e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32347
ORMAT TECHNOLOGIES,
INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
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88-0326081
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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6225 Neil Road, Reno, Nevada
89511-1136
(Address of principal executive
offices)
Registrants telephone number, including area code:
(775) 356-9029
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes þ No
As of the date of this filing, the number of outstanding shares
of common stock of Ormat Technologies, Inc. is
45,430,886 par value of $0.001 per share.
ORMAT
TECHNOLOGIES, INC
FORM 10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 2010
2
Certain
Definitions
Unless the context otherwise requires, all references in this
quarterly report to Ormat, the Company,
we, us, our company,
Ormat Technologies or our refer to Ormat
Technologies, Inc. and its consolidated subsidiaries.
3
PART I
UNAUDITED FINANCIAL INFORMATION
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ITEM 1.
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CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30,
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December 31,
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2010
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2009
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(In thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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49,240
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$
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46,307
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Restricted cash, cash equivalents and marketable securities (all
related to VIEs)
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64,332
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40,955
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Receivables:
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Trade
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59,223
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53,423
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Related entity
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274
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441
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Other
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10,395
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7,884
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Due from Parent
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182
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422
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Inventories
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14,615
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15,486
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Costs and estimated earnings in excess of billings on
uncompleted contracts
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771
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14,640
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Deferred income taxes
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3,410
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3,617
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Prepaid expenses and other
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16,329
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12,080
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Total current assets
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218,771
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195,255
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Long-term marketable securities
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1,289
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652
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Restricted cash, cash equivalents and marketable securities (all
related to VIEs)
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1,740
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2,512
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Unconsolidated investments
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2,040
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35,188
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Deposits and other
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20,862
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18,653
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Deferred charges
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30,064
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22,532
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Property, plant and equipment, net ($1,242,923 related to VIEs
at September 30, 2010)
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1,289,137
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998,693
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Construction-in-process
($219,622 related to VIEs at September 30, 2010)
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341,507
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518,595
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Deferred financing and lease costs, net
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19,093
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20,940
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Intangible assets, net
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40,206
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41,981
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Total assets
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$
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1,964,709
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$
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1,855,001
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LIABILITIES AND EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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86,414
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$
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73,993
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Billings in excess of costs and estimated earnings on
uncompleted contracts
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4,771
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3,351
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Current portion of long-term debt:
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Limited and non-recourse (all related to VIEs at
September 30, 2010)
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14,918
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19,191
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Full recourse
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13,010
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12,823
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Senior secured notes (non-recourse) (all related to VIEs at
September 30, 2010)
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20,583
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20,227
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Due to Parent, including current portion of notes payable to
Parent
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10,018
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|
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Total current liabilities
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139,696
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139,603
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Long-term debt, net of current portion:
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Limited and non-recourse (all related to VIEs at
September 30, 2010)
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120,690
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129,152
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Full recourse:
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Senior unsecured bonds
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142,003
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Other
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69,166
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77,177
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Revolving credit lines with banks
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116,464
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134,000
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Senior secured notes (non-recourse) (all related to VIEs at
September 30, 2010)
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224,005
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231,872
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Liability associated with sale of tax benefits
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70,965
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73,246
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Deferred lease income
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71,673
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72,867
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Deferred income taxes
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24,969
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44,530
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Liability for unrecognized tax benefits
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5,648
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4,931
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Liabilities for severance pay
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19,840
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18,332
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Asset retirement obligation
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18,508
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14,238
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Other long-term liabilities
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2,267
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3,358
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|
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Total liabilities
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1,025,894
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|
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943,306
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Commitments and contingencies
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Equity:
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The Companys stockholders equity:
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Common stock, par value $0.001 per share; 200,000,000 shares
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authorized; 45,430,886 shares issued and outstanding
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46
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46
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Additional paid-in capital
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713,991
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709,354
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Retained earnings
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219,122
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196,950
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Accumulated other comprehensive income
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1,101
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|
622
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|
|
|
|
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934,260
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906,972
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Noncontrolling interest
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4,555
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4,723
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Total equity
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938,815
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911,695
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|
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Total liabilities and equity
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$
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1,964,709
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$
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1,855,001
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2009
|
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2009
|
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|
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2010
|
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(As Revised)
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2010
|
|
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(As Revised)
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(In thousands, except
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(In thousands, except
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per share data)
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per share data)
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|
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Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
83,357
|
|
|
$
|
67,913
|
|
|
$
|
218,269
|
|
|
$
|
189,799
|
|
Product
|
|
|
18,120
|
|
|
|
51,113
|
|
|
|
62,128
|
|
|
|
128,037
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|
|
|
|
|
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|
|
|
|
|
|
|
|
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Total revenues
|
|
|
101,477
|
|
|
|
119,026
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|
|
|
280,397
|
|
|
|
317,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
61,530
|
|
|
|
44,085
|
|
|
|
179,551
|
|
|
|
132,489
|
|
Product
|
|
|
14,764
|
|
|
|
35,780
|
|
|
|
41,316
|
|
|
|
87,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
76,294
|
|
|
|
79,865
|
|
|
|
220,867
|
|
|
|
219,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross margin
|
|
|
25,183
|
|
|
|
39,161
|
|
|
|
59,530
|
|
|
|
98,082
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1,252
|
|
|
|
3,863
|
|
|
|
8,133
|
|
|
|
7,151
|
|
Selling and marketing expenses
|
|
|
3,333
|
|
|
|
3,393
|
|
|
|
9,221
|
|
|
|
10,909
|
|
General and administrative expenses
|
|
|
5,780
|
|
|
|
6,437
|
|
|
|
19,796
|
|
|
|
19,554
|
|
Write-off of unsuccessful exploration activities
|
|
|
|
|
|
|
2,367
|
|
|
|
3,050
|
|
|
|
2,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14,818
|
|
|
|
23,101
|
|
|
|
19,330
|
|
|
|
58,101
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
140
|
|
|
|
157
|
|
|
|
432
|
|
|
|
585
|
|
Interest expense, net
|
|
|
(10,961
|
)
|
|
|
(4,358
|
)
|
|
|
(30,101
|
)
|
|
|
(12,063
|
)
|
Foreign currency translation and transaction gains (losses)
|
|
|
1,074
|
|
|
|
25
|
|
|
|
475
|
|
|
|
(1,324
|
)
|
Income attributable to sale of tax benefits
|
|
|
2,183
|
|
|
|
3,869
|
|
|
|
6,392
|
|
|
|
12,403
|
|
Gain on acquisition of controlling interest
|
|
|
36,928
|
|
|
|
|
|
|
|
36,928
|
|
|
|
|
|
Other non-operating income (expense), net
|
|
|
233
|
|
|
|
246
|
|
|
|
(47
|
)
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes and
equity in income (losses) of investees
|
|
|
44,415
|
|
|
|
23,040
|
|
|
|
33,409
|
|
|
|
58,348
|
|
Income tax provision
|
|
|
(11,931
|
)
|
|
|
(2,935
|
)
|
|
|
(6,009
|
)
|
|
|
(10,232
|
)
|
Equity in income (losses) of investees, net
|
|
|
(83
|
)
|
|
|
591
|
|
|
|
942
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
32,401
|
|
|
|
20,696
|
|
|
|
28,342
|
|
|
|
49,612
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of related tax of $0,
$536, $6 and $1,206, respectively
|
|
|
|
|
|
|
1,251
|
|
|
|
14
|
|
|
|
2,815
|
|
Gain on sale of a subsidiary in New Zealand net of tax of $2,000
|
|
|
|
|
|
|
|
|
|
|
4,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
32,401
|
|
|
|
21,947
|
|
|
|
32,692
|
|
|
|
52,427
|
|
Net loss attributable to noncontrolling interest
|
|
|
58
|
|
|
|
80
|
|
|
|
168
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Companys stockholders
|
|
$
|
32,459
|
|
|
$
|
22,027
|
|
|
$
|
32,860
|
|
|
$
|
52,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,401
|
|
|
$
|
21,947
|
|
|
$
|
32,692
|
|
|
$
|
52,427
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
412
|
|
|
|
43
|
|
|
|
783
|
|
Amortization of unrealized gains in respect of derivative
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
designated for cash flow hedge
|
|
|
(61
|
)
|
|
|
(65
|
)
|
|
|
(177
|
)
|
|
|
(195
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale
|
|
|
|
|
|
|
5
|
|
|
|
(80
|
)
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
32,340
|
|
|
|
22,299
|
|
|
|
32,478
|
|
|
|
53,280
|
|
Comprehensive loss attributable to noncontrolling interest
|
|
|
58
|
|
|
|
80
|
|
|
|
168
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the Companys
stockholders
|
|
$
|
32,398
|
|
|
$
|
22,379
|
|
|
$
|
32,646
|
|
|
$
|
53,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Companys
stockholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.71
|
|
|
$
|
0.45
|
|
|
$
|
0.62
|
|
|
$
|
1.10
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.03
|
|
|
|
0.10
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.71
|
|
|
$
|
0.48
|
|
|
$
|
0.72
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share attributable to the Companys
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,431
|
|
|
|
45,413
|
|
|
|
45,431
|
|
|
|
45,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,450
|
|
|
|
45,564
|
|
|
|
45,452
|
|
|
|
45,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend per share declared
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Interest
|
|
|
Equity
|
|
|
|
(In thousands, except per share data)
|
|
|
Balance at December 31, 2008
|
|
|
45,353
|
|
|
$
|
45
|
|
|
$
|
701,273
|
|
|
$
|
138,241
|
|
|
$
|
645
|
|
|
$
|
840,204
|
|
|
$
|
7,031
|
|
|
$
|
847,235
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,253
|
|
|
|
|
|
|
|
|
|
|
|
4,253
|
|
|
|
|
|
|
|
4,253
|
|
Cumulative effect of adopting the
other-than-temporary
impairment standard as of April 1, 2009 (net of related tax
of $650)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,205
|
|
|
|
(1,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared, $0.19 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,622
|
)
|
|
|
|
|
|
|
(8,622
|
)
|
|
|
|
|
|
|
(8,622
|
)
|
Exercise of options by employees
|
|
|
70
|
|
|
|
1
|
|
|
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
1,091
|
|
|
|
|
|
|
|
1,091
|
|
Net income (loss) (as revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,663
|
|
|
|
|
|
|
|
52,663
|
|
|
|
(236
|
)
|
|
|
52,427
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783
|
|
|
|
783
|
|
|
|
|
|
|
|
783
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge (net of related tax
of $120)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
(195
|
)
|
|
|
|
|
|
|
(195
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale
(net of related tax of $146)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
265
|
|
|
|
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 (as revised)
|
|
|
45,423
|
|
|
$
|
46
|
|
|
$
|
706,616
|
|
|
$
|
183,487
|
|
|
$
|
293
|
|
|
$
|
890,442
|
|
|
$
|
6,795
|
|
|
$
|
897,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
45,431
|
|
|
|
46
|
|
|
|
709,354
|
|
|
|
196,950
|
|
|
|
622
|
|
|
|
906,972
|
|
|
|
4,723
|
|
|
|
911,695
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,637
|
|
|
|
|
|
|
|
|
|
|
|
4,637
|
|
|
|
|
|
|
|
4,637
|
|
Cumulative effect of adopting the guidance on evaluation of
credit derivatives embedded in beneficial interests in
securitized financial assets as of July 1, 2010 (net of
related tax of $370)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(693
|
)
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared, $0.22 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,995
|
)
|
|
|
|
|
|
|
(9,995
|
)
|
|
|
|
|
|
|
(9,995
|
)
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,860
|
|
|
|
|
|
|
|
32,860
|
|
|
|
(168
|
)
|
|
|
32,692
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge (net of related tax
of $108)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
(177
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale
(net of related tax of $43)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
|
45,431
|
|
|
$
|
46
|
|
|
$
|
713,991
|
|
|
$
|
219,122
|
|
|
$
|
1,101
|
|
|
$
|
934,260
|
|
|
$
|
4,555
|
|
|
$
|
938,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(As Revised)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,692
|
|
|
$
|
52,427
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
64,461
|
|
|
|
48,794
|
|
Accretion of asset retirement obligation
|
|
|
888
|
|
|
|
788
|
|
Stock-based compensation
|
|
|
4,637
|
|
|
|
4,253
|
|
Amortization of deferred lease income
|
|
|
(2,014
|
)
|
|
|
(2,014
|
)
|
Income attributable to sale of tax benefits, net of interest
expense
|
|
|
(2,281
|
)
|
|
|
(6,686
|
)
|
Equity in income of investees
|
|
|
(942
|
)
|
|
|
(1,496
|
)
|
Loss on disposal of property, plant and equipment
|
|
|
571
|
|
|
|
|
|
Write-off of unsuccessful exploration activities
|
|
|
3,050
|
|
|
|
2,367
|
|
Return on investment in unconsolidated investments
|
|
|
3,734
|
|
|
|
|
|
Loss on severance pay fund asset
|
|
|
(1,099
|
)
|
|
|
(1,205
|
)
|
Gain on sale of a subsidiary
|
|
|
(6,350
|
)
|
|
|
|
|
Gain on acquisition of controlling interest
|
|
|
(36,928
|
)
|
|
|
|
|
Deferred income tax provision
|
|
|
5,717
|
|
|
|
9,213
|
|
Liability for unrecognized tax benefits
|
|
|
717
|
|
|
|
1,001
|
|
Deferred lease revenues
|
|
|
820
|
|
|
|
841
|
|
Other
|
|
|
|
|
|
|
(70
|
)
|
Changes in operating assets and liabilities net of amounts
acquired:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(5,691
|
)
|
|
|
(10,107
|
)
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
13,869
|
|
|
|
(16,973
|
)
|
Inventories
|
|
|
871
|
|
|
|
(469
|
)
|
Prepaid expenses and other
|
|
|
(3,995
|
)
|
|
|
5,943
|
|
Deposits and other
|
|
|
(253
|
)
|
|
|
(15
|
)
|
Accounts payable and accrued expenses
|
|
|
5,571
|
|
|
|
355
|
|
Due from/to related entities, net
|
|
|
(60
|
)
|
|
|
(140
|
)
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
1,420
|
|
|
|
(10,176
|
)
|
Liabilities for severance pay
|
|
|
1,508
|
|
|
|
821
|
|
Other long-term liabilities
|
|
|
(1,091
|
)
|
|
|
|
|
Due from/to Parent
|
|
|
(178
|
)
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
79,644
|
|
|
|
77,696
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Return of investment in unconsolidated investments
|
|
|
3,516
|
|
|
|
|
|
Marketable securities, net
|
|
|
|
|
|
|
200
|
|
Net change in restricted cash, cash equivalents and marketable
securities
|
|
|
(23,352
|
)
|
|
|
(36,219
|
)
|
Cash received from sale of a subsidiary
|
|
|
19,594
|
|
|
|
|
|
Capital expenditures
|
|
|
(194,926
|
)
|
|
|
(212,282
|
)
|
Cash grant received from the U.S. Treasury under
Section 1603 of the ARRA
|
|
|
108,286
|
|
|
|
|
|
Investment in unconsolidated company
|
|
|
(511
|
)
|
|
|
|
|
Cash paid for acquisition of controlling interest in a
subsidiary, net of cash acquired
|
|
|
(64,517
|
)
|
|
|
|
|
Intangible assets acquired
|
|
|
(875
|
)
|
|
|
|
|
Increase in severance pay fund asset, net of payments made to
retired employees
|
|
|
(235
|
)
|
|
|
(642
|
)
|
Repayment from unconsolidated investment
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(153,020
|
)
|
|
|
(248,881
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior unsecured bonds
|
|
|
142,003
|
|
|
|
|
|
Proceeds from long-term loans
|
|
|
|
|
|
|
187,000
|
|
Proceeds from exercise of options by employees
|
|
|
|
|
|
|
1,091
|
|
Proceeds from revolving credit lines with banks
|
|
|
518,064
|
|
|
|
879,000
|
|
Repayment of revolving credit lines with banks
|
|
|
(535,600
|
)
|
|
|
(867,000
|
)
|
Repayments of long-term debt
|
|
|
|
|
|
|
|
|
Parent
|
|
|
(9,600
|
)
|
|
|
(16,600
|
)
|
Other
|
|
|
(28,070
|
)
|
|
|
(13,049
|
)
|
Deferred debt issuance costs
|
|
|
(493
|
)
|
|
|
(4,901
|
)
|
Cash dividends paid
|
|
|
(9,995
|
)
|
|
|
(8,622
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
76,309
|
|
|
|
156,919
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
2,933
|
|
|
|
(14,050
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
46,307
|
|
|
|
34,393
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
49,240
|
|
|
$
|
20,343
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Increase (decrease) in accounts payable related to purchases of
property, plant
|
|
|
|
|
|
|
|
|
and equipment
|
|
$
|
6,153
|
|
|
$
|
(26,417
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
GENERAL AND BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements of
Ormat Technologies, Inc. and its subsidiaries (the
Company) have been prepared in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP) and pursuant to the rules
and regulations of the Securities and Exchange Commission
(SEC) for interim financial statements. Accordingly,
they do not contain all information and notes required by
U.S. GAAP for annual financial statements. In the opinion
of management, the unaudited condensed consolidated interim
financial statements reflect all adjustments, which include
normal recurring adjustments, necessary for a fair statement of
the Companys consolidated financial position as of
September 30, 2010, the consolidated results of operations
and comprehensive income for the three and nine-month periods
ended September 30, 2010 and 2009, and the consolidated
cash flows for the nine-month periods ended September 30,
2010 and 2009.
The financial data and other information disclosed in the notes
to the condensed consolidated financial statements related to
these periods are unaudited. The results for the three and
nine-month periods ended September 30, 2010 are not
necessarily indicative of the results to be expected for the
year ending December 31, 2010.
These condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys
annual report on
Form 10-K
for the year ended December 31, 2009. The condensed
consolidated balance sheet data as of December 31, 2009 was
derived from the audited consolidated financial statements for
the year ended December 31, 2009, but does not include all
disclosures required by U.S. GAAP.
Cash
grant
On August 27, 2010, the Company was awarded a cash grant
from the U.S. Department of Treasury (Treasury)
for Specified Energy Property in Lieu of Tax Credits under
Section 1603 of the American Recovery and Reinvestment Act
of 2009 (ARRA) in the amount of $108.3 million
relating to its North Brawley geothermal power plant. The
plants estimated useful life is 30 years. The Company
has recorded the cash grant as a reduction in the carrying value
of the plant and is amortizing the grant as a reduction in
depreciation expense over the plants estimated useful
life. During the three and nine-month periods ended
September 30, 2010, amortization of the cash grant reduced
depreciation expense by $0.5 million.
For federal income tax purposes, the tax basis of the plant is
only reduced by 50 percent of the cash grant. To account
for the tax effect of the difference between the tax and book
basis of the plant, the Company has recorded a deferred tax
asset of $33.2 million with a corresponding decrease in the
carrying value of the plant. This reduction in the carrying
value of the plant will be amortized as a reduction in
depreciation expense over the plants estimated useful
life. During the three and nine-month periods ended
September 30, 2010, amortization of this basis difference
reduced depreciation expense by $0.1 million.
Dollar amounts, except per share data, in the notes to these
financial statements are rounded to the closest $1,000.
Certain comparative figures have been reclassified to conform to
the current period presentation (see Note 10).
Revision
of the financial statements for the three and nine-month periods
ended September 30, 2009
Through the third quarter of 2009, the Company accounted for
exploration and development costs using an accounting method
that is analogous to the full cost method used in the oil and
gas industry. Under that method, the Company capitalized costs
incurred in connection with the exploration and development of
8
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
geothermal resources on an
area-of-interest
basis. Each area of interest included a number of potential
projects in the state of Nevada that were planned to be operated
together with the same operation and maintenance team.
Impairment tests were performed on an
area-of-interest
basis rather than at a single site. Under this methodology,
costs associated with projects that the Company determined were
not economically feasible remained capitalized as long as the
area-of-interest
was not subject to impairment.
Following a periodic review performed by the SEC Staff, the
Company concluded that this accounting treatment was
inappropriate in certain respects and the Company restated the
consolidated financial statements for the year ended
December 31, 2008 to write-off capitalized costs for
projects the Company determined were not economically feasible
in the period such determination was made. The Company also
revised its financial statements for the three and nine-month
periods ended September 30, 2009 to give effect to a
write-off of costs associated with a project which the Company
determined in the third quarter of 2009 would not support
commercial operations. The effect of the revision on the results
of operations in those periods is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
*As Originally
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
|
|
(Dollars in thousands)
|
|
|
Write-off of unsuccessful exploration activities
|
|
$
|
|
|
|
$
|
(2,367
|
)
|
|
$
|
(2,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
25,468
|
|
|
|
(2,367
|
)
|
|
|
23,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
157
|
|
|
|
|
|
|
|
157
|
|
Interest expense, net
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
(4,358
|
)
|
Foreign currency translation and transaction gains
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Income attributable to sale of tax benefits
|
|
|
3,869
|
|
|
|
|
|
|
|
3,869
|
|
Other non-operating income, net
|
|
|
246
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes and
equity in income of investees
|
|
|
25,407
|
|
|
|
(2,367
|
)
|
|
|
23,040
|
|
Income tax provision
|
|
|
(3,803
|
)
|
|
|
868
|
|
|
|
(2,935
|
)
|
Equity in income of investees, net
|
|
|
591
|
|
|
|
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
22,195
|
|
|
|
(1,499
|
)
|
|
|
20,696
|
|
Income from discontinued operations, net of tax
|
|
|
1,251
|
|
|
|
|
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
23,446
|
|
|
|
(1,499
|
)
|
|
|
21,947
|
|
Net loss attributable to noncontrolling interest
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Companys stockholders
|
|
$
|
23,526
|
|
|
$
|
(1,499
|
)
|
|
$
|
22,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
23,446
|
|
|
$
|
(1,499
|
)
|
|
$
|
21,947
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
412
|
|
|
|
|
|
|
|
412
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge
|
|
|
(65
|
)
|
|
|
|
|
|
|
(65
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,798
|
|
|
|
(1,499
|
)
|
|
|
22,299
|
|
Comprehensive loss attributable to noncontrolling interest
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the Companys
stockholders
|
|
$
|
23,878
|
|
|
$
|
(1,499
|
)
|
|
$
|
22,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Companys
stockholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.49
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.45
|
|
Income from discontinued operations
|
|
|
0.03
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.52
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
*As Originally
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
|
|
(Dollars in thousands)
|
|
|
Write-off of unsuccessful exploration activities
|
|
$
|
|
|
|
$
|
(2,367
|
)
|
|
$
|
(2,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
60,468
|
|
|
|
(2,367
|
)
|
|
|
58,101
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
585
|
|
|
|
|
|
|
|
585
|
|
Interest expense, net
|
|
|
(12,063
|
)
|
|
|
|
|
|
|
(12,063
|
)
|
Foreign currency translation and transaction gains
|
|
|
(1,324
|
)
|
|
|
|
|
|
|
(1,324
|
)
|
Income attributable to sale of tax benefits
|
|
|
12,403
|
|
|
|
|
|
|
|
12,403
|
|
Other non-operating income, net
|
|
|
646
|
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes and
equity in income of investees
|
|
|
60,715
|
|
|
|
(2,367
|
)
|
|
|
58,348
|
|
Income tax provision
|
|
|
(11,100
|
)
|
|
|
868
|
|
|
|
(10,232
|
)
|
Equity in income of investees, net
|
|
|
1,496
|
|
|
|
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
51,111
|
|
|
|
(1,499
|
)
|
|
|
49,612
|
|
Income from discontinued operations, net of tax
|
|
|
2,815
|
|
|
|
|
|
|
|
2,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
53,926
|
|
|
|
(1,499
|
)
|
|
|
52,427
|
|
Net loss attributable to noncontrolling interest
|
|
|
236
|
|
|
|
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Companys stockholders
|
|
$
|
54,162
|
|
|
$
|
(1,499
|
)
|
|
$
|
52,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
53,926
|
|
|
$
|
(1,499
|
)
|
|
$
|
52,427
|
|
Other comprehensive income (loss), net of related taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
783
|
|
|
|
|
|
|
|
783
|
|
Amortization of unrealized gains in respect of derivative
instruments designated for cash flow hedge
|
|
|
(195
|
)
|
|
|
|
|
|
|
(195
|
)
|
Change in unrealized gains or losses on marketable securities
available-for-sale
|
|
|
265
|
|
|
|
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,779
|
|
|
|
(1,499
|
)
|
|
|
53,280
|
|
Comprehensive loss attributable to noncontrolling interest
|
|
|
236
|
|
|
|
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the Companys
stockholders
|
|
$
|
55,015
|
|
|
$
|
(1,499
|
)
|
|
$
|
53,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Companys
stockholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.14
|
|
|
$
|
(0.04
|
)
|
|
$
|
1.10
|
|
Income from discontinued operations
|
|
|
0.06
|
|
|
|
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.20
|
|
|
$
|
(0.04
|
)
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
In January 2010, the Company sold its interest in its New Zeland
subsidiary, Geothermal Development Limited (GDL). As
a result of such sale, the operations of GDL have been included
in discontinued operations in the three and nine-month periods
ended September 30, 2010. |
Concentration
of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of temporary
cash investments, marketable securities and accounts receivable.
The Company places its temporary cash investments with high
credit quality financial institutions located in the United
States (U.S.) and in foreign countries. At
September 30, 2010 and December 31, 2009, the Company
had deposits totaling $35,534,000 and $24,561,000, respectively,
in seven U.S. financial institutions that were federally
insured up to $250,000 per account. At September 30, 2010
and December 31, 2009, the Companys deposits in
foreign countries amounted to approximately $31,546,000 and
$35,095,000, respectively.
10
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
At September 30, 2010 and December 31, 2009, accounts
receivable related to operations in foreign countries amounted
to approximately $24,448,000 and $30,761,000, respectively. At
September 30, 2010 and December 31, 2009, accounts
receivable from the Companys major customers that have
generated 10% or more of its revenues amounted to approximately
50% and 61% of the Companys accounts receivable,
respectively.
Southern California Edison Company (SCE) accounted
for 36.9% and 24.5% of the Companys total revenues for the
three months ended September 30, 2010 and 2009,
respectively, and 29.6% and 21.4% of the Companys total
revenues for the nine months ended September 30, 2010 and
2009, respectively. SCE is also the power purchaser and revenue
source for the Mammoth complex, which was accounted for under
the equity method through August 1, 2010. Following the
Companys acquisition of the remaining 50% interest in the
Mammoth complex, as described in Note 3, the Company has
included the results of the Mammoth complex in its consolidated
financial statements.
Sierra Pacific Power Company and Nevada Power Company
(subsidiaries of NV Energy, Inc.) accounted for 12.1% and 10.3%
of the Companys total revenues for the three months ended
September 30, 2010 and 2009, respectively, and 14.8% and
12.0% of the Companys total revenues for the nine months
ended September 30, 2010 and 2009, respectively.
Hawaii Electric Light Company accounted for 9.5% and 3.8% of the
Companys total revenues for the three months ended
September 30, 2010 and 2009, respectively, and 8.3% and
6.1% of the Companys total revenues or the nine months
ended September 30, 2010 and 2009, respectively.
Kenya Power and Lighting Co. Ltd. accounted for 8.7% and 7.5% of
the Companys total revenues for the three months ended
September 30, 2010 and 2009, respectively, and 9.4% and
8.2% of the Companys total revenues for the nine months
ended September 30, 2010 and 2009, respectively.
The Company performs ongoing credit evaluations of its
customers financial condition. The Company has
historically been able to collect on all of its receivable
balances, and accordingly, no provision for doubtful accounts
has been made.
NOTE 2
NEW ACCOUNTING PRONOUNCEMENTS
New
accounting pronouncements effective in the nine-month period
ended September 30, 2010
Accounting
for Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board
(FASB) issued an amendment to the accounting and
disclosure requirements for transfers of financial assets. This
amendment requires greater transparency and additional
disclosures for transfers of financial assets and the
entitys continuing involvement with them and changes the
requirements for derecognizing financial assets. In addition,
this amendment eliminates the concept of a qualifying
special-purpose entity (QSPE). The adoption by the
Company of this amendment on January 1, 2010 did not have
any effect on the Companys financial position, results of
operations, or liquidity.
Consolidation
Guidance for Variable Interest Entities
In June 2009, the FASB issued an amendment to the accounting and
disclosure requirements for the consolidation of variable
interest entities (VIEs). The elimination of the
concept of a QSPE removes the exception from applying the
consolidation guidance within this amendment. This amendment
requires a company to perform a qualitative analysis when
determining whether or not it must consolidate a VIE. The
amendment also requires a company to continuously reassess
whether it must consolidate a VIE. Additionally, the amendment
requires enhanced disclosures about a companys involvement
with VIEs and any significant
11
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
change in risk exposure due to that involvement, as well as how
its involvement with VIEs impacts the companys financial
statements. Finally, a company is required to disclose
significant judgments and assumptions used to determine whether
or not to consolidate a VIE. The Company adopted this amendment
on January 1, 2010. The impact of the adoption of this
amendment on the Companys condensed consolidated financial
statements is disclosed in Note 6.
Updated
Disclosure for Fair Value Measurements
In January 2010, the FASB updated the fair value measurements
disclosures. This update will require an entity to disclose
separately the amounts of significant transfers in and out of
Levels 1 and 2 fair value measurements and to describe the
reasons for the transfers. In addition, information about
purchases, sales, issuances and settlements are required to be
presented separately (i.e., present the activity on a gross
basis rather than net) in the reconciliation for fair value
measurements using significant unobservable inputs (Level 3
inputs). This update clarifies existing disclosure requirements
for the level of disaggregation used for classes of assets and
liabilities measured at fair value, and requires disclosures
about the valuation techniques and inputs used to measure fair
value for both recurring and nonrecurring fair value
measurements using Level 2 and Level 3 inputs. This
update became effective as of the first interim or annual
reporting period beginning after December 15, 2009
(January 1, 2010 for the Company), except for the gross
presentation of the Level 3 roll forward information, which
is required for annual reporting periods beginning after
December 15, 2010 (January 1, 2011 for the Company)
and for interim reporting periods within those years. The
adoption by the Company of the new guidance on January 1,
2010 did not have a material impact on the Companys
consolidated financial statements (see Note 7).
Scope
Exception Related to Embedded Credit Derivatives
In March 2010, the FASB issued an accounting standards update
that amends and clarifies the guidance on how entities should
evaluate credit derivatives embedded in beneficial interests in
securitized financial assets. The updated guidance eliminates
the scope exception for bifurcation of embedded credit
derivatives in interests in securitized financial assets unless
they are created solely by subordination of one beneficial
interest to another. The guidance is effective on the first day
of the first fiscal quarter beginning after June 15, 2010
(July 1, 2010 for the Company). The effect of adopting this
accounting standards update on July 1, 2010 is disclosed in
Note 7.
New
accounting pronouncements effective in future periods
Accounting
for Revenue Recognition
In October 2009, the FASB issued amendments to the accounting
and disclosures for revenue recognition. These amendments,
effective for fiscal years beginning on or after June 15,
2010 (January 1, 2011 for the Company) with early adoption
permitted, modify the criteria for recognizing revenue in
multiple element arrangements and require companies to develop a
best estimate of the selling price to separate deliverables and
allocate arrangement consideration using the relative selling
price method. Additionally, the amendments eliminate the
residual method for allocating arrangement considerations. The
Company is currently evaluating the potential impact, if any, of
the adoption of these amendments on its consolidated financial
statements.
In April 2010, the FASB issued guidance for revenue
recognition milestone method, which provides
guidance on the criteria that, should be met for determining
whether the milestone method of revenue recognition is
appropriate. A vendor can recognize consideration that is
contingent upon achievement of a milestone in its entirety as
revenue in the period in which the milestone is achieved only if
the milestone meets all criteria to be considered substantive. A
milestone should be considered substantive in its entirety. An
individual milestone may not be bifurcated. The amendments in
this update are effective on a prospective basis
12
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
for milestones achieved in fiscal years, and interim periods
within those years, beginning on or after June 15, 2010
(January 1, 2011 for the Company). The Company is currently
evaluating the potential impact, if any, of the adoption of this
guidance on its consolidated financial statements.
Accounting
for Share-based Payments
In April 2010, the FASB issued an accounting standards update,
which addresses the classification of an employee share-based
payment award with an exercise price denominated in the currency
of a market in which the underlying equity security trades. This
update clarifies that an employee share-based payment award with
an exercise price denominated in the currency of a market in
which a substantial portion of the entitys equity
securities trades should not be considered to contain a
condition that is not a market, performance, or service
condition. Therefore, an entity should not classify such an
award as a liability if it otherwise qualifies as equity. The
amendments in this update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2010 (January 1, 2011 for the Company).
The adoption of this update is not expected to have an effect on
the Companys consolidated financial statements.
NOTE 3
MAMMOTH COMPLEX ACQUISITION
On August 2, 2010, the Company acquired the remaining 50%
interest in Mammoth Pacific, LP (Mammoth Pacific),
which owns the Mammoth complex located near the city of Mammoth,
California, for a purchase price of $72.5 million in cash.
The Company acquired the remaining interest in Mammoth Pacific
to increase its geothermal power plant operations in the United
States.
Prior to the acquisition, the Company had a 50% interest in
Mammoth Pacific that was accounted for under the equity method
of accounting. Following the acquisition, the Company became the
sole owner of the Mammoth complex, as well as the sole owner of
rights to over 10,000 acres of undeveloped federal lands.
As a result of the acquisition of the remaining 50% interest in
Mammoth Pacific, the financial statements of Mammoth Pacific
have been consolidated with the Companys financial
statements effective August 2, 2010. The acquisition-date
fair value of the previously held 50% equity interest was
$64.9 million. In the three and nine-month periods ended
September 30, 2010, the Company recognized a pre-tax gain
of $36.9 million, which is equal to the difference between
the acquisition-date fair value of the previously held 50%
equity interest in Mammoth Pacific and the acquisition-date
carrying value of such investment. The gain is included in
Gain on acquisition of controlling interest in the
condensed consolidated statements of operations and
comprehensive income.
13
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The Company is required to allocate the purchase price to
tangible and identifiable intangible assets acquired and
liabilities assumed based on their fair values. The Company is
in the process of finalizing the valuation of the assets
acquired and liabilities assumed and therefore, the fair values
set forth below are subject to adjustment once the valuations
are completed.
The following table summarizes the Companys initial
allocation of the purchase price:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,983
|
|
Trade receivables
|
|
|
3,239
|
|
Prepaid expenses and other
|
|
|
254
|
|
Deposits and other
|
|
|
622
|
|
Property, plant and equipment, net (including
construction-in-process)
|
|
|
129,764
|
|
|
|
|
|
|
Total identifiable assets acquired
|
|
|
141,862
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Current liabilities accounts payable and accrued
expenses
|
|
|
(1,072
|
)
|
Asset retirement obligation
|
|
|
(3,342
|
)
|
|
|
|
|
|
Total identifiable liabilities assumed
|
|
|
(4,414
|
)
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
137,448
|
|
|
|
|
|
|
The acquired property, plant and equipment will be depreciated
over their estimated useful lives.
The revenues of the Mammoth complex and the net loss of the
Mammoth complex were $3,543,000 and $281,000, respectively, for
the period from August 2, 2010 to September 30, 2010.
The following unaudited consolidated pro forma financial
information for the three and the nine-month periods ended
September 30, 2010 and 2009, assumes the Mammoth Pacific
acquisition occurred as of the beginning of each reporting
period presented, after giving effect to certain adjustments,
including the depreciation based on the adjustments to the fair
market value of the property, plant and equipment acquired, and
related income tax effects. The pro forma results have been
prepared for comparative purposes only and
14
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
are not necessarily indicative of the results of operations that
may occur in the future or that would have occurred had the
acquisition of Mammoth Pacific been effected on the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(As Revised)
|
|
|
2010
|
|
|
(As Revised)
|
|
|
|
(In thousands, except
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
per share data)
|
|
|
Revenues
|
|
$
|
103,155
|
|
|
$
|
124,455
|
|
|
$
|
291,881
|
|
|
$
|
332,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
8,710
|
|
|
|
21,212
|
|
|
|
5,273
|
|
|
|
50,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
8,697
|
|
|
|
22,463
|
|
|
|
9,532
|
|
|
|
53,352
|
|
Net loss attributable to noncontrolling interest
|
|
|
58
|
|
|
|
80
|
|
|
|
168
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Companys stockholders
|
|
$
|
8,755
|
|
|
$
|
22,543
|
|
|
$
|
9,700
|
|
|
$
|
53,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the Companys
stockholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.19
|
|
|
$
|
0.47
|
|
|
$
|
0.12
|
|
|
$
|
1.11
|
|
Income from discontinued operations
|
|
|
0.00
|
|
|
|
0.03
|
|
|
|
0.10
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.19
|
|
|
$
|
0.50
|
|
|
$
|
0.22
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4
INVENTORIES
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Raw materials and purchased parts for assembly
|
|
$
|
9,542
|
|
|
$
|
7,322
|
|
Self-manufactured assembly parts and finished products
|
|
|
5,073
|
|
|
|
8,164
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,615
|
|
|
$
|
15,486
|
|
|
|
|
|
|
|
|
|
|
NOTE 5
UNCONSOLIDATED INVESTMENTS
Unconsolidated investments, mainly in power plants, consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Mammoth
|
|
$
|
|
|
|
$
|
33,659
|
|
Sarulla
|
|
|
2,040
|
|
|
|
1,529
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,040
|
|
|
$
|
35,188
|
|
|
|
|
|
|
|
|
|
|
The
Mammoth Complex
Prior to August 2, 2010, the Company had a 50% interest in
Mammoth Pacific, which owns the Mammoth complex. The
Companys 50% ownership interest in Mammoth Pacific was
accounted for under the equity method of accounting as the
Company had the ability to exercise significant influence, but
not control,
15
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
over Mammoth Pacific. On August 2, 2010, the Company
acquired the remaining 50% interest in Mammoth Pacific (see
Note 3).
The condensed financial position and results of operations of
Mammoth Pacific are summarized below:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Condensed balance sheets:
|
|
|
|
|
Current assets
|
|
$
|
19,257
|
|
Non-current assets
|
|
|
64,728
|
|
Current liabilities
|
|
|
659
|
|
Non-current liabilities
|
|
|
3,196
|
|
Partners capital
|
|
|
80,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
January 1, 2010
|
|
|
Nine Months Ended
|
|
|
|
to August 1, 2010
|
|
|
September 30, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
Condensed statements of operations:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,484
|
|
|
$
|
14,884
|
|
Gross margin
|
|
|
2,670
|
|
|
|
4,311
|
|
Net income
|
|
|
2,528
|
|
|
|
4,145
|
|
Companys equity in income of Mammoth:
|
|
|
|
|
|
|
|
|
50% of Mammoth net income
|
|
$
|
1,264
|
|
|
$
|
2,073
|
|
Plus amortization of basis difference
|
|
|
345
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
2,518
|
|
Less income taxes
|
|
|
(611
|
)
|
|
|
(957
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
998
|
|
|
$
|
1,561
|
|
|
|
|
|
|
|
|
|
|
The
Sarulla Project
The Company is a 12.75% member of a consortium which is in the
process of developing a geothermal power project in Indonesia
with expected generating capacity of approximately 340 MW.
The project is located in Tapanuli Utara, North Sumatra,
Indonesia and will be owned and operated by the consortium
members under the framework of a Joint Operating Contract with
PT Pertamina Geothermal Energy (PGE). The project
will be constructed in three phases over five years, with each
phase utilizing the Companys 110 MW to 120 MW
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. The consortium is currently
negotiating certain amendments to the energy sales contract,
including an adjustment of commercial terms, and intends to
proceed with the project after those amendments have become
effective. On April 26, 2010, the parties agreed to
increase the price of the power sold under the energy sales
contract.
The Companys investment in the Sarulla project was not
significant for each of the periods presented in these condensed
consolidated financial statements.
16
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
NOTE 6
CONSOLIDATION GUIDANCE FOR VARIABLE INTEREST ENTITIES
Effective January 1, 2010, the Company adopted new
accounting and disclosure guidance for variable interest
entities (VIEs). Among other accounting and
disclosure requirements, the new guidance requires the primary
beneficiary of a VIE to be identified as the party that both
(i) has the power to direct the activities of a VIE that
most significantly impact its economic performance; and
(ii) has an obligation to absorb losses or a right to
receive benefits that could potentially be significant to the
VIE. The adoption of this new accounting guidance did not result
in the Company consolidating any additional VIEs or
deconsolidating any VIEs.
The Company evaluated all transactions and relationships with
VIEs to determine whether the Company is the primary beneficiary
of the entities in accordance with the guidance. The
Companys overall methodology for evaluating transactions
and relationships under the VIE requirements includes the
following two steps: (i) determining whether the entity
meets the criteria to qualify as a VIE; and
(ii) determining whether the Company is the primary
beneficiary of the VIE.
In performing the first step, the significant factors and
judgments that the Company considers in making the determination
as to whether an entity is a VIE include:
|
|
|
|
|
The design of the entity, including the nature of its risks and
the purpose for which the entity was created, to determine the
variability that the entity was designed to create and
distribute to its interest holders;
|
|
|
|
The nature of the Companys involvement with the entity;
|
|
|
|
Whether control of the entity may be achieved through
arrangements that do not involve voting equity;
|
|
|
|
Whether there is sufficient equity investment at risk to finance
the activities of the entity; and
|
|
|
|
Whether parties other than the equity holders have the
obligation to absorb expected losses or the right to receive
residual returns.
|
If the Company identifies a VIE based on the above
considerations, it then performs the second step and evaluates
whether it is the primary beneficiary of the VIE by considering
the following significant factors and judgments:
|
|
|
|
|
Whether the Company has the power to direct the activities of
the VIE that most significantly impact the entitys
economic performance; and
|
|
|
|
Whether the Company has the obligation to absorb losses of the
entity that could potentially be significant to the VIE or the
right to receive benefits from the entity that could potentially
be significant to the VIE.
|
The Companys VIEs include certain of its wholly owned
subsidiaries that own one or more power plants with long-term
PPAs. In most cases, the PPAs require the utility to purchase
substantially all of the plants electrical output over a
significant portion of its estimated useful life. Most of the
VIEs have associated project financing debt that is non-recourse
to the general creditors of the Company, is collateralized by
substantially all of the assets of the VIE and those of its
wholly owned subsidiaries (also VIEs) and is fully and
unconditionally guaranteed by such subsidiaries. The Company has
concluded that such entities are VIEs primarily because the
entities do not have sufficient equity at risk
and/or
subordinated financial support is provided through the long-term
power purchase agreements (PPAs). The Company has
evaluated each of its VIEs to determine the primary beneficiary
by considering the party that has the power to direct the most
significant activities of the entity. Such activities include,
among others, construction of the power plant, operations and
maintenance, dispatch of electricity, financing and strategy.
The Company controls such activities at each of its VIEs and,
therefore, is considered the primary beneficiary. The Company
will perform
17
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
an ongoing reassessment of the VIEs to determine the primary
beneficiary and may be required to deconsolidate certain of its
VIEs in the future. The Company has aggregated its consolidated
VIEs into the following categories: (i) consolidated
subsidiaries with project debt; and (ii) consolidated
subsidiaries with PPAs.
The tables below detail the assets and liabilities (excluding
intercompany balances which are eliminated in consolidation) for
the Companys VIEs, combined by VIE classifications that
were included in the condensed consolidated balance sheets as of
September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Project Debt
|
|
|
PPAs
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Restricted cash, cash equivalents and marketable securities
|
|
$
|
66,072
|
|
|
$
|
|
|
Other current assets
|
|
|
59,928
|
|
|
|
16,706
|
|
Property, plant and equipment, net
|
|
|
824,065
|
|
|
|
418,858
|
|
Construction-in-process
|
|
|
190,000
|
|
|
|
29,622
|
|
Other long-term assets
|
|
|
53,939
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,194,004
|
|
|
$
|
465,532
|
|
|
|
|
|
|
|
|
|
|
Liability:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
18,334
|
|
|
$
|
4,945
|
|
Long-term debt
|
|
|
380,196
|
|
|
|
|
|
Other long-term liabilities
|
|
|
85,464
|
|
|
|
6,984
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
483,994
|
|
|
$
|
11,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Project Debt
|
|
|
PPAs
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Restricted cash, cash equivalents and marketable securities
|
|
$
|
43,467
|
|
|
$
|
|
|
Other current assets
|
|
|
58,037
|
|
|
|
1,459
|
|
Unconsolidated investments
|
|
|
33,659
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
866,024
|
|
|
|
89,822
|
|
Construction-in-process
|
|
|
12,151
|
|
|
|
239,799
|
|
Other long-term assets
|
|
|
58,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,071,620
|
|
|
$
|
331,080
|
|
|
|
|
|
|
|
|
|
|
Liability:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
11,328
|
|
|
$
|
1,749
|
|
Long-term debt
|
|
|
400,442
|
|
|
|
|
|
Other long-term liabilities
|
|
|
87,181
|
|
|
|
3,198
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
498,951
|
|
|
$
|
4,947
|
|
|
|
|
|
|
|
|
|
|
18
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
NOTE 7
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value measurement guidance clarifies that fair value is
an exit price, representing the amount that would be received 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. It establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The
three levels of the fair value hierarchy under the fair value
measurement guidance are described below:
Level 1 Unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical assets or liabilities;
Level 2 Quoted prices in markets that are not
active, or inputs that are observable, either directly or
indirectly, for substantially the full term of the asset or
liability;
Level 3 Prices or valuation techniques that
require inputs that are both significant to the fair value
measurement and unobservable (supported by little or no market
activity).
The following table sets forth certain fair value information at
September 30, 2010 and December 31, 2009 for financial
assets and liabilities measured at fair value by level within
the fair value hierarchy, as well as cost or amortized cost. As
required by the fair value measurement guidance, assets and
liabilities are classified in their entirety based on the lowest
level of inputs that is significant to the fair value
measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Fair Value at September 30, 2010
|
|
|
|
2010
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (including restricted cash accounts)
|
|
$
|
29,538
|
|
|
$
|
29,538
|
|
|
$
|
29,538
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives*
|
|
|
|
|
|
|
886
|
|
|
|
|
|
|
|
886
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including restricted cash accounts) ($4.5 million par
value), see below
|
|
|
4,022
|
|
|
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,648
|
|
|
$
|
33,453
|
|
|
$
|
29,538
|
|
|
$
|
886
|
|
|
$
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Fair Value at December 31, 2009
|
|
|
|
2009
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (including restricted cash accounts)
|
|
$
|
20,227
|
|
|
$
|
20,227
|
|
|
$
|
20,227
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives*
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illiquid auction rate securities including restricted cash
accounts) ($4.5 million par value), see below
|
|
|
4,099
|
|
|
|
3,164
|
|
|
|
|
|
|
|
|
|
|
|
3,164
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives*
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,326
|
|
|
$
|
23,450
|
|
|
$
|
20,227
|
|
|
$
|
59
|
|
|
$
|
3,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Derivatives represent foreign currency forward and option
contracts, which are valued primarily based on observable inputs
including forward and spot prices for currencies. |
The Companys financial assets measured at fair value
(including restricted cash accounts) at September 30, 2010
and December 31, 2009 include investments in auction rate
securities and money market funds (which are included in cash
equivalents). Those securities, except for the 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.
The Companys auction rate securities are valued using
Level 3 inputs. As of September 30, 2010 and
December 31, 2009, all of the Companys auction rate
securities are associated with failed auctions. Such securities
have par values totaling $4.5 million at September 30,
2010 and December 31, 2009, 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) 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.
20
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The table below sets forth a summary of the changes in the fair
value of the Companys financial assets classified as
Level 3 (i.e., illiquid auction rate securities) for the
nine months ended September 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of period
|
|
$
|
3,164
|
|
|
$
|
4,945
|
|
Sale of auction rate securities
|
|
|
|
|
|
|
(40
|
)
|
Total unrealized gains (losses):
|
|
|
|
|
|
|
|
|
Included in net income
|
|
|
(135
|
)
|
|
|
(280
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
3,029
|
|
|
$
|
5,036
|
|
|
|
|
|
|
|
|
|
|
Effective April 1, 2009, the Company adopted the
recognition and presentation of the
other-than-temporary
impairments standard, which requires an entity to separate an
other-than-temporary
impairment of a debt security into two components when there are
credit-related losses associated with the impaired security for
which management does not have the intent to sell the security
and it is not more likely than not, that it will be required to
sell the security before recovery of its cost basis. For those
securities, the amount of the
other-than-temporary
impairment related to a credit loss is recognized in earnings
and reflected as a reduction in the cost basis of the security,
and the amount of the
other-than-temporary
impairment related to other factors is recorded in other
comprehensive loss with no change to the cost basis of the
security. For securities for which there is an intent to sell
before recovery of the cost basis, the full amount of the
other-than-temporary
impairment is recognized in earnings and reflected as a
reduction in the cost basis of the security. Upon adoption of
this standard, the Company reclassified $1,205,000 (net of taxes
of $650,000) to other comprehensive income with an offset to
retained earnings related to the
other-than-temporary
impairment charges previously recognized in earnings. This
cumulative effect adjustment relates to auction rate securities
for which the Company does not have the intent to sell and will
not, more likely than not, be required to sell prior to recovery
of its cost basis.
Effective July 1, 2010, the Company adopted an accounting
standards update that amends and clarifies the guidance on how
entities should evaluate credit derivatives embedded in
beneficial interests in securitized financial assets. The
updated guidance eliminates the scope exception for bifurcation
of embedded credit derivatives in interests in securitized
financial assets unless they are created solely by subordination
of one beneficial interest to another. The auction rate
securities held by the Company are considered securitized
financial assets and therefore fall under the guideline in the
abovementioned accounting standards update. The Company elected
the fair value option for its auction rate securities as
permitted by the update. Upon adoption of this accounting
standards update, the Company reclassified $693,000 (net of
income taxes of $377,000) to retained earnings with an offset to
other comprehensive income. Effective with the adoption of this
new guidance, all changes in the fair value of auction rate
securities are recognized in earnings.
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 on the consolidated balance
sheets as of September 30, 2010 and December 31, 2009.
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, the Company may
be required to record additional impairment charges in the rest
of 2010.
21
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
There were no transfers of assets or liabilities between
Level 1 and Level 2 during the three and nine-month
periods ended September 30, 2010.
The fair value of the Companys long-term debt approximates
its carrying amount, except for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Carrying Amount
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(Dollars in millions)
|
|
(Dollars in millions)
|
|
Orzunil Senior Loans
|
|
$
|
2.1
|
|
|
$
|
5.3
|
|
|
$
|
2.1
|
|
|
$
|
5.2
|
|
Olkaria III Loan
|
|
|
95.4
|
|
|
|
96.6
|
|
|
|
93.9
|
|
|
|
99.5
|
|
Amatitlan Loan
|
|
|
40.0
|
|
|
|
41.1
|
|
|
|
39.5
|
|
|
|
41.1
|
|
Senior Secured Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ormat Funding Corp.(OFC)
|
|
|
127.6
|
|
|
|
132.0
|
|
|
|
141.4
|
|
|
|
146.3
|
|
OrCal Geothermal Inc.(OrCal)
|
|
|
102.8
|
|
|
|
103.7
|
|
|
|
103.2
|
|
|
|
105.8
|
|
Senior unsecured bonds
|
|
|
142.0
|
|
|
|
|
|
|
|
142.0
|
|
|
|
|
|
Loan from institutional investors
|
|
|
17.3
|
|
|
|
20.0
|
|
|
|
17.2
|
|
|
|
20.0
|
|
Parent Loan
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
9.6
|
|
The fair value of OFC Senior Secured Notes is determined using
observable market prices as these securities are traded. The
fair value of other long-term debt is determined by a valuation
model, which is based on a conventional discounted cash flow
methodology and utilizes assumptions of current market pricing
curves.
NOTE 8
LONG-TERM DEBT
Issuance
of Senior Unsecured Bonds
On August 3, 2010, the Company entered into a trust
instrument governing the issuance of, and accepted subscriptions
for, an aggregate principal amount of approximately
$142.0 million of senior unsecured bonds (the
Bonds). The Company issued the Bonds outside the
United States to investors who are not
U.S. persons in an unregistered offering
pursuant to, and subject to the requirements of,
Regulation S under the Securities Act of 1933, as amended.
Subject to early redemption, the principal of the Bonds is
repayable in a single bullet payment upon the final maturity of
the Bonds on August 1, 2017. The Bonds bear interest at a
fixed rate of 7% per annum, payable semi-annually. The Company
intends to use the proceeds of the Bonds for general corporate
purposes, which may include the repayment of existing
indebtedness and the acquisition, directly or indirectly, of
additional energy assets, including by way of construction,
enhancement and expansion of its existing projects.
NOTE 9
STOCK-BASED COMPENSATION
On April 16, 2010, the Company granted to employees 592,900
stock appreciation rights (SAR) under the
Companys 2004 Incentive Plan. The exercise price of each
SAR is $29.95, which represented the fair market value of the
Companys common stock on the date of grant. Such SARs will
expire seven years from the date of grant and will cliff vest
and are exercisable from the grant date as follows: 25% after
24 months, 25% after 36 months, and the remaining 50%
after 48 months. Upon exercise, SARs entitle the recipient
to receive shares of common stock equal to the increase in value
of the award between the grant date and the exercise date. The
fair value of each SAR on the date of grant was $12.64.
22
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The Company calculated the fair value of each SAR on the date of
grant using the Black-Scholes valuation model based on the
following assumptions:
|
|
|
|
|
Risk-free interest rates
|
|
|
2.58
|
%
|
Expected term (in years)
|
|
|
5.125
|
|
Dividend yield
|
|
|
0.72
|
%
|
Expected volatility
|
|
|
47.55
|
%
|
Forfeiture rate
|
|
|
13.0
|
%
|
On May 5, 2010, the Company granted to a non-employee
director options to purchase 7,500 shares of common stock
under the 2004 Incentive Plan. The exercise price of each option
is $29.21, which represented the closing price of the
Companys common stock on May 6, 2010 (since the
Company released its quarterly results for the first quarter of
2010 on May 5, 2010). Such options will expire seven years
from the date of grant and will vest on the first anniversary of
the date of grant. The fair value of each option on the date of
grant was $11.19.
The Company calculated the fair value of each option on the date
of grant using the Black-Scholes valuation model based on the
following assumptions:
|
|
|
|
|
Risk-free interest rates
|
|
|
1.7
|
%
|
Expected term (in years)
|
|
|
4.0
|
|
Dividend yield
|
|
|
0.67
|
%
|
Expected volatility
|
|
|
49.71
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
On November 3, 2010, the Company granted to non-employee
directors options to purchase 30,000 shares of common stock
under the Companys 2004 Incentive Plan (see Note 18).
NOTE 10
DISCONTINUED OPERATIONS
In January 2010, a former shareholder of Geothermal Development
Limited (GDL) exercised a call option to purchase
from the Company its shares in GDL for approximately
$2.8 million. In addition, the Company received
$17.7 million to repay the loan a subsidiary of the Company
provided to GDL to build the plant. The Company did not exercise
its right of first refusal and, therefore, the Company
transferred its shares in GDL to the former shareholder after
the former shareholder paid all of GDLs obligations to the
Company. As a result, the Company s recorded a pre-tax gain of
approximately $6.3 million in the nine months ended
September 30, 2010 ($4.3 million after-tax).
The net assets of GDL on January 1, 2010 were as follows:
|
|
|
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
871
|
|
Accounts receivables
|
|
|
434
|
|
Prepaid expenses and other
|
|
|
184
|
|
Property, plant and equipment
|
|
|
16,293
|
|
Accounts payables and accrued liabilities
|
|
|
(164
|
)
|
Other comprehensive income translation adjustments
|
|
|
(156
|
)
|
|
|
|
|
|
Net assets
|
|
$
|
17,462
|
|
|
|
|
|
|
23
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The operations and gain on sale of GDL have been included in
discontinued operations on the condensed consolidated statements
of operations and comprehensive income for all periods prior to
the sale of GDL in January 2010. Electricity revenues related to
GDL were $0 and $802,000 during the three-month periods ended
September 30, 2010 and 2009, respectively, and $64,000 and
$2,115,000 during the nine-month periods ended
September 30, 2010 and 2009, respectively. Basic and
diluted earnings per share related to the $4.3 million
after-tax gain on sale of GDL was $0.10 during the nine-month
period ended September 30, 2010. Basic and diluted earnings
per share related to income from discontinued operations was
$0.03 and $0.06 during the three and nine-month periods ended
September 30, 2009, respectively (none in 2010).
NOTE 11
ELECTRICITY REVENUES AND COST OF REVENUES
The components of electricity revenues and cost of revenues are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and capacity
|
|
$
|
30,113
|
|
|
$
|
26,654
|
|
|
$
|
80,460
|
|
|
$
|
73,694
|
|
Lease portion of energy and capacity
|
|
|
52,573
|
|
|
|
40,588
|
|
|
|
135,795
|
|
|
|
114,091
|
|
Lease income
|
|
|
671
|
|
|
|
671
|
|
|
|
2,014
|
|
|
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,357
|
|
|
$
|
67,913
|
|
|
$
|
218,269
|
|
|
$
|
189,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy and capacity
|
|
$
|
31,754
|
|
|
$
|
23,673
|
|
|
$
|
95,710
|
|
|
$
|
70,828
|
|
Lease portion of energy and capacity
|
|
|
28,465
|
|
|
|
19,101
|
|
|
|
79,909
|
|
|
|
57,729
|
|
Lease income
|
|
|
1,311
|
|
|
|
1,311
|
|
|
|
3,932
|
|
|
|
3,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,530
|
|
|
$
|
44,085
|
|
|
$
|
179,551
|
|
|
$
|
132,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12
INTEREST EXPENSE, NET
The components of interest expense, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Parent
|
|
$
|
|
|
|
$
|
184
|
|
|
$
|
310
|
|
|
$
|
937
|
|
Interest related to sale of tax benefits
|
|
|
1,382
|
|
|
|
1,958
|
|
|
|
4,110
|
|
|
|
6,039
|
|
Other
|
|
|
12,072
|
|
|
|
9,537
|
|
|
|
32,010
|
|
|
|
24,600
|
|
Less amount capitalized
|
|
|
(2,493
|
)
|
|
|
(7,321
|
)
|
|
|
(6,329
|
)
|
|
|
(19,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,961
|
|
|
$
|
4,358
|
|
|
$
|
30,101
|
|
|
$
|
12,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13
EARNINGS PER SHARE
Basic earnings per share attributable to the Companys
stockholders (earnings per share) is computed by
dividing net income attributable to the Companys
stockholders by the weighted average number of shares of common
stock outstanding for the period. The Company does not have any
equity instruments that are dilutive, except for employee stock
options.
24
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The table below shows the reconciliation of the number of shares
used in the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Weighted average number of shares used in computation of basic
earnings per share
|
|
|
45,431
|
|
|
|
45,413
|
|
|
|
45,431
|
|
|
|
45,379
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares from the assumed exercise of employee stock
options
|
|
|
19
|
|
|
|
151
|
|
|
|
19
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of diluted
earnings per share
|
|
|
45,450
|
|
|
|
45,564
|
|
|
|
45,450
|
|
|
|
45,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of stock options that could potentially dilute future
earnings per share and were not included in the computation of
diluted earnings per share because to do so would have been
antidilutive was 2,245,190 and 817,500, respectively, for the
three months ended September 30, 2010 and 2009, and
2,022,549 and 1,075,673, respectively, for the nine months ended
September 30, 2010 and 2009.
NOTE 14
BUSINESS SEGMENTS
The Company has two reporting segments: Electricity and Product
Segments. These segments are managed and reported separately as
each offers different products and serves different markets. The
Electricity Segment is engaged in the sale of electricity from
the Companys power plants pursuant to PPAs. The Product
Segment is engaged in the manufacture, including design and
development, of turbines and power units for the supply of
electrical energy and in the associated construction of power
plants utilizing the power units manufactured by the Company to
supply energy from geothermal fields and other alternative
energy sources. Transfer prices between the operating segments
are determined based on current market values or cost plus
markup of the sellers business segment.
25
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Summarized financial information concerning the Companys
reportable segments is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
Product
|
|
|
Consolidated
|
|
|
|
(Dollars in thousands)
|
|
|
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
83,357
|
|
|
$
|
18,120
|
|
|
$
|
101,477
|
|
Intersegment revenues
|
|
|
|
|
|
|
10,977
|
|
|
|
10,977
|
|
Operating income (loss)
|
|
|
13,461
|
|
|
|
1,357
|
|
|
|
14,818
|
|
Segment assets at period end*
|
|
|
1,895,469
|
|
|
|
69,240
|
|
|
|
1,964,709
|
|
Three Months Ended September 30, 2009 (As Revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
67,913
|
|
|
$
|
51,113
|
|
|
$
|
119,026
|
|
Intersegment revenues
|
|
|
|
|
|
|
(199
|
)
|
|
|
(199
|
)
|
Operating income
|
|
|
14,713
|
|
|
|
8,388
|
|
|
|
23,101
|
|
Segment assets at period end*
|
|
|
1,742,230
|
|
|
|
86,885
|
|
|
|
1,829,115
|
|
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
218,269
|
|
|
$
|
62,128
|
|
|
$
|
280,397
|
|
Intersegment revenues
|
|
|
|
|
|
|
39,273
|
|
|
|
39,273
|
|
Operating income (loss)
|
|
|
11,447
|
|
|
|
7,883
|
|
|
|
19,330
|
|
Segment assets at period end*
|
|
|
1,895,469
|
|
|
|
69,240
|
|
|
|
1,964,709
|
|
Nine Months Ended September 30, 2009 (As Revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
189,799
|
|
|
$
|
128,037
|
|
|
$
|
317,836
|
|
Intersegment revenues
|
|
|
|
|
|
|
17,022
|
|
|
|
17,022
|
|
Operating income
|
|
|
35,177
|
|
|
|
22,924
|
|
|
|
58,101
|
|
Segment assets at period end*
|
|
|
1,742,230
|
|
|
|
86,885
|
|
|
|
1,829,115
|
|
|
|
|
* |
|
Segment assets of the Electricity Segment include unconsolidated
investments. |
Reconciling information between reportable segments and the
Companys consolidated totals is shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(As Revised)
|
|
|
2010
|
|
|
(As Revised)
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Operating income
|
|
$
|
14,818
|
|
|
$
|
23,101
|
|
|
$
|
19,330
|
|
|
$
|
58,101
|
|
Interest income
|
|
|
140
|
|
|
|
157
|
|
|
|
432
|
|
|
|
585
|
|
Interest expense, net
|
|
|
(10,961
|
)
|
|
|
(4,358
|
)
|
|
|
(30,101
|
)
|
|
|
(12,063
|
)
|
Foreign currency translation and transaction gains (losses)
|
|
|
1,074
|
|
|
|
25
|
|
|
|
475
|
|
|
|
(1,324
|
)
|
Income attributable to sale of tax benefits
|
|
|
2,183
|
|
|
|
3,869
|
|
|
|
6,392
|
|
|
|
12,403
|
|
Gain on acquisition of controlling interest
|
|
|
36,928
|
|
|
|
|
|
|
|
36,928
|
|
|
|
|
|
Other non-operating income (expense), net
|
|
|
233
|
|
|
|
246
|
|
|
|
(47
|
)
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated income from continuing operations, before
income taxes and equity in income (losses) of investees
|
|
$
|
44,415
|
|
|
$
|
23,040
|
|
|
$
|
33,409
|
|
|
$
|
58,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
NOTE 15
CONTINGENCIES (UPDATE PRIOR TO FILING)
Securities
Class Actions
Following the Companys public announcement that it would
restate certain of its financial results due to a change in the
Companys accounting treatment for certain exploration and
development costs, three securities class action lawsuits were
filed in the United States District Court for the District of
Nevada on March 9, 2010, March 18, 2010 and
April 7, 2010. These complaints assert claims against the
Company and certain officers and directors for alleged violation
of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 (the Exchange Act). One complaint also
asserts claims for alleged violations of Sections 11,
12(a)(2) and 15 of the Securities Act of 1933 (the
Securities Act). All three complaints allege claims
on behalf of a putative class of purchasers of Company stock
between May 6, 2008 or May 7, 2008 and
February 23, 2010 or February 24, 2010.
These three lawsuits were consolidated by the Court in an order
issued on June 3, 2010 and the Court appointed three of the
Companys stockholders to serve as lead plaintiffs. Lead
plaintiffs filed a consolidated amended class action complaint
(CAC) on July 9, 2010 that asserts claims under
Sections 10(b) and 20(a) of the Exchange Act on behalf of a
putative class of purchasers of Company stock between
May 7, 2008 and February 24, 2010. The CAC alleges
that certain of the Companys public statements were false
and misleading for failing to account properly for the
Companys exploration and development costs based on the
Companys announcement on February 24, 2010 that it
was going to restate its financial results to change its method
of accounting for exploration and development costs in certain
respects. The CAC also alleges that certain of the
Companys statements concerning the North Brawley project
were false and misleading. The CAC seeks compensatory damages,
expenses, and such further relief as the Court may deem proper.
Defendants filed a motion to dismiss the CAC on August 13,
2010 which remains pending.
The Company does not believe that these lawsuits have merit and
is defending itself vigorously.
Stockholder
Derivative Cases
Four stockholder derivative lawsuits have also been filed in
connection with the Companys public announcement that it
would restate certain of its financial results due to a change
in the Companys accounting treatment for certain
exploration and development costs. Two cases were filed in the
Second Judicial District Court of the State of Nevada in and for
the County of Washoe on March 16, 2010 and April 21,
2010 and two in the United States District Court for the
District of Nevada on March 29, 2010 and June 7, 2010.
All four lawsuits assert claims brought derivatively on behalf
of the Company against certain of its officers and directors for
alleged breach of fiduciary duty and other claims, including
waste of corporate assets and unjust enrichment.
The two stockholder derivative cases filed in the Second
Judicial District Court of the State of Nevada in and for the
County of Washoe were consolidated by the Court in an order
dated May 27, 2010 and the plaintiffs filed a consolidated
derivative complaint on September 7, 2010. In accordance
with a stipulation between the parties, defendants intend to
file a motion to dismiss by November 9, 2010.
The two federal derivative cases filed in the United States
District Court for the District of Nevada were consolidated by
the Court in an order dated August 31, 2010. Plaintiffs
filed a consolidated derivative complaint on October 28,
2010 and in accordance with a stipulation by the parties,
defendants intend to file a motion to dismiss by
December 13, 2010.
The Company believes the allegations in these purported
derivative actions are also without merit and is defending the
actions vigorously.
27
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Other
From time to time, the Company is named as a party in various
lawsuits, claims and other legal and regulatory proceedings that
arise in the ordinary course of its business. These actions
typically seek, among other things, compensation for alleged
personal injury, breach of contract, property damage, punitive
damages, civil penalties or other losses, or injunctive or
declaratory relief. With respect to such lawsuits, claims and
proceedings, the Company accrues reserves in accordance with
accounting principles generally accepted in the U.S. It is
the opinion of the Companys management that the outcome of
these proceedings, individually and collectively, will not
materially affect its business, financial condition, financial
results or cash flow.
NOTE 16
CASH DIVIDENDS
On February 23, 2010, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $5.5 million ($0.12 per share) to all holders
of the Companys issued and outstanding shares of common
stock on March 16, 2010. Such dividend was paid on
March 25, 2010.
On May 5, 2010, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.3 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on May 18, 2010. Such dividend was paid on
May 25, 2010.
On August 4, 2010, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.3 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on August 17, 2010. Such dividend was paid on
August 26, 2010.
NOTE 17
INCOME TAXES
The Companys effective tax rate for the three months ended
September 30, 2010 and 2009 was 26.9% and 12.7%,
respectively. The effective tax rate differs from the federal
statutory rate of 35% for the three months ended
September 30, 2010 primarily due to: (i) the benefit
of production tax credits for qualified power plants placed in
service since 2005; (ii) lower tax rates in Israel; and
(iii) a tax credit and tax exemption related to the
Companys subsidiaries in Guatemala.
The Companys effective tax rate for the nine months ended
September 30, 2010 and 2009 was 18.0% and 17.5%,
respectively. The effective tax rate differs from the federal
statutory rate of 35% for the nine months ended
September 30, 2010 primarily due to: (i) the benefit
of production tax credits for qualified power plants placed in
service since 2005; (ii) lower tax rates in Israel;
(iii) a tax credit and tax exemption related to the
Companys subsidiaries in Guatemala; and (iv) a
valuation allowance related to capital loss carryovers that the
Company will not, more likely than not, utilize.
The anticipated annual production tax credits associated with
the Class B membership interest in OPC LLC, an entity the
Company is consolidating, has a significant impact on the
Companys expected overall annual tax benefit in 2010. The
Company is currently negotiating to sell such interest to a
third party. Upon the sale of the Class B membership
interest, the Company will no longer be eligible to receive
production tax credits associated with the Class B
membership interest. Due to uncertainties in the timing of
selling its Class B membership interest and the
significance of the production tax credits to the Companys
overall tax benefit in 2010, the Company is recognizing
production tax credits as they are earned rather than including
forecasted production tax credits in the annual effective tax
rate estimate from continuing operations.
28
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
A reconciliation of the beginning and ending amounts of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of period
|
|
$
|
4,931
|
|
|
$
|
3,425
|
|
Additions based on tax positions taken in prior years
|
|
|
717
|
|
|
|
1,001
|
|
Reductions for tax positions taken in prior years
|
|
|
|
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
5,648
|
|
|
$
|
4,079
|
|
|
|
|
|
|
|
|
|
|
NOTE 18
SUBSEQUENT EVENTS
Agreement
for joint development, construction, ownership and operation of
one or more geothermal power plants in Oregon
On October 29, 2010, the Company and Nevada Geothermal
Power Inc. (NGP) have agreed to jointly develop,
construct, own and operate one or more geothermal power plants
in the Crump Geyser Area located in Lake County, Oregon. All
activities will be carried out through Crump Geothermal Company
LLC (CGC), a limited liability company that will be
owned equally by the Companys wholly owned subsidiary,
Ormat Nevada Inc. (Ormat Nevada) and NGP.
The Company will be the engineering, procurement and
construction (EPC) contractor for the project, which
will utilize the Company proprietary generating and other
balance of plant equipment. The Company will also be the
operator and provide operating and maintenance
(O&M) services to CGC. The parties will
establish a Management Committee, comprising two representatives
from each party that will have general oversight responsibility
for the different aspects of the project and CGCs
operations.
The parties intend to build an up to 30 MW power plant, which is
expected to be placed in service before the end of 2013 in order
to qualify for the Treasury Cash Grant under Section 1603
of the ARRA. The parties also intend to apply for a Department
of Energy loan guarantee under Section 1705 of the ARRA.
Under the Agreement, NGP will contribute its title and interest
in various leases, technical and engineering data, existing
permits, and the benefit from the on-going United States
Department of Energy (DOE) cost-share grant for
exploration in relation to the Crump Geyser Area. Ormat Nevada
will pay NGP a total of $2.5 million in installments over a
three year period, and has also agreed to fund initial
development expenses associated with CGC in an amount of
$15 million.
Aside from the initial development expenses funded by the
Company, each party will be responsible for funding their 50%
share of all costs associated with CGC and its projects. A
defaulting party will be subject to customary dilution of its
equity interest, subject to an option to reinstate its ownership
position up to the date of commercial operations of the power
plant. In the case of NGP only, the Company will be subject to a
limitation that it will not be diluted below 20%. The cost
sharing and dilution provisions will also apply to any expansion
or additional projects that the parties may decide on, except
that NGP will not enjoy any dilution protection in respect of
expansions.
The agreement provides NGP with an option to borrow from the
Company under a bridge financing facility for all or part of
NGPs share of costs up to $15 million that will be
paid in two equal tranches with varying interest rates. If
utilized, the bridge loans will mature on the earlier of CGC
obtaining third party
29
ORMAT
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
non-recourse
financing or upon achieving commercial operations, with an
additional
90-day
extension if any bridge loan is repaid with proceeds from a
Treasury Cash Grant.
Cash
Dividend
On November 2, 2010, the Companys Board of Directors
declared, approved and authorized payment of a quarterly
dividend of $2.3 million ($0.05 per share) to all holders
of the Companys issued and outstanding shares of common
stock on November 17, 2010, payable on November 30,
2010.
Options
Grant
On November 3, 2010, the Company granted to four
non-employee directors non-qualified stock options, under the
Companys 2004 Incentive Plan, to purchase
30,000 shares of common stock (7,500 shares each) at
an exercise price which is equal to the closing price of the
Companys common stock on November 4, 2010 (since the
Company released its quarterly results on November 2,
2010). Such options will expire seven years from the date of
grant and will vest on the first anniversary of the date of
grant.
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ITEM 2.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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This quarterly report on
Form 10-Q
includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts,
included in this quarterly report that address activities,
events or developments that we expect or anticipate will or may
occur in the future, including such matters as our projections
of annual revenues, expenses and debt service coverage with
respect to our debt securities, future capital expenditures,
business strategy, competitive strengths, goals, development or
operation of generation assets, market and industry developments
and the growth of our business and operations, are
forward-looking statements. When used in this quarterly report
on
Form 10-Q,
the words may, will, could,
should, expects, plans,
anticipates, believes,
estimates, predicts,
projects, potential, or
contemplate or the negative of these terms or other
comparable terminology are intended to identify forward-looking
statements, although not all forward-looking statements contain
such words or expressions. The forward-looking statements in
this quarterly report are primarily located in the material set
forth under the headings Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Risk Factors, and Notes to Condensed
Consolidated Financial Statements, but are found in other
locations as well. These forward-looking statements generally
relate to our plans, objectives and expectations for future
operations and are based upon managements current
estimates and projections of future results or trends. Although
we believe that our plans and objectives reflected in or
suggested by these forward-looking statements are reasonable, we
may not achieve these plans or objectives. You should read this
quarterly report on
Form 10-Q
completely and with the understanding that actual future results
and developments may be materially different from what we expect
due to a number of risks and uncertainties, many of which are
beyond our control. We will not update forward-looking
statements even though our situation may change in the future.
Specific factors that might cause actual results to differ from
our expectations include, but are not limited to:
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significant considerations, risks and uncertainties discussed in
this quarterly report;
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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, useful life
and geological formation of the reservoir);
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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
(PPAs) for our power plants;
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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 and state regulatory
proceedings and changes, including legislative and regulatory
initiatives regarding deregulation and restructuring of the
electric utility industry and incentives for the production of
renewable energy at the federal and state level 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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competition from other existing geothermal energy projects and
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;
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the risk factors set forth in our Annual Report on
Form 10-K
for the year ended December 31, 2009;
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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; and
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other risks and uncertainties detailed from time to time in our
filings with the Securities and Exchange Commission (SEC).
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Investors are cautioned that these forward-looking statements
are inherently uncertain. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially
from those described herein. We undertake no obligation to
update forward-looking statements even though our situation may
change in the future. Given these risks and uncertainties,
readers are cautioned not to place undue reliance on such
forward-looking statements.
The following discussion and analysis of our financial condition
and results of operations should be read together with our
condensed consolidated financial statements and related notes
included elsewhere in this report and the Risk
Factors section of our Annual Report on
Form 10-K
for the year ended December 31, 2009 and any updates
contained herein as well as those set forth in our reports and
other filings made with the SEC.
General
Overview
We are a leading vertically integrated company engaged in the
geothermal and recovered energy power business. We design,
develop, build, sell, 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 Product
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. We
have recently decided to expand our activities in the
Electricity Segment to include the ownership and operation of
power plants that produce electricity generated by
solar-photovoltaic (PV) systems that we do not manufacture. In
our Product 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
Product Segment operations are conducted in the United States
and throughout the world. Our current generating portfolio
includes geothermal power plants in the United States,
Guatemala, Kenya, and Nicaragua, as well as recovered
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energy generation (REG) power plants in the United States.
During the nine months ended September 30, 2010 and 2009,
our consolidated power plants generated 2,735,018 MWh and
2,454,862 MWh, respectively.
For the nine months ended September 30, 2010, our
Electricity Segment revenues represented approximately 77.8% of
our total revenues, while our Product Segment revenues
represented approximately 22.2% of our total revenues during
such period. For the nine months ended September 30, 2009,
our Electricity Segment revenues represented approximately 59.7%
of our total revenues, while our Product Segment revenues
represented approximately 40.3% of our total revenues, during
such period.
For the nine months ended September 30, 2010, our total
revenues decreased by 11.8% (from $317.8 million to
$280.4 million) over the same period last year. Revenues
from the Electricity Segment increased by 15.0%, while revenues
from the Product Segment decreased by 51.5%. As discussed below
and in our previous quarterly report for the six months ended
June 30, 2010, this decrease is attributable to the decline
in our Product Segment customer orders, and we expect this
downward fluctuation to affect revenues from our Product Segment
at least for the remainder of the year.
For the nine months ended September 30, 2010, total
Electricity Segment revenues from the sale of electricity by our
consolidated power plants were $218.3 million, compared to
$189.8 million for the nine months ended September 30,
2009. In addition, revenues from our 50% ownership of the
Mammoth complex in the period from January 1, 2010 to
August 1, 2010 (the date we acquired the remaining 50%
interest in the Mammoth complex) and in the nine months ended
September 30, 2009 were $5.7 million and
$7.4 million, respectively. 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. We believe that such Non-GAAP data is useful to
the readers as it provides a more complete view of the scope of
activities of the power plants that we operate. Our investment
in the Mammoth complex prior to our acquisition of the remaining
50% interest was accounted for in our consolidated financial
statements under the equity method, and the revenues were not
included in our consolidated revenues for the period from
January 1, 2010 to August 1, 2010 nor for the
nine-month period ended September 30, 2009.
For the nine months ended September 30, 2010, revenues
attributable to our Product Segment were $62.1 million,
compared to $128.0 million for the nine months ended
September 30, 2009, a decrease of 51.5%. The decrease is
due to a decline in our Product Segment customer orders.
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 PPAs. The
price for electricity under all but one of our PPAs is
effectively a fixed price at least through May 2012. The
exception is the PPA of the Puna power plant. It has a monthly
variable energy rate based on the local utilitys avoided
cost, 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 nine months ended
September 30, 2010, the variable energy rate in the Puna
power plant decreased significantly mainly as a result of lower
oil prices, which in turn impacted the gross margin in our
Electricity Segment. In the nine months ended September 30,
2010, 86.5% of our electricity revenues were derived from
contracts with fixed energy rates, and therefore most of our
electricity revenues were not affected by the fluctuations in
energy commodity prices. However, electricity revenues are
subject to seasonal variations and can be affected by
higher-than average ambient temperatures, as described below
under the heading Seasonality. Revenues attributable
to our Product Segment are based on the sale of equipment and
the provision of various services to our customers. These
revenues may vary significantly 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 Product Segment based on the
timely delivery of our products,
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performance quality of our products and costs actually incurred
to complete customer orders compared to the costs originally
budgeted for such orders.
Recent
Developments
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Since the beginning of 2010, we have entered into new lease
agreements covering approximately 65,580 acres of federal
or private land in Nevada, Utah, Hawaii, Oregon, and California.
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In November 2010, our subsidiary, Ormat Systems Ltd. signed a
joint venture agreement with Sunday Energy Ltd. (Sunday), a
private company incorporated under the laws of Israel, to
develop, construct and operate solar PV energy systems in Israel
with a total capacity of 22 MW of roof top installation.
This is a second joint venture agreement between the parties.
The first agreement was signed in October 2009. Sunday will
contribute the rights to all of its property required to develop
solar energy systems to special purpose entities (SPEs). Ormat
Systems Ltd. will own 51% of each SPE. The electricity generated
from the projects will be sold to Israel Electric Corporation
Ltd. under
20-year
long-term PPAs.
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On October 29, 2010 we and Nevada Geothermal Power Inc.
(NGP) have agreed to jointly develop, construct, own and operate
one or more geothermal power plants in the Crump Geyser Area
located in Lake County, Oregon. All activities will be carried
out through Crump Geothermal Company LLC (CGC), a limited
liability company that will be owned equally by our wholly owned
subsidiary, Ormat Nevada Inc. (Ormat Nevada) and NGP.
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We will be the engineering, procurement and construction (EPC)
contractor for the project, which will utilize our proprietary
generating and other balance of plant equipment. We will also be
the Operator and provide operating and maintenance (O&M)
services to CGC.
The parties intend to build an up to 30 MW power plant, which is
expected to be placed in service before the end of 2013 in order
to qualify for the United States Department of Treasury
(Treasury) Cash Grant under Section 1603 of the American
Recovery and Reinvestment Act of 2009 (ARRA). The parties also
intend to apply for a Department of Energy loan guarantee under
Section 1705 of the ARRA.
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In October 2010, we invested $2 million in
Watts & More Ltd. (W&M), an early stage
start-up
company, engaged in the development of energy harvesting and
system balancing solutions for electrical sources and, in
particular, PV systems. We now hold approximately 28.6% of
W&Ms shares.
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We are part of a consortium that consists of international and
Israeli organizations (including a university), which has won an
Israeli governmental tender for the establishment and management
of a Technology Center for Renewable Energies (the Center). The
Center will be established in the Arava area in Israel. We hold
5.2% of the Centers shares and are responsible for 4% of
the total investment of $11 million to be invested over
five years.
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In September 2010, we received from the Treasury
$108.3 million in a cash grant for Specified Energy
Property in Lieu of Tax Credits relating to our North Brawley
geothermal power plant under Section 1603 of the ARRA.
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On August 25, 2010, we declared commercial operation of the
5.5 MW OREG 3 (GRE) power plant that converts
recovered waste heat from the exhaust of an existing gas turbine
at a compressor station located along a natural gas pipeline
near Martin County, Minnesota. The electricity produced by the
power plant is sold under a
20-year PPA
to Great River Energy.
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On August 3, 2010, we entered into a trust instrument
governing the issuance of, and accepted subscriptions for an
aggregate principal amount of approximately $142 million of
senior unsecured bonds (the Bonds). We issued the bonds outside
the United States to investors who are not
U.S. persons in an unregistered offering
pursuant to, and subject to the requirements of,
Regulation S under the Securities Act of 1933, as amended.
Subject to early redemption, the principal of the bonds is
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repayable in a single bullet payment upon the final maturity of
the Bonds on August 1, 2017. The Bonds bear interest at a
fixed rate of 7% per annum, payable semi-annually.
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On August 2, 2010, we acquired the remaining 50% interest
(14.5 MW) in Mammoth Pacific, LP (Mammoth Pacific), an
entity that owns the Mammoth complex, for a purchase price of
$72.5 million in cash. Following the acquisition, we became
the sole owner of the Mammoth complex, and have the rights to
over 10,000 acres of undeveloped federal lands which will
enable us to expand the facility and substantially increase its
generation capacity.
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Following the acquisition, Mammoth Pacific, which had been
previously accounted for under the equity method, has been
included in our consolidated financial statements effective
August 2, 2010. The acquisition-date fair value of the
initial 50% equity interest was $64.9 million. We
recognized in the three and nine-month periods ended
September 30, 2010, a pre-tax gain of $36.9 million,
which is equal to the difference between the acquisition-date
fair value of the initial 50% equity interest in Mammoth Pacific
and the acquisition-date carrying value of such investment.
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In July 2010, our subsidiary, Ormat Nevada, engaged John Hancock
Life Insurance Company (U.S.A.) (John Hancock) to arrange senior
secured construction and term loan facilities under a DOE loan
guarantee program of up to $350 million for three
geothermal projects currently under construction in Nevada. The
three projects are the McGinness Hills, Jersey Valley and
Tuscarora geothermal projects. Construction of all three
projects has already commenced with commercial operation of the
first phase of each project is expected between 2011 and 2013.
John Hancock and the DOE will conduct a due diligence review of
the three projects. Upon the satisfactory completion of the
review, John Hancock and the DOE will consider issuing a
conditional commitment which will lead to a loan guarantee.
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On June 2, 2010, Alaska Governor Sean Parnell signed Alaska
Senate Bill 243. This bill significantly reduces the annual
royalty rate paid from geothermal production on state lands from
a minimum of 10% of gross revenues to the same level paid on
Federal land. Following the passage of Alaska Senate Bill 243,
we announced that we will accelerate geothermal exploration work
on our Mount Spurr lease that we had won through a competitive
bid in October 2008.
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The Alaska Energy Authority (AEA) has recently approved a
$2 million grant from the Renewable Energy Grant Fund to
support our exploration and drilling work at Mount Spurr. We
expect to sign the grant contract during the fourth quarter of
2010. The grant will reimburse us for eligible costs as from
July 1, 2010. In the summer of 2010 we drilled two core
holes, and in 2011 we will continue exploration activities. The
goal for the Renewable Energy Grant is to promote renewable
energy projects throughout the state, with a focus on rural
Alaska where current diesel-based power prices are very high.
The state has appropriated a total of $250 million for this
program in an attempt to distribute the funds over five years,
of which $25 million are allocated for the 2010 fiscal year
(July 2010 to July 2011).
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On April 26, 2010, the Medco-Ormat-Itochu-Kyushu
Consortium, which consists of Medco Energi Internasional Tbk,
Ormat International Inc., our wholly owned subsidiary, Itochu
Corporation and Kyushu Electric Power Co. Inc., signed the
Sarulla Project Joint Confirmation with the
state-owned Indonesian power company PT Perusahaan Listrik
Negara (PLN) confirming an agreement on terms for amending the
Energy Sales Contract (ESC), with the concession holder PT
Pertamina Geothermal Energy (PGE), a wholly owned subsidiary of
the Indonesian state-owned oil and gas company PT Pertamina
(Persero), signing as witness. The ESC had been executed in
December 2007 for the 330 MW net power Sarulla Geothermal
Project. The Sarulla Project Joint Confirmation was signed
during the opening ceremony of the World Geothermal Congress in
Bali.
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The parties have agreed to change the price of the power sold
under the ESC to a levelized payment of 6.79 cents per kWh,
whereby the tariff payable in the early years after commercial
operation date shall be higher and shall be reduced in the later
years. The
90-day
schedule for resolving certain other contractual amendments for
facilitation of project financing and for signing the resulting
amended ESC has expired and negotiations are still ongoing. The
modified tariff itself is subject to verification by the
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State Audit Agency for Development and approval from the
Minister of Energy and Mineral Resources.
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In February 2010, we signed a letter of intent with Kenya Power
and Lighting Co. Ltd. (KPLC), the off-taker, of the
Olkaria III complex located in Naivasha, Kenya, to amend
the existing PPA by expanding the Olkaria III complex by up
to 52 MW within the framework of the existing PPA. The
expansion is to be developed in two phases. Phase I will be
comprised of 36 MW, to be completed within 3.5 years
from finalizing the amendment to the existing PPA. An optional
phase II may be comprised of up to 16 MW, to be
completed within 4.5 years from finalizing the amendment to
the existing PPA. The amendment to the existing PPA is subject
to applicable governmental approvals and the consent of the
lenders that provided the financing to the existing power plant.
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In February 2010, we signed an agreement to acquire 100% of the
membership interests in HSS II, LLC, which owns the Tuscarora
Project in the northern Independence Valley of northeast Nevada.
The project is in an advanced stage of development and has one
successful well. We plan to construct and operate a geothermal
plant on the site, the first phase of 16 MW of which is
expected to become operational in 2012, and sell electricity
under a new PPA, which we signed with Nevada Power Company (a
subsidiary of NV Energy, Inc.).
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In January 2010, the North Brawley geothermal power plant in
California was placed in service and is currently operating at a
stable capacity of 25 MW. Southern California Edison
Company (Southern California Edison), the PPA off-taker,
agreed to extend the firm operation date until March 31,
2011.
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In January 2010, we were awarded a geothermal exploration
concession in Chile. The concession is on approximately
26,000 acres located to the north of the
San Pablo/San Pedro twin volcanic complex in northern
Chile and is close to access roads and to copper mines that
could be potential users of the electricity. We plan to engage
in preliminary testing and studies to assess the feasibility of
the site for commercial development in accordance with the
milestones set forth in the concession.
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In January 2010, we sold our interest in GDL for
NZ$3.5 million (approximately US$2.8 million), and we
were repaid a loan we had made to GDL with an outstanding
balance of NZ$24.3 million (approximately
US$17.6 million).
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Trends
and Uncertainties
The geothermal industry in the United States has historically
experienced significant growth followed by a consolidation of
owners and operators of geothermal power plants. During the
1990s, growth and development in the geothermal industry
occurred primarily in foreign markets and only minimal growth
and development occurred in the United States. Since 2001, there
has been increased demand for energy generated from geothermal
resources in the United States as costs for electricity
generated from geothermal resources have become more competitive
relative to fossil fuel generation. This has partly been due to
increasing natural gas and oil prices during much of this period
and, equally important, to newly enacted legislative and
regulatory requirements and incentives, such as state renewable
portfolio standards and federal tax credits. The recently
enacted ARRA further encourages the use of geothermal energy
through production or investment tax credits as well as cash
grants (which are discussed in more detail in the section
entitled Government Grants and Tax Benefits). 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 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 long-term PPAs.
We also intend to continue to pursue growth in our recovered
energy business. We expect our Product Segment revenues in 2010
to be significantly lower than the 2009 revenues in such segment.
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Although other trends, factors and uncertainties may impact our
operations and financial condition, including many that we do
not or cannot foresee, we believe that our results of operations
and financial condition for the foreseeable future will be
affected by the following trends, factors and uncertainties:
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The global recession that began in late 2007 has resulted in
reduced demand for energy in a number of the markets we serve.
If these conditions continue or worsen, they may adversely
affect both our Electricity and Product 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. In addition, the cost of obtaining financing
for our project needs may increase or such financing may be more
difficult to obtain.
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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 continuously looking at acquisition
opportunities.
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In the United States, we expect to continue to benefit from the
increasing demand for renewable energy. Thirty-six states and
the District of Columbia, 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 (RPS),
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.
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We expect that the increased awareness of climate change may
result in significant changes in the business and regulatory
environments, which may create business opportunities for us
going forward. In May 2010, the EPA announced the
Tailoring Rule, which sets thresholds for when
permitting requirements under the Clean Air Acts
Prevention of Significant Deterioration and Title V
programs will apply to certain major sources of greenhouse gas
emissions. The EPA plans on phasing in the Tailoring Rule
starting in 2011. Federal legislation or additional federal
regulations addressing climate change are possible. Several
states and regions are already addressing climate change. For
example, the California Global Warming Solutions Act of 2006,
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 from
projected 2020 levels. The California Air Resources Board is
expected to put in place measures for implementing the Global
Warming Solutions Act of 2006 by 2012. However, Proposition 23,
entitled the California Jobs Initiative will be
voted on by the California electorate in November 2010. If
passed, Proposition 23 would suspend the effectiveness of
the greenhouse gas emission limits and regulations that were
passed as part of the California Global Warming Solutions Act of
2006 until the States unemployment level drops below
5.5 percent for four consecutive quarters. In September of
2006, California also passed Senate Bill 1368, which prohibits
the states utilities from entering into long-term
financial commitments for base-load generation with power plants
that fail to meet a
CO2
emission performance standard established by the California
Energy Commission and the California Public Utilities
Commission. Californias long-term climate change goals are
reflected in Executive Order
S-3-05,
which requires a reduction in greenhouse gases to: (i) 2000
levels by 2010; (ii) 1990 levels by 2020; and
(iii) 80% of 1990 levels by 2050. In addition to
California, twenty-two other states
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have set greenhouse gas emissions targets or goals (Arizona,
Colorado, Connecticut, Florida, Hawaii, Illinois, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Montana, 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 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% at a rate of 2.5% each year between 2015 and
2018. In addition, twenty-nine states and the District of
Columbia have all adopted RPS and seven other states have
adopted renewable portfolio goals. In November 2008, California,
by Executive Order
S-14-08,
adopted a goal for all retailers of electricity to serve 33% of
their load with renewable energy by 2020, and in September of
2009, Executive Order
S-21-09
directed the California Air Resources Board to adopt regulations
consistent with the 33% renewable energy target.
|
|
|
|
|
|
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 competition from the wind and solar power generation
industry to continue. The current demand for renewable energy is
large enough that this increased competition has not materially
impacted our ability to obtain new PPAs. However, the increase
in competition and in the amount of renewable energy under
contract 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 continue to be a leading source
of renewable energy in areas with commercially viable geothermal
resources.
|
|
|
|
We expect increased competition from binary power plant
equipment suppliers. While we believe that we have a distinct
competitive advantage based on our accumulated experience and
current worldwide share of installed binary generation capacity,
which is in excess of 90%, an increase in competition may impact
our ability to secure new purchase orders from potential
customers. The increased competition also may lead to a
reduction in prices that we are able to charge for our binary
equipment, which in turn may impact our profitability.
|
|
|
|
We also expect increased competition from new developers which
may impact the prices and availability of new leases for
geothermal resource.
|
|
|
|
While the current demand for renewable energy is large enough
that increased competition has not impacted our ability to
obtain new PPAs 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 a geothermal resource depends on various
factors such as the resource temperature, the permeability of
the resource (i.e., the ability to get geothermal fluids to the
surface) and operational factors relating to the extraction and
injection of the geothermal fluids. 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 PPAs as a result of such
decrease in availability.
|
|
|
|
Our foreign operations are subject to significant political,
economic and financial risks, which vary by country. These risks
include the partial privatization of the electricity sector in
Guatemala, labor unrest
|
38
|
|
|
|
|
in Nicaragua and the political uncertainty currently prevailing
in some of the countries in which we operate. Although we
maintain political risk insurance for most of our foreign power
plants to mitigate these risks, insurance does not provide
complete coverage with respect to all such risks.
|
|
|
|
|
|
On May 4, 2009, President Obama and the U.S. Treasury
Department proposed changing certain of the U.S. tax rules
for U.S. corporations doing business outside the United
States. The proposed changes would limit the ability of
U.S. corporations doing business through controlled foreign
subsidiaries to deduct expenses attributable to offshore
earnings, modify the foreign tax credit rules and further
restrict the ability of U.S. corporations to transfer funds
between foreign subsidiaries without triggering a requirement to
pay U.S. income tax. Although the scope of the proposed
changes is unclear, it is possible that these or other changes
in the U.S. tax laws may increase our U.S. income tax
liability and adversely affect our profitability.
|
|
|
|
The Energy Policy Act of 2005 authorizes the Federal Energy
Regulatory Commission (FERC) to revise the Public Utility
Regulatory Policies Act (PURPA) so as to terminate the
obligation of electric utilities to purchase the output of a
Qualifying Facility if FERC finds that there is an accessible
competitive market for energy and capacity from the Qualifying
Facility. The legislation does not affect existing PPAs. We do
not expect this change in law to affect our U.S. projects
significantly, as all except one of our current contracts (our
Steamboat 1 power plant, which sells its electricity to Sierra
Pacific Power Company on a
year-by-year
basis) are long-term. FERC issued a final rule that makes it
easier to eliminate the utilities purchase obligation in
four regions of the 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 PPAs, which could have an
adverse effect on our revenues.
|
Revenues
We generate our revenues from the sale of electricity from our
geothermal and recovered energy-based power plants; the design,
manufacturing and sale of equipment for electricity generation;
and the construction, installation and engineering of power
plant equipment.
Revenues attributable to our Electricity Segment are relatively
predictable as they are derived from the sale of electricity
from our power plants pursuant to long-term PPAs. However, such
revenues are subject to seasonal variations, as more fully
described below in the section entitled Seasonality.
Electricity Segment revenues may also be affected by
higher-than-average ambient temperatures, which could cause a
decrease in the generating capacity of our power plants, and by
unplanned major maintenance activities related to our power
plants.
Our PPAs generally provide for the payment of energy payments,
or energy and capacity payments. Generally, capacity payments
are payments calculated based on the amount of time that our
power plants are available to generate electricity. Some of our
PPAs 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 PPAs generally provide for energy payments along with an
obligation to compensate the off-taker for its incremental costs
as a result of shortfalls in our supply.
The prices paid for electricity pursuant to the PPA of the Puna
power plant are tied to the price of oil. Accordingly, our
revenues for that power plant, which accounted for approximately
8.3% of our total revenues for the nine-month period ended
September 30, 2010, may be volatile.
39
Revenues attributable to our Product 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
Product Segment fluctuate (and at times, extensively) from
period to period. As discussed under Trends and
Uncertainties above, we may experience declines in
revenues in our Product Segment due to reduced orders or other
factors caused by the global recession and economic challenges
faced by our customers and prospective customers.
The following table sets forth a breakdown of our revenues for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in Thousands
|
|
|
% of Revenues for Period Indicated
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Segment
|
|
$
|
83,357
|
|
|
$
|
67,913
|
|
|
$
|
218,269
|
|
|
$
|
189,799
|
|
|
|
82.1
|
%
|
|
|
57.1
|
%
|
|
|
77.8
|
%
|
|
|
59.7
|
%
|
Product Segment
|
|
|
18,120
|
|
|
|
51,113
|
|
|
|
62,128
|
|
|
|
128,037
|
|
|
|
17.9
|
|
|
|
42.9
|
|
|
|
22.2
|
|
|
|
40.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101,477
|
|
|
$
|
119,026
|
|
|
$
|
280,397
|
|
|
$
|
317,836
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical
Breakdown of Revenues
The following table sets forth the geographic breakdown of the
revenues attributable to our Electricity Segment for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in Thousands
|
|
|
% of Revenues for Period Indicated
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Electricity Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
65,556
|
|
|
$
|
49,877
|
|
|
$
|
164,055
|
|
|
$
|
137,160
|
|
|
|
78.6
|
%
|
|
|
73.4
|
%
|
|
|
75.2
|
%
|
|
|
72.3
|
%
|
Foreign
|
|
|
17,801
|
|
|
|
18,036
|
|
|
|
54,214
|
|
|
|
52,639
|
|
|
|
21.4
|
|
|
|
26.6
|
|
|
|
24.8
|
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
83,357
|
|
|
$
|
67,913
|
|
|
$
|
218,269
|
|
|
$
|
189,799
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,512
|
|
|
$
|
8,321
|
|
|
$
|
8,535
|
|
|
$
|
55,533
|
|
|
|
19.4
|
%
|
|
|
16.3
|
%
|
|
|
13.7
|
%
|
|
|
43.4
|
%
|
Foreign
|
|
|
14,608
|
|
|
|
42,792
|
|
|
|
53,593
|
|
|
|
72,504
|
|
|
|
80.6
|
|
|
|
83.7
|
|
|
|
86.3
|
|
|
|
56.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,120
|
|
|
$
|
51,113
|
|
|
$
|
62,128
|
|
|
$
|
128,037
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seasonality
The prices paid for the electricity generated by some of our
domestic power plants pursuant to our PPAs are subject to
seasonal variations. The prices paid for electricity under the
PPAs with Southern California Edison Company (Southern
California Edison) for the Heber 1 and 2 plants, the Mammoth
complex, the Ormesa complex, and the North Brawley plant 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
PPAs 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
40
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 electricity revenues are generally
higher in the summer than in the winter.
Breakdown
of Cost of Revenues
Electricity
Segment
The principal expenses 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
make-up
water for use in our 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 each of the nine-month periods ended
September 30, 2010 and 2009, royalties constituted
approximately 3.8% of the Electricity Segment revenues.
Product
Segment
The principal expenses attributable to our Product 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 Product 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 Product
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
and Cash Equivalents
Our cash and cash equivalents as of September 30, 2010
increased to $49.2 million from $46.3 million as of
December 31, 2009. This increase is principally due to:
(i) issuance of an aggregate principal amount of
approximately $142.0 million of senior unsecured bonds on
August 3, 2010; (ii) $108.3 million received in
September 2010 for Specified Energy Property in Lieu of Tax
Credits relating to our North Brawley geothermal power plant
under Section 1603 of the ARRA;
(iii) $79.6 million derived from operating activities
during the nine months ended September 30, 2010; and
(iv) $19.6 million received from the sale of GDL. The
increase in our cash resources was partially offset by:
(i) our use of $194.9 million to fund capital
expenditures; (ii) net payment of $64.5 million for
acquisition of controlling interest in Mammoth Pacific
($72.5 million purchase price less $8.0 million
available cash in such subsidiary at the acquisition date);
(iii) $37.7 million to repay long-term debt to our
parent and to third parties; (iv) a net repayment of
$17.5 million against our revolving credit lines with
commercial banks; and (v) a net increase of
$23.4 million in restricted cash and cash equivalents. Our
corporate borrowing capacity under committed lines of credit
with different commercial banks as of September 30, 2010
was $402.5 million, as described below in the section
entitled Liquidity and Capital Resources, of which
we utilized $179.8 million (including $63.3 million of
letters of credit) as of September 30, 2010.
41
Critical
Accounting Policies
A comprehensive discussion of our critical accounting policies
is included in the Managements Discussion and
Analysis of Financial Condition and Results of Operations
section in our annual report on
Form 10-K
for the year ended December 31, 2009.
New
Accounting Pronouncements
On January 1, 2010, we adopted the amended consolidation
guidance for variable interest entities. As to the impact of the
adoption of this amendment on the consolidated financial
statements and the additional disclosure in such consolidated
financial statements, see Note 6 to our condensed
consolidated financial statements set forth in Item 1 of
this quarterly report.
On July 1, 2010, we adopted an accounting standards update
that amends and clarifies the guidance on how entities should
evaluate credit derivatives embedded in beneficial interests in
securitized financial assets. The adoption of this accounting
standards update resulted in a reclassification to retained
earnings with an offset to other comprehensive income effective
July 1, 2010.
See Note 2 to our condensed consolidated financial
statements set forth in Item 1 of this quarterly report for
additional information regarding new accounting pronouncements.
42
Results
of Operations
Our historical operating results in dollars and as a percentage
of total revenues are presented below. A comparison of the
different periods described below may be of limited utility as a
result of each of the following: (i) our recent
construction of new projects and enhancement of acquired
projects; (ii) a significant downward fluctuation in
revenues from our Product Segment; and (iii) to a lesser
extent the inclusion of the Mammoth complex in our consolidated
financial statements beginning on August 2, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(As
Revised(1))
|
|
|
2010
|
|
|
(As
Revised(1))
|
|
|
|
(In thousands, except
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
per share data)
|
|
|
Statements of Operations Historical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
83,357
|
|
|
$
|
67,913
|
|
|
$
|
218,269
|
|
|
$
|
189,799
|
|
Product
|
|
|
18,120
|
|
|
|
51,113
|
|
|
|
62,128
|
|
|
|
128,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,477
|
|
|
|
119,026
|
|
|
|
280,397
|
|
|
|
317,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
61,530
|
|
|
|
44,085
|
|
|
|
179,551
|
|
|
|
132,489
|
|
Product
|
|
|
14,764
|
|
|
|
35,780
|
|
|
|
41,316
|
|
|
|
87,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,294
|
|
|
|
79,865
|
|
|
|
220,867
|
|
|
|
219,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
21,827
|
|
|
|
23,828
|
|
|
|
38,718
|
|
|
|
57,310
|
|
Product
|
|
|
3,356
|
|
|
|
15,333
|
|
|
|
20,812
|
|
|
|
40,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,183
|
|
|
|
39,161
|
|
|
|
59,530
|
|
|
|
98,082
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1,252
|
|
|
|
3,863
|
|
|
|
8,133
|
|
|
|
7,151
|
|
Selling and marketing expenses
|
|
|
3,333
|
|
|
|
3,393
|
|
|
|
9,221
|
|
|
|
10,909
|
|
General and administrative expenses
|
|
|
5,780
|
|
|
|
6,437
|
|
|
|
19,796
|
|
|
|
19,554
|
|
Write-off of unsuccessful exploration activities
|
|
|
|
|
|
|
2,367
|
|
|
|
3,050
|
|
|
|
2,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14,818
|
|
|
|
23,101
|
|
|
|
19,330
|
|
|
|
58,101
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
140
|
|
|
|
157
|
|
|
|
432
|
|
|
|
585
|
|
Interest expense, net
|
|
|
(10,961
|
)
|
|
|
(4,358
|
)
|
|
|
(30,101
|
)
|
|
|
(12,063
|
)
|
Foreign currency translation and transaction gains (losses)
|
|
|
1,074
|
|
|
|
25
|
|
|
|
475
|
|
|
|
(1,324
|
)
|
Income attributable to sale of tax benefits
|
|
|
2,183
|
|
|
|
3,869
|
|
|
|
6,392
|
|
|
|
12,403
|
|
Gain on acquisition of controlling interest
|
|
|
36,928
|
|
|
|
|
|
|
|
36,928
|
|
|
|
|
|
Other non-operating income (expense), net
|
|
|
233
|
|
|
|
246
|
|
|
|
(47
|
)
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes and
equity in income (losses) of investees
|
|
|
44,415
|
|
|
|
23,040
|
|
|
|
33,409
|
|
|
|
58,348
|
|
Income tax provision
|
|
|
(11,931
|
)
|
|
|
(2,935
|
)
|
|
|
(6,009
|
)
|
|
|
(10,232
|
)
|
Equity in income (losses) of investees, net
|
|
|
(83
|
)
|
|
|
591
|
|
|
|
942
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
32,401
|
|
|
|
20,696
|
|
|
|
28,342
|
|
|
|
49,612
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of related tax of $0,
$536, $6 and $1,206, respectively
|
|
|
|
|
|
|
1,251
|
|
|
|
14
|
|
|
|
2,815
|
|
Gain on sale of of a subsidiary in New Zealand, net of related
tax of $2,000
|
|
|
|
|
|
|
|
|
|
|
4,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
32,401
|
|
|
|
21,947
|
|
|
|
32,692
|
|
|
|
52,427
|
|
Net loss attributable to noncontrolling interest
|
|
|
58
|
|
|
|
80
|
|
|
|
168
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Companys stockholders
|
|
$
|
32,459
|
|
|
$
|
22,027
|
|
|
$
|
32,860
|
|
|
$
|
52,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.71
|
|
|
$
|
0.45
|
|
|
$
|
0.62
|
|
|
$
|
1.10
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.03
|
|
|
|
0.10
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.71
|
|
|
$
|
0.48
|
|
|
$
|
0.72
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computation of
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,431
|
|
|
|
45,413
|
|
|
|
45,431
|
|
|
|
45,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,450
|
|
|
|
45,564
|
|
|
|
45,452
|
|
|
|
45,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(As
Revised(1))
|
|
|
2010
|
|
|
(As
Revised(1))
|
|
|
Statements of Operations Percentage Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
82.1
|
%
|
|
|
57.1
|
%
|
|
|
77.8
|
%
|
|
|
59.7
|
%
|
Product
|
|
|
17.9
|
|
|
|
42.9
|
|
|
|
22.2
|
|
|
|
40.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
73.8
|
|
|
|
64.9
|
|
|
|
82.3
|
|
|
|
69.8
|
|
Product
|
|
|
81.5
|
|
|
|
70.0
|
|
|
|
66.5
|
|
|
|
68.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.2
|
|
|
|
67.1
|
|
|
|
78.8
|
|
|
|
69.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
26.2
|
|
|
|
35.1
|
|
|
|
17.7
|
|
|
|
30.2
|
|
Product
|
|
|
18.5
|
|
|
|
30.0
|
|
|
|
33.5
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.8
|
|
|
|
32.9
|
|
|
|
21.2
|
|
|
|
30.9
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
1.2
|
|
|
|
3.2
|
|
|
|
2.9
|
|
|
|
2.2
|
|
Selling and marketing expenses
|
|
|
3.3
|
|
|
|
2.9
|
|
|
|
3.3
|
|
|
|
3.4
|
|
General and administrative expenses
|
|
|
5.7
|
|
|
|
5.4
|
|
|
|
7.1
|
|
|
|
6.2
|
|
Write-off of unsuccessful exploration activities
|
|
|
0.0
|
|
|
|
2.0
|
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14.6
|
|
|
|
19.4
|
|
|
|
6.9
|
|
|
|
18.3
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Interest expense, net
|
|
|
(10.8
|
)
|
|
|
(3.7
|
)
|
|
|
(10.7
|
)
|
|
|
(3.8
|
)
|
Foreign currency translation and transaction gains (losses)
|
|
|
1.1
|
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
(0.4
|
)
|
Income attributable to sale of tax benefits
|
|
|
2.2
|
|
|
|
3.3
|
|
|
|
2.3
|
|
|
|
3.9
|
|
Gain on acquisition of controlling interest
|
|
|
36.4
|
|
|
|
0.0
|
|
|
|
13.2
|
|
|
|
0.0
|
|
Other non-operating income (expense), net
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(0.0
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income taxes and
equity in income (losses) of investees
|
|
|
43.8
|
|
|
|
19.4
|
|
|
|
11.9
|
|
|
|
18.4
|
|
Income tax provision
|
|
|
(11.8
|
)
|
|
|
(2.5
|
)
|
|
|
(2.1
|
)
|
|
|
(3.2
|
)
|
Equity in income (losses) of investees, net
|
|
|
(0.1
|
)
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
31.9
|
|
|
|
17.4
|
|
|
|
10.1
|
|
|
|
15.6
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of related tax
|
|
|
|
|
|
|
1.1
|
|
|
|
0.0
|
|
|
|
0.9
|
|
Gain on sale of of a subsidiary in New Zealand, net of related
tax
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
31.9
|
|
|
|
18.4
|
|
|
|
11.7
|
|
|
|
16.5
|
|
Net loss attributable to noncontrolling interest
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Companys stockholders
|
|
|
32.0
|
%
|
|
|
18.5
|
%
|
|
|
11.7
|
%
|
|
|
16.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revision of the financial statements for three and nine-month
periods ended September 30, 2009 |
44
Through the third quarter of 2009, we accounted for exploration
and development costs using an accounting method that is
analogous to the full cost method used in the oil and gas
industry. Under that method, we capitalized costs incurred in
connection with the exploration and development of geothermal
resources on an
area-of-interest
basis. Each area of interest included a number of potential
projects in the state of Nevada that were planned to be operated
together with the same operation and maintenance team.
Impairment tests were performed on an
area-of-interest
basis rather than at a single site. Under this methodology,
costs associated with projects that we determined are not
economically feasible remained capitalized as long as the
area-of-interest
was not subject to impairment.
Following a periodic review performed by the SEC Staff, we
concluded that this accounting treatment was inappropriate in
certain respects and restated the consolidated financial
statements for the year ended December 31, 2008 to
write-off capitalized costs for projects we determined are not
economically feasible in the period such determination was made.
We also revised our financial statements for the three and
nine-month period ended September 30, 2009 to give effect
to a write-off of costs associated with a project which we
determined in the third quarter of 2009 would not support
commercial operations.
The effect of the revision on the results of operations in those
periods is presented in Note 1 to our condensed
consolidated financial statements set forth in Item 1 of
this quarterly report.
Comparison
of the Three Months Ended September 30, 2010 and the Three
Months Ended September 30, 2009
Total
Revenues
Total revenues for the three months ended September 30,
2010 were $101.5 million, compared to $119.0 million
for the three months ended September 30, 2009, which
represented a 14.7% decrease in total revenues. This decrease in
total revenues is due to a 64.5% decrease in revenues from our
Product Segment from the same period in 2009, while revenues
from our Electricity Segment increased by 22.7% from the same
period last year.
Electricity
Segment
Revenues attributable to our Electricity Segment for the three
months ended September 30, 2010 were $83.4 million,
compared to $67.9 million for the three months ended
September 30, 2009, which represented a 22.7% increase in
such revenues. This increase is a result of increased
electricity generation at most of our power plants from
783,532 MWh in the three months ended September 30,
2009 to 937,402 MWh in the three months ended
September 30, 2010. The most significant contributors to
the increase in our electricity generation were: (i) an
increase in the generation of the Puna power plant due to repair
work that was completed in the second quarter of 2010;
(ii) the placement in service of our North Brawley power
plant in January 2010, with revenues of $5.1 million in the
three months ended September 30, 2010; and (iii) the
consolidation of the Mammoth complex effective August 2,
2010 with revenues of $3.5 million in the period from
August 2, 2010 to September 30, 2010, resulting from
the acquisition of the remaining 50% interest in Mammoth
Pacific, as discussed above. The increase in our Electricity
Segment revenues is also attributable to a slight increase in
the average revenue rate of our electricity portfolio from $87
per MWh in the third quarter of 2009 to $89 per MWh in the third
quarter of 2010.
Product
Segment
Revenues attributable to our Product Segment for the three
months ended September 30, 2010 were $18.1 million,
compared to $51.1 million for the three months ended
September 30, 2009, which represented a 64.5% decrease in
such revenues. This decrease in our product revenue is a result
of a decline in our Product Segment customer orders. As
previously disclosed, the Product Segment revenues are volatile
and unpredictable. We expect this downward fluctuation to affect
revenues from our Product Segment at least for the remainder of
this year.
45
Total
Cost of Revenues
Total cost of revenues for the three months ended
September 30, 2010 was $76.3 million, compared to
$79.9 million for the three months ended September 30,
2009, which represented a 4.5% decrease in total cost of
revenues. This decrease is attributable to a decrease in our
Product Segment cost of revenues, as discussed below, which was
partially offset by an increase in our Electricity Segment cost
of revenues. As a percentage of total revenues, our total cost
of revenues for the three months ended September 30, 2010
was 75.2%, compared to 67.1% for the same period in 2009. This
increase is mainly attributable to high costs in our
North Brawley plant, as described below, as well as the
lower volume of the Product Segment revenues.
Electricity
Segment
Total cost of revenues attributable to our Electricity Segment
for the three months ended September 30, 2010 was
$61.5 million, which includes $10.1 million (including
depreciation) related to the North Brawley power plant, compared
to $44.1 million for the three months ended
September 30, 2009, which represented a 39.6% increase in
total cost of revenues for such segment. The increase over the
same period last year is mainly attributable to our North
Brawley power plant, which was placed in service in January
2010. We have incurred high costs (including depreciation)
associated with operating and maintaining a 50 MW power
plant that is operating at a lower rate. The higher costs in the
North Brawley power plant increased the cost per MWh in the
current quarter compared to the third quarter of 2009. Since
March 2010, we have been installing permanent solids removal
equipment on the injection flow. This equipment provides better
removal efficiency at a fraction of the operating costs that we
have seen with disposable cartridges, and we are in the process
of implementing this solution on the production wells.
Nevertheless, we expect to have high operation expenses in the
next few quarters. As a percentage of total electricity
revenues, the total cost of revenues attributable to our
Electricity Segment for the three months ended
September 30, 2010 was 73.8%, compared to 64.9% for the
three months ended September 30, 2009. We expect this trend
to continue during the remainder of 2010.
Product
Segment
Total cost of revenues attributable to our Product Segment for
the three months ended September 30, 2010 was
$14.8 million, compared to $35.8 million for the three
months ended September 30, 2009, which represented a 58.7%
decrease in total cost of revenues related to such segment. This
decrease is attributable to the decrease in product revenues as
described above. As a percentage of total Product Segment
revenues, our total cost of revenues attributable to this
segment for the three months ended September 30, 2010 was
81.5%, compared to 70.0% for the three months ended
September 30, 2009. This increase reflects a decrease in
our gross margin, which is mainly attributable to the lower
volume of Product Segment revenues.
Research
and Development Expenses
Research and development expenses for the three months ended
September 30, 2010 were $1.3 million, compared to
$3.9 million for the three months ended September 30,
2009, which represented a 67.6% decrease. The decrease in our
research and development expenses from the same period last year
is primarily attributable to the costs related to an
experimental REG plant specifically designed to use the residual
energy from the vaporization process at liquefied natural gas
regasification terminals, including developing and building a
unit at a customers premises in Spain, which costs
decreased to $0.3 million in the three months ended
September 30, 2010, from $1.9 million in the three
months ended September 30, 2009. The large decrease is
because the majority of the costs related to the experimental
REG plant have been incurred through the second quarter of 2010.
Construction of the plant commenced in the third quarter of 2010
and is expected to be completed in the first quarter of 2011. If
the development of the unit is not successful we will have to
remove the unit from the customers site. If the unit
operates successfully and passes acceptance tests, we will be
paid by the customer an amount of approximately
$15.0 million which will be recognized as revenue upon
acceptance by the customer. Our research and development
activities during the three months ended September 30, 2010
also included: (i) continued development of enhanced
geothermal systems (EGS); (ii) development of a solar
thermal system for the production of electricity; and
(iii) research of various solutions related to power plant
cooling systems.
46
Selling
and Marketing Expenses
Selling and marketing expenses for the three months ended
September 30, 2010 were $3.3 million, compared to
$3.4 million for the three months ended September 30,
2009. Selling and marketing expenses for the three months ended
September 30, 2010 constituted 3.3% of total revenues for
such period compared to 2.9% for the three months ended
September 30, 2009.
General
and Administrative Expenses
General and administrative expenses for the three months ended
September 30, 2010 were $5.8 million, compared to
$6.4 million for the three months ended September 30,
2009, which represented a 10.2% decrease. General and
administrative expenses for the three months ended
September 30, 2010 constituted 5.7% of total revenues for
such period, compared to 5.4% for the three months ended
September 30, 2009.
Write-off
of Unsuccessful Exploration Activities
We did not have any write-offs of unsuccessful exploration
activities for the three months ended September 30, 2010.
Write-off of unsuccessful exploration activities for the three
months ended September 30, 2009 was $2.4 million (as
revised), which represents the write-off of exploration costs
related to the Rock Hills exploration project in Nevada, which
we determined in the third quarter of 2009 would not support
commercial operations.
Operating
Income
Operating income for the three months ended September 30,
2010 was $14.8 million, compared to $23.1 million (as
revised) for the three months ended September 30, 2009.
Such decrease of $8.3 million in operating income was
principally attributable to a decrease in the total gross margin
due to the decrease in Product Segment revenues and the increase
in Electricity Segment cost of revenues. Operating income
attributable to our Electricity Segment for the three months
ended September 30, 2010 was $13.5 million, compared
to $14.7 million (as revised) for the three months ended
September 30, 2009, mainly due to the increase in
electricity cost of revenues, as explained above. Operating
income attributable to our Product Segment for the three months
ended September 30, 2010 was $1.4 million, compared to
$8.4 million for the three months ended September 30,
2009, due to the decrease in our Product Segment revenues.
Interest
Expense, Net
Interest expense, net, for the three months ended
September 30, 2010 was $11.0 million, compared to
$4.4 million for the three months ended September 30,
2009, which represented a 151.5% increase. The $6.6 million
increase is primarily due to: (i) a decrease of
$4.8 million in interest capitalized to projects as a
result of decreased aggregate investment in projects under
construction; (ii) issuance of senior unsecured bonds on
August 3, 2010, in the aggregate principal amount of
approximately $142.0 million, as discussed above; and
(iii) loan agreements with two groups of institutional
investors and a commercial bank in an aggregate total amount of
$90.0 million in the third and fourth quarters of 2009. The
increase was partially offset by a decrease in interest expense
as a result of the acquisition of a thirty percent interest in
the Class B membership units of OPC on October 30,
2009 by our subsidiary, Ormat Nevada, as well as principal
repayments.
Foreign
Currency Translation and Transaction Gains
Foreign currency translation and transaction gains for the three
months ended September 30, 2010 were $1.1 million,
compared to $0.1 million for the three months ended
September 30, 2009. The $1.0 million increase is
primarily due to higher gains on forward foreign exchange
transactions which do not qualify as hedge transactions for
accounting purposes for the three months ended
September 30, 2010, compared to the three months ended
September 30, 2009.
47
Income
Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits to institutional
equity investors (as described in
OPC Transaction below) for the three months
ended September 30, 2010 was $2.2 million, compared to
$3.9 million for the three months ended September 30,
2009. This income represents the value of production tax credits
(PTCs) and taxable income or loss generated by OPC and allocated
to the investors. The decrease is due to lower depreciation for
tax purposes as a result of declining depreciation rates
utilizing the Modified Accelerated Cost Recovery System (MACRS)
and to our purchase of Class B membership units of OPC from
Lehman-OPC on October 30, 2009.
Gain
on acquisition of controlling interest
Gain on acquisition of controlling interest for the three months
ended September 30, 2010 was $36.9 million. This gain
relates to the acquisition of the remaining 50% interest in
Mammoth Pacific as discussed above. The acquisition-date fair
value of the previous 50% equity interest was
$64.9 million. In three months ended September 30,
2010, we recognized a pre-tax gain of $36.9 million
($22.6 million after tax), which is equal to the difference
between the acquisition-date fair value of the initial
investment in Mammoth Pacific and the acquisition-date carrying
value of such investment.
Income
Taxes
Income tax provision for the three months ended
September 30, 2010 was $11.9 million, compared to
$2.9 million (as revised) for the three months ended
September 30, 2009. The effective tax rate for the three
months ended September 30, 2010 was 26.9%, compared to
12.7% for the three months ended September 30, 2009. The
increase in the effective tax rate primarily resulted from the
tax impact of the gain on acquisition of controlling interest as
discussed above, offset partially by the PTCs which reduce the
effective tax rate for the third quarter of 2010 as a result of
our lower pre-tax income from continuing operations (excluding
the gain on acquisition of controlling interest). Excluding the
gain on acquisition of controlling interest, we expect to
recognize an income tax benefit during 2010 due to the
significance of the forecasted PTCs in relation to our
forecasted pretax income from continuing operations.
Equity
in Income (Losses) of Investees
Our participation in the losses generated from our investees for
the three months ended September 30, 2010 was
$0.1 million, compared to income of $0.6 million for
the three months ended September 30, 2009. The amount is
derived mainly from our 50% ownership of the Mammoth complex
which was included in the Companys consolidated financial
statements effective August 2, 2010, as a result of our
acquisition of the remaining 50% interest in Mammoth Pacific.
For the third quarter of 2010, the amount represents our share
in the loss of the Mammoth complex in the period from
July 1, 2010 to August 1, 2010.
Income
from Continuing Operations
Income from continuing operations for the three months ended
September 30, 2010 was $32.4 million, compared to
$20.7 million (as revised) for the three months ended
September 30, 2009. Such increase of $11.7 million in
income from continuing operations was principally attributable
to: (i) gain on acquisition of controlling interest in the
amount of $36.9 million; and (ii) a $1.0 million
increase in foreign currency transaction and translation gains.
The increase was partially offset by: (i) an
$8.3 million decrease in operating income; (ii) a
$6.6 million increase in interest expense, net;
(iii) a $1.7 million decrease in income attributable
to the sale of tax benefits; and (iv) a $9.0 million
increase in income tax provision.
Discontinued
Operations
In January 2010, a former shareholder of GDL exercised a call
option to purchase from us our shares in GDL for approximately
$2.8 million. We did not exercise our right of first
refusal and, therefore, we transferred our shares in GDL to the
former shareholder. The operations of GDL have been included in
discontinued operations for all periods prior to the sale of GDL.
48
Net
Income
Net income for the three months ended September 30, 2010
was $32.4 million, compared to $21.9 million (as
revised) for the three months ended September 30, 2009.
Such increase in net income was principally attributable to the
increase in income from continuing operations in the amount of
$11.7 million, as discussed above.
Comparison
of the Nine Months Ended September 30, 2010 and the Nine
Months Ended September 30, 2009
Total
Revenues
Total revenues for the nine months ended September 30, 2010
were $280.4 million, compared to $317.8 million for
the nine months ended September 30, 2009, which represented
an 11.8% decrease in total revenues. The decrease in our total
revenues is due to a 51.5% decrease in our Product Segment
revenues, while revenues from our Electricity Segment increased
by 15.0% from the same period last year.
Electricity
Segment
Revenues attributable to our Electricity Segment for the nine
months ended September 30, 2010 were $218.3 million,
compared to $189.8 million for the nine months ended
September 30, 2009, which represented a 15.0% increase in
such revenues. This increase is a result of increased
electricity generation at most of our power plants from
2,454,862 MWh in the nine months ended September 30,
2009 to 2,735,018 MWh in the nine months ended
September 30, 2010. The most significant contributors to
the increase in our electricity generation were: (i) an
increase in the generation of the Puna power plant due to repair
work that was completed in the second quarter of 2010;
(ii) the placement in service of our North Brawley power
plant in January 2010, with revenues of $11.3 million in
the nine months ended September 30, 2010; and
(iii) the consolidation of the Mammoth complex effective
August 2, 2010 with revenues of $3.5 million in the
period from August 2, 2010 to September 30, 2010,
resulting from the acquisition of the remaining 50% interest in
Mammoth Pacific, as discussed above. The increase in our
Electricity Segment revenues is also attributable to a slight
increase in the average revenue rate of our electricity
portfolio from $77 per MWh in the nine months ended
September 30, 2009 to $80 per MWh in the nine months ended
September 30, 2010.
Product
Segment
Revenues attributable to our Product Segment for the nine months
ended September 30, 2010 were $62.1 million, compared
to $128.0 million for the nine months ended
September 30, 2009, which represented a 51.5% decrease in
such revenues. This decrease in our product revenue is a result
of a decline in our Product Segment customer orders, which we
have previously discussed.
Total
Cost of Revenues
Total cost of revenues for the nine months ended
September 30, 2010 was $220.9 million, compared to
$219.8 million for the nine months ended September 30,
2009. This slight increase is attributable to an increase in our
Electricity Segment cost of revenues, which was offset by a
decrease in our Product Segment cost of revenues, as discussed
below. As a percentage of total revenues, our total cost of
revenues for the nine months ended September 30, 2010 was
78.8%, compared to 69.1% for the same period in 2009. This
increase is mainly attributable to high costs in our North
Brawley plant, as described below, as well as the lower volume
of the Product Segment revenues.
Electricity
Segment
Total cost of revenues attributable to our Electricity Segment
for the nine months ended September 30, 2010 was
$179.6 million, which includes $31.5 million
(including depreciation) related to our North Brawley power
plant, compared to $132.5 million for the nine months ended
September 30, 2009, which represented a 35.5% increase in
total cost of revenues for such segment. The increase over the
same period last year is mainly attributable to our North
Brawley power plant which was placed in service in January 2010.
We have incurred high costs (including depreciation) associated
with operating and maintaining a 50 MW power plant
49
that is operating at a lower rate. The higher costs in the North
Brawley power plant increased the cost per MWh for the nine
months ended September 30, 2010, compared to the nine
months ended September 30, 2009. As a percentage of total
electricity revenues, the total cost of revenues attributable to
our Electricity Segment for the nine months ended
September 30, 2010 was 82.3%, compared to 69.8% for the
nine months ended September 30, 2009.
Product
Segment
Total cost of revenues attributable to our Product Segment for
the nine months ended September 30, 2010 was
$41.3 million, compared to $87.3 million for the nine
months ended September 30, 2009, which represented a 52.7%
decrease in total cost of revenues related to such segment. This
decrease is attributable to the decrease in product revenues, as
described above. As a percentage of total Product Segment
revenues, our total cost of revenues attributable to this
segment for the nine months ended September 30, 2010 was
66.5%, compared to 68.2% for the nine months ended
September 30, 2009. This percentage decrease is
attributable to the removal of a contingency relating to a
project that was substantially completed in the second quarter
of 2010.
Research
and Development Expenses
Research and development expenses for the nine months ended
September 30, 2010 were $8.1 million, compared to
$7.2 million for the nine months ended September 30,
2009, which represented a 13.7% increase. The increase is
primarily attributable to the costs related to the experimental
REG plant in the amount of $5.3 million (in addition to
$7.5 million recorded in the year ended December 31,
2009) compared to $3.8 million for the nine months
ended September 30, 2009. Our research and development
activities during the nine months ended September 30, 2010
also included: (i) continued development of EGS;
(ii) development of a solar thermal system for the
production of electricity; and (ii) research of various
solutions related to power plant cooling systems.
Selling
and Marketing Expenses
Selling and marketing expenses for the nine months ended
September 30, 2010 were $9.2 million, compared to
$10.9 million for the nine months ended September 30,
2009, which represented a 15.5% decrease. The decrease was due
primarily to the decrease in Product Segment revenues. Selling
and marketing expenses for the nine months ended
September 30, 2010 constituted 3.3% of total revenues for
such period, compared to 3.4% for the nine months ended
September 30, 2009.
General
and Administrative Expenses
General and administrative expenses for the nine months ended
September 30, 2010 and 2009 were $19.8 million,
compared to $19.6 million for the nine months ended
September 30, 2009. General and administrative expenses for
the nine months ended September 30, 2010 constituted 7.1%
of total revenues for such period, compared to 6.2% for the nine
months ended September 30, 2009.
Write-off
of Unsuccessful Exploration Activities
Write-off of unsuccessful exploration activities for the nine
months ended September 30, 2010 was $3.1 million,
compared to $2.4 million (as revised) for the nine months
ended September 30, 2009. Write-off of unsuccessful
exploration activities for the nine months ended
September 30, 2010 relates to the Gabbs Valley exploration
project in Nevada, which we determined in the second quarter of
2010 would not support commercial operations. Write-off of
unsuccessful exploration activities for the nine months ended
September 30, 2009 relates to the Rock Hills exploration
project in Nevada, which we determined in the third quarter of
2009 would not support commercial operations.
50
Operating
Income
Operating income for the nine months ended September 30,
2010 was $19.3 million, compared to $58.1 million (as
revised) for the nine months ended September 30, 2009. Such
decrease of $38.8 million in operating income was
principally attributable to a decrease in the total gross margin
due to the decrease in Product Segment revenues and the increase
in Electricity Segment cost of revenues. Operating income
attributable to our Electricity Segment for the nine months
ended September 30, 2010 was $11.4 million, compared
to $35.2 million (as revised) for the nine months ended
September 30, 2009, mainly due to the increase in
electricity cost of revenues, as explained above. Operating
income attributable to our Product Segment for the nine months
ended September 30, 2010 was $7.9 million, compared to
$22.9 million for the nine months ended September 30,
2009, mainly due to the decrease in product revenues, as
explained above.
Interest
Expense, Net
Interest expense, net, for the nine months ended
September 30, 2010 was $30.1 million, compared to
$12.1 million for the nine months ended September 30,
2009, which represented a 149.5% increase. The
$18.0 million increase is primarily due to: (i) a
decrease of $13.2 million in interest capitalized to
projects as a result of decreased aggregate investment in
projects under construction; (ii) an increase in interest
expenses related to our long-term project finance loans of the
Olkaria III and Amatitlan power plants;
(iii) borrowings under our revolving credit lines with
banks; (iv) loan agreements with two groups of
institutional investors and a commercial bank in the third and
fourth quarter of 2009; and (v) issuance of senior
unsecured bonds on August 3, 2010, as discussed above. The
increase was partially offset by a decrease in interest expense
as a result of the acquisition of a thirty percent interest in
the Class B membership units of OPC on October 30,
2009 by our subsidiary, Ormat Nevada, as well as principal
repayments.
Foreign
Currency Translation and Transaction Gains
(Losses)
Foreign currency translation and transaction gains for the nine
months ended September 30, 2010 were $0.5 million,
compared to losses of $1.3 million for the nine months
ended September 30, 2009. The $1.8 million increase is
primarily due to higher gains on forward foreign exchange
transactions which do not qualify as hedge transactions for
accounting purposes for the nine months ended September 30,
2010, compared to losses for the nine months ended
September 30, 2009.
Income
Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits to institutional
equity investors (as described in OPC Transaction
below) for the nine months ended September 30, 2010 was
$6.4 million, compared to $12.4 million for the nine
months ended September 30, 2009. This income represents the
value of PTCs and taxable income or loss generated by OPC and
allocated to the investors. The decrease is due to lower
depreciation for tax purposes as a result of declining
depreciation rates utilizing MACRS and to our purchase of
Class B membership units of OPC from Lehman-OPC.
Gain
on acquisition of controlling interest
Gain on acquisition of controlling interest for the nine months
ended September 30, 2010 was $36.9 million. This gain
relates to the acquisition of the remaining 50% interest in
Mammoth Pacific as discussed above. The acquisition-date fair
value of the previous 50%-equity interest was
$64.9 million. In the nine months ended September 30,
2010, we recognized a pre-tax gain of $36.9 million
($22.4 million after tax), which is equal to the difference
between the acquisition-date fair value of the initial
investment in Mammoth Pacific and the acquisition-date carrying
value of such investment.
Income
Taxes
Income tax provision for the nine months ended
September 30, 2010 was $6.0 million, compared to
$10.2 million (as revised) for the nine months ended
September 30, 2009. The effective tax rate for the nine
months ended September 30, 2010 was 18.0%, compared to
17.5% for the nine months ended September 30,
51
2009. The fluctuation in the effective tax rate primarily
resulted from the tax impact of the gain on acquisition of
controlling interest as discussed above, offset by the PTCs
which reduce the effective tax rate for the nine months ended
September 30, 2010 as a result of our low pre-tax income
from continuing operations (excluding the gain on acquisition of
controlling interest), partially offset by a valuation allowance
recorded in 2010 relating to capital loss carryovers. Excluding
the gain on acquisition of controlling interest, we expect to
recognize an income tax benefit during 2010 due to the
significance of the forecasted PTCs in relation to our
forecasted pretax income from continuing operations.
Equity
in Income of Investees
Our participation in the income generated from our investees for
the nine months ended September 30, 2010 was
$0.9 million, compared to $1.5 million for the nine
months ended September 30, 2009. The amount is derived
mainly from our 50% ownership of the Mammoth complex which was
included in the Companys consolidated financial statements
effective August 2, 2010, as a result of the acquisition of
the remaining 50% interest in Mammoth Pacific. For the first
nine months of 2010, the amount represents our share in the
income of the Mammoth complex in the period from January 1,
2010 to August 1, 2010.
Income
from Continuing Operations
Income from continuing operations for the nine months ended
September 30, 2010 was $28.3 million, compared to
$49.6 million (as revised) for the nine months ended
September 30, 2009. Such decrease of $21.3 million in
income from continuing operations was principally attributable
to: (i) a $38.8 million decrease in operating income;
(ii) an $18.0 million increase in interest expense;
and (iii) a $6.0 million decrease in income
attributable to the sale of tax benefits. This was partially
offset by: (i) a $1.8 million increase in foreign
currency transaction and translation gains; (ii) gain on
acquisition of controlling interest of $36.9 million; and
(iii) a $4.2 million decrease in income tax provision.
Discontinued
Operations
In January 2010, a former shareholder of GDL exercised a call
option to purchase from us our shares in GDL for approximately
$2.8 million. We did not exercise our right of first
refusal and, therefore, we transferred our shares in GDL to the
former shareholder. As a result, we recorded an after-tax gain
of $4.3 million in the nine months ended September 30,
2010. The operations of GDL have been included in discontinued
operations for all periods prior to the sale of GDL.
Net
Income
Net income for the nine months ended September 30, 2010 was
$32.7 million, compared to $52.4 million (as revised)
for the nine months ended September 30, 2009. Such decrease
in net income was principally attributable to the decrease in
income from continuing operations in the amount of
$21.3 million, as discussed above, partially offset by the
gain on the sale of shares in GDL in the amount of
$4.3 million, net of related income taxes.
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 and private
offerings, issuance by Ormat Funding Corp. (OFC) and OrCal
Geothermal Inc. (OrCal) of their respective Senior Secured
Notes, project financing (including the Puna lease and the
OPC Transaction described below), and a cash grant we
received under the ARRA in respect of the North Brawley
power plant. We have utilized this cash to fund our acquisitions
(including the acquisition of the remaining 50% ownership of the
Mammoth complex in August 2010), to develop and construct power
generation plants, and to meet our other cash and liquidity
needs.
52
As of September 30, 2010, we have access to the following
sources of funds: (i) $49.2 million in cash and cash
equivalents; and (ii) $222.7 million of unused
corporate borrowing capacity under existing committed lines of
credit with different commercial banks.
Our estimated capital needs for the rest of 2010 include
approximately $132 million for capital expenditures on new
projects in development or construction, exploration activity,
operating projects, and machinery and equipment, as well as
$24.2 million for debt repayment.
We expect to finance these requirements with: (i) the
sources of liquidity described above; (ii) cash flows from
our operations; (iii) additional borrowing capacity under
future lines of credit with commercial banks that are under
negotiations; and (iv) future project financing and
refinancing. 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.
Third
Party Debt
Our third party debt is composed of two principal categories.
The first category consists of project finance debt or
acquisition financing that we or our subsidiaries have incurred
for the purpose of developing and constructing, refinancing or
acquiring our various projects, which are described under the
heading Non-Recourse and Limited-Recourse Third Party
Debt. The second category consists of debt incurred by us
or our subsidiaries for general corporate purposes, which are
described under the heading Full-Recourse Third Party
Debt.
Non-Recourse
and Limited-Recourse Third Party Debt
OFC
Senior Secured Notes Non Recourse
On February 13, 2004, 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 (the Securities Act), for the purpose of
refinancing the acquisition cost of the Brady, Ormesa and
Steamboat 1/1A power plants, and the financing of the
acquisition cost of the Steamboat 2/3 power plants. 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 September 30, 2004. The OFC Senior Secured
Notes are collateralized by substantially all of the assets of
OFC and those of its wholly owned subsidiaries and are fully and
unconditionally guaranteed by all of the wholly owned
subsidiaries of OFC. There are various restrictive covenants
under the OFC Senior Secured Notes, which include limitations on
additional indebtedness and payment of dividends. As of
September 30, 2010, OFC was in compliance with the
covenants under the OFC Senior Secured Notes. As of
September 30, 2010, there were $141.4 million of OFC
Senior Secured Notes outstanding.
OrCal
Secured Notes Non-Recourse
On December 8, 2005, 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, for the purpose of
refinancing the acquisition cost of the Heber power plants. 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 September 30, 2006. The OrCal Senior Secured
Notes are collateralized by substantially all of the assets of
OrCal and those of its wholly owned subsidiaries and are fully
and unconditionally guaranteed by all of the wholly owned
subsidiaries of OrCal. There are various restrictive covenants
under the OrCal Senior Secured Notes, which include limitations
on additional indebtedness and payment of dividends. As of
September 30, 2010, OrCal was in compliance with the
covenants under the OrCal Senior Secured Notes. As of
September 30, 2010, there were $103.2 million of OrCal
Senior Secured Notes outstanding.
53
Olkaria III
Loan Non-Recourse
OrPower 4, Inc. (OrPower 4), has a project financing loan of
$105.0 million which refinanced its investment in the
48 MW Olkaria III geothermal power plant located in
Kenya. The loan was provided by a group of European Development
Finance Institutions (DFIs) arranged by DEG Deutsche
Investitions-und Entwicklungsgesellschaft mbH (DEG). The loan
will mature on December 15, 2018, and will be payable in
19 equal semi-annual installments, commencing
December 15, 2009. Interest on the loan is variable based
on 6-month
LIBOR plus 4.0%. We fixed the interest rate on
$77.0 million of the loan at 6.90% per annum. There are
various restrictive covenants under the loan, which include
limitations on OrPower 4s ability to make distributions to
its shareholders. As of September 30, 2010, OrPower 4 was
in compliance with the covenants under the loan. As of
September 30, 2010, $93.9 million of the
Olkaria III loan was outstanding.
Amatitlan
Loan Non-Recourse
Ortitlan Limitada (Ortitlan), entered into a note purchase
agreement in an aggregate principal amount of $42.0 million
which refinanced its investment in the 20 MW Amatitlan
geothermal power plant located in Amatitlan, Guatemala. The loan
was provided by TCW Global Project Fund II, Ltd. (TCW). The
loan will mature on June 15, 2016, and will be payable in
28 quarterly installments, commencing September 15, 2009.
The annual interest rate on the loan is 9.83%, but the effective
cost for us is approximately 8%, due to the elimination,
following the refinancing, of the political risk insurance
premiums that we had been paying on our equity investment in the
project. There are various restrictive covenants under the loan,
which include limitations on Ortitlans ability to make
distributions to its shareholders. Management believes that as
of September 30, 2010, Ortitlan was in compliance with the
covenants under the loan. As of September 30, 2010,
$39.5 million of the Amatitlan loan was outstanding.
Senior
Loan from International Finance Corporation (IFC)
(The Zunil Power Plant) Non-Recourse
Orzunil I de Electricidad, Limitada (Orzunil), a wholly owned
subsidiary in Guatemala, has a senior loan agreement with IFC.
The loan, of which $2.1 million was outstanding as of
September 30, 2010, has a fixed annual interest rate of
11.775%, and matures on November 15, 2011. There are
various restrictive covenants under the senior loan, which
include limitations on Orzunils ability to make
distributions to its shareholders. As of September 30,
2010, Orzunil was in compliance with the covenants under this
senior loan.
New
Financing of Our Projects
Financing
of the North Brawley Power Plant
We refinanced a portion of the equity invested in the North
Brawley power plant with the cash grant we received under the
ARRA in September 2010, and we intend to refinance a portion of
the remainder with long-term debt of up to $100 million
that we are currently negotiating with a financial institution.
Financing
for Jersey Valley, McGinness Hills and Tuscarora Projects in
Nevada
Our subsidiary, Ormat Nevada, has engaged John Hancock to
arrange senior secured construction and term loan facilities
under a United States DOE loan guarantee program of up to
$350 million for three geothermal projects currently under
construction in Nevada. The three projects are the McGinness
Hills, Jersey Valley and Tuscarora geothermal projects.
Construction of all three projects has already commenced with
commercial operation of the first phase of each project expected
between 2011 and 2013.
The availability of the credit facilities is subject to various
conditions, including execution of mutually satisfactory
documentation and approval of the DOE.
John Hancock and the DOE will conduct a due diligence
review of the three projects. Upon the satisfactory completion
of the review, John Hancock and the DOE will consider issuing a
conditional commitment which will lead to a loan guarantee.
54
Full-Recourse
Third Party Debt
In December 2008, our subsidiary, Ormat Nevada, entered into an
amendment of its credit agreement with Union Bank, N.A. (Union
Bank), extending the final maturity of the facility and
increasing its total amount to $37.5 million. Under the
credit agreement, Ormat Nevada can request extensions of credit
in the form of loans
and/or the
issuance of one or more letters of credit. 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 a 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, and Ormat
Nevada is subject to a negative pledge in favor of Union Bank.
As of September 30, 2010, letters of credit in the
aggregate amount of $34.4 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 $365.0 million. Under these credit
agreements, we or our Israeli subsidiary, Ormat Systems Ltd.,
can request extensions of credit in the form of loans in the
amount of up to $315.0 million
and/or the
issuance of one or more letters of credit in the amount of up to
$365.0 million. The credit agreements mature between
December 2010 and September 2013.
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.
As of September 30, 2010, loans in the total amount of
$116.5 million were outstanding, and letters of credit in
the total amount of $28.9 million remain issued and
outstanding under such credit agreements.
We have a $20.0 million term loan with a group of financial
institutions, which matures on July 16, 2015, is payable in
12 semi-annual installments commencing January 16, 2010,
and bears annual interest of 6.5%. As of September 30,
2010, $17.2 million was outstanding under this loan.
We have a $20.0 million term loan with a group of financial
institutions, which matures on August 1, 2017, is payable
in 12 semi-annual installments commencing February 1, 2012,
and bears interest at
6-month
LIBOR plus 5.0%. As of September 30, 2010,
$20.0 million was outstanding under this loan.
We have a $50.0 million term loan with a commercial bank,
which matures on November 10, 2014, and is payable in 10
semi-annual installments commencing May 10, 2010, and bears
interest at
6-month
LIBOR plus 3.25%. As of September 30, 2010,
$45.0 million was outstanding under this loan.
On August 3, 2010, we entered into a trust instrument
governing the issuance of, and accepted subscriptions for an
aggregate principal amount of approximately $142.0 million
of senior unsecured bonds (the Bonds). We issued the Bonds
outside the United States to investors who are not
U.S. persons in an unregistered offering
pursuant to, and subject to the requirements of,
Regulation S under the Securities Act.
Subject to early redemption, principal of the Bonds is repayable
in a single bullet payment upon the final maturity of the Bonds
on August 1, 2017. The Bonds bear interest at a fixed rate
of 7% per annum, payable semi-annually. We intend to use the
proceeds of the Bonds for general corporate purposes, which may
include the repayment of existing indebtedness and the
acquisition, directly or indirectly, of additional energy
assets, including by way of construction, enhancement and
expansion of its existing projects.
Our obligations under the credit agreements, the loan agreements
and the trust agreement governing the Bonds, described above,
are unsecured, but we are subject to a negative pledge in favor
of the banks and the
55
other lenders 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, a debt
to equity ratio, and a debt to EBITDA ratio. There are also
certain restrictions on distribution of dividends. 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 credit agreements, the loan agreements and the trust
agreement governing the Bonds contain cross-default provisions
with respect to other material indebtedness owed by us to any
third party.
We are currently in compliance with our covenants with respect
to these credit and loan agreements, and believe that the
restrictive covenants, financial ratios and other terms of any
of our (or Ormat Systems) full-recourse bank credit
agreements will not materially impact our business plan or plan
of operations.
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.
Two commercial banks have issued such performance letters of
credit in favor of our customers from time to time. As of
September 30, 2010, such banks have issued us letters of
credit totaling $22.0 million. These letters of credit were
not issued under the credit agreements discussed under
Full-Recourse Third Party Debt above.
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
September 30, 2010, letters of credit in the aggregate
amount of $63.3 million remained issued and outstanding
under the Union Bank credit agreement and our other agreements
with commercial banks.
Puna
Project Lease Transactions
On May 19, 2005, our subsidiary in Hawaii, Puna Geothermal
Venture (PGV), entered into a transaction involving the Puna
geothermal power plant located on the Big Island of Hawaii. The
transaction was concluded with financing parties by means of a
leveraged lease transaction. A secondary stage of the lease
transaction relating to two new geothermal wells that PGV
drilled in the second half of 2005 (for production and
injection) was completed on December 30, 2005. Pursuant to
a 31-year
head lease, PGV leased its geothermal power plant to the
abovementioned financing parties in return for deferred lease
payments by such financing parties to PGV in the aggregate
amount of $83.0 million.
OPC
Transaction
In September 2007, our wholly owned subsidiary, Ormat Nevada,
entered into agreements with affiliates of Morgan
Stanley & Co. Incorporated and Lehman Brothers Inc.
(Morgan Stanley Geothermal LLC and Lehman-OPC), under which
those investors purchased, for cash, interests in a newly formed
subsidiary of Ormat Nevada, OPC, entitling the investors to
certain tax benefits (such as PTCs and accelerated depreciation)
and distributable cash associated with four geothermal power
plants.
The first closing under the agreements occurred in 2007 and
covered the Companys Desert Peak 2, Steamboat Hills and
Galena 2 power plants. The investors paid $71.8 million at
the first closing. The second
56
closing under the agreements occurred in 2008 and covered the
Galena 3 power plant. The investors paid $63.0 million at
the second closing.
Ormat Nevada continues to operate and maintain the power plants
and will receive initially all of the distributable cash flow
generated by the power plants until it recovers the capital that
it has invested in the power plants, while the investors will
receive substantially all of the PTCs 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, 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 power plants.
The Class B membership units are provided with a 5%
residual economic interest in OPC. The 5% residual interest
commences on achievement by the investors of a contractually
stipulated return that triggers the Flip Date. The actual Flip
Date is not known with certainty and is determined by the
operating results of OPC. This residual 5% interest represents a
noncontrolling interest and is not subject to mandatory
redemption or guaranteed payments. As a result of the
acquisition by Ormat Nevada, on October 30, 2009, of all of
the Class B membership units of OPC held by Lehman-OPC LLC
(see below), the residual interest decreased to 3.5%.
Our voting rights in OPC are based on a capital structure that
is comprised of Class A and Class B membership units.
We own, through our subsidiary, Ormat Nevada, all of the
Class A membership units, which represent 75% of the voting
rights in OPC and 30% of the Class B membership units,
which represent 7.5% of the voting rights of OPC, and in total
we have 82.5% of the voting rights in OPC. The investors own 70%
of the Class B membership units, which represent 17.5% of
the voting rights of OPC. Other than in respect of customary
protective rights, all operational decisions in OPC are decided
by the vote of a majority of the membership units. Following the
Flip Date, Ormat Nevadas voting rights will increase to
96.5% and the investors voting rights will decrease to
3.5%. Ormat Nevada retains the controlling voting interest in
OPC both before and after the Flip Date and therefore has
continued to consolidate OPC.
On October 30, 2009, Ormat Nevada acquired from Lehman-OPC
LLC all of the Class B membership units of OPC held by
Lehman-OPC LLC pursuant to a right of first offer for a purchase
price of $18.5 million.
Liquidity
Impact of Uncertain Tax positions
As discussed in Note 17 to our condensed consolidated
financial statements set forth in Item 1 of this quarterly
report, we have a liability associated with unrecognized tax
benefits and related interest and penalties in the amount of
approximately $5.6 million as of September 30, 2010.
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 believe that the ultimate
settlement of our obligations will not materially affect our
liquidity.
57
Dividend
The following are the dividends declared by us during the past
two years:
|
|
|
|
|
|
|
|
|
|
|
Dividend Amount
|
|
|
|
|
Date Declared
|
|
per Share
|
|
Record Date
|
|
Payment Date
|
|
November 5, 2008
|
|
$
|
0.05
|
|
|
November 19, 2008
|
|
December 2, 2008
|
February 24, 2009
|
|
$
|
0.07
|
|
|
March 16, 2009
|
|
March 26, 2009
|
May 8, 2009
|
|
$
|
0.06
|
|
|
May 20, 2009
|
|
May 27, 2009
|
August 5, 2009
|
|
$
|
0.06
|
|
|
August 18, 2009
|
|
August 27, 2009
|
November 4, 2009
|
|
$
|
0.06
|
|
|
November 18, 2009
|
|
December 1, 2009
|
February 23, 2010
|
|
$
|
0.12
|
|
|
March 16, 2010
|
|
March 25, 2010
|
May 5, 2010
|
|
$
|
0.05
|
|
|
May 18, 2010
|
|
May 25, 2010
|
August 4, 2010
|
|
$
|
0.05
|
|
|
August 17, 2010
|
|
August 26, 2010
|
November 2, 2010
|
|
$
|
0.05
|
|
|
November 17, 2010
|
|
November 30, 2010
|
Historical
Cash Flows
The following table sets forth the components of our cash flows
for the relevant periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
79,644
|
|
|
$
|
77,696
|
|
Net cash used in investing activities
|
|
|
(153,020
|
)
|
|
|
(248,881
|
)
|
Net cash provided by financing activities
|
|
|
76,309
|
|
|
|
156,919
|
|
Translation adjustments on cash and cash equivalents
|
|
|
|
|
|
|
216
|
|
Net change in cash and cash equivalents
|
|
|
2,933
|
|
|
|
(14,050
|
)
|
For the
Nine Months Ended September 30, 2010
Net cash provided by operating activities for the nine months
ended September 30, 2010 was $79.6 million, compared
to $77.7 million for the nine months ended
September 30, 2009. The net increase of $1.9 million
resulted primarily from: (i) a decrease in net income to
$32.7 million in the nine months ended September 30,
2010, from $52.4 million in the nine months ended
September 30, 2009, mainly as a result of the decrease in
operating income, as described above; (ii) gain on
acquisition of controlling interest of $36.9 million; and
(iii) a gain on sale of GDL of $6.4 million in the
nine months ended September 30, 2010. Such decrease was
partially offset by: (i) an increase of $15.7 million
in depreciation and amortization mainly due to the placement in
service of our North Brawley power plant in January 2010, as
described above; (ii) an increase in receivables of
$5.7 million in the nine months ended September 30,
2010, compared to $10.1 million in the nine months ended
September 30, 2009; and (iii) a net decrease in costs
and estimated earnings in excess of billings on uncompleted
contracts of $15.3 million in the nine months ended
September 30, 2010, compared to a net increase of
$27.1 million in the nine months ended September 30,
2009.
Net cash used in investing activities for the nine months ended
September 30, 2010 was $153.0 million, compared to
$248.9 million for the nine months ended September 30,
2009. The principal factors that affected our net cash used in
investing activities during the nine months ended
September 30, 2010 were: (i) capital expenditures of
$194.9 million, primarily for our facilities under
construction; (ii) net payment of $64.5 million for
acquisition of controlling interest in Mammoth Pacific
($72.5 million purchase price less $8.0 million
available cash in such subsidiary at the acquisition date); and
(iii) net increase of $23.4 million in restricted
cash, cash equivalents and marketable securities, offset by:
(i) $108.3 million received in September 2010 for
Specified Energy Property in Lieu of Tax Credits relating to our
North Brawley geothermal power plant under Section 1603 of
the ARRA; and (ii) $19.6 million cash received from
the sale of GDL. The principal factors that affected our net
cash used in investing activities during the nine months ended
September 30, 2009 were
58
capital expenditures of $212.3 million, primarily for our
power facilities under construction, and a $36.2 million
increase in restricted cash, cash equivalents and marketable
securities.
Net cash provided by financing activities for the nine months
ended September 30, 2010 was $76.3 million, compared
to $156.9 million for the nine months ended
September 30, 2009. The principal factor that affected the
net cash provided by financing activities during the nine months
ended September 30, 2010 was the issuance of an aggregate
amount of approximately $142.0 million senior unsecured
bonds on August 3, 2010 offset by: (i) the repayment
of long-term debt in the amount of $37.7 million;
(ii) a net decrease of $17.5 million against our
revolving lines of credit with commercial banks; and
(iii) the payment of a dividend to our shareholders in the
amount of $10.0 million. The principal factors that
affected our net cash provided by financing activities during
the nine months ended September 30, 2009 were: (i) the
proceeds of $105.0 million from the Olkaria III Loans;
(ii) the proceeds of $42.0 million from the Amatitlan
Loan; (iii) the $12.0 million drawn under revolving
lines of credit from commercial banks; and
(iv) $40.0 million proceeds from long term loan
agreements with two groups of institutional investors, offset
by: (i) the repayment of debt to our parent in the amount
of $16.6 million; (ii) the payment of a dividend to
our shareholders in the amount of $8.6 million; and
(iii) the repayment of long-term debt in the amount of
$13.0 million.
Adjusted
EBITDA
Adjusted EBITDA for the three months ended September 30,
2010 was $78.8 million, compared to $48.0 million (as
restated) for the three months ended September 30, 2009.
Adjusted EBITDA for the nine months ended September 30,
2010 was $134.9 million, compared to $125.1 million
(as restated) for the nine months ended September 30, 2009.
Adjusted EBITDA includes consolidated EBITDA and our share in
the interest, taxes, depreciation and amortization related to
our unconsolidated 50% interest in the Mammoth complex.
We calculate EBITDA as net income before interest, taxes,
depreciation and amortization. We calculate adjusted EBITDA to
include depreciation and amortization, interest and taxes
attributable to our equity investments in the Mammoth complex.
EBITDA and adjusted EBITDA are not measurements of financial
performance or liquidity under GAAP and should not be considered
as an alternative to cash flow from operating activities or as a
measure of liquidity or an alternative to net earnings as
indicators of our operating performance or any other measures of
performance derived in accordance with GAAP. EBITDA and adjusted
EBITDA are presented because we believe they are frequently used
by securities analysts, investors and other interested parties
in the evaluation of a Companys ability to service
and/or incur
debt. However, other companies in our industry may calculate
EBITDA and adjusted EBITDA differently than we do.
59
The following table reconciles net cash provided by operating
activities to EBITDA and adjusted EBITDA, for the three and
nine-month periods ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(As Revised)
|
|
|
2010
|
|
|
(As Revised)
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
20,710
|
|
|
$
|
22,364
|
|
|
$
|
79,644
|
|
|
$
|
77,696
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net (excluding amortization of deferred
financing costs)
|
|
|
10,271
|
|
|
|
4,074
|
|
|
|
28,046
|
|
|
|
10,201
|
|
Interest income
|
|
|
(140
|
)
|
|
|
(157
|
)
|
|
|
(432
|
)
|
|
|
(585
|
)
|
Income tax provision (benefit)
|
|
|
11,931
|
|
|
|
3,472
|
|
|
|
8,015
|
|
|
|
11,439
|
|
Adjustments to reconcile net income to net cash provided by
operating activities (excluding depreciation and amortization)
|
|
|
35,823
|
|
|
|
17,184
|
|
|
|
17,509
|
|
|
|
23,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
78,595
|
|
|
|
46,937
|
|
|
|
132,782
|
|
|
|
122,276
|
|
Interest, taxes, depreciation and amortization attributable to
the Companys equity in Mammoth-Pacific L.P.
|
|
|
203
|
|
|
|
1,020
|
|
|
|
2,115
|
|
|
|
2,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
78,798
|
|
|
$
|
47,957
|
|
|
$
|
134,897
|
|
|
$
|
125,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(44,006
|
)
|
|
$
|
(90,479
|
)
|
|
$
|
(153,020
|
)
|
|
$
|
(248,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
$
|
18,341
|
|
|
$
|
42,400
|
|
|
$
|
76,309
|
|
|
$
|
156,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This non-GAAP information is provided to assist investors in
performing their financial analysis of our operations for the
periods presented. This information should not be considered in
isolation or as a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP or other
non-GAAP financial measures.
Capital
Expenditures
Our capital expenditures primarily relate to two principal
components: (i) the enhancement of our existing power
plants; and (ii) the development and construction 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 underway to increase the output of the
project by an estimated 8 MW and improve the performance of
the wellfield. The enhancement includes recompletion of the
major production and injection wells and the construction of two
additional OEC units. Permits to start construction have been
obtained and the site construction is at advanced stage.
Equipment manufacturing has been completed. We signed a
memorandum of understanding and concluded the final terms of the
PPA with Hawaii Electric Light Company for the sale of
additional electrical power from the Puna project and we are
currently waiting for the the Puna power plant lenders
approval. We expect to place the enhancement in service by the
end of 2010 or the beginning of 2011. Full commertial operation
would require upgrades by the utility that will occur later in
2011.
Jersey Valley Project We are currently
constructing the Jersey Valley project on Bureau of Land
Management leases located in Pershing County, Nevada. We plan to
build the project with three units. Field development and
production of the power generating unit for the 15MW first phase
has been completed; the construction permits have been obtained;
and the project is at an advanced construction stage. Completion
of construction of the first phase is expected at the end of
2010 or the beginning of 2011.
McGinness Hills Project We are
currently developing the first phase of the 30 MW McGinness
Hills project on Bureau of Land Management leases located in
Lander County, Nevada. Basic well field site
60
preparation has been completed and permits to drill have been
obtained. Four production wells and two successful injection
wells have been drilled and drilling for additional wells is
continuing. We have submitted documents to obtain the required
construction permits and an Environmental Assessment is in
progress. We signed a
20-year PPA
with Nevada Power Company, which was approved by the Public
Utilities Commission of Nevada (PUCN) on July 28, 2010.
Commercial operation of the projects first phase is
expected in 2012.
Tuscarora Project We are currently
developing the first phase (16 MW) of the Tuscarora project
on private land located in Elko County, Nevada. The land, when
acquired, contained a drilled production well. We have drilled
two successful injection wells and two successful production
wells. We have conducted a flow test, and we are continuing with
drilling work. We signed a
20-year PPA
with Nevada Power Company, which was approved by the PUCN on
July 28, 2010. Commercial operation of the projects
first phase is expected in 2012. The National Environmental
Policy Act (NEPA) process is in progress in order to comply with
the requirements under the DOE 1705 loan guarantee program.
Carson Lake Project We are currently
developing the 20 MW Carson Lake project on Bureau of Land
Management leases located in Churchill County, Nevada. Our
initial joint venture with Nevada Power Company for this project
contemplated a larger project. We are in preliminary discussions
to address the implications of a smaller project.
Mammoth Complex We are currently
developing 30 MW to 40 MW of new capacity to the Mammoth Complex
located in Mammoth Lakes, California, which is comprised mainly
by BLM leases. We have started the equipment fabrication for the
replacement of the old generating equipment with modern units
designed and manufactured by us. The new equipment will increase
the annual generation and reduce the operating costs of the old
PPAs. In parallel, we have commenced field development and
drilled successful production well and drilling of additional
wells is continuing. The project is expected to be completed in
2013.
We have estimated approximately $672 million for projects
that are currently under construction and expected to be
completed by 2013 and have invested approximately
$222 million of such estimate as of September 30,
2010. We expect to invest approximately $81 million for
these power plants in the rest of 2010 (including the
North Brawley power plant).
In addition, we expect to invest approximately
$51.1 million through the remainder of 2010 as follows:
(i) $118 million in new projects under development;
(ii) $7.0 million in capital expenditure in our
operating power plants; (iii) $28.3 million in
exploration activities in various leases for geothermal
resources in which we have started the exploration activity; and
(iv) $4 million in our production facilities.
Exposure
to Market Risks
Based on current conditions, we believe that we have sufficient
financial resources to fund our activities and execute our
business plans. However, the cost of obtaining financing for our
project needs may increase significantly or such financing may
be difficult to obtain. A prolonged economic slowdown could
reduce worldwide demand for energy, including our geothermal
energy, REG and other products.
One market risk to which power plants are typically exposed is
the volatility of electricity prices. Our exposure to such
market risk is currently limited because our long-term PPAs
(except for Puna) 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 PPAs
of the Heber 1 and 2 power plants, the Ormesa complex and the
Mammoth complex will be determined by reference to the relevant
power purchasers short run avoided costs. The Puna power
plant is currently benefiting from energy prices which are
higher than the floor under the Puna PPA as a result of the high
fuel costs that impact HELCOs avoided costs.
As of September 30, 2010, 71.4% of our consolidated
long-term debt was in the form of fixed rate securities, and
therefore, not subject to interest rate volatility risk. As of
such date, 28.6% of our debt was in the form of a floating rate
instrument, exposing us to changes in interest rates in
connection therewith. As of September 30, 2010,
$206.4 million of our debt remained subject to some
floating rate risk.
61
We currently maintain our surplus cash in short-term,
interest-bearing bank deposits, money market securities and
commercial paper (with a minimum investment grade rating of AA
by Standard & Poors Ratings Services).
Our cash equivalents and our portfolio of marketable securities
are subject to market risk due to changes in interest rates.
Fixed rate securities may have their market value adversely
impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment
income may fall short of expectation due to changes in interest
rates or we may suffer losses in principal if we are forced to
sell securities that decline in market value due to changes in
interest rates. However, because we classify our debt securities
as
available-for-sale,
no gains or losses are recognized due to changes in interest
rates unless such securities are sold prior to maturity or
declines in fair value are determined to be
other-than-temporary.
Auction rate securities are securities that are structured with
short-term interest rate reset dates of generally less than
ninety days but with contractual maturities that can be well in
excess of ten years. At the end of each reset period, which
depending on the security can occur on a daily, weekly, or
monthly basis, investors can sell or continue to hold the
securities at par. These securities are subject to fluctuations
in fair value depending on the supply and demand at each auction.
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 we or 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 our
or 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 PPAs 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. Through most of 2009, we did
not use any material foreign currency exchange contracts or
other derivative instruments to reduce our exposure to this
risk. Currently, we have forward and option contracts in place
to reduce our foreign currency exposure, and expect to continue
to use currency exchange and other derivative instruments to the
extent we deem such instruments to be the appropriate tool for
managing such exposure. We do not believe that our exchange rate
exposure has or will have a material adverse effect on our
financial condition, results of operations or cash flows.
Concentration
of Credit Risk
Our credit risk is currently concentrated with a limited number
of major customers: Southern California Edison, Hawaii Electric
Light Company, and Sierra Pacific Power Company and Nevada Power
Company (subsidiaries of NV Energy, Inc.), and Kenya Power and
Lighting Co. Ltd. If any of these electric utilities fails to
make payments under its PPAs with us, such failure would have a
material adverse impact on our financial condition.
Southern California Edison accounted for 36.9% and 24.5% of our
total revenues for the three months ended September 30,
2010 and 2009, respectively, and 29.6% and 21.4% of our total
revenues for the nine months ended September 30, 2010 and
2009, respectively. Southern California Edison is also the power
purchaser and revenue source for our Mammoth complex, which was
accounted for under the equity method through August 1,
2010. Following our acquisition of the remaining 50% interest in
the Mammoth complex we have included the results of the Mammoth
complex in our consolidated financial statements.
Sierra Pacific Power Company and Nevada Power Company accounted
for 12.1% and 10.3% of our total revenues for the three months
ended September 30, 2010 and 2009, respectively, and 14.8%
and 12.0% of our total revenues for the nine months ended
September 30, 2010 and 2009, respectively.
62
Hawaii Electric Light Company accounted for 9.5% and 3.8% of our
total revenues for the three months ended September 30,
2010 and 2009, respectively, and 8.3% and 6.1% of our total
revenues for the nine months ended September 30, 2010 and
2009, respectively.
Kenya Power and Lighting Co. Ltd. accounted for 8.7% and 7.5% of
the Companys total revenues for the three months ended
September 30, 2010 and 2009, respectively, and 9.4% and
8.2% of our total revenues for the nine months ended
September 30, 2010 and 2009, 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 ARRA. We are permitted to claim 30% of the
eligible costs of each new geothermal power plant in the United
States as an ITC against our federal income taxes.
Alternatively, we are permitted to claim a PTC, which in 2010 is
2.2 cents per kWh and which is adjusted annually for inflation.
The PTC 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 PTC and the 30% ITC 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 PTC or the ITC, 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 ITC, our
tax basis in the plant that we can recover through
depreciation must be reduced by half of the tax credit. If we
claim a PTC, there is no reduction in the tax basis for
depreciation. Companies that begin construction on, or place in
service qualifying renewable energy facilities, 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 ITC.
Under the ARRA, 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 DOE as part of the
DOEs 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, which will not exceed 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 which
will not exceed 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
63
order to maintain the tax benefits. In addition, as an
industrial company, Ormat Systems is entitled to accelerated
depreciation on equipment used for its industrial activities.
Under the provisions of certain tax regulations published in
Israel in 2005, industrial companies whose operations are mostly
Eligible Operations are entitled to claim
accelerated depreciation at the rate of 100% on machinery and
equipment acquired from July 1, 2005 to December 31,
2006. Accelerated depreciation is to be claimed over two years.
In the year in which the equipment was acquired, the regular
depreciation rate is to be claimed with the remainder to be
claimed in the second year. Under the provisions of certain tax
regulations published in Israel in July 2008, industrial
companies whose operations are mostly Eligible
Operations are entitled to claim accelerated depreciation
at the rate of 50% on machinery and equipment acquired from
June 1, 2008 to May 31, 2009 and placed in service at
the later of nine months after acquisition or before
May 31, 2009.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We incorporate by reference the information appearing under
Exposure to Market Risks and Concentration of
Credit Risk in Part I, Item 2 of this quarterly
report on
Form 10-Q.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
|
|
a.
|
Evaluation
of disclosure controls and procedures
|
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures to ensure that the
information required to be disclosed in our filings pursuant to
Rule 13a-15
under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms and to ensure that such
information is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure. Based on that evaluation, as of
September 30, 2010, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls
and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) were
effective.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
|
|
b.
|
Changes
in internal controls over financial reporting
|
There were no changes in our internal controls over financial
reporting in the third quarter of 2010 that have materially
affected or are reasonably likely to materially affect our
internal controls over financial reporting.
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
Securities
Class Actions
Following the Companys public announcement that it would
restate certain of its financial results due to a change in the
Companys accounting treatment for certain exploration and
development costs, three securities class action lawsuits were
filed in the United States District Court for the District of
Nevada on March 9, 2010, March 18, 2010 and
April 7, 2010. These complaints assert claims against the
Company and certain officers and directors for alleged violation
of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 (the Exchange Act). One complaint also asserts claims
for alleged violations of Sections 11, 12(a)(2) and
15 of the Securities Act. All three complaints allege
claims on behalf of a putative class of purchasers of Company
stock between May 6, 2008 or May 7, 2008 and
February 23, 2010 or February 24, 2010.
64
These three lawsuits were consolidated by the Court in an order
issued on June 3, 2010 and the Court appointed three of the
Companys stockholders to serve as lead plaintiffs. Lead
plaintiffs filed a consolidated amended class action complaint
(CAC) on July 9, 2010 that asserts claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 on behalf of a putative class of purchasers of Company
stock between May 7, 2008 and February 24, 2010. The
CAC alleges that certain of the Companys public statements
were false and misleading for failing to account properly for
the Companys exploration and development costs based on
the Companys announcement on February 24, 2010 that
it was going to restate its financial results to change its
method of accounting for exploration and development costs in
certain respects. The CAC also alleges that certain of the
Companys statements concerning the North Brawley project
were false and misleading. The CAC seeks compensatory damages,
expenses, and such further relief as the Court may deem proper.
Defendants filed a motion to dismiss the CAC on August 13,
2010 which remains pending.
The Company does not believe that these lawsuits have merit and
is defending itself vigorously.
Stockholder
Derivative Cases
Four stockholder derivative lawsuits have also been filed in
connection with the Companys public announcement that it
would restate certain of its financial results due to a change
in the Companys accounting treatment for certain
exploration and development costs. Two cases were filed in the
Second Judicial District Court of the State of Nevada in and for
the County of Washoe on March 16, 2010 and April 21,
2010 and two in the United States District Court for the
District of Nevada on March 29, 2010 and June 7, 2010.
All four lawsuits assert claims brought derivatively on behalf
of the Company against certain of its officers and directors for
alleged breach of fiduciary duty and other claims, including
waste of corporate assets and unjust enrichment.
The two stockholder derivative cases filed in the Second
Judicial District Court of the State of Nevada in and for the
County of Washoe were consolidated by the Court in an order
dated May 27, 2010 and the plaintiffs filed a consolidated
derivative complaint on September 7, 2010. In accordance
with a stipulation between the parties, defendants intend to
file a motion to dismiss by November 9, 2010.
The two federal derivative cases filed in the United States
District Court for the District of Nevada were consolidated by
the Court in an order dated August 31, 2010. Plaintiffs
filed a consolidated derivative complaint on October 28,
2010 and in accordance with a stipulation by the parties,
defendants intend to file a motion to dismiss by
December 13, 2010.
The Company believes the allegations in these purported
derivative actions are also without merit and is defending the
actions vigorously.
Other
In addition, from time to time, we are named as a party to
various lawsuits, claims and other legal and regulatory
proceedings that arise in the ordinary course of our business.
These actions typically seek, among other things, compensation
for alleged personal injury, breach of contract, property
damage, punitive damages, civil penalties or other losses, or
injunctive or declaratory relief. With respect to such lawsuits,
claims and proceedings, we accrue reserves in accordance with
accounting principles generally accepted in the U.S. We do
not believe that any of these proceedings, individually or in
the aggregate, would materially and adversely affect our
business, financial condition, future results and cash flows.
A comprehensive discussion of our risk factors is included in
the Risk Factors section of our annual report on
Form 10-K
for the year ended December 31, 2009 filed with the SEC on
March 8, 2010.
65
|
|
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
There were no unregistered sales of equity securities of the
Company during the third fiscal quarter of 2010.
|
|
ITEM 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
Our management believes that we are currently in compliance with
our covenants with respect to our third-party debt.
|
|
ITEM 5.
|
OTHER
INFORMATION
|
None.
|
|
|
|
|
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
|
|
Third Amended and Restated By-laws, incorporated by reference to
Exhibit 3.2 to Ormat Technologies, Inc. Current Report on
Form 8-K
to the Securities and Exchange Commission on February 26,
2009.
|
|
3
|
.3
|
|
Amended and Restated Limited Liability Company Agreement of OPC
LLC dated June 7, 2007, by and among Ormat Nevada Inc.,
Morgan Stanley Geothermal LLC, and Lehman-OPC LLC, incorporated
by reference to Exhibit 3.1 to Ormat Technologies, Inc.
Current Report on
Form 8-K
to the Securities and Exchange Commission on June 13, 2007.
|
|
4
|
.3
|
|
Form of Rights Agreement by and between Ormat Technologies, Inc.
and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 4.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 2
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on October 22,
2004.
|
|
4
|
.4
|
|
Indenture for Senior Debt Securities, dated as of
January 16, 2006, between Ormat Technologies, Inc. and
Union Bank of California, incorporated by reference to
Exhibit 4.2 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-3
(File
No. 333-131064)
to the Securities and Exchange Commission on January 26,
2006.
|
|
4
|
.5
|
|
Indenture for Subordinated Debt Securities, dated as of
January 16, 2006, between Ormat Technologies, Inc. and
Union Bank of California, incorporated by reference to
Exhibit 4.3 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-3
(File No. 333-131064)
to the Securities and Exchange Commission on January 26,
2006.
|
|
10
|
.1
|
|
Sale and Purchase Agreement dated August 2, 2010, between
ORNI 44 LLC and CD Mammoth Lakes I, Inc. And CD Mammoth
Lakes II, Inc., 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.
|
66
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ORMAT TECHNOLOGIES, INC.
Name: Joseph Tenne
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: November 4, 2010
67
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Document
|
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation,
incorporated by reference to Exhibit 3.1 to Ormat
Technologies, Inc. Registration Statement on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on July 20, 2004.
|
|
3
|
.2
|
|
Third Amended and Restated By-laws, incorporated by reference to
Exhibit 3.2 to Ormat Technologies, Inc. Current Report
on
Form 8-K
to the Securities and Exchange Commission on February 26,
2009.
|
|
3
|
.3
|
|
Amended and Restated Limited Liability Company Agreement of OPC
LLC dated June 7, 2007, by and among Ormat Nevada Inc.,
Morgan Stanley Geothermal LLC, and Lehman-OPC LLC, incorporated
by reference to Exhibit 3.1 to Ormat Technologies, Inc.
Current Report on
Form 8-K
to the Securities and Exchange Commission on June 13, 2007.
|
|
4
|
.3
|
|
Form of Rights Agreement by and between Ormat Technologies, Inc.
and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 4.3 to Ormat
Technologies, Inc. Registration Statement Amendment No. 2
on
Form S-1
(File
No. 333-117527)
to the Securities and Exchange Commission on October 22,
2004.
|
|
4
|
.4
|
|
Indenture for Senior Debt Securities, dated as of
January 16, 2006, between Ormat Technologies, Inc. and
Union Bank of California, incorporated by reference to
Exhibit 4.2 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-3
(File
No. 333-131064)
to the Securities and Exchange Commission on January 26,
2006.
|
|
4
|
.5
|
|
Indenture for Subordinated Debt Securities, dated as of
January 16, 2006, between Ormat Technologies, Inc. and
Union Bank of California, incorporated by reference to
Exhibit 4.3 to Ormat Technologies, Inc. Registration
Statement Amendment No. 1 on
Form S-3
(File No. 333-131064)
to the Securities and Exchange Commission on January 26,
2006.
|
|
10
|
.1
|
|
Sale and Purchase Agreement dated August 2, 2010, between
ORNI 44 LLC and CD Mammoth Lakes I, Inc. And CD Mammoth
Lakes II, Inc., 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.
|