NOTE

—BUSINESS ACQUISITIONS AND OTHERS

USG transaction

April 24, 2018,

the Company completed the acquisition of USG. The total cash consideration (exclusive of transaction expenses) was approximately

$110

million, comprised of approximately

$106

million funded from available cash of Ormat Nevada Inc. (to acquire the outstanding shares of common stock of USG) and approximately

million funded from available cash of USG (to cash-settle outstanding in-the-money options for common stock of USG). As a result of the acquisition, USG became an indirect wholly owned subsidiary of Ormat, and Ormat indirectly acquired, among other things, interests held by USG and its subsidiaries in:

•

three

operating power plants at Neal Hot Springs, Oregon; San Emidio, Nevada; and Raft River, Idaho with a total net generating capacity of approximately

MW; and

• development assets which include a project at the Geysers, California; a

second

phase project at San Emidio, Nevada; a greenfield project in Crescent Valley, Nevada; and the El Ceibillo project located near Guatemala City, Guatemala.

As a result of the acquisition, the Company expanded its overall generation capacity and expects to improve the profitability of the purchased assets through cost reduction and synergies. The Company accounted for the transaction in accordance with Accounting Standard Codification ASC

805,

Business Combinations and following the transaction, the Company consolidates USG, in accordance with Accounting Standard Codification ASC

810,

Consolidation. Accounting guidance provides that the allocation of the purchase price

may

be modified for up to

one

year from the date of the acquisition to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. The Company deemed that the adoption of ASU

2017

01,

Business Combinations, as further described under Note

to the consolidated financial statements, did

not

have an effect on the USG transaction.

The following table summarizes the purchase price allocation to the fair value of the assets acquired and liabilities assumed (in millions):

Cash and cash equivalents and restricted cash	$	37.9
Property, plant and equipment and construction-in-process		77.3
Intangible assets (1)		127.0
Goodwill (2)		12.7
Deferred taxes		1.7
Total assets acquired	$	256.6

Other working capital	$	(8.2	)
Long-term term debt		(98.3	)
Asset retirement obligation		(9.0	)
Noncontrolling interest		(34.9	)
Total liabilities assumed	$	(150.4	)

Total assets acquired, and liabilities assumed, net	$	106.2

	( 1 )	Intangible assets are primarily related to long-term electricity power purchase agreements and depreciated over an average of 19 years.
	( 2 )	Goodwill is primarily related to the expected synergies in operations as a result of the purchase transaction. The goodwill is allocated to the Electricity segment and not deductible for tax purposes.

The fair value of the noncontrolling interest of

$34.9

million reflects the

40%

minority interests in the Neal Hot Springs project that was evaluated using the income approach. The fair value of the noncontrolling interest is based on the following significant inputs: (i) forecasted cash flows assumed to be generated in correspondence with the remaining life of the related power purchase agreement which is approximately

years; (ii) revenues were estimated in accordance with the price and generation capacity of the related power purchase agreement; (iii) assumed terminal value based on the realizable value of the project at the end of the power purchase agreement term; and (iv) assumed discount rate of approximately

9%.

Total Electricity revenues and operating profit related to the

three

USG power plants of approximately

$21.4

million and

$2.5

million, respectively, for the period started at the acquisition date to

December 31, 2018

were included in the Company’s consolidated statements of operations and comprehensive income for the year ended

December 31, 2018.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on

January 1, 2017:

	Pro forma for the year ended December 31, 2018		Pro forma for the year ended December 31, 2017
	(Dollars in thousands)
Electricity revenues	$	521,175	$	497,650
Total revenues		730,563		724,869
Income from continuing operations before income taxes and equity in losses of investees		134,142		169,546

Viridity transaction

March 15, 2017,

the Company completed the acquisition of substantially all of the business and assets of Viridity Energy, Inc., a privately held Philadelphia-based company formerly engaged in the provision of demand response, energy management and energy storage services. At closing, Viridity Energy Solutions Inc. (“Viridity”), a wholly owned subsidiary of the Company, paid initial consideration of

$35.3

million. Additional contingent consideration with an estimated fair value of

$12.4

million was set upon the achievement of certain performance milestones to be measured at the end of fiscal years

2017

and

2020.

The

first

performance milestone measured at the end of

2017

was

not

achieved and as a result, the Company reversed the related contingent consideration in the amount of

$0.6

million which was recorded under general and administrative expenses. Additionally, as of

December 31, 2018,

the Company estimated that the

second

milestone to be measured at the end of fiscal year

2020

will

not

be achieved and consequently reversed the related contingent consideration in the amount of

$10.3

million. The reversal of the contingent liability was recorded under general and administrative expenses for the year ended

December 31, 2018.

Using proprietary software and solutions, Viridity serves primarily retail energy providers, utilities, and large commercial and industrial customers. Viridity’s offerings enable its customers to optimize and monetize their energy management, demand response and storage facilities potential by interacting on their behalf with regional transmission organizations and independent system operators.

The Company accounted for the transaction in accordance with Accounting Standard Codification

805,

Business Combinations, and consequently recorded intangible assets of

$34.7

million primarily relating to Viridity’s storage activities with a weighted-average amortization period of

years, approximately

$0.4

million of working capital and fixed assets and

$13.5

million of goodwill. Following the transaction, the Company consolidated Viridity in accordance with Accounting Standard Codification

810,

Consolidation. The acquisition enabled the Company to enter the growing energy storage and demand response markets and expand its market presence.

During the

fourth

quarter of

2018,

the Company recorded an impairment charge for the full amount of goodwill associated with its storage and energy management services in its consolidated statements of operations and comprehensive income (loss). Further information related to this impairment charge is disclosed in Note

– “Intangible assets and goodwill” to the consolidated financial statements.