Edgar Filing: ORMAT TECHNOLOGIES, INC.

ora20130709_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2013

	or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission file number: 001-32347

ORMAT TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

88-0326081

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

6225 Neil Road, Reno, Nevada	89511-1136
(Address of principal executive offices)	(Zip Code)

(775) 356-9029

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐	Smaller reporting company ☐
		(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 12, 2013, the number of outstanding shares of common stock, par value $0.001 per share, was 45,430,886.

ORMAT TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2013

PART I —	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50

ITEM 4.	CONTROLS AND PROCEDURES	50

PART II —	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	51

ITEM 1A.	RISK FACTORS	51

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	51

ITEM 4.	MINE SAFETY DISCLOSURES	51

ITEM 5.	OTHER INFORMATION	52

ITEM 6.	EXHIBITS	52

SIGNATURES		53

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.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2013			December 31, 2012
				As revised
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	28,893		$	66,628
Short-term bank deposit		3,021			3,010
Restricted cash, cash equivalents and marketable securities (all related to variable interest entities ("VIEs"))		85,512			76,537
Receivables:
Trade		67,545			55,680
Related entity		419			373
Other		12,191			8,632
Due from Parent		468			311
Inventories		17,906			20,669
Costs and estimated earnings in excess of billings on uncompleted contracts		16,323			9,613
Deferred income taxes		368			637
Prepaid expenses and other		35,839			34,144
Total current assets		268,485			276,234
Unconsolidated investments		3,524			2,591
Deposits and other		38,361			36,187
Deferred income taxes		17,729			21,283
Deferred charges		34,705			35,351
Property, plant and equipment, net ($1,367,078 and $1,188,721 related to VIEs, respectively)		1,415,163			1,252,873
Construction-in-process ($87,820 and $253,775 related to VIEs, respectively)		295,635			396,141
Deferred financing and lease costs, net		30,437			31,371
Intangible assets, net		33,861			35,492
Total assets	$	2,137,900		$	2,087,523

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	90,651		$	98,001
Deferred income taxes		20,428			20,392
Billings in excess of costs and estimated earnings on uncompleted contracts		10,970			25,408
Current portion of long-term debt:
Limited and non-recourse (all related to VIEs):
Senior secured notes		39,568			28,231
Other loans		18,214			11,453
Full recourse		28,760			28,649
Total current liabilities		208,591			212,134
Long-term debt, net of current portion:
Limited and non-recourse (all related to VIEs):
Senior secured notes		288,001			312,926
Other loans		277,349			242,815
Full recourse:
Senior unsecured bonds (plus unamortized premium based upon 7% of $1,283)		250,751			250,904
Other loans		67,934			82,344
Revolving credit lines with banks		80,247			73,606
Liability associated with sale of tax benefits		70,479			51,126
Deferred lease income		64,938			66,398
Deferred income taxes		49,688			45,059
Liability for unrecognized tax benefits		8,354			7,280
Liabilities for severance pay		22,883			22,887
Asset retirement obligation		20,047			19,289
Other long-term liabilities		4,923			5,148
Total liabilities		1,414,185			1,391,916

Commitments and contingencies (Note 10)

Equity:
The Company's stockholders' equity:
Common stock, par value $0.001 per share; 200,000,000 shares authorized; 45,430,886 shares issued and outstanding as of June 30, 2013 and December 31, 2012		46			46
Additional paid-in capital		734,997			732,140
Accumulated deficit		(24,200	)		(44,326	)
Accumulated other comprehensive income		567			651
		711,410			688,511
Noncontrolling interest		12,305			7,096

Total equity		723,715			695,607

Total liabilities and equity	$	2,137,900		$	2,087,523

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
		(In thousands, except per share data)						(In thousands, except per share data)
Revenues:
Electricity	$	87,713		$	81,882		$	156,011		$	161,225
Product		64,966			44,826			115,574			94,931
Total revenues		152,679			126,708			271,585			256,156
Cost of revenues:
Electricity		58,641			56,565			113,729			112,795
Product		43,657			31,818			80,698			66,445
Total cost of revenues		102,298			88,383			194,427			179,240
Gross margin		50,381			38,325			77,158			76,916
Operating expenses:
Research and development expenses		1,608			1,464			2,608			2,512
Selling and marketing expenses		3,777			4,570			15,286			9,406
General and administrative expenses		7,134			6,757			13,718			14,031
Write-off of unsuccessful exploration activities		-			1,151			-			1,919
Operating income		37,862			24,383			45,546			49,048
Other income (expense):
Interest income		87			336			128			724
Interest expense, net		(17,504	)		(14,263	)		(33,367	)		(29,141	)
Foreign currency translation and transaction gains (losses)		904			(1,756	)		2,586			(1,742	)
Income attributable to sale of tax benefits		5,783			2,589			9,315			5,106
Other non-operating income, net		29			286			1,446			122
Income before income taxes and equity in income (losses) of investees		27,161			11,575			25,654			24,117
Income tax provision		(5,780	)		(3,884	)		(9,827	)		(9,060	)
Equity in income (losses) of investees		9			(157	)		9			(297	)
Income from continuing operations		21,390			7,534			15,836			14,760
Discontinued operations:
Income from discontinued operations (including gain on disposal of $3,646, $0, $3,646 and $0, repectively)		4,480			1,613			5,311			2,693
Income tax provision		(363	)		(425	)		(614	)		(706	)
Total income from discontinued operations		4,117			1,188			4,697			1,987

Net income		25,507			8,722			20,533			16,747
Net income attributable to noncontrolling interest		(322	)		(81	)		(407	)		(211	)
Net income attributable to the Company's stockholders	$	25,185		$	8,641		$	20,126		$	16,536
Comprehensive income:
Net income		25,507			8,722			20,533			16,747
Other comprehensive income (loss), net of related taxes:
Amortization of unrealized gains or losses in respect of derivative instruments designated for cash flow hedge		(42	)		(47	)		(84	)		(93	)
Change in unrealized gains or losses on marketable securities available-for-sale		-			10			-			(20	)
Comprehensive income		25,465			8,685			20,449			16,634
Comprehensive income attributable to noncontrolling interest		(211	)		(81	)		(407	)		(211	)
Comprehensive income attributable to the Company's stockholders	$	25,254		$	8,604		$	20,042		$	16,423

Earnings per share attributable to the Company's stockholders - basic and diluted:
Income from continuing operations	$	0.46		$	0.16		$	0.34		$	0.32
Discontinued operations		0.09			0.03			0.10			0.04
Net income	$	0.55		$	0.19		$	0.44		$	0.36
Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders:
Basic		45,431			45,431			45,431			45,431
Diluted		45,448			45,438			45,443			45,438
Dividend per share declared	$	0.04		$	0.04		$	0.04		$	0.04

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

	The Company's Stockholders' Equity
							Retained			Accumulated
					Additional		Earnings			Other
	Common Stock				Paid-in		(Accumulated			Comprehensive						Noncontrolling			Total
	Shares		Amount		Capital		Deficit)			Income			Total			Interest			Equity
	(In thousands, except per share data)
Balance at December 31, 2011		45,431	$	46	$	725,746	$	172,331		$	595		$	898,718		$	7,926		$	906,644
Stock-based compensation		-		-		3,127		-			-			3,127			-			3,127
Cash paid to noncontrolling interest		-		-		-		-			-			-			(375	)		(375	)
Cash dividend declared, $0.04 per share		-		-		-		(1,819	)		-			(1,819	)		-			(1,819	)
Net income		-		-		-		16,536			-			16,536			211			16,747
Other comprehensive loss, net of related taxes:
Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $57)		-		-		-		-			(93	)		(93	)		-			(93	)
Change in unrealized gains or losses on marketable securities available-for-sale (net of related tax of $0)		-		-		-		-			(20	)		(20	)		-			(20	)
Balance at June 30, 2012		45,431	$	46	$	728,873	$	187,048		$	482		$	916,449		$	7,762		$	924,211

Balance at December 31, 2012 (As revised)		45,431	$	46	$	732,140	$	(44,326	)	$	651		$	688,511		$	7,096		$	695,607
Stock-based compensation		-		-		2,857		-			-			2,857			-			2,857
Cash paid to noncontrolling interest		-		-		-		-			-			-			(349	)		(349	)
Increase in noncontrolling interest due to sale of equity interest in ORTP LLC		-		-		-		-			-			-			5,151			5,151
Net income		-				-		20,126			-			20,126			407			20,533
Other comprehensive income, net of related taxes:
Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $52)		-		-		-		-			(84	)		(84	)		-			(84	)
Balance at June 30, 2013		45,431	$	46	$	734,997	$	(24,200	)	$	567		$	711,410		$	12,305		$	723,715

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2013			2012
	(In thousands)
Cash flows from operating activities:
Net income	$	20,533		$	16,747
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		45,884			49,757
Amortization of premium from senior unsecured bonds		(153	)		(154	)
Accretion of asset retirement obligation		758			834
Stock-based compensation		2,857			3,127
Amortization of deferred lease income		(1,343	)		(1,343	)
Income attributable to sale of tax benefits, net of interest expense		(4,578	)		(1,900	)
Equity in (income) losses of investees		(9	)		297
Mark-to-market of derivative instruments		2,370			-
Write-off of unsuccessful exploration activities		-			1,919
Loss (gain) on severance pay fund asset		(403	)		364
Gain on sale of a subsidiary		(3,646	)		-
Deferred income tax provision		9,634			5,256
Liability for unrecognized tax benefits		1,074			837
Deferred lease revenues		(117	)		74
Other		(819	)		-
Changes in operating assets and liabilities, net of amounts acquired:
Receivables		(17,748	)		10,310
Costs and estimated earnings in excess of billings on uncompleted contracts		(6,710	)		(6,085	)
Inventories		2,763			(5,578	)
Prepaid expenses and other		(4,173	)		(5,795	)
Deposits and other		(2,840	)		(3,560	)
Accounts payable and accrued expenses		(8,827	)		14,901
Due from/to related entities, net		(46	)		(42	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(14,438	)		(7,832	)
Liabilities for severance pay		309			310
Other long-term liabilities		(225	)		(464	)
Due from/to Parent		(157	)		99
Net cash provided by operating activities		19,950			72,079
Cash flows from investing activities:
Marketable securities, net		-			13,280
Short-term deposit		(11	)		-
Net change in restricted cash, cash equivalents and marketable securities		(8,975	)		(22,271	)
Cash received from sale of a subsidiary		7,699			-
Capital expenditures		(102,019	)		(129,879	)
Cash grant received		-			72,252
Investment in unconsolidated companies		(924	)		(323	)
Increase (decrease) in severance pay fund asset, net of payments made to retired employees		1,061			(87	)
Net cash used in investing activities		(103,169	)		(67,028	)
Cash flows from financing activities:
Proceeds from long-term loans		45,000			-
Proceeds from the sale of limited liability company interest in ORTP, LLC, net of transaction costs		31,508			-
Purchase of OFC Senior Secured Notes		(11,888	)		-
Proceeds from revolving credit lines with banks		1,354,761			1,083,754
Repayment of revolving credit lines with banks		(1,348,120	)		(1,094,434	)
Repayments of long-term debt		(18,787	)		(16,987	)
Cash paid to non-controlling interest		(6,990	)		(7,497	)
Deferred debt issuance costs		-			(1,270	)
Cash dividends paid		-			(1,819	)
Net cash provided by (used in) financing activities		45,484			(38,253	)
Net change in cash and cash equivalents		(37,735	)		(33,202	)
Cash and cash equivalents at beginning of period		66,628			99,886
Cash and cash equivalents at end of period	$	28,893		$	66,684
Supplemental non-cash investing and financing activities:
Increase (decrease) in accounts payable related to purchases of property, plant and equipment	$	4,063		$	(13,749	)
Accrued liabilities related to financing activities	$	(1,347	)	$	-

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — GENERAL AND BASIS OF PRESENTATION

These unaudited condensed consolidated interim financial statements of Ormat Technologies, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of June 30, 2013, the consolidated results of operations and comprehensive income for the three and six-month periods ended June 30, 2013 and 2012 and the consolidated cash flows for the six-month periods ended June 30, 2013 and 2012.

The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three and six-month period ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012. The condensed consolidated balance sheet data as of December 31, 2012 was derived from the audited consolidated financial statements for the year ended December 31, 2012, but does not include all disclosures required by U.S. GAAP.

Dollar amounts, except per share data, in the notes to these financial statements are rounded to the closest $1,000.

Revision of previously issued financial statements

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

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

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

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

	December 31, 2012
	As reported			Adjustment			As revised
	(In thousands)
Deferred income taxes	$	53,989		$	(32,706	)	$	21,283
Property, plant and equipment, net		1,226,758			26,115			1,252,873
Total assets		2,094,114			(6,591	)		2,087,523
Accumulated deficit		(37,735	)		(6,591	)		(44,326	)
Total equity		702,198			(6,591	)		695,607
Total liabilities and equity		2,094,114			(6,591	)		2,087,523

The effect of the revision on the line items within the Company's consolidated statement of operations and comprehensive income for the year ended December 31, 2012 is as follows:

	Year Ended December 31, 2012

	As reported			Adjustment			As revised
	(In thousands, except per share data)

Income tax benefit (provision)	$	3,500		$	(6,591	)	$	(3,091	)
Loss from continuing operations		(206,016	)		(6,591	)		(212,607	)

Net loss		(206,016	)		(6,591	)		(212,607	)
Net loss attributable to the Company's stockholders	$	(206,430	)	$	(6,591	)	$	(213,021	)
Comprehensive loss		(205,960	)		(6,591	)		(212,551	)
Comprehensive loss attributable to the Company's stockholders	$	(206,374	)	$	(6,591	)	$	(212,965	)
Earnings loss per share attributable to the Company's stockholders basic and diluted:	$	(4.54	)	$	(0.15	)	$	(4.69	)

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

	Year Ended December 31, 2012
	As reported			Adjustment			As revised
	(In thousands)
Cash flows from operating activities:
Net loss	$	(206,016	)	$	(6,591	)	$	(212,607	)
Deferred income tax provision (benefit)		(11,327	)		6,591			(4,736	)
Net cash provided by operating activities	$	89,471		$	-		$	89,471

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

	March 31, 2013
	As reported			Adjustment			As revised
Deferred income taxes	$	52,939		$	(35,758	)	$	17,181
Property, plant and equipment		1,207,410			26,115			1,233,525
Total assets		2,143,568			(9,643	)		2,133,925
Accumulated deficit		(39,717	)		(9,643	)		(49,360	)
Total equity		706,519			(9,643	)		696,876
Total liabilities and equity		2,143,568			(9,643	)		2,133,925

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

	Three Months Ended March 31, 2013

	As reported			Adjustment			As revised
	(In thousands, except per share data)

Income tax provision	$	(1,217	)	$	(3,052	)	$	(4,269	)
Loss from continuing operations		(1,897	)		(3,052	)		(4,949	)

Net loss		(1,897	)		(3,052	)		(4,949	)
Net loss attributable to the Company's stockholders	$	(1,982	)	$	(3,052	)	$	(5,034	)
Comprehensive loss:
Net loss		(1,897	)		(3,052	)		(4,949	)
Comprehensive loss		(1,939	)		(3,052	)		(4,991	)
Comprehensive loss attributable to the Company's stockholders	$	(2,024	)	$	(3,052	)	$	(5,076	)
Loss per share attributable to the Company's stockholders basic and diluted -	$	(0.04	)	$	(0.07	)	$	(0.11	)

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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

	Three Months Ended March 31, 2013
	(In thousands)

	As reported			Adjustment			As revised
Cash flows from operating activities:
Net loss	$	(1,897	)		(3,052	)		(4,949	)
Deferred income tax provision		668			3,052			3,720
Net cash provided by operating activities		18,216			—			18,216

Other comprehensive income

For the six months ended June 30, 2013 and 2012 the Company classified $84,000 and $93,000, respectively, from other comprehensive income, of which $136,000 and $150,000, respectively, were recorded to reduce interest expense and $52,000 and $57,000, respectively, were recorded against the income tax provision, in the condensed consolidated statements of operations and comprehensive income. For the three months ended June 30, 2013 and 2012, the Company classified $42,000 and $47,000, respectively, from other comprehensive income, of which $68,000 and $76,000, respectively, were recorded to reduce interest expense and $26,000 and $29,000, respectively, were recorded against the income tax provision in the condensed consolidated statements of operations and comprehensive income.

Termination fee

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

Concentration of credit risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of temporary cash investments and accounts receivable.

The Company places its temporary cash investments with high credit quality financial institutions located in the United States (“U.S.”) and in foreign countries. At June 30, 2013 and December 31, 2012, the Company had deposits totaling $18,792,000 and $41,231,000, respectively, in seven U.S. financial institutions that were federally insured up to $250,000 per account. At June 30, 2013 and December 31, 2012, the Company’s deposits in foreign countries amounted to approximately $18,551,000 and $33,215,000, respectively.

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

At June 30, 2013 and December 31, 2012, accounts receivable related to operations in foreign countries amounted to approximately $33,070,000 and $17,606,000, respectively. At June 30, 2013 and December 31, 2012, accounts receivable from the Company’s primary customers (listed below) amounted to approximately 56.7% and 45.0% of the Company’s accounts receivable, respectively.

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 14.9% and 14.7% of the Company’s total revenues for the three months ended June 30, 2013 and 2012, respectively, and 17.8% and 13.9% for the six months ended June 30, 2013 and 2012, respectively.

Southern California Edison accounted for 12.4% and 17.0% of the Company’s total revenues for the three months ended June 30, 2013 and 2012, respectively, and 12.1% and 18.6% for the six months ended June 30, 2013 and 2012, respectively.

Hawaii Electric Light Company accounted for 8.6% and 10.3% of the Company’s total revenues for the three months ended June 30, 2013 and 2012, respectively, and 8.9% and 9.9% for the six months ended June 30, 2013 and 2012, respectively.

Kenya Power and Lighting Co. Ltd. accounted for 10.3% and 7.8% of the Company’s total revenues for the three months ended June 30, 2013 and 2012, respectively, and 9.5% and 7.6% for the six months ended June 30, 2013 and 2012, respectively.

The Company performs ongoing credit evaluations of its customers’ financial condition. The Company has historically been able to collect on all of its receivable balances, and accordingly, no provision for doubtful accounts has been made.

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements effective in the six-month period ended June 30, 2013

Disclosures about Offsetting Assets and Liabilities

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

Amounts Reclassified Out of Accumulated Other Comprehensive Income

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 3 — INVENTORIES

Inventories consist of the following:

	June 30, 2013		December 31, 2012
	(Dollars in thousands)
Raw materials and purchased parts for assembly	$	8,881	$	9,775
Self-manufactured assembly parts and finished products		9,025		10,894
Total	$	17,906	$	20,669

NOTE 4 — UNCONSOLIDATED INVESTMENTS

Unconsolidated investments consist of the following:

June 30,

2013

December 31,

2012

(Dollars in thousands)

Sarulla

3,524

2,591

The Sarulla Project

The Company is a 12.75% member of a consortium which is in the process of developing the Sarulla geothermal power project in Indonesia with expected generating capacity of approximately 330 megawatts (“MW”). The Sarulla project is located in Tapanuli Utara, North Sumatra, Indonesia and will be owned and operated by the consortium members under the framework of a Joint Operating Contract (“JOC”) and Energy Sales Contract (“ESC”) that were signed on April 4, 2013. Under the JOC, PT Pertamina Geothermal Energy (“PGE”), the concession holder for the project has provided the consortium with the right to use the geothermal field, and under the ESC, PT PLN, the state electric utility will be the off-taker at Sarulla for a period of 30 years. In addition to its equity holdings in the consortium, the Company designed the Sarulla plant and will supply its Ormat Energy Converters (“OECs”) to the power plant.

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

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

Watts & More Ltd.

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

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

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

NOTE 5 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received upon selling an asset or paid upon transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth certain fair value information at June 30, 2013 and December 31, 2012 for financial assets and liabilities measured at fair value by level within the fair value hierarchy, as well as cost or amortized cost. As required by the fair value measurement guidance, assets and liabilities are classified in their entirety based on the lowest level of inputs that is significant to the fair value measurement.

	Cost or
	Amortized		Fair Value at June 30, 2013
	Cost at June 30, 2013		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets
Current assets:
Cash equivalents (including restricted cash accounts)	$	63,887	$	63,887	$	63,887	$	-	$	-
Derivatives:
Put options on oil price⁽¹⁾		-		966		-		966		-
Currency forward contracts⁽²⁾		-		2,173		-		2,173		-
Swap transaction on natural gas price⁽³⁾		-		1,647		-		1,647		-
	$	63,887	$	68,673	$	63,887	$	4,786	$	-

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

	Cost or
	Amortized
	Cost at		Fair Value at December 31, 2012
	December 31, 2012		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets
Current assets:
Cash equivalents (including restricted cash accounts)	$	54,298	$	54,298	$	54,298	$	-	$	-
Derivatives:
Put options on oil price⁽¹⁾		-		1,842		-		1,842		-
Currency forward contracts⁽²⁾		-		1,675		-		1,675		-
Swap transaction on natural gas price⁽³⁾		-		2,804		-		2,804		-
Swap transaction on oil price⁽⁴⁾		-		336		-		336		-
	$	54,298	$	60,955	$	54,298	$	6,657	$	-

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

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

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

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

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

		Amount of recognized gain (loss)
Derivatives not designated	Location of recognized gain (loss)	Three Months Ended June 30,					Six Months Ended June 30,
as hedging instruments		2013		2012			2013			2012
		(Dollars in thousands)					(Dollars in thousands)

Put options on oil price	Electricity revenues	$	496	$	-		$	(432	)	$	-
Swap transaction on oil price	Electricity revenues		-		-			(294	)		-
Swap transaction on natural gas price	Electricity revenues		2,994		-			(396	)		-
Currency forward contracts gains (losses)	Foreign currency translation and transaction gains (losses)		890		(1,310	)		2,925			(637	)
		$	4,380	$	(1,310	)	$	1,803		$	(637	)

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The Company’s financial assets measured at fair value (including restricted cash accounts) at June 30, 2013 and December 31, 2012 include short-term bank deposits and money market funds (which are included in cash equivalents). Those assets are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market.

There were no transfers of assets or liabilities between Level 1 and Level 2 during the six months ended June 30, 2013.

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

	Fair Value				Carrying Amount
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
	(Dollars in millions)				(Dollars in millions)
Olkaria III loan - DEG	$	44.6	$	48.8	$	43.4	$	47.4
Amatitlan loan		36.9		38.9		32.9		34.3
Senior secured notes:
Ormat Funding LLC ("OFC")		93.2		105.0		101.3		114.1
OrCal Geothermal LLC ("OrCal")		79.6		77.3		76.5		76.5
OFC 2 LLC ("OFC 2")		128.7		131.2		149.7		150.5
Senior unsecured bonds		273.1		273.2		250.8		250.9
Loans from institutional investors		24.0		27.7		23.3		27.0

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 estimated current borrowing rates. The fair value of revolving lines of credit is determined using comparison of market-based price sources that are reflective of similar credit ratings to those of the Company.

The carrying value of other financial instruments, such as revolving lines of credit, deposits, and other long-term debt approximates fair value.

The following table presents the fair value of financial instruments as of June 30, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars in millions)
Olkaria III loan - DEG	$	—	$	—	$	44.6	$	44.6
Amatitlan loan		—		—		36.9		36.9
Senior secured notes:
OFC		—		93.2		—		93.2
OrCal