10-Q 1 ora20220331_10q.htm FORM 10-Q ora20220331_10q.htm
0001296445 ORMAT TECHNOLOGIES, INC. false --12-31 Q1 2022 90 90 2,153,106 2,159,696 413,556 366,924 7,675 7,825 159 192 10,712 11,304 3,346 3,659 0.001 0.001 200,000,000 200,000,000 56,071,682 56,071,682 56,056,450 56,056,450 0.12 0 0.12 0 0 0 0 6 1 4 0 10 May 16, 2022 May 31, 2022 October 12, 2022 8 Including unconsolidated investments The foregoing cross currency swap transactions were designated as a cash flow hedge as further described under Note 1 to the consolidated financial statements. The changes in the cross currency swap fair value are initially recorded in "Other comprehensive income (loss)" and a corresponding amount is reclassified out of "Accumulated other comprehensive income (loss)" to "Derivatives and foreign currency transaction gains (losses)" to offset the remeasurement of the underlying hedged transaction which also impacts the same line item in the consolidated statements of operations and comprehensive income. The foregoing currency forward and price swap transactions were not designated as hedge transactions and were marked to market with the corresponding gains or losses recognized within “Derivatives and foreign currency transaction gains (losses)” in the consolidated statements of operations and comprehensive income. The price swap transaction was related to a hedging agreement with a third party that was effective January 1, 2021 under which the Company fixed the price per MWh on a portion of RRS provided by its Rabbit Hill storage facility, as described under Note 1 to the consolidated financial statements. The price swap transaction was terminated effective April 1, 2021. Electricity segment revenues in the United States are all accounted under lease accounting except for $22.8 million and $19.2 million for the three months ended March 31, 2022 and 2021, respectively, that are accounted under ASC 606. Product and Energy Storage segment revenues in the United States are accounted under ASC 606. 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 condensed consolidated balance sheets. The contract liabilities balance at the beginning of the year was not yet fully recognized as product revenues during the three months ended March 31, 2022 as a result of performance obligations having not been fully satisfied yet. The amount of gain or (loss) recognized in Other comprehensive income (loss) for the years ended December 31, 2021 and 2020 is net of tax of $0.8 million and $1.1 million, respectively. 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 “Receivables, other” in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, with the corresponding gain or loss being recognized within “Derivatives and foreign currency transaction gains (losses)” in the condensed consolidated statements of operations and comprehensive income. These amounts relate to contingent payables and warrants pertaining to the Guadeloupe power plant purchase transaction, valued primarily based on unobservable inputs and are included within “Other long-term liabilities” in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, with the corresponding gain or loss being recognized within "Derivatives and foreign currency transaction gains (losses)" in the condensed consolidated statements of operations and comprehensive income. These amounts relate to cross currency swap contracts valued primarily based on the present value of the cross currency swap future settlement prices for U.S. Dollar ("USD") and New Israeli Shekel ("NIS") zero yield curves and the applicable exchange rate as of March 31, 2022 and December 31, 2021, as applicable. These amounts are included within "Prepaid expenses and other" and “Deposits and other”, as applicable, in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021. There are no cash collateral deposits on March 31, 2022 and December 31, 2021. Electricity segment assets include goodwill in the amount of $86.0 million and $20.1 million as of March 31, 2022 and 2021, respectively. Energy Storage segment assets include goodwill in the amount of $4.6 million and $4.1 as of March 31, 2022 and 2021, respectively. No goodwill is included in the Product segment assets as of March 31, 2022 and 2021. Intersegment revenue are fully eliminated in consolidation. Electricity segment revenues in foreign countries are all accounted under lease accounting. Product segment revenues in foreign countries are accounted under ASC 606. 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Table of Contents



 

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 March 31, 2022

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)

  

6140 Plumas Street, Reno, Nevada

89519-6075

(Address of principal executive offices)

(Zip Code)

 

(775) 356-9029

(Registrants 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 every Interactive Data File required to be submitted 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 such files).  Yes ☑     No ☐

 

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

Large accelerated filer ☑

Accelerated filer ☐    

Non-accelerated filer ☐    

Smaller reporting company 

Emerging growth company 

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

As of May 1, 2022, the number of outstanding shares of common stock, par value $0.001 per share, was 56,071,682.

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

ORA

NYSE

 



 

 

 

ORMAT TECHNOLOGIES, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

 

 

PART I  FINANCIAL INFORMATION

 
     

ITEM 1.

FINANCIAL STATEMENTS

4

     

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS

27

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

51

     

ITEM 4.

CONTROLS AND PROCEDURES

51

   

PART II  OTHER INFORMATION

52

   

ITEM 1.

LEGAL PROCEEDINGS

52

     

ITEM 1A.

RISK FACTORS

52

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

52

     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

52

     

ITEM 4.

MINE SAFETY DISCLOSURES

52

     

ITEM 5.

OTHER INFORMATION

52

     

ITEM 6.

EXHIBITS

52

   

SIGNATURES

54

 

 

 

Certain Definitions

 

Unless the context otherwise requires, all references in this quarterly report on Form 10-Q (quarterly report on Form 10-Q or 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)

 

  

March 31, 2022

  

December 31, 2021

 
  

(Dollars in thousands)

 

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $130,006  $239,278 

Marketable securities at fair value

  42,927   43,343 

Restricted cash and cash equivalents (primarily related to VIEs)

  111,127   104,166 

Receivables:

        

Trade less allowance for credit losses of $90 and $90, respectively (primarily related to VIEs)

  116,555   122,944 

Other

  20,756   18,144 

Inventories

  32,888   28,445 

Costs and estimated earnings in excess of billings on uncompleted contracts

  11,522   9,692 

Prepaid expenses and other

  42,208   35,920 

Total current assets

  507,989   601,932 

Investment in unconsolidated companies

  112,522   105,886 

Deposits and other

  70,398   78,915 

Deferred income taxes

  138,709   143,450 

Property, plant and equipment, net ($2,153,106 and $2,159,696 related to VIEs, respectively)

  2,293,720   2,294,973 

Construction-in-process ($413,556 and $366,924 related to VIEs, respectively)

  819,560   721,483 

Operating leases right of use ($7,675 and $7,825 related to VIEs, respectively)

  19,753   19,357 

Finance leases right of use ($159 and $192 related to VIEs, respectively)

  5,762   6,414 

Intangible assets, net

  355,185   363,314 

Goodwill

  90,591   89,954 

Total assets

 $4,414,189  $4,425,678 

LIABILITIES AND EQUITY

 

Current liabilities:

        

Accounts payable and accrued expenses

 $164,752  $143,186 

Billings in excess of costs and estimated earnings on uncompleted contracts

  10,964   9,248 

Current portion of long-term debt:

        

Limited and non-recourse (primarily related to VIEs)

  77,190   61,695 

Full recourse

  313,178   313,846 

Financing liability

  13,039   10,835 

Operating lease liabilities

  2,490   2,564 

Finance lease liabilities

  2,378   2,782 

Total current liabilities

  583,991   544,156 

Long-term debt, net of current portion:

        

Limited and non-recourse (primarily related to VIEs and less deferred financing costs of $10,712 and $11,304, respectively)

  507,520   539,664 

Full recourse (less deferred financing costs of $3,346 and $3,659, respectively)

  716,405   740,335 

Financing liability

  236,057   242,029 

Operating lease liabilities

  17,082   16,462 

Finance lease liabilities

  4,075   4,361 

Liability associated with sale of tax benefits

  129,381   134,953 

Deferred income taxes

  83,352   84,662 

Liability for unrecognized tax benefits

  6,034   5,730 

Liabilities for severance pay

  15,552   15,694 

Asset retirement obligation

  86,109   84,891 

Other long-term liabilities

  4,374   4,951 

Total liabilities

  2,389,932   2,417,888 
         

Commitments and contingencies (Note 10)

          
         

Redeemable noncontrolling interest

  9,408   9,329 
         

Equity:

        

The Company's stockholders' equity:

        

Common stock, par value $0.001 per share; 200,000,000 shares authorized; 56,071,682 and 56,056,450 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

  56   56 

Additional paid-in capital

  1,274,838   1,271,925 

Retained earnings

  596,912   585,209 

Accumulated other comprehensive income (loss)

  (1,137)  (2,191)

Total stockholders' equity attributable to Company's stockholders

  1,870,669   1,854,999 

Noncontrolling interest

  144,180   143,462 

Total equity

  2,014,849   1,998,461 

Total liabilities, redeemable noncontrolling interest and equity

 $4,414,189  $4,425,678 

 

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 March 31,

 
  

2022

  

2021

 
  

(Dollars in thousands,

except per share data)

 

Revenues:

        

Electricity

 $162,525  $144,988 

Product

  14,628   8,643 

Energy storage

  6,557   12,721 

Total revenues

  183,710   166,352 

Cost of revenues:

        

Electricity

  94,521   79,851 

Product

  13,613   8,074 

Energy storage

  5,671   4,780 

Total cost of revenues

  113,805   92,705 

Gross profit

  69,905   73,647 

Operating expenses:

        

Research and development expenses

  1,064   876 

Selling and marketing expenses

  4,365   4,276 

General and administrative expenses

  17,572   18,606 

Write-off of Energy Storage projects and assets

  1,826    

Operating income

  45,078   49,889 

Other income (expense):

        

Interest income

  342   263 

Interest expense, net

  (21,081)  (19,016)

Derivatives and foreign currency transaction gains (losses)

  260   (16,866)

Income attributable to sale of tax benefits

  7,705   6,355 

Other non-operating income (expense), net

  75   (331)

Income from operations before income tax and equity in earnings (losses) of investees

  32,379   20,294 

Income tax provision

  (10,163)  (3,007)

Equity in earnings (losses) of investees, net

  577   542 

Net income

  22,793   17,829 

Net income attributable to noncontrolling interest

  (4,363)  (2,570)

Net income attributable to the Company's stockholders

 $18,430  $15,259 

Comprehensive income:

        

Net income

  22,793   17,829 

Other comprehensive income (loss), net of related taxes:

        

Change in foreign currency translation adjustments

  (1,156)  (1,826)

Change in unrealized gains or losses in respect of the Company's share in derivatives instruments of unconsolidated investment that qualifies as a cash flow hedge

  3,902   3,755 

Change in unrealized gains or losses in respect of a cross currency swap derivative instrument that qualifies as a cash flow hedge

  (1,905)  (2,798)

Change in unrealized gains or losses on marketable securities available-for-sale (net of related tax of $0)

  (101)  (20)

Other changes in comprehensive income

  15   16 

Total other comprehensive income (loss), net of related taxes:

  755   (873)

Comprehensive income

  23,548   16,956 

Comprehensive income attributable to noncontrolling interest

  (4,064)  (1,997)

Comprehensive income attributable to the Company's stockholders

 $19,484  $14,959 
         

Earnings per share attributable to the Company's stockholders:

        

Basic:

  0.33   0.27 

Diluted:

  0.33   0.27 

Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders:

        

Basic

  56,063   55,988 

Diluted

  56,366   56,735 

 

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

 
                  

Accumulated

             
          

Additional

      

Other

             
  

Common Stock

  

Paid-in

  

Retained

  

Comprehensive

      

Noncontrolling

  

Total

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Total

  

Interest

  

Equity

 
  

(Dollars in thousands, except per share data)

 

Balance at December 31, 2020

  55,983  $56  $1,262,446  $550,103  $(6,620) $1,805,985  $135,452  $1,941,437 

Stock-based compensation

        2,097         2,097      2,097 

Exercise of stock-based awards by employees and directors (*)

  1                      

Stock issuance costs reimbursement

        285         285      285 

Cash paid to noncontrolling interest

                    (3,898)  (3,898)

Cash dividend declared, $0.12 per share

           (6,718)     (6,718)     (6,718)

Net income

           15,259      15,259   2,290   17,549 

Other comprehensive income (loss), net of related taxes:

                                

Change in foreign currency translation adjustments

              (1,253)  (1,253)  (573)  (1,826)

Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment that qualifies as a cash flow hedge

              3,755   3,755      3,755 

Change in unrealized gains or losses in respect of a cross currency swap derivative instrument that qualifies as a cash flow hedge

              (2,798)  (2,798)     (2,798)

Other

              16   16      16 

Change in unrealized gains (losses) in respect of investment in marketable securities (net of related tax of $0)

              (20)  (20)     (20)

Balance at March 31, 2021

  55,984  $56  $1,264,828  $558,644  $(6,920) $1,816,608  $133,271  $1,949,879 
                                 
                                 

Balance at December 31, 2021

  56,056  $56  $1,271,925  $585,209  $(2,191) $1,854,999  $143,462  $1,998,461 

Stock-based compensation

        2,814         2,814      2,814 

Exercise of stock-based awards by employees and directors

  16      99         99      99 

Cash paid to noncontrolling interest

                    (3,088)  (3,088)

Cash dividend declared, $0.12 per share

           (6,727)     (6,727)     (6,727)

Net income

           18,430      18,430   4,105   22,535 

Other comprehensive income (loss), net of related taxes:

                                

Change in foreign currency translation adjustments

              (857)  (857)  (299)  (1,156)

Change in unrealized gains or losses in respect of the Company's share in derivative instruments of unconsolidated investment that qualifies as a cash flow hedge

              3,902   3,902      3,902 

Change in unrealized gains or losses in respect of a cross currency swap derivative instrument that qualifies as a cash flow hedge

              (1,905)  (1,905)     (1,905)

Change in unrealized gains (losses) in respect of investment in marketable securities (net of related tax of $0)

              (101)  (101)     (101)

Other

              15   15      15 

Balance at March 31,2022

  56,072  $56  $1,274,838  $596,912  $(1,137) $1,870,669  $144,180  $2,014,849 

 

(*) Resulted in an amount lower than $1 thousand.

 

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

 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited) 

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

(Dollars in thousands)

 

Cash flows from operating activities:

        

Net income

 $22,793  $17,829 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

  48,108   42,100 

Accretion of asset retirement obligation

  1,230   955 

Stock-based compensation

  2,814   2,097 

Income attributable to sale of tax benefits, net of interest expense

  (4,603)  (4,245)

Equity in earnings of investees

  (577)  (542)

Mark-to-market of derivative instruments

  277   2,086 

Disposal of property, plant and equipment

  (109)  91 

Write-off of Storage projects and assets

  1,826    

Loss (gain) on severance pay fund asset

  161   358 

Deferred income tax provision

  2,805   (83)

Liability for unrecognized tax benefits

  304   1,124 

Other

  328    

Changes in operating assets and liabilities, net of businesses acquired:

        

Receivables

  5,127   8,856 

Costs and estimated earnings in excess of billings on uncompleted contracts

  (1,830)  3,668 

Inventories

  (4,443)  (3,087)

Prepaid expenses and other

  (7,179)  (7,259)

Change in operating lease right of use asset

  692   658 

Deposits and other

  839   92 

Accounts payable and accrued expenses

  13,082   3,794 

Billings in excess of costs and estimated earnings on uncompleted contracts

  1,716   1,507 

Liabilities for severance pay

  (142)  (547)

Change in operating lease liabilities

  (547)  (493)

Other long-term liabilities

  (896)  (35)

Net cash provided by operating activities

  81,776   68,924 

Cash flows from investing activities:

        

Purchase of marketable securities

  (19,192)  (27,755)

Maturities of marketable securities

  19,290    

Capital expenditures

  (137,246)  (87,896)

Investment in unconsolidated companies

  (2,157)  (2,005)

Decrease (increase) in severance pay fund asset, net of payments made to retired employees

  (27)  182 

Net cash used in investing activities

  (139,332)  (117,474)

Cash flows from financing activities:

        

Proceeds from exercise of options by employees

  99    

Cash received from noncontrolling interest

  5,443   5,390 

Repayments of long-term debt

  (39,058)  (16,573)

Stock issuance costs reimbursement

     285 

Cash paid to noncontrolling interest

  (3,374)  (4,197)

Payments under finance lease obligations

  (828)  (764)

Deferred debt issuance costs

  (276)  (230)

Cash dividends paid

  (6,727)  (6,718)

Net cash used in financing activities

  (44,721)  (22,807)

Effect of exchange rate changes

  (34)  (342)

Net change in cash and cash equivalents and restricted cash and cash equivalents

  (102,311)  (71,699)

Cash and cash equivalents and restricted cash and cash equivalents at beginning of period

  343,444   536,778 

Cash and cash equivalents and restricted cash and cash equivalents at end of period

 $241,133  $465,079 

Supplemental non-cash investing and financing activities:

        

Increase (decrease) in accounts payable related to purchases of property, plant and equipment

 $8,448  $(8,732)

Right of use assets obtained in exchange for new lease liabilities

 $1,313  $467 

 

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 condensed consolidated financial position as of March 31, 2022, the condensed consolidated statements of operations and comprehensive income and the condensed consolidated statements of equity for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021.

 

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 periods presented are not necessarily indicative of the results to be expected for the year.

 

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 for the year ended December 31, 2021. The condensed consolidated balance sheet data as of December 31, 2021 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2021 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.

 

Heber 1 fire

 

The Company's 40 MW Heber 1 geothermal power plant located in California is experiencing an outage following a fire on February 25, 2022 that caused damage primarily to the steam turbine-generator area. The Heber 1 power plant is part of the 81 MW Heber complex and sells its electricity under a long-term contract with the Southern California Public Power Authority. The Company is still evaluating the cost and the time to restore all or part of the Heber 1 power plants back to operation. In mid- April, the Company gradually re-started operation of the binary units and the Heber 1 power plant is currently running at approximately 20 MW.

 

The Company holds a business interruption insurance subject to a 45-day deductible period in addition to property damage insurance with customary deductibles and is working with insurers to collect under those policies. At this stage, the Company believes the insurance proceeds from the property damage will exceed the net book value of the damaged property. As the Company expects that its property insurance policy will cover the full amount of the loss related to the damaged equipment, it recorded a receivable for such recovery to fully offset the loss related to the equipment write-off in the same financial statements line item in the condensed consolidated financial statements.

 

COVID-19 consideration

 

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Since that time and through the date of this quarterly report, we have implemented significant measures and continue to make efforts in order to meet government requirements and preserve the health and safety of its employees. Our preventative measures against COVID-19 and the recent spread of variant strains include working remotely when needed and adopting separate shifts in its power plants, manufacturing facilities and other locations while working to continue operations at close to full capacity in all locations. Since the end of the second quarter of 2021, we have experienced an easing of government restrictions in a number of countries, including Israel, but uncertainty around the impact of COVID-19 continues. We have not laid-off or furloughed any employees due to COVID-19 and have continued to pay full salaries. In addition, the Company focused efforts on adjusting its operations to mitigate the impact of COVID-19 including managing its global supply chain risks and enhancing its liquidity profile. As most of the Company's electricity revenues are generated under long term contracts, the majority of which are under a fixed energy rate, the impact of COVID-19 on electricity revenues was limited.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

In the Product segment, the Company experienced a significant decline in product backlog, which it believes resulted mainly due to the impact of COVID-19 outbreaks, which resulted in the extended shutdown of certain businesses in certain regions, delays in the supply and increases in the cost of raw materials and components that we purchased for our equipment manufacturing, and increases in the cost of marine transportation. The cost increases limited our ability to secure new purchase orders from potential customers and led to a reduction in our operating margins, which in turn negatively impacted our profitability.

 

In the Energy Storage segment, revenues are generated primarily from participating in the energy and ancillary services markets and therefore are directly impacted by the prevailing energy prices in those markets. We have experienced and are experiencing supply chain difficulties, as well as an increase in the cost of raw materials and batteries, which may impact our ability to complete the projects on time, and increases overall project costs.

 

While the extent and duration of the economic downturn from the COVID-19 pandemic remains unclear, the Company has considered, among other things, whether the global operational disruptions indicate a change in circumstances that may trigger asset impairments and whether it needs to revisit accounting estimates and projections or its expectations about collectability of receivables. Additionally, the Company has considered the potential impacts on its fair value disclosures and on its internal control over financial reporting and while significant uncertainty still exists concerning the magnitude of the impact and duration of the COVID-19 pandemic on the global economy, the Company has determined that there was no triggering event for an impairment with respect to any of its assets nor has there been an adverse change in the probability related to the collectability of its receivables. The Company continues to assess the potential impact of the global economic situation on its consolidated financial statements.

 

Write-offs of unsuccessful exploration activities

 

There were no write-offs of unsuccessful exploration activities for the three months ended March 31, 2022 and 2021.

 

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 as reported on the balance sheet to the total of the same amounts shown on the statement of cash flows:

 

  

March 31,

  

December 31,

  

March 31,

 
  

2022

  

2021

  

2021

 
  

(Dollars in thousands)

 

Cash and cash equivalents

 $130,006  $239,278  $376,630 

Restricted cash and cash equivalents

  111,127   104,166   88,449 

Total Cash and cash equivalents and restricted cash and cash equivalents

 $241,133  $343,444  $465,079 

 

 

Concentration of credit risk

 

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

 

The Company places its temporary cash investments with high credit quality financial institutions located in the United States (“U.S.”) and in foreign countries. At March 31, 2022 and December 31, 2021, the Company had deposits totaling $31.8 million and $31.0 million, respectively, in ten U.S. financial institutions that were federally insured up to $250,000 per account. At March 31, 2022 and December 31, 2021, the Company’s deposits in foreign countries amounted to approximately $82.8 million and $64.3 million, respectively.

 

At March 31, 2022 and December 31, 2021, accounts receivable related to operations in foreign countries amounted to approximately $76.8 million and $77.5 million, respectively. At March 31, 2022 and December 31, 2021, accounts receivable from the Company’s primary customers, which each accounted for revenues in excess of 10% of total consolidated revenues for the related period, amounted to approximately 54% and 58% of the Company’s trade receivables, respectively.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

The Company's revenues from its primary customers as a percentage of total revenues are as follows:

 

  

Three Months Ended

March 31,

 
  

2022

  

2021

 

Sierra Pacific Power Company and Nevada Power Company

  19.5%  21.4%

Southern California Public Power Authority (“SCPPA”)

  21.9   24.9 

Kenya Power and Lighting Co. Ltd. ("KPLC")

  14.1   15.6 

 

The Company has historically been able to collect on substantially all of its receivable balances. As of March 31, 2022, the amount overdue from KPLC in Kenya was $19.8 million of which $9.4 million was paid in April 2022. The Company believes it will be able to collect all past due amounts in Kenya. This belief is supported by the fact that in addition to KPLC's obligations under its power purchase agreement, the Company holds a support letter from the Government of Kenya that covers certain cases of KPLC non-payment (such as where caused by government actions and or political events).

 

In Honduras, as of March 31, 2022, the total amount overdue from Empresa Nacional de Energía Eléctrica ("ENEE") was $20.5 million of which $4.8 million was received in April 2022. In addition, due to continuing restrictive measures related to the COVID-19 pandemic in Honduras, the Company may experience further delays in collection. The Company believes it will be able to collect all past due amounts in Honduras.

 

The Company may experience delays in collection in other locations due to the restrictive measures related to the COVID-19 pandemic which were imposed globally to different extents.

 

See Note 4 - Marketable Securities and under the caption "Marketable Securities" below for additional information regarding investment in marketable securities.

 

Allowance for credit losses

 

The Company performs an analysis of potential credit losses related to its financial instruments that are within the scope of ASU 2018-19, Codification Improvements to Topic 325, Financial Instruments – Credit Losses, primarily cash and cash equivalents, restricted cash and cash equivalents, investment in marketable securities, receivables (excluding those accounted under lease accounting) and costs and estimated earnings in excess of billings on uncompleted contracts, based on classes of financing receivables which share the same or similar risk characteristics, such as customer type and geographic location, among others. The Company estimates the expected credit losses for each class of financing receivables by applying the related corporate default rate which corresponds to the credit rating of the specific customer or class of financing receivables. For trade receivables, the Company applied this methodology using aging schedules reflecting how long the receivables have been outstanding. The Company has also considered the existence of credit enhancement arrangements that may mitigate the credit risk of its financial receivables in estimating the applicable corporate default rate. While significant uncertainty still exists concerning the magnitude of the impact and duration of the COVID-19 pandemic on the global economy, the Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

 

The following table describes the changes in the allowance for expected credit losses for the three months ended March 31, 2022 and 2021 (all related to trade receivables):

 

  

Three Months Ended

March 31,

 
  

2022

  

2021

 
  

(Dollars in thousands)

 

Beginning balance of the allowance for expected credit losses

 $90  $597 

Change in the provision for expected credit losses for the period

      

Ending balance of the allowance for expected credit losses

 $90  $597 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Revenues from contracts with customers

 

Contract assets related to our Product segment reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities related to the Company's Product segment reflect payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based on the terms established in the contracts. Total contract assets and contract liabilities as of March 31, 2022 and December 31, 2021 are as follows:

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 
  

(Dollars in thousands)

 

Contract assets (*)

 $11,522  $9,692 

Contract liabilities (*)

 $(10,964) $(9,248)

 

 

(*) 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 condensed consolidated balance sheets. The contract liabilities balance at the beginning of the year was not yet fully recognized as product revenues during the three months ended March 31, 2022 as a result of performance obligations having not been fully satisfied yet.

 

On March 31, 2022, the Company had approximately $45.7 million of remaining performance obligations not yet satisfied or partly satisfied related to our Product segment. The Company expects to recognize approximately 100% of this amount as Product revenues during the next 24 months.

 

Disaggregated revenues from contracts with customers for the three months ended March 31, 2022 and 2021 are disclosed under Note 9 - Business Segments, to the condensed consolidated financial statements.

 

Leases in which the Company is a lessor

 

The table below presents lease income recognized as a lessor:

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

(Dollars in thousands)

 

Lease income relating to lease payments from operating leases

 $139,681  $125,746 

 

Marketable securities

 

The Company’s investments in marketable securities consist of debt securities with maturity of up to one year and a high credit rating. The investments in marketable securities are classified as available-for-sale ("AFS") and thus measured at fair value based on quoted market prices. Unrealized gains and losses from AFS debt securities are excluded from earnings and reported net of the related tax effect in "Accumulated other comprehensive income (loss)". Realized gains and losses from sale of marketable securities, as determined on a specific identification basis, as well as interest income earned, are included in earnings. The Company considers available evidence in evaluating potential impairments of its investments, including credit market conditions, credit ratings of the security as well as the extent to which fair value is less than amortized cost. The Company estimates the lifetime expected credit losses for all AFS debt securities in an unrealized loss position under its allowance for credit losses model. The Company assesses the security’s credit indicators, including credit ratings when estimating a security’s probability of default. If the assessment indicates that an expected credit loss exists, the Company determines the portion of the unrealized loss attributable to credit deterioration and records an allowance for the expected credit loss in earnings. Unrealized gains and losses attributable to non-credit factors are recorded in "Accumulated other comprehensive income (loss)", net of tax. Marketable debt securities with original maturities of three months or less that are readily convertible into a known amount of cash are presented under "Cash and cash equivalents" in the condensed consolidated balance sheets.

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

Derivative instruments

 

Derivative instruments (including certain derivative instruments embedded in other contracts) are measured at their fair value and recorded as either assets or liabilities unless exempted from derivative treatment as a normal purchase and sale. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings. Changes in the fair value of derivatives designated as cash flow hedging instruments are initially recorded in "Other comprehensive income (loss)" and a corresponding amount is reclassified out of "Accumulated other comprehensive income (loss)" to earnings to offset the remeasurement of the underlying hedge transaction which also impacts the same line item in the consolidated statements of operations and comprehensive income.

 

The Company maintains a risk management strategy that may incorporate the use of swap contracts, put options, forward exchange contracts, interest rate swaps, and cross-currency swaps to minimize significant fluctuation in cash flows and/or earnings that are caused by oil and natural gas prices, exchange rate or interest rate volatility.

 

 

 

 

NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS

 

New accounting pronouncements effective in the three months ended March 31, 2022

 

There are no new applicable significant accounting pronouncements effective in this period.

 

New accounting pronouncements effective in future periods

 

Revenue Contracts Acquired in a Business Combination

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). ASU 2021-08 is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing the following topics: (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity that is the acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 at the acquisition date as if it had originated the contracts. The amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not anticipate the adoption of ASU 2021-08 will have a material impact on its consolidated financial statements.

 

 

 

 

NOTE 3 INVENTORIES

 

Inventories consist of the following:

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 
  

(Dollars in thousands)

 

Raw materials and purchased parts for assembly

 $12,906  $11,539 

Self-manufactured assembly parts and finished products

  19,982   16,906 

Total inventories

 $32,888  $28,445 

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

 

NOTE 4 MARKETABLE SECURITIES

 

Marketable securities are presented at fair value and include investments in debt securities classified as available for sale. All marketable securities have maturities of less than a year. Investment in marketable securities is comprised of the following:

 

  

March 31, 2022

  

December 31, 2021

 
  

Amortized

cost

  

Gross

unrealized

gains

  

Gross

unrealized

losses

  

Fair

value

  

Amortized

cost

  

Gross

unrealized

gains

  

Gross

unrealized

losses

  

Fair

value

 
  

(Dollars in thousands)

  

(Dollars in thousands)

 

Debt security type:

                                

Corporate bonds

 $31,002  $  $(127) $31,043  $32,302  $  $(36) $32,529 

Commercial paper

  9,375         9,375   8,891         8,891 

Money market funds

  4,049         4,049   3,686         3,686 

Foreign issuers

  1,010      (11)  1,005   1,920      (4)  1,923 

Municipal bonds

  1,497      (4)  1,504             

Total debt securities available for sale

 $46,933  $  $(142) $46,976  $46,799  $  $(40) $47,029 

 

As of March 31, 2022 and December 31, 2021, approximately $4.0 million and $3.7 million of debt securities, respectively, were classified under "Cash and cash equivalents" in the condensed consolidated balance sheets as they met all applicable classification criteria.

 

The following table summarizes the fair value and gross unrealized losses of debt securities with unrealized losses aggregated by security type and length of time that the fair value had been below amortized cost, on an individual security basis:

 

  

March 31, 2022

  

December 31, 2021

 
  

Less than 12 months

  

Greater than 12

months

  

Less than 12 months

  

Greater than 12

months

 
  

Fair value

  

Gross

unrealized

loss

  

Fair value

  

Gross

unrealized

loss

  

Fair value

  

Gross

unrealized

loss

  

Fair value

  

Gross

unrealized

loss

 
  

(Dollars in thousands)

  

(Dollars in thousands)

 

Debt security type:

                                

Corporate bonds

 $31,043  $(127) $  $  $32,529  $(36) $  $ 

Commercial paper

  9,375            8,891          

Money market funds

  4,049            3,686          

Foreign issuers

  1,005   (11)        1,923   (4)      

Municipal bonds

  1,504   (4)                  

Total debt securities available for sale

 $46,976  $(142) $  $  $47,029  $(40) $  $ 

 

 

There were no sales of investments in debt securities during the three months ended March 31, 2022 and the year ended December 31, 2021.

 

 

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, 2022 and December 31, 2021 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.

 

      

March 31, 2022

 
      

Fair Value

 
  

Carrying

Value at

March 31,

2022

  

Total

  

Level 1

  

Level 2

  

Level 3

 
  

(Dollars in thousands)

 

Assets:

                    

Current assets:

                    

Cash equivalents (including restricted cash accounts)

 $31,453  $31,453  $31,453  $  $ 

Marketable securities (including cash equivalents)

  46,976   46,976   46,976       

Derivatives:

                    

Cross currency swap (3)

  569   569      569    

Currency forward contracts (2)

  536   536      536    

Long-term Assets:

                    

Cross currency swap (3)

  30,188   30,188      30,188    

Liabilities:

                    

Long term liabilities:

                    

Contingent payables (1)

  (2,385)  (2,385)        (2,385)
  $107,337  $107,337  $78,429  $31,293  $(2,385)

 

 

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

 

      

December 31, 2021

 
      

Fair Value

 
  

Carrying

Value at

December 31,

2021

  

Total

  

Level 1

  

Level 2

  

Level 3

 
  

(Dollars in thousands)

 

Assets

                    

Current assets:

                    

Cash equivalents (including restricted cash accounts)

 $31,675  $31,675  $31,675  $  $ 

Marketable securities

  47,029   47,029   47,029       

Derivatives: