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 September 30, 1998
Commission File Number 0-21304
RIDGEWOOD ELECTRIC POWER TRUST II
(Exact name of registrant as specified in its charter.)
Delaware, U.S.A. 22-3206429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
947 Linwood Avenue, Ridgewood, New Jersey 07450-2939
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(201) 447-9000
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
RIDGEWOOD ELECTRIC POWER TRUST II
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
Assets:
Investments in power generation projects $ 12,609,307 $ 12,609,307
Cash and cash equivalents --- 175,818
Notes receivable from sale of investment 2,238,760 2,521,001
Due from affiliates 257,637 144,113
Other assets 3,526 2,436
Total assets $ 15,109,230 $ 15,452,675
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses $ 112,211 $ 32,186
Line of credit borrowing 200,000 ---
Due to affiliates 157,467 156,735
Total liabilities 469,678 188,921
Shareholders' equity:
Shareholders' equity (235.3775 shares
issued and outstanding) 14,694,390 15,312,360
Managing shareholder's accumulated deficit (54,848) (48,606)
Total shareholders' equity 14,639,552 15,263,754
Total liabilities and shareholders' equity $ 15,109,230 $ 15,452,675
<FN>
See Accompanying Notes to Financial Statements
RIDGEWOOD ELECTRIC POWER TRUST II
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND QUARTERS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(Unaudited)
Nine Months Ended Quarter Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
Revenue:
Income from power
generation projects $ 742,004 $ 1,330,418 $ 206,882 $346,918
Gain on sale of
RSD Power Partners --- 2,553,433 --- (40,883)
Interest income 151,209 77,744 47,417 71,044
Total revenues 893,213 3,961,595 254,299 377,079
Expenses:
Accounting and legal fees 49,140 35,722 23,889 18,342
Management fee 287,163 281,710 95,721 111,347
Writedown of electric
power equipment --- 281,018 --- ---
Miscellaneous 39,880 22,915 13,893 5,324
376,183 621,365 133,503 135,013
Net income $ 517,030 $ 3,340,230 $ 120,796 $242,066
<FN> See accompanying Notes to Financial Statements.
RIDGEWOOD ELECTRIC POWER TRUST II
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
(unaudited)
Managing
Shareholders Shareholder Total
Shareholders' equity, December 31, 1997 $15,312,360 $ (48,606) $15,263,754
Cash distributions (1,129,820) (11,412) (1,141,232)
Net income for the period 511,860 5,170 517,030
Shareholders' equity, September 30, 1998 $14,694,400 (54,848) $14,639,552
<FN>
See Accompanying Notes to Financial Statements
RIDGEWOOD ELECTRIC POWER TRUST II
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(Unaudited)
Nine months Nine months
ended September 30, ended September 30,
1998 1997
Cash flows from operating activities:
Net income $ 517,030 $ 3,340,230
Adjustments to reconcile net income to
net cash flows from operating activities
Gain on sale of RSD Power Partners --- (2,553,433)
Sale of investment in RSD Power Partners --- 3,242,176
Writedown of electric power equipment --- 276,893
Proceeds from note receivable 282,241 88,608
Changes in assets and liabilities:
(Increase) decrease in other assets (1,090) 15,373
Increase in accounts payable and
Accrued expenses 80,025 21,974
Increase (decrease) in due to affiliates, net (112,792) 59,266
Total adjustments 248,384 1,150,857
Net cash provided by operating activities 765,414 4,491,087
Cash flows from financing activities:
Borrowings under line of credit agreement 200,000 ---
Cash distributions to shareholders (1,141,232) (1,591,092)
Net cash used in financing activities (941,232) (1,591,092)
Net (decrease) increase
in cash and cash equivalents (175,818) 202,170
Cash and cash equivalents,
beginning of period 175,818 ---
Cash and cash equivalents, end of period $ --- $ 202,170
<FN>
See Accompanying Notes to Financial Statements
RIDGEWOOD ELECTRIC POWER TRUST II
NOTE TO FINANCIAL STATEMENTS
1. General
In the opinion of management, the accompanying unaudited
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 manners are disclosed in Ridgewood
Electric Power Trust II's financial statements included
in the 1997 Annual Report on Form 10-K, which should be
read in conjunction with these financial statements.
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.
2. Borrowings Under Line of Credit Agreement
In August 1998, the Trust borrowed $200,000 under its line
of credit agreement with Fleet Bank. In October 1998, the
Trust borrowed an additional $100,000 under this agreement.
The borrowing bears interest at LIBOR plus 2.5% and must be
repaid by July 1999.
3. Purchase of Pump Services Operations
On October 16, 1998, the Trust and Ridgewood Electric
Power Trust IV ("Trust IV") entered into a Termination and
Sale Agreement with H.E.P., Inc. ("H.E.P."), the operator
of the Trust and Trust IV's California Pumping Projects.
Under the terms of the agreement, H.E.P. ceased operating
the projects and transferred all project related assets to
the Trust and Trust IV. The Trust and Trust IV paid
$105,840 and $94,160, respectively, to H.E.P. as consideration
under this agreement. Ridgewood Power Corporation is the
managing shareholder of both the Trust and Trust IV.
Ridgewood Power Management Corporation, an entity related
to Ridgewood Power Corporation through common ownership,
will operate the projects.
4. Investment in Pittsfield Investors Limited Partnership
("PILP")
The Trust has invested $2,347,330, as a limited partner,
in PILP. PILP operates a waste-to energy incinerator in
Pittsfield, Massachusetts and is managed by a subsidiary
of Energy Answers Corporation of Albany, New York ("EAC").
In the third quarter of 1998, EAC informed the Trust that
significant cost overruns in the construction of an ash
handling system for the PILP project had depleted PILP's
funds, including reserve funds for closure of a landfill
and other reserves. EAC believed that PILP could not
continue operations without significant capital injections
from its two limited partners, one of whom is the Trust.
EAC further advised the Trust that distributions from PILP
to the Trust would cease.
The Trust's managing shareholder requested detailed
additional information and a revised operating plan from
EAC. In the managing shareholder's opinion, EAC has not
yet adequately responded to these requests. The Trust
also has conducted on-site reviews by its financial and
engineering personnel.
The Trust is continuing its own financial and engineering
review of the project, is in contact with the other limited
partner and is reviewing the short-term and long-term
viability of PILP. Upon receipt of the information requested
from EAC and the completion of its review of the project,
the Trust will determine the extent to which it should
reduce the carrying value of its investment. The Trust
is also considering legal remedies against EAC and its
affiliates.
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 Trust carries its investment in the Projects it owns
at fair value and does not consolidate its financial
statements with the financial statements of the Projects.
Revenue is recorded by the Trust as cash distributions are
received from the Projects. Trust revenues may fluctuate
from period to period depending on the operating cash flow
generated by the Projects and the amount of cash retained to
fund capital expenditures.
The Berkshire Project receives revenue in the form of tipping
fees for waste delivered to the facility and from steam sold
under a long-term contract which expires in 2004. Tipping
fees are based on spot market prices which may fluctuate from
time to time. The Project's steam customer is not obligated to
extend the contract beyond the year 2004.
The Columbia Project receives revenue in the form of tipping
fees for waste delivered to the facility by local waste
haulers and transferred to long haul trucks for delivery
to distant landfills. The Project's profit margins have
been reduced due to competition from national waste
management companies operating in the same region.
Results of Operations
Nine Months Ended September 30, Quarter Ended September 30,
1998 1997 1998 1997
Monterey $ 389,000 $ 548,000 $ 132,000 $ 140,000
Berkshire 176,000 272,000 --- 88,000
Columbia 100,000 265,000 --- 48,000
San Diego --- 2,603,000 --- ---
Sunkist 77,000 122,000 75,000 70,000
Project development --- 73,000 --- ---
Interest income 151,000 78,000 47,000 31,000
Total $ 893,000 $ 3,961,000 $ 254,000 $ 377,000
Total revenues decreased $3,068,000 (77%) to $893,000
for the first nine months of 1998 from $3,961,000 in the
first nine months of 1997 primarily because of the
$2,594,000 gain on the sale of the San Diego project
recorded in 1997. Distributions from the Monterey,
Columbia and Sunkist Projects also declined by $159,000,
$165,000 and $45,000, respectively from their 1997 levels.
The decline from the Monterey Project was attributable to
increased maintenance costs from a periodic overhaul of
its engines and reduced revenues because of the scheduled
shutdown. The lower distributions from the Columbia Project
in the nine months ended September 30, 1998 resulted from
the timing of distributions as well as lower profit margins
caused by increased competition from other waste management
companies operating in the region. The Trust expects this
competitive pressure to continue. The Sunkist Project,
which provides irrigation pumping to Southern California
farmers, suffered from the extraordinary rainfall that
occurred in the first half of 1998. The increase in interest
income from the 1997 period to the 1998 period reflects
amounts received in 1998 on the note received as part of
the sale price of the San Diego Project.
Distributions from the Berkshire Project, after continuing
at approximately the 1997 levels for the first six months
of 1998, ceased in the third quarter of 1998. In the third
quarter of 1998, the manager of Berkshire informed the Trust
that significant and undisclosed cost overruns in the
construction of an ash handling system for the Berkshire
Project had depleted the Project's funds, including reserve
funds for closure of a landfill and other reserves. The
project manager believed that Berkshire could not continue
operations without significant capital injections from its
two limited partners, one of whom is the Trust. The project
manager further advised the Trust that even if the Project
were to continue operations with additional contributed
capital, in that event distributions from Berkshire to the
Trust would cease for an indefinite period.
The Trust requested detailed additional information and a
revised operating plan from the project manager. In the
Trust's opinion, the project manager has not yet adequately
responded to these requests. The Trust also has conducted
on-site reviews by its financial and engineering personnel.
In early November 1998, the manager's parent company installed
a new financial team for the Project and offered to contribute
additional capital to the Project on the condition that the
Trust subordinate its rights to distributions from the Project.
The Trust is considering the offer and expects that
negotiations will begin shortly.
The Trust is continuing its own financial and engineering
review of the project and is reviewing the short-term and
long-term viability of the Berkshire project. After
considering the information provided and to be provided by
the project manager, its own review of the project and the
results, if any, of the negotiations, the Trust will
determine the extent to which it should reduce the carrying
value of its investment. The Trust is also considering
legal remedies against the project manager and its affiliates.
The changes in total revenues in the third quarter of 1998
as compared to the third quarter of 1997 were caused by the
same factors.
Expenses
For the nine months ended September 30, 1998, total expenses
decreased $245,000 (39%) to $376,000 from $621,000 in the
same period in 1997, reflecting a $281,000 write-off of
certain electric power equipment recorded in the 1997 period.
Expenses for the quarter ended September 30, 1998 were
consistent with the same period in 1997.
Liquidity and Capital Resources
During the first nine months of 1998, the Trust's operating
activities generated $765,000 of cash compared to $4,491,000
of cash during the same period in 1997. The change is
primarily attributable to the $3,242,000 of cash received
on the sale of the San Diego Project in the second quarter
of 1997. Cash distributions to shareholders decreased to
$1,141,000 in the first nine months of 1998 from $1,591,000
in the same period in 1997 due to decreases in the monthly
cash distribution rate in 1998.
In 1997, the Trust and Fleet Bank, N.A. (the "Bank") entered
into a revolving line of credit agreement, whereby the Bank
provides a three year committed line of credit facility of
$750,000. Outstanding borrowings bear interest at the Bank's
prime rate or, at the Trust's choice, at LIBOR plus 2.5%.
The credit agreement requires the Trust to maintain a ratio
of total debt to tangible net worth of no more than 1 to 1
and a minimum debt service coverage ratio of 2 to 1. The
credit facility was obtained in order to allow the Trust to
operate using a minimum amount of cash, maximize the amount
invested in Projects and maximize cash distributions to
shareholders. The Trust borrowed $200,000 in August 1998
and an additional $100,000 in October 1998 to allow more
consistent distributions to investors when revenues are
sporadic. The Trust anticipates that cash flows from
operations will be sufficient to repay these borrowings
by July 1999.
Obligations of the Trust are generally limited to payment
of the management fee to the Managing Shareholder, payments
for certain accounting and legal services to third persons
and distributions to shareholders of available operating
cash flow generated by the Trust's investments. The
Trust's policy is to distribute as much cash as is prudent
to shareholders. Accordingly, the Trust has not found
it necessary to retain a significant amount of working
capital. The need to retain working capital is further
reduced by the availability of the line of credit facility.
PART II - OTHER INFORMATION
Item #1 Legal Proceedings
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K. The trust filed a
current Report on Form 8-K, dated
September 28, 1998, reporting
Developments at PILP under Item 5.
RIDGEWOOD ELECTRIC POWER TRUST II
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
November 18, 1998 By /s/ Martin V. Quinn
Date Martin V. Quinn
Senior Vice President and
Chief Financial Officer
(signing on behalf of the
Registrant and as principal
financial officer)