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 June 30, 1997
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 August 1, 1997
_____________ _____________________________
Common Units 4,950,000<PAGE>
<TABLE>
PART I. Item 1. Financial Information
PRIDE COMPANIES, L.P.
BALANCE SHEETS
(Amounts in thousands, except unit amounts)
<CAPTION>
June 30,
1997 December 31,
(unaudited) 1996
___________ ____________
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 278 $ 472
Accounts receivable, less allowance
for doubtful accounts 12,601 18,163
Inventories 17,482 19,171
Prepaid expenses 622 1,286
___________ ___________
Total current assets 30,983 39,092
Property, plant and equipment 136,803 136,778
Accumulated depreciation 40,374 37,224
___________ ___________
Property, plant and equipment - net 96,429 99,554
Other assets 1,048 1,070
___________ ___________
$ 128,460 $ 139,716
LIABILITIES AND PARTNERS' CAPITAL:
Current liabilities:
Accounts payable $ 24,499 $ 32,316
Accrued payroll and related benefits 1,690 1,498
Accrued taxes 3,760 4,805
Other accrued liabilities 1,971 2,095
Current portion of long-term debt 9,753 6,516
___________ ___________
Total current liabilities 41,673 47,230
Long-term debt, excluding current portion 47,925 50,417
Deferred income taxes 2,480 2,590
Other long-term liabilities 10,299 9,881
Partners' capital:
Common units (5,275,000 units authorized
and 4,950,000 outstanding) 26,029 29,474
General partners' interest 54 124
___________ ___________
Total partners' capital 26,083 29,598
___________ ___________
$ 128,460 $ 139,716
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 June 30,
1997 1996
______________ ___________
<S> <C> <C>
Revenues $ 127,624 $ 154,422
Cost of sales and operating expenses,
before depreciation 122,891 149,401
Marketing, general and
administrative expenses 2,460 2,527
Depreciation 1,716 1,755
____________ ___________
Operating income (loss) 557 739
Other income (expense):
Interest income 7 66
Interest expense (1,351) (1,432)
Credit and loan fees (299) (756)
Other - net 477 8
____________ ___________
Income (loss) before income taxes (609) (1,375)
Income tax expense (benefit) (7) (19)
____________ ___________
Net income (loss) $ (602) $ (1,356)
General partners' interest $ (12) $ (27)
Net income (loss) allocable
to unitholders $ (590) $ (1,329)
Net income (loss) per unit -
before conversion $ (0.12) $ (0.13)
Net income (loss) per unit -
after conversion $ (0.12) $ (0.27)
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Six Months Ended June 30,
1997 1996
____________ ___________
<S> <C> <C>
Revenues $ 270,079 $ 304,786
Cost of sales and operating expenses,
before depreciation 262,262 292,675
Marketing, general and
administrative expenses 4,851 5,094
Depreciation 3,434 3,520
____________ ___________
Operating income (loss) (468) 3,497
Other income (expense):
Interest income 16 86
Interest expense (2,685) (2,923)
Credit and loan fees (888) (1,561)
Other - net 456 35
____________ ___________
Income (loss) before income taxes (3,569) (866)
Income tax expense (benefit) (54) (18)
____________ ___________
Net income (loss) $ (3,515) $ (848)
General partners' interest $ (70) $ (17)
Net income (loss) allocable
to unitholders $ (3,445) $ (831)
Net income (loss) per unit -
before conversion $ (0.70) $ (0.08)
Net income (loss) per unit -
after conversion $ (0.70) $ (0.17)
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<CAPTION>
Six Months Ended June 30,
1997 1996
____________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,515) $ (848)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation 3,434 3,520
(Gain) loss on sale of
property, plant and equipment (259) (26)
Deferred tax benefit (110) (64)
Retirement of property, plant
and equipment 122 0
Net effect of changes in:
Accounts receivable 5,562 2,411
Inventories 1,689 (1,831)
Prepaid expenses 664 669
Accounts payable and other
long-term liabilities (7,399) 686
Accrued liabilities (977) (25)
____________ ___________
Total adjustments 2,726 5,340
____________ ___________
Net cash provided by (used in)
operating activities (789) 4,492
Cash flows from investing activities:
Purchases of property, plant and
equipment (500) (964)
Proceeds from disposal of property,
plant and equipment 343 43
Other 7 (18)
____________ ___________
Net cash provided by (used in)
investing activities (150) (939)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 75,436 9,235
Payments on debt and credit
facilities (74,691) (12,366)
Other 0 (4)
____________ ___________
Net cash provided by (used in)
financing activities 745 (3,135)
____________ ___________
Net increase (decrease) in cash and
cash equivalents (194) 418
Cash and cash equivalents at the
beginning of the period 472 288
____________ ___________
Cash and cash equivalents at the
end of the period $ 278 $ 706
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. In that connection, it purchases and resells crude
oil in order to provide a supply of the appropriate grade of 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 Refining, Inc. (the "Managing General Partner") owns a
1.9% general partner interest in and serves as the managing general
partner of the Partnership. Pride SGP, Inc. ("Special General
Partner" or "Pride SGP") owns a 0.1% general partner interest in
and serves as the special general partner of the Partnership. The
Managing General Partner and the Special General Partner
(collectively the "General Partners") collectively own a 2% general
partner interest. The Partnership adopted certain amendments to
its partnership agreement (the "Amendments"), which were effective
December 31, 1996 and modified the capital structure of the
Partnership. In addition to its general partner interest, the
Special General Partner owns a 4.9% interest in the Partnership
through ownership of common limited partner units with terms
specified by the Amendments ("Common Units"). Public ownership
represented by the remaining Common Units is 93.1%. Prior to the
effectiveness of the Amendments, the Special General Partner owned
a 51.7% limited partner interest in the Partnership through
ownership of common limited partner units ("Old Common Units"), and
the public owned a 46.3% interest in the Partnership through
ownership of convertible preferred limited partner units
("Preferred Units").
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, 1996
include a summary of significant accounting policies that should be
read in conjunction with this quarterly report on Form 10-Q.
Certain amounts in the financial statements for the prior year have
been reclassified to conform to the 1997 presentation. 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 - Before Conversion is calculated
using the actual weighted average number of units outstanding
during the period (4,950,000 Common Units for the period ended June
30, 1997 and 4,700,000 Preferred Units and 5,250,000 Old Common
Units for the period ended June 30, 1996) divided into the
Partnership's net income (loss) after adjusting for general partner
allocations. Net Income (Loss) per Unit - After Conversion is
calculated based on the weighted average number of Common Units
outstanding as a result of the Amendments which were effective
December 31, 1996 (4,950,000 Common Units for the periods ended
June 30, 1997 and 1996) divided into the Partnership's net income
(loss) after adjusting for general partner allocations. In
February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("SFAS 128"). The adoption
of SFAS 128 is not expected to have a material effect on the
Partnership's prior periods or present earnings per unit
calculation.
3. Related Party Transactions
In accordance with the Second 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 4.9%
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.
4. Inventories
<TABLE>
<CAPTION>
Inventories are valued at the At At
lower of cost or market and June 30, December 31,
consist of: 1997 1996
(in thousands)
_____________________________ ___________ ___________
<S> <C> <C>
Crude oil $ 11,194 $ 14,543
Refined products and blending
materials 8,386 12,002
___________ ___________
19,580 26,545
LIFO reserve (3,060) (8,381)
___________ ___________
Petroleum inventories 16,520 18,164
Spare parts and supplies 962 1,007
___________ ___________
$ 17,482 $ 19,171
</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
The Partnership's credit facility was amended and restated on
August 13, 1996. On August 14, 1997, the Partnership's credit
facility was amended to extend the maturity date to July 1, 1998.
The Partnership has a $6.5 million standby letter of credit
facility for general corporate purposes and the purchase of crude
oil and other refinery feedstocks ("Facility A") and a $42.5
million 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 standby letter of credit
facility, the Partnership did have approximately $721,000 and $37.8
million, respectively, in outstanding standby letters of credit at
June 30, 1997. The credit agreement also provides, at the banks'
discretion, an additional $8.0 million 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.
The Partnership had no outstanding standby letters of credit under
the Special LC Facility as of June 30, 1997. As a result of the
decline in crude oil prices in the first quarter of 1997 and
management's expectations for lower average crude oil prices for
the remainder of the year as compared with 1996, the Partnership
believes its current letter of credit facilities, supplemented by
the Special LC Facility, are adequate.
The Partnership has available to it a revolving line of credit
of $12.0 million ("Revolver"), a $23.9 million term loan (the "Term
Loan") and a total of $16.8 million in three series of convertible
senior secured notes (collectively the "Senior Secured Notes"). At
June 30, 1997, the balances outstanding on the Revolver, Term Loan
and the Senior Secured Notes were $7.4 million, $23.9 million and
$16.8 million, respectively. Under the amended credit facility,
the Partnership is required to make quarterly principal payments on
the Term Loan in the amount of excess cash, as defined in the
credit agreement, for the preceding quarter. The Partnership has
classified $1.2 million of the Term Loan as current as of June 30,
1997.
Advances under the Revolver and Term Loan bear interest at
prime plus 1 and 1/2% and 2%, respectively, payable monthly. The
prime rate was 8 and 1/2% as of June 30, 1997. The Senior Secured
Notes issued to the lenders under the credit facility consist of
$2.5 million in Convertible Senior Secured Series A Promissory
Notes ("Note A"), $9.3 million in Convertible Senior Secured Series
B Promissory Notes ("Note B"), and $5.0 million in Convertible
Senior Secured Series C Promissory Notes ("Note C"). The Senior
Secured Notes bear interest at prime plus 1% payable monthly, and
have the same maturity as the credit facility. Under certain
circumstances, the Senior Secured Notes are convertible at the
holders' election into Common Units. The entire amount outstanding
under the Senior Secured Notes has been classified as long-term as
of June 30, 1997.
The Partnership has pledged substantially all its assets as
collateral for the credit facility and the Senior Secured Notes.
In addition, the General Partners guaranteed the facility and Pride
SGP as guarantor has pledged its assets at no cost to the
Partnership as collateral for such loans. The Partnership may
elect to prepay the credit facilities without any prepayment
penalty.
Advances under the Revolver are subject to repayment on a
daily basis. As a result, the full amount outstanding at June 30,
1997 has been included in the current portion of long-term debt.
The Revolver is subject to a borrowing base which includes a
reduction by the amount of letters of credit issued under Facility
A. Subject to the borrowing base, the Partnership may borrow any
amounts previously repaid. The fee for the unused portion of the
Revolver is one-half of 1% per annum. The credit facility also
requires the Partnership to pay a monthly fee of $10,000.
The Partnership has two outstanding financing agreements to
fund working capital with Pride SGP which were entered into on
March 26, 1993 and September 7, 1995. Pride SGP made the unsecured
loans to the Partnership in the principal amount of $2.5 million
bearing interest at prime plus 1%. The prime rate was 8 and 1/2%
at June 30, 1997. The loans mature July 1, 1998.
The Partnership also has a nonrecourse loan from Diamond
Shamrock with an outstanding balance of $5.8 million at June 30,
1997, bearing interest at 8% per annum with monthly interest
payments. The assets of Pride Borger, Inc. ("Pride Borger"), which
owns 50% of the Texas Plains System, are pledged as collateral.
Pride Borger also guarantees the note. Monthly principal payments
are made to Diamond Shamrock based on the number of throughput
barrels for the prior month in the Texas Plains System. Current
maturities are estimated to be $147,000 at June 30, 1997.
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
leased 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 $365,000 as of June 30, 1997. The note
matures January 9, 2000. The Partnership has classified $17,000 of
the note as current as of June 30, 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 $901,000 as of June
30, 1997. The note bears interest based on the rate set by the
Secretary of the Treasury. This rate was 6.375% as of June 30,
1997. The note requires monthly payments of $84,000 and matures
June 1, 1998. The Partnership has classified the entire balance of
the note as current as of June 30, 1997.
6. Common Units
At June 30, 1997, 4,950,000 Common Units were outstanding,
representing a 98% limited partner interest in the Partnership.
The general partners are entitled to 2% of all distributions.
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, among other things, payment in full of the
bank debt, expiration of all liabilities related to letters of
credit, and the termination of the credit agreement.
7. Contingencies
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. 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 which
owns and operates 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 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.
Forward Looking Statements
This Form 10-Q contains certain forward looking statements.
Such statements are typically punctuated by words or phrases such
as "anticipate," "estimate," "projects," "should," "may,"
"management believes," and words or phrases of similar import.
Such statements are subject to certain risks, uncertainties or
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated,
estimated or projected. Among the key factors that may have a
direct bearing on the Partnership's results of operations and
financial conditions are: (i) the rate of utilization of the
Refinery, (ii) the margins between the prices of the Partnership's
refined petroleum products and the cost of crude oil, (iii) the
volume throughput on and margins from the transportation and resale
of crude oil from the Partnership's Crude Gathering System, (iv)
the impact of current and future laws and governmental regulations
affecting the refining industry in general and the Partnership's
operations in particular, (v) the ability of the Partnership to
effect a restructuring and recapitalization prior to the maturity
of its credit facility, (vi) the ability of the Company to sustain
cash flow from operations sufficient to realize its investments in
operating assets of the Company, and (vii) the continuation of
operations utilizing the Refinery similar to the Company's current
operating structure.
General
The Partnership's current 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 military aviation fuel prices are influenced by these
trends since the pricing for military aviation fuel is based on Jet
A, a kerosene-based product, and the price of diesel and heating
fuels affects the price of kerosene.
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 addition, the intrasystem pricing of crude oil between the
Refinery and the Crude Gathering System is based in part on an
adjusted Midland spot price for crude oil above the Partnership's
posted price for such crude oil (the "Premium"). The total
intrasystem price for crude oil between the Refinery and the Crude
Gathering System includes the Premium, the Partnership's posted
price and transportation costs. An increase in the Premium for
crude oil will have a negative impact on the Refinery and have a
positive impact on the Crude Gathering System. On the other hand,
a decrease in the Premium for crude oil will have a positive impact
on the Refinery and a negative impact on the Crude Gathering
System. For the second quarter of 1997, the average Premium for
crude oil was $1.72 compared to $3.08 for the second quarter of
1996. The average Premium for crude oil was $2.01 for the six
months ended June 30, 1997 compared to $2.58 for the six months
ended June 30, 1996. As a result, the Refinery was positively
affected and the Crude Gathering System was negatively affected in
both the second quarter of 1997 and the first six months of 1997
due to the decline in the Premium during such periods.
In evaluating the financial performance of the Partnership,
management believes it is important to look at operating income,
before depreciation, in addition to operating income which is after
depreciation. Operating income, before depreciation, measures the
Partnership's ability to generate and sustain working capital and
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,
before depreciation.
Second Quarter 1997 Compared to Second Quarter 1996
General. Net loss for the second quarter of 1997 was $602,000
compared to net loss of $1.4 million for the second quarter of
1996. The improvement was a result of increased refining margins,
lower interest expense and credit and loan fees of $538,000, and an
increase in "Other - net" of $469,000 in the second quarter of 1997
compared to the second quarter of 1996. "Other - net" increased as
a result of the sale of the Refinery's product trucks in the second
quarter of 1997. The improvement was partially offset by weaker
crude gathering margins during the second quarter of 1997 compared
to the same period last year.
Operating income was $557,000 for the second quarter of 1997
compared to $739,000 for the second quarter of 1996. Operating
income, before depreciation, for the second quarter of 1997
decreased to $2.3 million from $2.5 million for the second quarter
of 1996.
The following table details the operating income (loss);
depreciation; and the operating income (loss), before depreciation
(in thousands), for the second quarter of 1997 and 1996.
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Before
(Loss) Deprec. Deprec.
_______ _______ ________
<S> <C> <C> <C>
Second Quarter 1997
Refinery and Products System $ 463 $ 1,237 $ 1,700
Crude Gathering System 94 479 573
_______ _______ ________
Total $ 557 $ 1,716 $ 2,273
Second Quarter 1996
Refinery and Products System $(3,269) $ 1,251 $ (2,018)
Crude Gathering System 4,008 504 4,512
_______ _______ ________
Total $ 739 $ 1,755 $ 2,494
</TABLE>
Refinery and Products System. Operating income of the
Refinery and Products System was $463,000 for the second quarter of
1997 compared to operating loss of $3.3 million for the second
quarter of 1996. Depreciation expense for the Refinery and
Products System was approximately $1.2 million for the second
quarter of 1997 and $1.3 million for the second quarter of 1996.
Operating income, before depreciation, of the Refinery and Products
System was $1.7 million for the second quarter of 1997 compared to
operating loss, before depreciation, of $2.0 million for the second
quarter of 1996.
Operating income of the Refinery was $163,000 for the second
quarter of 1997 compared to operating loss of $3.5 million for the
same period in 1996. Depreciation expense for the Refinery alone
was $1.0 million for both the second quarter of 1997 and the second
quarter of 1996. Operating income, before depreciation, of the
Refinery was $1.2 million for the second quarter of 1997 compared
to operating loss, before depreciation, of $2.5 million for the
second quarter of 1996.
Refinery gross margin per barrel was $1.85 for the second
quarter of 1997 versus $0.57 for the same period in 1996. The
increase in the gross margin primarily reflects the decrease in the
Premium for crude oil purchased from the Crude Gathering System.
Refinery throughput averaged 32,809 BPD for the second quarter of
1997 versus 31,352 BPD for the same period in 1996. Operating
expenses per barrel, before depreciation, were $1.02 for the second
quarter of 1997 compared to $1.07 for the second quarter of 1996.
Operating income for the Products System was $300,000 for the
second quarter of 1997 compared to $262,000 for the second quarter
of 1996. Depreciation expense for the Products System was $217,000
for the second quarter of 1997 compared to $220,000 for the second
quarter of 1996. Operating income, before depreciation, for the
Products System increased to $517,000 for the second quarter of
1997 from $482,000 for the same period in 1996. Total
transportation volumes were 13,094 BPD for the second quarter of
1997 compared to 12,806 BPD for the same period in 1996.
Crude Gathering System. Operating income for the Crude
Gathering System was $94,000 for the second quarter of 1997
compared to $4.0 million for the same period in 1996 due to a
decline in crude gathering margins. The Premium for crude oil sold
to the Refinery was substantially lower in the second quarter of
1997 than the second quarter of 1996, but the amount paid above
posting for such crude oil to third parties did not decrease
accordingly. The amount paid above posting for crude oil to third
parties should decrease in the future as the crude oil market's
expectation for a high Premium diminishes. Depreciation expense
for the Crude Gathering System decreased to $479,000 for the second
quarter of 1997 from $504,000 for the second quarter of 1996.
Operating income, before depreciation, for the Crude Gathering
System was $573,000 for the second quarter of 1997 and $4.5 million
for the second quarter of 1996. The net margin was $0.02 per
barrel for the second quarter of 1997 versus $0.74 per barrel for
the same period in 1996. Due to the elimination of several
marginal contracts, the volume of crude oil gathered by the Crude
Gathering System decreased to 49,729 BPD for the second quarter of
1997 from 59,854 BPD for the second quarter of 1996.
First Six Months 1997 Compared to First Six Months 1996
General. Net loss for the first six months of 1997 was $3.5
million compared to net loss of $848,000 for the first six months
of 1996. The decline was primarily a result of weaker crude
gathering margins during the first six months of 1997. This was
partially offset by improved refining margins and lower interest
and credit and loan fees of $911,000 during the first six months of
1997. Interest and credit and loan fees decreased due to the
lower interest rates that became effective upon completion of phase
two of the refinancing and restructuring and the accrual during the
first six months of 1996 for facility fees of $694,000.
Operating loss was $468,000 for the first six months of 1997
compared to operating income of $3.5 million for the first six
months of 1996. Operating income, before depreciation, decreased
for the first six months of 1997 to $3.0 million from $7.0 million
for the first six months of 1996.
The table below details the operating income (loss);
depreciation; and the operating income (loss), before depreciation
by division (in thousands) for the first six months of 1997 and
1996.
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Before
(Loss) Deprec. Deprec.
_______ _______ ________
<S> <C> <C> <C>
First Six Months 1997
Refinery and Products System $(1,725) $ 2,474 $ 749
Crude Gathering System 1,257 960 2,217
_______ _______ ________
Total $ (468) $ 3,434 $ 2,966
First Six Months 1996
Refinery and Products System $(2,685) $ 2,500 $ (185)
Crude Gathering System 6,182 1,020 7,202
_______ _______ ________
Total $ 3,497 $ 3,520 $ 7,017
</TABLE>
Refinery and Products System. Operating loss of the Refinery
and Products System was $1.7 million for the first six months of
1997 compared to operating loss of $2.7 million for the first six
months of 1996. Depreciation expense for the Refinery and Products
System was approximately $2.5 million for the first six months of
1997 and the first six months of 1996. Operating income, before
depreciation, of the Refinery and Products System was $749,000 for
the first six months of 1997 compared to operating loss, before
depreciation, of $185,000 for the first six months of 1996.
Operating loss of the Refinery was $2.1 million for the first
six months of 1997 compared to $3.3 million for the first six
months of 1996. Refining margins increased for the first six
months of 1997 due to the lower Premium for crude oil during such
period. Depreciation expense for the Refinery alone was $2.0
million for the first six months of 1997 and $2.1 million for the
first six months of 1996. Operating loss, before depreciation, of
the Refinery was $41,000 for the first six months of 1997 compared
to $1.2 million for the first six months of 1996.
Refinery gross margin per barrel was $1.47 for the first six
months of 1997 versus $1.30 for the same period in 1996. Refinery
throughput averaged 31,783 BPD during the first six months of 1997
versus 32,264 BPD for the same period in 1996. Operating expenses
per barrel, before depreciation, were $1.07 for the first six
months of 1997 versus $1.08 for the same period in 1996.
Operating income for the Products System was $355,000 for the
first six months of 1997 compared to $610,000 for the first six
months of 1996. Depreciation expense for the Products System was
$435,000 for the first six months of 1997 and $441,000 for the
first six months of 1996. Operating income, before depreciation,
for the Products System decreased to $790,000 for the first six
months of 1997 from $1.1 million for the same period in 1996 as a
result of decreased volumes and increased operating cost due to
leak repairs. Total transportation volumes were 12,791 BPD for the
first six months of 1997 compared to 13,392 BPD for the same period
in 1996 due to a decline in shipments to the San Angelo terminal.
Crude Gathering System. Operating income for the Crude
Gathering System was $1.3 million for the first six months of 1997
compared to $6.2 million for the same period in 1996 due to the
decrease in the Premium for crude oil for the first six months of
1997. Depreciation expense for the Crude Gathering System was
$960,000 for the first six months of 1997 and $1.0 million for the
first six months of 1996. Operating income, before depreciation,
for the Crude Gathering System was $2.2 million for the first six
months of 1997 and $7.2 million for the first six months of 1996.
The net margin was $0.14 per barrel for the first six months of
1997 compared to $0.54 per barrel for the first six months of 1996.
Due to the elimination of several marginal contracts, the volume of
crude oil gathered by the Crude Gathering System decreased to
49,162 BPD for the first six months of 1997 from 63,212 BPD for the
first six months of 1996.
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 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. The Partnership
plans to spend approximately $1.3 million in the aggregate in 1997,
1998 and 1999 on several projects to maintain compliance with
various environmental requirements including $400,000 for a sewer
system upgrade and $380,000 for tank cleanup. If the refinancing
is completed or the banks' consent is obtained to discontinue
refinery operations, environmental expenditures are estimated to be
$500,000 to $1.8 million in the aggregate for 1997, 1998 and 1999
(see "Financial Condition - Financial Resources and Liquidity").
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. New regulations took
effect that imposed new quality standards for conventional gasoline
in the rest of the country; however, they were much less
restrictive than the RFG regulations. Management does not believe
that these have had or will have a material adverse effect on the
Partnership's operations.
Other Regulatory Requirements. The Partnership is also
subject to the rules and regulations of, among others, the
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, the general price level of crude oil and the Premium.
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. The Partnership utilizes the last-
in/first-out (LIFO) method of determining inventory values. LIFO
minimizes 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. The Refinery's
military aviation fuel prices are influenced by these trends since
the pricing for military aviation fuel is based on Jet A, a
kerosene based product, and the price of diesel and heating fuels
affect the price of kerosene.
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 have a material adverse impact on
the Partnership's business.
Financial Resources and Liquidity
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 14 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.
The Partnership's credit facility was amended and restated on
August 13, 1996. On August 14, 1997, the Partnership's credit
facility was amended to extend the maturity date to July 1, 1998.
The Partnership has a $6.5 million standby letter of credit
facility for general corporate purposes and the purchase of crude
oil and other refinery feedstocks ("Facility A") and a $42.5
million 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 standby letter of credit
facility, the Partnership did have approximately $721,000 and $37.8
million, respectively, in outstanding standby letters of credit at
June 30, 1997. The credit agreement also provides, at the banks'
discretion, an additional $8.0 million 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.
The Partnership had no outstanding standby letters of credit under
the Special LC Facility as of June 30, 1997. As a result of the
decline in crude oil prices in the first quarter of 1997 and
management's expectations for lower average crude oil prices for
the remainder of the year compared with 1996, the Partnership
believes its current letter of credit facilities, supplemented by
the Special LC Facility, are adequate.
The Partnership has available to it a revolving line of credit
of $12.0 million ("Revolver"), a $23.9 million term loan (the "Term
Loan") and a total of $16.8 million in three series of convertible
senior secured notes (collectively the "Senior Secured Notes"). At
June 30, 1997, the balances outstanding on the Revolver, Term Loan
and the Senior Secured Notes were $7.4 million, $23.9 million and
$16.8 million, respectively. Under the amended credit facility,
the Partnership is required to make quarterly principal payments on
the Term Loan in the amount of excess cash, as defined in the
credit agreement, for the preceding quarter. The Partnership has
classified $1.2 million of the Term Loan as current as of June 30,
1997.
Advances under the Revolver and Term Loan bear interest at
prime plus 1 and 1/2% and 2%, respectively, payable monthly. The
prime rate was 8 and 1/2% as of June 30, 1997. The Senior Secured
Notes issued to the lenders under the credit facility consist of
$2.5 million in Convertible Senior Secured Series A Promissory
Notes ("Note A"), $9.3 million in Convertible Senior Secured Series
B Promissory Notes ("Note B"), and $5.0 million in Convertible
Senior Secured Series C Promissory Notes ("Note C"). The Senior
Secured Notes bear interest at prime plus 1% payable monthly, and
have the same maturity as the credit facility. Under certain
circumstances, the Senior Secured Notes are convertible at the
holders' election into Common Units. The entire amount outstanding
under the Senior Secured Notes has been classified as long-term as
of June 30, 1997.
The Partnership has pledged substantially all its assets as
collateral for the credit facility and the Senior Secured Notes.
In addition, the General Partners guaranteed the facility and Pride
SGP as guarantor has pledged its assets at no cost to the
Partnership as collateral for such loans. The Partnership may
elect to prepay the credit facilities without any prepayment
penalty.
Advances under the Revolver are subject to repayment on a
daily basis. As a result, the full amount outstanding at June 30,
1997 has been included in the current portion of long-term debt.
The Revolver is subject to a borrowing base which includes a
reduction by the amount of letters of credit issued under Facility
A. Subject to the borrowing base, the Partnership may borrow any
amounts previously repaid. The fee for the unused portion of the
Revolver is one-half of 1% per annum. The credit facility also
requires the Partnership to pay a monthly fee of $10,000.
The Partnership has two outstanding financing agreements to
fund working capital with Pride SGP which were entered into on
March 26, 1993 and September 7, 1995. Pride SGP made the unsecured
loans to the Partnership in the principal amount of $2.5 million
bearing interest at prime plus 1%. The prime rate was 8 and 1/2%
at June 30, 1997. The loans mature July 1, 1998.
The Partnership also has a nonrecourse loan from Diamond
Shamrock with an outstanding balance of $5.8 million at June 30,
1997, bearing interest at 8% per annum with monthly interest
payments. The assets of Pride Borger, Inc. ("Pride Borger"), which
owns 50% of the Texas Plains System, are pledged as collateral.
Pride Borger also guarantees the note. Monthly principal payments
are made to Diamond Shamrock based on the number of throughput
barrels for the prior month in the Texas Plains System. Current
maturities are estimated to be $147,000 at June 30, 1997.
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
leased 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 $365,000 as of June 30, 1997. The note
matures January 9, 2000. The Partnership has classified $17,000 of
the note as current as of June 30, 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 $901,000 as of June
30, 1997. The note bears interest based on the rate set by the
Secretary of the Treasury. This rate was 6.375% as of June 30,
1997. The note requires monthly payments of $84,000 and matures
June 1, 1998. The Partnership has classified the entire balance of
the note as current as of June 30, 1997.
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 six years and current ratios of less than one to one in
each of the last four years. These financial results are primarily
a result of depressed refining margins along with increasing
depreciation expense and interest expense and related fees through
1995. Crude gathering volumes have also decreased. Under the new
jet fuel contract with the U. S. Government which began on April
1, 1997 and ends on March 31, 1998, the Partnership will supply
approximately 2.5% less military aviation fuel than it supplied
under the previous contract; however, the prices awarded compared
to the base reference price net of transportation under this
contract have improved approximately 0.9 cents per gallon from the
prices in the previous contract, which will more than offset the
impact of the reduced volumes.
The losses incurred in the first six months of 1997 were
funded by additional borrowing which became available under the
Partnership's revolving credit facility.
The Partnership's return to profitability is principally
dependent upon restructuring its credit facility, increased volumes
and/or improved profit margins, as well as continued cost control
initiatives. The Partnership's long-term viability is dependent
upon its effecting a restructuring and recapitalization. Although
no assurances can be given, management believes the extension of
the existing facility to July 1, 1998 alleviates short-term threats
to the liquidity of the Partnership.
The Partnership announced on June 20, 1997 that it had
executed a long-term product supply agreement (the "Agreement")
with Texaco Trading & Transportation, Inc. ("TTTI"), a wholly-owned
subsidiary of Texaco, Inc. The Agreement has a 10-year primary
term beginning upon completion of TTTI's recently announced new
system of pipelines and terminals and has renewal provisions for up
to an additional 10 years. It provides that the Partnership will
purchase all gasoline and middle distillates (principally diesel
and jet fuel), which it may desire to purchase, exclusively from
TTTI. The Partnership will purchase gasoline, diesel and jet fuel
from TTTI for delivery to the Partnership's existing customer base,
which includes wholesale customers, exchange partners, and military
bases, primarily using the Partnership's existing pipelines and
terminals.
The Partnership is not required by the Agreement to
discontinue its refining operations, but it is anticipated that
such operations may, if the banks in its credit facility consent,
as discussed below, be phased into a products and crude oil
terminal operations within the next nine months. The Partnership
is in the process of evaluating the cost of such transition, costs
of decommissioning equipment and related environmental compliance
costs, and the Partnership currently estimates such costs at no
more than $1.8 million. The Agreement with TTTI will allow the
Partnership to expand its crude gathering operations, conducted
under the name Pride Pipeline Company. It is contemplated that the
arrangement with TTTI will enable the Partnership to transport
crude oil it now gathers to attractive markets, including Cushing,
Oklahoma. Currently a large portion of Pride Pipeline Company
gathered crude oil is restricted to use as refinery feed stock.
The Partnership anticipates that the new arrangement will produce
operating cash flows similar to the level that the Partnership has
experienced for the last four years. However, the Partnership
believes that cash flows should be less volatile since the
Agreement will result in more stable product margins and eventually
decrease the Partnership's exposure to volatility in refining
margins. The Partnership also believes that the Agreement will
better enable the Partnership to remain competitive as
environmental standards change and the industry trends toward
consolidation and realignments in the future.
The Partnership has not received approval from the banks in
its credit facility to discontinue or phase down refinery
operations, and the banks may or may not grant that consent. Such
consent is required under the current loan agreement prior to
discontinuance or phase down of the refinery. The Partnership will
continue its previously announced efforts to refinance with
additional third party creditors its letter of credit facility, the
Revolver, Term Loan and Senior Secured Notes. The Partnership does
not plan to accelerate any phase down of refinery operations until
the refinancing is completed or the banks' consent is obtained
which, until that time, will limit the Partnership's ability to
fully realize the benefits of the Agreement. If the refinancing is
completed or the banks' consent is obtained and the Partnership
holds these assets for disposal, it is possible a loss would be
recognized on such assets.
The most significant and urgent need of the Partnership is to
effect a restructuring and recapitalization of the Partnership's
debt and equity. On August 13, 1996, the Partnership completed the
first of three phases ("Phase One") which called for the execution
of documents with the banks' lenders. Phase Two ("Phase Two") was
completed effective December 31, 1996 when the Unitholders adopted
an amendment to the Partnership Agreement. The amendment included
the conversion of the outstanding Preferred Units and Old Common
Units into Common Units and the cancellation of all preferred and
common unit arrearages. As part of Phase Two, the banks converted
a portion of their Term Loan into Senior Secured Notes, lowered
certain interest rates and credit and loan fees and extended 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
Senior Secured Notes. Any Series B and Series C Senior Secured
Notes not refinanced would automatically convert to a preferred
convertible equity security. During the first six months of 1997,
the Partnership expensed $367,000 related to the restructuring of
the Limited Partnership Agreement and its credit facility and
recapitalization. This is in addition to the $2.0 million expensed
during the two year period ended December 31, 1996. On August 14,
1997, an amendment was executed to extend the maturity date of the
credit facility to July 1, 1998 in exchange for a fee of $90,000.
The Managing General Partner had originally hoped to complete
Phase Three by the end of the first quarter of 1997. The Managing
General Partner and its advisors, with the concurrence of the bank
lenders, concluded that conditions were not optimal to pursue the
Phase Three financing as originally contemplated. At this time,
the Managing General Partner cannot predict when, or if, Phase
Three will be completed. 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 lower interest expense. However, if
the Partnership fails to complete Phase Three, it will have to
pursue other means of effecting a restructuring and
recapitalization, including redeployment of assets, asset sales and
strategic alliances, prior to the maturity of its credit facility
on July 1, 1998.
Capital Expenditures
The Partnership incurred capital expenditures of $131,000 for
the second quarter of 1997.
Cash Distributions
At June 30, 1997, 4,950,000 Common Units were outstanding,
representing a 98% limited partner interest in the Partnership.
The general partners are entitled to 2% of all distributions.
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, among other things, payment in full of the
bank debt, expiration of all liabilities for letters of credit, and
the termination of the credit agreement.
PART II. Other Information
Item 1. Legal Proceedings
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 Second Amended and Restated Agreement of Limited
Partnership of the Partnership (incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
(Commission File No. 1-10473)).
4.3 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)).
4.4 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit 4.5
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (Commission File No.
1-10473)).
27 Financial Data Schedule for the Second Quarter of 1997.
28.1 Fifth Amendment to Loan Agreement, dated as of August 14,
1997, among the Partnership ("Borrower"), Pride Refining,
Inc., Pride SGP, Inc., Desulfur Partnership, Pride
Marketing of Texas (Cedar Wind), Inc., and Pride Borger,
Inc. (collectively Guarantors) and NationsBank of Texas,
N.A. as Agent, and NationsBank of Texas, N.A. and Bank
One Texas, N.A. as Lenders.
b. Reports on Form 8-K:
The Partnership filed a Form 8-K, dated as of June 20,
1997, reporting the execution of a long-term product
supply agreement (the "Agreement") with Texaco Trading
and Transportation, Inc. (Commission File No. 1-10473).<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)
August 14, 1997 Brad Stephens
Date Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
August 14, 1997 George Percival
Date George Percival
Chief 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 Second Amended and Restated Agreement of Limited
Partnership of the Partnership (incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
(Commission File No. 1-10473)).
4.3 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)).
4.4 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit 4.5
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (Commission File No.
1-10473)).
27 Financial Data Schedule for the Second Quarter of 1997.
28.1 Fifth Amendment to Loan Agreement, dated as of August 14,
1997, among the Partnership ("Borrower"), Pride Refining,
Inc., Pride SGP, Inc., Desulfur Partnership, Pride
Marketing of Texas (Cedar Wind), Inc., and Pride Borger,
Inc. (collectively Guarantors) and NationsBank of Texas,
N.A. as Agent, and NationsBank of Texas, N.A. and Bank
One Texas, N.A. as Lenders.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 278
<SECURITIES> 0
<RECEIVABLES> 12,601
<ALLOWANCES> 0
<INVENTORY> 17,482
<CURRENT-ASSETS> 30,983
<PP&E> 136,803
<DEPRECIATION> 40,374
<TOTAL-ASSETS> 128,460
<CURRENT-LIABILITIES> 41,673
<BONDS> 47,925
0
0
<COMMON> 26,029
<OTHER-SE> 54
<TOTAL-LIABILITY-AND-EQUITY> 128,460
<SALES> 270,079
<TOTAL-REVENUES> 270,079
<CGS> 262,262
<TOTAL-COSTS> 262,262
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<INCOME-TAX> (54)
<INCOME-CONTINUING> (3,515)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (3,515)
<EPS-PRIMARY> (.70)
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</TABLE>
EXHIBIT 28.1
FIFTH AMENDMENT TO FIFTH RESTATED
AND AMENDED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT
AGREEMENT (herein called the "Amendment") is made as of the 14th
day of August, 1997, by and among Pride Companies, L.P., a Delaware
limited partnership ("Borrower"), Pride Refining, Inc., a Texas
corporation ("Pride Refining"), Pride SGP, Inc., a Texas
corporation ("Pride SGP"), Desulfur Partnership, a Texas general
partnership ("Desulfur Partnership"), Pride Marketing of Texas
(Cedar Wind), Inc., a Texas corporation ("Pride Marketing"), Pride
Borger, Inc., a Delaware corporation ("Pride Borger"), NationsBank
of Texas, N.A., a national banking association, as Agent ("Agent"),
and Lenders named on Schedule 1 to the Original Agreement
("Lenders"),
W I T N E S S E T H;
WHEREAS, Borrower, Pride Refining, Pride SGP, Desulfur
Partnership, Pride Marketing, Pride Borger, Agent and Lenders have
entered into that certain Fifth Restated and Amended Credit
Agreement dated as of August 13, 1996, as amended by that certain
First Amendment to Fifth Restated and Amended Credit Agreement
dated as of August 17, 1996, that certain Second Amendment to Fifth
Restated and Amended Credit Agreement dated as of February 25,
1997, that certain Third Amendment to Fifth Restated and
Amended Credit Agreement dated as of March 31, 1997, that certain
Fourth Amendment to Fifth Restated and Amended Credit Agreement
dated as of May 15, 1997 (as so amended, the "Original Agreement")
for the purpose and consideration therein expressed, whereby
Lenders became obligated to make loans to Borrower as therein
provided;
WHEREAS, Borrower has requested Agent and Lenders to extend
the Maturity Date, and Agent and Lenders have agreed to do so,
subject to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement and in consideration of the loans which may
hereafter be made by Lenders to Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this Amendment
shall have the meanings assigned to them in this Section 1.2.
"Amendment" shall mean this Fifth Amendment to Fifth Restated
and Amended Credit Agreement.
"Credit Agreement" shall mean the Original Agreement as
amended hereby.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definitions of "Excess Cash"
and "Maturity Date" in Section 1.1 of the Original Agreement are
hereby amended in their entirety to read as follows:
"Excess Cash" shall mean for any Calendar Quarter the
Adjusted Income of Borrower. For purposes of this definition, the
term "Adjusted Income of Borrower" for any Calendar Quarter means
EBITDAR for such Calendar Quarter, minus Fixed Charges for such
period, minus Capital Expenditures permitted by Section 7.06 hereof
actually made during such period.
"Maturity Date" shall mean the earlier to occur of July 1,
1998, or the date of any Acceleration.
Section 2.2 Partnership Insurance. A new Section 6.22 is
hereby added to the Original Agreement to read as follows:
"6.22. Partnership Liability Insurance. Each
Related Person shall maintain Partnership Liability Insurance
issued by Companies, and in amount, form and content acceptable to
Lenders."
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when, and only when
(i) Agent shall have received, at Agent's office, a counterpart of
this Amendment executed and delivered by Borrower and each Lender,
(ii) Borrower shall have paid to Agent for the benefit of
Lenders, in consideration of Lenders agreeing to the transactions
contemplated herein, an amendment fee in the amount of $90,000,
(iii) Borrower shall have paid to Agent, in cash, all fees and
expenses, including legal and other professional fees and expenses
incurred, by the Agent prior to the date of this Amendment to the
extent that same have been billed on or prior to the date of this
Amendment, and (iv) Borrower shall have delivered to Agent the
following: (x) copies of all Partnership liability policies for
Borrower, and (y) a certificate from the Borrower certifying to the
enclosure of true and correct copies of the Petroleum Products
Supply Agreement between Texaco Trading and Transportation, Inc.
and Borrower dated June 11, 1997, together with all schedules and
exhibits thereto, and all other documents executed in connection
therewith prior to, on and after the date of its execution, which
certificate shall be true and correct.
Section 3.2. Conditions Subsequent. This Amendment shall no
longer be effective and it shall be an Event of Default under the
Credit Agreement if the Borrower or another Related Person shall
not have delivered all of the items on Schedule 1 attached hereto
on or before the dates specified.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In
order to induce each Lender to enter into this Amendment, each
Related Person represents and warrants to each Lender that:
(a) The representations and warranties contained in Article
V of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof.
(b) Each Related Person ia duly authorized to execute and
deliver this Amendment, and Borrower is and will continue to be
duly authorized to borrow monies and to perform its obligations
under the Credit Agreement. Each Related Person has duly taken all
corporate and partnership action necessary to authorize the
execution and delivery of this Amendment and to authorize the
performance of the obligations of such Related Person hereunder and
thereunder.
(c) The execution and delivery by each Related Person of
this Amendment, the performance by each Related Person of its
obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby do not and will not conflict with
any provision of law, statute, rule or regulation or of the
partnership agreement, articles of incorporation and bylaws of any
Related Person, or of any material agreement, judgment, license,
order or permit applicable to or binding upon any Related Person,
or result in the creation of any lien, charge or encumbrance upon
any assets or properties of any Related Person. Except for those
which have been obtained, no consent, approval, authorization or
order of any court or governmental authority or third party is
required in connection with the execution and delivery by each
Related Person of this Amendment or to consummate the transactions
contemplated hereby or thereby.
(d) When duly executed and delivered, this Amendment will be
a legal and binding obligation of each Related Person, enforceable
in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and by equitable principles of
general application.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original
Agreement as hereby amended and all other Loan Documents are hereby
ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall he deemed to be a
reference to the Original Agreement as hereby amended. The
execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lenders under the Credit Agreement or any
other Loan Document nor constitute a waiver of any provision of the
Credit Agreement, the Notes or any other Loan Document nor
constitute a waiver of any Default or Event of Default.
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of the Related Person herein
shall survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the
Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any Related
Person hereunder or under the Credit Agreement to any Lender shall
be deemed to constitute representations and warranties by, and/or
agreements and covenants of, Borrower under this Amendment, and
under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining to
Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of Texas
and any applicable laws of the United States of America in all
respects, including construction, validity and performance.
Section 5.5. Collateral Documents. Each Related Person
hereby agrees to deliver to Agent within ten days from the date
hereof, such supplements, amendments and/or modifications of and to
the existing Collateral Documents as the Agent shall request, in
form and substance acceptable to the Agent, to reflect of record
the extension of the Maturity Date.
Section 5.6. Counterparts. This Amendment may be separately
executed in counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
BORROWER:
PRIDE COMPANIES, L,P., a Delaware
limited partnership
By: PRIDE REFINING, INC, a Texas corporation,
Managing General Partner
By: Brad Stephens
Chief Executive officer
GUARANTORS:
PRIDE REFINING, INC,
By: Brad Stephens
Chief Executive officer
PRIDE SGP, INC.
By: Brad Stephens
Chief Executive Officer
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By: Brad Stephens
President
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its General Partner
By: Brad Stephens
President
PRIDE BORGER, INC,
By: Wayne Malone
President
AGENT:
NATIONSBANK OF TEXAS, N,A,
By: Jay T. Wampler
Senior Vice President
LENDERS:
NATIONSBANK OF TEXAS, N.A.
By: Jay T. Wampler
Senior Vice President
BANK ONE, TEXAS, N.A.
By: Randall Durant
Vice President
CONSENT AND AGREEMENT
Each of Pride Refining, Pride SGP and Desulfur Partner hereby
consents to the provisions of this Agreement and the transactions
contemplated herein and hereby ratifies and confirms the Second
Restated Guaranty Agreement dated as of August 13, 1996, made by it
for the benefit of Lenders and Agent, and agrees that its
obligations and covenants thereunder are unimpaired hereby and
shall remain in full force and effect.
PRIDE REFINING, INC.
By: Brad Stephens
Chief Executive Officer
PRIDE SGP, INC.
By: Brad Stephens
President
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its general partner
By: Brad Stephens
President
CONSENT AND AGREEMENT
Pride Marketing hereby consents to the provisions of this
Amendment and the transactions contemplated herein and hereby
ratifies and confirms the Restated Guaranty Agreement dated as of
August 13, 1996, made by it for the benefit of Lenders and Agent,
and agrees that its obligations and covenants thereunder are
unimpaired hereby and shall remain in full force and effect.
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By: Brad Stephens
President
PRIDE BORGER, INC.
By: Wayne Malone
President
<PAGE>
SCHEDULE 1
LIST OF REQUESTED DOCUMENTS
1. All pleadings filed, orders entered and documentary or
deposition evidence submitted in the DFSC litigation, together with
a copy of all court transcripts from any hearings or trial in such
litigation. Date - September 5, 1997.
<PAGE>
AGREEMENT
This Agreement is entered into by the undersigned as of
August 14, 1997. Reference is hereby made to that certain Note
Agreement dated as of August 13, 1996 (as from time to time
amended, modified or supplemented, the "Note Agreement") among
Pride Companies, L.P., a Delaware limited partnership (the
"Company"), Pride Refining, Inc., a Texas corporation ("Managing
General Partner"), Pride SGP, Inc., a Texas corporation ("Special
General Partner") and Bank One, Texas, N.A. and NationsBank of
Texas, N.A., as Purchasers ("Purchasers"). Capitalized terms used
and not otherwise defined herein have the meanings given them in
the Note Agreement.
The Company has requested Purchasers to extend the maturity
date of the Series A Notes, the Series B Notes and the Series C
Notes, and Purchasers have agreed to do so, subject to the terms
and conditions contained herein.
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Amendments to Note Agreement. Each reference in
Paragraphs 1A, 1B and 1C of the Note Agreement to a maturity date
of "April 1, 1998" for the Series A Notes, the Series B Notes and
the Series C Notes is hereby amended to read "July 1, 1998."
2. Conditions to Effectiveness of Agreement. This Agreement
shall become effective as of the date first above written when and
only when Purchasers shall have received a counterpart of this
Agreement executed and delivered by all parties hereto, and all
conditions to the Fifth Amendment to Fifth Restated and Amended
Credit Agreement dated this date by and among the Company, the
Managing General Partner, the Special General Partners, and others
have been met. This Agreement shall no longer be effective and it
shall be an Event of Default under the Note Agreement if the
Company shall not have complied with all Conditions Subsequent to
such Fifth Amendment to Fifth Restated and Amended Credit Agreement
dated this date.
3. Ratification of Documents; Securities Documents. The
Note Agreement as amended hereby is ratified and confirmed in all
respects. The execution, delivery and effectiveness of this
Agreement shall not, except as expressly provided herein operate as
a waiver of any right, power or remedy of any Purchaser under the
Note Agreement nor constitute a waiver of any provision of the Note
Agreement. This Agreement is a Securities Document, and all
provisions in the Note Agreement pertaining to Securities Documents
apply hereto.
4. Counterparts. This Agreement may be separately executed
in counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement.
THIS AGREEMENT AND THE OTHER SECURITIES DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
OF THE PARTIES.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of August 14, 1997.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc., Managing
General Partner
By: Brad Stephens
Chief Executive Officer
PRIDE REFINING, INC,
By: Brad Stephens
Chief Executive officer
PRIDE SGP, INC.
By: Brad Stephens
Chief Executive Officer
NATIONSBANK OF TEXAS, N.A.
By: Jay T. Wampler
Senior Vice President
BANK ONE, TEXAS, N.A.
By: Randall Durant
Vice President
CONSENT AND AGREEMENT
Each of Pride Refining, Pride SGP and Desulfur Partner hereby
consents to the provisions of this Agreement and the transactions
contemplated herein and hereby ratifies and confirms the Second
Restated Guaranty Agreement dated as of August 13, 1996, made by it
for the benefit of Lenders, Agent (as such terms are defined in the
Credit Agreement), and Purchasers and agrees that its obligations
and covenants thereunder are unimpaired hereby and shall remain in
full force and effect.
PRIDE REFINING, INC.
By: Brad Stephens
Chief Executive Officer
PRIDE SGP, INC.
By: Brad Stephens
President
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its general partner
By: Brad Stephens
President
CONSENT AND AGREEMENT
Each of the undersigned hereby consents to the provisions of
this Agreement and the transactions contemplated herein, and hereby
ratifies and confirms the Restated Guaranty Agreement dated
as of August 13, 1996, made by it for the benefit of Lenders,
Agent, and Purchasers and agrees that its obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and
effect.
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By: Brad Stephens
President
PRIDE BORGER, INC.
By: Dave Caddell
Vice President
