FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OFTHE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 199
Commission file Number 0-23432
RIDGEWOOD ELECTRIC POWER TRUST III
(Exact name of registrant as specified in its charter.)
Delaware 22-3264565
(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 [ ]
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Ridgewood Electric Power Trust III
Financial Statements
September 30, 1999
<PAGE>
Ridgewood Electric Power Trust III
Balance Sheet
- --------------------------------------------------------------------------------
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
Assets:
Investments in power
generation projects ......................... $ 24,667,928 $ 21,714,050
Cash and cash equivalents .................... 130,340 2,414,916
Due from affiliates .......................... 23,856 30,071
Other assets ................................. 2,709 98,359
------------ ------------
Total assets .............................. $ 24,824,833 $ 24,257,396
------------ ------------
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses ........ $ 40,002 $ 185,209
Due to affiliates ............................ 279,197 289,153
------------ ------------
Total liabilities ......................... 319,199 474,362
------------ ------------
Shareholders' equity:
Shareholders' equity (391.8444 shares
issued and outstanding) ..................... 24,591,663 23,876,239
Managing shareholder's accumulated deficit ... (86,029) (93,205)
------------ ------------
Total shareholders' equity ................ 24,505,634 23,783,034
------------ ------------
Total liabilities and shareholders' equity $ 24,824,833 $ 24,257,396
------------ ------------
See accompanying notes to financial statements.
<PAGE>
Ridgewood Electric Power Trust III
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
------------------------- -------------------------
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenue:
Income from power
generation projects .. $ 1,501,445 $ 2,479,777 $ 833,038 $ 1,359,216
Interest income ....... 47,194 63,721 12,561 14,956
Income from arbitration
award, net ........... 1,496,598 -- 7,793 --
----------- ----------- ----------- -----------
Total revenue ....... 3,045,237 2,543,498 853,392 1,374,172
----------- ----------- ----------- -----------
Expenses:
Writedown of
investments in
power generation
projects ............. -- 4,062,147 -- --
Management fee ........ 445,932 528,003 148,644 176,001
Accounting and legal
fees ................. 31,147 79,641 9,174 43,653
Miscellaneous ......... 62,045 54,076 9,138 9,903
----------- ----------- ----------- -----------
Total expenses ...... 539,124 4,723,867 166,956 229,557
----------- ----------- ----------- -----------
Net income (loss) ..... $ 2,506,113 $(2,180,369) $ 686,436 $ 1,144,615
----------- ----------- ----------- -----------
See accompanying notes to financial statements.
<PAGE>
Ridgewood Electric Power Trust III
Statement of Changes in Shareholders' Equity (unaudited)
- --------------------------------------------------------------------------------
Managing
Shareholders Shareholder Total
------------ ------------ ------------
Shareholders' equity,
December 31, 1998 .. $ 23,876,239 $ (93,205) $ 23,783,034
Cash distributions .. (1,765,678) (17,835) (1,783,513)
Net income for the .. 2,481,102 25,011 2,506,113
period
------------ ------------ ------------
Shareholders' equity,
September 30, 1999 . $ 24,591,663 $ (86,029) $ 24,505,634
------------ ------------ ------------
See accompanying notes to financial statements.
<PAGE>
Ridgewood Electric Power Trust III
Statement of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
--------------------------
September 30, 1999 September 30, 1998
----------- -----------
Cash flows from operating activities:
Net income (loss) .......................... $ 2,506,113 $(2,180,369)
----------- -----------
Adjustment to reconcile
net income (loss) to cash
flows from operating
activities:
Additional investments in power
generation projects, net ................. (2,953,878) (2,363,981)
Writedown on investments in power
generation projects ...................... -- 4,062,147
Changes in assets and liabilities:
Decrease in due from affiliates .......... 6,215 6,694
Decrease in other assets ................. 95,650 9,722
Decrease in accounts payable and
accrued expenses .......................... (145,207) (6,668)
(Decrease) increase in due to affiliates . (9,956) 84,835
----------- -----------
Total adjustments ........................ (3,007,176) 1,792,749
----------- -----------
Net cash used in operating activities .... (501,063) (387,620)
----------- -----------
Cash flows from financing activities:
Cash distributions to shareholders ......... (1,783,513) (1,784,167)
----------- -----------
Net cash used in financing activities .... (1,783,513) (1,784,167)
----------- -----------
Net decrease in cash and
cash equivalents ........................ (2,284,576) (2,171,787)
Cash and cash equivalents, beginning of year 2,414,916 2,687,626
----------- -----------
Cash and cash equivalents, end of period ... $ 130,340 $ 515,839
----------- -----------
See accompanying notes to financial statements.
<PAGE>
Ridgewood Electric Power Trust III
Notes to Financial Statements (unaudited)
1. General
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments, which consist of normal recurring adjustments,
necessary for the pair presentation of the results for the interim periods.
Additional footnote disclosure concerning accounting policies and other matters
are disclosed in Ridgewood Electric Power Trust III'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. 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.
2. Purchase of Caterpillar Power Modules
On February 19, 1999, the Trust purchased seven Caterpillar power modules that
were delivered in the third quarter of 1999. The seven power modules have a
total price of $2,360,803 and a total capacity of 7.8 megawatts. The Trust plans
to rent the power modules to domestic and international customers.
3. Arbitration Proceeding
In September 1995, the Trust acquired a portfolio of 35 cogeneration projects
from affiliates of Eastern Utilities Association ("EUA"). In December 1996, the
Trust's subsidiaries that own cogeneration projects brought an arbitration
proceeding against EUA claiming that EUA had breached its representations in the
acquisition agreement and had also defrauded the trust through
misrepresentations, improper billing practices and violations of state fair
trade practice laws. In October 1998, the arbitrators awarded the Trust damages
of approximately $2,600,000 on its claims and awarded approximately $400,000 to
EUA for alleged unpaid management services thereon. In November 1998, EUA made a
payment of $2,210,184 to the Trust to liquidate the claims. After deducting
costs associated with the arbitration proceeding, the Trust recognized income of
$1,265,122.
In April 1999, the arbitration panel also awarded the Trust its attorneys' fees
and expenses incurred in prosecuting the claim, net of EUA attorneys' fees and
expenses. The panel also awarded the Trust interest on the award, net of
interest on EUA's counterclaim. The trust received payment from EUA in 1999 and
recorded income of $1,496,598 in the statement of operations.
4. Providence EPA Matter
In June 1999, Ridgewood Providence Power Partners, L.P. ("RPPP"), a limited
partnership through which the Trust owns its limited partnership interest in the
Providence Project, settled the administrative proceeding brought by the Region
I office of the U.S. Environmental Protection Agency ("EPA") for approximately
$86,000. As previously disclosed the charges related to alleged recordkeeping,
training documentation and tank labelling violations and did not relate to any
discharge of pollutants or direct danger to the environment.
<PAGE>
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 increased 19.7% to $3,045,000 in the first
nine months of 1999 compared to $2,543,000 in the same period in 1998. Excluding
the arbitration award income discussed below, revenues decreased by 39.2% for
the first nine months of 1999 compared to the prior year. Revenue decreased to
$853,000 in the third quarter of 1999 compared to $1,374,000 in the third
quarter of 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,
1999 1998 1999 1998
---- ---- ---- ----
Project
On-site Cogeneration:
Massachusetts ...... $ 371,000 $ 459,000 $ -- $ 301,000
Others ............. 46,000 71,000 45,000 --
---------- ---------- ---------- ----------
Subtotal ........... 417,000 530,000 45,000 301,000
Providence ............. 354,000 529,000 133,000 185,000
Byron .................. 251,000 475,000 214,000 304,000
San Joaquin ............ 422,000 945,000 419,000 569,000
Ridgewood/AES .......... 57,000 -- 21,000 --
Arbitration award income 1,497,000 -- 8,000 --
Interest income ........ 47,000 64,000 13,000 15,000
---------- ---------- ---------- ----------
Total .................. $3,045,000 $2,543,000 $ 853,000 $1,374,000
========== ========== ========== ==========
Revenues from the Massachusetts on-site cogeneration project, located at Globe
Manufacturing Co., decreased from $459,000 in the first nine months of 1998 to
$371,000 in the corresponding period of 1999, a $88,000 (19.2%) drop. The
project was temporarily shut down in the third quarter of 1999 for maintenance
and then at the customer's request and no revenues were earned for that quarter.
In October 1999, the customer requested that the project be permanently shut
down, as described at Part II, Item 1 - "Legal Proceedings." The Trust is
challenging that request in court.
Distributions from the Providence, Byron, San Joaquin projects declined due to
increased engine maintenance costs.
The increase in distribution income from Ridgewood/AES reflects revenue from
projects that entered operation in the second half of 1998.
Income of $1,497,000 from the arbitration proceedings against EUA is discussed
in Legal Matters below.
In the second quarter of 1998, the Trust recorded a charge of $4,062,000 to
write-down the on-site cogeneration projects to their estimated fair value.
The management fee decreased from $176,000 in the third quarter of 1998 to
$149,000 in the third quarter of 1999 reflecting the reduced net assets of the
Trust caused by the write-down of the on-site cogeneration projects in 1998. The
decline in management fees from $528,000 in the first nine months of 1998 to
$446,000 in the same period in 1999 was also due to the reduced net assets of
the Trust.
The Trust's other expenses did not change significantly from the first quarter
of 1998 to the first quarter of 1999.
Liquidity and Capital Resources
During 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. There were no borrowings under
this line of credit in 1999.
On February 19, 1999, the Trust purchased seven Caterpillar power modules which
were delivered in the third quarter of 1999. The seven power modules have a
total price of $2,361,000 and a total capacity of 7.8 megawatts. The Trust plans
to rent the power modules to domestic and international customers.
In September 1995 the Trust acquired a portfolio of 35 cogeneration projects
from affiliates Eastern Utilities Association ("EUA"). In December 1996, the
Trust's subsidiaries that own cogeneration projects brought an arbitration
proceeding against EUA claiming that EUA had breached its representations in the
acquisition agreement and had also defrauded the trust through
misrepresentations, improper billing practices and violations of state fair
trade practice laws. In October 1998, the arbitrators awarded the Trust damages
of approximately $2,600,000 on its claims and awarded approximately $400,000 to
EUA for alleged unpaid management services thereon. In November 1998, EUA made a
payment of $2,210,000 to the Trust to liquidate the claims. After deducting
costs associated with the arbitration proceeding, the Trust recognized income of
$1,265,000.
In April 1999, the arbitration panel also awarded the Trust its attorneys' fees
and expenses incurred in prosecuting the claim, net of EUA attorneys' fees and
expenses. The panel also awarded the Trust interest on the award, net of
interest on EUA's counterclaim. The Trust received payment from EUA in the
second quarter of 1999 and recorded income of $1,497,000 in the statement of
operations.
Other than investments of available cash in power generation Projects and the
purchase of the Caterpillar power modules, 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 material amount of working capital. The amount of working capital
retained is further reduced by the availability of the line of credit facility.
The Trust anticipates that its cash flow from operations during 1999, proceeds
from the arbitration proceeding and line of credit facility 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 or 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 Byron, San Joaquin and On-Site
Cogeneration 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 Byron, San
Joaquin and On-Site Cogeneration 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, which would have
material adverse effects on the Trust.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the third quarter of 1999, Globe Manufacturing Company, the customer for
the remaining Massachusetts on-site cogeneration project, complained that the
generating system was shutting down too frequently. RPMCo investigated and
advised Globe that it appeared that the project was not at fault and that
Globe's own actions may have caused occasional, immaterial outages. RPMCo
offered to mediate the dispute. Globe refused, claimed that the project had
breached its energy services agreement and requested that the project be
permanently shut down in October 1999. The project was shut down in October 1999
and is currently out of service. The Trust has sued Globe in the United States
District Court for the District of Massachusetts for wrongful cancellation of
the energy services agreement and has requested damages and a declaration that
the agreement remains in effect. Globe has not yet answered the complaint.
The Trust has been named, along with the Managing Shareholder, by three
individual investors in lawsuits filed in the Maryland Circuit Court, Baltimore
County, claiming that the Trust is responsible for alleged written
misrepresentations made to the Trust and to other unaffiliated issuers by the
investors' broker-dealer and registered representative. The total amount
invested in the Trust by plaintiffs is $75,000. The Trust and the Managing
Shareholder have made a claim against their insurer for costs of defense and any
liability, which is currently under consideration by the insurer.
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.
<PAGE>
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 III
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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's unaudited interim financial statements for the nine month period
ended September 30, 1999 and is qualified in its entirety by reference to those
financial statements.
</LEGEND>
<CIK> 0000917032
<NAME> RIDGEWOOD ELECTRIC POWER TRUST III
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 130,340
<SECURITIES> 24,667,928<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156,905<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,824,833
<CURRENT-LIABILITIES> 319,199<F3>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 24,505,634<F4>
<TOTAL-LIABILITY-AND-EQUITY> 24,824,833
<SALES> 0
<TOTAL-REVENUES> 3,045,237
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 539,124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,506,113
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,506,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,506,113
<EPS-BASIC> 6,395
<EPS-DILUTED> 6,395
<FN>
<F1>Investments in power project partnerships.
<F2>Includes $23,856 due from affiliates.
<F3>Includes $279,197 due to affiliates.
<F3>Represents Investor Shares of beneficial interest
in Trust with capital accounts of $24,591,663 less
managing shareholder's accumulated deficit of $86,029.
</FN>
</TABLE>
