STILLWATER HYDRO PARTNERS L.P.
FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
TABLE OF CONTENTS
Page No.
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Income and Partners' Capital 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 8
INDEPENDENT AUDITORS' REPORT
To the Partners of
Stillwater Hydro Partners L.P.
We have audited the accompanying balance sheets of Stillwater Hydro Partners
L.P. as of December 31, 2003 and 2002 and the related statements of income and
partners' capital, and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Because of the inadequacy of accounting records for periods prior to March 1991,
we were unable to form an opinion regarding the amounts at which certain
pre-development costs are recorded in the accompanying balance sheets totaling
$567,185 and $593,659 at December 31, 2003 and 2002, respectively.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had the accounting records been adequate
for us to satisfy ourselves about the pre-development costs recorded in the
balance sheets, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Stillwater
Hydro Partners L.P. as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Fagliarone Group CPAs, PC
Syracuse, NY
January 23, 2004
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STILLWATER HYDRO PARTNERS L.P.
BALANCE SHEETS
December 31, 2003 and 2002
2003 2002
----------- ---------
ASSETS
Cash .......................................... $ 51,260 $ 5,286
Account receivable from Niagara Mohawk ........ 101,785 126,172
Prepaid expenses .............................. 116,969 93,922
Deferred financing costs, net of
accumulated amortization of $802,070
in 2003 and $726,016 in 2002 ................ 314,081 390,135
Hydro facility, net of accumulated
depreciation of $3,051,315 in 2003
and $2,765,276 in 2002 ...................... 7,873,309 8,159,348
---------- ----------
TOTAL ASSETS .............................. $8,457,404 $8,774,863
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses ......... $ 187,793 $ 167,111
Accrued interest .............................. 1,397,953 1,239,245
Bonds payable ................................. 4,554,898 5,021,698
Due to partners ............................... 353,047 376,047
Due to withdrawing partner .................... 1,000,000 1,000,000
---------- ----------
TOTAL LIABILITIES ......................... 7,493,691 7,804,101
---------- ----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL ................................ 963,713 970,762
---------- ----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL ................................. $8,457,404 $8,774,863
========== ==========
See accompanying notes to financial statements.
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STILLWATER HYDRO PARTNERS L.P.
STATEMENTS OF INCOME AND PARTNERS' CAPITAL
December 31, 2003 and 2002
2003 2002
----------- -----------
POWER SALE REVENUE ........................... $ 1,310,630 $ 1,384,041
----------- -----------
OPERATING EXPENSES
Depreciation and amortization ............. 362,093 362,093
Administration and operations ............. 87,367 81,409
Insurance ................................. 73,436 60,385
Repairs and maintenance ................... 15,130 48,585
PILOT and real estate taxes ............... 86,415 81,647
Professional fees ......................... 19,767 19,230
Easement and land payments ................ 29,733 31,087
Miscellaneous fees ........................ 19,591 21,789
Utilities ................................. 3,200 3,719
----------- -----------
TOTAL OPERATING EXPENSES .............. 696,732 709,944
----------- -----------
OPERATING INCOME ...................... 613,898 674,097
----------- -----------
OTHER INCOME (EXPENSE)
Interest income ........................... 83 502
Interest expense .......................... (621,030) (682,145)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) .......... (620,947) (681,643)
----------- -----------
NET LOSS .............................. (7,049) (7,546)
PARTNERS' CAPITAL, BEGINNING OF YEAR ......... 970,762 978,308
----------- -----------
PARTNERS' CAPITAL, END OF YEAR ........ $ 963,713 $ 970,762
=========== ===========
See accompanying notes to financial statements.
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STILLWATER HYDRO PARTNERS L.P.
STATEMENTS OF CASH FLOWS
December 31, 2003 and 2002
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................ $ (7,049) $ (7,546)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ................. 362,093 362,093
Changes in operating assets and
liabilities
(Increase) decrease in:
Account receivable 24,387 (5,349)
Prepaid expenses .......................... (23,047) (14,945)
Increase (decrease) in:
Accounts payable and accrued expenses 20,682 (26,591)
Accrued interest .......................... 158,708 163,444
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ............................... 535,774 471,106
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of bonds payable ....................... (466,800) (477,080)
(Decrease) increase in due to partners .......... (23,000) 9,000
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES ....... (489,800) (468,080)
--------- ---------
NET INCREASE IN CASH 45,974 3,026
CASH AT BEGINNING OF YEAR 5,286 2,260
--------- ---------
CASH AT END OF YEAR ......................... $ 51,260 $ 5,286
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION
Cash paid during the year for interest ........ $ 462,322 $ 518,701
========= =========
See accompanying notes to financial statements.
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STILLWATER HYDRO PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Stillwater Hydro Partners, L.P. (the Partnership) was formed for the purpose of
acquiring, developing, constructing, owning, financing, managing, operating and
maintaining a hydroelectric project (the Project) located in Stillwater, New
York. The Partnership was formed on March 2, 1989 and the project began
commercial operations on April 26, 1993. The Partnership has an agreement (The
Power Sale Agreement) to sell the power produced by the Project to Niagara
Mohawk Power Corporation ("Niagara") for a fixed rate for a term of 38 years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Deferred Financing Costs
Deferred financing costs consist of legal and other costs incurred in obtaining
construction and term financing for the Partnership and are being amortized over
the term of the bonds payable using the straight-line method.
Hydro Facility
The hydro facility is stated at cost and consists primarily of site acquisition,
construction, engineering, and equipment costs associated with the development
and construction of the Project. The cost of the hydro facility is being
depreciated over the term of the power sale agreement using the straight-line
method.
Income Taxes
The Partnership is not subject to income taxes since the Partnership's profits
and losses are reported on the individual partners' tax returns.
NOTE B - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Partnership to concentrations
of credit risk consist principally of cash and cash equivalent accounts in
financial institutions, which from time to time exceed the federal depository
insurance coverage limit, and accounts receivable from Niagara.
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NOTE C - RESTRICTED CASH
All Partnership cash is restricted in accordance with the Partnership's
financing agreements. (See Note D)
NOTE D - FINANCING AGREEMENTS
The Partnership has agreements for Project financing through CIT Group/Equipment
Financing, Inc. (CIT), consisting of County of Saratoga Industrial Development
Agency Industrial Revenue Bonds.
Bonds payable under the agreements are as follows at December 31, 2003 and 2002:
2003 2002
---------- -----------
Fixed rate term bond with variable
quarterly principal payments plus
interest at 10.42% ................................. $3,648,000 $4,200,000
Floating rate term bond with variable quarterly
principal payments plus interest at prime plus 1.25%
or LIBOR plus 3.5% at the option of the Partnership
The interest rate in effect at December 31, 2003 was
LIBOR (1.12%) plus 3.5% ............................ 906,898 821,698
---------- ----------
$4,554,898 $5,021,698
========== ==========
Security for the bonds consists of the Partnership's assets including contracts.
In accordance with the terms of the bonds, the Partnership must meet certain
requirements, including a requirement to notify CIT of an adverse change in the
operations, prospects or condition of the Partnership.
During 2003 and 2002, the Partnership has operated under an oral agreement by
which CIT permitted the Partnership to defer principal payments of $37,500 each
quarter. The Partnership is credited with the full quarterly payment due for the
fixed rate term bond, although it pays $37,500 per quarter less than required
under the contractual terms of the fixed rate term bond. The floating rate term
bond is increased by $37,500 per quarter to offset the credit given for the
fixed rate term bond.
During 2001, with the permission of CIT, the Partnership did not make scheduled
principal payments of $129,000 on the fixed rate term bond and $15,143 on the
floating rate term bond. During 2002, the $129,000 was credited to the fixed
rate term bond and added to the floating rate term bond as described above.
The scheduled repayment of bonds payable is as follows at December 31, 2003:
2004 $ 683,844
2005 746,864
2006 816,144
2007 891,680
2008 1,416,366
----------
$4,554,898
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NOTE E - COMMITMENTS AND CONTINGENCIES
In the event of early termination of the Power Sale Agreement, the Partnership
is required to pay Niagara an amount equal to the difference between total power
previously sold at the fixed rate, as compared to total power previously sold at
90% of the long run avoided cost plus 10% annual interest. Amounts contingently
due under this agreement are secured by a subordinate interest in the hydro
facility and totaled $6,358,190 and $5,815,067 at December 31, 2003 and 2002,
respectively.
Under the terms of a Purchase Agreement, the Partnership is obligated to pay the
seller additional consideration equal to 1 1/4% of the Project's gross annual
revenues as defined in the Power Sale Agreement with a minimum annual payment of
$10,000. Additional consideration under this agreement totaled $16,383 and
$17,301 in 2003 and 2002, respectively.
Under the terms of a Hydroelectric Easement Agreement, the Partnership is
obligated to pay the grantor additional consideration equal to 1% of the
Project's gross annual revenues as defined in the Power Sale Agreement.
Additional consideration under this agreement totaled $13,350 and $13,787 in
2003 and 2002, respectively.
The Partnership's financing agreements (See Note D) contain provisions for the
payment of contingent fees to CIT of 18.5% of project available cash flows as
defined in the agreements. There were no fees incurred in 2003 or 2002.
The realization of the cost of the hydro facility and other assets is contingent
upon the generation of adequate revenue by the Project. The revenue generation
is affected by waterflow in the river in which the Project is located and the
continuation of the Power Sale Agreement.
NOTE F - RELATED PARTY TRANSACTIONS
In 1994, Ridgewood Energy Electric Power, L.P. (Ridgewood) elected to withdraw
from the Partnership and, in accordance with the Partnership agreement, was to
receive $1,000,000 plus interest at 12% to be paid in annual amortizing
installments of $201,303 commencing May 16, 1995 and continuing through May 16,
2002. The payments to Ridgewood are subordinate to certain other distributions
that may be made as outlined in the partnership agreement and the general
obligations of the Partnership. Due to cash flow restrictions, the Partnership
was unable to make the scheduled principal and interest payments in 2003 and
2002. Any future payments under this agreement are dependent upon the
Partnership's ability to generate sufficient cash flows.
Interest to Ridgewood in connection with its withdrawal totaled $120,000 in 2003
and 2002. Accrued interest payable to Ridgewood is $1,155,615 and $1,035,615 at
December 31, 2003 and 2002, respectively.
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NOTE F - (Continued)
At December 31, 2003 and 2002 amounts due to partners represent operating
advances made by NewRic - Stillwater Hydro Partners, L.P. The advances are
payable on demand, subject to sufficient Project cash flows, and bear interest
at the greater of 12% or prime plus 3% (12% at December 31, 2003). Accrued
interest on these advances totaled $242,338 and $203,630 at December 31, 2003
and 2002, respectively.
The Partnership has entered into contracts with an affiliate of one of the
general partners for the operation and maintenance of the hydro facility.
Amounts and balances due in connection with these agreements consisted of the
following as of and for the years ended December 31, 2003 and 2002:
2003 2002
-------- --------
Purchase of operations and
maintenance services ..................... $27,400 $26,604
Accounts payable and accrued
expenses ................................. $57,035 $38,498
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