UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 0-25430
RIDGEWOOD ELECTRIC POWER TRUST IV
(Exact name of registrant as specified in its charter.)
Delaware, U.S.A. 22-3324608
(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 [ ]
<PAGE>
PART I. - FINANCIAL INFORMATION
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 only the
accounts of the Trust and of the subsidiaries owning the
Providence and Pump Services Projects. The Trust uses
the equity method of accounting for its investments in
the Maine Hydro Projects, the Maine Biomass Projects
and Santee River LLC.
Results of Operations
In the first nine months of 1998, the Trust had total
revenues of $5,400,000, which were slightly higher than
the total revenue of $5,127,000 in the same period in
1997. Revenues in the third quarter of 1998 of $1,784,000
were also slightly higher than the 1997 third quarter
revenues of $1,698,000. Cost of sales of $3,619,000 in
the first nine months of 1998 were also slightly higher
than the cost of sales of $3,434,000 in the first nine
months of 1997. Cost of sales in the third quarter of
1998 of $1,208,000 were also slightly higher than the 1997
third quarter cost of sales of $1,066,000. The increases in
both revenues and costs of sales in 1998 are attributable
to the higher production levels achieved at the Providence
project in 1998.
General and administrative expenses for the nine months
ended June 30, 1998 were $216,000 higher than the amount
for the same period in 1997 because in 1997 a portion of
the general and administrative costs paid to Ridgewood Power
Management Corporation were capitalized as part of the costs
of adding a ninth engine to the Providence project. General
and administrative expenses in the third quarter of 1998
were $111,000 higher than in the same period in 1997 for
the same reason.
Project due diligence costs in the third quarter of 1998
were $212,000 higher than in the third quarter of 1997
primarily due to the write off of costs associated with a
rejected potential investment in a series of landfill gas
fueled generation plants. Project due diligence costs for
the first nine months of 1998 increased by $215,000 for the
same reason.
Interest income declined from $205,000 in the third quarter
of 1997 to $53,000 in the third quarter of 1998 and from
$756,000 in the first nine months of 1997 to $329,000 in
the first nine months of 1997 due to lower average cash
balances.
Interest expense was slightly lower in 1998 due to lower
borrowings outstanding at the Providence project.
The Trust's equity in income from the Maine Hydro Projects
decreased from $596,000 in the first nine months of 1997 to
$584,000 in the same period in 1998 but improved from a loss
of $178,000 in the third quarter of 1997 to a loss of $104,000
in the same period in 1998. These variations were caused by
changes in project revenues resulting from precipitation
fluctuations affecting the flow of water and were within the
expected range of variations. The Trust recorded a loss of
$435,000 in the first nine months of 1998 and a loss of
$123,000 in the third quarter of 1998 with respect to its
equity in Maine Biomass Projects that was acquired in
July 1997. The projects are not operating (except for
required testing) but in April 1998 they began selling
"installed capability" (a measure of their capability to
provide electricity) under contract to participants in the
New England Power Pool. Revenues from those sales caused
the loss attributable to the Trust from the Maine Biomass
Projects to be significantly reduced in the second and
third quarters of 1998.
Liquidity and Capital Resources
During the first nine months of 1998, the Trust's operating
activities generated $281,000 of cash compared to $2,100,000
during the same period in 1997, as the result of the factors
discussed above. Capital expenditures during the first nine
months of 1998 decreased to $1,461,000 from $2,459,000 in
the same period in 1997 because most of the necessary
improvements at the Providence plant have been completed.
Cash distributions to shareholders increased to $2,695,000
in the first nine months of 1998 from $2,381,000 in the
same period in 1997 due to an increase in the frequency of
distributions from quarterly to monthly in July 1997. The
increase was lessened by a decrease in the distribution
rate from $650 per share to $500 per share in August 1998.
In September 1998, the Trust and an affiliate, Ridgewood
Electric Power Trust V ("Trust V"), purchased a preferred
membership interest in Santee River Rubber Company, LLC,
("Santee River"). Santee River is building a waste tire
and rubber processing facility located near Charleston,
South Carolina. The Trust's share of the net purchase
price was $4,469,650 and Trust V's share of the purchase
price was $8,939,301.
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 $1,150,000. 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 have been no
borrowings under the line of credit in 1998.
Other than investments of available cash in power generation
Projects, obligations of the Trust are generally limited to
payment of Project operating expenses, payment of a
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.
Year 2000 Remediation
The Managing Shareholder and its affiliates began year 2000
review and planning in early 1997. After initial remediation was
completed, a more intensive review discovered additional issues
and the Managing Shareholder began a formal remediation program
in late 1997. The Managing Shareholder has assessed problems,
has a written plan for remediation and is implementing the plan.
The accounting, network and financial packages for the
Ridgewood companies are basically off-the-shelf packages that
will be remediated, where necessary, by obtaining patches or
updated versions. The Managing Shareholder expects that updating
will be complete before the end of the first quarter of 1999 with ample time
for implementation, testing and custom changes to some modifications
made by Ridgewood to those programs. To a large extent, these software
packages would have been upgraded within a three to five year time frame,
even absent the Year 2000 problem. The Managing Shareholder estimates that
the Trust's allocable portion of the cost of upgrades that were accelerated
because of the Year 2000 problem is less than $1,000.
The Managing Shareholder has identified two major systems affecting the
Trust that rely on custom-written software, the subscription/investor
relations and investor distribution systems, which maintain individual
investor records and effect disbursement of distributions to Investors. In
late 1998, the Managing Shareholder's outside computer consultant reviewed
the remediation completed for those systems and advised the Managing
Shareholder that material additional work was required for these systems to
work efficiently after 1999. The Managing Shareholder accordingly employed a
new specialist for Year 2000 remediation of those systems and other software
and for information systems support generally. The Managing Shareholder's
plan calls for completion of changes to the distribution system and testing
of that system by the end of the first quarter of 1999 and the Managing
Shareholder believes that this effort is ahead of schedule. The plan also
targets completion by the end of the second quarter of 1999 of minor changes
to the elements of the subscription/investor relations system that will allow
it to handle individual investors' records, and of all testing of those
modifications. Elements of that system used to generate internal sales
reports and other internal reports (but which do not affect investors'
records) will require major remediation. Remediation of the internal report
generating programs is expected to be completed by the end of the third
quarter of 1999 with testing and any additional modifications to be completed
no later than the end of 1999.
The Managing Shareholder is confident that all software systems
necessary to maintain investor records will be remediated and tested well
before the end of 1999. If the systems used to generate internal reports
from the subscription/investor relations system are not remediated by the end
of 1999, the Managing Shareholder is developing a contingency plan to use the
existing systems together with manual entry of data and checking of results
until remediation is complete. The Managing Shareholder has done this in the
past when system problems have occurred and it thus believes that there will
be no material or noticeable effect on the accuracy of its records or
generation of internal reports, although it may experience delays in
generating internal reports of a few days.
Some systems are being remediated using the "sliding window" technique,
in which two digit years less than a threshold number are assumed to be in
the 2000's and higher two digit numbers are assumed to be in the 1900's.
Although this will allow compliance for several years beyond the year
2000, eventually those systems will have to be rewritten again or
replaced. The Managing Shareholder expects that the ordinary course of
system upgrading will eventually cure this problem.
The Trust's share of the incremental cost for Year 2000 remediation of
this custom written software and related items for 1998 and prior years is
estimated at $12,250 and is estimated to be approximately $11,500 for 1999.
Each of the Trust's electric generating facilities is being reviewed
during the first quarter of 1999 by an outside consultant to determine if its
electronic control systems contain software affected by the Year 2000 problem
or contain embedded components that contain Year 2000 flaws. Many of the
Trust's facilities are small electric generating facilities that rely on
mechanical and analog systems that are generally not subject to Year 2000
problems. The facilities use personal computers running packaged software
for routine recordkeeping and data logging, which have been upgraded as
described above.
The Trust's two largest generating plants, the Maine Biomass Projects
(total capacity net to the Trust 26 megawatts), have been managed by Indeck
Operations, Inc., an affiliate of Indeck Energy Systems, Inc., until March 1,
1999. The Trust took over management responsibility as of that date. Those
plants have not operated since fall 1997 and currently are shut down with an
anticipated startup date of April 2000. The manager of the plants informed the
Trust in December 1998 that the plants contained electronic control systems
with embedded components containing Year 2000 flaws. The manufacturer of the
control systems has been contacted and custom-made replacement components
have been ordered, which are expected to be obtained and installed by the end
of June 1999. If these components are not remediated, the Trust has been
advised that the plants would be inoperable from January 1, 2000. Because
the Trust does not anticipate that the plants would be in operation until
April 2000, the year 2000 problems would not result in a shutdown in January
2000.
Although the plants are not operating, they do currently sell "installed
capability" (a theoretical measurement of the reserve generating capacity of
the plants) to members of the New England Power Pool. Installed capability
sales require that the plants be operated at capacity for 24 hours in
February or March of each year as a test. A year 2000 failure that continued
beyond February or March 2000 might also disqualify the Trust from selling
"installed capability" (the theoretical reserve capacity of the plants) after
February or March 2000.
Based on discussions with Indeck Operations, Inc., the Trust believes
that the embedded components will be replaced and testing completed well
before January 2000 and that the possibility that the plants will be unable
to operate is remote. The Trust is also investigating whether, in the
unlikely event the embedded components cannot be replaced and tested in time,
the plants can be operated with manual or analog systems. The Trust's share
of the anticipated costs of remediation is estimated at less than $50,000.
Except as described above, the Trust has discovered no systems at its
operating facilities that, if they were not Year 2000 compliant, would have a
material adverse impact on output, environmental compliance, recordkeeping or
any other material aspect of operations.
The Managing Shareholder and its affiliates do not
significantly rely on computer input from suppliers and customers
and thus are not directly affected by other companies' year 2000
compliance. However, if customers' payment systems or suppliers'
systems were adversely affected by year 2000 problems, the Trust
could be affected. For example, if the utilities that purchase the Trust's
electricity output were unable to accept electricity because of system
malfunctions or transmission failures caused by Year 2000 non-compliance by
them or other persons, the Trust would lose revenues that could not be
recouped at a later date. Similarly, if utility payment systems were to
malfunction, the Trust's revenues might be delayed. Based on published
reports, the Trust believes that it is now very unlikely that utilities will
fail to accept electricity for more than a very short time because of
malfunctions caused by the Year 2000 problem. Although the Trust also
believes that utility payment problems are unlikely and, if they occur, will
not exceed a month or two, there can be no assurance that payments to the
Trust will not be interrupted. The Trust has established a line of credit,
described above at "Liquidity and Capital Resources," to cover this
contingency and others. The Trust's non-utility customers are being
contacted during the first quarter of 1999. The Trust anticipates that the
customers will advise it that they do not anticipate that their own Year 2000
problems, if any, will interfere with taking or paying for the Trust's
outputs of electricity, but that they will decline to give any
assurance that they will be able to do so.
The Trust's plants are fueled by renewable sources of energy such as
water at hydroelectric dams, landfill gas and wood waste. The Managing
Shareholder does not believe that availability of these energy sources will
be significantly affected by the Year 2000 problem. The Santee River plant's
raw materials, after it opens (which is expected to be in mid-2000 at the
earliest) are used tires and liquid nitrogen. The availability of these
materials is not expected to be significantly affected by Year 2000 problems.
Availability of other supplies such as spare parts and consumables may be
affected by Year 2000 problems; the Trust purchases these items from many
different sources, no single one or group of which could have a material
effect on the Trust if it or they were not Year 2000 compliant.
Because the Trust and the Managing Shareholder are extremely small
relative to the size of their material customers and suppliers and are paid
or supplied using the same systems as larger companies, requests for written
assurances of compliance from those customers or suppliers are
not cost-effective. Instead, the Managing Shareholder is monitoring industry
trends and compliance and is working to assure the Trust's continued
operations. Similarly, as described above, in most cases there are no cost-
effective contingency measures that can be taken against the major risks to
the Trust that utilities will fail to take or fail to pay for the Trust's
electricity output as the result of Year 2000 problems. The Trust believes
that in the event that any embedded components or other systems are found to
have Year 2000 problems at its power plants it will be able to remediate
them promptly and before the end of 1999. It is preparing contingency plans
to operate the plants with manual or analog control systems if Year 2000
problems cannot be remediated. Because the Maine Hydro plants are small
and use simple technologies (small hydroelectric turbines) that are not
dependent on date-sensitive electronics, the Trust believes that it is
unlikely that the Maine Hydro Plants would be unable to operate because of
Year 2000 problems.
Based on its internal evaluations and the risks and contexts identified
by the Commission in its rules and interpretations, the Trust believes that
except with regard to the Providence and Maine Biomass Plants Year 2000 issues
relating to its assets and remediation program will not have a material effect
on its facilities, financial position or operations, and that the costs of
addressing the Year 2000 issues will not have a material effect on its future
consolidated operating results, financial condition or cash flows. However,
this belief is based upon current information, and there can be no assurance
that unanticipated problems will not occur or be discovered that would result
in material adverse effects on the Trust.
The Trust is unable to predict reliably what, if anything, will happen
after December 31, 1999 with regard to Year 2000 problems caused by the
inability of other businesses and government agencies to complete Year 2000
remediation. The Trust knows of no specific problems identified by customers
or suppliers that would have a material adverse effect on the Trust.
The reasonable worst case scenario anticipated by the Trust is that its
electric generating 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. The Trust believes that the Providence and Maine Biomass facilities
will be capable of operation after January 1, 2000. For purposes of a
worst case scenario it will assume, until the survey of embedded components is
completed or remediation is completed, that the Providence facility would not
be able to operate after January 1, 2000 and that the Maine Biomass facilities
would not be able to complete their spring 2000 testing because there
might be embedded components that are not Year 2000 compliant and the
components could not be replaced in time. The Providence and Maine Biomass
facilities provided approximately 95% of the Trust's net revenues in 1998.
RIDGEWOOD ELECTRIC POWER TRUST IV
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 IV
Registrant
March 8, 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)
