FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2004
Commission file Number 0-21304
RIDGEWOOD ELECTRIC POWER TRUST II
(Exact name of registrant as specified in its charter.)
Delaware 22-3206429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1314 King Street, Wilmington, Delaware 19801
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(Address of principal executive offices) (Zip Code)
(302) 888-7444
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
PART I. - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Ridgewood Electric Power Trust II
Consolidated Financial Statements
March 31, 2004
Ridgewood Electric Power Trust II
Consolidated Balance Sheets (unaudited)
- -----------------------------------------------------------------------------
March 31, December 31,
2004 2003
----------- ------------
Assets:
Cash and cash equivalents ........................ $ 1,022,166 $ 1,218,009
Trade receivables ................................ 231,365 224,497
Current portion of unrealized gain
on gas purchase contract ........................ 194,685 217,583
Due from affiliates .............................. 41,085 16,628
Other current assets ............................. 46,489 41,569
----------- -----------
Total current assets ...................... 1,535,790 1,718,286
Note receivable from transfer of investment
in Limited Partnership
interests under contractual agreements .......... 674,462 807,795
Plant and equipment .............................. 3,441,432 3,441,432
Accumulated depreciation ......................... (1,926,894) (1,870,552)
----------- -----------
1,514,538 1,570,880
----------- -----------
Electric power sales contract .................... 3,032,000 3,032,000
Accumulated amortization ......................... (1,121,840) (1,091,520)
----------- -----------
1,910,160 1,940,480
----------- -----------
Unrealized gain on gas purchase contract,
net of current portion .......................... 525,819 270,319
----------- -----------
Total assets ............................. $ 6,160,769 $ 6,307,760
----------- -----------
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued expenses ............ $ 99,252 $ 150,611
Due to affiliates ................................ 98,268 83,857
----------- -----------
Total current liabilities ............... 197,520 234,468
Commitments and contingencies .................... -- --
Shareholders' Equity:
Shareholders' equity (235.3775 investor
shares issued and outstanding) .................. 6,104,860 6,213,803
Managing shareholder's accumulated deficit
(1 management share issued and outstanding) ..... (141,611) (140,511)
----------- -----------
Total shareholders' equity ............... 5,963,249 6,073,292
----------- -----------
Total liabilities and shareholders' equity $ 6,160,769 $ 6,307,760
----------- -----------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust II
Consolidated Statements of Operations(unaudited)
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Three Months Ended
-----------------------
March 31, March 31,
2004 2003
--------- ---------
Power generation revenue .......... $ 633,214 $ 668,814
Cost of sales, including
depreciation and amortization
of $86,662 and $87,947 in 2004
and 2003 ....................... 554,905 584,027
--------- ---------
Gross profit ...................... 78,309 84,787
--------- ---------
General and administrative
expenses ......................... 40,126 39,358
Management fee paid to
managing shareholder ............. 22,776 27,102
--------- ---------
Total other operating expenses 62,902 66,460
--------- ---------
Income from operations ............ 15,407 18,327
--------- ---------
Other income (expense):
Interest income ................ 1,331 8,058
Unrealized gain on gas purchase
contract, net ............... 232,602 --
Other expense ................. (2,750) (2,622)
--------- ---------
Other income (expense), net .. 231,183 5,436
--------- ---------
Net income ........................ $ 246,590 $ 23,763
--------- ---------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust II
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
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Managing
Shareholders Shareholder Total
----------- ------------ ------------
Shareholders' equity (deficit),
December 31, 2003 ............ $ 6,213,803 $ (140,511) $ 6,073,292
Cash distributions ............ (353,067) (3,566) (356,633)
Net income for the period
244,124 2,466 246,590
----------- ----------- -----------
Shareholders' equity (deficit),
March 31, 2004 ............... $ 6,104,860 $ (141,611) $ 5,963,249
----------- ----------- -----------
See accompanying notes to the consolidated financial statements
Ridgewood Electric Power Trust II
Consolidated Statements of Cash Flows (unaudited)
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Three Months Ended
March 31, March 31,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income .................................. $ 246,590 $ 23,763
----------- -----------
Adjustments to reconcile net income to
net cash flows from operating
activities:
Depreciation and amortization ............... 86,662 87,947
Unrealized gain on gas purchase contract .. (232,602) --
Changes in assets and liabilities:
(Increase) in trade receivables ........... (6,868) (908)
(Increase) decrease in other current assets (4,920) 11,790
(Decrease) in accounts payable and
accrued expenses ........................ (51,357) (195,443)
(Decrease) in due to/from affiliates, net . (10,048) (1,294)
----------- -----------
Total adjustments ....................... (219,133) (97,908)
----------- -----------
Net cash provided by (used in)
operating activities ................... 27,457 (74,145)
----------- -----------
Cash flows from investing activities:
Proceeds from note receivable ............... -- 137,381
Cash received from transfer of investments .. 133,333 133,333
----------- -----------
Net cash provided by investing activities 133,333 270,714
----------- -----------
Cash flows from financing activities:
Cash distributions to shareholders .......... (356,633) (356,633)
----------- -----------
Net cash used in financing activities .... (356,633) (356,633)
----------- -----------
Net decrease in cash and cash equivalents ........ (195,843) (160,064)
Cash and cash equivalents, beginning of year ..... 1,218,009 1,348,825
----------- -----------
Cash and cash equivalents, end of period ......... $ 1,022,166 $ 1,188,761
----------- -----------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust II
Notes to the Consolidated Financial Statements (unaudited)
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1. General
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, which consist of normal recurring
adjustments, necessary for the fair presentation of the results for the interim
periods. Additional footnote disclosure concerning accounting policies and other
matters are disclosed in Ridgewood Electric Power Trust II's consolidated
financial statements included in the 2003 Annual Report on Form 10-K, which
should be read in conjunction with these consolidated financial statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
The results of operations for an interim period should not necessarily be taken
as indicative of the results of operations that may be expected for a twelve
month period.
The consolidated financial statements include the accounts of the Trust and the
limited partnerships owning the Monterey and California Pumping Projects.
2. New Accounting Standards and Disclosures
SFAS 143
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143,
Accounting for Asset Retirement Obligations, on the accounting for obligations
associated with the retirement of long-lived assets. SFAS 143 requires a
liability to be recognized in the consolidated financial statements for
retirement obligations meeting specific criteria. Measurement of the initial
obligation is to approximate fair value, with an equivalent amount recorded as
an increase in the value of the capitalized asset. The asset will be depreciated
in accordance with normal depreciation policy and the liability will be
increased for the time value of money, with a charge to the income statement,
until the obligation is settled. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. The Trust adopted SFAS 143 effective January 1,
2003, with no material impact on the consolidated financial statements.
SFAS 145
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction.
SFAS No. 145 eliminates extraordinary accounting treatment for reporting gain or
loss on debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Trust adopted SFAS
145 effective January 1, 2003, with no material impact on the consolidated
financial statements.
SFAS 146
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires recording costs associated
with exit or disposal activities at their fair values when a liability has been
incurred. The Trust adopted SFAS 146 effective January 1, 2003, with no material
impact on the consolidated financial statements.
FIN 46
In December 2003, the FASB issued FASB Interpretation No. 46, (Revised December
2003) "Consolidation of Variable Interest Entities" ("FIN 46") which changes the
criteria by which one company includes another entity in its consolidated
financial statements. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after December 31, 2003, and apply in the first fiscal period ending after March
15, 2004, for variable interest entities created prior to January 1, 2004. The
Trust adopted the disclosure provisions of FIN 46 effective December 31, 2002,
with no material impact to the consolidated financial statements. The Trust
implemented the full provisions of FIN 46 effective January 1, 2004 with no
material impact to the consolidated financial statements.
SFAS 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The Trust adopted SFAS 149 effective July 1, 2003, resulting in the
Trust recording an asset at fair value and an unrealized gain on its gas
purchase and re-sale agreements.
SFAS 150
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. The Trust
adopted SFAS 150 effective July 1, 2003, with no material impact on the
consolidated financial statements.
3. Related Party Transactions
From time to time, the Trust records short-term payables and receivables from
other affiliates in the ordinary course of business. The amounts payable and
receivable with the other affiliates do not bear interest. At March 31, 2004 and
December 31, 2003, the Trust had outstanding payables and receivables, with the
following affiliates:
Due From Due To
---------------------- ---------------------
March 31, December 31, March 31, December 31,
2004 2003 2004 2003
------- -------- ------- --------
Ridgewood Power Management LLC $ -- $ -- $97,554 $83,148
Other affiliates ............. 41,085 16,628 714 709
------- ------- ------- -------
Total ............... $41,085 $16,628 $98,268 $83,857
======= ======= ======= =======
4. Financial Information by Business Segment
The Trust's business segments were determined based on similarities in economic
characteristics and customer base. The Trust's principal business segments
consist of wholesale and retail.
Common services shared by the business segments are allocated on the basis of
identifiable direct costs, time records or in proportion to amount invested in
projects managed by Ridgewood Management.
The financial data for business segments are as follows:
Wholesale
--------------------------------------------
For the Three Months Ended March 31,
--------------------------------------------
2004 2003
-------------------- --------------------
Revenue $577,172 $556,114
Depreciation and
amortization 61,125 61,512
Operating income 130,816 121,959
Total assets 4,202,713 3,714,573
Capital expenditures --- ---
Retail
---------------------------------------------
For the Three Months Ended March 31,
---------------------------------------------
2004 2003
-------------------- ---------------
Revenue $56,042 $112,700
Depreciation and
amortization 25,537 26,435
Operating loss (54,027) (40,370)
Total assets 205,448 342,719
Capital expenditures --- ---
Corporate
---------------------------------------------
For the Three Months Ended March 31,
---------------------------------------------
2004 2003
-------------------- ---------------
Revenue $ --- $ ---
Depreciation and
amortization --- ---
Operating loss (61,382) (63,262)
Total assets 1,728,151 2,977,511
Capital expenditures --- ---
Total
---------------------------------------------
For the Three Months Ended March 31,
---------------------------------------------
2004 2003
-------------------- ---------------
Revenue $633,214 $668,814
Depreciation and
amortization 86,662 87,947
Operating income 15,407 18,327
Total assets 6,160,769 7,034,803
Capital expenditures --- ---
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Dollar amounts in this discussion are rounded to the nearest $1,000.
Introduction
The consolidated financial statements include the accounts of the Trust and the
limited partnerships owning the Monterey and California Pumping Projects.
Critical Accounting Policies and Estimates
For a complete discussion of critical accounting policies, refer to "Significant
Accounting Policies" in Item 7 of the Trust's 2003 Form 10-K. There have been no
substantive changes to those policies and estimates.
Results of Operations
Power generation revenue decreased $36,000, or 5.7%, to $633,000 in the first
quarter of 2004 compared to $699,000 in the first quarter of 2003. The decrease
is primarily due to the decrease in customer base and the reduced rates charged
to the California Pumping project's customers as a result of the change in
current market conditions.
Cost of sales decreased $29,000 to $555,000 in the first quarter of 2004
compared to $584,000 in the first quarter of 2003. The decrease is primarily the
result of the decrease in the operations of the California Pumping projects. In
addition, the Monterey project records and pays for its natural gas on a net
basis (contracted purchase quantities less contracted re-sale quantities). As a
result, cost of sales is net of the realized gains received from the re-sale of
contracted quantities of natural gas by the Monterey project to its supplier.
Net fuel expense for the first quarter of 2004 was consistent with the prior
year.
Gross profit for the first quarter of 2004 was consistent with the prior year.
General and administrative expenses of $40,000 for the first quarter of 2004
were consistent with the first quarter of 2003.
The management fee for the first quarter of 2004 was $23,000 compared to $27,000
for the first quarter of 2003. The decrease is the result of the Trust's lower
net asset balance.
Interest income decreased by $7,000 to $1,000 for the first three months of 2004
due to lower average cash balances.
In accordance with SFAS 149, which became effective July 1, 2003, the Trust
recorded an unrealized gain of $233,000 in the first quarter of 2004 principally
as a result of an increase in the fair value of its gas purchase contracts.
Liquidity and Capital Resources
Cash provided by operating activities for the three months ended March 31, 2004
was $27,000 as compared to cash used of $74,000 for the three months ended March
31, 2003. The increase in cash flow from operating activities is primarily due
to the lower balance of accrued liabilities, thus reducing the Trust's cash
requirements.
Cash provided by investing activities for the first quarter of 2004 decreased to
$133,000 from $271,000 for the first quarter of 2003. The decrease is due to the
$138,000 of proceeds received from notes receivable, which was paid in full in
the second quarter of 2003.
Cash used in financing activities was $357,000 for the first three months of
2004 and 2003. The $357,000 represents the distributions made to shareholders in
each year.
On June 26, 2003, Ridgewood Renewable Power LLC, the Managing Shareholder of the
Trust, entered into a $5,000,0000 Revolving Credit and Security Agreement with
Wachovia Bank, National Association. The agreement allows the Managing
Shareholder to obtain loans and letters of credit for the benefit of the trusts
and funds that it manages. The agreement expires on June 30, 2004. As part of
the agreement, the Trust agreed to limitations on its ability to incur
indebtedness and liens and make guarantees. On February 20, 2004, the Managing
Shareholder and Wachovia Bank amended the agreement increasing the amount to
$6,000,000 and extending the date of expiration to June 30, 2005.
The Trust has historically financed its operations from cash generated from its
subsidiaries' operations. Obligations of the Trust are generally limited to
payment of the management fee to the Managing Shareholder and payment of certain
accounting and legal services to third parties. The Trust expects that its cash
flows from operations and cash on hand will be sufficient to fund its
obligations and any distributions declared for the next twelve months.
Item 4. Controls and Procedures
Based on their evaluation, as of a date within 90 days of the filing date of
this Form 10-Q, the Trust's Chief Executive Officer and Chief Financial Officer
have concluded that the Trust's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Management has identified deficiencies in the Trust's ability to process and
summarize financial information of certain individual projects and equity
investees on a timely basis. Management is establishing a project plan to
address this deficiency.
Forward-looking statement advisory
This Quarterly Report on Form 10-Q, as with some other statements made by the
Trust from time to time, contains forward-looking statements. These statements
discuss business trends and other matters relating to the Trust's future results
and the business climate and are found, among other places, in the notes to
financial statements and at Part I, Item 2, Management's Discussion and
Analysis. In order to make these statements, the Trust has had to make
assumptions as to the future. It has also had to make estimates in some cases
about events that have already happened, and to rely on data that may be found
to be inaccurate at a later time. Because these forward-looking statements are
based on assumptions, estimates and changeable data, and because any attempt to
predict the future is subject to other errors, what happens to the Trust in the
future may be materially different from the Trust's statements here.
The Trust therefore warns readers of this document that they should not rely on
these forward-looking statements without considering all of the things that
could make them inaccurate. The Trust's other filings with the Securities and
Exchange Commission and its Confidential Memorandum discuss many (but not all)
of the risks and uncertainties that might affect these forward-looking
statements.
Some of these are changes in political and economic conditions, federal or state
regulatory structures, government taxation, spending and budgetary policies,
government mandates, demand for electricity and thermal energy, the ability of
customers to pay for energy received, supplies of fuel and prices of fuels,
operational status of plant, mechanical breakdowns, availability of labor and
the willingness of electric utilities to perform existing power purchase
agreements in good faith. Some of the cautionary factors that readers should
consider are described in the Trust's most recent Annual Report on Form 10-K.
By making these statements now, the Trust is not making any commitment to revise
these forward-looking statements to reflect events that happen after the date of
this document or to reflect unanticipated future events.
PART II - OTHER INFORMATION None
SIGNATURES
Pursuant to the requirement 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 II
Registrant
October 14, 2004 By /s/ Christopher I. Naunton
Date Christopher I. Naunton
Vice President and
Chief Financial Officer
(signing on behalf of the
Registrant and as
principal financial
officer)
CERTIFICATION PURSUANT TO RULE 13A-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Robert E. Swanson, Chief Executive Officer of Ridgewood Electric Power Trust
II ("registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in the quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly
report based on such evaluation; and
(c) Disclosed in this quarterly report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and senior management:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control
over financial reporting.
Date: October 14, 2004
/s/ Robert E. Swanson
- -----------------------
Robert E. Swanson
Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13A-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Christopher I. Naunton, Chief Financial Officer of Ridgewood Electric Power
Trust II ("registrant"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in the quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly
report based on such evaluation; and
(c) Disclosed in this quarterly report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and senior management:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control
over financial reporting.
Date: October 14, 2004
/s/ Christopher I. Naunton
- ----------------------------
Christopher I. Naunton
Chief Financial Officer