be considered in developing the useful lives of
intangible assets with renewal or extension provisions. FSP
FAS 142-3
requires an entity to consider its own historical experience in
renewing or extending similar arrangements, regardless of
whether those arrangements have explicit renewal or extension
provisions, when determining the useful life of an intangible
asset. In the absence of such experience, an entity shall
consider the assumptions that market participants would use
about renewal or extension, adjusted for entity-specific
factors. FSP
FAS 142-3
also requires an entity to disclose information regarding the
extent to which the expected future cash flows associated with
an intangible asset are affected by the entitys intent
and/or
ability to renew or extend the arrangement. FSP
FAS 142-3
will be effective for qualifying intangible assets acquired on
or after January 1, 2009. The application of FSP
FAS 142-3
is not expected to have a material impact on the Companys
results of operations, cash flows or financial positions;
however, it could impact future transactions entered into by the
Company.
|
|
NOTE 2
|
BUSINESS
ACQUISITION
|
The
Zunil Project
Prior to March 13, 2006, the Company had a 21.0% ownership
interest in Orzunil I de Electricidad, Limitada
(Orzunil), a limited responsibility company
incorporated in Guatemala and established for the purpose of
generating power by means of a geothermal power plant in the
Province of Quetzaltenango in Guatemala. The Company operates
and maintains the geothermal power plant and the power purchaser
supplies geothermal fluid to the power plant.
On March 13, 2006, the Company acquired a 50.8% ownership
interest in Orzunil and increased its then existing 21.0%
ownership interest to 71.8%. The purchase price of this
acquisition was $15.4 million, including acquisition costs
of approximately $0.6 million.
The Companys 21.0% ownership interest in Orzunil prior to
the abovementioned acquisition was accounted for under the
equity method of accounting as the Company had the ability to
exercise significant influence, but not control, over Orzunil.
As a result of the acquisition of the additional 50.8% interest
in Orzunil, the financial statements of Orzunil were
consolidated with the Companys financial statements
effective March 13, 2006.
On August 16, 2006, the Company completed the acquisition
from each of CDC Group plc (CDC) and International
Finance Corporation (IFC), both of which are the
Zunil Projects senior lenders, a 14.1% ownership interest
in Orzunil (for a total of 28.2%), thereby increasing the
Companys then existing 71.8% ownership interest to 100%.
The total purchase price of both acquisitions was
$7.4 million, including acquisition costs of approximately
$0.9 million.
The abovementioned acquisitions have been accounted for under
the purchase method of accounting and the acquired assets are
being depreciated over their estimated useful lives of
13.5 years. The purchase prices
114
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
of all the above mentioned acquisitions ($22.8 million)
have been allocated to the fair value of assets and liabilities
based on managements estimates as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
8
|
|
Restricted cash
|
|
|
3,408
|
|
Accounts receivable assumed
|
|
|
3,176
|
|
Property, plant and equipment
|
|
|
42,621
|
|
Intangible (power purchase agreement)
|
|
|
5,250
|
|
Accounts payable and other liabilities assumed
|
|
|
(1,241
|
)
|
Long-term loans assumed (including current portion)
|
|
|
(23,210
|
)
|
|
|
|
|
|
|
|
|
30,012
|
|
Less: the Companys investment prior to acquisition
|
|
|
(7,244
|
)
|
|
|
|
|
|
Total purchase price allocation
|
|
$
|
22,768
|
|
|
|
|
|
|
The revenues of Orzunil and the Companys share in the net
income of Orzunil were $10,343,000 and $3,018,000, respectively,
for the period from March 13, 2006 to December 31,
2006.
The Companys equity in income of Orzunil was not
significant for each of the years presented in these financial
statements.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Raw materials and purchased parts for assembly
|
|
$
|
7,649
|
|
|
$
|
3,613
|
|
Self-manufactured assembly parts and finished products
|
|
|
6,075
|
|
|
|
6,699
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,724
|
|
|
$
|
10,312
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4
|
COST AND
ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
|
Cost and estimated earnings on uncompleted contracts consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Costs and estimated earnings incurred on uncompleted contracts
|
|
$
|
69,452
|
|
|
$
|
19,008
|
|
Less billings to date
|
|
|
78,140
|
|
|
|
20,218
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8,688
|
)
|
|
$
|
(1,210
|
)
|
|
|
|
|
|
|
|
|
|
115
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
These amounts are included in the consolidated balance sheets
under the following captions:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
$
|
6,982
|
|
|
$
|
3,608
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
(15,670
|
)
|
|
|
(4,818
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8,688
|
)
|
|
$
|
(1,210
|
)
|
|
|
|
|
|
|
|
|
|
The completion costs of the Companys construction
contracts are subject to estimation. Due to uncertainties
inherent in the estimation process, it is reasonably possible
that estimated contract earnings will be further revised in the
near term.
|
|
NOTE 5
|
UNCONSOLIDATED
INVESTMENTS
|
Unconsolidated investments in power plant projects consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Mammoth
|
|
$
|
30,131
|
|
|
$
|
29,979
|
|
OLCL
|
|
|
428
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,559
|
|
|
$
|
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 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 unaudited condensed financial position and results of
operations of Mammoth are summarized below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Condensed balance sheets:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
8,251
|
|
|
$
|
4,181
|
|
Non-current assets
|
|
|
69,784
|
|
|
|
74,417
|
|
Current liabilities
|
|
|
721
|
|
|
|
826
|
|
Non-current liabilities
|
|
|
3,177
|
|
|
|
3,004
|
|
Partners capital
|
|
|
74,137
|
|
|
|
74,768
|
|
116
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Condensed statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,175
|
|
|
$
|
17,121
|
|
|
$
|
15,339
|
|
Gross margin
|
|
|
5,180
|
|
|
|
4,281
|
|
|
|
1,657
|
|
Net income
|
|
|
4,868
|
|
|
|
4,198
|
|
|
|
1,412
|
|
Companys equity in income of Mammoth:
|
|
|
|
|
|
|
|
|
|
|
|
|
50% of Mammoth net income
|
|
$
|
2,434
|
|
|
$
|
2,099
|
|
|
$
|
706
|
|
Plus amortization of basis difference
|
|
|
593
|
|
|
|
593
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,027
|
|
|
|
2,692
|
|
|
|
1,299
|
|
Less income taxes
|
|
|
(1,149
|
)
|
|
|
(1,023
|
)
|
|
|
(493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,878
|
|
|
$
|
1,669
|
|
|
$
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Mammoth project sells its electrical output to SCE under
three separate PPAs. Under the G-1 PPA, in certain
circumstances, SCE or its affiliates has a right of first
refusal to acquire the plant.
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 FASB
Interpretation (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 unaudited
condensed financial position and results of operations of OLCL
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Condensed balance sheets:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
427
|
|
|
$
|
1,327
|
|
Non-current assets
|
|
|
324
|
|
|
|
371
|
|
Current liabilities
|
|
|
261
|
|
|
|
1,018
|
|
Stockholders equity
|
|
|
490
|
|
|
|
680
|
|
117
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Condensed statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
11,269
|
|
|
$
|
13,715
|
|
Gross margin
|
|
|
|
|
|
|
5,433
|
|
|
|
6,417
|
|
Net income (loss)
|
|
|
(190
|
)
|
|
|
2,964
|
|
|
|
2,787
|
|
Companys equity in income (loss) of OLCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
80% of OLCL net income (loss)
|
|
$
|
(153
|
)
|
|
$
|
2,371
|
|
|
$
|
2,230
|
|
Plus amortization of deferred revenue on intercompany
|
|
|
|
|
|
|
|
|
|
|
|
|
profit
|
|
|
|
|
|
|
702
|
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(153
|
)
|
|
$
|
3,073
|
|
|
$
|
3,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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).
|
118
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2008
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (including restricted cash accounts)
|
|
$
|
18,891
|
|
|
$
|
18,891
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives*
|
|
|
625
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
Non current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illiquid auction rate securities (including restricted cash
accounts), see below
|
|
|
4,945
|
|
|
|
|
|
|
|
|
|
|
|
4,945
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives*
|
|
|
(721
|
)
|
|
|
|
|
|
|
(721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,740
|
|
|
$
|
18,891
|
|
|
$
|
(96
|
)
|
|
$
|
4,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Derivatives represent foreign
currency forward contracts which are valued primarily based on
observable inputs including forward and spot prices for
currencies.
|
The Companys marketable debt securities (including
restricted cash accounts) at December 31, 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 December 31, 2008, all of the Companys auction
rate securities are associated with failed auctions. 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 in
the Companys case occurs every twenty-eight days,
investors can sell or continue to hold the securities at par. In
the fourth quarter of 2007 and in 2008, certain auction rate
securities failed auction due to sell orders exceeding buy
orders. As of December 31, 2008 and 2007, the Company held
failed auction rate securities totaling $11.2 million at
par value, all of which have been in a loss position since the
fourth quarter of 2007. 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 par value. Due to the
lack of observable market quotes on the Companys illiquid
auction rate securities the Company utilizes valuation models
that rely exclusively on Level 3 inputs including, among
other things: (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;
(iv) assessments of counterparty credit quality:
(v) estimates of the recovery rates in the event of default
for each security; and (vi) and overall capital market
liquidity. These estimated fair values are subject to
uncertainties that are difficult to predict. Therefore, such
auction rate securities have been classified as Level 3 in
the fair value hierarchy.
119
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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
years ended December 31, 2007 and 2008.
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Balance as of January 1, 2008
|
|
$
|
8,367
|
|
Total unrealized losses:
|
|
|
|
|
Included in net income
|
|
|
(4,195
|
)
|
Unrealized losses included in other comprehensive income in 2007
and expensed in 2008
|
|
|
773
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
4,945
|
|
|
|
|
|
|
Based on available information, the Company concluded that the
fair value of these auction rate securities was
$4.9 million and $8.4 million at December 31,
2008 and 2007, respectively, a decline of $6.2 million and
$2.8 million, respectively, from par value of
$11.2 million. As of December 31, 2007, an amount of
$0.8 million was deemed temporary and was recorded in other
comprehensive income (loss) during the year ended
December 31, 2007. The remaining decline of
$2.0 million was deemed other-than-temporary and was
recorded as an impairment charge during the year ended
December 31, 2007. Due to the continued deterioration in
market conditions and the further decline in the fair value of
the auction rate securities, the Company has concluded that the
total decline from par value of $6.2 million is
other-than-temporary and recorded an additional impairment
charge of $4.2 million during the year ended
December 31, 2008. Such impairment charge was included in
other income (expense) on the consolidated statements of
operations and comprehensive income.
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 December 31, 2008 and 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 2009.
The fair value of the Companys long-term debt approximates
its carrying amount, except for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
( dollars in millions)
|
|
|
( dollars in millions)
|
|
|
Senior loans
|
|
$
|
9.2
|
|
|
$
|
14.5
|
|
|
$
|
9.0
|
|
|
$
|
13.9
|
|
Senior Secured Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ormat Funding Corp.(OFC)
|
|
|
114.9
|
|
|
|
164.4
|
|
|
|
155.3
|
|
|
|
164.9
|
|
OrCal Geothermal Inc.(OrCal)
|
|
|
103.6
|
|
|
|
126.8
|
|
|
|
116.8
|
|
|
|
134.5
|
|
Parent Loan
|
|
|
26.1
|
|
|
|
58.6
|
|
|
|
26.2
|
|
|
|
57.8
|
|
The fair value of OFC Senior Secured Notes is determined using
observable market prices as these securities are actively
traded. Fair values for other long-term debt are determined by a
valuation model which is based on a conventional discounted cash
flow methodology and utilizes assumptions of current market
pricing curves.
120
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 7
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Land
|
|
|
35,465
|
|
|
|
20,291
|
|
Leasehold improvements
|
|
|
2,605
|
|
|
|
1,049
|
|
Machinery and equipment
|
|
|
53,709
|
|
|
|
24,501
|
|
Office equipment
|
|
|
11,345
|
|
|
|
8,820
|
|
Automobiles
|
|
|
3,062
|
|
|
|
2,201
|
|
Geothermal and recovered energy generation power plants,
including geothermal wells:
|
|
|
|
|
|
|
|
|
United States of America
|
|
|
812,020
|
|
|
|
695,284
|
|
Foreign countries
|
|
|
254,849
|
|
|
|
153,595
|
|
Asset retirement cost
|
|
|
8,815
|
|
|
|
9,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181,870
|
|
|
|
915,197
|
|
Less accumulated depreciation
|
|
|
(223,684
|
)
|
|
|
(171,811
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
958,186
|
|
|
|
743,386
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2008,
2007 and 2006 amounted to $51,873,000, $45,607,000 and
$38,659,000, respectively.
U.S.
operations:
The net book value of the property, plant and equipment,
including construction-in-process, located in the United States
was approximately $1,118,398,000 and $783,518,000 as of
December 31, 2008 and 2007, respectively.
Foreign
operations:
The net book value of the property, plant and equipment,
including construction-in-process, located outside of the United
States was approximately $226,289,000 and $193,882,000 as of
December 31, 2008 and 2007, respectively.
Pursuant to a
20-year PPA
with Kenya Power and Lighting Co. Ltd. (KPLC), the
Company agreed to design, construct and operate geothermal power
plants in Kenya in several phases. The net book value of assets
associated with Phase I was $25,227,000 and $26,987,000 as of
December 31, 2008 and 2007, respectively. The Company has
incurred approximately $88,909,000 and $58,119,000 (included as
of December 31, 2007 in
construction-in-process)
at December 31, 2008 and 2007, respectively, in connection
with the construction of Phase II of the power plant which
was completed in December 2008. Pursuant to the amended and
restated PPA, the parties agreed reduce the tariff payable by
KPLC on the total capacity of the plant upon completion of Phase
II.
Pursuant to an agreement with Empresa Nicaraguense de
Electricitdad (ENEL), a Nicaraguan power utility,
the Company rehabilitated existing wells, drilled new wells, and
is operating the geothermal facilities. The Company owns the
plants for a fifteen-year period ending in 2014, at which time
they will be transferred to ENEL at no cost. The net book value
of the assets related to the plant and wells was $15,008,000 and
$18,199,000 at December 31, 2008 and 2007, respectively.
121
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The Company, through its wholly-owned subsidiary, Orzunil, owns
a power plant in Guatemala. The geothermal resources used by the
power plant are owned by Instituto Nacional de Elecrification
(INDE), a Guatemalan power utility, who granted the
use of these resources to Orzunil for the period of the PPA. The
net book value of the assets related to the power plant was
$34,640,000 and $37,770,000 at December 31, 2008 and 2007,
respectively.
The Company, through its wholly-owned subsidiary, Ortitlan,
Limitada (Ortitlan), owns a power plant in Guatemala
(the Amatitlan Project). The net book value of the
assets related to the power plant was $39,947,000 and
$35,835,000 at December 31, 2008 and 2007, respectively.
The Company, through its wholly-owned subsidiary, Geothermal
Development Limited (GDL), owns a power plant in New
Zealand. The net book value of the assets related to the power
plant was $9,856,000 at December 31, 2008. As of
December 31, 2007 the plant was under construction and its
book value in the amount of $6,970,000 was included in
construction-in-process.
The former shareholder of GDL has a call option to purchase from
the Company its shares in GDL under certain conditions subject
to the Companys right of first refusal.
|
|
NOTE 8
|
INTANGIBLE
ASSETS
|
Intangible assets consist mainly of all of the Companys
PPAs acquired in business combinations and amounted to
$44,853,000 and $47,989,000, net of accumulated amortization of
$15,710,000 and $12,574,000, as of December 31, 2008 and
2007, respectively. Amortization expense for the years ended
December 31, 2008, 2007 and 2006 amounted to $3,136,000,
$3,247,000 and $3,079,000, respectively.
Estimated future amortization expense for the intangible assets
as of December 31, 2008 is as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
3,196
|
|
2010
|
|
|
3,196
|
|
2011
|
|
|
3,196
|
|
2012
|
|
|
3,196
|
|
2013
|
|
|
3,196
|
|
Thereafter
|
|
|
28,873
|
|
|
|
|
|
|
Total
|
|
$
|
44,853
|
|
|
|
|
|
|
|
|
NOTE 9
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Trade payables
|
|
$
|
82,624
|
|
|
$
|
61,994
|
|
Salaries and other payroll costs
|
|
|
9,529
|
|
|
|
8,427
|
|
Accrued interest
|
|
|
527
|
|
|
|
350
|
|
Income tax payable
|
|
|
1,803
|
|
|
|
1,561
|
|
Other
|
|
|
8,853
|
|
|
|
3,504
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,336
|
|
|
$
|
75,836
|
|
|
|
|
|
|
|
|
|
|
122
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 10
|
LONG-TERM
DEBT AND CREDIT AGREEMENTS
|
Long-term debt consists of notes payable under the following
agreements:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
( dollars in thousands)
|
|
|
Limited and non-recourse agreements:
|
|
|
|
|
|
|
|
|
Non-recourse agreement:
|
|
|
|
|
|
|
|
|
Senior loans
|
|
$
|
9,013
|
|
|
$
|
13,792
|
|
Limited recourse agreement:
|
|
|
|
|
|
|
|
|
Credit facility agreement
|
|
|
5,477
|
|
|
|
8,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,490
|
|
|
|
22,157
|
|
Less current portion
|
|
|
(6,676
|
)
|
|
|
(7,667
|
)
|
|
|
|
|
|
|
|
|
|
Non current portion
|
|
$
|
7,814
|
|
|
$
|
14,490
|
|
|
|
|
|
|
|
|
|
|
Revolving credit lines with banks
|
|
$
|
100,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
|
|
|
$
|
1,000
|
|
Less current portion
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
Non current portion
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Notes (non recourse):
|
|
|
|
|
|
|
|
|
Ormat Funding Corp.(OFC)
|
|
$
|
155,326
|
|
|
$
|
164,856
|
|
OrCal Geothermal Inc.(OrCal)
|
|
|
116,819
|
|
|
|
134,459
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
272,145
|
|
|
|
299,315
|
|
Less current portion
|
|
|
(20,085
|
)
|
|
|
(25,475
|
)
|
|
|
|
|
|
|
|
|
|
Non current portion
|
|
$
|
252,060
|
|
|
$
|
273,840
|
|
|
|
|
|
|
|
|
|
|
Senior
Loans
International
Finance Corporation (IFC) Loan A and Loan
B
Orzunil, a wholly owned subsidiary of the Company, has a senior
loan agreement with IFC (Loan A). The loan matures
on November 15, 2011, and is payable in 47 quarterly
installments. The loan has a fixed annual interest rate of
11.775%.
Orzunil had another senior loan agreement with IFC (Loan
B). The loan was fully paid on May 15, 2008.
Commonwealth
Development Corporation (CDC) Loan
Orzunil has a senior loan agreement with CDC. The loan matures
on August 15, 2010, and is payable in 42 quarterly
installments. The loan has a fixed annual interest rate of
10.300%.
There are various restrictive covenants under these Senior
Loans, which include limitations on Orzunils ability to
make distributions to its shareholders. Management believes that
as of December 31, 2008, Orzunil was in compliance with the
covenants under the Senior Loans.
123
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Credit
Facility Agreement (the Momotombo Project)
Ormat Momotombo Power Company (OMPC), a wholly owned
subsidiary of the Company, entered into a credit facility
agreement with Bank Hapoalim B.M. Principal and interest
payments on the Phase I Loan are payable in 32 equal quarterly
payments that commenced upon completion of Phase I of the
project in December 2001. Interest on the Phase I Loan is
variable based on
3-month
LIBOR plus 2.375%. Principal and interest payments on the
Phase II Loan are payable in equal 28 quarterly payments
that commenced in March 2004. Interest on the Phase II Loan
is variable based on
3-month
LIBOR plus 3.0%, and is added to the outstanding balances of the
Phase II Loan until the commencement of the principal and
interest payments. At December 31, 2008 and 2007,
$2,086,000 and $3,285,000, respectively, was outstanding under
the Phase I Loan and $3,391,000 and $5,080,000, respectively,
was outstanding under the Phase II Loan. The Credit
Facility Agreement is collateralized by liens over all real and
personal property comprising the Momotombo Project and the
Companys ownership interest in OMPC. There are various
restrictive covenants under the Credit Facility Agreement, which
include maintaining certain levels of debt to equity ratio and
debt service coverage ratio, and limitations on additional
indebtedness and payment of dividends.
Management believes that OMPC was in compliance with the
covenants under the Credit Facility Agreement as of
December 31, 2008.
Future
minimum payments
Future minimum payments under long-term obligations, excluding
the senior secured notes and notes payable to Parent, as of
December 31, 2008 are as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
6,676
|
|
2010
|
|
|
6,101
|
|
2011
|
|
|
1,713
|
|
|
|
|
|
|
Total
|
|
$
|
14,490
|
|
|
|
|
|
|
Revolving
Credit Lines With Banks
The Company has credit agreements with five commercial banks in
the aggregate amount of $310.0 million. Under these credit
agreements, the Company or its Israeli subsidiary 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 an original term of three years.
Loans and draws under the credit agreements or under any letters
of credit bear interest at the respective banks cost of
funds plus a margin. The Companys or its Israeli
subsidiarys obligations under the credit agreements are
unsecured, but both entities are subject to a negative pledge in
favor of the banks and certain other customary restrictive
covenants. Some of the loan agreements contain cross-default
provisions with respect to other material indebtedness owed by
the Company to any third party.
As of December 31, 2008, loans in the amount of
$100.0 million were outstanding under such credit
agreements. The loans are for a period of three months or less
and the Company intends to replace them with new draw-downs from
the same line of credit. The loans bear interest at an annual
weighted average rate of 3.6% and are due as follows:
2010 - $50.0 million and 2011 - $50.0
million.
124
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Restrictive
covenants
Under these agreements and the letter of credit agreements (see
Note 20), the Company and its Israeli subsidiary, OSL., 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 the Companys
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 the
Companys assets. In some cases, the Company and OSL have
agreed to maintain certain financial ratios such as a debt
service coverage ratio and a debt to equity ratio. The Company
does not expect that these covenants or ratios, which apply to
the Company on a consolidated basis, will materially limit its
ability to execute its future business plans or 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.
Management believes that as of December 31, 2008, the
Company was in compliance with the covenants under the credit
agreements.
OFC
Senior Secured Notes
On February 13, 2004, Ormat Funding Corp.
(OFC), a wholly owned subsidiary, 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, and received net cash
proceeds of approximately $179.7 million, after deduction
of issuance costs of approximately $10.3 million, which
have been included in deferred financing costs in the
consolidated balance sheet. The OFC Senior Secured Notes have a
final maturity of December 30, 2020. Principal and interest
on the OFC Senior Secured Notes are payable in semi-annual
payments that 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.
In November 2008, the Company acquired from an OFC noteholder
OFC Senior Secured Notes with an outstanding principal amount of
$1,695,000 and recognized an immaterial gain.
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 Inc., will sell a portion of its
equity interest in OFC to an institutional investor that is able
to utilize certain income tax benefits.
Management believes that as of December 31, 2008, OFC was
in compliance with the covenants contained in the indenture
governing the OFC Senior Secured Notes.
OFC may redeem the OFC Senior Secured Notes, in whole or in
part, at any time at a redemption price equal to the principal
amount of the OFC Senior Secured Notes to be redeemed plus
accrued interest, premium and liquidated damages, if any, plus a
make-whole premium. Upon certain events, as defined
in the indenture governing the OFC Senior Secured Notes, OFC may
be required to redeem a portion of the OFC Senior Secured Notes
at a redemption price ranging from 100% to 101% of the principal
amount of the OFC Senior Secured Notes being redeemed plus
accrued interest, premium and liquidated damages, if any.
125
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Debt
service reserve
As required under the terms of the OFC Senior Secured Notes, OFC
maintains an account which may be funded by cash or backed by
letters of credit (see below) in an amount sufficient to pay
scheduled debt service amounts, including principal and
interest, due under the terms of the OFC Senior Secured Notes in
the following six months. This restricted cash account is
classified as current on the consolidated balance sheet. As of
December 31, 2008 and 2007, the balance of such account was
$3.7 million and $0.1 million, respectively. In
addition, as of December 31, 2008 and 2007, part of the
restricted cash accounts was funded by a letter of credit in the
amount of approximately $10.6 million and
$11.5 million, respectively (see Note 20).
Future minimum payments under the OFC Senior Secured Notes, as
of December 31, 2008 are as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
2009
|
|
$
|
9,042
|
|
2010
|
|
|
10,011
|
|
2011
|
|
|
11,290
|
|
2012
|
|
|
10,886
|
|
2013
|
|
|
11,817
|
|
Thereafter
|
|
|
102,280
|
|
|
|
|
|
|
Total
|
|
$
|
155,326
|
|
|
|
|
|
|
OrCal
Senior Secured Notes
On December 8, 2005, OrCal Geothermal Inc.
(OrCal), a wholly owned subsidiary, 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, and received net cash proceeds of
approximately $161.1 million, after deduction of issuance
costs of approximately $3.9 million, which have been
included in deferred financing costs in the consolidated balance
sheet. The OrCal Senior Secured Notes have been rated BBB- by
Fitch. The OrCal Senior Secured Notes have a final maturity of
December 30, 2020. Principal and interest on the OrCal
Senior Secured Notes are payable in semi-annual payments which
commenced on June 30, 2006. The OrCal Senior Secured Notes
are collateralized by substantially all of the assets of OrCal,
and those of its 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. Management believes that
as of December 31, 2008, OrCal was in compliance with the
covenants under the OrCal Senior Secured Notes.
OrCal may redeem the OrCal Senior Secured Notes, in whole or in
part, at any time at a redemption price equal to the principal
amount of the OrCal Senior Secured Notes to be redeemed plus
accrued interest, and a make-whole premium. Upon
certain events, as defined in the indenture governing the OrCal
Senior Secured Notes, OrCal may be required to redeem a portion
of the OrCal Senior Secured Notes at a redemption price of 100%
of the principal amount of the OrCal Senior Secured Notes being
redeemed plus accrued interest.
Debt
service reserve
As required under the terms of the OrCal Senior Secured Notes,
OrCal maintains an account with a required minimum balance,
which may be funded by cash or backed by letters of credit in an
amount sufficient to pay scheduled debt service amounts,
including principal and interest, due under the terms of the
126
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
OrCal Senior Secured Notes in the following six months. This
restricted cash account is classified as current on the
consolidated balance sheet. As of December 31, 2008 and
2007, the balance of such account was $7.5 million and
$11.9 million, respectively. In addition, as of
December 31, 2008, part of the restricted cash accounts was
funded by a letter of credit in the amount of approximately
$11.3 million (see Note 20).
Future minimum payments under the OrCal Senior Secured Notes, as
of December 31, 2008 are as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
11,043
|
|
2010
|
|
|
10,216
|
|
2011
|
|
|
9,700
|
|
2012
|
|
|
9,312
|
|
2013
|
|
|
10,391
|
|
Thereafter
|
|
|
66,157
|
|
|
|
|
|
|
Total
|
|
$
|
116,819
|
|
|
|
|
|
|
Credit
agreement
On February 15, 2006, a subsidiary of the Company entered
into a $25.0 million credit agreement with Union Bank, N.A.
(formerly known as Union Bank of California, N.A. (Union
Bank)). In December 2008, the subsidiary entered into an
amendment to the credit agreement. Under the amendment, the
credit termination date was extended to February 15, 2012
and the aggregate amount available under the credit agreement
was increased to $37.5 million. Under the credit agreement,
as amended, the Company can request extensions of credit in the
form of loans
and/or the
issuance of one or more letters of credit. Union Bank 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 with this
transaction, the Company has entered into a guarantee in favor
of the administrative agent for the benefit of the banks,
pursuant to which the Company agreed to guarantee the
subsidiarys obligations under the credit agreement. The
subsidiarys obligations under the credit agreement are
otherwise unsecured by any of its (or any of its
subsidiaries) assets. 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. Management
believes that as of December 31, 2008, the Company was in
compliance with the covenants under the credit agreement. As of
December 31, 2008, eight letters of credit with an
aggregated stated amount of $25.0 million were issued and
outstanding under the credit agreement.
|
|
NOTE 11
|
PUNA
PROJECT LEASE TRANSACTIONS
|
On May 19, 2005, the Companys wholly owned 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 Puna
Project), which was acquired in June 2004. A similar
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 (the Head Lease), PGV leased its geothermal
power plant to an unrelated company in return for prepaid lease
payments in the total amount of $83.0 million (the
Deferred Lease Income). The carrying value of the
leased assets as of December 31, 2008 and 2007 amounted to
127
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
$50.5 million and $53.3 million, net of accumulated
depreciation of $11.9 million and $9.1 million,
respectively. The unrelated company (the Lessor)
simultaneously leased back the Puna Project to PGV under a
23-year
lease (the Project Lease). PGVs rent
obligations under the Project Lease will be paid solely from
revenues generated by the Puna Project under a PPA that PGV has
with Hawaii Electric Light Company (HELCO). The Head
Lease and the Project Lease are non-recourse lease obligations
to the Company. PGVs rights in the geothermal resource and
the related PPA have not been leased to the Lessor as part of
the Head Lease but are part of the Lessors security
package.
The Head Lease and the Project Lease are being accounted for
separately. Each was classified as an operating lease in
accordance with SFAS No. 13, Accounting for
Leases. The Deferred Lease Income is amortized into revenue,
using the straight-line method, over the
31-year term
of the Head Lease. Deferred transaction costs amounting to
$4.2 million are being amortized, using the straight-line
method, over the
23-year term
of the Project Lease.
Future minimum lease payments under the Project Lease, as of
December 31, 2008, are as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
8,013
|
|
2010
|
|
|
7,567
|
|
2011
|
|
|
8,061
|
|
2012
|
|
|
8,199
|
|
2013
|
|
|
8,062
|
|
Thereafter
|
|
|
55,865
|
|
|
|
|
|
|
Total
|
|
$
|
95,767
|
|
|
|
|
|
|
Depository
accounts
As required under the terms of the lease agreements, there are
certain reserve funds that need to be managed by the indenture
trustee in accordance with certain balance requirements. Such
reserve funds amounted to $9.2 million and
$7.6 million as of December 31, 2008 and 2007,
respectively, and were included in restricted cash accounts in
the consolidated balance sheets. As of December 31, 2008
and 2007, $3.0 million and $5.6 million, respectively,
of such accounts were classified as non-current, since they are
invested in auction rate securities which experienced multiple
failed auctions due to a lack of liquidity in the market for
these securities, as explained in Note 6, and the remaining
$6.2 million and $2.0 million, respectively, were
classified as current as they are used for current payments.
Distribution
account
PGV maintains an account to deposit its remaining cash, after
making all of the necessary payments and transfers as provided
for in the lease agreements, in order to make distributions to
Ormat Nevada Inc. The distributions are allowed only if PGV
maintains various restrictive covenants under the lease
agreements, which include limitations on additional
indebtedness. As of December 31, 2008 and 2007, the balance
of such account was $0.6 million and $10.4 million,
respectively. This amount can be distributed to Ormat Nevada
Inc. currently and has been classified as current restricted
assets.
|
|
NOTE 12
|
OPC TAX
MONETIZATION TRANSACTION
|
On June 7, 2007, a wholly owned subsidiary of the Company,
Ormat Nevada Inc. (Ormat Nevada), entered into
agreements with affiliates of Morgan Stanley & Co.
Incorporated and Lehman Brothers Inc.,
128
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
under which those investors have purchased, for cash, interests
in a newly formed subsidiary of Ormat Nevada, OPC LLC
(OPC), entitling the investors to certain tax
benefits (such as production tax credits and accelerated
depreciation) and distributable cash associated with four
geothermal projects.
The first closing under the agreement occurred in 2007 and
covered the Companys Desert Peak 2, Steamboat Hills and
Galena 2 projects. The investors paid $71.8 million at the
first closing. The second closing under the agreements occurred
in 2008 and covered the Galena 3 project. The investors paid
$63.0 million at the second closing.
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 investors will receive
substantially all of the production tax credits and the taxable
income or loss (together, the Economic Benefits),
and the distributable cash flow after Ormat Nevada has recovered
its capital. The 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. Under the transaction,
Ormat Nevada retains the controlling voting interest in the
subsidiary and therefore will continue to consolidate OPC. This
transaction has been accounted for as a financing with the
payments received for the equity interest recorded in minority
interest on the consolidated balance sheets. As the Economic
Benefits flow to the investors, they are recognized by the
Company in minority interest on the consolidated statements of
operations and comprehensive income. Interest expense,
representing the investors targeted yield on the balance
of the amount paid by the investors, is charged to minority
interest.
Transaction costs amounting to $3.5 million and
$2.6 million as of December 31, 2008 and 2007,
respectively, have been reflected as a component of minority
interest on the consolidated balance sheets and will be
amortized to minority interest in the consolidated statements of
operations and comprehensive income through the Flip Date.
|
|
NOTE 13
|
ASSET
RETIREMENT OBLIGATION
|
The following table presents a reconciliation of the beginning
and ending aggregate carrying amount of asset retirement
obligation for the years presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Balance at beginning of year
|
|
$
|
13,014
|
|
|
$
|
16,832
|
|
Changes in price estimates
|
|
|
|
|
|
|
(57
|
)
|
Changes in estimated useful lives
|
|
|
(2,419
|
)
|
|
|
(5,416
|
)
|
Liabilities incurred
|
|
|
1,774
|
|
|
|
550
|
|
Accretion expense
|
|
|
1,069
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
13,438
|
|
|
$
|
13,014
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, the Company
decreased the aggregate carrying amount of its asset retirement
obligation by $2,419,000 due to decreased costs associated with
a change in estimated settlement dates of certain of the
Companys power plants. During the year ended
December 31, 2007, the Company decreased the aggregate
carrying amount of its asset retirement obligation by $5,473,000
due
129
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
to decreased costs associated with drilling rigs as a result of
the purchase of drilling rigs by the Company and the change in
estimated useful life of part of the Companys power plants
(see Note 1).
|
|
NOTE 14
|
STOCK-BASED
COMPENSATION
|
Effective January 1, 2006, the Company adopted the
provisions of SFAS No. 123R, Share-Based Payments
(SFAS No. 123R), using the modified
prospective method. In its adoption, the Company applied the
provisions of Staff Accounting Bulletin (SAB)
No. 107 which allowed the use of the simplified method in
developing an estimate of the expected term of plain
vanilla share options. In December 2007, the SEC issued
SAB No. 110 which continues to allow, under certain
circumstances, entities to use the simplified method. The
Company has continued to use the simplified method to estimate
the expected term of its stock options. The cumulative effect of
initially adopting SFAS No. 123R was not material.
As required by SFAS No. 123R, the Company made an
estimate of expected forfeitures and is recognizing compensation
costs only for those equity awards expected to vest. As of
December 31, 2008, the total future compensation cost
related to unvested stock options that are expected to vest is
$7,916,000 which amount will be recognized over a weighted
average period of 1.4 years.
During the years ended December 31, 2008, 2007 and 2006,
the Company recorded stock-based compensation related to stock
options as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands, except per share data)
|
|
|
Cost of revenues
|
|
$
|
2,471
|
|
|
$
|
1,769
|
|
|
$
|
798
|
|
Selling and marketing expenses
|
|
|
221
|
|
|
|
657
|
|
|
|
287
|
|
General and administrative expenses
|
|
|
1,752
|
|
|
|
1,337
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
|
4,444
|
|
|
|
3,763
|
|
|
|
1,706
|
|
Tax effect on stock-based compensation expense
|
|
|
483
|
|
|
|
502
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense
|
|
$
|
3,961
|
|
|
$
|
3,261
|
|
|
$
|
1,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of stock-based compensation expense
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
assumptions
The fair value of each option grant is estimated using the
Black-Scholes valuation model and the assumptions noted in the
following table. The Companys expected term represents the
period that the Companys stock-based awards are expected
to be outstanding. In the absence of enough historical
information, the expected term was determined using the
simplified method defined in SAB No. 107 and
SAB No. 110, giving consideration to the contractual
term and vesting schedule. Since the Company does not have any
traded stock options and was listed for trading on the New York
Stock Exchange beginning in November 2004, the Companys
expected volatility was calculated based on the Companys
historical volatility and for the period of time prior to the
Companys listing, the historical volatility of the Parent.
There is a high correlation between the stock behavior of the
Company and its Parent. The dividend yield forecast is expected
to be 20% of the Companys yearly net profit, which is
equivalent to a 0.37% yearly weighted average dividend rate in
the year ended December 31, 2008. The risk free interest
rate was based on the yield from
130
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. constant treasury maturities bonds with an equivalent
term. The forfeiture rate is based on trends in actual option
forfeitures.
The Company calculated the fair value of each option on the date
of grant based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
For stock options issued by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rates
|
|
|
2.7
|
%
|
|
|
4.5
|
%
|
|
|
4.9
|
%
|
Expected lives (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
6.4
|
|
Dividend yield
|
|
|
0.37
|
%
|
|
|
0.52
|
%
|
|
|
0.55
|
%
|
Expected volatility
|
|
|
38.5
|
%
|
|
|
35.7
|
%
|
|
|
40.5
|
%
|
Forfeiture rate
|
|
|
13.0
|
%
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Stock
Option Plans
The
2004 Incentive Compensation Plan
On October 21, 2004, the Companys Board of Directors
adopted the 2004 Incentive Compensation Plan (2004
Incentive Plan), which provides for the grant of the
following types of awards: incentive stock options,
non-qualified stock options, restricted stock, stock
appreciation rights, stock units, performance awards, phantom
stock, incentive bonuses and other possible related dividend
equivalents to employees of the Company, directors and
independent contractors. Under the 2004 Incentive Plan, a total
of 3,750,000 shares of the Companys common stock have
been reserved for issuance, all of which could be issued as
options or as other forms of awards. Options granted to
employees under the 2004 Incentive Plan cliff vest and are
exercisable from the grant date as follows: 25% after
24 months, 25% after 36 months, and the remaining 50%
after 48 months. Options granted to non-employee directors
under the 2004 Incentive Plan cliff vest and are exercisable one
year after the grant date. Vested shares may be exercised for up
to ten years from the date of grant. The shares of common stock
will be issued upon exercise of options from the Companys
authorized share capital.
The following table summarizes the status of the 2004 Incentive
Plan as of and for the periods presented below (shares in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
817
|
|
|
$
|
35.38
|
|
|
|
539
|
|
|
$
|
27.03
|
|
|
|
236
|
|
|
$
|
15.54
|
|
Granted, at fair value
|
|
|
481
|
|
|
|
44.48
|
|
|
|
435
|
|
|
|
42.78
|
|
|
|
329
|
|
|
|
34.47
|
|
Exercised
|
|
|
(29
|
)
|
|
|
11.36
|
|
|
|
(47
|
)
|
|
|
15.81
|
|
|
|
(14
|
)
|
|
|
15.00
|
|
Forfeited
|
|
|
(36
|
)
|
|
|
39.99
|
|
|
|
(110
|
)
|
|
|
32.09
|
|
|
|
(12
|
)
|
|
|
20.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,233
|
|
|
|
39.12
|
|
|
|
817
|
|
|
|
35.38
|
|
|
|
539
|
|
|
|
27.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
118
|
|
|
|
15.54
|
|
|
|
82
|
|
|
|
22.42
|
|
|
|
72
|
|
|
|
16.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
|
|
|
|
$
|
16.48
|
|
|
|
|
|
|
$
|
15.88
|
|
|
|
|
|
|
$
|
15.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2008, 2,428,149 shares of the
Companys common stock are available for future grants.
The following table summarizes information about stock options
outstanding at December 31, 2008 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Remaining
|
|
|
Aggregate
|
|
Exercise
|
|
|
Shares
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
Shares
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
Price
|
|
|
Outstanding
|
|
|
Life in Years
|
|
|
(In thousands)
|
|
|
Exerciseble
|
|
|
Life in Years
|
|
|
(In thousands)
|
|
|
$
|
15.00
|
|
|
|
105
|
|
|
|
5.8
|
|
|
$
|
1,771
|
|
|
|
105
|
|
|
|
5.8
|
|
|
$
|
1,771
|
|
|
20.10
|
|
|
|
13
|
|
|
|
5.8
|
|
|
|
153
|
|
|
|
13
|
|
|
|
5.8
|
|
|
|
153
|
|
|
25.74
|
|
|
|
30
|
|
|
|
6.8
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.13
|
|
|
|
234
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.90
|
|
|
|
23
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.85
|
|
|
|
8
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.08
|
|
|
|
350
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.73
|
|
|
|
440
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.98
|
|
|
|
30
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,233
|
|
|
|
6.1
|
|
|
$
|
2,108
|
|
|
|
118
|
|
|
|
6.0
|
|
|
$
|
1,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding at December 31, 2007 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
Number of
|
|
|
Remaining
|
|
|
Aggregate
|
|
Exercise
|
|
|
Shares
|
|
|
Contractual
|
|
|
Value
|
|
|
Shares
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
Price
|
|
|
Outstanding
|
|
|
Life in Years
|
|
|
(In thousands)
|
|
|
Exerciseble
|
|
|
Life in Years
|
|
|
(In thousands)
|
|
|
$
|
15.00
|
|
|
|
122
|
|
|
|
6.8
|
|
|
$
|
4,875
|
|
|
|
42
|
|
|
|
6.8
|
|
|
$
|
1,661
|
|
|
20.10
|
|
|
|
18
|
|
|
|
6.8
|
|
|
|
611
|
|
|
|
18
|
|
|
|
6.8
|
|
|
|
611
|
|
|
34.13
|
|
|
|
251
|
|
|
|
8.3
|
|
|
|
5,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.90
|
|
|
|
23
|
|
|
|
5.8
|
|
|
|
385
|
|
|
|
22
|
|
|
|
5.8
|
|
|
|
385
|
|
|
38.85
|
|
|
|
8
|
|
|
|
6.2
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.08
|
|
|
|
365
|
|
|
|
6.3
|
|
|
|
4,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.98
|
|
|
|
30
|
|
|
|
6.8
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817
|
|
|
|
7.0
|
|
|
$
|
16,028
|
|
|
|
82
|
|
|
|
6.6
|
|
|
$
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the above tables represents the
total pretax intrinsic value, based on the Companys stock
price of $31.87 and $55.01 as of December 31, 2008 and
2007, respectively, which would have potentially been received
by the option holders had all option holders exercised their
options as of those dates. The total number of in-the-money
options exercisable as of December 31, 2008 was 117,243.
The total pretax intrinsic value of options exercised during the
years ended December 31, 2008, 2007 and 2006 was $597,000,
$1,395,000 and $331,000, respectively, based on the
Companys average stock price of $42.01, $45.49 and $38.12
during the year ended December 31, 2008, 2007 and 2006,
respectively.
132
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Parents Stock Option Plans
The Parent has four stock option plans: the 2001 Employee Stock
Option Plan, the 2002 Employee Stock Option Plan, the 2003
Employee Stock Option Plan, and the 2004 Employee Stock Option
Plan (collectively the Parents Plans). Options
under the 2004 Employee Stock Option Plan were granted in April
2004. Under the Parents Plans, employees of the Company
were granted options in the Parents ordinary shares, which
are registered and traded on the Tel-Aviv Stock Exchange.
Options under the Parents Plans 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. Vested shares may be exercised for up to
five years from the date of grant. The maximum aggregate number
of shares that may be optioned and sold under the Parents
Plans is determined each year by the board of directors of the
Parent, and is equal to the number of options granted during
each plan year. None of the options are exercisable or
convertible into shares of the Company.
As of December 31, 2008, no shares of the Parents
ordinary shares are available for future grants.
The following table summarizes the status of the Parents
Plans as of and for the periods presented below (shares in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
403
|
|
|
$
|
3.68
|
|
|
|
1,098
|
|
|
$
|
2.70
|
|
|
|
1,747
|
|
|
$
|
2.42
|
|
Exercised
|
|
|
(97
|
)
|
|
|
3.78
|
|
|
|
(657
|
)
|
|
|
2.05
|
|
|
|
(560
|
)
|
|
|
1.81
|
|
Expired
|
|
|
(1
|
)
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
2.26
|
|
Forfeited
|
|
|
(21
|
)
|
|
|
1.97
|
|
|
|
(38
|
)
|
|
|
3.68
|
|
|
|
(57
|
)
|
|
|
2.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
284
|
|
|
|
3.78
|
|
|
|
403
|
|
|
|
3.68
|
|
|
|
1,098
|
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
284
|
|
|
$
|
3.78
|
|
|
|
128
|
|
|
$
|
3.47
|
|
|
|
322
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding at December 31, 2008 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
Remaining
|
|
Aggregate
|
|
Number of
|
|
Remaining
|
|
Aggregate
|
Exercise
|
|
Shares
|
|
Contractual
|
|
Intrinsic Value
|
|
Shares
|
|
Contractual
|
|
Intrinsic Value
|
Price
|
|
Outstanding
|
|
Life in Years
|
|
(In thousands)
|
|
Exerciseble
|
|
Life in Years
|
|
(In thousands)
|
|
$3.78
|
|
|
284
|
|
|
|
0.3
|
|
|
$
|
673
|
|
|
|
284
|
|
|
|
0.3
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options
outstanding at December 31, 2007 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Remaining
|
|
|
Aggregate
|
|
Exercise
|
|
Shares
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
Shares
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
Price
|
|
Outstanding
|
|
|
Life in Years
|
|
|
(In thousands)
|
|
|
Exerciseble
|
|
|
Life in Years
|
|
|
(In thousands)
|
|
|
$1.75
|
|
|
19
|
|
|
|
0.2
|
|
|
$
|
255
|
|
|
|
19
|
|
|
|
0.2
|
|
|
$
|
255
|
|
3.78
|
|
|
384
|
|
|
|
1.3
|
|
|
|
4,288
|
|
|
|
109
|
|
|
|
1.3
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403
|
|
|
|
1.2
|
|
|
$
|
4,543
|
|
|
|
128
|
|
|
|
1.1
|
|
|
$
|
1,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the above tables represents the
total pretax intrinsic value, based on the Parents stock
price of $6.15 and $14.96 as of December 31, 2008 and 2007,
respectively, which would have potentially been received by the
option holders had all option holders exercised their options as
of those dates. The total number of in-the-money options
exercisable as of December 31, 2008 and 2007 was 283,942
and 128,238, respectively.
The total pretax intrinsic value of options exercised during the
year ended December 31, 2008, 2007 and 2006 was $1,130,985,
$7,217,000 and $4,328,000 based on the Parents average
stock price of $13.19, $13.03 and $9.48 during the year ended
December 31, 2008, 2007 and 2006, respectively.
|
|
NOTE 15
|
POWER
PURCHASE AGREEMENTS
|
Substantially all of the Companys electricity revenues are
recognized pursuant to PPAs in the U.S. and in various
foreign countries, including Kenya, Nicaragua and Guatemala.
These PPAs generally provide for the payment of energy payments
or both energy and capacity payments through their respective
terms which expire in varying periods from 2014 to 2030.
Generally, capacity payments are payments calculated based on
the amount of time that the power plants are available to
generate electricity. The energy payments are payments
calculated based on the amount of electrical energy delivered at
a designated delivery point. The price terms are customary in
the industry and include, among others, a fixed price, short-run
avoided cost (SRAC) (the incremental cost that the
power purchaser avoids by not having to generate such electrical
energy itself or purchase it from others), and a fixed price
with an escalation clause that includes the value for
environmental attributes, known as renewable energy credits.
Certain of the PPAs provide for bonus payments in the event that
the Company is able to exceed certain target levels and
potential payments by the Company if it fails to meet minimum
target levels. One PPA gives the power purchaser or its designee
the right of first refusal to acquire the geothermal power
plants at fair market value. Upon satisfaction of certain
conditions specified in this PPA and subject to receipt of
requisite approvals and negotiations between the parties, the
Company has the right to demand that the power purchaser acquire
the power plant at fair market value. The Companys
subsidiaries in Nicaragua and Guatemala sell power at an agreed
upon price subject to terms of a take or pay PPA.
Pursuant to the terms of certain of the PPAs, the Company may be
required to make payments to the relevant power purchaser under
certain conditions, such as shortfall on delivery of renewable
energy and energy credits, and not meeting certain performance
threshold requirements, as defined. The amount of payment
required is dependent upon the level of shortfall on delivery or
performance requirements and is recorded in the period the
shortfall occurs. In addition, if the Company does not meet
certain minimum performance requirements, the capacity of the
project may be permanently reduced.
As discussed in Note 1, the Company assessed all PPAs
agreed to, modified or acquired in business combinations on or
after July 1, 2003, and concluded that all such PPAs
contained a lease element requiring
134
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
lease accounting. Future minimum lease revenues under PPAs which
contain a lease element as of December 31, 2008 were as
follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
188,877
|
|
2010
|
|
|
186,153
|
|
2011
|
|
|
184,951
|
|
2012
|
|
|
182,216
|
|
2013
|
|
|
184,855
|
|
Thereafter
|
|
|
2,196,139
|
|
|
|
|
|
|
Total
|
|
$
|
3,123,191
|
|
|
|
|
|
|
Income before provision for income taxes, minority interest, and
equity in income of investees consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
(dollars in thousands)
|
|
U.S
|
|
$
|
34,800
|
|
|
$
|
15,471
|
|
|
$
|
14,306
|
|
Non-U.S.
(foreign)
|
|
|
10,103
|
|
|
|
5,103
|
|
|
|
23,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,903
|
|
|
$
|
20,574
|
|
|
$
|
37,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
$
|
(662
|
)
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
1,779
|
|
|
|
6,752
|
|
|
|
7,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,117
|
|
|
|
6,752
|
|
|
|
7,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6,938
|
|
|
|
(786
|
)
|
|
|
157
|
|
State
|
|
|
1,024
|
|
|
|
168
|
|
|
|
304
|
|
Foreign
|
|
|
(1,117
|
)
|
|
|
(4,312
|
)
|
|
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,845
|
|
|
|
(4,930
|
)
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,962
|
|
|
$
|
1,822
|
|
|
$
|
6,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the deferred income tax expense
(benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Deferred tax expense (exclusive of the effect of other
components listed below)
|
|
$
|
5,062
|
|
|
$
|
18,369
|
|
|
$
|
8,272
|
|
Benefit of operating loss carryforwards US
|
|
|
7,882
|
|
|
|
(14,054
|
)
|
|
|
(4,341
|
)
|
Change in foreign income tax
|
|
|
402
|
|
|
|
(4,312
|
)
|
|
|
(1,989
|
)
|
Change in lease transaction
|
|
|
(943
|
)
|
|
|
(1,518
|
)
|
|
|
1,236
|
|
Change in tax monetization transaction
|
|
|
4,947
|
|
|
|
4,597
|
|
|
|
|
|
Benefit of production tax credits
|
|
|
(10,505
|
)
|
|
|
(8,012
|
)
|
|
|
(4,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,845
|
|
|
$
|
(4,930
|
)
|
|
$
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the U.S. federal statutory tax rate
and the Companys effective rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income tax, net of federal benefit
|
|
|
1.3
|
|
|
|
0.8
|
|
|
|
0.8
|
|
Effect of foreign income tax, net
|
|
|
(6.5
|
)
|
|
|
(1.8
|
)
|
|
|
(7.0
|
)
|
Tax monetization transaction
|
|
|
9.1
|
|
|
|
6.6
|
|
|
|
|
|
Production tax credits
|
|
|
(23.4
|
)
|
|
|
(38.9
|
)
|
|
|
(12.5
|
)
|
Withholding tax
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
Other, net
|
|
|
2.2
|
|
|
|
2.2
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
17.7
|
%
|
|
|
8.9
|
%
|
|
|
17.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax assets and liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net foreign deferred taxes, primarily depreciation
|
|
$
|
(12,091
|
)
|
|
$
|
(11,689
|
)
|
Depreciation
|
|
|
(71,913
|
)
|
|
|
(59,970
|
)
|
Net operating loss carryforward U.S
|
|
|
23,356
|
|
|
|
31,238
|
|
Intercompany profit elimination
|
|
|
13,965
|
|
|
|
12,427
|
|
Tax monetization transaction
|
|
|
(9,544
|
)
|
|
|
(4,597
|
)
|
Lease transaction
|
|
|
10,297
|
|
|
|
9,354
|
|
Investment tax credits
|
|
|
1,971
|
|
|
|
1,971
|
|
Production tax credits
|
|
|
23,223
|
|
|
|
12,718
|
|
Stock options amortization
|
|
|
1,304
|
|
|
|
791
|
|
Accrued liabilities and other
|
|
|
3,169
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(16,263
|
)
|
|
$
|
(6,521
|
)
|
|
|
|
|
|
|
|
|
|
136
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes are included in the consolidated balance sheets
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Current assets
|
|
|
3,003
|
|
|
|
1,732
|
|
Non-current assets
|
|
|
13,965
|
|
|
|
12,427
|
|
Non-current liabilities
|
|
|
(33,231
|
)
|
|
|
(20,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,263
|
)
|
|
$
|
(6,521
|
)
|
|
|
|
|
|
|
|
|
|
Realization of the deferred tax assets and tax credits is
dependent on generating sufficient taxable income prior to
expiration of the net operating loss (NOL)
carryforwards and tax credits. Although realization is not
assured, management believes it is more likely than not that the
deferred tax assets at December 31, 2008 will be realized.
At December 31, 2008, the Company had U.S. federal NOL
carryforwards of approximately $59.7 million and state NOL
carryforwards of approximately $35.7 million, available to
reduce future taxable income, which expire between 2021 and 2028
for federal NOLs and between 2014 and 2018 for state NOLs. The
investment tax credits in the amount of $2.0 million at
December 31, 2008 are available for a
20-year
period and expire in 2022 and 2023. The production tax credits
in the amount of $23.2 million at December 31, 2008
are available for a
20-year
period and expire between 2026 and 2028.
The total amount of undistributed earnings of foreign
subsidiaries for income tax purposes was approximately
$114.6 million at December 31, 2008. It is the
Companys intention to reinvest undistributed earnings of
its foreign subsidiaries and thereby indefinitely postpone their
remittance. Accordingly, no provision has been made for foreign
withholding taxes or U.S. income taxes which may become
payable if undistributed earnings of foreign subsidiaries were
paid as dividends to the Company. The additional taxes on that
portion of undistributed earnings which is available for
dividends are not practicably determinable.
Adoption
of FIN No. 48
The Company adopted the provisions of FASB Interpretation
(FIN) FIN No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109, on January 1, 2007. As a result of the
adoption of FIN No. 48, the Company recognized as a
cumulative effect of change in accounting principle, a $328,000
increase in the liability for unrecognized tax benefits and a
corresponding decrease in beginning retained earnings. This
amount consists of interest and penalties related to uncertain
tax positions. In addition, on January 1, 2007, the Company
reclassified its liability for uncertain tax positions in the
amount of $3,426,000 from long-term deferred income tax
liabilities to liability for unrecognized tax benefits. During
the years ended December 31, 2008 and 2007, the Company
increased (decreased) its liability for unrecognized tax
benefits by ($1,905,000) and $1,576,000, respectively. The
liability for unrecognized tax benefits of $3,425,000 and
$5,330,000 at December 31, 2008 and 2007, respectively,
would impact the Companys effective tax rate, if
recognized. Interest and penalties assessed by taxing
authorities on an underpayment of income taxes are included as a
component of income tax provision in the consolidated statements
of operations and comprehensive income.
137
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amounts of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Balance at beginning of year
|
|
$
|
5,330
|
|
|
$
|
3,754
|
|
Additions based on tax positions taken in prior years
|
|
|
929
|
|
|
|
156
|
|
Additions based on tax positions taken in the current year
|
|
|
814
|
|
|
|
1,420
|
|
Decrease for settlements with taxing authorities
|
|
|
(3,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
3,425
|
|
|
$
|
5,330
|
|
|
|
|
|
|
|
|
|
|
The Company and its U.S. subsidiaries file consolidated
income tax returns for federal and state purposes. As of
December 31, 2008, the Company has not been subject to
U.S. federal or state income tax examinations. The Company
remains open to examination by the Internal Revenue Service for
the years
2000-2008
and by local state jurisdictions for the years
2002-2008.
The Companys foreign subsidiaries remain open to
examination by the local income tax authorities in the following
countries for the years indicated:
|
|
|
|
|
Israel
|
|
|
2007 2008
|
|
Nicaragua
|
|
|
2006 2008
|
|
Kenya
|
|
|
2006 2008
|
|
Guatemala
|
|
|
2004 2008
|
|
Philippines
|
|
|
2005 2008
|
|
New Zealand
|
|
|
2007 2008
|
|
Management believes that the liability for unrecognized tax
benefits is adequate for all open tax years based on its
assessment of many factors, including among others, past
experience and interpretations of local income tax regulations.
This assessment relies on estimates and assumptions and may
involve a series of complex judgments about future events. As a
result, it is possible that federal, state and foreign tax
examinations will result in assessments in future periods. To
the extent any such assessments occur, the Company will adjust
its liability for unrecognized tax benefits.
Tax
benefits in the U.S.
The U.S. government encourages production of electricity
from geothermal resources through certain tax subsidies under
the recently enacted American Recovery and Reinvestment Act. The
Company is permitted to claim 30% of the cost of each new
geothermal power plant in the United States as an investment tax
credit against its federal income taxes. Alternatively, the
Company is permitted to claim a production tax
credit, which in 2008 was 2.1 cents per kWh and which 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,
2013. The owner of the project must choose between the
production tax credit and the 30% 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 the Company claims the production tax
credit or the investment tax credit, it is also permitted to
depreciate most of the plant for tax purposes over five years on
an accelerated basis, meaning that more of the cost may be
deducted in the first few years than during the remainder of the
depreciation period. If the Company claims the investment tax
credit, the Companys tax base in the plant
that it can recover through depreciation must be reduced by half
of the tax credit. If the Company claims the production tax
credit, there is no reduction in the tax basis for depreciation.
Companies that begin construction on, or place qualifying
renewable energy facilities in service, during 2009 or
2010 may
138
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
choose to apply for a cash grant from the U.S. Department
of Treasury in an amount equal to the investment tax credit.
Under the American Recover and Reinvestment Act, the
U.S. Department of Treasury is instructed to pay the cash
grant within 60 days of the application or the date on
which the qualifying facility is placed in service.
On June 7, 2007 and April 17, 2008, a wholly-owned
subsidiary, Ormat Nevada, concluded transactions to monetize
production tax credits and other favorable tax attributes (see
Note 12).
Income
taxes related to foreign operations
Guatemala The enacted tax rate is 31%. Orzunil, a
wholly owned subsidiary, was granted a benefit under a law which
promotes development of renewable power sources. The law allows
Orzunil to reduce the investment made in its geothermal project
from income tax payable, which reduces the effective tax rate to
zero. Ortitlan, another wholly owned subsidiary, was granted a
tax exemption for a period of ten years ending August 2017.
Israel The Companys operations in Israel
through its wholly owned Israeli subsidiary, Ormat Systems Ltd.
(OSL), are taxed at the regular corporate tax rate
of 34% in 2005, 31% in 2006, 29% in 2007, 27% in 2008, 26% in
2009 and 25% in 2010 and thereafter. OSL is entitled to
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, OSL was exempt
from Israeli income taxes with respect to income derived from
the first benefited investment for a period of two years that
started in 2004, and thereafter such income is subject to
reduced Israeli income tax rates of 25% for an additional five
years. OSL is also exempt from Israeli income taxes with respect
to income derived from the second benefited investment for a
period of two years that started in 2007, and thereafter such
income will be 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 OSL and its affiliates are at arms length,
and that the management and control of OSL 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, OSL 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.
Other significant foreign countries The
Companys operations in Nicaragua, Kenya and New Zealand
are taxed at the rates of 25%, 37.5% and 33%, respectively.
|
|
NOTE 17
|
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
were determined on current market values or cost plus markup of
the sellers business segment.
139
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information concerning the Companys
reportable segments is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
252,256
|
|
|
$
|
92,577
|
|
|
$
|
344,833
|
|
Intersegment revenues
|
|
|
|
|
|
|
81,557
|
|
|
|
81,557
|
|
Depreciation and amortization expense
|
|
|
58,565
|
|
|
|
1,563
|
|
|
|
60,128
|
|
Operating income
|
|
|
54,909
|
|
|
|
5,698
|
|
|
|
60,607
|
|
Segment assets at year end*
|
|
|
1,562,030
|
|
|
|
75,661
|
|
|
|
1,637,691
|
|
Expenditures for long-lived assets
|
|
|
412,734
|
|
|
|
3,872
|
|
|
|
416,606
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
215,989
|
|
|
$
|
79,950
|
|
|
$
|
295,939
|
|
Intersegment revenues
|
|
|
|
|
|
|
109,895
|
|
|
|
109,895
|
|
Depreciation and amortization expense
|
|
|
49,398
|
|
|
|
1,084
|
|
|
|
50,482
|
|
Operating income
|
|
|
43,689
|
|
|
|
(228
|
)
|
|
|
43,461
|
|
Segment assets at year end*
|
|
|
1,227,761
|
|
|
|
49,770
|
|
|
|
1,277,531
|
|
Expenditures for long-lived assets
|
|
|
214,221
|
|
|
|
2,137
|
|
|
|
216,358
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
195,483
|
|
|
$
|
73,454
|
|
|
$
|
268,937
|
|
Intersegment revenues
|
|
|
|
|
|
|
45,520
|
|
|
|
45,520
|
|
Depreciation and amortization expense
|
|
|
42,774
|
|
|
|
665
|
|
|
|
43,439
|
|
Operating income
|
|
|
50,314
|
|
|
|
11,614
|
|
|
|
61,928
|
|
Segment assets at year end*
|
|
|
1,104,326
|
|
|
|
55,776
|
|
|
|
1,160,102
|
|
Expenditures for long-lived assets
|
|
|
185,983
|
|
|
|
1,825
|
|
|
|
187,808
|
|
|
|
|
*
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues
|
|
$
|
344,833
|
|
|
$
|
295,919
|
|
|
$
|
268,937
|
|
Intersegment revenues
|
|
|
81,557
|
|
|
|
109,895
|
|
|
|
45,250
|
|
Elimination of intersegment revenues
|
|
|
(81,557
|
)
|
|
|
(109,895
|
)
|
|
|
(45,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues
|
|
$
|
344,833
|
|
|
$
|
295,919
|
|
|
$
|
268,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
60,607
|
|
|
$
|
43,461
|
|
|
$
|
61,928
|
|
Interest expense, net
|
|
|
(8,754
|
)
|
|
|
(22,438
|
)
|
|
|
(24,401
|
)
|
Non-operating income (expense) and other, net
|
|
|
(6,950
|
)
|
|
|
(449
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated income before income taxes, minority
interest, and equity in income of investees
|
|
$
|
44,903
|
|
|
$
|
20,574
|
|
|
$
|
37,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The Company sells electricity and products for power plants and
others, mainly to the geographical areas according to location
of the customers, as detailed below. The following tables
present certain data by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Revenues from external customers attributable
to:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
252,557
|
|
|
$
|
236,273
|
|
|
$
|
191,819
|
|
Pacific Rim
|
|
|
21,258
|
|
|
|
11,420
|
|
|
|
7,952
|
|
Latin America
|
|
|
33,874
|
|
|
|
26,193
|
|
|
|
23,353
|
|
Africa
|
|
|
10,704
|
|
|
|
9,896
|
|
|
|
10,636
|
|
Far East
|
|
|
6,030
|
|
|
|
1,400
|
|
|
|
6,174
|
|
Europe
|
|
|
20,410
|
|
|
|
10,737
|
|
|
|
29,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
344,833
|
|
|
$
|
295,919
|
|
|
$
|
268,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revenues as reported in the
geographic area in which they originate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Long-lived assets (primarily power plants and related assets)
located in:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,178,601
|
|
|
$
|
811,828
|
|
|
$
|
697,928
|
|
Latin America
|
|
|
94,464
|
|
|
|
99,178
|
|
|
|
105,332
|
|
Africa
|
|
|
113,157
|
|
|
|
113,410
|
|
|
|
49,570
|
|
Europe
|
|
|
9,572
|
|
|
|
7,273
|
|
|
|
6,220
|
|
Pacific Rim and Far East
|
|
|
9,873
|
|
|
|
7,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
1,405,667
|
|
|
$
|
1,039,433
|
|
|
$
|
859,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents revenues from major customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Revenues
|
|
|
%
|
|
|
Revenues
|
|
|
%
|
|
|
Revenues
|
|
|
%
|
|
|
|
(dollars in
|
|
|
|
|
|
(dollars in
|
|
|
|
|
|
(dollars in
|
|
|
|
|
|
|
thousands)
|
|
|
|
|
|
thousands)
|
|
|
|
|
|
thousands)
|
|
|
|
|
|
SCE(1)
|
|
$
|
95,254
|
|
|
|
27.6
|
|
|
$
|
94,430
|
|
|
|
31.9
|
|
|
$
|
80,665
|
|
|
|
30.0
|
|
Hawaii Electric Light
Company(1)
|
|
|
57,679
|
|
|
|
16.7
|
|
|
|
43,087
|
|
|
|
14.6
|
|
|
|
40,517
|
|
|
|
15.1
|
|
Sierra Pacific Power Company and Nevada Power
Company(1)(2)
|
|
|
43,406
|
|
|
|
12.6
|
|
|
|
32,159
|
|
|
|
10.9
|
|
|
|
34,320
|
|
|
|
12.8
|
|
|
|
|
(1) |
|
Revenues reported in Electricity
Segment.
|
|
(2) |
|
Subsidiaries of NV Energy, Inc.
|
141
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 18
|
TRANSACTIONS
WITH RELATED ENTITIES
|
Transactions between the Company and related entities, other
than those disclosed elsewhere in these financial statements,
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from an affiliate of the Parent
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property rental fee expense paid to the Parent
|
|
$
|
656
|
|
|
$
|
654
|
|
|
$
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on note payable to Parent
|
|
$
|
3,597
|
|
|
$
|
5,941
|
|
|
$
|
8,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate financial, administrative, executive services and
research and development services provided to the Parent
|
|
$
|
152
|
|
|
$
|
131
|
|
|
$
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services rendered by an indirect shareholder of the Parent
|
|
$
|
110
|
|
|
$
|
142
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current liability due from Parent at December 31, 2008
and 2007 of $1,085,000 and $253,000, respectively, represents
the net obligation resulting from ongoing operations and
transactions with the Parent and is payable from available cash
flow. Interest is computed on balances greater than 60 days
at LIBOR plus 1% (but not less than the change in the Israeli
Consumer Price Index plus 4%) compounded quarterly, and is
accrued and paid to the Parent annually.
Notes
payable to Parent
The Company has a loan agreement with the Parent (Parent
Loan Agreement) pursuant to which the Company may borrow
from the Parent up to $150 million in one or more advances.
Interest accrues on the unpaid principal of the loan amount at a
rate per annum of the Parents average effective interest
plus 0.3% (7.5%). The principal and interest on the Parent Loan
Agreement are payable in varying amounts through the loan due
date of June 2010. The outstanding balance of such loan at
December 31, 2008 and 2007 was $26,200,000 (including
current portion of $16,600,000) and $57,841,000 (including
current portion of $31,647,000), respectively.
Future minimum payments under the notes payable to Parent as of
December 31, 2008 are as follows:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
16,600
|
|
2010
|
|
|
9,600
|
|
|
|
|
|
|
|
|
$
|
26,200
|
|
|
|
|
|
|
Corporate
and administrative services agreement with the Parent
OSL and the Parent have agreements whereby OSL will provide to
the Parent, for a monthly fee of $10,000 (adjusted annually, in
part based on changes in the Israeli Consumer Price Index),
certain corporate administrative services, including the
services of executive officers. In addition, OSL agreed to
provide the Parent with services of certain skilled engineers
and other research and development employees at OSLs cost
plus 10%.
142
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Lease
agreements with the Parent
OSL has a rental agreement with the Parent for the use of office
and manufacturing facilities in Yavne, Israel, for a monthly
rent of $52,000, adjusted annually for changes in the Israeli
Consumer Price Index, plus taxes and other costs to maintain the
properties. The initial term of the rental agreement was
59 months expiring in June 2009. The term has been extended
with the consent of the Israeli Land Administration for a period
ending the earlier of: (i) 25 years (including the
initial term) or (ii) the remaining period of the
underlying lease agreement between the Parent and the Israel
Land Administration (which terminates between 2018 and 2047).
On December 3, 2007, the Companys Board of Directors
approved a new lease transaction whereby OSL will enter into a
rental agreement with the Parent for the sublease of additional
manufacturing facilities that will be built adjacent to the
current manufacturing facilities in Yavne, Israel. The proposed
new lease transaction will end on the same day as the previous
lease agreement entered into in July 2004, subject to approval
by the Israel Land Administration. Pursuant to the new lease,
OSL will pay a monthly rent that will result in an annual yield
to the Parent of 8.5% of the Parents total cost with
regard to the property. Payment will be adjusted annually for
changes in the Israeli Consumer Price Index, plus tax and other
costs to maintain the properties. The actual monthly rent
payments will be set based on the actual costs incurred by the
Parent with regard to the property.
Registration
rights agreement
Prior to the closing of the Companys initial public
offering in November 2004, the Company and the Parent entered
into a registration rights agreement pursuant to which the
Parent may require the Company to register its common stock for
sale on
Form S-1
or
Form S-3.
The Company also agreed to pay all expenses that result from the
registration of the Companys common stock under the
registration rights agreement, other than underwriting
commissions for such shares and taxes. The Company has also
agreed to indemnify the parent, its directors, officer and
employees against liability that may result from their sale of
the Companys common stock, including Securities Act
liabilities.
|
|
NOTE 19
|
EMPLOYEE
BENEFIT PLAN
|
401(k)
Plan
The Company has a 401(k) Plan (the Plan) for the
benefit of its U.S. employees. Employees of the Company and
its U.S. subsidiaries who have completed one year of
service or who had one year of service upon establishment of the
Plan are eligible to participate in the Plan. Contributions are
made by employees through pretax deductions up to 60% of their
annual salary. Contributions made by the Company are matched up
to a maximum of 2% of the employees annual salary. The
Companys contributions to the Plan were $300,947, $264,000
and $249,000 for the years ended December 31, 2008, 2007
and 2006, respectively.
Severance
plan
The Company, through OSL, provides limited non-pension benefits
to all current employees in Israel who are entitled to benefits
in the event of termination or retirement in accordance with the
Israeli Government sponsored programs. These plans generally
obligate the Company to pay one months salary per year of
service to employees in the event of involuntary termination.
There is no limit on the number of years of service in the
calculation of the benefit obligation. The liabilities for these
plans are accounted for under the guidance of EITF Issue
No. 88-1,
Determination of Vested Benefit Obligation for a Defined
Benefit Pension Plan, using what is commonly referred to as
the shut down method, where a company records the
undiscounted obligation as if it were payable at each balance
sheet date. Such liabilities have been presented on the
consolidated balance sheets as Liabilities for severance
pay. The Company has an obligation to
143
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
partially fund the liabilities through regular deposits in
pension funds and severance pay funds. The amounts funded
amounted to $14,884,000 and $13,526,000 at December 31,
2008 and 2007, respectively, and have been presented on the
consolidated balance sheets as part of Deposits and
other. The severance pay liability covered by the pension
funds is not reflected in the financial statements as the
severance pay risks have been irrevocably transferred to the
pension funds. Under the Israeli severance pay law, restricted
funds may not be withdrawn or pledged until the respective
severance pay obligations have been met. As allowed under the
program, earnings from the investment are used to offset
severance pay costs. Severance pay expenses for the years ended
December 31, 2008, 2007 and 2006 were $2,843,000,
$2,734,000 and $2,454,000, respectively, which includes income
amounting to $324,000, $722,000 and $1,095,000, respectively,
generated from the regular deposits and amounts accrued in
severance funds.
The Company expects the severance pay contributions in 2009 to
be approximately $1.5 million.
The Company expects to pay the following future benefits to its
employees upon their reaching normal retirement age:
|
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
$
|
2,436
|
|
2010
|
|
|
147
|
|
2011
|
|
|
787
|
|
2012
|
|
|
1,041
|
|
2013
|
|
|
837
|
|
2013-2018
|
|
|
6,732
|
|
|
|
|
|
|
|
|
$
|
11,980
|
|
|
|
|
|
|
The above amounts were determined based on the employees
current salary rates and the number of years service that
will have been accumulated at their retirement date. These
amounts do not include amounts that might be paid to employees
that will cease working with the Company before reaching their
normal retirement age.
|
|
NOTE 20
|
COMMITMENTS
AND CONTINGENCIES
|
Geothermal
resources
The Company, through its project subsidiaries in the United
States, controls certain rights to geothermal fluids through
certain leases with the Bureau of Land Management
(BLM) or through private leases. Royalties on the
utilization of the geothermal resources are computed and paid to
the lessors as defined in the respective agreements.
Royalties expense under the geothermal resource agreements
were $10,737,000, $8,370,000 and $7,567,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
Letters
of credit
In the ordinary course of business with customers, vendors, and
lenders, the Company is contingently liable for performance
under letters of credit totaling $23.4 million and
$21.5 million at December 31, 2008 and 2007,
respectively. Management does not expect any material losses to
result from these letters of credit because performance is not
expected to be required, and, therefore, is of the opinion that
the fair value of these instruments is zero.
144
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Purchase
commitments
The Company purchases raw materials for inventories,
construction-in-process
and services from a variety of vendors. During the normal course
of business, in order to manage manufacturing lead times and
help assure adequate supply, the Company enters into agreements
with contract manufacturers and suppliers that either allow them
to procure goods and services based upon specifications defined
by the Company, or that establish parameters defining the
Companys requirements.
At December 31, 2008, total obligations related to such
supplier agreements were approximately $104.3 million (out
of which approximately $64.1 million relate to
construction-in-process).
All such obligations are payable in 2009.
Grants
and royalties
The Company, through OSL, has historically, through
December 31, 2003, requested and received grants for
research and development from the Office of the Chief Scientist
of the Israeli Government. OSL is required to pay royalties to
the Israeli Government at a rate of 3.5% to 5.0% of the revenues
derived from products and services developed using these grants.
No royalties were paid for the years ended December 31,
2008, 2007 and 2006. The Company is not liable for royalties if
the Company does not sell the respective products. Such
royalties are capped at the amount of the grants received plus
interest at LIBOR. The cap at December 31, 2008 and 2007,
amounted to $1,200,000 and $1,175,000, respectively, of which
approximately $260,000 and $235,000 of the cap, respectively,
increases based on the LIBOR rate, as defined.
In addition, OSL is obligated to pay royalties to an
unaffiliated entity at a rate of 2% of its domestic sales up to
a cumulative amount of $9.25 million, and royalties at a
rate of 0.2% of revenues on the next $5.4 million related
to a certain technology that is not currently being utilized.
However, no royalties will be paid after 30 years have
elapsed from the completion of the related project. OSL has not
derived any revenues from this technology to date, nor have any
royalties been paid to date.
Contingencies
On November 20, 2008, the Constitutional Chamber of the
Supreme Court of Justice ruled in favor of the motion of appeal
filed by our Nicaraguan subsidiary, Ormat Momotombo Power
Company (OMPC), for protection against an
administrative order issued by Nicaraguas 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 Constitutional Chamber of the Supreme
Court of Justice further ruled that all the administrative
orders issued by MARENA during the entire administrative
proceeding, both at the territorial level of the City of Leon
and at the Ministerial level, shall have no legal effect.
The ruling of the Constitutional Chamber of the Supreme Court of
Justice of Nicaragua is of mandatory application from the date
of official service of notice, and is final and not subject to
any further appeal.
The Company is a defendant in various other 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 financial position, results of
operations and cash flows of the Company.
145
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 21
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007*
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008**
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
$
|
43,658
|
|
|
$
|
55,360
|
|
|
$
|
61,406
|
|
|
$
|
55,545
|
|
|
$
|
59,519
|
|
|
$
|
61,774
|
|
|
$
|
68,837
|
|
|
$
|
62,126
|
|
Products Segment
|
|
|
18,089
|
|
|
|
28,692
|
|
|
|
18,061
|
|
|
|
15,108
|
|
|
|
9,868
|
|
|
|
18,447
|
|
|
|
30,889
|
|
|
|
33,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,747
|
|
|
|
84,052
|
|
|
|
79,467
|
|
|
|
70,653
|
|
|
|
69,387
|
|
|
|
80,221
|
|
|
|
99,726
|
|
|
|
95,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
|
39,722
|
|
|
|
35,328
|
|
|
|
35,455
|
|
|
|
38,193
|
|
|
|
38,676
|
|
|
|
41,506
|
|
|
|
44,742
|
|
|
|
45,129
|
|
Products Segment
|
|
|
15,924
|
|
|
|
24,214
|
|
|
|
15,046
|
|
|
|
12,852
|
|
|
|
8,050
|
|
|
|
15,704
|
|
|
|
23,730
|
|
|
|
25,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,646
|
|
|
|
59,542
|
|
|
|
50,501
|
|
|
|
51,045
|
|
|
|
46,726
|
|
|
|
57,210
|
|
|
|
68,472
|
|
|
|
70,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
6,101
|
|
|
|
24,510
|
|
|
|
28,966
|
|
|
|
19,608
|
|
|
|
22,661
|
|
|
|
23,011
|
|
|
|
31,254
|
|
|
|
25,099
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
704
|
|
|
|
1,061
|
|
|
|
952
|
|
|
|
946
|
|
|
|
696
|
|
|
|
785
|
|
|
|
1,894
|
|
|
|
1,220
|
|
Selling and marketing expenses
|
|
|
1,986
|
|
|
|
3,822
|
|
|
|
2,043
|
|
|
|
2,794
|
|
|
|
3,519
|
|
|
|
2,020
|
|
|
|
2,647
|
|
|
|
2,699
|
|
General and administrative expenses
|
|
|
5,747
|
|
|
|
5,162
|
|
|
|
4,979
|
|
|
|
5,528
|
|
|
|
6,027
|
|
|
|
5,925
|
|
|
|
7,587
|
|
|
|
6,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(2,336
|
)
|
|
|
14,465
|
|
|
|
20,992
|
|
|
|
10,340
|
|
|
|
12,419
|
|
|
|
14,281
|
|
|
|
19,126
|
|
|
|
14,781
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,415
|
|
|
|
1,621
|
|
|
|
1,171
|
|
|
|
2,358
|
|
|
|
1,046
|
|
|
|
1,052
|
|
|
|
637
|
|
|
|
383
|
|
Interest expense
|
|
|
(7,782
|
)
|
|
|
(7,070
|
)
|
|
|
(6,984
|
)
|
|
|
(5,147
|
)
|
|
|
(3,603
|
)
|
|
|
(2,867
|
)
|
|
|
(859
|
)
|
|
|
(348
|
)
|
Foreign currency translation and transaction gain (loss)
|
|
|
(716
|
)
|
|
|
41
|
|
|
|
(96
|
)
|
|
|
(568
|
)
|
|
|
(183
|
)
|
|
|
(1,359
|
)
|
|
|
(1,028
|
)
|
|
|
(5,151
|
)
|
Impairment of auction nrate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,020
|
)
|
|
|
(328
|
)
|
|
|
|
|
|
|
(2,045
|
)
|
|
|
(1,822
|
)
|
Other non-operating income (expense), net
|
|
|
352
|
|
|
|
(4
|
)
|
|
|
247
|
|
|
|
295
|
|
|
|
40
|
|
|
|
309
|
|
|
|
(21
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and equity
in income of investees
|
|
|
(9,067
|
)
|
|
|
9,053
|
|
|
|
15,330
|
|
|
|
5,258
|
|
|
|
9,391
|
|
|
|
11,416
|
|
|
|
15,810
|
|
|
|
8,286
|
|
Income tax benefit (provision)
|
|
|
1,995
|
|
|
|
(1,992
|
)
|
|
|
(2,300
|
)
|
|
|
475
|
|
|
|
(2,071
|
)
|
|
|
(2,613
|
)
|
|
|
(3,187
|
)
|
|
|
(91
|
)
|
Minority interest
|
|
|
|
|
|
|
305
|
|
|
|
1,280
|
|
|
|
2,297
|
|
|
|
2,205
|
|
|
|
2,950
|
|
|
|
2,916
|
|
|
|
3,095
|
|
Equity in income of investees
|
|
|
1,231
|
|
|
|
1,181
|
|
|
|
1,452
|
|
|
|
878
|
|
|
|
539
|
|
|
|
408
|
|
|
|
372
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,841
|
)
|
|
$
|
8,547
|
|
|
$
|
15,762
|
|
|
$
|
8,908
|
|
|
$
|
10,064
|
|
|
$
|
12,161
|
|
|
$
|
15,911
|
|
|
$
|
11,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic and diluted Basic
|
|
$
|
(0.15
|
)
|
|
$
|
0.22
|
|
|
$
|
0.41
|
|
|
$
|
0.22
|
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
0.35
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
0.22
|
|
|
$
|
0.41
|
|
|
$
|
0.22
|
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
0.35
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,109
|
|
|
|
38,123
|
|
|
|
38,125
|
|
|
|
40,670
|
|
|
|
42,163
|
|
|
|
43,828
|
|
|
|
45,337
|
|
|
|
45,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
38,109
|
|
|
|
38,255
|
|
|
|
38,251
|
|
|
|
40,852
|
|
|
|
42,271
|
|
|
|
43,978
|
|
|
|
45,483
|
|
|
|
45,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Included in interest expense for
the three month period ended December 31, 2007 is an
out-of-period adjustment of $394,000 related to capitalized
interest that reduced interest expense. Such adjustment relates
to capitalized interest costs associated with
construction-in-process
activities during the three month periods ended March 31,
2007, June 30, 2007 and September 30, 2007.
|
|
**
|
|
Included in income tax benefit
(provision) for the three month period ended December 31,
2008 is an out-of-period adjustment of $835,000 that increased
income tax provision. Such adjustment related to uncertain tax
positions taken in 2004 to 2007.
|
146
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 22
|
SUBSEQUENT
EVENTS
|
Cash
dividend
On February 24, 2009, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $3.2 million ($0.07 per share) to all holders
of the Companys issued and outstanding shares of common
stock on March 16, 2009, payable on March 26, 2009.
Refinancing
of the Olkaria III Project
On January 5, 2009, the Companys wholly owned
subsidiary, OrPower 4, Inc., signed loan documents for project
financing of up to $105 million to refinance its investment
in the 48 MW Olkaria III geothermal power plant
located in Kenya. The Company initially financed construction of
Phase I and Phase II of the project, as well as the
drilling of wells. The loans are to be provided by a group of
European Development Finance Institutions (DFIs)
arranged by DEG Deutsche Investitions-und
Entwicklungsgesellschaft mbH (DEG). The loans will
mature on December 15, 2018, and will be payable in 19
equal semi-annual installments. Interest on the loans is
variable based on
6-month
LIBOR plus 4.0% and the Company has the option to fix the
interest rate upon closing.
147
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
DISCLOSURE
CONTROLS AND PROCEDURES
|
Disclosure
Controls and Procedures
The Companys management, including its Chief Executive
Officer and Chief Financial Officer, have conducted an
evaluation of the effectiveness of disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), as of the end of the period covered
by this Annual Report on
Form 10-K.
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded as of December 31, 2008, that
the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this
Annual Report on
Form 10-K
has been recorded, processed, summarized and reported when
required and the information is accumulated and communicated, as
appropriate, to allow timely decisions regarding required
disclosure.
Changes
in Internal Control over Financial Reporting
No changes in the Companys internal control over financial
reporting, as defined in
Rules 13a-15(f)
under the Exchange Act, have been identified during the
Companys fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
Managements
Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as defined under
Rule 13a-15(f)
under the Exchange Act. Internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
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 and procedures may deteriorate.
Management, under the supervision and participation of the Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 using criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and concluded that the
Company maintained effective internal control over financial
reporting as of December 31, 2008.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which appears
herein.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
148
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
Information required by this Item in addition to that below is
incorporated by reference herein from the Companys
definitive 2009 Proxy Statement.
Directors
and Executive Officers Information
The following table sets forth the name, age and positions of
our directors, executive officers and persons who are executive
officers of certain of our subsidiaries who perform policy
making functions for us:
|
|
|
|
|
|
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Name
|
|
Age
|
|
Position
|
|
Lucien Bronicki
|
|
|
75
|
|
|
Chairman of the Board of Directors; Chief Technology
Officer(3)
|
Yehudit Dita Bronicki
|
|
|
67
|
|
|
Chief Executive Officer;
Director(2)
|
Yoram Bronicki
|
|
|
42
|
|
|
President; Chief Operating Officer;
Director(1)
|
Joseph Tenne
|
|
|
53
|
|
|
Chief Financial Officer*
|
Nadav Amir
|
|
|
58
|
|
|
Executive Vice President Engineering*
|
Zvi Reiss
|
|
|
58
|
|
|
Executive Vice President Project Management*
|
Joseph Shiloah
|
|
|
63
|
|
|
Executive Vice President Marketing and Sales, Rest
of the World*
|
Aaron Choresh
|
|
|
63
|
|
|
Vice President Operations Rest of the World and
Product Support*
|
Zvi Krieger
|
|
|
53
|
|
|
Senior Vice President Geothermal Engineering*
|
Shimon Hatzir
|
|
|
47
|
|
|
Senior Vice President Electrical and Conceptual
Engineering*
|
Etty Rosner
|
|
|
53
|
|
|
Senior Vice President Contract Management; Corporate
Secretary*
|
Independent Directors:
|
|
|
|
|
|
|
Dan Falk
|
|
|
64
|
|
|
Independent
Director(3)
|
Jacob J. Worenklein
|
|
|
60
|
|
|
Independent
Director(2)
|
Roger W. Gale
|
|
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62
|
|
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Independent
Director(1)
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Robert F. Clarke
|
|
|
66
|
|
|
Independent
Director(2)
|
|
|
|
*
|
|
Performs the functions described in
the table, but is employed by Ormat Systems.
|
|
|
|
(1)
|
|
Denotes Class I
Director Term expiring at 2011 Annual Shareholders
Meeting.
|
|
|
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(2)
|
|
Denotes Class II
Director Term expiring at 2009 Annual Shareholders
Meeting.
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(3)
|
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Denotes Class III
Director Term expiring at 2010 Annual Shareholders
Meeting.
|
Lucien Bronicki. Lucien Bronicki is the
Chairman of our Board of Directors, a position he has held since
our inception in 1994, and has also been our Chief Technology
Officer since July 1, 2004. Mr. Bronicki co-founded
Ormat Turbines Ltd. in 1965 and is the Chairman of the Board of
Directors of Ormat Industries Ltd., the publicly-traded
successor to Ormat Turbines Ltd., and several of its
subsidiaries. From 1999 to April 2006, Mr. Bronicki served
as the Chairman of the Board of Directors of OPTI Canada Inc., a
company engaged in the oil sands industry in Canada in which our
parent owns an approximately 5% interest. From 1992 to May 2006,
Mr. Bronicki was the Chairman of the Board of Directors of
Bet Shemesh Engines, a manufacturer of jet engines, and from
1997 to May 2006, Mr. Bronicki was the Chairman of the
Board of Directors of Bet Shemesh Holdings. Mr. Bronicki
was also the Chairman of the Board of Directors of Orad Hi-Tec
Systems Ltd., a manufacturer of image processing systems, until
the end of 2005, and was the
Co-Chairman
of Orbotech Ltd., a NASDAQ-listed manufacturer of equipment for
inspecting and imaging circuit boards and display panels.
Mr. Bronicki has worked in the power industry since 1958.
He is a member of the Executive Council of the Weizmann
Institute of Science and was the Chairman of the Israeli
Committee
149
of the World Energy Council. Yehudit Bronicki and Lucien
Bronicki are married and are the parents of Yoram Bronicki.
Mr. Bronicki obtained a postgraduate degree in Nuclear
Engineering from Conservatoire National des Arts et Metiers, a
Master of Science in Physics from Universite de Paris and a
Master of Science in Mechanical Engineering from Ecole Nationale
Superieure dIngenieurs Arts et Metiers. In the year 2005,
he received a Ph.D. Honoris Causa from the Ben-Gurion
University, and in 2006 from the Weizmann Institute of Science.
Yehudit Dita
Bronicki. Yehudit Bronicki has been our Chief
Executive Officer since July 1, 2004, and is also a member
of our Board of Directors. From July 1, 2004 to
September 20, 2007 she was also our President.
Mrs. Bronicki was also a co-founder of Ormat Turbines Ltd.
and is a member of the Board of Directors and the General
Manager (a CEO-equivalent position) of Ormat Industries Ltd.,
the publicly traded successor to Ormat Turbines Ltd., and
several of its subsidiaries. From 1992 to June 2005,
Mrs. Bronicki was a director of Bet Shemesh Engines, a
manufacturer of jet engines. In addition, Mrs. Bronicki was
a member of the Board of Directors of OPTI Canada Inc. until May
2005 and is a member of the Board of Orbotech Ltd., a
NASDAQ-listed manufacturer of equipment for inspecting and
imaging circuit boards and display panels. From 1994 to 2001,
Mrs. Bronicki was on the Advisory Board of the Bank of
Israel. Mrs. Bronicki has worked in the power industry
since 1965. Yehudit Bronicki and Lucien Bronicki are married and
are the parents of Yoram Bronicki. Mrs. Bronicki obtained a
Bachelor of Arts in Social Sciences from Hebrew University in
1965.
Yoram Bronicki. Yoram Bronicki has been
a member of our Board of Directors since November 12, 2004,
and has been our President and Chief Operating Officer since
September 20, 2007. From July 1, 2004 to
September 20, 2007, Mr. Bronicki was our Chief
Operating Officer, North America. Mr. Bronicki is also a
member of the Board of Directors of Ormat Industries Ltd., a
position he has held since 2001, and a member of the Board of
Directors of OPTI Canada Inc. From 2001 to 2004,
Mr. Bronicki was Vice President of OPTI Canada Inc.; from
1999 to 2001, he was Project Manager of Ormat Industries Ltd.
and Ormat International Inc.; from 1996 to 1999, he was Project
Manager of Ormat Industries Ltd.; and from 1995 to 1996, he was
Project Engineer of Ormat Industries Ltd. Mr. Bronicki is
the son of Lucien and Yehudit Bronicki. Mr. Bronicki
obtained a Bachelor of Science in Mechanical Engineering from
Tel Aviv University in 1989.
Joseph Tenne. Joseph Tenne has served
as our Chief Financial Officer since March 9, 2005. From
2003 to 2004, Mr. Tenne was the Chief Financial Officer of
Treofan Germany GmbH & Co. KG, a German company. From
1997 until 2003, Mr. Tenne was a partner in
Kesselman & Kesselman, Certified Public Accountants in
Israel (a member firm of PricewaterhouseCoopers International
Limited). Since January 8, 2006, Mr. Tenne has also
been the Chief Financial Officer of Ormat Industries Ltd.
Mr. Tenne is a member of the board of directors of
AudioCodes Ltd., a NASDAQ-listed company. Mr. Tenne
obtained a Master of Business Administration from Tel Aviv
University in 1987 and a Bachelor of Arts in Accounting and
Economics from Tel Aviv University in 1981. Mr. Tenne is
also a Certified Public Accountant in Israel.
Nadav Amir. Nadav Amir has served as
our Executive Vice President of Engineering, since July 1,
2004. From 2001 through June 30, 2004, Mr. Amir was
Executive Vice President of Engineering of Ormat Industries;
from 1993 to 2001, he was Vice President of Engineering of Ormat
Industries Ltd.; from 1988 to 1993, he was Manager of
Engineering of Ormat Industries Ltd.; from 1984 to 1988, he was
Manager of Product Engineering of Ormat Industries Ltd.; and
from 1983 to 1984, he was Manager of Research and Development of
Ormat Industries. Mr. Amir obtained a Bachelor of Science
in Aeronautical Engineering from Technion Haifa in 1972.
Zvi Reiss. Zvi Reiss has served as our
Executive Vice President of Project Management since
July 1, 2004. From 2001 through June 30, 2004,
Mr. Reiss was the Executive Vice President of Project
Management of Ormat Industries Ltd.; from 1995 to 2000, he was
Vice President of Project Management of Ormat Industries Ltd.
and, from 1993 to 1994, he was Director of Projects of Ormat
Industries Ltd. Mr. Reiss obtained a Bachelor of Science in
Mechanical Engineering from Ben Gurion University in 1975.
Joseph Shiloah. Joseph Shiloah has
served as our Executive Vice President of Marketing and Sales,
Rest of the World, since July 1, 2004. From 2001 through
June 30, 2004, Mr. Shiloah was the Executive Vice
President of Marketing and Sales at Ormat Industries Ltd.; from
1989 to 2000, he was Vice President of
150
Marketing and Sales of Ormat Industries Ltd.; from 1983 to 1989,
he was Vice President of Special Projects of Ormat Turbines
Ltd.; from 1984 to 1989, he was Operating Manager of the Solar
Pond project of Solmat Systems Ltd., a subsidiary of Ormat
Turbines Ltd.; and from 1981 to 1983, he was Project
Administrator of the Solar Pond power plant project of Ormat
Turbines Ltd. and Solmat Systems Ltd. Mr. Shiloah obtained
a Bachelor of Arts in Economics from Hebrew University in 1972.
Aaron Choresh. Aaron Choresh has served
as our Vice President of Operations Rest of the World and
Product Support, since July 1, 2004. From 1999 through
June 30, 2004, Mr. Choresh was the Vice President of
Operations and Product Support of Ormat Industries Ltd.; from
1993 to 1998, he was the Director of Operations and Product
Support of Ormat Industries Ltd.; from 1991 to 1992, he was
Manager of Project Engineering and Product Support; and from
1989 to 1990, he was Manager of Project Engineering of Ormat
Industries Ltd.. Mr. Choresh obtained a Bachelor of Science
in Electrical Engineering from Technion Haifa in 1982.
Zvi Krieger. Zvi Krieger has served as
our Senior Vice President of Geothermal Engineering, since
September 20, 2007; from July 1, 2004 to
September 20, 2007, Mr. Krieger was our Vice President
of Geothermal Engineering and from 2001 through June 30,
2004, he was the Vice President of Geothermal Engineering of
Ormat Industries Ltd. Mr. Krieger has been with Ormat
Industries Ltd. since 1981 and served as Application Engineer,
Manager of System Engineering, Director of New Technologies
Business Development and Vice President of Geothermal
Engineering. Mr. Krieger obtained a Bachelor of Science in
Mechanical Engineering from the Technion, Israel Institute of
Technology in 1980.
Shimon Hatzir. Shimon Hatzir has served
as our Senior Vice President of Electrical and Conceptual
Engineering, since September 20, 2007. From July 1,
2004 to September 20, 2007, Mr. Hatzir was our Vice
President of Electrical and Conceptual Engineering and from 2002
through June 30, 2004; he was the Vice President of
Electrical and Conceptual Engineering of Ormat Industries Ltd.
From 1996 to 2001, Mr. Hatzir was Manager of Electrical and
Conceptual Engineering of Ormat Industries Ltd., and from 1989
to 1995, he was Project Engineer in the Engineering Division.
Mr. Hatzir obtained a Bachelor of Science in Mechanical
Engineering from Tel Aviv University in 1988 and a Certificate
of the Technology Institute of Management, Senior Executive
Program.
Etty Rosner. Etty Rosner has served as
our Corporate Secretary, since October 21, 2004.
Ms. Rosner is also the Corporate Secretary of Ormat
Industries Ltd., a position she has held since 1991.
Ms. Rosner is also our Senior Vice President of Contract
Management since September 20, 2007; from July 1, 2004
to September 20, 2007, Ms. Rosner was our Vice
President of Contract Management and from 1999 through
June 30, 2004, she was the Vice President of Contract
Management of Ormat Industries Ltd. From 1991 to 1999,
Ms. Rosner was Contract Administration Manager and
Corporate Secretary of Ormat Industries and from 1981 to 1991,
she was the Manager of the Export Department and Office
Administrative Manager of Ormat Industries. Ms. Rosner
obtained a Diploma in General Management from Tel Aviv
University in 1990.
Dan Falk. Dan Falk has been a member of
our Board of Directors since November 12, 2004.
Mr. Falk is also the Chairman of the Board of Directors of
Orad Hi-Tech Systems Ltd., a public non-US company, and a member
of the Board of Directors of Orbotech Ltd., Nice Systems Ltd.,
Attunity Ltd., ClickSoftware Technologies Ltd., Jacada Ltd. and
Nova Measuring Instruments Ltd., all NASDAQ publicly traded
companies. In addition, Mr. Falk serves as a member of the
Board of Directors of the following public non-US companies: AVT
Ltd., Amiad Filteration System Ltd, Plastopil Ltd., Oridion
Medical Ltd., Dmatek Ltd. and Poalim Ventures I Ltd. From 2001
to 2004, Mr. Falk was a business consultant to several
public and private companies. From 1999 to 2000, Mr. Falk
was Chief Operating Officer and Chief Executive Officer of
Sapiens International NV. From 1995 to 1999, Mr. Falk was
an Executive Vice President of Orbotech Ltd. From 1985 to 1995,
Mr. Falk was Vice President of Finance and Chief Financial
Officer of Orbot Systems Ltd. and of Orbotech Ltd. Mr. Falk
obtained a Master of Business Administration from Hebrew
University in 1972 and a Bachelor of Arts in Economics and
Political Science from Hebrew University in 1968. Mr. Falk
is the Chair of our Audit Committee. Our Board of Directors has
determined that Mr. Falk qualifies as an Audit Committee
financial expert under Section 407 of the
Sarbanes-Oxley Act of 2002 and Item 407(d)(5) of
Regulation S-K,
151
and is independent as that term is used in
Item 407(d) 5(i)(B) of
Regulation S-K
under the Securities Exchange Act of 1934.
Jacob J. Worenklein. Jacob J.
Worenklein has been a member of our Board of Directors since
November 12, 2004. From 2003 to September 2008, he served
as Chairman and Chief Executive Officer of US Power Generating
Company. From 1998 to 2003, he was Managing Director and Global
Head of Project and Sectorial Finance for Societe Generale and,
from 1996 to 1998 he was Managing Director and Head of Project
Finance, Export Finance and Commodities for the Americas, for
Societe Generale. Prior to joining Societe Generale in 1996,
Mr. Worenklein was Managing Director and Global Head of
Project Finance at Lehman Brothers and prior thereto was a
partner and member of the executive committee of the law firm of
Milbank, Tweed, Hadley & McCloy LLP, where he founded
and headed the firms power and project finance practice.
Mr. Worenklein served as Adjunct Professor of Finance at
Stern School of Business, New York University, and is a trustee
of the Committee for Economic Development and a member of the
Council on Foreign Relations. He is a member of the Board of
Directors of GridPoint Inc. a company in the demand side
management business. Mr. Worenklein obtained a Bachelor of
Arts from Columbia College in 1970 and a Juris Doctor and Master
of Business Administration from New York University in 1973.
Roger W. Gale, Ph.D. Roger W. Gale
has been a member of our Board of Directors since
October 26, 2005. Between 1988 and 2000, Dr. Gale was
the CEO of Washington International Energy Group, which was sold
to PHB Hagler Bailly (PHB) in 1999. In 2000, as PHB was sold to
PA Consulting, Dr. Gale held several positions at PA
Consulting until 2001, at which time he joined GF Energy LLC as
President and CEO, a position he still holds. In addition,
Dr. Gale serves as a member of the Board of Directors of
the US Energy Association, a not-for-profit organization. On
December 1, 2005, he became a member of the Boards of
Directors of The Adams Express Company and Petroleum &
Energy Resources Corporation (closed-end investment companies).
He served on the Audit Committee of Constellation Holdings and
on the board of the parent, Constellation Energy Group from 1996
to 2005. Dr. Gale has a Ph.D. in political science from the
University of California, Berkeley.
Robert F. Clarke. Robert F. Clarke has
been a member of our Board of Directors since February 27,
2007. Mr. Clarke was Chairman (since September
1998) and President and Chief Executive Officer (since
January 1991) of Hawaiian Electric Industries, Inc. (HEI),
from which he retired effective May 2006. Since June 1,
2006, Mr. Clarke has been Executive in Residence at the
Shidler College of Business at the University of Hawaii. In
addition, Mr. Clarke serves as an advisory director to
Oceanic Cable Hawaii, as a member of the advisory board of the
Shidler College of Business at the University of Hawaii. and as
a member of the advisory board of Sennet Capital.
Mr. Clarke joined HEI in February 1987 as Vice President of
Strategic Planning and was in charge of implementing the
Companys diversification strategy. Mr. Clarke was
named HEI Group Vice President Diversified Companies
in May 1988. He was made a director of HEI in 1989. Prior to
joining HEI, Mr. Clarke served as Senior Vice President and
Chief Financial Officer of Alexander & Baldwin and as
Controller of Dillingham Corporation. Prior to that, he worked
for the Ford Motor Company and for the Singer Company. He
received his Bachelors degree in economics in 1965 and his
Masters degree in finance in 1966 from the University of
California at Berkeley. Honors include Phi Beta Kappa in 1965.
Audit
Committee
We are a listed issuer, as defined in Sec. 240.10A-3 of
Regulation S-K,
and have a separately designated audit committee established in
accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, composed of independent directors as
required by Section 303A.07 of the NYSE Listed Company
Manual. The members of such committee are Dan Falk (Chair),
Jacob Worenklein and Roger W. Gale, who are also independent
directors of our company, as defined in Section 303A.02 of
the NYSE Listed Company Manual.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required under this item is incorporated by
reference herein from the Companys definitive 2009 Proxy
Statement.
152
|
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ITEM 12.
|
SECURITY
OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
The information required under this item is incorporated by
reference herein from the Companys definitive 2009 Proxy
Statement.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The information required under this item is incorporated by
reference herein from the Companys definitive 2009 Proxy
Statement.
|
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ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required under this item is incorporated by
reference herein from the Companys definitive 2009 Proxy
Statement.
153
PART
IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
|
(a) (1) List of Financial Statements
See Index to Financial
Statements in Item 8 of this annual report.
(2) List of Financial Statement Schedules
|
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|
All applicable schedule information is included in our Financial
Statements in Item 8 of this annual report.
|
(b) EXHIBIT INDEX
|
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Exhibit No.
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Document
|
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3
|
.1
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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.
|
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3
|
.2
|
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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
|
.1
|
|
Form of Common Share Stock Certificate, incorporated by
reference to Exhibit 4.1 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
4
|
.2
|
|
Form of Preferred Share Stock Certificate, incorporated by
reference to Exhibit 4.2 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
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.
|
|
10
|
.1.1
|
|
Credit Facility Agreement, dated September 5, 2000, between
Ormat Momotombo Power Company and Bank Hapoalim B.M.,
incorporated by reference to Exhibit 10.1.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.2
|
|
Credit Agreement, dated as of December 18, 2003, among
OrCal Geothermal Inc. and Beal Bank, S.S.B. and the financial
institutions party thereto from time to time, incorporated by
reference to Exhibit 10.1.5 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
154
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.1.3
|
|
Indenture, dated February 13, 2004, among Ormat Funding
Corp., Brady Power Partners, Steamboat Development Corp.,
Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2
LLC, ORNI 7 LLC, Ormesa LLC and Union Bank of California,
incorporated by reference to Exhibit 10.1.7 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.4
|
|
First Supplemental Indenture, dated May 14, 2004, among
Ormat Funding Corp., Brady Power Partners, Steamboat Development
Corp., Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC,
ORNI 2 LLC, ORNI 7 LLC, Ormesa LLC and Union Bank of California,
incorporated by reference to Exhibit 10.1.8 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.5
|
|
Fifth Supplemental Indenture, dated April 26, 2006, among
Ormat Funding Corp. and Union Bank of California, N.A.,
incorporated by reference to Exhibit 10.1.6 to Ormat
Technologies, Inc. Quarterly Report on
Form 10-Q
( File No
001-32347)
to the Securities and Exchange Commission on August 7, 2006.
|
|
10
|
.1.6
|
|
Loan Agreement, dated October 1, 2003, by and between Ormat
Technologies, Inc. and Ormat Industries Ltd., incorporated by
reference to Exhibit 10.1.9 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.7
|
|
Amendment No. 1 to Loan Agreement, dated September 20,
2004, by and between Ormat Technologies, Inc. and Ormat
Industries Ltd., incorporated by reference to
Exhibit 10.1.10 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.8
|
|
Guarantee Fee Agreement, dated January 1, 1999, by and
between Ormat Technologies, Inc. and Ormat Industries Ltd.,
incorporated by reference to Exhibit 10.1.13 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.9
|
|
Reimbursement Agreement, dated July 15, 2004, by and
between Ormat Technologies, Inc. and Ormat Industries Ltd.,
incorporated by reference to Exhibit 10.1.14 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.10
|
|
Services Agreement, dated July 15, 2004, by and between
Ormat Industries Ltd. and Ormat Systems Ltd., incorporated by
reference to Exhibit 10.1.15 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.11
|
|
Agreement for Purchase of Membership Interests in 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 10.1 to Ormat Technologies, Inc.
Current Report on
Form 8-K
to the Securities and Exchange Commission on June 13, 2007
|
|
10
|
.1.12
|
|
First Amendment to Agreement for Purchase of Membership
Interests in OPC LLC, dated as of April 17, 2008, by and
among Ormat Nevada Inc., Morgan Stanley Geothermal LLC, and
Lehman-OPC LLC, incorporated by reference to
Exhibit 10.1.18 to Ormat Technologies, Inc. Quarterly
Report on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
10
|
.2.1
|
|
Power Purchase Contract, dated July 18, 1984, between
Southern California Edison Company and Republic Geothermal,
Inc., incorporated by reference to Exhibit 10.3.1 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.2
|
|
Amendment No. 1, to the Power Purchase Contract, dated
December 23, 1988, between Southern California Edison
Company and Ormesa Geothermal, incorporated by reference to
Exhibit 10.3.2 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
155
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.3
|
|
Power Purchase Contract, dated June 13, 1984, between
Southern California Edison Company and Ormat Systems, Inc.,
incorporated by reference to Exhibit 10.3.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.4
|
|
Power Purchase and Sales Agreement, dated as of August 26,
1983, between Chevron U.S.A. Inc. and Southern California Edison
Company, incorporated by reference to Exhibit 10.3.4 to
Ormat Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.5
|
|
Amendment No. 1, to Power Purchase and Sale Agreement,
dated as of December 11, 1984, between Chevron U.S.A. Inc.,
HGC and Southern California Edison Company, incorporated by
reference to Exhibit 10.3.5 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.6
|
|
Settlement Agreement and Amendment No. 2, to Power Purchase
Contract, dated August 7, 1995, between HGC and Southern
California Edison Company, incorporated by reference to
Exhibit 10.3.6 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.7
|
|
Power Purchase Contract dated, April 16, 1985, between
Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.7 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.8
|
|
Amendment No. 1, dated as of October 23, 1987, between
Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.8 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.9
|
|
Amendment No. 2, dated as of July 27, 1990, between
Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.9 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.10
|
|
Amendment No. 3, dated as of November 24, 1992,
between Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.10 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.11
|
|
Amended and Restated Power Purchase and Sales Agreement, dated
December 2, 1986, between Mammoth Pacific and Southern
California Edison Company, incorporated by reference to
Exhibit 10.3.11 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.12
|
|
Amendment No. 1, to Amended and Restated Power Purchase and
Sale Agreement, dated May 18, 1990, between Mammoth Pacific
and Southern California Edison Company, incorporated by
reference to Exhibit 10.3.12 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.13
|
|
Power Purchase Contract, dated April 15, 1985, between
Mammoth Pacific and Southern California Edison Company,
incorporated by reference to Exhibit 10.3.13 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.14
|
|
Amendment No. 1, dated as of October 27, 1989, between
Mammoth Pacific and Southern California Edison Company,
incorporated by reference to Exhibit 10.3.14 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
156
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.15
|
|
Amendment No. 2, dated as of December 20, 1989,
between Mammoth Pacific and Southern California Edison Company,
incorporated by reference to Exhibit 10.3.15 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.16
|
|
Power Purchase Contract, dated April 16, 1985, between
Southern California Edison Company and Santa Fe Geothermal,
Inc., incorporated by reference to Exhibit 10.3.16 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.17
|
|
Amendment No. 1, to Power Purchase Contract, dated
October 25, 1985, between Southern California Edison
Company and Mammoth Pacific, incorporated by reference to
Exhibit 10.3.17 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.18
|
|
Amendment No. 2, to Power Purchase Contract, dated
December 20, 1989, between Southern California Edison
Company and Pacific Lighting Energy Systems, incorporated by
reference to Exhibit 10.3.18 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.19
|
|
Interconnection Facilities Agreement, dated October 20,
1989, by and between Southern California Edison Company and
Mammoth Pacific, incorporated by reference to
Exhibit 10.3.19 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.20
|
|
Interconnection Facilities Agreement, dated October 13,
1985, by and between Southern California Edison Company and
Mammoth Pacific (II), incorporated by reference to
Exhibit 10.3.20 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.21
|
|
Interconnection Facilities Agreement, dated October 20,
1989, by and between Southern California Edison Company and
Pacific Lighting Energy Systems, incorporated by reference to
Exhibit 10.3.21 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.22
|
|
Interconnection Agreement, dated August 12, 1985, by and
between Southern California Edison Company and Heber Geothermal
Company incorporated by reference to Exhibit 10.3.22 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.23
|
|
Plant Connection Agreement for the Heber Geothermal Plant
No. 1, dated, July 31, 1985, by and between Imperial
Irrigation District and Heber Geothermal Company incorporated by
reference to Exhibit 10.3.23 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.24
|
|
Plant Connection Agreement for the Second Imperial Geothermal
Company Power Plant No. 1, dated, October 27, 1992, by
and between Imperial Irrigation District and Second Imperial
Geothermal Company incorporated by reference to
Exhibit 10.3.24 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.25
|
|
IID-SIGC Transmission Service Agreement for Alternative
Resources, dated, October 27, 1992, by and between Imperial
Irrigation District and Second Imperial Geothermal Company
incorporated by reference to Exhibit 10.3.25 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.26
|
|
Plant Connection Agreement for the Ormesa Geothermal Plant,
dated October 1, 1985, by and between Imperial Irrigation
District and Ormesa Geothermal incorporated by reference to
Exhibit 10.3.26 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
157
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.27
|
|
Plant Connection Agreement for the Ormesa IE Geothermal Plant,
dated, October 21, 1988, by and between Imperial Irrigation
District and Ormesa IE incorporated by reference to
Exhibit 10.3.27 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.28
|
|
Plant Connection Agreement for the Ormesa IH Geothermal Plant,
dated, October 3, 1989, by and between Imperial Irrigation
District and Ormesa IH incorporated by reference to
Exhibit 10.3.28 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.29
|
|
Plant Connection Agreement for the Geo East Mesa Limited
Partnership Unit No. 2, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.29 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.30
|
|
Plant Connection Agreement for the Geo East Mesa Limited
Partnership Unit No. 3, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.30 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.31
|
|
Transmission Service Agreement for the Ormesa I, Ormesa IE
and Ormesa IH Geothermal Power Plants, dated, October 3,
1989, between Imperial Irrigation District and Ormesa Geothermal
incorporated by reference to Exhibit 10.3.31 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.32
|
|
Transmission Service Agreement for the Geo East Mesa Limited
Partnership Unit No. 2, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.32 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.33
|
|
Transmission Service Agreement for the Geo East Mesa Limited
Partnership Unit No. 3, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.33 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.34
|
|
IID-Edison Transmission Service Agreement for Alternative
Resources, dated, September 26, 1985, by and between
Imperial Irrigation District and Southern California Edison
Company incorporated by reference to Exhibit 10.3.34 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.35
|
|
Plant Amendment No. 1, to IID-Edison Transmission Service
Agreement for Alternative Resources, dated, August 25,
1987, by and between Imperial Irrigation District and Southern
California Edison Company incorporated by reference to
Exhibit 10.3.35 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.36
|
|
Agreement Addressing Renewable Energy Pricing and Payment
Issues, dated June 15, 2001, by and between Second Imperial
Geothermal Company QFID No. 3021 and Southern California
Edison Company incorporated by reference to Exhibit 10.3.39
to Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
158
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.37
|
|
Amendment No. 1 to Agreement Addressing Renewable Energy
Pricing and Payment Issues, dated November 30, 2001, by and
between Second Imperial Geothermal Company QFID No. 3021
and Southern California Edison Company incorporated by reference
to Exhibit 10.3.40 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.38
|
|
Agreement Addressing Renewable Energy Pricing and Payment
Issues, dated June 15, 2001, by and between Heber
Geothermal Company QFID No. 3001 and Southern California
Edison Company incorporated by reference to Exhibit 10.3.41
to Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.39
|
|
Amendment No. 1 to Agreement Addressing Renewable Energy
Pricing and Payment Issues, dated November 30, 2001, by and
between Heber Geothermal Company QFID No. 3001 and Southern
California Edison Company incorporated by reference to
Exhibit 10.3.42 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.40
|
|
Energy Services Agreement, dated February 2003, by and between
Imperial Irrigation District and ORMESA, LLC incorporated by
reference to Exhibit 10.3.43 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.41
|
|
Purchase Power Contract, dated March 24, 1986, by and
between Hawaii Electric Light Company and Thermal Power Company
incorporated by reference to Exhibit 10.3.44 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.42
|
|
Firm Capacity Amendment to Purchase Power Contract, dated
July 28, 1989, by and between Hawaii Electric Light Company
and Puma Geothermal Venture incorporated by reference to
Exhibit 10.3.45 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.43
|
|
Amendment to Purchase Power Contract, dated October 19,
1993, by and between Hawaii Electric Light Company and Puma
Geothermal Venture incorporated by reference to
Exhibit 10.3.46 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.44
|
|
Third Amendment to the Purchase Power Contract, dated
March 7, 1995, by and between Hawaii Electric Light Company
and Puna Geothermal Venture incorporated by reference to
Exhibit 10.3.47 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.45
|
|
Performance Agreement and Fourth Amendment to the Purchase Power
Contract, dated February 12, 1996, by and between Hawaii
Electric Light Company and Puna Geothermal Venture incorporated
by reference to Exhibit 10.3.48 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.46
|
|
Agreement to Design 69 KV Transmission Lines, a Substation at
Pohoiki, Modifications to Substations at Puna and Kaumana, and a
Temporary 34.5 Facility to Interconnect PGVs Geothermal
Electric Plant with HELCOs System Grid (Phase II and
III), dated June 7, 1990, by and between Hawaii Electric
Light Company and Puna Geothermal Venture incorporated by
reference to Exhibit 10.3.49 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.1
|
|
Ormesa BLM Geothermal Resources Lease CA 966 incorporated by
reference to Exhibit 10.4.1 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
159
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.3.2
|
|
Ormesa BLM License for Electric Power Plant Site CA 24678
incorporated by reference to Exhibit 10.4.2 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.3
|
|
Geothermal Resources Mining Lease, dated February 20, 1981,
by and between the State of Hawaii, as Lessor, and Kapoho Land
Partnership, as Lessee incorporated by reference to
Exhibit 10.4.3 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.4
|
|
Geothermal Lease Agreement, dated October 20, 1975, by and
between Ruth Walker Cox and Betty M. Smith, as Lessor, and Gulf
Oil Corporation, as Lessee incorporated by reference to
Exhibit 10.4.4 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.5
|
|
Geothermal Lease Agreement, dated August 1, 1976, by and
between Southern Pacific Land Company, as Lessor, and Phillips
Petroleum Company, as Lessee incorporated by reference to
Exhibit 10.4.5 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.6
|
|
Geothermal Resources Lease, dated November 18, 1983, by and
between Sierra Pacific Power Company, as Lessor, and Geothermal
Development Associates, as Lessee incorporated by reference to
Exhibit 10.4.6 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.7
|
|
Lease Agreement, dated November 1, 1969, by and between
Chrisman B. Jackson and Sharon Jackson, husband and wife, as
Lessor, and Standard Oil Company of California, as Lessee
incorporated by reference to Exhibit 10.4.7 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.8
|
|
Lease Agreement, dated September 22, 1976, by and between
El Toro Land & Cattle Co., as Lessor, and Standard Oil
Company of California, as Lessee incorporated by reference to
Exhibit 10.4.8 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.9
|
|
Lease Agreement, dated February 17, 1977, by and between
Joseph L. Holtz, as Lessor, and Chevron U.S.A. Inc., as Lessee
incorporated by reference to Exhibit 10.4.9 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.10
|
|
Lease Agreement, dated March 11, 1964, by and between John
D. Jackson and Frances Jones Jackson, also known as Frances J.
Jackson, husband and wife, as Lessor, and Standard Oil Company
of California, as Lessee incorporated by reference to
Exhibit 10.4.10 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.11
|
|
Lease Agreement, dated February 16, 1964, by and between
John D. Jackson, conservator for the estate of Aphia Jackson
Wallan, as Lessor, and Standard Oil Company of California, as
Lessee incorporated by reference to Exhibit 10.4.11 to
Ormat Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.12
|
|
Lease Agreement, dated March 17, 1964, by and between Helen
S. Fugate, a widow, as Lessor, and Standard Oil Company of
California, as Lessee incorporated by reference to
Exhibit 10.4.12 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
160
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.3.13
|
|
Lease Agreement, dated February 16, 1964, by and between
John D. Jackson and Frances J. Jackson, husband and wife, as
Lessor, and Standard Oil Company of California, as Lessee
incorporated by reference to Exhibit 10.4.13 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.14
|
|
Lease Agreement, dated February 20, 1964, by and between
John A. Straub and Edith D. Straub, also known as John A. Straub
and Edythe D. Straub, husband and wife, as Lessor, and Standard
Oil Company of California, as Lessee incorporated by reference
to Exhibit 10.4.14 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.15
|
|
Lease Agreement, dated July 1, 1971, by and between Marie
L. Gisler and Harry R. Gisler, as Lessor, and Standard Oil
Company of California, as Lessee incorporated by reference to
Exhibit 10.4.15 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.16
|
|
Lease Agreement, dated February 28, 1964, by and between
Gus Kurupas and Guadalupe Kurupas, husband and wife, as Lessor,
and Standard Oil Company of California, as Lessee incorporated
by reference to Exhibit 10.4.16 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.17
|
|
Lease Agreement, dated April 7, 1972, by and between Nowlin
Partnership, as Lessor, and Standard Oil Company of California,
as Lessee incorporated by reference to Exhibit 10.4.17 to
Ormat Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.18
|
|
Geothermal Lease Agreement, dated July 18, 1979, by and
between Charles K. Corfman, an unmarried man as his sole and
separate property, and Lessor, and Union Oil Company of
California, as Lessee incorporated by reference to
Exhibit 10.4.18 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.19
|
|
Lease Agreement, dated January 1, 1972, by and between
Holly Oberly Thomson, also known as Holly F. Oberly Thomson,
also known as Holly Felicia Thomson, as Lessor, and Union Oil
Company of California, as Lessee incorporated by reference to
Exhibit 10.4.19 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.20
|
|
Lease Agreement, dated June 14, 1971, by and between
Fitzhugh Lee Brewer, Jr., a married man as his separate
property, Donna Hawk, a married woman as her separate property,
and Ted Draper and Helen Draper, husband and wife, as Lessor,
and Union Oil Company of California, as Lessee incorporated by
reference to Exhibit 10.4.20 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.21
|
|
Lease Agreement, dated May 13, 1971, by and between Mathew
J. La Brucherie and Jane E. La Brucherie, husband and
wife, and Robert T. ODell and Phyllis M. ODell,
husband and wife, as Lessor, and Union Oil Company of
California, as Lessee incorporated by reference to
Exhibit 10.4.21 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.22
|
|
Lease Agreement, dated June 2, 1971, by and between Dorothy
Gisler, a widow, Joan C. Hill, and Jean C. Browning, as Lessor,
and Union Oil Company of California, as Lessee incorporated by
reference to Exhibit 10.4.22 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.23
|
|
Geothermal Lease Agreement, dated February 15, 1977, by and
between Walter J. Holtz, as Lessor, and Magma Energy Inc., as
Lessee incorporated by reference to Exhibit 10.4.23 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
161
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.3.24
|
|
Geothermal Lease, dated August 31, 1983, by and between
Magma Energy Inc., as Lessor, and Holt Geothermal Company, as
Lessee incorporated by reference to Exhibit 10.4.24 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.25
|
|
Unprotected Lease Agreement, dated July 15, 2004, by and
between Ormat Industries Ltd. and Ormat Systems Ltd.
incorporated by reference to Exhibit 10.4.25 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.26
|
|
Geothermal Resources Lease, dated June 27, 1988, by and
between Bernice Guisti, Judith Harvey and Karen Thompson,
Trustees and Beneficiaries of the Guisti Trust, as Lessor, and
Far West Capital, Inc., as Lessee incorporated by reference to
Exhibit 10.4.26 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.27
|
|
Amendment to Geothermal Resources Lease, dated January, 1992, by
and between Bernice Guisti, Judith Harvey and Karen Thompson,
Trustees and Beneficiaries of the Guisti Trust, as Lessor, and
Far West Capital, Inc., as Lessee incorporated by reference to
Exhibit 10.4.27 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.28
|
|
Second Amendment to Geothermal Resources Lease, dated
June 25, 1993, by and between Bernice Guisti, Judith Harvey
and Karen Thompson, Trustees and Beneficiaries of the Guisti
Trust, as Lessor, and Far West Capital, Inc. and its Assignee,
Steamboat Development Corp., as Lessee incorporated by reference
to Exhibit 10.4.28 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.29
|
|
Geothermal Resources Sublease, dated May 31, 1991, by and
between Fleetwood Corporation, as Lessor, and Far West Capital,
Inc., as Lessee incorporated by reference to
Exhibit 10.4.29 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.30
|
|
KLP Lease and Agreement, dated March 1, 1981, by and
between Kapoho Land Partnership, as Lessor, and Thermal Power
Company, as Lessee incorporated by reference to
Exhibit 10.4.30 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.31
|
|
Amendment to KLP Lease and Agreement, dated July 9, 1990,
by and between Kapoho Land Partnership, as Lessor, and Puna
Geothermal Venture, as Lessee incorporated by reference to
Exhibit 10.4.31 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.32
|
|
Second Amendment to KLP Lease and Agreement, dated
December 31, 1996, by and between Kapoho Land Partnership,
as Lessor, and Puna Geothermal Venture, as Lessee incorporated
by reference to Exhibit 10.4.32 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.33
|
|
Participation Agreement, dated May 18, 2005, by and among
Puna Geothermal Venture, SE Puna, L.L.C., Wilmington
Trust Company, S.E. Puna Lease, L.L.C., AIG Annuity
Insurance Company, American General Life Insurance Company,
Allstate Life Insurance Company and Union Bank of California,
incorporated by reference to Exhibit 10.4.33 to Ormat
Technologies, Inc. Quarterly Report on
Form 10-Q/A
to the Securities and Exchange Commission on December 22,
2005.
|
|
10
|
.3.34
|
|
Project Lease Agreement, dated May 18, 2005, by and between
SE Puna, L.L.C. and Puna Geothermal Venture, incorporated by
reference to Exhibit 10.4.34 to Ormat Technologies, Inc.
Quarterly Report on
Form 10-Q/A
to the Securities and Exchange Commission on December 22,
2005.
|
162
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.4.1
|
|
Patent License Agreement, dated July 15, 2004, by and
between Ormat Industries Ltd. and Ormat Systems Ltd.
incorporated by reference to Exhibit 10.5.4 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.4.2
|
|
Form of Registration Rights Agreement by and between Ormat
Technologies, Inc. and Ormat Industries Ltd. incorporated by
reference to Exhibit 10.5.5 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.
|
|
10
|
.5.1
|
|
Ormat Technologies, Inc. 2004 Incentive Compensation Plan
incorporated by reference to Exhibit 10.6.1 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.
|
|
10
|
.5.2
|
|
Form of Incentive Stock Option Agreement incorporated by
reference to Exhibit 10.6.2 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.
|
|
10
|
.5.3
|
|
Form of Nonqualified Stock Option Agreement incorporated by
reference to Exhibit 10.6.3 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.
|
|
10
|
.6
|
|
Form of Executive Employment Agreement of Lucien Bronicki
incorporated by reference to Exhibit 10.7 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.7.1
|
|
Form of Executive Employment Agreement of Yehudit Bronicki
incorporated by reference to Exhibit 10.8 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.7.2
|
|
Amendment to Employment Agreement of Yehudit Bronicki, dated
March 28, 2008, by and between Ormat Technologies, Inc. and
Yehudit Bronicki, incorporated by reference to
Exhibit 10.8.1 to Ormat Technologies, Inc. Quarterly Report
on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
10
|
.8.1
|
|
Form of Executive Employment Agreement of Yoram Bronicki
incorporated by reference to Exhibit 10.9 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.8.2
|
|
Amendment to Employment Agreement of Yoram Bronicki, dated
March 28, 2008, by and between Ormat Technologies, Inc. and
Yoram Bronicki, incorporated by reference to Exhibit 10.8.1
to Ormat Technologies, Inc. Quarterly Report on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
10
|
.9
|
|
Form of Indemnification Agreement incorporated by reference to
Exhibit 10.11 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 20,
2004.
|
|
10
|
.10
|
|
Note Purchase Agreement, dated December 2, 2005, among
Lehman Brothers Inc., OrCal Geothermal Inc., OrHeber 1 Inc.,
OrHeber 2 Inc., Second Imperial Geothermal Company, Heber Field
Company and Heber Geothermal Company, incorporated by reference
to Exhibit 10.12 to Ormat Technologies, Inc. Annual Report
on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
10
|
.11.1
|
|
Indenture dated as of December 8, 2005 among OrCal
Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial
Geothermal Company, Heber Field Company and Heber Geothermal
Company and Union Bank of California, incorporated by reference
to Exhibit 10.13 to Ormat Technologies, Inc. Annual Report
on
Form 10-K
to the Securities and Exchange Commission on March 28,
2006.
|
163
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.11.2
|
|
First Supplemental Indenture dated as of June 14, 2006
amending the Indenture dated as of December 8, 2005 among
OrCal Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second
Imperial Geothermal Company, Heber Field Company and Heber
Geothermal Company and Union Bank of California, incorporated by
reference to Exhibit 10.13.2 to Ormat Technologies, Inc.
Quarterly Report on
Form 10-Q
( File No
001-32347)
to the Securities and Exchange Commission on August 7, 2006.
|
|
10
|
.12
|
|
Guarantee dated as of December 8, 2005 among OrCal
Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial
Geothermal Company, Heber Field Company and Heber Geothermal
Company, incorporated by reference to Exhibit 10.14 to
Ormat Technologies, Inc. Annual Report on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
10
|
.13
|
|
Note Purchase Agreement, dated February 6, 2004, among
Lehman Brothers Inc., Ormat Funding Corp., Brady Power Partners,
Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2 LLC
and ORNI 7 LLC, incorporated by reference to Exhibit 10.15
to Ormat Technologies, Inc. Annual Report on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
10
|
.14
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Ormesa LLC and Southern
California Edison Company, incorporated by reference to Ormat
Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.15
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Ormesa LLC and Southern
California Edison Company, incorporated by reference to Ormat
Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.16
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Heber Geothermal Company and
Southern California Edison Company, incorporated by reference to
Ormat Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.17
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Second Imperial Geothermal
Company and Southern California Edison Company, incorporated by
reference to Ormat Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.18.1
|
|
Amended and Restated Power Purchase Agreement for
Olkaria III Geothermal Plant, dated January 19, 2007,
between OrPower 4 Inc. and The Kenya Power and Lighting Company
Limited, incorporated by reference to Ormat Technologies, Inc.
Annual Report o
Form 10-K
to the Securities and Exchange Commission on March 12, 2007.
|
|
10
|
.18.2
|
|
Olkaria III Project Security Agreement, dated
January 19, 2007, between OrPower 4 Inc. and The Kenya
Power and Lighting Company Limited, incorporated by reference to
Ormat Technologies, Inc. Annual Report o
Form 10-K
to the Securities and Exchange Commission on March 12, 2007.
|
|
10
|
.18.3
|
|
Common Terms Agreement, dated January 5, 2009, between
OrPower 4, Inc., and DEG Deutsche Investitions-Und
Enticklungsgesellschaft MBH, Societe de Promotion et de
Participation pour la Cooperation Economique, and BNY Corporate
Trustee Services Limited, filed herewith.
|
|
10
|
.18.4
|
|
DEG A Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.18.5
|
|
DEG B Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.18.6
|
|
DEG C Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.18.7
|
|
Proparco A Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
164
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.19
|
|
Amendment No. 2 to the Power Purchase Contract between
Ormesa LLC and Ormat Technologies, Inc., and Southern California
Edison Company (RAP ID 3012) dated April 23, 2006,
incorporated by reference to Exhibit 10.21.2 to Ormat
Technologies, Inc. Quarterly Report on
Form 10-Q
to the Securities and Exchange Commission on August 8, 2007.
|
|
10
|
.20.1
|
|
Subscription Agreement dated as of October 22, 2007 between
the Company and Ormat Industries Ltd., incorporated by reference
to Exhibit 3.1 to Ormat Technologies, Inc. Current Report
on
Form 8-K
to the Securities and Exchange Commission on October 24,
2007.
|
|
10
|
.20.2
|
|
Amendment No. 1 to the Subscription Agreement, dated
October 25, 2007, between the Company and Ormat Industries
Ltd., incorporated by reference to Exhibit 1.1 to Ormat
Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on October 31,
2007.
|
|
10
|
.21
|
|
Subscription Agreement dated as of December 3, 2007 between
the Company and Ormat Industries Ltd., incorporated by reference
to Exhibit 3.1 to Ormat Technologies, Inc. Current Report
on
Form 8-K
to the Securities and Exchange Commission on January 9,
2008.
|
|
10
|
.22
|
|
Joint Ownership Agreement for the Carson Lake Project, dated as
of March 12, 2008, by and between Nevada Power Company and
ORNI 16 LLC, incorporated by reference to Exhibit 10.24 to
Ormat Technologies, Inc. Quarterly Report on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
21
|
.1
|
|
Subsidiaries of Ormat Technologies, Inc., incorporated by
reference to Exhibit 21.1 to Ormat Technologies, Inc.
Annual Report on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers, LLP, Independent Registered
Public Accounting Firm, filed herewith.
|
|
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.
|
|
99
|
.1
|
|
Material terms with respect to BLM geothermal resources leases
incorporated by reference to Exhibit 99.1 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 20,
2004.
|
|
99
|
.2
|
|
Material terms with respect to BLM site leases incorporated by
reference to Exhibit 99.2 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
99
|
.3
|
|
Material terms with respect to agreements addressing renewable
energy pricing and payment issues incorporated by reference to
Exhibit 99.3 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
165
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
|
|
|
|
|
ORMAT TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
Date: February 27, 2009
|
|
By:
|
|
/s/ YEHUDIT BRONICKI
|
|
|
|
|
|
|
|
|
|
Name: Yehudit Bronicki
|
|
|
|
|
Title: Chief Executive Officer,
and Director
|
Pursuant to the requirement of the Securities Act of 1934, this
annual report has been signed below by the following persons on
behalf of the Registrant in the capacities indicated, on
February 27, 2009.
|
|
|
|
|
Signature
|
|
Capacity
|
|
|
|
|
/s/ YEHUDIT
BRONICKI
Yehudit
Bronicki
|
|
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
|
|
/s/ JOSEPH
TENNE
Joseph
Tenne
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
|
|
|
/s/ LUCIEN
Y. BRONICKI
Lucien
Y. Bronicki
|
|
Chairman of the Board of Directors and Chief Technology Officer
|
|
|
|
/s/ YORAM
BRONICKI
Yoram
Bronicki
|
|
President, Chief Operating Officer and Director
|
|
|
|
/s/ DAN
FALK
Dan
Falk
|
|
Director
|
166
|
|
|
|
|
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
|
.1
|
|
Form of Common Share Stock Certificate, incorporated by
reference to Exhibit 4.1 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
4
|
.2
|
|
Form of Preferred Share Stock Certificate, incorporated by
reference to Exhibit 4.2 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
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.
|
|
10
|
.1.1
|
|
Credit Facility Agreement, dated September 5, 2000, between
Ormat Momotombo Power Company and Bank Hapoalim B.M.,
incorporated by reference to Exhibit 10.1.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.2
|
|
Credit Agreement, dated as of December 18, 2003, among
OrCal Geothermal Inc. and Beal Bank, S.S.B. and the financial
institutions party thereto from time to time, incorporated by
reference to Exhibit 10.1.5 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.3
|
|
Indenture, dated February 13, 2004, among Ormat Funding
Corp., Brady Power Partners, Steamboat Development Corp.,
Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2
LLC, ORNI 7 LLC, Ormesa LLC and Union Bank of California,
incorporated by reference to Exhibit 10.1.7 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.4
|
|
First Supplemental Indenture, dated May 14, 2004, among
Ormat Funding Corp., Brady Power Partners, Steamboat Development
Corp., Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC,
ORNI 2 LLC, ORNI 7 LLC, Ormesa LLC and Union Bank of California,
incorporated by reference to Exhibit 10.1.8 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.5
|
|
Fifth Supplemental Indenture, dated April 26, 2006, among
Ormat Funding Corp. and Union Bank of California, N.A.,
incorporated by reference to Exhibit 10.1.6 to Ormat
Technologies, Inc. Quarterly Report on
Form 10-Q
( File No
001-32347)
to the Securities and Exchange Commission on August 7,
2006.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.1.6
|
|
Loan Agreement, dated October 1, 2003, by and between Ormat
Technologies, Inc. and Ormat Industries Ltd., incorporated by
reference to Exhibit 10.1.9 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.7
|
|
Amendment No. 1 to Loan Agreement, dated September 20,
2004, by and between Ormat Technologies, Inc. and Ormat
Industries Ltd., incorporated by reference to
Exhibit 10.1.10 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.8
|
|
Guarantee Fee Agreement, dated January 1, 1999, by and
between Ormat Technologies, Inc. and Ormat Industries Ltd.,
incorporated by reference to Exhibit 10.1.13 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.9
|
|
Reimbursement Agreement, dated July 15, 2004, by and
between Ormat Technologies, Inc. and Ormat Industries Ltd.,
incorporated by reference to Exhibit 10.1.14 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.10
|
|
Services Agreement, dated July 15, 2004, by and between
Ormat Industries Ltd. and Ormat Systems Ltd., incorporated by
reference to Exhibit 10.1.15 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.1.11
|
|
Agreement for Purchase of Membership Interests in 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 10.1 to Ormat Technologies, Inc.
Current Report on
Form 8-K
to the Securities and Exchange Commission on June 13, 2007.
|
|
10
|
.1.12
|
|
First Amendment to Agreement for Purchase of Membership
Interests in OPC LLC, dated as of April 17, 2008, by and
among Ormat Nevada Inc., Morgan Stanley Geothermal LLC, and
Lehman-OPC LLC, incorporated by reference to
Exhibit 10.1.18 to Ormat Technologies, Inc. Quarterly
Report on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
10
|
.2.1
|
|
Power Purchase Contract, dated July 18, 1984, between
Southern California Edison Company and Republic Geothermal,
Inc., incorporated by reference to Exhibit 10.3.1 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.2
|
|
Amendment No. 1, to the Power Purchase Contract, dated
December 23, 1988, between Southern California Edison
Company and Ormesa Geothermal, incorporated by reference to
Exhibit 10.3.2 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.3
|
|
Power Purchase Contract, dated June 13, 1984, between
Southern California Edison Company and Ormat Systems, Inc.,
incorporated by reference to Exhibit 10.3.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.4
|
|
Power Purchase and Sales Agreement, dated as of August 26,
1983, between Chevron U.S.A. Inc. and Southern California Edison
Company, incorporated by reference to Exhibit 10.3.4 to
Ormat Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.5
|
|
Amendment No. 1, to Power Purchase and Sale Agreement,
dated as of December 11, 1984, between Chevron U.S.A. Inc.,
HGC and Southern California Edison Company, incorporated by
reference to Exhibit 10.3.5 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.6
|
|
Settlement Agreement and Amendment No. 2, to Power Purchase
Contract, dated August 7, 1995, between HGC and Southern
California Edison Company, incorporated by reference to
Exhibit 10.3.6 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.7
|
|
Power Purchase Contract dated, April 16, 1985, between
Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.7 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.8
|
|
Amendment No. 1, dated as of October 23, 1987, between
Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.8 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.9
|
|
Amendment No. 2, dated as of July 27, 1990, between
Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.9 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.10
|
|
Amendment No. 3, dated as of November 24, 1992,
between Southern California Edison Company and Second Imperial
Geothermal Company, incorporated by reference to
Exhibit 10.3.10 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.11
|
|
Amended and Restated Power Purchase and Sales Agreement, dated
December 2, 1986, between Mammoth Pacific and Southern
California Edison Company, incorporated by reference to
Exhibit 10.3.11 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.12
|
|
Amendment No. 1, to Amended and Restated Power Purchase and
Sale Agreement, dated May 18, 1990, between Mammoth Pacific
and Southern California Edison Company, incorporated by
reference to Exhibit 10.3.12 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.13
|
|
Power Purchase Contract, dated April 15, 1985, between
Mammoth Pacific and Southern California Edison Company,
incorporated by reference to Exhibit 10.3.13 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.14
|
|
Amendment No. 1, dated as of October 27, 1989, between
Mammoth Pacific and Southern California Edison Company,
incorporated by reference to Exhibit 10.3.14 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.15
|
|
Amendment No. 2, dated as of December 20, 1989,
between Mammoth Pacific and Southern California Edison Company,
incorporated by reference to Exhibit 10.3.15 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.16
|
|
Power Purchase Contract, dated April 16, 1985, between
Southern California Edison Company and Santa Fe Geothermal,
Inc., incorporated by reference to Exhibit 10.3.16 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.17
|
|
Amendment No. 1, to Power Purchase Contract, dated
October 25, 1985, between Southern California Edison
Company and Mammoth Pacific, incorporated by reference to
Exhibit 10.3.17 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.18
|
|
Amendment No. 2, to Power Purchase Contract, dated
December 20, 1989, between Southern California Edison
Company and Pacific Lighting Energy Systems, incorporated by
reference to Exhibit 10.3.18 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.19
|
|
Interconnection Facilities Agreement, dated October 20,
1989, by and between Southern California Edison Company and
Mammoth Pacific, incorporated by reference to
Exhibit 10.3.19 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.20
|
|
Interconnection Facilities Agreement, dated October 13,
1985, by and between Southern California Edison Company and
Mammoth Pacific (II), incorporated by reference to
Exhibit 10.3.20 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.21
|
|
Interconnection Facilities Agreement, dated October 20,
1989, by and between Southern California Edison Company and
Pacific Lighting Energy Systems, incorporated by reference to
Exhibit 10.3.21 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.22
|
|
Interconnection Agreement, dated August 12, 1985, by and
between Southern California Edison Company and Heber Geothermal
Company incorporated by reference to Exhibit 10.3.22 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.23
|
|
Plant Connection Agreement for the Heber Geothermal Plant
No. 1, dated, July 31, 1985, by and between Imperial
Irrigation District and Heber Geothermal Company incorporated by
reference to Exhibit 10.3.23 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.24
|
|
Plant Connection Agreement for the Second Imperial Geothermal
Company Power Plant No. 1, dated, October 27, 1992, by
and between Imperial Irrigation District and Second Imperial
Geothermal Company incorporated by reference to
Exhibit 10.3.24 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.25
|
|
IID-SIGC Transmission Service Agreement for Alternative
Resources, dated, October 27, 1992, by and between Imperial
Irrigation District and Second Imperial Geothermal Company
incorporated by reference to Exhibit 10.3.25 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.2.26
|
|
Plant Connection Agreement for the Ormesa Geothermal Plant,
dated October 1, 1985, by and between Imperial Irrigation
District and Ormesa Geothermal incorporated by reference to
Exhibit 10.3.26 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.27
|
|
Plant Connection Agreement for the Ormesa IE Geothermal Plant,
dated, October 21, 1988, by and between Imperial Irrigation
District and Ormesa IE incorporated by reference to
Exhibit 10.3.27 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.28
|
|
Plant Connection Agreement for the Ormesa IH Geothermal Plant,
dated, October 3, 1989, by and between Imperial Irrigation
District and Ormesa IH incorporated by reference to
Exhibit 10.3.28 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.29
|
|
Plant Connection Agreement for the Geo East Mesa Limited
Partnership Unit No. 2, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.29 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.30
|
|
Plant Connection Agreement for the Geo East Mesa Limited
Partnership Unit No. 3, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.30 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.31
|
|
Transmission Service Agreement for the Ormesa I, Ormesa IE
and Ormesa IH Geothermal Power Plants, dated, October 3,
1989, between Imperial Irrigation District and Ormesa Geothermal
incorporated by reference to Exhibit 10.3.31 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.32
|
|
Transmission Service Agreement for the Geo East Mesa Limited
Partnership Unit No. 2, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.32 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.33
|
|
Transmission Service Agreement for the Geo East Mesa Limited
Partnership Unit No. 3, dated, March 21, 1989, by and
between Imperial Irrigation District and Geo East Mesa Limited
Partnership incorporated by reference to Exhibit 10.3.33 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.34
|
|
IID-Edison Transmission Service Agreement for Alternative
Resources, dated, September 26, 1985, by and between
Imperial Irrigation District and Southern California Edison
Company incorporated by reference to Exhibit 10.3.34 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.35
|
|
Plant Amendment No. 1, to IID-Edison Transmission Service
Agreement for Alternative Resources, dated, August 25,
1987, by and between Imperial Irrigation District and Southern
California Edison Company incorporated by reference to
Exhibit 10.3.35 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.36
|
|
Agreement Addressing Renewable Energy Pricing and Payment
Issues, dated June 15, 2001, by and between Second Imperial
Geothermal Company QFID No. 3021 and Southern California
Edison Company incorporated by reference to Exhibit 10.3.39
to Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.37
|
|
Amendment No. 1 to Agreement Addressing Renewable Energy
Pricing and Payment Issues, dated November 30, 2001, by and
between Second Imperial Geothermal Company QFID No. 3021
and Southern California Edison Company incorporated by reference
to Exhibit 10.3.40 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.38
|
|
Agreement Addressing Renewable Energy Pricing and Payment
Issues, dated June 15, 2001, by and between Heber
Geothermal Company QFID No. 3001 and Southern California
Edison Company incorporated by reference to Exhibit 10.3.41
to Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.39
|
|
Amendment No. 1 to Agreement Addressing Renewable Energy
Pricing and Payment Issues, dated November 30, 2001, by and
between Heber Geothermal Company QFID No. 3001 and Southern
California Edison Company incorporated by reference to
Exhibit 10.3.42 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.40
|
|
Energy Services Agreement, dated February 2003, by and between
Imperial Irrigation District and ORMESA, LLC incorporated by
reference to Exhibit 10.3.43 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.41
|
|
Purchase Power Contract, dated March 24, 1986, by and
between Hawaii Electric Light Company and Thermal Power Company
incorporated by reference to Exhibit 10.3.44 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.42
|
|
Firm Capacity Amendment to Purchase Power Contract, dated
July 28, 1989, by and between Hawaii Electric Light Company
and Puna Geothermal Venture incorporated by reference to
Exhibit 10.3.45 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.43
|
|
Amendment to Purchase Power Contract, dated October 19,
1993, by and between Hawaii Electric Light Company and Puna
Geothermal Venture incorporated by reference to
Exhibit 10.3.46 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.2.44
|
|
Third Amendment to the Purchase Power Contract, dated
March 7, 1995, by and between Hawaii Electric Light Company
and Puna Geothermal Venture incorporated by reference to
Exhibit 10.3.47 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.45
|
|
Performance Agreement and Fourth Amendment to the Purchase Power
Contract, dated February 12, 1996, by and between Hawaii
Electric Light Company and Puna Geothermal Venture incorporated
by reference to Exhibit 10.3.48 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.2.46
|
|
Agreement to Design 69 KV Transmission Lines, a Substation at
Pohoiki, Modifications to Substations at Puna and Kaumana, and a
Temporary 34.5 Facility to Interconnect PGVs Geothermal
Electric Plant with HELCOs System Grid (Phase II and
III), dated June 7, 1990, by and between Hawaii Electric
Light Company and Puna Geothermal Venture incorporated by
reference to Exhibit 10.3.49 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.1
|
|
Ormesa BLM Geothermal Resources Lease CA 966 incorporated by
reference to Exhibit 10.4.1 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.2
|
|
Ormesa BLM License for Electric Power Plant Site CA 24678
incorporated by reference to Exhibit 10.4.2 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.3
|
|
Geothermal Resources Mining Lease, dated February 20, 1981,
by and between the State of Hawaii, as Lessor, and Kapoho Land
Partnership, as Lessee incorporated by reference to
Exhibit 10.4.3 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.4
|
|
Geothermal Lease Agreement, dated October 20, 1975, by and
between Ruth Walker Cox and Betty M. Smith, as Lessor, and Gulf
Oil Corporation, as Lessee incorporated by reference to
Exhibit 10.4.4 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.5
|
|
Geothermal Lease Agreement, dated August 1, 1976, by and
between Southern Pacific Land Company, as Lessor, and Phillips
Petroleum Company, as Lessee incorporated by reference to
Exhibit 10.4.5 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.6
|
|
Geothermal Resources Lease, dated November 18, 1983, by and
between Sierra Pacific Power Company, as Lessor, and Geothermal
Development Associates, as Lessee incorporated by reference to
Exhibit 10.4.6 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.7
|
|
Lease Agreement, dated November 1, 1969, by and between
Chrisman B. Jackson and Sharon Jackson, husband and wife, as
Lessor, and Standard Oil Company of California, as Lessee
incorporated by reference to Exhibit 10.4.7 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.8
|
|
Lease Agreement, dated September 22, 1976, by and between
El Toro Land & Cattle Co., as Lessor, and Standard Oil
Company of California, as Lessee incorporated by reference to
Exhibit 10.4.8 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.9
|
|
Lease Agreement, dated February 17, 1977, by and between
Joseph L. Holtz, as Lessor, and Chevron U.S.A. Inc., as Lessee
incorporated by reference to Exhibit 10.4.9 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.10
|
|
Lease Agreement, dated March 11, 1964, by and between John
D. Jackson and Frances Jones Jackson, also known as Frances J.
Jackson, husband and wife, as Lessor, and Standard Oil Company
of California, as Lessee incorporated by reference to
Exhibit 10.4.10 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.3.11
|
|
Lease Agreement, dated February 16, 1964, by and between
John D. Jackson, conservator for the estate of Aphia Jackson
Wallan, as Lessor, and Standard Oil Company of California, as
Lessee incorporated by reference to Exhibit 10.4.11 to
Ormat Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.12
|
|
Lease Agreement, dated March 17, 1964, by and between Helen
S. Fugate, a widow, as Lessor, and Standard Oil Company of
California, as Lessee incorporated by reference to
Exhibit 10.4.12 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.13
|
|
Lease Agreement, dated February 16, 1964, by and between
John D. Jackson and Frances J. Jackson, husband and wife, as
Lessor, and Standard Oil Company of California, as Lessee
incorporated by reference to Exhibit 10.4.13 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.14
|
|
Lease Agreement, dated February 20, 1964, by and between
John A. Straub and Edith D. Straub, also known as John A. Straub
and Edythe D. Straub, husband and wife, as Lessor, and Standard
Oil Company of California, as Lessee incorporated by reference
to Exhibit 10.4.14 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.15
|
|
Lease Agreement, dated July 1, 1971, by and between Marie
L. Gisler and Harry R. Gisler, as Lessor, and Standard Oil
Company of California, as Lessee incorporated by reference to
Exhibit 10.4.15 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.16
|
|
Lease Agreement, dated February 28, 1964, by and between
Gus Kurupas and Guadalupe Kurupas, husband and wife, as Lessor,
and Standard Oil Company of California, as Lessee incorporated
by reference to Exhibit 10.4.16 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.17
|
|
Lease Agreement, dated April 7, 1972, by and between Nowlin
Partnership, as Lessor, and Standard Oil Company of California,
as Lessee incorporated by reference to Exhibit 10.4.17 to
Ormat Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.18
|
|
Geothermal Lease Agreement, dated July 18, 1979, by and
between Charles K. Corfman, an unmarried man as his sole and
separate property, and Lessor, and Union Oil Company of
California, as Lessee incorporated by reference to
Exhibit 10.4.18 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.19
|
|
Lease Agreement, dated January 1, 1972, by and between
Holly Oberly Thomson, also known as Holly F. Oberly Thomson,
also known as Holly Felicia Thomson, as Lessor, and Union Oil
Company of California, as Lessee incorporated by reference to
Exhibit 10.4.19 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.20
|
|
Lease Agreement, dated June 14, 1971, by and between
Fitzhugh Lee Brewer, Jr., a married man as his separate
property, Donna Hawk, a married woman as her separate property,
and Ted Draper and Helen Draper, husband and wife, as Lessor,
and Union Oil Company of California, as Lessee incorporated by
reference to Exhibit 10.4.20 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.21
|
|
Lease Agreement, dated May 13, 1971, by and between Mathew
J. La Brucherie and Jane E. La Brucherie, husband and
wife, and Robert T. ODell and Phyllis M. ODell,
husband and wife, as Lessor, and Union Oil Company of
California, as Lessee incorporated by reference to
Exhibit 10.4.21 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.22
|
|
Lease Agreement, dated June 2, 1971, by and between Dorothy
Gisler, a widow, Joan C. Hill, and Jean C. Browning, as Lessor,
and Union Oil Company of California, as Lessee incorporated by
reference to Exhibit 10.4.22 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.3.23
|
|
Geothermal Lease Agreement, dated February 15, 1977, by and
between Walter J. Holtz, as Lessor, and Magma Energy Inc., as
Lessee incorporated by reference to Exhibit 10.4.23 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.24
|
|
Geothermal Lease, dated August 31, 1983, by and between
Magma Energy Inc., as Lessor, and Holt Geothermal Company, as
Lessee incorporated by reference to Exhibit 10.4.24 to
Ormat Technologies, Inc. Registration Statement Amendment
No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.25
|
|
Unprotected Lease Agreement, dated July 15, 2004, by and
between Ormat Industries Ltd. and Ormat Systems Ltd.
incorporated by reference to Exhibit 10.4.25 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
10
|
.3.26
|
|
Geothermal Resources Lease, dated June 27, 1988, by and
between Bernice Guisti, Judith Harvey and Karen Thompson,
Trustees and Beneficiaries of the Guisti Trust, as Lessor, and
Far West Capital, Inc., as Lessee incorporated by reference to
Exhibit 10.4.26 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.27
|
|
Amendment to Geothermal Resources Lease, dated January, 1992, by
and between Bernice Guisti, Judith Harvey and Karen Thompson,
Trustees and Beneficiaries of the Guisti Trust, as Lessor, and
Far West Capital, Inc., as Lessee incorporated by reference to
Exhibit 10.4.27 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.28
|
|
Second Amendment to Geothermal Resources Lease, dated
June 25, 1993, by and between Bernice Guisti, Judith Harvey
and Karen Thompson, Trustees and Beneficiaries of the Guisti
Trust, as Lessor, and Far West Capital, Inc. and its Assignee,
Steamboat Development Corp., as Lessee incorporated by reference
to Exhibit 10.4.28 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.29
|
|
Geothermal Resources Sublease, dated May 31, 1991, by and
between Fleetwood Corporation, as Lessor, and Far West Capital,
Inc., as Lessee incorporated by reference to
Exhibit 10.4.29 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.30
|
|
KLP Lease and Agreement, dated March 1, 1981, by and
between Kapoho Land Partnership, as Lessor, and Thermal Power
Company, as Lessee incorporated by reference to
Exhibit 10.4.30 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.31
|
|
Amendment to KLP Lease and Agreement, dated July 9, 1990,
by and between Kapoho Land Partnership, as Lessor, and Puna
Geothermal Venture, as Lessee incorporated by reference to
Exhibit 10.4.31 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.32
|
|
Second Amendment to KLP Lease and Agreement, dated
December 31, 1996, by and between Kapoho Land Partnership,
as Lessor, and Puna Geothermal Venture, as Lessee incorporated
by reference to Exhibit 10.4.32 to Ormat Technologies, Inc.
Registration Statement Amendment No. 1 on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.3.33
|
|
Participation Agreement, dated May 18, 2005, by and among
Puna Geothermal Venture, SE Puna, L.L.C., Wilmington
Trust Company, S.E. Puna Lease, L.L.C., AIG Annuity
Insurance Company, American General Life Insurance Company,
Allstate Life Insurance Company and Union Bank of California,
incorporated by reference to Exhibit 10.4.33 to Ormat
Technologies, Inc. Quarterly Report on
Form 10-Q/A
to the Securities and Exchange Commission on December 22,
2005.
|
|
10
|
.3.34
|
|
Project Lease Agreement, dated May 18, 2005, by and between
SE Puna, L.L.C. and Puna Geothermal Venture, incorporated by
reference to Exhibit 10.4.34 to Ormat Technologies, Inc.
Quarterly Report on
Form 10-Q/A
to the Securities and Exchange Commission on December 22,
2005.
|
|
10
|
.4.1
|
|
Patent License Agreement, dated July 15, 2004, by and
between Ormat Industries Ltd. and Ormat Systems Ltd.
incorporated by reference to Exhibit 10.5.4 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.4.2
|
|
Form of Registration Rights Agreement by and between Ormat
Technologies, Inc. and Ormat Industries Ltd. incorporated by
reference to Exhibit 10.5.5 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.
|
|
10
|
.5.1
|
|
Ormat Technologies, Inc. 2004 Incentive Compensation Plan
incorporated by reference to Exhibit 10.6.1 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.
|
|
10
|
.5.2
|
|
Form of Incentive Stock Option Agreement incorporated by
reference to Exhibit 10.6.2 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.
|
|
10
|
.5.3
|
|
Form of Nonqualified Stock Option Agreement incorporated by
reference to Exhibit 10.6.3 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.
|
|
10
|
.6
|
|
Form of Executive Employment Agreement of Lucien Bronicki
incorporated by reference to Exhibit 10.7 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.7.1
|
|
Form of Executive Employment Agreement of Yehudit Bronicki
incorporated by reference to Exhibit 10.8 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.7.2
|
|
Amendment to Employment Agreement of Yehudit Bronicki, dated
March 28, 2008, by and between Ormat Technologies, Inc. and
Yehudit Bronicki, incorporated by reference to
Exhibit 10.8.1 to Ormat Technologies, Inc. Quarterly Report
on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
10
|
.8.1
|
|
Form of Executive Employment Agreement of Yoram Bronicki
incorporated by reference to Exhibit 10.9 to Ormat
Technologies, Inc. Registration Statement Amendment No. 1
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on September 28,
2004.
|
|
10
|
.8.2
|
|
Amendment to Employment Agreement of Yoram Bronicki, dated
March 28, 2008, by and between Ormat Technologies, Inc. and
Yoram Bronicki, incorporated by reference to Exhibit 10.8.1 to
Ormat Technologies, Inc. Quarterly Report on Form
10-Q to the
Securities and Exchange Commission on May 7, 2008.
|
|
10
|
.9
|
|
Form of Indemnification Agreement incorporated by reference to
Exhibit 10.11 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 20,
2004.
|
|
10
|
.10
|
|
Note Purchase Agreement, dated December 2, 2005, among
Lehman Brothers Inc., OrCal Geothermal Inc., OrHeber 1 Inc.,
OrHeber 2 Inc., Second Imperial Geothermal Company, Heber Field
Company and Heber Geothermal Company, incorporated by reference
to Exhibit 10.12 to Ormat Technologies, Inc. Annual Report
on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
10
|
.11.1
|
|
Indenture dated as of December 8, 2005 among OrCal
Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial
Geothermal Company, Heber Field Company and Heber Geothermal
Company and Union Bank of California, incorporated by reference
to Exhibit 10.13 to Ormat Technologies, Inc. Annual Report
on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
10
|
.11.2
|
|
First Supplemental Indenture dated as of June 14, 2006
amending the Indenture dated as of December 8, 2005 among
OrCal Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second
Imperial Geothermal Company, Heber Field Company and Heber
Geothermal Company and Union Bank of California, incorporated by
reference to Exhibit 10.13.2 to Ormat Technologies, Inc.
Quarterly Report on
Form 10-Q
( File No
001-32347)
to the Securities and Exchange Commission on August 7, 2006.
|
|
10
|
.12
|
|
Guarantee dated as of December 8, 2005 among OrCal
Geothermal Inc., OrHeber 1 Inc., OrHeber 2 Inc., Second Imperial
Geothermal Company, Heber Field Company and Heber Geothermal
Company, incorporated by reference to Exhibit 10.14 to
Ormat Technologies, Inc. Annual Report on
Form 10-K
to the Securities and Exchange Commission on March 28,
2006.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.13
|
|
Note Purchase Agreement, dated February 6, 2004, among
Lehman Brothers Inc., Ormat Funding Corp., Brady Power Partners,
Steamboat Geothermal LLC, OrMammoth Inc., ORNI 1 LLC, ORNI 2 LLC
and ORNI 7 LLC, incorporated by reference to Exhibit 10.15
to Ormat Technologies, Inc. Annual Report on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
10
|
.14
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Ormesa LLC and Southern
California Edison Company, incorporated by reference to Ormat
Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.15
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Ormesa LLC and Southern
California Edison Company, incorporated by reference to Ormat
Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.16
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Heber Geothermal Company and
Southern California Edison Company, incorporated by reference to
Ormat Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.17
|
|
Agreement No. 2 Addressing Renewable Energy Pricing Issues,
dated May 10, 2006, between Second Imperial Geothermal
Company and Southern California Edison Company, incorporated by
reference to Ormat Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on May 16, 2006.
|
|
10
|
.18.1
|
|
Amended and Restated Power Purchase Agreement for
Olkaria III Geothermal Plant, dated January 19, 2007,
between OrPower 4 Inc. and The Kenya Power and Lighting Company
Limited, incorporated by reference to Ormat Technologies, Inc.
Annual Report o
Form 10-K
to the Securities and Exchange Commission on March 12, 2007.
|
|
10
|
.18.2
|
|
Olkaria III Project Security Agreement, dated
January 19, 2007, between OrPower 4 Inc. and The Kenya
Power and Lighting Company Limited, incorporated by reference to
Ormat Technologies, Inc. Annual Report o
Form 10-K
to the Securities and Exchange Commission on March 12, 2007.
|
|
10
|
.18.3
|
|
Common Terms Agreement, dated January 5, 2009, between
OrPower 4, Inc., and DEG Deutsche Investitions-Und
Enticklungsgesellschaft MBH, Societe de Promotion et de
Participation pour la Cooperation Economique, and BNY Corporate
Trustee Services Limited, filed herewith.
|
|
10
|
.18.4
|
|
DEG A Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.18.5
|
|
DEG B Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.18.6
|
|
DEG C Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.18.7
|
|
Proparco A Facility Loan Agreement, dated January 5, 2009,
between OrPower 4, Inc. and DEG Deutsche
Investitions-Und Enticklungsgesellschaft MBH and Societe de
Promotion et de Participation pour la Cooperation Economique,
filed herewith.
|
|
10
|
.19
|
|
Amendment No. 2 to the Power Purchase Contract between
Ormesa LLC and Ormat Technologies, Inc., and Southern California
Edison Company (RAP ID 3012) dated April 23, 2006,
incorporated by reference to Exhibit 10.21.2 to Ormat
Technologies, Inc. Quarterly Report on
Form 10-Q
to the Securities and Exchange Commission on August 8, 2007.
|
|
10
|
.20.1
|
|
Subscription Agreement dated as of October 22, 2007 between
the Company and Ormat Industries Ltd., incorporated by reference
to Exhibit 3.1 to Ormat Technologies, Inc. Current Report
on
Form 8-K
to the Securities and Exchange Commission on October 24,
2007.
|
|
10
|
.20.2
|
|
Amendment No. 1 to the Subscription Agreement, dated
October 25, 2007, between the Company and Ormat Industries
Ltd., incorporated by reference to Exhibit 1.1 to Ormat
Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on October 31,
2007.
|
|
10
|
.21
|
|
Subscription Agreement dated as of December 3, 2007 between
the Company and Ormat Industries Ltd., incorporated by reference
to Exhibit 3.1 to Ormat Technologies, Inc. Current Report
on
Form 8-K
to the Securities and Exchange Commission on January 9,
2008.
|
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
10
|
.22
|
|
Joint Ownership Agreement for the Carson Lake Project, dated as
of March 12, 2008, by and between Nevada Power Company and
ORNI 16 LLC, incorporated by reference to Exhibit 10.24 to
Ormat Technologies, Inc. Quarterly Report on
Form 10-Q
to the Securities and Exchange Commission on May 7, 2008.
|
|
21
|
.1
|
|
Subsidiaries of Ormat Technologies, Inc., incorporated by
reference to Exhibit 21.1 to Ormat Technologies, Inc.
Annual Report on
Form 10-K
to the Securities and Exchange Commission on March 28, 2006.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers, LLP, Independent Registered
Public Accounting Firm, filed herewith.
|
|
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.
|
|
99
|
.1
|
|
Material terms with respect to BLM geothermal resources leases
incorporated by reference to Exhibit 99.1 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 20,
2004.
|
|
99
|
.2
|
|
Material terms with respect to BLM site leases incorporated by
reference to Exhibit 99.2 to Ormat Technologies, Inc.
Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
99
|
.3
|
|
Material terms with respect to agreements addressing renewable
energy pricing and payment issues incorporated by reference to
Exhibit 99.3 to Ormat Technologies, Inc. Registration
Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|