UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
or
| o | 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: 0-24143
RIDGEWOOD ELECTRIC POWER TRUST V
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 22-3437351 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification Number) |
| 1314 King Street, Wilmington, Delaware | 19801 | |
| (Address of Principal Executive Offices) | (Zip Code) |
| (302) 888-7444 | ||
| (Registrant’s telephone number, including area code) |
| Not Applicable | ||
| (Former name, former address and former fiscal year, if changed since last report) |
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
60; (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of June 30, 2008, there were 932.8877 Investor Shares outstanding.
FORM 10-Q
TABLE OF CONTENTS
| Page | |||
| 1 | |||
| 10 | |||
| 11 | |||
| 11 | |||
| 12 | |||
| 12 | |||
| 12 | |||
| 12 | |||
| 12 | |||
| 12 | |||
| 12 | |||
| 13 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| RIDGEWOOD ELECTRIC POWER TRUST V | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (in thousands, except share data) | ||||||||
| June 30, | December 31, | |||||||
| 2008 | 2007 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,589 | $ | 6,892 | ||||
| Due from affiliates | 1,078 | 1,173 | ||||||
| Prepaid expenses and other current assets | 14 | 32 | ||||||
| Total current assets | 5,681 | 8,097 | ||||||
| Notes receivable, affiliates | 5,465 | 5,263 | ||||||
| Investments | 10,456 | 9,396 | ||||||
| Other assets | 285 | 285 | ||||||
| Total assets | $ | 21,887 | $ | 23,041 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 39 | $ | 144 | ||||
| Due to affiliates | 400 | 325 | ||||||
| Total current liabilities | 439 | 469 | ||||||
| Minority interest | 277 | 277 | ||||||
| Total liabilities | 716 | 746 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity (deficit): | ||||||||
| Shareholders’ equity (932.8877 Investor Shares issued | ||||||||
| and outstanding) | 21,824 | 22,951 | ||||||
| Managing Shareholder’s accumulated deficit | ||||||||
| (1 management share issued and outstanding) | (653 | ) | (656 | ) | ||||
| Total shareholders’ equity | 21,171 | 22,295 | ||||||
| Total liabilities and shareholders’ equity | $ | 21,887 | $ | 23,041 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RIDGEWOOD ELECTRIC POWER TRUST V | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| AND COMPREHENSIVE (LOSS) INCOME | ||||||||||||||||
| (unaudited, in thousands, except per share data) | ||||||||||||||||
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | $ | 908 | $ | 850 | $ | 221 | $ | 254 | ||||||||
| Management fee to Managing Shareholder | 1,166 | 1,166 | 583 | 583 | ||||||||||||
| Total operating expenses | 2,074 | 2,016 | 804 | 837 | ||||||||||||
| Loss from operations | (2,074 | ) | (2,016 | ) | (804 | ) | (837 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Equity in income of Maine Hydro | 850 | 548 | 313 | 320 | ||||||||||||
| Equity in income of Indeck Maine | 524 | 448 | 616 | 261 | ||||||||||||
| Equity in income of NEH | 61 | 5 | 70 | 57 | ||||||||||||
| Equity in income of US Hydro | 131 | 167 | 100 | 53 | ||||||||||||
| Interest income, affiliates | 264 | 392 | 120 | 245 | ||||||||||||
| Interest expense | - | (14 | ) | - | (5 | ) | ||||||||||
| Other expense | - | (25 | ) | - | (25 | ) | ||||||||||
| Total other income, net | 1,830 | 1,521 | 1,219 | 906 | ||||||||||||
| (Loss) income before discontinued operations | (244 | ) | (495 | ) | 415 | 69 | ||||||||||
| Income (loss) from discontinued operations including related gain on | ||||||||||||||||
| disposal (see Note 3), net of income tax and minority interest | - | 38,687 | - | (116 | ) | |||||||||||
| Net (loss) income | (244 | ) | 38,192 | 415 | (47 | ) | ||||||||||
| Foreign currency translation adjustment | 53 | (1,074 | ) | 24 | 4 | |||||||||||
| Comprehensive (loss) income | $ | (191 | ) | $ | 37,118 | $ | 439 | $ | (43 | ) | ||||||
| Managing Shareholder - Net (loss) income | $ | (2 | ) | $ | (3 | ) | $ | 4 | $ | - | ||||||
| Shareholder - Net (loss) income: | ||||||||||||||||
| Continuing operations | $ | (242 | ) | $ | (490 | ) | $ | 411 | $ | 68 | ||||||
| Discontinued operations | - | 38,685 | - | (115 | ) | |||||||||||
| Net (loss) income per Investor Share: | ||||||||||||||||
| Continuing operations | $ | (259 | ) | $ | (525 | ) | $ | 440 | $ | 73 | ||||||
| Discontinued operations | - | 41,468 | - | (123 | ) | |||||||||||
| Distributions per Investor Share | $ | 1,500 | $ | 29,500 | $ | 750 | $ | - | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RIDGEWOOD ELECTRIC POWER TRUST V | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (unaudited, in thousands) | ||||||||
| Six Months Ended June 30, | ||||||||
| 2008 | 2007 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (244 | ) | $ | 38,192 | |||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | - | 583 | ||||||
| Forgiveness of unpaid and accrued interest on management fees | - | 597 | ||||||
| Gain on disposal of discontinued operations | - | (54,979 | ) | |||||
| Amortization of deferred financing costs | - | 18 | ||||||
| Interest income on notes receivable | (202 | ) | (202 | ) | ||||
| Minority interest in the earnings of subsidiaries | - | 16,514 | ||||||
| Deferred income taxes | - | (29 | ) | |||||
| Restricted cash | - | 2,482 | ||||||
| Equity interest in income of: | ||||||||
| Maine Hydro | (850 | ) | (548 | ) | ||||
| Indeck Maine | (524 | ) | (448 | ) | ||||
| NEH | (61 | ) | (5 | ) | ||||
| US Hydro | (131 | ) | (167 | ) | ||||
| Cash distributions from Maine Hydro | 850 | 350 | ||||||
| Cash distributions from US Hydro | 175 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | - | (424 | ) | |||||
| Unbilled receivables | - | 1,441 | ||||||
| Inventory | - | (61 | ) | |||||
| Prepaid expenses and other current assets | 18 | (200 | ) | |||||
| Accounts payable | - | (124 | ) | |||||
| Accrued expenses | (104 | ) | 3,119 | |||||
| Due to/from affiliates, net | 170 | 1,796 | ||||||
| Other liabilities | - | (478 | ) | |||||
| Total adjustments | (659 | ) | (30,765 | ) | ||||
| Net cash (used in) provided by operating activities | (903 | ) | 7,427 | |||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | - | (312 | ) | |||||
| Proceeds from disposal of discontinued operations, net of cash transferred | - | 67,965 | ||||||
| Net cash provided by investing activities | - | 67,653 | ||||||
| Cash flows from financing activities: | ||||||||
| Repayments of long-term debt | - | (19,270 | ) | |||||
| Repayments of line of credit facility | - | (2,349 | ) | |||||
| Repayments of capital lease obligations | - | (818 | ) | |||||
| Cash distributions to minority interest | - | (15,674 | ) | |||||
| Cash distributions to shareholders | (1,400 | ) | (27,525 | ) | ||||
| Net cash used in financing activities | (1,400 | ) | (65,636 | ) | ||||
| Effect of exchange rate on cash and cash equivalents | - | (21 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | (2,303 | ) | 9,423 | |||||
| Cash and cash equivalents, beginning of period | 6,892 | 398 | ||||||
| Cash and cash equivalents, end of period | $ | 4,589 | $ | 9,821 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
RIDGEWOOD ELECTRIC POWER TRUST V
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited, dollar amounts in thousands )
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules. These condensed consolidated financial statements should be read in conjunction with the Ridgewood Electric Power Trust V (the “Trust”) Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 26, 2008 (the “2007 Form 10-K”). No significant changes have been made to the Trust’s accounting policies and estimates disclosed in its 2007 Form 10-K.
In the opinion of management, the condensed consolidated financial statements as of June 30, 2008 and for the six and three months ended June 30, 2008 and 2007, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for the six and three months ended June 30, 2008 and 2007 are not necessarily indicative of the results to be expected for the full year or any other period.
2. DESCRIPTION OF BUSINESS
The Trust is a Delaware trust formed in March 1996. The Trust began offering shares in April 1996 and concluded its offering in April 1998. The objective of the Trust is to provide benefits to its shareholders through a combination of distributions of operating cash flow and capital appreciation. The Managing Shareholder of the Trust is Ridgewood Renewable Power LLC (“RRP” or the “Managing Shareholder”). The Trust has been organized to invest primarily in independent power generation facilities, water desalinization plants and other infrastructure projects both in the US and abroad. The projects owned by the Trust have characteristics that qualify the projects for government incentives.
The Trust’s accompanying condensed consolidated financial statements include the accounts of the Trust and its majority-owned subsidiary – Ridgewood UK, LLC (“RUK”). The Trust’s condensed consolidated financial statements also include the Trust’s 29.2% interest in Ridgewood US Hydro Corporation (“US Hydro”), 14.1% interest in Ridgewood Near East Holdings, LLC (“NEH”), 50% interest in Ridgewood Maine Hydro Partners, L.P. (“Maine Hydro”) and 25% interest in Indeck Maine Energy, L.L.C. (“Indeck Maine”), which are accounted for under the equity method of accounting as the Trust has the ability to exercise significant influence but does not control the operating and financial policies of these entities. RUK previously owned landfill gas fired electric projects located in the United Kingdom, which were sold in February 2007. The operating results of RUK are presented as discontinued operations (see Note 3).
The Trust owns a 69.6% interest in RUK and the remaining 30.4% minority interest is owned by The Ridgewood Power Growth Fund (the “Growth Fund”). The interest of the Growth Fund is presented as minority interest in the condensed consolidated financial statements.
The Managing Shareholder announced that it intends to market NEH’s assets, Indeck Maine, Maine Hydro and US Hydro for sale. These assets represent the remaining investments of the Trust. On June 5, 2008, NEH entered into a sale and purchase agreement pursuant to which NEH will sell its contractual and legal interest in the operating assets of NEH subject to various closing conditions, including approval of shareholders of the Trust, Growth Fund and Ridgewood/Egypt Fund. A summary of the terms and conditions of the sale has been filed on a Current Report on Form 8-K filed with the SEC on June 13, 2008. There can be no assurance that any such sales will occur. These assets did not meet the qualifications to be classified as “held for sale” at June 30, 2008.
RIDGEWOOD ELECTRIC POWER TRUST V
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited, dollar amounts in thousands )
3. DISCONTINUED OPERATIONS
On February 22, 2007, RUK completed the sale of all of the issued and outstanding shares of CLPE Holdings Limited (“CLP”) to MEIF LG Energy Limited as part of a sale agreement dated January 23, 2007. Concurrent with the sale, RUK and affiliated entities terminated certain sharing agreements amongst themselves. Financial information relating to RUK, including the gain recognized from the sale of CLP and the termination of the sharing agreements, for the six and three months ended June 30, 2007 were as follows:
Six Months Ended | Three Months Ended | |||||||
| June 30,2007 | June 30,2007 | |||||||
| Revenue from operations of discontinued business | $ | 7,552 | $ | - | ||||
| Income (loss) from operations of discontinued business | $ | 193 | $ | (135) | ||||
| Gain on disposal | 54,979 | - | ||||||
| Income tax benefit | 29 | - | ||||||
| Minority interest in the (earnings) loss of subsidiaries | (16,514 | ) | 19 | |||||
| Income (loss) from discontinued operations | $ | 38,687 | $ | (116) | ||||
The gain on disposal represents proceeds, less transaction costs and the net asset value of CLP, plus the reversal of previously recorded foreign currency translation adjustments. The Managing Shareholder waived its right to receive its 1% of the distributions from these transactions. As a result, the gain from the sale and related cash distributions are allocated solely to Investor Shares.
4. RECENT ACCOUNTING PRONOUNCEMENTS
FIN 48
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. On February 1, 2008, the FASB issued FASB Staff Position FIN 48-2, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises, which deferred the effective date of FIN 48 for non-public companies to fiscal years beginning after December 15, 2007. The Trust has concluded that it is eligible for this deferral and therefore, FIN 48 will become effective for the Trust for the annual period beginning January 1, 2008. The Trust is currently evaluating the impact of adopting FIN 48 on its condensed consolidated financial statements.
SFAS 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles and expand disclosures about fair value measurements. SFAS 157 requires quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual periods. In February 2008, FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities for the Trust until January 1, 2009, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Trust adopted SFAS 157 for financial assets and financial liabilities effective January 1, 2008, with no material impact on its condensed consolidated financial statements. The Trust is currently evaluating the impact of adopting SFAS 157 for non-financial assets and non-financial liabilities on its condensed consolidated financial statements.
SFAS 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Trust adopted SFAS 159 effective January 1, 2008, with no material impact on its condensed consolidated financial statements.
RIDGEWOOD ELECTRIC POWER TRUST V
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited, dollar amounts in thousands )
SFAS 160
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements within equity, but separate from the parent’s equity. It also requires that, once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 will become effective for the Trust beginning January 1, 2009. The Trust is currently evaluating the impact of adopting SFAS 160 on its condensed consolidated financial statements.
SFAS 162
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Trust is currently evaluating the impact of adopting SFAS 162 on its condensed consolidated financial statements.
5. INVESTMENTS
Maine Hydro
Summarized statements of operations data for Maine Hydro for the six and three months ended June 30, 2008 and 2007 were as follows:
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Revenues | $ | 3,174 | $ | 2,735 | $ | 1,355 | $ | 1,521 | ||||||||
| Gross profit | 1,862 | 1,344 | 701 | 762 | ||||||||||||
| Income from operations | 1,699 | 1,096 | 626 | 640 | ||||||||||||
| Net income | 1,699 | 1,096 | 626 | 640 | ||||||||||||
| Trust share of income in Maine Hydro | 850 | 548 | 313 | 320 | ||||||||||||
Indeck Maine
Summarized statements of operations data for Indeck Maine for the six and three months ended June 30, 2008 and 2007 were as follows:
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Revenues | $ | 21,165 | $ | 18,329 | $ | 11,707 | $ | 9,194 | ||||||||
| Gross profit | 2,660 | 2,172 | 2,138 | 1,129 | ||||||||||||
| Income from operations | 2,075 | 1,909 | 1,749 | 1,013 | ||||||||||||
| Net income | 1,332 | 1,185 | 1,369 | 654 | ||||||||||||
| Trust share of income in Indeck Maine | 524 | 448 | 616 | 261 | ||||||||||||
RIDGEWOOD ELECTRIC POWER TRUST V
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited, dollar amounts in thousands )
During the second quarter of 2008, management fees due to Indeck’s board members totaling $933 was forgiven by the members. Indeck Maine has recorded this forgiveness as a capital contribution. The Trust and Trust IV have each recorded this forgiveness as a capital contribution of $467.
In accordance with the Indeck Maine operating agreement, losses and depreciation have been allocated to Indeck Energy Services, Inc. (“IES”) to the extent of it adjusted capital account balance. Prior year losses and depreciation, in excess of the amount allocated to IES, have been allocated equally between the Trust and Trust IV. In addition, profits are allocated equally between the Trust and Trust IV until the priority return from operations is received. As of June 30, 2008, the cumulative priority return was approximately $28,000.
The Trust assigned the excess purchase price over the net assets acquired to fixed assets. The Trust depreciates the fixed assets over their remaining useful lives using the unit of production method. Depreciation expense of $142 and $145 for the six months ended June 30, 2008 and 2007, respectively, and depreciation expense of $69 and $67 for the three months ended June 30, 2008 and 2007, respectively, was included in the equity income from Indeck Maine in the condensed consolidated statements of operations.
NEH
Summarized statements of operations data for NEH for the six and three months ended June 30, 2008 and 2007 were as follows:
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Revenues | $ | 5,541 | $ | 4,663 | $ | 3,152 | $ | 2,572 | ||||||||
| Gross profit | 1,934 | 1,715 | 1,191 | 1,020 | ||||||||||||
| Income from operations | 665 | 571 | 594 | 493 | ||||||||||||
| Net income | 431 | 35 | 493 | 406 | ||||||||||||
| Trust share of income in NEH | 61 | 5 | 70 | 57 | ||||||||||||
US Hydro
Summarized statements of operations data for US Hydro for the six and three months ended June 30, 2008 and 2007 were as follows:
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Revenues | $ | 2,601 | $ | 2,622 | $ | 1,568 | $ | 1,172 | ||||||||
| Gross profit | 1,284 | 1,291 | 915 | 517 | ||||||||||||
| Income from operations | 466 | 488 | 498 | 124 | ||||||||||||
| Net income | 447 | 570 | 342 | 181 | ||||||||||||
| Trust share of income in US Hydro | 131 | 167 | 100 | 53 | ||||||||||||
RIDGEWOOD ELECTRIC POWER TRUST V
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited, dollar amounts in thousands )
6. COMMITMENTS AND CONTINGENCIES
Indeck Maine, along with Ridgewood Providence Partners LLP and Ridgewood Rhode Island Generation, LLC, affiliates of Indeck Maine (collectively, the “Companies”) have an agreement with a power marketer for which they are committed to sell a portion of their Renewable Portfolio Standards Attributes (“RPS Attributes”) derived from their electric generation. The agreement provides such power marketer with six separate annual options to purchase such RPS Attributes from 2004 through 2009 at fixed prices. If the Companies fail to supply the required number of RPS Attributes, liquidated damages may be assessed. In accordance with the terms of the agreement, if the power marketer elects to exercise an annual option and the Companies produce no renewable attributes for such option year, the Companies face maximum liquidated damages, which are adjusted annually for the change in the consumer price index, among other things, of up to approximately $3,800, measured using factors in effect at December 31, 2007, for that option year and any other year in which an option has been exercised and insufficient renewable attributes have been produced. Indeck Maine is liable for 70% of the total liquidated damages, but may be liable for up to 100% in the event of default by any of the Companies. In addition, the Trust (together with several other Funds managed by the Managing Shareholder) is a guarantor of the Companies’ obligations under the agreement and as such, could be liable for a maximum percentage of the Companies’ liabilities under the agreement. In the fourth quarter of 2007, the power marketer notified the Companies that it has elected to purchase the output for 2008 as specified in the agreement. As of June 30, 2008 and 2007, the Companies have satisfied and delivered RPS Attributes as prescribed in the agreements and therefore no liquidated damages were incurred. In August 2008, the agreement with the power marketer was amended and the security deposit with the power marketer was increased by $6,121 ($3,121 of which was provided by the Trust) in exchange for the release of, among other things, certain underlying assets that have been sold, or are being marketed for sale, as collateral for the obligations of the Companies under the agreement. The amendment also defers the timing on the payment for the RPS Attributes and eliminates the limits on the liability of the Trusts under the guarantees.
On December 30, 2005, an investor in the Trust and entities affiliated with the Trust, Paul Bergeron, on behalf of himself and as Trustee for the Paul Bergeron Trust (the “Plaintiff”), filed a Complaint in the Federal District Court in Massachusetts, Paul Bergeron v. Ridgewood Securities Corporation, et al. (“Bergeron I”). The action was brought against, among others, the Managing Shareholder and persons who are or were officers of the Managing Shareholder alleging violations of the Massachusetts Securities Act, as well as breach of fiduciary duty, fraud, breach of contract, negligent misrepresentation and unjust enrichment, all related to a set of alleged facts and allegations regarding the sale of securities of Funds managed by the Managing Shareholder or affiliates of the Managing Shareholder which were sold in private offerings and the operation of those Funds subsequent to the sale. The Plaintiff is seeking damages of $900 plus interest and other damages to be determined at trial. None of the Funds are party to this litigation. No trial date has been set. Discovery has been completed and a Motion for Summary Judgment filed by the Defendants is pending.
On March 20, 2007, the Plaintiff in Bergeron I commenced a derivative action, in Suffolk County Superior Court, Commonwealth of Massachusetts, Paul Bergeron v. Ridgewood Electric Power Trust V, et al. (“Bergeron II”). The Plaintiff joined the Trust and affiliated entities, including the Managing Shareholder and a person who is an officer of the Managing Shareholder, alleging that the allocation of the proceeds from the sale of certain assets of the Trust and affiliated entities to an unaffiliated entity was unfair and sought an injunction prohibiting the distribution to shareholders of such proceeds. The Superior Court denied the request by the Plaintiff for an injunction. On February 29, 2008, the Plaintiff filed an amended complaint in Bergeron II adding two additional investors, one in the Trust and one in Growth Fund, as additional plaintiffs. Discovery is ongoing and no trial date has been set.
All defendants in Bergeron I and Bergeron II deny the allegations and intend to defend both actions vigorously.
RUK gave a number of warranties and indemnities to the purchaser of CLP. Should there be a breach of the warranties or should an indemnifiable event occur, the buyer could make claims against RUK. RUK purchased warranty and indemnity insurance to minimize such risk. As of the date of this filing, the Trust is unaware of any such claims.
On August 16, 2006, the Managing Shareholder of the Trust and affiliates of the Trust filed lawsuits against the former independent registered public accounting firm for the Trust and several affiliated entities, Perelson Weiner, LLP (“Perelson Weiner”), in New Jersey Superior Court. The suits alleged professional malpractice and breach of contract in connection with audit and accounting services performed for the Trusts and other plaintiffs by Perelson Weiner. On October 20, 2006, Perelson Weiner filed a counterclaim against the Trust and other plaintiffs alleging breach of contract due to unpaid invoices with a combined total of approximately $1,200. Discovery is ongoing and no trial date has been set. The costs and expenses of the litigation are being paid for by the Managing Shareholder and affiliated management companies and not the underlying investment funds, including the Trust.
RIDGEWOOD ELECTRIC POWER TRUST V
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited, dollar amounts in thousands )
The Trust is subject to legal proceedings involving ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are disclosed if considered reasonably possible and accrued if considered probable after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Trust may be required to record additional litigation expense. While it is not possible to predict the outcome of the litigation discussed above with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Trust, based on its evaluation of matters which are pending or asserted, the Trust’s management believes the disposition of such matters will not have a material adverse effect on the Trust’s business or its financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis of the operating results and financial condition as of June 30, 2008 is intended to help readers analyze the accompanying condensed consolidated financial statements, notes and other supplemental information contained in this document. Results of operations for the six and three months ended June 30, 2008 are not necessarily indicative of results to be attained for any other period. This discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements, notes and other supplemental information included elsewhere in this report and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Trust’s 2007 Form 10-K.
Forward-Looking Statements
Certain statements discussed in this item and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Trust’s plans, objectives and expectations for future events and include statements about the Trust’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. These statements are based upon management’s opinions and estimates as of the date they are made. Although management believes that the expectations reflected in these forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties that may be beyond the Trust’s control, which could cause actual results, performance and achievements to differ materially from the results, performance and achievements projected, expected, expressed or implied by the forward-looking statements. Examples of events that could cause actual results to differ materially from historical results or those anticipated include the outcome of the litigation described in Part I, Item 1, Note 6. “Commitments and Contingencies” of this report, changes in political and economic conditions, federal or state regulatory structures, government mandates, the ability of customers to pay for energy received, supplies and prices of fuels, operational status of generating plants, mechanical breakdowns, volatility in the price for electric energy, natural gas or renewable energy. Additional information concerning the factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Trust’s 2007 Form 10-K. The Trust undertakes no obligation to publicly revise any forward-looking statements or cautionary factors, except as required by law.
Critical Accounting Policies and Estimates
The following discussion and analysis of the Trust’s financial condition and operating results is based on its condensed consolidated financial statements. The preparation of this Quarterly Report on Form 10-Q requires the Trust to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Trust’s condensed consolidated financial statements, and the reported amount of revenue and expenses during the reporting period. Actual results may differ from those estimates and assumptions. No material changes have been made to the Trust’s critical accounting policies and estimates disclosed in its 2007 Form 10-K.
Results of Operations and Changes in Financial Condition
Six months ended June 30, 2008 compared to the six months ended June 30, 2007
General and administrative expenses of $0.9 million for the six months ended June 30, 2008 were comparable to the six months ended June 30, 2007.
For the six months ended June 30, 2008, the Trust recorded equity income of $0.9 million from its investment in Maine Hydro compared to equity income of $0.5 million for the same period in 2007. The increase in equity income of approximately $0.4 million was primarily the result of increased revenues from higher production in the 2008 period as compared to the same period in 2007.
During the first quarter of 2007, RUK completed the sale of all of the issued and outstanding shares of CLP to MEIF LG Energy Limited. The operating results of RUK, including CLP, have been classified as discontinued operations for all periods presented. Income from discontinued operations represents income from operations of RUK and gain on disposal net of income tax and minority interest. See Note 3, “Discontinued Operations,” in the notes to condensed consolidated financial statements contained herein for further discussion.
Total assets decreased approximately $1.1 million from $23 million at December 31, 2007 to $21.9 million at June 30, 2008. This decrease was primarily due to decreases of $2.3 million in cash and cash equivalents partially offset by an increase of $1.1 million in investments. Total liabilities of $0.7 million at June 30, 2008 were comparable to total liabilities at December 31, 2007.
Three months ended June 30, 2008 compared to the three months ended June 30, 2007
In the second quarter of 2008, the Trust recorded equity income of $0.6 million from its investment in Indeck Maine compared to $0.3 million for the same period in 2007. The increase in equity income of approximately $0.3 million in the 2008 period was primarily attributable to an increase in power generation revenue resulting from higher production rates in the 2008 period.
Liquidity and Capital Resources
Six months ended June 30, 2008 compared to the six months ended June 30, 2007
At June 30, 2008, the Trust had cash and cash equivalents of $4.6 million, a decrease of $2.3 million from December 31, 2007. The cash flows for the six months ended June 30, 2008 were $0.9 million used in operating activities and $1.4 million used in financing activities.
Cash used in operating activities for the six months ended June 30, 2008 was $0.9 million compared to cash provided by operating activities of $7.4 million for the six months ended June 30, 2007. The decrease of $8.3 million in cash provided by operating activities in the 2008 period was primarily due to the gain on disposal of CLP, net of minority interest, recorded for the six months ended June 30, 2007.
There were no cash flows from investing activity for the six months ended June 30, 2008. Cash provided by investing activities for the six months ended June 30, 2007 was $67.7 million, representing the proceeds of $68 million received from the sale of CLP, partially offset by $0.3 million in capital expenditures.
Cash used in financing activities for the six months ended June 30, 2008 was $1.4 million compared to $65.6 million for the six months ended June 30, 2007. For the six months ended June 30, 2008, cash used in financing activities represents cash distributions to shareholders. For the six months ended June 30, 2007, cash used in financing activities represents $43.2 million for cash distributions to shareholders and minority interest, $19.3 million for repayments of long-term debt, $0.8 million for repayments of capital lease obligations, and $2.3 million for repayments of a line of credit.
Future Liquidity and Capital Resource Requirements
The Trust expects cash flows from operating activities, along with existing cash, cash equivalents and borrowing capabilities to be sufficient to provide working capital and fund capital expenditures for the next 12 months.
Off-Balance Sheet Arrangements and Contractual Obligations
The Trust, along with other Trusts managed by the Managing Shareholder, are jointly and severally liable for liquidated damages if Indeck Maine and affiliates fail to produce RPS Attributes under an agreement with a power marketer, as more fully described in Note 6 to the Trust’s condensed consolidated financial statements included in Part I. Item 1. “Financial Statements” of this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Trust’s Chief Executive Officer and Chief Financial Officer evaluate the effectiveness of the Trust’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer concluded that the Trust’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by a registrant in reports filed pursuant to the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by a registrant is accumulated and communicated to senior management so as to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
The Trust’s Chief Executive Officer and Chief Financial Officer have concluded that there was no change in the Trust's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes to the legal proceedings disclosed in the Trust’s 2007 Form 10-K.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in the Trust’s 2007 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| Exhibit No. | Description | |
| 2.1 | Sale and Purchase Agreement, dated June 5, 2008, by and among Ridgewood Near East Holdings LLC, RW Egyptian Holdings, LLC, Horus Private Equity Fund III, LP, Mariridge for Infrastructure Projects, Zaki Girges and Ridgewood Egypt for Infrastructure LLC. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Registrant with the SEC on June 13, 2008). | |
| 2.2 | Escrow Agreement dated June 5, 2008 by and among Ridgewood Near East Holdings LLC, RW Egyptian Holdings, LLC, Horus Private Equity Fund III, L.P., Mairiridge for Infrastructure Projects, HSBC Egypt, Zaki Girges and Ridgewood Egypt for Infrastructure LLC (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by the Registrant with the SEC on June 13, 2008). | |
| 10.1 | Loan agreement dated June 5, 2008 by and between Horus Private Equity Fund III, L.P. and Ridgewood Egypt for Infrastructure LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant with the SEC on June 13, 2008). | |
| 31.1 | * | Certification of Randall D. Holmes, Chief Executive Officer of the Registrant, pursuant to Securities Exchange Act Rule 13a-14(a). |
| 31.2 | * | Certification of Jeffrey H. Strasberg, Chief Financial Officer of the Registrant, pursuant to Securities Exchange Act Rule 13a-14(a). |
| 32 | * | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Randall D. Holmes, Chief Executive Officer of the Registrant, and Jeffrey H. Strasberg, Chief Financial Officer of the Registrant. |
| * Filed herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| RIDGEWOOD ELECTRIC POWER TRUST V | |||
| Date: August 12, 2008 | By: | /s/ Randall D. Holmes | |
| Randall D. Holmes | |||
| President and Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: August 12, 2008 | By: | /s/ Jeffrey H. Strasberg | |
| Jeffrey H. Strasberg | |||
| Executive Vice President and Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) |
13