ORMAT TECHNOLOGIES, INC. - Quarter Report: 2018 March (Form 10-Q)

 

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		March 31,				December 31,
		2018				2017
		(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	54,723			$	47,818
Restricted cash and cash equivalents (primarily related to VIEs)			50,332				48,825
Receivables:
Trade			103,580				110,410
Other			10,018				13,828
Inventories			20,069				19,551
Costs and estimated earnings in excess of billings on uncompleted contracts			41,134				40,945
Prepaid expenses and other			42,274				40,269
Total current assets			322,130				321,646
Investment in an unconsolidated company			63,109				34,084
Deposits and other			21,205				21,599
Deferred income taxes			124,304				57,337
Deferred charges			—				49,834
Property, plant and equipment, net ($1,655,365 and $1,631,900 related to VIEs, respectively)			1,723,560				1,734,691
Construction-in-process ($149,872 and $142,717 related to VIEs, respectively)			345,563				293,542
Deferred financing and lease costs, net			4,922				4,674
Intangible assets, net			84,771				85,420
Goodwill			21,253				21,037
Total assets		$	2,710,817			$	2,623,864
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	103,551			$	153,796
Short term revolving credit lines with banks (full recourse)			38,500				51,500
Billings in excess of costs and estimated earnings on uncompleted contracts			10,458				20,241
Current portion of long-term debt:
Limited and non-recourse (primarily related to VIEs):
Senior secured notes			28,398				33,226
Other loans			21,495				21,495
Full recourse			2,809				3,087
Total current liabilities			205,211				283,345
Long-term debt, net of current portion:
Limited and non-recourse (primarily related to VIEs):
Senior secured notes (less deferred financing costs of $7,693 and $8,113, respectively)			305,905				311,668
Other loans (less deferred financing costs of $5,231 and $5,258, respectively)			237,245				242,385
Full recourse:
Senior unsecured bonds (less deferred financing costs of $863 and $580, respectively)			303,469				203,752
Other loans (less deferred financing costs of $994 and $1,011, respectively)			46,506				46,489
Liability associated with sale of tax benefits			42,622				44,634
Deferred lease income			50,745				51,520
Deferred income taxes			48,074				61,961
Liability for unrecognized tax benefits			9,074				8,890
Liabilities for severance pay			20,874				21,141
Asset retirement obligation			27,639				27,110
Other long-term liabilities			21,625				18,853
Total liabilities			1,318,989				1,321,748
Commitments and contingencies (Note 10)
Redeemable noncontrolling interest			6,943				6,416
Equity:
The Company's stockholders' equity:
Common stock, par value $0.001 per share; 200,000,000 shares authorized; 50,617,209 and 50,609,051 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively			51				51
Additional paid-in capital			890,485				888,778
Retained earnings			410,758				327,255
Accumulated other comprehensive loss			(909	)			(4,706	)
Total equity attributable to the Company's stockholders			1,300,385				1,211,378
Noncontrolling interest			84,500				84,322
Total equity			1,384,885				1,295,700
Total liabilities, redeemable noncontrolling interest and equity		$	2,710,817			$	2,623,864

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		Three Months Ended March 31,
		2018				2017
		(Dollars in thousands, except per share data)
Revenues:
Electricity		$	132,489			$	115,776
Product			48,672				74,122
Other			2,862				—
Total revenues			184,023				189,898
Cost of revenues:
Electricity			73,482				66,036
Product			33,726				49,452
Other			3,443				—
Total cost of revenues			110,651				115,488
Gross profit			73,372				74,410
Operating expenses:
Research and development expenses			1,108				602
Selling and marketing expenses			3,699				4,363
General and administrative expenses			13,849				9,949
Write-off of unsuccessful exploration activities			123				—
Operating income			54,593				59,496
Other income (expense):
Interest income			113				244
Interest expense, net			(14,344	)			(14,923	)
Derivatives and foreign currency transaction gains (losses)			(1,599	)			1,338
Income attributable to sale of tax benefits			7,361				6,157
Other non-operating expense, net			(20	)			(92	)
Income from continuing operations before income taxes and equity in earnings (losses) of investees			46,104				52,220
Income tax (provision) benefit			26,942				(11,004	)
Equity in earnings (losses) of investees, net			1,210				(1,599	)
Income from continuing operations			74,256				39,617
Net income attributable to noncontrolling interest			(4,748	)			(4,423	)
Net income attributable to the Company's stockholders		$	69,508			$	35,194
Comprehensive income:
Net income			74,256				39,617
Other comprehensive income (loss), net of related taxes:
Change in foreign currency translation adjustments			1,528				—
Change in unrealized gains or losses in respect of the Company's share in derivatives instruments of unconsolidated investment			2,634				569
Loss in respect of derivative instruments designated for cash flow hedge			20				48
Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge			(15	)			(24	)
Comprehensive income			78,423				40,210
Comprehensive income attributable to noncontrolling interest			(5,118	)			(4,412	)
Comprehensive income attributable to the Company's stockholders		$	73,305			$	35,798
Earnings per share attributable to the Company's stockholders:
Basic:
Net income		$	1.37			$	0.71
Diluted:
Net income		$	1.36			$	0.70
Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders:
Basic			50,614				49,680
Diluted			51,051				50,491
Dividend per share declared		$	0.23			$	0.17

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		The Company's Stockholders' Equity
														Retained				Accumulated
										Additional				Earnings				Other
		Common Stock								Paid-in								Income								Noncontrolling				Total
		Shares				Amount				Capital								(Loss)				Total				Interest				Equity
		(Dollars in thousands, except per share data)
Balance at December 31, 2016			49,667			$	50			$	869,463			$	215,352			$	(8,175	)		$	1,076,690			$	91,582			$	1,168,272
Stock-based compensation			—				—				1,713				—				—				1,713				—				1,713
Exercise of options by employees and directors			39				—				—				—				—				—				—				—
Cash paid to noncontrolling interest			—				—				—				—				—				—				(6,807	)			(6,807	)
Cash dividend declared, $0.17 per share			—				—				—				(8,448	)			—				(8,448	)			—				(8,448	)
Net income			—				—				—				35,194				—				35,194				4,079				39,273
Other comprehensive income (loss), net of related taxes:
Currency translation adjustment			—				—				—				—				89				89				(11	)			78
Loss in respect of derivative instruments designated for cash flow hedge			—				—				—				—				48				48				—				48
Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment			—				—				—				—				569				569				—				569
Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $14)			—				—				—				—				(24	)			(24	)			—				(24	)
Balance at March 31, 2017			49,706			$	50			$	871,176			$	242,098			$	(7,493	)		$	1,105,831			$	88,843			$	1,194,674
Balance at December 31, 2017			50,609			$	51			$	888,778			$	327,255			$	(4,706	)		$	1,211,378			$	84,322			$	1,295,700
Stock-based compensation			—				—				1,707				—				—				1,707				—				1,707
Exercise of options by employees and directors			8				—				—				—				—				—				—				—
Cumulative effect of changes in accounting principles			—				—				—				25,635				—				25,635				—				25,635
Cash paid to noncontrolling interest			—				—				—				—				—				—				(4,674	)			(4,674	)
Cash dividend declared, $0.23 per share			—				—				—				(11,640	)			—				(11,640	)			—				(11,640	)
Net income			—				—				—				69,508				—				69,508				4,482				73,990
Other comprehensive income (loss), net of related taxes:
Currency translation adjustment			—				—				—				—				1,158				1,158				370				1,528
Loss in respect of derivative instruments designated for cash flow hedge (net of related tax of $13)			—				—				—				—				20				20				—				20
Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment			—				—				—				—				2,634				2,634				—				2,634
Amortization of unrealized gains in respect of derivative instruments designated for cash flow hedge (net of related tax of $9)			—				—				—				—				(15	)			(15	)			—				(15	)
Balance at March 31, 2018			50,617			$	51			$	890,485			$	410,758			$	(909	)		$	1,300,385			$	84,500			$	1,384,885

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		Three Months Ended March 31,
		2018				2017
		(Dollars in thousands)
Cash flows from operating activities:
Net income		$	74,256			$	39,617
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			30,553				27,059
Accretion of asset retirement obligation			529				455
Stock-based compensation			1,707				1,713
Amortization of deferred lease income			(671	)			(671	)
Income attributable to sale of tax benefits, net of interest expense			(6,295	)			(4,335	)
Equity in losses (earnings) of investees			(1,210	)			1,600
Mark-to-market of derivative instruments			962				(1,519	)
Write-off of unsuccessful exploration activities			123				—
Gain on severance pay fund asset			129				(947	)
Deferred income tax provision and deferred charges			(29,467	)			6,612
Liability for unrecognized tax benefits			184				692
Deferred lease revenues			(104	)			(92	)
Changes in operating assets and liabilities, net of amounts acquired:
Receivables			9,777				19,092
Costs and estimated earnings in excess of billings on uncompleted contracts			(189	)			(4,352	)
Inventories			(503	)			(5,800	)
Prepaid expenses and other			(2,005	)			6,873
Deposits and other			62				(557	)
Accounts payable and accrued expenses			(49,027	)			681
Billings in excess of costs and estimated earnings on uncompleted contracts			(9,783	)			(14,035	)
Liabilities for severance pay			(267	)			930
Other long-term liabilities			1,008				(1,553	)
Net cash provided by operating activities			19,769				71,463
Cash flows from investing activities:
Capital expenditures			(66,962	)			(52,885	)
Investment in unconsolidated companies			(1,275	)			(14,918	)
Cash paid for acquisition of controlling interest in a subsidiary, net of cash acquired			—				(35,300	)
Decrease (increase) in severance pay fund asset, net of payments made to retired employees			203				(18	)
Net cash used in investing activities			(68,034	)			(103,121	)
Cash flows from financing activities:
Proceeds from long-term loans, net of transaction costs			100,000				—
Proceeds from revolving credit lines with banks			860,800				50,000
Repayment of revolving credit lines with banks			(873,800	)			(20,000	)
Cash received from noncontrolling interest			4,134				1,411
Repayments of long-term debt			(16,687	)			(13,405	)
Cash paid to noncontrolling interest			(4,674	)			(6,807	)
Payments of capital leases			(436	)			(408	)
Deferred debt issuance costs			(1,020	)			(1,144	)
Cash dividends paid			(11,640	)			(8,448	)
Net cash provided by financing activities			56,677				1,199
Net change in cash and cash equivalents and restricted cash and cash equivalents			8,412				(30,459	)
Cash and cash equivalents and restricted cash and cash equivalentsat beginning of period			96,643				264,476
Cash and cash equivalents and restricted cash and cash equivalents at end of period		$	105,055			$	234,017
Supplemental non-cash investing and financing activities:
Increase (decrease) in accounts payable related to purchases of property, plant and equipment		$	(1,673	)		$	1,801

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NOTE 1 — GENERAL AND BASIS OF PRESENTATION

 

These unaudited condensed consolidated interim financial statements of Ormat Technologies, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of March 31, 2018, the consolidated results of operations and comprehensive income (loss) for the three-month periods ended March 31, 2018 and 2017 and the consolidated cash flows for the three-month periods ended March 31, 2018 and 2017.

 

The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three-month period ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

 

These condensed unaudited 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/A for the year ended December 31, 2017. The condensed consolidated balance sheet data as of December 31, 2017 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2017, 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 condensed consolidated financial statements

 

As previously disclosed in the Company’s Form 10-K/A as of and for the year ended December 31 2017, filed on June 19, 2018, the Company restated its previously issued 2017 financial statements due to the subsequent identification of material tax errors.

 

The Company also identified other tax errors in the previously issued unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2017, including a prior period tax error for an unrecognized tax benefit related to intercompany interest. The Company assessed the materiality of these errors in accordance with the SECs Staff Accounting Bulletin (“SAB”) Topic 1.Materiality, codified in ASC Topic 250, Presentation of Financial Statements (“ASC 250”), and concluded that such previously issued financial statements were not materially misstated. However, in connection with the fiscal 2017 restatement, the Company determined that it would revise such previously issued financial statements to correct for these errors. As a result, the revised financial statements for the three months ended March 31, 2017 reflect a $0.1 million increase in the income tax provision, with a corresponding decrease in net income and comprehensive income, and a $1.7 million decrease to total equity as of January 1, 2017 to correct for immaterial tax errors originating prior to 2017.

 

The effects of the revision on the line items within the Company's condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2017 are as follows:

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The effects of the revision on the line items within the Company’s condensed consolidated statements of equity for the three months ended March 31, 2017 are as follows:

 

 

Although there was no impact to net cash provided by operating activities, net cash used in investing activities or net cash used in financing activities, the effects of the revision on the line items within the condensed consolidated statements of cash flows for the three months ended March 31, 2017 are as follows:

 

 

 

Migdal Senior Unsecured Loan

 

On March 22, 2018 the Company entered into a definitive loan agreement (the "Migdal Loan Agreement") with Migdal Insurance Company Ltd., Migdal Makefet Pension and Provident Funds Ltd. and Yozma Pension Fund of Self Employed Ltd., all entities within the Migdal Group, a leading insurance company and institutional investor in Israel. The Migdal Loan Agreement provides for a loan by the lenders to the Company in an aggregate principal amount of $100 million (the “Migdal Loan”). The Migdal Loan will be repaid in 15 semi-annual payments of $4.2 million each, commencing on September 15, 2021, with a final payment of $37 million on March 15, 2029. The Migdal Loan bears interest at a fixed rate of 4.8% per annum, payable semi-annually, subject to adjustment in certain circumstances as described below.

 

The Migdal Loan is subject to early redemption by the Company prior to maturity from time to time (but not more frequently than once per quarter) and at any time in whole or in part, at a redemption price set forth in the Migdal Loan Agreement. If the rating of the Company is downgraded to "ilA-", by Standard and Poor’s Global Ratings Maalot Ltd. (“Maalot”), the interest rate applicable to the Migdal Loan will be increased by 0.50%. If the rating of the Company is further downgraded to a lower level, the interest rate applicable to the Migdal Loan will be increased by 0.25% for each additional downgrade. In no event will the cumulative increase in the interest rate applicable to the Migdal Loan exceed 1% regardless of the cumulative rating downgrade. A subsequent upgrade or reinstatement of a rating by Maalot will reduce the interest rate applicable to the Migdal Loan by 0.25% for each upgrade (but in no event will the interest rate applicable the Migdal Loan fall below the base interest rate of 4.8%). Additionally, if the ratio between short-term and long-term debt to financial institutions and bondholders, deducting cash and cash equivalents to EBITDA is equal to or higher than 4.5, the interest rate on all amounts then outstanding under the Migdal Loan shall be increased by 0.5% per annum over the interest rate then-applicable to the Migdal Loan.

 

The Migdal Loan constitutes senior unsecured indebtedness of the Company and will rank equally in right of payment with any existing and future senior unsecured indebtedness of the Company, and effectively junior to any existing and future secured indebtedness, to the extent of the security therefore.

 

The Migdal Loan Agreement includes various affirmative and negative covenants, including a covenant that the Company maintain (i) a debt to adjusted EBITDA ratio below 6, (ii) a minimum equity amount (as shown on its consolidated financial statements, excluding noncontrolling interests) of not less than $650 million, and (iii) an equity attributable to Company's stockholders to total assets ratio of not less than 25%. In addition, the Migdal Loan Agreement restricts the Company from making dividend payments if its equity falls below $800 million and otherwise restricts dividend payments in any one year to not more than 50% of the net income of the Company of such year as shown on the Company’s consolidated annual financial statements as long as any of the Company's bonds issued in Israel prior to March 27, 2018 remain outstanding. The Migdal Loan Agreement includes other customary affirmative and negative covenants and events of default.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Other comprehensive income

 

For the three months ended March 31, 2018 and 2017, the Company classified $5,000 and $2,000, respectively, related to derivative instruments designated as cash flow hedges, from accumulated other comprehensive income, of which $9,000 and $3,000, respectively, were recorded to reduce interest expense and $4,000 and $1,000, respectively, were recorded against the income tax provision, in the condensed consolidated statements of operations and comprehensive income. The accumulated net loss included in Other comprehensive income as of March 31, 2018, is $0.6 million.

 

Write-offs of unsuccessful exploration activities

 

Write-offs of unsuccessful exploration activities for the three months ended March 31, 2018 were $0.1 million. There were no write-offs of unsuccessful exploration activities for the three months ended March 31, 2017.

 

Reconciliation of Cash and cash equivalents and Restricted cash and cash equivalents

 

The following table provides a reconciliation of Cash and cash equivalents and Restricted cash and cash equivalents reported on the balance sheet that sum to the total of the same amounts shown on the statement of cash flows:

 

 

 

 

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 and in foreign countries. At March 31, 2018 and December 31, 2017, the Company had deposits totaling $20.3 million and $21.2 million, respectively, in eight U.S. financial institutions that were federally insured up to $250,000 per account. At March 31, 2018 and December 31, 2017, the Company’s deposits in foreign countries amounted to approximately $47.3 million and $32.8 million, respectively.

 

At March 31, 2018 and December 31, 2017, accounts receivable related to operations in foreign countries amounted to approximately $73.3 million and $78.1 million, respectively. At March 31, 2018 and December 31, 2017, accounts receivable from the Company’s primary customers amounted to approximately 59% and 57% of the Company’s accounts receivable, respectively.

 

Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy, Inc.) accounted for 17.4% and 18.8% of the Company’s total revenues for the three months ended March 31, 2018 and 2017, respectively.

 

Southern California Public Power Authority (“SCPPA”) accounted for 16.3% and 9.0% of the Company’s total revenues for the three months ended March 31, 2018 and 2017, respectively.

 

Kenya Power and Lighting Co. Ltd. accounted for 15.1% and 14.3% of the Company’s total revenues for the three months ended March 31, 2018 and 2017, respectively.

 

The Company has historically been able to collect on substantially all of its receivable balances, and believes it will continue to be able to collect all amounts due. Accordingly, no provision for doubtful accounts has been made.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

 

New accounting pronouncements effective in the three-month period ended March 31, 2018

 

Income Taxes

 

In March 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-05, Income Taxes (Topic 740). The amendments in this update add several SEC paragraphs pursuant to the issuance of the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) in December 2017. The amendments in this update are effective immediately. For additional information, see Note 11 to the consolidated financial statements.

 

Revenues from Contracts with Customers

 

In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers, Topic 606, which was a joint project of the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The update provides that an entity should recognize revenue in connection with the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, an entity is required to apply each of the following steps: (1) identify the contract(s) with the customer; (2) identify the performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also prescribes additional financial presentations and disclosures. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations. This update did not change the core principles of the guidance and was intended to clarify the implementation guidance on principal versus agent considerations. When another entity is involved in providing goods or services to a customer, an entity is required to determine if the nature of its promise is to provide the specific good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). The guidance included indicators to assist an entity in determining whether it acts as a principal or agent in a specified transaction.

 

The Company adopted this update effectively as of January 1, 2018 using the modified retrospective approach with one-time cumulative adjustment to the opening balance of retained earnings as further described below and applied the five-step model described above on identified outstanding contracts at the date of adoption, under which revenues are generated. Under ASC 606, an entity must identify the performance obligations in a contract, determine the transaction price and allocate the price to specific performance obligations recognize the revenue when the obligation is completed. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The standard also requires disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flow arising from contracts. 

 

The adoption of ASC 606, Revenues from Contracts with Customers, as described above, did not have an impact on our Electricity, Product and Other revenues in 2018, however, the adoption did have an impact on our accounting for investment in an unconsolidated company as further described in the following table and in the disclosure under the heading "Investment in an unconsolidated company" within this note below. Additionally, the following table below summarizes the impact of the adoption of ASC 606 on the Company’s consolidated financial statements as of January 1, 2018, followed by further information for each of the line items in the table:

 

 

Electricity segment revenues: Electricity revenues are primarily related to sale of electricity from geothermal and recovered energy-based power plants owned and operated by the Company. Revenues related to the sale of electricity from geothermal and recovered energy-based power plants and capacity payments are recorded based upon output delivered and capacity provided at rates specified under relevant contract terms. For power purchase agreements (“PPAs”) agreed to, modified, or acquired in business combinations on or after July 1, 2003, the Company determines whether such PPAs contain a lease element requiring lease accounting. Revenue from such PPAs are accounted for in electricity revenues. The lease element of the PPAs is also assessed in accordance with the revenue arrangements with multiple deliverables guidance, which requires that revenues be allocated to the separate earnings processes based on their relative fair value. PPAs with minimum lease rentals which vary over time are generally recognized on the straight-line basis over the term of the PPAs. PPAs with contingent rentals are recognized when earned. In the Electricity segment, revenues for all but three power plants are accounted for under ASC 840 (Leases) as operating leases, and therefore equipment related to geothermal and recovered energy generation power plants is considered held for leasing. For power plants in the scope of ASC 606, the Company identified electricity as a separate performance obligation. Performance obligations identified were evaluated and determined to be satisfied over time and qualified for the invoicing practical expedient since the invoiced amounts reasonably represented the value to customers of performance obligations fulfilled to date. The transaction price is determined based on the price per actual mega-watt output or available capacity as agreed to in the respective PPA. Customers are generally billed on a monthly basis and payment is typically due within 30 to 60 days after the issuance of the invoice.

 

Product segment revenues: Product segment revenues are primarily related to sale of geothermal and recovered energy-based power plants, including equipment, engineering, construction and installation and operating services. Revenues from the supply and/or construction of geothermal and recovered energy-based power plant equipment and other equipment to third parties are recognized over time since control is transferred continuously to our customers. The majority of our contracts include a single performance obligation which is essentially the promise to transfer the individual goods or services that is not separately identifiable from other promises in the contracts and therefore deemed as not distinct. Performance obligations are satisfied over-time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being constructed, or if the product being produced for the customer has no alternative use and we have a contractual right to payment. In our Product segment, revenues spread over a period of one to two years and recognized over time based on cost incurred to date in ratio to total estimated costs which represents input method that best depicts the transfer of control over the performance obligation to the customer. Costs include direct material, labor, and indirect costs. Selling, marketing, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

In contracts for which we determine that control is not transferred continuously to the customer, we recognized revenues at point in time, when the customer obtain control of the asset. This generally is the case for sale of spare parts, generators or similar other products. Revenues for such contracts are recorded upon delivery and acceptance by the customer.

 

Accounting for product contracts that are satisfied over time includes use of several estimates such as variable consideration related to bonuses and penalties and total estimated cost for completing the contract. The estimated amount of variable consideration will be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are based on historical experience, anticipated performance and our best judgment at the time.

 

The nature of our product contracts give rise to several modifications or change requests by our customer. Substantially all of the modifications are treated as cumulative catch-ups to revenues since the additional goods are not distinct from those already provided. We include the additional revenues related to the modifications in our transaction price when both parties to the contract approved the modification. As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in Product revenues on contracts under the cumulative catch-up method. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified.

 

The Company generally provides a one-year warranty against defects in workmanship and materials related to the sale of products for electricity generation. The Company considered the warranty as an assurance type warranty since the warranty provides the customer the assurance that the product complies with agreed-upon specifications. Estimated future warranty obligations are included in operating expenses in the period in which the related revenue is recognized. Such charges are immaterial for the years ended December 31, 2017, 2016, and 2015.

 

Contract Assets and Liabilities related to our Product segment: Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of March 31, 2018 and December 31, 2017 are as follows:

 

 

(*) Contract assets and contract liabilities are presented as "Costs and estimated earnings in excess of billings on uncompleted contracts" and "Billings in excess of costs and estimated earnings on uncompleted contracts", respectively, on the consolidated balance sheet.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The following table presents the significant changes in the contract assets and contract liabilities for the three months ended March 31, 2018:

 

 

The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets and contract liabilities on the consolidated balance sheet. In our Products segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, or upon achievement of contractual milestones. Generally, billing occurs subsequent to the recognition of revenue, resulting in contract assets. However, we sometimes receive advances or deposits from our customers before revenue can be recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. The timing of billing our customers and receiving advance payments vary from contract to contract. We typically receive a down payment of between 10% and 20% of total contract consideration upon signing, followed by additional milestone payments for which timing varies from contract to contract. The majority of payments are received no later than the completion of the project and satisfaction of our performance obligation.

 

On March 31, 2018, we had approximately $211.0 million of remaining performance obligations not yet satisfied or partly satisfied related to our Product segment. We expect to recognize approximately 91% of this amount as Product revenues during the next 24 months and the rest thereafter.

 

The following schedule reconciles revenues accounted under ASC 840, Leases, and ASC 606, Revenues from Contracts with Customers, to total consolidated revenues for the three months ended March 31, 2018:

 

 

 

Disaggregated revenues from contracts with customers for the three months ended March 31, 2018 are shown under Note 9 – Business Segments, to the consolidated financial statements. 

 

Investment in an unconsolidated company: The Company also reviewed the impact of the adoption of ASC 606 on its investment in an unconsolidated company. As a result of the adoption, the Company recorded one-time cumulative credit adjustment to the opening balance of retained earnings of approximately $24.0 million as of January 1, 2018. This impact is a result of the unconsolidated company’s variable consideration related to the construction of its power plant for which, under the new guidance, is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty resolved. As such, the comparative information will not be restated and shall continue to be reported under the accounting standards in effect for those periods.

 

The following schedule quantifies the impact of adopting ASC 606 on the statement of operations for the three months ended March 31, 2018:

 

 

Other segment revenues: Other segment revenues are primarily related to energy storage, demand-response and energy management related services. Revenues are recorded based on energy management of load curtailment capacity delivered or service provided at rates specified under the relevant contract terms. The Company determined that the Other segment revenues are in the scope of ASC 606 and identified energy management as a separate performance obligation. Performance obligations are satisfied once the Company provides a verification to the electric power grid operator or utility of its ability to meet the committed capacity or power curtailment requirements and thus entitled to cash proceeds. Such verification may be provided by the Company bi-weekly, monthly or under any other frequency as set by the related program and are typically followed by a payment shortly after. Performance obligations identified were evaluated and determined to be satisfied over time and qualified for the invoicing practical expedient since the amounts included in the verification document reasonably represent the value of performance obligations fulfilled to date. The transaction price is determined based on mechanisms specified in the contract with the customer.

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Compensation - Stock Compensation

 

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update require that an entity should account for the effects of a modification unless all of the following are met: (1) The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

Business Combinations

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805). The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update primarily provide a screen to determine when a set of assets and activities is not a business and by that reduces the number of transactions that need to be further evaluated. The amendments in this update should be applied prospectively and are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

 

Statement of Cash Flow

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. The amendments in this update require that a statement of cash flows explain the changes during the period in total cash, cash equivalents, and the amounts generally described as restricted cash or cash equivalents. Therefore, amounts of restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update should be applied retrospectively for each period presented and are effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company adopted this guidance retrospectively in its consolidated financial statements for the three month period ending March 31, 2018 and adjusted its disclosure accordingly.

 

Intra-Entity Transfers of Assets Other than Inventory 

 

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. The amendments in this update require that the entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers on inventory. The amendments in this update should be applied for each period presented and are effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The modified retrospective approach is required for transition to the new guidance, with cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. The Company adopted this guidance retrospectively in its consolidated financial statements for the three months ending March 31, 2018 and recorded a net cumulative-effect adjustment to retained earnings of approximately $1.8 million with a corresponding adjustment to deferred charges and deferred income taxes on the consolidated balance sheet of approximately $49.8 million and $51.6 million, respectively.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230)

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash-Flows (Topic 230). This update addresses eight specific cash flow classification issues with the objective of reducing diversity in practice. One of the issues addressed in this update is debt prepayment or debt extinguishment costs which under the new guidance should be classified as cash outflows for financing activities. Additionally, the update addressed contingent consideration payments made after a business combination. Such cash payments made soon after the acquisition date to settle a contingent consideration liability should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The amendments in this update are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company adopted this guidance and expects that the impact from the adoption of the update will result in a reclassification of approximately $8.0 million of cash paid for achievement of production threshold in Guadeloupe during the fourth quarter of 2017 from cash outflows from investing activities to cash outflows from financing activities as required by this update.

  

 Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The update primarily requires that an entity present separately, in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The application of this update should be by means of cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

 

 

New accounting pronouncements effective in future periods

 

Derivatives and Hedging

 

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. The Company is currently evaluating the potential impact, if any, of the adoption of these amendments on its consolidated financial statements.

 

Intangibles –Goodwill and Other

 

 In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update require the entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This update, eliminated Step 2 from the goodwill impairment test under the current guidance. Step 2 measures a goodwill impairment loss by comparing the implied fair value of reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in this update should be applied on a prospective basis. An entity is also required to disclose the nature of and the reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and the interim period within the first annual period when the entity initially adopts the amendments in this update. The amendments in this update are effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the potential impact, if any, of the adoption of these amendments on its consolidated financial statements.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Leases

 

 In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update introduces a number of changes and simplifies previous guidance, primarily the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. The update retains the distinction between finance leases and operating leases and the classification criteria between the two types remains substantially similar. Also, lessor accounting remains largely unchanged from previous guidance. However, key aspects of the update were aligned with the revenue recognition guidance in Topic 606. Additionally, the update defines a lease as a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. This update requires the modified retrospective transition approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The modified retrospective approach includes a number of optional practical expedients related to identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commenced before the effective date in accordance with the previous generally accepted accounting principles in the United States unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining  minimum rental payments that were tracked and disclosed under previous generally accepted accounting principles in the United States.  The amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the potential impact, if any, of the adoption of these amendments on its consolidated financial statements.

 

 

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income

 

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting for the Tax Cuts and Jobs Act of 2017. The guidance is effective for the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of these amendments on its consolidated financial statements, however, such impact, if any, is not expected to be material.

 

 

 

 

NOTE 3 — INVENTORIES

 

Inventories consist of the following:

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

NOTE 4 — INVESTMENT IN AN UNCONSOLIDATED COMPANY

 

Unconsolidated investments consist of the following:

 

 

 

The Sarulla Project

 

The Company holds a 12.75% equity interest in a consortium which developed the 330 MW Sarulla geothermal power plant project in Tapanuli Utara, North Sumatra, Indonesia. The Sarulla project is comprised of three separately constructed 110 MW units, the most recent of which, NIL 2, was completed in April 2018. The Sarulla project is owned and operated by the consortium members under the framework of a joint operating contract and energy sales contract that were both signed on April 4, 2013. Under the joint operating contract, PT Pertamina Geothermal Energy, the concession holder for the project, has provided the consortium with the right to use the geothermal field, and under the energy sales contract, PT PLN, the state electric utility, is the off-taker at Sarulla for a period of 30 years.

 

On May 16, 2014, the consortium closed $1.17 billion in financing for the development of the Sarulla project with a consortium of lenders comprised of Japan Bank for International Cooperation (“JBIC”), the Asian Development Bank and six commercial banks and obtained construction and term loans on a limited recourse basis backed by a political risk guarantee from JBIC. Of the $1.17 billion, $0.1 billion bears interest at a fixed rate and $1.07 billion bears interest at a rate linked to LIBOR. The total interest expenses, net incurred by the consortium for the three months ended March 31, 2018, totaled approximately $16.9 million.

 

The Sarulla consortium entered into interest rate swap agreements with various international banks, effective as of June 4, 2014, in order to fix the interest rate linked to LIBOR on up to $0.96 billion of the $1.07 billion portion of the financing arrangement subject to such interest rate at 3.4565%. The Sarulla project company accounted for the interest rate swap as a cash flow hedge upon which changes in the fair value of the hedging instrument, relative to the effective portion, are recorded in other comprehensive income. During the three months ended March 31, 2018 and 2017, the Sarulla project company recorded a gain of $20.7 million and $4.5 million, respectively, net of deferred tax, of which the Company’s share was $2.6 million and $0.6 million, respectively. The Company’s share of such gains were recorded in other comprehensive income. The related accumulated loss recorded by the Company in other comprehensive income (loss) as of March 31, 2018 is $2.5 million.

 

During the three months ended March 31, 2018, the Company made additional cash equity investments in the Sarulla project of approximately $1.3 million, for a total of $59.5 million since inception.

 

As further described above under the heading “New accounting pronouncement effective in the three-month period ended March 31, 2018” in Note 2 to the consolidated financial statements, the Company adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2018. The impact of the adoption of this standard on its investment in an unconsolidated company amounted to $24.0 million at January 1, 2018. This impact was a result of the unconsolidated company’s variable consideration related to the construction of its power plant for which, under the new guidance, is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company adopted the new standard using the modified retrospective approach with a one-time cumulative adjustment to the opening balance of retained earnings of approximately $24.0 million at January 1, 2018, the date of initial application.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

NOTE 5— FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

 

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

 

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

 

The following table sets forth certain fair value information at March 31, 2018 and December 31, 2017 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.

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

 

(1)	These amounts relate to contingent receivables and payables and warrants relating to acquisition of substantially all of the assets of Viridity Energy, Inc. and the Guadeloupe power plant purchase transaction, valued primarily based on unobservable inputs and are included within “Prepaid expenses and other”, “Accounts payable and accrued expenses” and “Other long-term liabilities” on March 31, 2018 and within “Prepaid expenses and other” and “Other long-term liabilities” on December 31, 2017 in the consolidated balance sheets with the corresponding gain or loss being recognized within “Derivatives and foreign currency transaction gains (losses)” in the consolidated statement of operations and comprehensive income.
(2)	These amounts relate to currency forward contracts valued primarily based on observable inputs, including forward and spot prices for currencies, net of contracted rates and then multiplied by notional amounts, and are included within “Prepaid expenses and other” and “Accounts payable and accrued expenses”, as applicable, on March 31, 2018 and December 31, 2017, in the consolidated balance sheet with the corresponding gain or loss being recognized within “Derivatives and foreign currency transaction gains (losses)” in the consolidated statement of operations and comprehensive income.

 

 

The amounts set forth in the tables above include investments in debt instruments and money market funds (which are included in cash equivalents). Those securities and deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market. 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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

 

 

In January 2017, the Company entered into Henry Hub Natural Gas Future contracts under which it bought a number of put options covering a notional quantity of approximately 4.1 million British Thermal Units (“MMBtu”) with exercise prices of $3 and expiration dates ranging from January 26, 2017 until November 27, 2017 in order to reduce its exposure to fluctuations in natural gas prices under its PPAs with Southern California Edison. The Company paid an aggregate amount of approximately $0.7 million for these put options.

 

The foregoing future and forward transactions were not designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “Derivatives and foreign currency transaction gains (losses)”.

 

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the three months ended March 31, 2018.

 

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

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The fair value of the long-term debt is determined by a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of current borrowing rates. The fair value of revolving lines of credit is determined using a comparison of market-based price sources that are reflective of similar credit ratings to those of the Company.

 

The carrying value of financial instruments such as revolving lines of credit and deposits approximates fair value.

 

The following table presents the fair value of financial instruments as of March 31, 2018:

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The following table presents the fair value of financial instruments as of December 31, 2017: