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 March 31, 1996
Commission file number 1-10473
PRIDE COMPANIES, L.P.
(Name of registrant)
Delaware 75-2313597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1209 North Fourth Street, Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(915) 674-8000
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 [ ]
Indicate the number of units outstanding of each of the
issuer's classes of units, as of the latest practicable date.
Class Outstanding at May 1, 1996
Convertible Preferred Units 4,700,000
Common Units 5,250,000<PAGE>
<TABLE>
PART I. Item 1. Financial Information
PRIDE COMPANIES, L.P.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except unit amounts)
<CAPTION>
March 31, December 31,
1996 1995
___________ ____________
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 276 $ 288
Accounts receivable, less allowance
for doubtful accounts 19,965 16,205
Inventories 13,777 14,248
Prepaid expenses 1,303 1,606
___________ ___________
Total current assets 35,321 32,347
Property, plant and equipment 135,251 137,778
Accumulated depreciation 32,044 32,941
___________ ___________
Property, plant and equipment - net 103,207 104,837
Other assets 1,130 1,122
___________ ___________
$ 139,658 $ 138,306
LIABILITIES AND PARTNERS' CAPITAL:
Current liabilities:
Accounts payable $ 36,013 $ 34,631
Accrued payroll and related benefits 1,593 1,568
Accrued taxes 4,282 3,797
Other accrued liabilities 2,894 2,807
Current portion of long-term debt 4,618 3,447
___________ ___________
Total current liabilities 49,400 46,250
Long-term debt, excluding current portion 51,051 53,053
Deferred income taxes 2,686 2,718
Other long-term liabilities - 272
Partners' capital:
Preferred units (4,700,000 units
authorized and outstanding) 17,974 17,739
Common units (5,250,000 units
authorized and outstanding) 18,284 18,022
General partners' interest 263 252
___________ ___________
Total partners' capital 36,521 36,013
___________ ___________
$ 139,658 $ 138,306
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Three Months Ended March 31,
1996 1995
______________ ___________
<S> <C> <C>
Revenues $ 150,364 $ 150,426
Cost of sales and operating expenses,
excluding depreciation 143,274 149,276
Marketing, general and
administrative expenses 2,567 2,756
Depreciation 1,765 1,768
____________ ___________
Operating income (loss) 2,758 (3,374)
Other income (expense):
Interest income 20 50
Interest expense (1,491) (1,660)
Credit and loan fees (805) (693)
Other - net 27 114
____________ ___________
Income (loss) before income taxes 509 (5,563)
Income tax expense (benefit) 1 (5)
____________ ___________
Net income (loss) $ 508 $ (5,558)
General partners' interest $ 10 $ (111)
Net income (loss) allocable
to unitholders $ 498 $ (5,447)
Net income (loss) per unit $ .05 $ (.55)
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<CAPTION>
Three Months Ended March 31,
1996 1995
____________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 508 $ (5,558)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation 1,765 1,768
(Gain) loss on sale of
property, plant and equipment (23) (48)
Deferred tax benefit (32) (27)
Cash provided by (used in) current
assets and current liabilities:
(Increase) decrease in accounts
receivable (3,760) 1,434
(Increase) decrease in inventories 471 1,949
(Increase) decrease in prepaid
expenses 303 322
Increase (decrease) in accounts
payable 1,382 (228)
Increase (decrease) in accrued
liabilities 597 71
____________ ___________
Total adjustments 703 5,241
____________ ___________
Net cash provided by (used in)
operating activities 1,211 (317)
Cash flows from investing activities:
Purchases of property, plant and
equipment (406) (213)
Proceeds from disposal of property,
plant and equipment 42 53
Other (24) 57
____________ ___________
Net cash provided by (used in)
investing activities (388) (103)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 8,550 707
Payments on debt and credit
facilities (9,381) (216)
Other (4) (78)
____________ ___________
Net cash provided by (used in)
financing activities (835) 413
____________ ___________
Net increase (decrease) in cash and
cash equivalents (12) (7)
Cash and cash equivalents at the
beginning of the period 288 35
____________ ___________
Cash and cash equivalents at the
end of the period $ 276 $ 28
See accompanying notes.
/TABLE
<PAGE>
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization
Pride Companies, L.P. (the "Partnership"), a Delaware limited
partnership, owns and operates a modern simplex petroleum refinery
facility located near Abilene, Texas (the "Refinery"), a crude oil
gathering business (the "Crude Gathering System") that gathers,
transports, and resells and redelivers crude oil in the Texas and
New Mexico markets, and certain integrated product pipeline
operations (the "Products System"). The Partnership's operations
are considered a single industry segment, the refining of crude oil
and the sale of the resulting petroleum products. The primary
purpose of the Crude Gathering System is to supply the Refinery
with crude oil at strategic locations for input into the Refinery.
The Crude Gathering System consists of a series of gathering lines
and a fleet of trucks which transport crude oil into third party
pipelines and into the system's primary asset, a common carrier
pipeline which delivers crude oil to and terminates at the
Refinery. The Products System consists of certain product
pipelines which originate at the Refinery and terminate at the
Partnership's marketing terminals.
Pride SGP ("Pride SGP" or the "Special General Partner")
serves as special general partner of the Partnership and owns a
0.1% general partner interest and the 5,250,000 common units
("Common Units"). Pride Refining, Inc. serves as the managing
general partner of the Partnership and owns a 1.9% general partner
interest (the "Managing General Partner").
2. Accounting Policies
The financial statements of the Partnership include all of its
majority owned subsidiaries including limited partnership interests
where the Partnership has significant control through related
parties. All intercompany transactions have been eliminated and
minority interest has been provided where applicable. The
financial statements included in this quarterly report on Form 10-Q
are unaudited and condensed and do not contain all information
required by generally accepted accounting principles to be included
in a full set of financial statements. In the opinion of
management, all material adjustments necessary to present fairly
the financial position, results of operations, and cash flows for
such periods have been included. Interim period results are not
necessarily indicative of the results to be achieved for the full
year. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
The financial statements of the Partnership presented in its
Annual Report on Form 10-K for the year ended December 31, 1995
include a summary of significant accounting policies that should be
read in conjunction with this quarterly report on Form 10-Q. The
Partnership has two subsidiaries that are corporations which are
separate taxable entities whose operations are subject to federal
income taxes.
Net Income (Loss) per Unit is calculated using the weighted
average number of Units outstanding during the period (4,700,000
convertible preferred units and 5,250,000 Common Units) divided
into the Partnership's net income (loss) after adjusting for
general partner allocations.
3. Related Party Transactions
In accordance with the Amended and Restated Agreement of
Limited Partnership of Pride Companies, L.P. ("Partnership
Agreement"), the Managing General Partner conducts, directs and
exercises control over substantially all of the activities of the
Partnership. The Managing General Partner has a 1.9% interest in
the income and cash distributions of the Partnership, subject to
certain adjustments. Certain members of the management of the
Managing General Partner are also members of the management of
Pride SGP, which has a 0.1% general partner interest and a 51.7%
limited partner interest in the Partnership.
The Partnership has no directors or officers; however,
directors and officers of the Managing General Partner are employed
by the Partnership to function in this capacity. Compensation of
these persons and any other expenses incurred on behalf of the
Partnership by the Managing General Partner and Pride SGP are paid
by the Partnership.
Certain conflicts of interest, including potential non-arm's
length transactions, could arise as a result of the relationships
described above. The Board of Directors and management of the
Managing General Partner have a duty to manage the Partnership in
the best interests of the unitholders and consequently must
exercise good faith and integrity in handling the assets and
affairs of the Partnership.
<PAGE>
4. Inventories
<TABLE>
<CAPTION>
Inventories are valued at the At At
lower of cost or market and March 31, December 31,
consist of: 1996 1995
(in thousands)
_____________________________ ___________ ___________
<S> <C> <C>
Crude oil $ 10,114 $ 10,981
Refined products and blending
materials 7,989 5,589
___________ ___________
18,103 16,570
LIFO reserve (5,470) (3,426)
___________ ___________
Petroleum inventories 12,633 13,144
Spare parts and supplies 1,144 1,104
___________ ___________
$ 13,777 $ 14,248
</TABLE>
The last-in/first-out (LIFO) inventory cost method is used for
crude oil and refined products and blending materials. The
weighted average inventory cost method is used for spare parts and
supplies.
5. Long-term Debt
In 1996, the Partnership's credit facility was
amended to extend the maturity date to April 1, 1997. Under this
credit facility, the Partnership has a $6,500,000 standby letter of
credit facility for general corporate purposes and the purchase of
crude oil and other refinery feedstocks ("Facility A") and a
$45,000,000 standby letter of credit facility for the purchase of
crude oil ("Facility B"). The fee on outstanding Facility A and
Facility B standby letters of credit is 1 and 1/2% per annum. For
the unused portion of the standby letter of credit facility, the
fee is one-half of 1% per annum. Though no advances had been drawn
under either the Facility A or Facility B letter of credit
facility, the Partnership did have approximately $721,000 and $44.1
million, respectively, in outstanding standby letters of credit as
of March 31, 1996. On April 24, 1996, the credit facility was
amended to provide an additional $8,000,000 standby letter of
credit facility for the purchase of crude oil and other refinery
feedstocks ("Special LC Facility"). The fee on outstanding Special
LC Facility standby letters of credit is 3% per annum. There is no
commitment fee for the unused portion of the Special LC Facility.
Under the amended credit facility, the Partnership has
available to it a revolving line of credit of $8.0 million (the
"Revolver") and a $45.0 million term loan (the "Term Loan"). The
amount available under the Revolver is subject to a borrowing base
which includes a reduction by the amount of letters of credit
issued under Facility A. Advances under the Revolver and Term Loan
bear interest at prime plus 2% and 3%, respectively, payable
monthly. The prime rate was 8.25% as of March 31, 1996. The Term
Loan is subject to a facility fee of 5% per annum commencing
January 1, 1996 and payable at maturity which is April 1, 1997.
The Partnership has pledged substantially all its assets as
collateral. In addition, the General Partners guaranteed the
facility and Pride SGP as guarantor has pledged its assets as
collateral for such loans. The Partnership may elect to prepay the
credit facilities without any prepayment penalty. The fee for the
unused portion of the Revolver is one-half of 1% per annum. At
March 31, 1996, the balances outstanding on the Revolver and Term
Loan were $885,000 and $44.1 million, respectively. The
Partnership is required to make monthly principal payments in the
amount of 95% of available cash flow for the second preceding
month. The Partnership has classified $2.7 million of the Term
Loan as current as of March 31, 1996.
Advances under the Revolver are subject to repayment on a
daily basis. As a result, the full amount outstanding at March 31,
1996 has been included in the current portion of long-term debt.
Subject to the Borrowing Base, the Partnership may borrow any
amounts previously paid.
The facility also includes a $2.5 million uncommitted line of
credit ("Uncommitted Line"). Advances under the Uncommitted Line
are made solely at the lenders' discretion and bear interest at the
prime rate plus 4%. The Uncommitted Line must be completely paid
off for fifteen consecutive days each month. There were no
advances outstanding under the Uncommitted Line at March 31, 1996.
The amended credit facility also requires the Partnership to
pay a monthly fee of $10,000 and restricts the payment of
distributions to unitholders throughout the term of the amended
credit agreement. Future distributions will be dependent on
payment in full of bank debt, expiration of all liabilities for
letters of credit, and the termination of the credit agreement.
The Partnership has a nonrecourse loan from Diamond Shamrock
with an outstanding principal balance of $5.8 million at March 31,
1996, bearing interest at 8% per annum with monthly principal and
interest payments. The assets of Pride Texas Plains L.P., which
owns 50% of the Texas Plains System, are pledged as collateral and
the note is guaranteed by Pride Borger, a wholly owned subsidiary
of the Partnership. Monthly principal payments are made to Diamond
Shamrock based on the number of throughput barrels for the prior
month in the Texas Plains Pipeline System. Current maturities are
estimated to be $158,000 at March 31, 1996. In 1996, the
Partnership acquired the other 50% interest in the Texas Plains
System from Scurlock Permian.
Pride SGP has made unsecured loans to the Partnership in the
principal amount of $2.5 million bearing interest at prime plus 2%.
The loans mature April 1, 1997.
During 1995, the Partnership converted non-interest bearing
accounts payable to the United States Government related to pricing
adjustments which had been accrued since 1993 to a $2.4 million
installment loan. The principal balance was $2.0 million at
March 31, 1996. The note bears interest based on the rate set by
the Secretary of the Treasury. This rate was 5.875% as of
March 31, 1996. The note requires monthly payments of $84,000.
The note matures June 1, 1998. The Partnership has classified
$908,000 of the note as current as of March 31, 1996.
On January 9, 1995, the Partnership executed a note to a local
bank related to the renovation and refinancing of its
administrative offices in Abilene. Prior to this, the Partnership
had to lease additional office space from a third party. The note
bears interest at prime plus one-half of 1% and had an outstanding
principal balance of $384,000 at March 31, 1996. The note matures
January 9, 2000. The Partnership has classified $16,000 of the
note as current as of March 31, 1996.
6. Preferred and Common Units
At March 31, 1996, 4,700,000 Preferred Units were outstanding,
representing an approximate 46.3% limited partner interest in the
Partnership. The Preferred Units are cumulative, entitled to a
minimum quarterly distribution of $0.65 per unit through the
Initial Conversion Date which is the first day of the third
calendar quarter in which the payment of all cumulative arrearages
to Preferred Unitholders have been paid, and all arrearages must be
paid before the Common Unitholders may receive distributions. The
Preferred Units are convertible into Common Units on the Initial
Conversion Date. The Common Units are also cumulative and entitled
to a quarterly distribution of $0.65 per unit; however, no Common
Unit arrearages will be paid after the Initial Conversion Date, and
any such accumulated arrearages then existing will be cancelled.
The general partners are entitled to 2% of all distributions. At
March 31, 1996, cumulative arrearages were $12.35 per Common Unit
which totaled $64.8 million and $10.70 per Preferred Unit which
totaled $50.3 million.
Under the terms of the Partnership's credit agreement, the
bank restricted the payment of distributions to unitholders
throughout the term of the credit agreement. Future distributions
will be dependent on payment in full of the bank debt, expiration
of all liabilities for letters of credit, and the termination of
the credit agreement.<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Overview
Pride Companies, L.P. is a Delaware limited partnership formed
on January 17, 1990, to acquire, own and operate a petroleum
refining business ("Refinery"), products pipeline business
("Products System"), and crude oil gathering business ("Crude
Gathering System").
The Crude Gathering System is the primary source of crude
supply for the Refinery, although some gathering is done for
others. It gathers crude at the wellhead and then buys and sells
crude oil so that it can deliver crude through its Crude Gathering
System to the Refinery. After the crude is processed into
petroleum products at the Refinery, it is marketed and if necessary
transported to the Partnership's terminals through the Products
System's pipelines.
The following is a discussion of the results of operations of
the Partnership. This discussion should be read in conjunction
with the financial statements included in this report.
General
The Partnership's operating results depend principally on the
rate of utilization of the Refinery, the margins between the prices
of its refined petroleum products and the cost of crude oil, the
volume throughput on the Products System, and the volume throughput
on and margins from the transportation and resale of crude oil from
its Crude Gathering System. Higher Refinery utilization allows the
Partnership to spread its fixed costs across more barrels, thereby
lowering the fixed costs per barrel of crude oil processed. The
refining business is highly competitive, and the Partnership's
margins are significantly impacted by general industry margins.
Industry margins are determined by a variety of regional, national,
and global trends, including oil prices, weather, and economic
conditions, among other things. The Refinery's JP-8 (a grade of
military aviation fuel) prices are influenced by these trends since
the pricing for JP-8 is based on Jet A, a kerosene-based product,
and the price of diesel and heating fuels affect the price of
kerosene.
In 1991, the Partnership completed construction of the
catalytic reformer unit ("CRU") that allows it to refine naphtha
into unleaded gasoline. Prior to construction of the CRU, almost
all naphtha went into the production of JP-4, a grade of military
jet fuel. The CRU provided the Partnership an alternative market
for its naphtha in the short-term and prepared it for the
conversion of the military fuel from JP-4 to JP-8 that was
effective in April 1994 for East and Gulf Coast bases. JP-8 is a
kerosene-based fuel and without the CRU the Partnership would not
have had a market for its naphtha. As a result of the CRU, the
Partnership has entered into sales and exchange agreements with
eight major oil companies.
When the diesel desulfurization unit ("DDU") went on line in
the third quarter of 1993, it marked the completion of a three-year
diversification process that allows the Partnership to refine more
valuable products and expand its markets. In addition to
completing the diversification process, the construction of the DDU
also met the challenge of present environmental regulations.
Federal law required the sulfur content in all diesel produced for
highway use to be reduced by October 1, 1993. The DDU, capable of
processing 12,000 BPD, was completed ahead of schedule and was
producing low-sulfur diesel prior to the October 1, 1993 deadline.
Margins in the Crude Gathering System are influenced by the
level of competition and the price of crude oil. When prices are
higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges trend upward when higher crude
oil prices stimulate increased exploration and development.
Conversely, when crude oil prices decrease, margins on the resale
of crude oil as well as transportation charges tend to decrease.
In evaluating the financial performance of the Partnership,
management believes it is important to look at operating income,
excluding depreciation in addition to operating income which is
after depreciation. Operating income, excluding depreciation
measures the Partnership's ability to generate and sustain working
capital and ultimately cash flows from operations. However, such
measure is before debt service so it does not indicate the amount
available for distribution, reinvestment or other discretionary
uses. Gross revenues primarily reflect the level of crude oil
prices and are not necessarily an accurate reflection of the
Partnership's profitability. Also important to the evaluation of
the Refinery's performance are barrels of crude oil refined, gross
margin (revenue less cost of crude) per barrel, and operating
expense per barrel, excluding depreciation.<PAGE>
First Quarter 1996 Compared to First Quarter 1995
GENERAL -- Net income for the first quarter of 1996 was
$508,000 compared to net loss of $5.6 million for the first quarter
of 1995. The improvement was primarily a result of stronger
refining and crude gathering margins during the first quarter of
1996. General and administrative expenses also declined $189,000
for the first quarter of 1996 from the first quarter of 1995.
Operating income was $2.8 million for the first quarter of
1996 compared to an operating loss of $3.4 million for the first
quarter of 1995. Operating income, excluding depreciation, for the
first quarter of 1996 increased to $4.5 million from an operating
loss, excluding depreciation, of $1.6 million for the first quarter
of 1995.
The following table details the operating income (loss);
depreciation; and the operating income (loss), excluding
depreciation (in thousands), for the first quarter of 1996 and
1995.
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Excluding
(Loss) Deprec. Deprec.
_______ _______ ________
<S> <C> <C> <C>
First Quarter 1996
Refinery and Products System $ 584 $ 1,249 $ 1,833
Crude Gathering System 2,174 516 2,690
_______ _______ ________
Total $ 2,758 $ 1,765 $ 4,523
First Quarter 1995
Refinery and Products System $(4,039) $ 1,254 $ (2,785)
Crude Gathering System 665 514 1,179
_______ _______ ________
Total $(3,374) $ 1,768 $ (1,606)
</TABLE>
REFINERY AND PRODUCTS SYSTEM -- Operating income of the
Refinery and Products System was $584,000 for the first quarter of
1996 compared to an operating loss of $4.0 million for the first
quarter of 1995. Depreciation expense for the Refinery and
Products System was approximately $1.2 million for the first
quarter of 1996 and $1.3 million for the first quarter of 1995.
Operating income, excluding depreciation, of the Refinery and
Products System was $1.8 million for the first quarter of 1996
compared to operating loss, excluding depreciation, of $2.8 million
for the first quarter of 1995.
Operating income of the Refinery was $236,000 for the first
quarter of 1996 compared to an operating loss of $4.4 million for
the same period in 1995. The improvement is a result of stronger
refining margins in the first quarter of 1996. Depreciation
expense for the Refinery alone was $1.0 million for both the first
quarter of 1996 and the first quarter of 1995. Operating income,
excluding depreciation, of the Refinery was $1.3 million for the
first quarter of 1996 compared to operating loss, excluding
depreciation, of $3.4 million for the first quarter of 1995. The
increase was due to the stronger refining margins during the first
quarter of 1996.
Refinery gross margin per barrel was $1.99 for the first
quarter of 1996 versus $0.41 for the same period in 1995. Refinery
throughput averaged 33,177 BPD for the first quarter of 1996 versus
32,494 BPD for the same period in 1995. Operating expenses per
barrel, excluding depreciation, were $1.09 for the first quarter of
1996 compared to $1.15 for the first quarter of 1995.
Operating income for the Products System was $348,000 for the
first quarter of 1996 compared to $387,000 for the first quarter of
1995. Depreciation expense for the Products System was $220,000
for the first quarter of 1996 compared to $218,000 for the first
quarter of 1995. Operating income, excluding depreciation, for the
Products System decreased to $568,000 for the first quarter of 1996
from $605,000 for the same period in 1995 principally as a result
of decreased pipeline volumes to the Aledo terminal in the first
quarter of 1996. Total transportation volumes were 13,979 BPD for
the first quarter of 1996 compared to 15,087 BPD for the same
period in 1995.
CRUDE GATHERING SYSTEM -- Operating income for the Crude
Gathering System was $2.2 million for the first quarter of 1996
compared to $665,000 for the same period in 1995 due to an increase
in crude gathering margins. Depreciation expense for the Crude
Gathering System increased to $516,000 for the first quarter of
1996 from $514,000 for the first quarter of 1995. Operating
income, excluding depreciation, for the Crude Gathering System was
$2.7 million for the first quarter of 1996 and $1.2 million for the
first quarter of 1995. The net margin was $0.36 per barrel for the
first quarter of 1996 versus $0.10 per barrel for the same period
in 1995. Due to the elimination of several marginal contracts, the
volume of crude oil gathered by the Crude Gathering System
decreased to 66,570 BPD for the first quarter of 1996 from 72,396
BPD for the first quarter of 1995.
Factors and Trends Affecting Operating Results
A number of factors have affected the Partnership's operating
results, both indirectly and directly, such as environmental
compliance, other regulatory matters, industry trends and price of
crude oil, inventory prices, and seasonality and weather. The
Managing General Partner of the Partnership expects that such
conditions will continue to affect the Partnership's business to
varying degrees in the future. The order in which these factors
are discussed is not intended to represent their relative
significance.
ENVIRONMENTAL COMPLIANCE -- Increasing public and governmental
concern about air quality is expected to result in continued
regulation of air emissions. Regulations relating to carbon
monoxide and regulations on oxygen content in gasoline and sulfur
content in diesel fuel are expected to be increasingly important as
a means of improving air quality in urban areas. In response to
environmental regulations that became effective in October 1993,
the Partnership constructed a DDU at the Refinery to reduce the
sulfur content of highway use diesel fuel. In addition, the
Partnership plans to spend approximately $750,000 in 1996, 1997 and
1998 on several projects to maintain compliance with various other
environmental requirements including $400,000 for a sewer system
upgrade.
Effective January 1, 1995, the Clean Air Act Amendment of 1990
required that certain areas of the country use reformulated
gasoline ("RFG"). The Abilene and San Angelo market areas do not
require RFG. Collin, Dallas, Denton, and Tarrant Counties, which
comprise the Dallas-Fort Worth ("DFW") metroplex area, do require
RFG; however, the Partnership's Aledo terminal lies outside this
area and is allowed to supply conventional gasoline that is not
destined for sale in these four counties. In addition to the
requirement for RFG in certain areas, new but much less restrictive
regulations took effect that impose new quality standards for
conventional gasoline in the rest of the country. Management does
not anticipate that these have had or will have a material adverse
effect on the Partnership's operations.
In early 1993, the United States Environmental Protection
Agency ("EPA") filed an administrative complaint and compliance
order against the Partnership. The complaint initially proposed an
assessment of $553,000 in penalties and fulfillment of a compliance
order at an unspecified cost against the Partnership. The
principal violations alleged by the EPA include the failure to
properly monitor ground water and to implement a ground water
monitoring program. Management believes that it has complied or is
complying with the matter specified by the EPA and has filed an
answer to the complaint. On February 8, 1996, the Partnership
received a letter from the EPA offering to settle the complaint for
$405,000 in penalties plus fulfillment of the compliance order.
The Partnership will continue to vigorously contest the matter
until a more favorable settlement can be reached with the EPA.
OTHER REGULATORY REQUIREMENTS -- The Partnership is also
subject to the rules and regulations of Occupational Safety and
Health Administration, Texas Air Control Board, Texas Railroad
Commission, and Texas Water Commission.
INDUSTRY TRENDS AND PRICE OF CRUDE OIL -- Industry trends and
the price of crude oil will continue to affect the Partnership's
business. While refined products are generally sold at a margin
above crude oil prices, fluctuations in the price of crude oil can
have a significant short-term effect on refining margins because
there is usually a lag in the movement of product prices, both up
and down, in relation to the movement of crude oil prices. The
general level of crude oil prices can also have a significant
effect on the margins in the crude gathering business. Margins in
the Crude Gathering System generally tend to be influenced by
competition and the general price level of crude oil. When prices
are higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges are slightly less competitive
when higher crude oil prices result in increased exploration and
development. Conversely, when crude oil prices decrease, margins
on the resale of crude oil and transportation charges generally
tend to decrease.
INVENTORY PRICES -- In 1993, the Partnership adopted the last-
in/first-out (LIFO) method of determining inventory values. This
change should minimize the effect of fluctuations in inventory
prices on earnings by matching current costs with current revenue.
The LIFO method is the predominant method used in the refining
industry.
SEASONALITY AND WEATHER -- Gasoline consumption is typically
highest in the United States in the summer months and lowest in the
winter months. As a result, margins for gasoline tend to be higher
in the summer months. Diesel consumption in the southern United
States is generally higher just prior to and during the winter
months when commercial trucking is routed on southern highways to
avoid severe weather conditions further north. Additionally,
diesel fuel prices tend to increase during the winter months when
refiners divert heating fuels to northern areas. During
unseasonably warm winters, as was experienced in the first quarter
of 1995, diesel prices do not trend up as in colder, longer
winters. The Refinery's JP-8 prices are influenced by these trends
since the pricing for JP-8 is based on Jet A, a kerosene based
product, and the price of diesel and heating fuels affect the price
of kerosene.
OTHER FACTORS -- The Partnership has been awarded contracts
from the United States Government for the right to supply 106
million gallons of JP-8 to ten military installations in Texas for
the period from April 1, 1996 through March 31, 1997.
Financial Condition
Inflation
The Partnership's operations would be adversely impacted by
significant, sustained increases in crude oil and other energy
prices. Although the Partnership's operating costs are generally
impacted by inflation, the Managing General Partner does not expect
general inflationary trends to materially adversely impact the
Partnership's businesses.
Financial Resources and Liquidity
The Partnership's operations require substantial amounts of
working capital and open lines of credit which the Partnership
believes are currently adequate to provide funds to sustain
operations at present levels. The Partnership receives payments
from the United States Government, major oil companies, and other
customers within approximately 7 to 15 days from shipment in the
case of products sales and by the 20th of the following month in
the case of third-party crude oil sales and exchanges. The
Partnership maintains inventory in the amount of approximately 10
to 20 days of sales. The Partnership generally pays for crude oil
feedstock on the 20th of the month following the month in which it
is received. As a result, the Partnership's operating cycle is
such that it generally receives cash for the refined products on a
basis roughly equal to the average terms on which it pays for the
crude oil feedstock.
Letters of credit are an integral part of the operations of
the Crude Gathering System since the Partnership takes title to
both first purchased barrels and custom gathered barrels. In 1996,
the Partnership's credit facility was amended to extend the
maturity date to April 1, 1997. Under this credit facility, the
Partnership has a $6,500,000 standby letter of credit facility for
general corporate purposes and the purchase of crude oil and other
refinery feedstocks ("Facility A") and a $45,000,000 standby letter
of credit facility for the purchase of crude oil ("Facility B").
The fee on outstanding Facility A and Facility B standby letters of
credit is 1 and 1/2% per annum. For the unused portion of the
standby letter of credit facility, the fee is one-half of 1% per
annum. Though no advances had been drawn under either the Facility
A or Facility B letter of credit facility, the Partnership did have
approximately $721,000 and $44.1 million, respectively, in
outstanding standby letters of credit as of March 31, 1996. On
April 24, 1996, the credit facility was amended to provide an
additional $8,000,000 standby letter of credit facility for the
purchase of crude oil and other refinery feedstocks ("Special LC
Facility"). The fee on outstanding Special LC Facility standby
letters of credit is 3% per annum. There is no commitment fee for
the unused portion of the Special LC Facility.
Under the amended credit facility, the Partnership has
available to it a revolving line of credit of $8.0 million (the
"Revolver") and a $45.0 million term loan (the "Term Loan"). The
amount available under the Revolver is subject to a borrowing base
which includes a reduction by the amount of letters of credit
issued under Facility A. Advances under the Revolver and Term Loan
bear interest at prime plus 2% and 3%, respectively, payable
monthly. The prime rate was 8.25% as of March 31, 1996. The Term
Loan is subject to a facility fee of 5% per annum commencing
January 1, 1996 and payable at maturity which is April 1, 1997.
The Partnership has pledged substantially all its assets as
collateral. In addition, the General Partners guaranteed the
facility and Pride SGP as guarantor has pledged its assets as
collateral for such loans. The Partnership may elect to prepay the
credit facilities without any prepayment penalty. The fee for the
unused portion of the Revolver is one-half of 1% per annum. At
March 31, 1996, the balances outstanding on the Revolver and Term
Loan were $885,000 and $44.1 million, respectively. The
Partnership is required to make monthly principal payments in the
amount of 95% of available cash flow for the second preceding
month. The Partnership has classified $2.7 million of the Term
Loan as current as of March 31, 1996.
Advances under the Revolver are subject to repayment on a
daily basis. As a result, the full amount outstanding at March 31,
1996 has been included in the current portion of long-term debt.
Subject to the Borrowing Base, the Partnership may borrow any
amounts previously paid.
The facility also includes a $2.5 million uncommitted line of
credit ("Uncommitted Line"). Advances under the Uncommitted Line
are made solely at the lenders' discretion and bear interest at the
prime rate plus 4%. The Uncommitted Line must be completely paid
off for fifteen consecutive days each month. There were no
advances outstanding under the Uncommitted Line at March 31, 1996.
The amended credit facility also requires the Partnership to
pay a monthly fee of $10,000 and restricts the payment of
distributions to unitholders throughout the term of the amended
credit agreement. Future distributions will be dependent on
payment in full of bank debt, expiration of all liabilities for
letters of credit, and the termination of the credit agreement.
The Partnership has a nonrecourse loan from Diamond Shamrock
with an outstanding principal balance of $5.8 million at March 31,
1996, bearing interest at 8% per annum with monthly principal and
interest payments. The assets of Pride Texas Plains L.P., which
owns 50% of the Texas Plains System, are pledged as collateral and
the note is guaranteed by Pride Borger, a wholly owned subsidiary
of the Partnership. Monthly principal payments are made to Diamond
Shamrock based on the number of throughput barrels for the prior
month in the Texas Plains Pipeline System. Current maturities are
estimated to be $158,000 at March 31, 1996. In 1996, the
Partnership acquired the other 50% interest in the Texas Plains
System owned by Scurlock Permian.
Pride SGP has made unsecured loans to the Partnership in the
principal amount of $2.5 million bearing interest at prime plus 2%.
The loans mature April 1, 1997.
During 1995, the Partnership converted non-interest bearing
accounts payable to the United States Government related to pricing
adjustments which had been accrued since 1993 to a $2.4 million
installment loan. The principal balance was $2.0 million at
March 31, 1996. The note bears interest based on the rate set by
the Secretary of the Treasury. This rate was 5.875% as of
March 31, 1996. The note requires monthly payments of $84,000.
The note matures June 1, 1998. The Partnership has classified
$908,000 of the note as current as of March 31, 1996.
On January 9, 1995, the Partnership executed a note to a local
bank related to the renovation and refinancing of its
administrative offices in Abilene. Prior to this, the Partnership
had to lease additional office space from a third party. The note
bears interest at prime plus one-half of 1% and had an outstanding
principal balance of $384,000 at March 31, 1996. The note matures
January 9, 2000. The Partnership has classified $16,000 of the
note as current as of March 31, 1996.
Cash flows have been and will continue to be significantly
affected by fluctuations in the cost and volume of crude oil and
refined products held in inventory and the timing of accounts
receivable collections. Cash flows are also affected by refining
margins and crude oil gathering margins.
The Partnership's operations have generated losses in each of
the last five years and current ratios of less than one to one in
each of the last three years. These conditions and financial
results were primarily a result of depressed refining margins along
with increasing depreciation expense and interest expense and
related fees. Crude gathering volumes have also decreased.
The losses incurred in the first quarter of 1995 were funded
by cash flow generated from operations in the final three quarters
of 1995, a loan from Pride SGP, and additional funds which became
available under its revolving credit facility due to the reduction
of the level of certain letters of credit.
The Partnership's return to profitability and long-term
viability is dependent upon restructuring its credit facility,
increased volumes and/or improved profit margins, as well as
continued cost control initiatives. Management believes the
extension of the existing credit facility to April 1, 1997
sufficiently alleviates any short-term threats to the liquidity of
the Partnership. Though management has and will continue to pursue
options regarding increasing volumes and margins and reducing
costs, including limiting any significant capital expenditures,
these improvements will be gradual and, in many cases, will take
sustained periods of time to implement in order to achieve
profitability. The most significant and urgent need of the
Partnership is to effect a complete restructuring and
recapitalization of the Partnership's debt and equity. To that
end, the Partnership has reached a tentative agreement with its
lenders to restructure the existing bank debt. The tentative
agreement is made up of three phases. Phase one ("Phase One")
contemplates a new loan agreement being executed between the banks
and the Partnership. In phase two ("Phase Two"), the Unitholders
will vote on a change in the equity structure of the Partnership.
If Phase Two is approved by the Unitholders, the banks will convert
a portion of their Term Loan into notes, lower certain interest
rates and credit and loan fees and extend the maturity. In phase
three ("Phase Three"), the Partnership plans to refinance with
additional third party creditors the letter of credit facility, the
Revolver, the Term Loan and a portion of the notes created in Phase
Two. The portion of the notes not refinanced would be converted to
a preferred equity security. During the first quarter of 1996, the
Partnership expensed $197,000 related to this proposed
restructuring of its credit facility. This is in addition to the
$873,000 expensed for the year ended December 31, 1995. The
Managing General Partner is hopeful Phase One will be completed by
second quarter of 1996, Phase Two will be completed during the
third quarter of 1996 and Phase Three will be completed in either
the fourth quarter of 1996 or first quarter of 1997. There can be
no assurance the Partnership will be able to complete each of the
phases outlined. If the Partnership fails to complete them, it
will have to pursue other means of effecting a restructuring and
recapitalization prior to the maturity of its credit facility on
April 1, 1997. If the Partnership is successful in arranging a
complete restructuring and recapitalization of the Partnership, the
Managing General Partner believes it will enhance the Partnership's
financial strength, flexibility and future access to capital
markets as well as lowering interest expense.
Capital Expenditures
The Partnership incurred maintenance capital expenditures of
$406,000 for the first quarter of 1996.
Cash Distributions
At March 31, 1996, 4,700,000 Preferred Units were outstanding,
representing an approximate 46.3% limited partner interest in the
Partnership. The Preferred Units are cumulative, entitled to a
minimum quarterly distribution of $0.65 per unit through the
Initial Conversion Date which is the first day of the third
calendar quarter in which the payment of all cumulative arrearages
to Preferred Unitholders have been paid, and all arrearages must be
paid before the Common Unitholders may receive distributions. The
Preferred Units are convertible into Common Units on the Initial
Conversion Date. The Common Units are also cumulative and entitled
to a quarterly distribution of $0.65 per unit; however, no Common
Unit arrearages will be paid after the Initial Conversion Date, and
any such accumulated arrearages then existing will be cancelled.
The general partners are entitled to 2% of all distributions. At
March 31, 1996, cumulative arrearages were $12.35 per Common Unit
which totaled $64.8 million and $10.70 per Preferred Unit which
totaled $50.3 million.
Under the terms of the Partnership's credit agreement, the
bank restricted the payment of distributions to unitholders
throughout the term of the credit agreement. Future distributions
will be dependent on payment in full of the bank debt, expiration
of all liabilities for letters of credit, and the termination of
the credit agreement.
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
In early 1993, the United States Environmental Protection
Agency ("EPA") filed an administrative complaint and compliance
order against the Partnership. The complaint initially proposed an
assessment of $553,000 in penalties and fulfillment of the
compliance order at an unspecified cost against the Partnership.
The principal violations alleged by the EPA include the failure to
properly monitor ground water and to implement a ground water
monitoring program. Management believes that it has complied or is
complying with the matters specified by the EPA and has filed an
answer to the complaint. On February 8, 1996, the Partnership
received a letter from the EPA offering to settle the complaint for
$405,000 in penalties plus fulfillment of the compliance order.
The Partnership will continue to vigorously contest the matter
until a more favorable settlement can be reached with the EPA.
The Partnership has filed a substantial claim against the
Defense Fuel Supply Center relating to erroneous pricing of fuel
purchased over a period of several years from the Partnership and
its predecessors. The ultimate outcome of this matter cannot
presently be determined.
The Partnership is involved in various claims and routine
litigation incidental to its business for which damages are sought.
Management believes that the outcome of all claims and litigation
is either adequately insured or will not have a material adverse
effect on the Partnership's financial position or results of
operations.
Item 2. Changes in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
4.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-
10473)).
4.2 Amended and Restated Agreement of Limited Partnership of
Pride Companies, L.P. (incorporated by reference to
Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.3 First Amendment to the Amended and Restated Agreement of
Limited Partnership of Pride Companies, L.P.
(incorporated by reference to Exhibit 4.2 of the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991 (Commission File No. 1-
10473)).
4.4 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File No.
1-10473)).
4.5 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.1 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.6 Form of Depositary Receipt for Preferred Units of Pride
Companies, L.P. (included as Exhibit A to the Deposit
Agreement, which is incorporated by reference to Exhibit
4.1 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (Commission File
No. 1-10473)).
4.7 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (included as Exhibit B to the Deposit
Agreement, which is incorporated by reference to Exhibit
4.1 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (Commission File
No. 1-10473)).
28.1 Amendment to Loan Agreement dated April 24, 1996, among
the Partnership (Borrower), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., Pride Borger, Inc., Pride Texas
Plains, L.P. and Pride Texas Plains GP, L.L.C.
(Guarantors), and NationsBank of Texas, N.A. as agent,
and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as lenders (submitted in paper format).
28.2 Amendment to Loan Agreement dated May 14, 1996, among
the Partnership (Borrower), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., Pride Borger, Inc., Pride Texas
Plains, L.P. and Pride Texas Plains GP, L.L.C.
(Guarantors), and NationsBank of Texas, N.A. as agent,
and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as lenders (submitted in paper format).
b. Reports on Form 8-K:
None<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.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.
as its Managing General Partner
(Registrant)
May 15, 1996 Brad Stephens
Date Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
May 15, 1996 George Percival
Date George Percival
Principal Financial Officer
(Signing as Principal Financial
Officer)
<PAGE>
PRIDE COMPANIES, L.P.
Exhibits to
Report to Form 10-Q
INDEX TO EXHIBITS
Exhibit Number
(Reference to
Item 601 of
Regulation S-K)
_________________
4.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-
10473)).
4.2 Amended and Restated Agreement of Limited Partnership of
Pride Companies, L.P. (incorporated by reference to
Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.3 First Amendment to the Amended and Restated Agreement of
Limited Partnership of Pride Companies, L.P.
(incorporated by reference to Exhibit 4.2 of the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991 (Commission File No. 1-
10473)).
4.4 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File No.
1-10473)).
4.5 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.1 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.6 Form of Depositary Receipt for Preferred Units of Pride
Companies, L.P. (included as Exhibit A to the Deposit
Agreement, which is incorporated by reference to Exhibit
4.1 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (Commission File
No. 1-10473)).
4.7 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (included as Exhibit B to the Deposit
Agreement, which is incorporated by reference to Exhibit
4.1 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (Commission File
No. 1-10473)).
28.1 Amendment to Loan Agreement dated April 24, 1996, among
the Partnership (Borrower), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., Pride Borger, Inc., Pride Texas
Plains, L.P. and Pride Texas Plains GP, L.L.C.
(Guarantors), and NationsBank of Texas, N.A. as agent,
and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as lenders (submitted in paper format).
28.2 Amendment to Loan Agreement dated May 14, 1996, among
the Partnership (Borrower), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., Pride Borger, Inc., Pride Texas
Plains, L.P. and Pride Texas Plains GP, L.L.C.
(Guarantors), and NationsBank of Texas, N.A. as agent,
and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as lenders (submitted in paper format).