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 September 30, 1999
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.)
947 Linwood Avenue, Ridgewood, New Jersey 07450-2939
(Address of principal executive offices) (Zip Code)
(201) 447-9000
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. Financial Statements
Ridgewood Electric Power Trust II
Financial Statements
September 30, 1999
Ridgewood Electric Power Trust II
Balance Sheet
- --------------------------------------------------------------------------------
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
Assets:
Investments in power generation projects ...... $ 10,605,822 $ 10,594,402
Cash and cash equivalents ..................... 72,153 --
Note receivable from sale of investment ....... 1,835,201 2,140,866
Due from affiliates ........................... -- 8,819
Other assets .................................. 2,273 3,588
------------ ------------
Total assets ............................. $ 12,515,449 $ 12,747,675
------------ ------------
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses ......... $ 35,463 $ 100,897
Borrowings under line of credit agreements .... -- 300,000
Due to affiliates ............................. 461,053 214,373
------------ ------------
Total liabilities ........................ 496,516 615,270
------------ ------------
Shareholders' equity:
Shareholders' equity (235.3775
shares issued and outstanding) ............... 12,099,987 12,212,324
Managing shareholder's accumulated deficit .... (81,054) (79,919)
------------ ------------
Total shareholders' equity ............... 12,018,933 12,132,405
------------ ------------
Total liabilities and shareholders' equity $ 12,515,449 $ 12,747,675
------------ ------------
See accompanying note to financial statements.
Ridgewood Electric Power Trust II
Statement of Operations (unaudited)
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Nine Months Ended Three Months Ended
------------------- ------------------
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- -------
Revenue:
Income from power
generation projects $221,702 $742,004 $ 57,884 $206,882
Interest income ......... 123,722 151,209 39,313 47,417
-------- -------- -------- --------
Total revenue ........ 345,424 893,213 97,197 254,299
-------- -------- -------- --------
Expenses:
Accounting and legal fees 38,972 49,140 12,519 23,889
Management fee .......... 55,607 287,163 -- 95,721
Interest expense ........ 24,094 -- 8,705 --
Miscellaneous ........... 54,918 39,880 7,872 13,893
-------- -------- -------- --------
Total expenses ....... 173,591 376,183 29,096 133,503
-------- -------- -------- --------
Net income ................. $171,833 $517,030 $ 68,101 120,796
-------- -------- -------- --------
See accompanying note to financial statements.
Ridgewood Electric Power Trust II
Statement of Changes in Shareholders' Equity (unaudited)
- --------------------------------------------------------------------------------
Managing
Shareholders Shareholder Total
------------ ------------ ------------
Shareholders' equity,
December 31, 1998 ...... $ 12,212,324 $ (79,919) $ 12,132,405
Cash distributions ...... (282,452) (2,853) (285,305)
Net income for the period 170,115 1,718 171,833
------------ ------------ ------------
Shareholders' equity,
September 30, 1999 ..... $ 12,099,987 $ (81,054) $ 12,018,933
------------ ------------ ------------
See accompanying note to financial statements
Ridgewood Electric Power Trust II
Statement of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
--------------------------
September 30, September 30,
1999 1998
----------- -----------
Cash flows from operating activities:
Net income ................................... $ 171,833 $ 517,030
----------- -----------
Adjustments to reconcile net income
to net cash flows from operating
activities:
Additional investment in power generation
projects, net .............................. (11,420) (28,285)
Proceeds from note receivable ............... 305,665 282,241
Changes in assets and liabilities:
Decrease in due from affiliates ............ 8,819 --
Decrease (increase) in other assets ........ 1,315 (1,090)
(Decrease) increase in accounts payable
and accrued expenses ...................... (65,434) 80,025
Increase (decrease) in due to affiliates ... 246,680 (84,507)
----------- -----------
Total adjustments ....................... 485,625 248,384
----------- -----------
Net cash provided by operating activities 657,458 765,414
----------- -----------
Cash flows from financing activities:
Cash distributions to shareholders ........... (285,305) (1,141,232)
Repayments under line of credit facility ..... (450,000) --
Borrowings under line of credit facility ..... 150,000 200,000
----------- -----------
Net cash used in financing activities ... (585,305) (941,232)
----------- -----------
Net increase (decrease) in cash and
cash equivalents ............................ 72,153 (175,818)
Cash and cash equivalents, beginning of year . -- 175,818
----------- -----------
Cash and cash equivalents, end of period ..... $ 72,153 $ --
----------- -----------
See accompanying note to financial statements.
Ridgewood Electric Power Trust II
Note to Financial Statements (unaudited)
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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 1998 Annual Report on Form 10-K, which should be read in
conjunction with these financial statements. The year-end balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Dollar amounts in this discussion are generally 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.
Results of Operations
As summarized below, total revenue decreased 61.4% to $345,000 in the first nine
months of 1999 compared from $893,000 in the same period in 1998, primarily
because of lower distributions from the Monterey, Berkshire and Columbia
projects. Revenue also decreased 61.8% to $97,000 in the third quarter of 1999
from $254,000 in the same period in 1998.
The primary source of revenue to the Trust is distributions made by each project
to the Trust, as shown in the table below. These amounts do not necessarily
reflect earnings or cash flow of the projects because of capital expenditures,
reserves for future obligations, working capital requirements and other items
which are accounted for at the project level.
Nine months ended Three months ended
September 30, September 30,
1998 1998 1999 1998
-------- -------- -------- --------
Project
Monterey ...... $167,000 $389,000 $ 31,000 $132,000
Berkshire ..... -- 176,000 -- --
Columbia ...... -- 100,000 -- --
Pump Services . 54,000 77,000 27,000 75,000
Interest income 124 ,000 151,000 39,000 47,000
-------- -------- -------- --------
Total ......... $345,000 $893,000 $ 97,000 $254,000
======== ======== ======== ========
The Monterey project's reduced distributions to the Trust in 1999 reflect the
costs associated with scheduled major engine maintenance and legal costs
associated with the proceedings with Pacific Gas & Electric Company (see Legal
Proceedings below).
The decline in revenue at Berkshire reflects the stoppage of distributions from
the Project in the third quarter of 1998. Please refer to the Trust's Annual
Report on Form 10-K for 1998 for an explanation of the situation at the Project.
The decline in revenues from Columbia reflects the timing of distributions from
the project. Distributions are expected to increase in the fall when the
facility receives increased throughput from the disposal of construction and
demolition material.
The reduced distributions from the Pump Services investment are a result of
increased fuel costs in 1999.
Interest income declined primarily because interest represents a smaller portion
of the constant monthly payment from the note received from the sale of the San
Diego project in 1997.
Total expenses decreased from $134,000 in the third quarter of 1998 to $29,000
for the third quarter of 1999, a $105,000 (78.4%) reduction. This reflects a
$111,000 waiver of the management fee by the Managing Shareholder for the second
and third quarters of 1999. Beginning in April 1999, the Managing Shareholder
began waiving the management fee on a month-to-month basis because of the
decline in distributions from the Monterey and Berkshire projects. The Managing
Shareholder may begin charging the fee at any time but has no current plans to
do so.
Liquidity and Capital Resources
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. Borrowing under the credit facility
increased from $300,000 at December 31, 1998 to $450,000 during the third
quarter of 1999. In September 1999, the Trust repaid the entire amount of the
borrowing. In November 1999, the Trust borrowed $400,000 under the credit
facility.
In April 1999, the Managing Shareholder announced that distributions to
shareholders would cease until the Trust had built up sufficient cash reserves
to repay borrowing under the line of credit facility and pay legal costs
associated with the proceeding with Pacific Gas and Electric Company.
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 anticipates that its cash flow from operations during 1999 will be
adequate to fund its obligations.
Year 2000 remediation
Please refer to the Trust's disclosures in its Annual Report on Form 10-K for
the year ended December 31, 1998, at "Item 7 - Management's Discussion and
Analysis," for a discussion of year 2000 issues affecting the Trust. In October
1999, the Managing Shareholder completed its year 2000 remediation program after
having successfully tested and implemented all necessary changes to its
software, including the subscription/investor relations systems and all
subsystems used for preparing internal reports. Costs of remediation did not
materially exceed the estimated amounts.
The Trust's projects have been reviewed by an outside consultant and by
personnel from RPMCo, who determined that the project's electronic control
systems do not contain software affected by the Year 2000 problem and do not
contain embedded components that contain Year 2000 flaws.
No other material changes to the risks to the Trust described in its Annual
Report on Form 10-K have occurred. The reasonable worst case scenario
anticipated by the Trust continues to be that the Monterey, Berkshire and
Columbia facilities will be able to operate on and after January 1, 2000 but
that there may be some short-term inability of their customers to pay promptly.
In that event, the Trust's revenues could be materially reduced for a temporary
period and it might have to draw upon its credit line to fund operating expenses
until the utility makes up any payment arrears. In addition, the Monterey and
Pump Services facilities rely on natural gas pipelines for fuel. If the
pipelines do not function properly because of year 2000 problems, these
facilities would have to reduce or cease operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in the Trust's Annual Report on Form 10-K for 1998,
Pacific Gas and Electric Company, the purchaser of the electricity generated by
the Trust's Monterey Project, has sued the Trust's subsidiary that owns the
Project in the Superior Court of California for the City and County of San
Francisco.
The subject matter of the case is a claim that the Monterey Project is not
entitled to preferential rates for intrastate transportation of the natural gas
it buys and burns. The Trust believes that the amount in question is less than
$250,000 and has offered to pay the appropriate amount. Pacific Gas and Electric
Company has rejected the offer and has stated that it intends to use the case as
a means to obtain information to petition for a cancellation of the Project's
power purchase agreement on the grounds that the Project does not meet federal
efficiency standards for qualifying facilities. The Trust believes that it can
show that it is in compliance with federal efficiency standards and it will
vigorously oppose Pacific Gas and Electric Company's abusive tactics.
Discovery is underway and a trial date of July 2000 has been tentatively set.
Item 5. Other Information.
Mr. Swanson has transferred 54% of the equity interest in the Managing
Shareholder to family trusts. He has sole dispositive and voting power over the
equity interest transferred to each trust and accordingly continues to be the
beneficial owner as defined in Rule 13d-3 of all of the equity interest in the
Managing Shareholder.
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 11, 1999 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)