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, 1999
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, 1999
----- --------------------------
Common Units 4,950,000
PAGE
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIDE COMPANIES, L.P.
BALANCE SHEETS
(Amounts in thousands, except unit amounts)
<CAPTION>
March 31,
1999 December 31,
(unaudited) 1998
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,740 $ 2,592
Accounts receivable, less allowance
for doubtful accounts 16,627 10,052
Inventories 7,842 7,582
Prepaid expenses 527 704
----------- -----------
Total current assets 27,736 20,930
----------- -----------
Property, plant and equipment - net 44,909 45,534
Assets no longer used in the business 4,235 4,301
Deferred financing cost 4,975 5,307
Other assets 388 390
----------- -----------
$ 82,243 $ 76,462
=========== ===========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIENCY):
Current liabilities:
Accounts payable $ 22,395 $ 16,573
Accrued payroll and related benefits 1,207 903
Accrued taxes 2,772 2,972
Other accrued liabilities 894 924
Current portion of long-term debt 1,916 237
----------- -----------
Total current liabilities 29,184 21,609
Long-term debt, excluding current portion 43,753 44,859
Deferred income taxes 2,263 2,295
Other long-term liabilities 12,204 12,160
Redeemable preferred equity 19,529 19,529
Partners' capital (deficiency):
Common units (5,275,000 units
authorized, 4,950,000 units
outstanding) (23,728) (23,042)
General partners' interest (962) (948)
----------- -----------
$ 82,243 $ 76,462
=========== ===========
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,
1999 1998
Restated
-------------- -----------
<S> <C> <C>
Revenues $ 83,166 $ 106,219
Cost of sales and operating expenses,
excluding depreciation 79,042 101,899
Marketing, general and
administrative expenses 2,016 2,186
Depreciation 868 850
------------ -----------
Operating income (loss) 1,240 1,284
Other income (expense):
Interest income 35 41
Interest expense (including interest
paid in kind of $641 and $312,
respectively, and increasing rate
accrued interest of $85 and $247,
respectively) (1,490) (1,472)
Credit and loan fees (including
amortization of $332 and $329,
respectively) (613) (672)
Other - net 76 33
------------ -----------
Loss before income taxes (752) (786)
Income tax expense (benefit) (52) (6)
------------ -----------
Net loss $ (700) $ (780)
============ ===========
Basic and diluted net loss
per Common Unit $ (.23) $ (.24)
============ ===========
<PAGE>
Numerator:
Net loss $ (700) $ (780)
Preferred distributions in
arrears (458) (428)
------------ -----------
Net loss less preferred
distributions (1,158) (1,208)
Net loss allocable to 2% general
partner interest (23) (24)
------------ -----------
Numerator for basic and diluted
earnings per unit $ (1,135) $ (1,184)
============ ===========
Denominator:
Denominator for basic and diluted
earnings per unit 4,950 4,950
============ ===========
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<CAPTION>
Three Months Ended March 31,
1999 1998
Restated
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (700) $ (780)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation 868 850
Amortization of loan costs 332 329
Deferred tax benefit (32) (30)
(Gain) loss on sale of
property, plant and equipment (14) (12)
Paid in kind interest and credit
and loan fees 641 312
Increasing rate accrued interest 85 247
Lower of cost or market adjustment (1,197) -
Net effect of changes in:
Accounts receivable (6,575) (1,054)
Inventories 937 (14)
Prepaid expenses 177 170
Accounts payable and other
long-term liabilities 5,781 (2,987)
Accrued liabilities 74 (2,827)
------------ -----------
Total adjustments 1,077 (5,016)
------------ -----------
Net cash provided by (used in)
operating activities 377 (5,796)
Cash flows from investing activities:
Purchases of property, plant and
equipment (270) (839)
Proceeds from asset disposals 109 13
Other - (14)
------------ -----------
Net cash provided by (used in)
investing activities (161) (840)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 8,875 8,472
Payments on debt and credit
facilities (8,943) (6,042)
Other - (10)
------------ -----------
Net cash provided by (used in)
financing activities (68) 2,420
------------ -----------
Net increase (decrease) in cash and
cash equivalents 148 (4,216)
Cash and cash equivalents at the
beginning of the period 2,592 5,008
------------ -----------
Cash and cash equivalents at the
end of the period $ 2,740 $ 792
============ ===========
See accompanying notes.
/TABLE
<PAGE>
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization
Pride Companies, L.P. (the "Partnership") was formed as a limited
partnership under the laws of the State of Delaware in January 1990.
The Partnership owns and operates (i) a crude oil gathering business
that gathers, transports, resells and redelivers crude oil in the
Texas market (the "Crude Gathering System") and (ii) one common
carrier products pipeline system and three products terminals in
Abilene, Texas (the "Abilene Terminal"); San Angelo, Texas (the "San
Angelo Terminal"); and Aledo, Texas (the "Aledo Terminal")
(collectively the "Products Terminals") that are used to market
conventional gasoline, low sulfur diesel fuel, and military aviation
fuel (the "Products Marketing Business"). The Partnership also owns
a modern simplex petroleum refinery facility (the "Refinery") which
was mothballed on March 22, 1998. In April 1998, the Partnership
began purchasing refined products from Equilon, a refining and
marketing joint venture between Royal Dutch/Shell Group and Texaco,
Inc. (formerly Texaco Trading and Transportation, Inc.) (the "Equilon
Agreement") to market through its products pipeline and Products
Terminals.
Prior to mothballing the Refinery, the Partnership's operations
were 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 was to purchase and sell crude oil in
order to provide a supply of the appropriate grade of crude oil at
strategic locations to be used as feedstock for the Refinery.
As a result of the Equilon Agreement and the mothballing of the
Refinery, the Crude Gathering System now markets crude oil to other
refineries and the Partnership now operates two separate and distinct
industry segments, the Crude Gathering System segment and the Products
Marketing Business segment. The Crude Gathering System consists of
pipeline gathering systems and a fleet of trucks which transport crude
oil into third party pipelines and into the system's primary asset, a
common carrier pipeline. The Products Marketing Business operates one
products pipeline, that originates at the Abilene Terminal and
terminates at the San Angelo Terminal (the "San Angelo Pipeline"), and
the Products Terminals. In connection with the mothballing of the
Refinery, another products pipeline owned by the Partnership that
extends from the Abilene Terminal to the Aledo Terminal (the "Aledo
Pipeline") was idled, since Equilon's pipeline is connected to the
Aledo Terminal. The Partnership's operations are conducted primarily
in the State of Texas.
Pride Refining, Inc., a Texas corporation (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. 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 ("Common
Units"). Public ownership represented by the remaining Common Units
is 93.1%.
2. Accounting Policies
The financial statements of the Partnership include all of its
wholly-owned subsidiaries including partnership interests. All
intercompany transactions have been eliminated. 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 for complete financial
statements. In the opinion of management, the accompanying financial
statements contain all material adjustments necessary to present
fairly the financial position, results of operations, and cash flows
for such periods. 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, 1998
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 corporate subsidiaries which are separate taxable
entities whose operations are subject to federal income taxes.
The financial statements included with this Form 10-Q have been
restated for the first quarter of 1998 to reflect the impact for the
1998 year-end adjustment to record increasing rate accrued interest
expense using the effective rate and to reflect distributions on the
preferred equity securities as arrearages. See "Notes 6 and 7".
3. Earnings Per Unit
Basic net loss per common unit is computed using the weighted
average number of common units outstanding. Diluted net loss per unit
is computed by adjusting the units outstanding and net loss for the
potential dilutive effect of the convertible securities and unit
appreciation rights. However, the effect of these securities was
antidilutive for the first quarters of 1999 and 1998.
4. Related Party Transactions
In accordance with the Third 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.
<PAGE>
5. Inventories
<TABLE>
<CAPTION>
Inventories are valued at the
lower of cost or market and March 31, December 31,
consist of: 1999 1998
(in thousands)
----------------------------- ----------- -----------
<S> <C> <C>
Crude oil $ 6,329 $ 5,433
Refined products and blending
materials 99 133
----------- -----------
6,428 5,566
Market valuation - (1,197)
LIFO reserve 738 2,515
----------- -----------
Petroleum inventories 7,166 6,884
Spare parts and supplies 676 698
----------- -----------
$ 7,842 $ 7,582
=========== ===========
</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.
At March 31, 1999, petroleum inventories valued using the LIFO
method were more than current cost determined using the FIFO method by
$738,000.
During 1998, the Partnership amended its agreement with Equilon
whereby Equilon has assumed title to all of the refined products
inventory on hand at the Abilene, San Angelo and Aledo Terminals as of
the close of business on September 30, 1998. While this agreement is
in place, the Partnership will purchase refined products from Equilon.
6. Long-term Debt
On December 31, 1997, Varde Partners, Inc. ("Varde") purchased
and assumed the then existing lenders' rights and obligations under
the Partnership's outstanding bank debt. In conjunction with Varde's
purchase and assumption of the lenders' rights and obligations under
such bank debt, BankBoston, N.A. ("BankBoston") refinanced the
Partnership's letter of credit facility and provided a new revolver
facility (the "BankBoston Revolver") on December 31, 1997.
The BankBoston Revolver provides for the issuance of letters of
credit to third parties to support the Partnership's purchase or
exchange of crude oil and petroleum products and $10.0 million for
direct cash borrowings for general working capital purposes. Amounts
available under the BankBoston Revolver are subject to a borrowing
base calculated as the sum of the Partnership's cash and cash
equivalents, certain receivables, deposits, inventory and other
amounts, reduced by a portion of crude oil royalties payable and
certain other payables for crude oil and refined products. The amount
available under the borrowing base net of outstanding letters of
credit and advances under the BankBoston Revolver was $1.8 million as
of March 31, 1999.
Effective April 15, 1999, BankBoston amended the facility which
will mature January 2, 2001. The total credit line available has been
lowered from $65.0 million to $55.0 million. Though no advances had
been drawn under the letter of credit facility at March 31, 1999, the
Partnership did have approximately $34.6 million in outstanding
letters of credit. The Partnership had $52,000 outstanding under the
BankBoston Revolver for direct cash borrowings as of March 31, 1999
and has classified it in the current portion of long-term debt.
The fee on outstanding letters of credit was 2.5% per annum as of
March 31, 1999. There is also an issuance fee of 0.125% per annum on
the face amount of each letter of credit. The fee for the unused
portion of the BankBoston Revolver is 0.5% per annum. Under the terms
agreed to by the parties, cash borrowings under the BankBoston
Revolver will bear interest at prime plus 1.75%. The prime rate was
7.75% at March 31, 1999. The credit agreement evidencing the
BankBoston Revolver also requires the Partnership to pay an agency fee
of up to $70,000 per annum depending on the number of participants in
the credit facility and restricts the payment of distributions to
unitholders throughout the term of the credit agreement. BankBoston
charged a $75,000 amendment fee related to an amendment that became
effective April 15, 1998 and will be paid $100,000 for the amendment
that became effective April 15, 1999.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership and subsequent interest being paid
in kind, Varde now holds a term loan of $20.2 million ("A Term Loan"),
a term loan of $10.4 million ("B Term Loan"), a term loan of $5.1
million ("C Term Loan") and an unsecured note of $2.8 million
("Subordinate Note A") as of March 31, 1999.
Effective April 15, 1999, Varde's credit agreement was amended.
In 1999, cash interest payments on the Varde Revolver (see below), A
Term Loan, B Term Loan, C Term Loan, Subordinate Note A and Varde's
preferred securities are limited to $208,000 per month. Any excess
will be paid in kind or accumulate in arrears. The A Term Loan, B
Term Loan, and C Term Loan bear interest rates of 11%, 13%, 15%, 17%
and 18% for the first, second, third, fourth and fifth years,
respectively except for $3.6 million of the B Term Loan which is
subject to interest rates of 18% through maturity. In addition, if
the A Term Loan is repaid or refinanced, the B Term Loan and C Term
Loan bear interest at 11% the first three years, 13% in the fourth
year and 15% in the fifth year, except for $3.6 million of the B Term
Loan which is subject to interest rates of 12% through maturity. The
Subordinate Note A is convertible into 445,000 Common Units and bears
interest at prime plus one percent. As consideration for the
amendment effective April 15, 1999, the principal amount of the B Term
Loan will be increased by $100,000.
Because a portion of the debt is subject to increasing rates of
interest, the Partnership is accruing interest at the effective rate
over the term of the debt. Interest expense for the first quarter of
1999 and 1998 reflects an accrual of $85,000 and $247,000,
respectively, which is based on the difference between the effective
interest rates and the stated rates.
In addition, the Partnership maintains a revolving credit
facility with Varde ("Varde Revolver"). The original commitment was
$2.0 million for the period April 15, 1998 through November 19, 1998
and was increased to $3.5 million for the period from November 20,
1998 through January 1, 1999. On January 1, 1999, the line was
reduced to the original $2.0 million commitment. Effective April 15,
1999, Varde increased the commitment to $3.0 million. Advances under
the Varde Revolver, which amounted to $1.4 million as of March 31,
1999, bear interest at 11% per annum, payable monthly. In the second
quarter of 1998, the Partnership paid Varde in the form of additional
Series B Term Loans fees totaling $150,000. Cash advances under the
Varde Revolver mature January 2, 2001.
Under the terms agreed to on April 15, 1999, payments to Varde
are capped at $2.5 million per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, it is likely
that all interest on the B Term Loan, C Term Loan and Subordinate Note
A will be paid in kind and all preferred distributions will accumulate
in arrears until such time as the Partnership can restructure its
capital structure.
The A Term Loan is due December 31, 2002. The B Term Loan, C
Term Loan and Subordinate Note A are also due December 31, 2002 if the
A Term Loan has not been refinanced. If the A Term Loan is
refinanced, the B Term Loan, C Term Loan and Subordinate Note A mature
180 days after the maturity of the new term loan, but no later than
June 30, 2003. The Partnership is required to make quarterly
principal payments on the A Term Loan as set forth in the Varde credit
agreement as well as make payments of excess cash flow for the
preceding year. However, Varde has agreed to forego all principal
payments in 1998 and 1999. The Partnership has classified $1.4
million of the A Term Loan as current due to the scheduled principal
payment due March 31, 2000. The Partnership will not have to make
principal payments prior to the scheduled maturity on the B Term Loan,
C Term Loan and Subordinate Note A except in the case the Partnership
receives litigation proceeds related to the DESC Claim and certain
other transactions including asset sales. See "Note 9".
Other installment loans include a $6.0 million nonrecourse note,
due 2014, payable monthly with interest at 8% and a balance of $5.5
million at March 31, 1999. The note is supported by a minimum
throughput agreement. The assets of Pride Borger, Inc., a
wholly-owned subsidiary of the Partnership, are pledged as collateral.
Monthly principal payments are based on the number of throughput
barrels. The Partnership has classified $178,000 as current at
March 31, 1999.
7. Preferred Equity
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities
retroactively to January 1, 1998. The primary effect of such amendment
was to eliminate the Partnership's ability to pay distributions on the
preferred equity securities in kind and provide that unpaid preferred
distributions would accumulate and compound in arrears.
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received preferred equity securities. As a result of the
assumption, Varde now holds preferred equity securities including $9.3
million of Series B Cumulative Preferred Units ("Series B Preferred
Units"), $5.0 million of Series C Cumulative Preferred Units ("Series
C Preferred Units") and $2.8 million of Series D Cumulative Preferred
Units ("Series D Preferred Units") which are all redeemable on
December 31, 2002. The Series B Preferred Units and Series C
Preferred Units are convertible into 1,480,000 and 794,000 Common
Units, respectively. The preferential quarterly payments on the
Series B Preferred Units and Series C Preferred Units are 6% per annum
in the first three years after issuance, 12% per annum in the fourth
and fifth years and 15% per annum thereafter or at the Partnership's
option may accumulate in arrears at 8% per annum in the first three
years. The preferential quarterly payments on the Series D Preferred
Units are 11% per annum in the first three years after issuance, 13%
per annum in the fourth and fifth years and 15% per annum thereafter
or at the Partnership's option may accumulate in arrears at 13% per
annum in the first three years. Distributions are payable on the 5th
day of the second month in each quarter. Accordingly, for the first
quarters of 1999 and 1998, the Partnership accumulated arrearages of
$412,000 and $382,000, respectively, on these preferred equity
securities. Through March 31, 1999, these securities had total
accumulated arrearages of $2.0 million.
On December 31, 1997, Pride SGP converted (i) a $2.0 million
note from the Partnership into Series E Cumulative Convertible
Preferred Units ("Series E Preferred Units") which is convertible into
317,000 Common Units and (ii) a $450,000 note from the Partnership
into Series F Cumulative Preferred Units ("Series F Preferred Units")
which are both redeemable on December 31, 2002. The Series E
Preferred Units and Series F Preferred Units are subordinated to the
Series B Preferred Units, Series C Preferred Units and Series D
Preferred Units. The preferential quarterly payments on the Series E
Preferred Units and Series F Preferred Units are 6% per annum in the
first three years after issuance, 12% per annum in the fourth and
fifth years and 15% per annum thereafter or at the Partnership's
option may accumulate in arrears at 8% per annum in the first three
years. Distributions are payable on the 5th day of the second month in
each quarter; however, the Partnership may not make any cash
distributions on the Series E Preferred Units or Series F Preferred
Units if the Series B Preferred Units, Series C Preferred Units or
Series D Preferred Units have accumulated arrearages outstanding.
Accordingly, for the first quarters of 1999 and 1998, the Partnership
accumulated arrearages of $46,000 in both periods on the Series E
Preferred Units and Series F Preferred Units. Through March 31, 1999,
these securities had total accumulated arrearages of $245,000.
As previously mentioned, the cash interest and distribution
payments on the debt and preferred equity held by Varde are limited to
$2.5 million annually. Any payments of principal on the securities
held by Varde shall be applied in the following order: Varde Revolver,
A Term Loan, B Term Loan, C Term Loan, Subordinate Note A, Series B
Preferred Units, Series C Preferred Units, and Series D Preferred
Units. As a result of the cap, it is unlikely that any distributions
will be paid in cash on the preferred securities in the near future.
8. Common Units
At March 31, 1999, 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.
9. Contingencies
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America (Defense Energy Support Center) relating to erroneous
pricing of fuel purchased over a period of several years from the
Partnership and its predecessors (the "DESC Claim"). The Partnership
seeks recovery of the difference between the market value of the jet
fuel and the amount originally paid by the Defense Energy Support
Center for such jet fuel. 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.
10. Business Segments
The Partnership adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," during the fourth quarter
of 1998. SFAS No. 131 established standards for reporting information
about operating segments in annual financial statements and requires
selected information about operating segments in interim financial
reports issued to stockholders. Operating segments are defined as
components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance.
The Partnership has two segments: (i) the Products Marketing
Business, and (ii) the Crude Gathering System. The Products Marketing
Business has one products pipeline, that originates at the Abilene
Terminal and terminates at the San Angelo Terminal, and the Products
Terminals that are used to market conventional gasoline, low sulfur
diesel fuel and military aviation fuel. Assets no longer used in the
business and corporate assets are considered part of the Products
Marketing Business. The Crude Gathering System consists of pipeline
gathering systems and a fleet of trucks which transport crude oil into
third party pipelines and into the system's primary asset, a common
carrier pipeline. As discussed in Note 1, prior to March 22, 1998,
the Partnership operated as a single segment.
The segments follow the same accounting policies as
described in the Summary of Significant Accounting Policies (see Note
1).
Information on the Partnership's operations by business segment
(stated in thousands) is summarized as follows:
Three Months Ended March 31,
1999 1998
------- --------
Revenues
Products Marketing Business $21,321 $ 50,104
Crude Gathering System 61,914 95,712
Intrasystem and Other (69) (39,597)
------ -------
Total Revenues $83,166 $106,219
====== =======
Operating Income (Loss)
Products Marketing Business $ (460) $ 1,006
Crude Gathering System 1,700 278
------ -------
Total Operating Income(Loss) $ 1,240 $ 1,284
====== =======
PAGE
<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 which
owns and operates a products marketing business ("Products Marketing
Business") and crude oil gathering business ("Crude Gathering
System"). Prior to the mothballing of the refinery on March 22, 1998,
the Partnership also operated a refining business ("Refinery") and
products pipeline business ("Products System").
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 condition in the future are: (i)
the margins between the revenue realized by the Partnership on the
sale of refined products and the cost of those products purchased from
Equilon and the availability of such products, (ii) the volume of
throughput at the Products Terminals, (iii) the volume of throughput
on and margins from the transportation and resale of crude oil from
the Partnership's Crude Gathering System, (iv) the amount of crude oil
produced in the areas the Partnership gathers, (v) the impact of
current and future laws and governmental regulations affecting the
petroleum industry in general and the Partnership's operations in
particular, (vi) the ability of the Partnership to sustain cash flow
from operations sufficient to realize its investment in operating
assets of the Partnership and meet its debt obligations, and (vii)
fluctuations in crude oil and refined product prices and their impact
on working capital and the borrowing base under the Partnership's
credit agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Financial Condition."
General
As a result of mothballing the Refinery at the end of the first
quarter of 1998 and redirecting its business to focus on crude oil and
products marketing and distribution, the Partnership's operating
results now depend principally on (i) the margins between the revenue
realized by the Partnership on the sale of refined products and the
cost of those refined products purchased from Equilon and the
availability of such products, (ii) the volume of throughput at the
Products Terminals, (iii) the volume of throughput on and margins from
the transportation and resale of crude oil from the Partnership's
Crude Gathering System, and (iv) the amount of crude oil produced in
the areas the Partnership gathers. The price the Partnership is able
to realize on the resale of its petroleum products is influenced by
the level of competition in the Partnership's markets. Due to the
change in its core business, a comparison of the Products Marketing
Business to the Refinery and the prior products pipeline business
("Products System") would not be meaningful and, therefore, is not
included with this Form 10-Q.
Prior to mothballing the Refinery and entering into the Equilon
Agreement, the Partnership's operating results depended principally on
(i) the rate of utilization of the Refinery, (ii) the margins between
the prices of its refined petroleum products and the cost of crude
oil, (iii) the volume throughput on the Products System, and (iv) the
volume throughput on and margins from the transportation and resale of
crude oil from its Crude Gathering System.
Margins from 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 result in increased exploration and development.
Conversely, when crude oil prices decrease, exploration and
development decline and margins on the resale of crude oil as well as
transportation charges tend to decrease.
Beginning in April 1998, the Partnership began selling crude oil
to third parties that in the past would have been refined at the
Refinery. The gross margin per barrel from such sales are based in
part on the sales price of crude oil above the Partnership's posted
price for the purchase of such crude oil (the "Premium"). The Premium
for crude oil is primarily based on the prompt NYMEX price of crude
oil versus the posted price of crude oil.
Prior to April 1998, a substantial portion of the crude gathered
by the Crude Gathering System was sold to the Refinery. The
intrasystem pricing of crude oil between the Refinery and the Crude
Gathering System was based in part on an adjusted Midland spot price
for crude oil above the Partnership's posted price for the purchase of
such crude oil (the "Intracompany Premium"), which represented the
approximate amount above posting that would be realized on the sale of
such crude oil to an unrelated third party. The total intrasystem
price for crude oil between the Refinery and the Crude Gathering
System included the Intracompany Premium, the Partnership's posted
price and transportation costs. An increase in the Intracompany
Premium for crude oil had a negative impact on the Refinery and a
positive impact on the Crude Gathering System. On the other hand, a
decrease in the Intracompany Premium for crude oil had a positive
impact on the Refinery and a negative impact on the Crude Gathering
System. For the first three months of 1998, the average Intracompany
Premium for crude oil was $1.72.
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 in the
first quarter of 1998 are barrels of crude oil refined, gross margin
(revenue less cost of crude) per barrel, and operating expenses per
barrel, excluding depreciation.
First Quarter 1999 Compared to First Quarter 1998
GENERAL -- Net loss for the first quarter of 1999 was $700,000
compared to $780,000 for the first quarter of 1998.
Operating income was $1.2 million for the first quarter of 1999
compared to operating income of $1.3 million for the first quarter of
1998. Operating income, excluding depreciation, for both the first
quarter of 1999 and 1998 was $2.1 million.
The following table details the operating income (loss);
depreciation; and the operating income (loss), excluding depreciation
(in thousands), for the first quarter of 1999 and 1998.<PAGE>
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Excluding
(Loss) Depreciation Depreciation
--------- ------------ ------------
<S> <C> <C> <C>
FIRST QUARTER 1999
Products Marketing Business $ (460) $ 359 $ (101)
Crude Gathering System 1,700 509 2,209
------- ------- --------
Total $ 1,240 $ 868 $ 2,108
======= ======= ========
FIRST QUARTER 1998
Refinery and Products System $ 1,006 $ 368 $ 1,374
Crude Gathering System 278 482 760
------- ------- --------
Total $ 1,284 $ 850 $ 2,134
======= ======= ========
</TABLE>
PRODUCTS MARKETING BUSINESS -- Operating loss, depreciation
expense, and operating loss, before depreciation of the Products
Marketing Business was $460,000, $359,000, and $101,000, respectively,
for the first quarter of 1999. During the first quarter of 1999, the
Partnership marketed 13,813 barrels per day ("BPD") of refined
products compared to 13,267 BPD for the last nine months of 1998. The
net margin per barrel was negative $0.38.
REFINERY AND PRODUCTS SYSTEM -- Operating income, depreciation
expense, and operating income, before depreciation for the Refinery
and Products System was $1.0 million, $368,000 and $1.4 million,
respectively, for the first quarter of 1998.
Operating income, depreciation expense, and operating income,
before depreciation of the Refinery was $937,000, $210,000 and $1.1
million, respectively, for the first quarter of 1998. Refinery gross
margin per barrel was $1.88 for the first quarter of 1998. Refinery
throughput averaged 28,090 BPD for the first quarter of 1998.
Operating expenses per barrel, excluding depreciation, were $0.98 for
the first quarter of 1998.
Operating income, depreciation expense, and operating income,
before depreciation for the Products System was $69,000, $158,000 and
$228,000, respectively, for the first quarter of 1998. Total
transportation volumes were 7,335 BPD for the first quarter of 1998.
CRUDE GATHERING SYSTEM -- Operating income for the Crude
Gathering System was $1.7 million for the first quarter of 1999
compared to $278,000 for the same period in 1998. The improvement in
the first quarter of 1999 is due primarily to the reversal of a $1.2
million lower of cost or market inventory adjustment since the market
value of the crude oil owned by the Partnership was more than its LIFO
carrying value at March 31, 1999 due to a significant recovery in
crude oil prices in the latter part of the first quarter of 1999.
Depreciation expense for the Crude Gathering System was $509,000 for
the first quarter of 1999 compared to $482,000 for the first quarter
of 1998. Operating income, excluding depreciation, for the Crude
Gathering System was $2.2 million for the first quarter of 1999 and
$760,000 for the first quarter of 1998. The net margin was $0.47 per
barrel for the first quarter of 1999 versus $0.06 per barrel for the
same period in 1998. The volume of crude oil gathered by the Crude
Gathering System decreased to 40,267 BPD for the first quarter of 1999
from 52,177 BPD for the first quarter of 1998.
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 requirements, industry trends, price of
crude oil, inventory prices, and, with respect to certain products,
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
both diesel fuel and gasoline are expected to be increasingly
important in urban areas. In addition, the Partnership plans to spend
approximately $540,000 in 1999 and 2000 on several projects to
maintain compliance with various other environmental requirements
including $315,000 related to an investigative study by the Texas
Natural Resource Conservation Commission. The remaining $225,000 is
for various normal operating expenses to be incurred in the ordinary
course of business.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the cost to comply with this study
approximates $315,000 and has accrued for this amount at March 31,
1999. Management does not believe any significant additional amounts
will be required to maintain compliance with this study or other
environmental requirements other than expenditures incurred in the
ordinary course of business.
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 believe that these have had or will
have a material adverse effect on the Partnership's operations.
OTHER REGULATORY REQUIREMENTS -- The Partnership is subject to
the rules and regulations of, among others, the Occupational Safety
and Health Administration, Texas Railroad Commission, Texas Natural
Resource Conservation Commission, and United States Environmental
Protection Agency.
INDUSTRY TRENDS AND PRICE OF CRUDE OIL -- Industry trends and the
price of crude oil will continue to affect the Partnership's business.
In the last three years, the posting price for WTI crude oil has
varied from approximately $8.25 to $25.00 per barrel. The general
level of crude oil prices has a significant effect on the margins in
the crude gathering business. Margins from 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 result in increased exploration and
development. Conversely, when oil prices decrease, exploration and
development decline and margins on the resale of crude oil as well as
transportation charges tend to decrease. Also, margins from the Crude
Gathering System are influenced by the prompt NYMEX price of crude oil
versus the posted price of crude oil. The Partnership is also
impacted by fluctuations in the cost of products purchased from
Equilon versus fluctuations in the price realized by the Partnership
on the sale of such products and the amount of competition in its
markets.
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. At March 31, 1999, petroleum
inventories valued using the LIFO method were more than current cost
determined using the FIFO method by $738,000. In the first quarter of
1999, the Partnership reversed a $1.2 million lower of cost or market
inventory adjustment since the market value of the crude oil owned by
the Partnership was more than its LIFO carrying value at March 31,
1999 due to a significant recovery in crude oil prices in the latter
part of the first quarter of 1999.
SEASONALITY AND WEATHER -- Gasoline consumption is typically
highest in the United States in the summer months and lowest in the
winter 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.
PAGE
<PAGE>
Financial Condition
Inflation
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 operations.
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 product sales
and by the 20th of the following month in the case of third-party
crude oil sales and exchanges. The Partnership maintains crude
inventory of approximately 10 to 15 days of sales. Effective on the
close of business on September 30, 1998 and extending to December 31,
1999, Equilon maintains the refined products inventory on hand at the
Partnership's marketing facilities. As a result, the Partnership
purchases product inventory daily from Equilon, thereby eliminating
most of the carrying costs, including interest costs. Further, this
arrangement substantially reduces the lag between the time the
Partnership must pay Equilon for the product, 10 days after the sale,
and the time the Partnership receives payment from its customers. The
Crude Gathering System generally pays for crude oil on the 20th of the
month following the month in which it is received and also can
experience a minor lag between the time it pays for and receives
payment for crude oil transactions. 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.
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. For the quarter ended March 31, 1999, cash
was utilized as a result of an increase in accounts receivable
(resulting from higher crude oil prices and refined product prices.
This was partially offset by an increase in accounts payable
(resulting from the higher crude oil prices and refined product
prices). For the quarter ended March 31, 1998, cash was utilized as a
result of an increase in accounts receivable (resulting from crude oil
being sold to third parties), a decrease in accounts payable
(resulting from the lower crude oil price), and a reduction in various
accrued liabilities.
PAGE
<PAGE>
On December 31, 1997, Varde Partners, Inc. ("Varde") purchased
and assumed the then existing lenders' rights and obligations under
the Partnership's outstanding bank debt. In conjunction with Varde's
purchase and assumption of the lenders' rights and obligations under
such bank debt, BankBoston, N.A. ("BankBoston") refinanced the
Partnership's letter of credit facility and provided a new revolver
facility (the "BankBoston Revolver") on December 31, 1997.
The BankBoston Revolver provides for the issuance of letters of
credit to third parties to support the Partnership's purchase or
exchange of crude oil and petroleum products and $10.0 million for
direct cash borrowings for general working capital purposes. Amounts
available under the BankBoston Revolver are subject to a borrowing
base calculated as the sum of the Partnership's cash and cash
equivalents, certain receivables, deposits, inventory and other
amounts, reduced by a portion of crude oil royalties payable and
certain other payables for crude oil and refined products. The amount
available under the borrowing base net of outstanding letters of
credit and advances under the BankBoston Revolver was $1.8 million as
of March 31, 1999.
Effective April 15, 1999, BankBoston amended the facility which
will mature January 2, 2001. The total credit line available has been
lowered from $65.0 million to $55.0 million. Though no advances had
been drawn under the letter of credit facility at March 31, 1999, the
Partnership did have approximately $34.6 million in outstanding
letters of credit. The Partnership had $52,000 outstanding under the
BankBoston Revolver for direct cash borrowings as of March 31, 1999
and has classified it in the current portion of long-term debt.
The fee on outstanding letters of credit was 2.5% per annum as of
March 31, 1999. There is also an issuance fee of 0.125% per annum on
the face amount of each letter of credit. The fee for the unused
portion of the BankBoston Revolver is 0.5% per annum. Under the terms
agreed to by the parties, cash borrowings under the BankBoston
Revolver will bear interest at prime plus 1.75%. The prime rate was
7.75% at March 31, 1999. The credit agreement evidencing the
BankBoston Revolver also requires the Partnership to pay an agency fee
of up to $70,000 per annum depending on the number of participants in
the credit facility and restricts the payment of distributions to
unitholders throughout the term of the credit agreement. BankBoston
charged a $75,000 amendment fee related to an amendment that became
effective April 15, 1998 and will be paid $100,000 for the amendment
that became effective April 15, 1999.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership and subsequent interest being paid
in kind, Varde now holds a term loan of $20.2 million ("A Term Loan"),
a term loan of $10.4 million ("B Term Loan"), a term loan of $5.1
million ("C Term Loan") and an unsecured note of $2.8 million
("Subordinate Note A") as of March 31, 1999.
Effective April 15, 1999, Varde's credit agreement was amended.
In 1999, cash interest payments on the Varde Revolver (see below), A
Term Loan, B Term Loan, C Term Loan, Subordinate Note A and Varde's
preferred securities are limited to $208,000 per month. Any excess
will be paid in kind or accumulate in arrears. The A Term Loan, B
Term Loan, and C Term Loan bear interest rates of 11%, 13%, 15%, 17%
and 18% for the first, second, third, fourth and fifth years,
respectively except for $3.6 million of the B Term Loan which is
subject to interest rates of 18% through maturity. In addition, if
the A Term Loan is repaid or refinanced, the B Term Loan and C Term
Loan bear interest at 11% the first three years, 13% in the fourth
year and 15% in the fifth year, except for $3.6 million of the B Term
Loan which is subject to interest rates of 12% through maturity. The
Subordinate Note A is convertible into 445,000 Common Units and bears
interest at prime plus one percent. As consideration for the
amendment effective April 15, 1999, the principal amount of the B Term
Loan will be increased by $100,000.
Because a portion of the debt is subject to increasing rates of
interest, the Partnership is accruing interest at the effective rate
over the term of the debt. Interest expense for the first quarter of
1999 and 1998 reflects an accrual of $85,000 and $247,000,
respectively, which is based on the difference between the effective
interest rates and the stated rates.
In addition, the Partnership maintains a revolving credit
facility with Varde ("Varde Revolver"). The original commitment was
$2.0 million for the period April 15, 1998 through November 19, 1998
and was increased to $3.5 million for the period from November 20,
1998 through January 1, 1999. On January 1, 1999, the line was
reduced to the original $2.0 million commitment. Effective April 15,
1999, Varde increased the commitment to $3.0 million. Advances under
the Varde Revolver, which amounted to $1.4 million as of March 31,
1999, bear interest at 11% per annum, payable monthly. In the second
quarter of 1998, the Partnership paid Varde in the form of additional
Series B Term Loans fees totaling $150,000. Cash advances under the
Varde Revolver mature January 2, 2001.
Under the terms agreed to on April 15, 1999, payments to Varde
are capped at $2.5 million per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, it is likely
that all interest on the B Term Loan, C Term Loan and Subordinate Note
A will be paid in kind and all preferred distributions will accumulate
in arrears until such time as the Partnership can restructure its
capital structure.
The A Term Loan is due December 31, 2002. The B Term Loan, C
Term Loan and Subordinate Note A are also due December 31, 2002 if the
A Term Loan has not been refinanced. If the A Term Loan is
refinanced, the B Term Loan, C Term Loan and Subordinate Note A mature
180 days after the maturity of the new term loan, but no later than
June 30, 2003. The Partnership is required to make quarterly
principal payments on the A Term Loan as set forth in the Varde credit
agreement as well as make payments of excess cash flow for the
preceding year. However, Varde has agreed to forego all principal
payments in 1998 and 1999. The Partnership has classified $1.4
million of the A Term Loan as current due to the scheduled principal
payment due March 31, 2000. The Partnership will not have to make
principal payments prior to the scheduled maturity on the B Term Loan,
C Term Loan and Subordinate Note A except in the case the Partnership
receives litigation proceeds related to the DESC Claim and certain
other transactions including asset sales. See "Legal Proceedings."
The Partnership or management has a three-year call on Varde's
position for an amount equal to a 40% annual return to Varde, subject
to a minimum payment of $7.5 million over Varde's cost. (For a
discussion of the terms of Varde's preferred equity securities, see
the discussion under "Cash Distributions and Preferred Arrearages".)
The securities held by Varde have certain antidilution provisions and
registration rights. Any litigation proceeds received by the
Partnership related to the DESC Claim will be used to retire up to
$6.0 million of the A Term Loan, if then outstanding, and up to $5.0
million of the B Term Loan with any excess divided one-third to Varde
to be used to retire Varde's most senior securities and two-thirds to
the Partnership.
On December 31, 1997, certain members of management invested an
aggregate of $2.0 million in the form of a note payable to Varde and
received a one-third economic non-directive interest in $6.0 million
of the B Term Loan, C Term Loan, Subordinate Note A, Series B
Cumulative Convertible Preferred Units (" Series B Preferred Units"),
Series C Cumulative Convertible Preferred Units (" Series C Preferred
Units") and Series D Cumulative Convertible Preferred Units ("Series D
Preferred Units"). The note payable to Varde is secured by
management's interest in such securities. Any cash yield on
management's share of such securities is paid to Varde as interest,
net of applicable federal income tax.
Other installment loans include a $6.0 million nonrecourse note,
due 2014, payable monthly with interest at 8% and a balance of $5.5
million at March 31, 1999. The note is supported by a minimum
throughput agreement. The assets of Pride Borger, Inc., a
wholly-owned subsidiary of the Partnership, are pledged as collateral.
Monthly principal payments are based on the number of throughput
barrels. The Partnership has classified $178,000 as current at
March 31, 1999.
As previously mentioned, the cash interest and distribution
payments on the debt and preferred equity held by Varde are limited to
$2.5 million annually. (For a discussion of the terms of Varde's
preferred equity securities, see the discussion under "Cash
Distributions and Preferred Arrearages".) Any payments of principal
on the securities held by Varde shall be applied in the following
order: Varde Revolver, A Term Loan, B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units, and Series D Preferred Units.
The Partnership has not historically complied with its financial
and performance covenants included in its various credit facilities
with lenders. Based on the amendment effective April 15, 1999, agreed
to by the principal creditors, management now believes the Partnership
can maintain compliance with the covenants in the near future.
However, compliance with the covenants into the year 2000 will be
largely dependent on the then current operating condition, including
crude oil prices and wholesale margins for petroleum products.
The Partnership's operating results have declined over the past
several years as a result of increasing competition, depressed
operating margins and higher financing costs. Crude gathering volumes
have declined in each of the last five years. Gasoline, diesel and
military aviation fuel sales have also declined.
Under the new military aviation fuel contract with the U. S.
Government which began April 1, 1999 and ends March 31, 2000, the
Partnership will supply approximately 48% of the volumes that it
supplied under the contract which began April 1, 1998 and ended
March 31, 1999. Margins under the new contract will be 1.5 cents per
gallon lower than the prior contract.
Declines in crude oil and refined product prices have had a
negative impact on the borrowing base under the Partnership's credit
agreement as well as working capital. Though prices recovered
significantly in the first quarter of 1999, further declines could
have a material adverse effect on the Partnership.
Product sales for April 1998 through June 1998 were below
management's budgeted sales due to startup problems experienced by
Equilon with its new products pipeline. As a result, delivery and
corresponding sales of gasoline, diesel and military aviation fuel
were substantially below expectations. Throughout the second quarter
of 1998, the Partnership was unable to deliver contractual volumes,
particularly to the government. The Partnership is currently
delivering to the government contractual volumes and gasoline and
diesel sales have also increased from the second quarter of 1998.
Equilon performed an extensive pipeline cleaning operation and the
situation has improved. However, there can be no assurance that
further problems will not be encountered.
As a result of the problems associated with the startup of the
pipeline, Equilon has agreed to certain contract concessions. On
October 1, 1998 the Partnership sold to Equilon the refined products
held by it at the Products Terminals and in the San Angelo Pipeline.
In addition, Equilon is leasing certain tankage from the Partnership
and will sell refined products to the Partnership daily from such
facilities through December 31, 1999, thus eliminating the need for
the Partnership to maintain its own refined products inventory. On
April 15, 1999, Equilon further agreed to extend the lease and
maintain the inventory after December 31, 1999 provided the
Partnership reimburses Equilon for its carrying costs beginning
January 1, 2000.
The Partnership's ability to generate profits is principally
dependent upon increased volumes and/or improved profit margins, as
well as continued cost control initiatives. Since 1993, the
Partnership has been able to achieve continuous reductions in
marketing, general and administrative expenses. The ability to
generate profits could be adversely affected if other Gulf Coast
refiners bring refined products into West Texas from the Gulf Coast
via pipeline or significant declines in crude oil and petroleum prices
occur. 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, if
achieved, will be gradual and, in many cases, will take sustained
periods of time to implement in order to achieve profitability. As a
result, the Partnership has engaged an investment advisor to assist
the Partnership in considering and analyzing various potential
business opportunities involving the Crude Gathering System, including
possible strategic alliances and joint ventures and a possible sale of
the Crude Gathering System. Although the Partnership has been and
continues to be in discussions with various third parties regarding
possible transactions, the Partnership has not entered into any
binding agreement involving a business combination or sale involving
the Crude Gathering System and is unable to predict the certainty of
entering into or consummating any such transaction. As previously
mentioned, the Partnership sold the diesel desulfurization unit for
$3.1 million in December 1998. This sale resulted in a tax loss which
was allocated to unitholders. Future sales could result in taxable
income which likewise would be allocated to the unitholders without a
corresponding cash distribution from the Partnership. If a
unitholder's passive loss carryforwards are less than the unitholders
share of such income, the unitholder will have to satisfy any
resulting liability with cash from other sources. The Partnership's
credit agreement restricts the payment of distributions through
maturity.
Regardless of any changes made to the Partnership operations, the
Partnership's financing arrangements will have to be significantly
restructured before the BankBoston facility and Varde Revolver expire
January 2, 2001 and the Varde securities begin maturing on December
31, 2002. There can be no assurances that BankBoston or Varde will
agree to any such restructuring.
The Partnership was delisted from trading on the New York Stock
Exchange effective August 17, 1998 for failing to meet certain listing
requirements. The Partnership is now listed on the NASDAQ OTC
bulletin board under the symbol PRDE.
Capital Expenditures
Capital expenditures totaled $270,000 for the quarter ended
March 31, 1999 compared to $839,000 for the quarter ended March 31,
1998.
Management anticipates spending $315,000 in 1999 for
environmental expenditures which were fully accrued for at December
31, 1998 and capital expenditures for 1999 are budgeted at $1.0
million.
Cash Distributions and Preferred Arrearages
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities
retroactively to January 1, 1998. The primary effect of such amendment
was to eliminate the Partnership's ability to pay distributions on the
preferred equity securities in kind and provide that unpaid preferred
distributions would accumulate and compound in arrears.
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received preferred equity securities. As a result of the
assumption, Varde now holds preferred equity securities including $9.3
million of Series B Preferred Units, $5.0 million of Series C
Preferred Units and $2.8 million of Series D Preferred Units which are
all redeemable on December 31, 2002. The Series B Preferred Units and
Series C Preferred Units are convertible into 1,480,000 and 794,000
Common Units, respectively. The preferential quarterly payments on
the Series B Preferred Units and Series C Preferred Units are 6% per
annum in the first three years after issuance, 12% per annum in the
fourth and fifth years and 15% per annum thereafter or at the
Partnership's option may accumulate in arrears at 8% per annum in the
first three years. The preferential quarterly payments on the Series
D Preferred Units are 11% per annum in the first three years after
issuance, 13% per annum in the fourth and fifth years and 15% per
annum thereafter or at the Partnership's option may accumulate in
arrears at 13% per annum in the first three years. Distributions are
payable on the 5th day of the second month in each quarter.
Distributions are also subject to the cap on payments to Varde as
previously discussed. Accordingly, for the first quarter of 1999, the
Partnership accumulated arrearages of $412,000 on these preferred
equity securities. Through March 31, 1999, these securities had total
accumulated arrearages of $2.0 million. Management believes the
amount in arrears will continue to increase until such time as the
Partnership can restructure its capital structure.
On December 31, 1997, Pride SGP converted (i) a $2.0 million
note from the Partnership into Series E Cumulative Convertible
Preferred Units ("Series E Preferred Units") which is convertible into
317,000 Common Units and (ii) a $450,000 note from the Partnership
into Series F Cumulative Preferred Units ("Series F Preferred Units")
which are both redeemable on December 31, 2002. The Series E
Preferred Units and Series F Preferred Units are subordinated to the
Series B Preferred Units, Series C Preferred Units and Series D
Preferred Units. The preferential quarterly payments on the Series E
Preferred Units and Series F Preferred Units are 6% per annum in the
first three years after issuance, 12% per annum in the fourth and
fifth years and 15% per annum thereafter or at the Partnership's
option may accumulate in arrears at 8% per annum in the first three
years. Distributions are payable on the 5th day of the second month in
each quarter; however, the Partnership may not make any cash
distributions on the Series E Preferred Units or Series F Preferred
Units if the Series B Preferred Units, Series C Preferred Units or
Series D Preferred Units have accumulated arrearages outstanding.
Accordingly, for the first quarter of 1999, the Partnership
accumulated arrearages of $46,000 on the Series E Preferred Units and
Series F Preferred Units. Through March 31, 1999, these securities
had total accumulated arrearages of $245,000. Management believes the
amount in arrears will continue to increase until such time as the
Partnership can restructure its capital structure.
At March 31, 1999, 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.
<PAGE>
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 debt, expiration of all
liabilities for letters of credit, and the termination of the credit
agreements.
Year 2000 Compliance
The year 2000 issue ("Year 2000 Issue") is the result of computer
programs being written using two digits rather than four digits to
define the applicable year. Any of the Partnership's computer
programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculation
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on recent assessments, the Partnership determined that it
will be required to modify or replace significant portions of its
software and certain hardware so that those systems will properly
utilize dates beyond December 31, 1999. The Partnership presently
believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However,
if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on
the operations of the Partnership.
The Partnership's plan to resolve the Year 2000 Issue involves
the following four phases: assessment, remediation, testing and
implementation. To date, the Partnership has fully completed its
assessment of all systems that could be significantly affected by the
Year 2000. The completed assessment indicated that most of the
Partnership's significant information technology systems could be
affected, particularly the general ledger, billing, and inventory
systems. That assessment also indicated that software and hardware
(embedded chips) used in monitoring the Partnership's pipelines and
terminals are also at risk. The Partnership does not believe that the
Year 2000 presents a material exposure as it relates to the
Partnership's products, but there can be no assurances that the
Partnership will not have unexpected problems or incur unexpected
costs. In addition, the Partnership has gathered information about
the Year 2000 compliance status of its significant suppliers and
subcontractors and continues to monitor their compliance.
For its information technology exposures, to date the Partnership
is 95% complete on the remediation phase and expects to complete
software reprogramming and replacement in the second quarter of 1999.
Once software is reprogrammed or replaced for a system, the
Partnership begins testing and implementation. These phases run
concurrently for different systems. To date, the Partnership has
completed 70% of its testing and has implemented 80% of its remediated
systems. Completion of the testing phase for all significant systems
is expected by September 30, 1999. There can be no assurances that
the Partnership will complete implementation of its Year 2000 plan
prior to year-end and contingency plans have not yet been developed.
The Partnership has queried its significant suppliers and
subcontractors that do not share information systems with the
Partnership ("External Agents"). To date, the Partnership is not
aware of any External Agent with a Year 2000 Issue that would
materially impact the Partnership's results of operations, liquidity,
or capital resources. However, the Partnership has no means of
ensuring that External Agents will be Year 2000 ready. The inability
of External Agents to complete their Year 2000 resolution process in a
timely fashion could materially impact the Partnership. The effect of
non-compliance by External Agents is not determinable.
The Partnership expects to spend $837,000 related to the Year
2000 Issue. As of March 31, 1999, the Partnership had spent $746,000
on the Year 2000 Issue with the rest scheduled to be incurred in the
remainder of 1999. Substantially all of the $837,000 is for newly
purchased software or hardware with new features and enhancements in
addition to being Year 2000 compliant. Accordingly, substantially all
of the costs have been or will be capitalized.
There is no guarantee that the Partnership will succeed in
implementing its Year 2000 Plan. If the Partnership's replaced
technology system fails the testing phase, delays in billing and/or
collection could occur. If the computer systems of third party
vendors that the Partnership exchanges data with fail, significant
problems could occur in billing and/or collection. Although the
Partnership doesn't yet have a formal contingency plan in place, one
will be developed based on the outcome of the testing phase, which
should be complete by the third quarter of 1999.
PAGE
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America (Defense Energy Support Center) relating to erroneous
pricing of fuel purchased over a period of several years from the
Partnership and its predecessors (the "DESC Claim"). The Partnership
seeks recovery of the difference between the market value of the jet
fuel and the amount originally paid by the Defense Energy Support
Center for such jet fuel. 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
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities
retroactively to January 1, 1998. The primary effect of such
amendment was to eliminate the Partnership's ability to pay
distributions on the preferred equity securities in kind and provide
that unpaid preferred distributions would accumulate and compound in
arrears. This change affects the timing of certain deductions to the
common unitholders in that common unitholders will now receive a
deduction upon the payment of such preferred distributions in cash.
Item 3. Defaults in Senior Securities
Under the terms agreed to on April 15, 1999, payments to Varde
are capped at $2.5 million per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, it is likely
that all interest on the B Term Loan, C Term Loan and Subordinate Note
A will be paid in kind and all preferred distributions will accumulate
in arrears until such time as the Partnership can restructure its
capital structure.
Distributions on the Series B Preferred Units, the Series C
Preferred Units and the Series D Preferred Units are payable on the
5th day of the second month in each quarter. Distributions are
subject to the cap on payments to Varde. Accordingly, for the first
quarters of 1999 and 1998, the Partnership accumulated arrearages of
$412,000 and $382,000, respectively, on these preferred equity
securities. Through March 31, 1999, these securities had total
accumulated arrearages of $2.0 million. Management believes the
amount in arrears will continue to increase until such time as the
Partnership can restructure its capital structure.
Distributions on the Series E Preferred Units and Series F
Preferred Units are payable on the 5th day of the second month in each
quarter; however, the Partnership may not make any cash distributions
on the Series E Preferred Units or Series F Preferred Unis if the
Series B Preferred Units, Series C Preferred Units or Series D
Preferred Units have accumulated arrearages outstanding. Accordingly,
for the first quarters of 1999 and 1998, the Partnership accumulated
arrearages of $46,000 in both periods on the Series E Preferred Units
and Series F Preferred Units. Through March 31, 1999, these
securities had total accumulated arrearages of $245,000. Management
believes the amount in arrears will continue to increase until such
time as the Partnership can restructure its capital structure.
The Partnership has not historically complied with its financial
and performance covenants included in its various credit facilities
with lenders. Based on the amendment effective April 15, 1999, agreed
to by the principal creditors, management now believes the Partnership
can maintain compliance with the covenants in the near future.
However, compliance with the covenants into the Year 2000 will be
largely dependent on the then current operating condition, including
crude oil prices and wholesale margins for petroleum products. At
December 31, 1998, the Partnership was not in compliance with certain
financial covenants in its loan agreements including the leverage
ratio, consolidated interest coverage, consolidated operating cash
flow to consolidated debt service, minimum EBITDA and consolidated net
worth financial covenants. Effective April 15, 1999, these defaults
were waived by the lenders.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
No material changes have occurred related to market risks as
disclosed in the Form 10-K.
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)).
10.1 Amendment No. 5 to the Revolving Credit and Term Loan
Agreement dated as of April 15, 1999 among Pride Companies,
L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur
Partnership, Pride Borger, Inc., Pride Marketing of Texas
(Cedar Wind), Inc., and BankBoston, N.A., as an Agent and as
a Lender, Lehman Brothers Commercial Paper, Inc. as a Lender
and as a Docmentation Agent.
27 Financial Data Schedule for the First Quarter of 1999.
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.
(Registrant)
By: Pride Refining, Inc.
as its Managing General Partner
Date: May 17, 1999 /s/ Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
Date: May 17, 1999 /s/ 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 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)).
10.1 Amendment No. 5 to the Revolving Credit and Term Loan
Agreement dated as of April 15, 1999 among Pride Companies,
L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur
Partnership, Pride Borger, Inc., Pride Marketing of Texas
(Cedar Wind), Inc., and BankBoston, N.A., as an Agent and as
a Lender, Lehman Brothers Commercial Paper, Inc. as a Lender
and as a Docmentation Agent.
27 Financial Data Schedule for the First Quarter of 1999.
PAGE
<PAGE>
EXHIBIT 10.1
PRIDE COMPANIES, L.P.
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Amendment No. 5
This Agreement, dated as of April 15, 1999, is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"), Pride
SGP, Inc., a Texas corporation, Pride Refining, Inc., a Texas
corporation, Pride Borger, Inc., a Delaware corporation, and Pride
Marketing of Texas (Cedar Wind), Inc., a Texas corporation
(collectively, the "Pride Entities"), BankBoston, N.A., Lehman
Commercial Paper Inc. and Union Bank of California, N.A.
(collectively, the "Lenders"), BankBoston, N.A., as agent (the
"Agent") for itself and the other Lenders, and Lehman Commercial Paper
Inc., as Documentation Agent (the "Documentation Agent") for itself
and the other Lenders. The parties agree as follows:
1. Reference to Credit Agreement; Background.
1.1. Reference to Credit Agreement; Definitions. Reference is
made to the Revolving Credit and Term Loan Agreement dated as of
December 30, 1997, as amended by Amendment No. 1 thereto dated as of
April 15, 1998, Amendment No. 2 thereto dated as of November 20, 1998,
Amendment No. 3 thereto dated as of December 31, 1998 and
Amendment No. 4 thereto dated as of March 1, 1999 (the "Credit
Agreement"), among the Pride Entities, the Lenders, the Agent and the
Documentation Agent. The Credit Agreement, as amended by the
amendments set forth in Section 2 hereof (the "Amendment"), is
referred to as the "Amended Credit Agreement." Terms defined in the
Amended Credit Agreement and not otherwise defined herein are used
herein with the meanings so defined.
1.2. Background. The Company has requested that the Credit
Agreement be amended to shorten the Final Maturity Date, to cure
certain existing and prospective Defaults and for other purposes. The
Lenders have agreed to such amendments on the conditions set forth
herein.
2. Amendments to Credit Agreement. Subject to all of the terms and
conditions hereof and in reliance upon the representations and
warranties set forth or incorporated by reference in Section 4 hereof,
the Credit Agreement is amended as follows, effective as of the date
hereof (the "Amendment Closing Date"); provided, however, that the
amendments set forth in Sections 2.29 through 2.33 shall be effective
as of March 31, 1999.
2.1. The Credit Agreement is amended by deleting each of the
following provisions in its entirety:
Section 2.4.2
Section 3.2
Section 4.2
Section 4.3.2
Section 4.3.3
Section 4.3.4
Section 4.3.5
Section 4.3.6
Section 4.6.2
Section 4.6.3
Section 5.3
Section 6.10.2
Section 6.10.5
Section 6.19.4
Exhibit 2.2
Exhibit 5.3.1
2.2. Section 1.1 of the Credit Agreement is amended by deleting
the definitions of the following terms:
Applicable Base Rate Margin
Applicable Eurodollar Rate Margin
Current Asset Security
Current Asset Subaccount
Eurodollars
Eurodollar Basic Rate
Eurodollar Basic Reference Rate
Eurodollar Interest Period
Eurodollar Office
Eurodollar Pricing Options
Eurodollar Reserve Rate
Funding Liability
Required Revolving Lenders
Required Term Lenders
Term Asset Security
Term Asset Subaccount
Term Commitment
Term Lender
Term Loan
Term Loan Closing Date
Term Loan Commitment Amount
Term Note
2.3. The definition of "Applicable Fee Rate" set forth in
Section 1.1 of the Credit Agreement is amended to read in its entirety
as follows:
"Applicable Fee Rate" means 2.50%.
2.4. The definition of "Applicable Rate" set forth in Section
1.1 of the Credit Agreement is amended to read in its entirety as
follows:
"Applicable Rate" means the sum of the Base Rate plus 1.75%
per annum; provided, however, that on the day the Agent provides
written notice to the Company that the interest rates hereunder
are increasing as a result of the occurrence and continuance of
an Event of Default until the earlier of such time as (i) such
Event of Default is no longer continuing or (ii) such Event of
Default is deemed no longer to exist, in each case pursuant to
Section 8.3, the Applicable Rate on all of the Loan shall equal
the Base Rate plus 3.00%.
2.5. The definition of "Banking Day" set forth in Section 1.1 of
the Credit Agreement is amended by deleting therefrom the following
words:
and, if such term is used with reference to a Eurodollar Pricing
Option, any day on which dealings are effected in the Eurodollars
in question by first-class banks in the inter-bank Eurodollar
markets in New York, New York.
2.6. The definition of "Closing Date" set forth in Section 1.1
of the Credit Agreement is amended to read in its entirety as follows:
"Closing Date" means the Initial Closing Date and each other
date on which any extension of credit is made pursuant to Section
2.1 or 2.3.
2.7. The definition of "Consolidated Debt Service" is amended by
amending paragraph (a) thereof to read in its entirety as follows:
(a) Consolidated Interest Expense less PIK Interest on
Varde Securities, SGP Securities and the Varde Term Loan, plus
2.8. The definition of "Consolidated Excess Cash Flow" in
Section 1.1 of the Credit Agreement is amended by deleting therefrom
the words "in Section 4.3.3, 4.3.4 or 4.3.5 or".
2.9. The definition of "Consolidated Operating Cash Flow" set
forth in Section 1.1 of the Credit Agreement is amended to read in its
entirety as follows:
"Consolidated Operating Cash Flow" means, for any period,
the remainder of Consolidated EBITDA for such period minus the
Non-Discretionary Capital Expenditures of the Company and its
Subsidiaries for such period, minus the amounts of all taxes
based upon or measured by net income paid or payable by the
Company and its Subsidiaries for such period, plus (but only for
any period ending on or prior to March 31, 2000) the amount which
as of the close of business on the last day of such period is
unborrowed and available to be borrowed under the Varde Revolving
Loan.
2.10. The definition of "Distribution" set forth in Section 1.1
of the Credit Agreement is amended by amending clause (iii) of the
proviso thereto to read in its entirety as follows:
(iii) payments of interest on the Varde Revolving Loan and of
interest and principal on the Varde Term Loan, but only so long
as such payments made in cash in any fiscal year of the Company
do not exceed in the aggregate $2,500,000, payments of principal
on the Varde Revolving Loan and additional payments of principal
on the Varde Term Loan, if any, that are permitted under
Section 6.13.
2.11. The definitions of "Eligible Inventory", "Eligible
Receivables" and "Pre-approved Receivables" set forth in Section 1.1
of the Credit Agreement are each amended to delete the term "Required
Revolving Lenders" each time it appears and to substitute therefor the
term "Revolving Lenders".
2.12. The definition of "Final Maturity Date" set forth in
Section 1.1 of the Credit Agreement is amended to read in its entirety
as follows:
"Final Maturity Date" means January 2, 2001.
2.13. The definition of "Legal Requirement" set forth in Section
1.1 is amended to delete from the first sentence thereof the phrases
"or any jurisdiction in which any Eurodollar Office is located" and
"in which any Eurodollar Office is located or".
2.14.
The definition of "Loan" set forth in Section 1.1 of the
Credit Agreement is amended to read in its entirety as follows:
"Loan" means the Revolving Loan.
2.15. The definition of "Notes" set forth in Section 1.1 of the
Credit Agreement is amended to read in its entirety as follows:
"Notes" means the Revolving Notes.
2.16. The definition of "Percentage Interest" set forth in
Section 1.1 of the Credit Agreement is amended to read in its entirety
as follows:
"Percentage Interest" means, with respect to any Lender, the
Commitment of such Lender with respect to the Revolving Loan and
Letter of Credit Exposure. For purposes of determining votes or
consents by the Lenders, the Percentage Interest of any Lender
shall be computed as follows: (a) at all times when no Event of
Default under Section 8.1.1 and no Bankruptcy Default exists, the
ratio that the respective Revolving Commitment of such Lenders
bears to the total Revolving Commitments of all Lenders as from
time to time in effect and reflected in the Register, and (b) at
all other times, the ratio that the respective amounts of the
outstanding Revolving Loan and Letter of Credit Exposure owing to
such Lender bear to the total outstanding Revolving Loan and
Letter of Credit Exposure owing to all Lenders.
2.17. The definition of "Required Lenders" set forth in Section
1.1 of the Credit Agreement is amended to read in its entirety as
follows:
"Required Lenders" means such Revolving Lenders as own at
least two-thirds of the Percentage Interests in the Revolving
Commitments or, if clause (b) of the definition of "Percentage
Interest" applies, in the outstanding Revolving Loan and Letter
of Credit Exposure.
2.18. The definition of "Tax" set forth in Section 1.1 of the
Credit Agreement is amended to change the phrase "any payment in
respect of the Credit Obligations or any Funding Liability not
included in the foregoing" to read "or any payment in respect of the
Credit Obligations".
2.19. The definition of "Varde Credit Agreement" set forth in
Section 1.1 of the Credit Agreement is amended to read in its entirety
as follows:
"Varde Credit Agreement" means that certain Sixth Restated
and Amended Credit Agreement dated as of December 30, 1997, among
the Company, the General Partners, Pride Borger, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and
Varde, as amended by the First Amendment thereto dated as of
April 15, 1998, the Second Amendment thereto dated as of November
20, 1998, and the Third Amendment thereto dated as of December 1,
1998, the Fourth Amendment thereto dated as of December 31, 1998
and the Fifth Amendment thereto dated as of March 1, 1999 and the
Sixth Amendment thereto dated as of April 15, 1999.
2.20. Section 2.1.3 of the Credit Agreement is amended to read
in its entirety as follows:
2.1.3. Maximum Amount of Revolving Credit. The term
"Maximum Amount of Revolving Credit" means the lesser of (a)
$55,000,000 or (b) the amount (in an integral multiple of
$1,000,000) to which the then applicable amount set forth in
clause (a) shall have been irrevocably reduced from time to time
by notice from the Company to the Agent.
2.21. Section 2.1.4 of the Credit Agreement is amended by
deleting from the second sentence thereof the parenthetical phase
"(third Banking Day if any portion of such loan will be subject to a
Eurodollar Pricing Option on the requested Closing Date)".
2.22. Section 3.1 of the Credit Agreement is amended to read in
its entirety as follows:
3.1. Interest. The Loan shall accrue and bear interest at
a rate per annum which shall at all times equal the Applicable
Rate. Prior to any stated or accelerated maturity of the Loan,
the Company will, on the last day of each calendar month, pay the
accrued and unpaid interest on the Loan. On the stated or any
accelerated maturity of the Loan, the Company will pay all
accrued and unpaid interest on the Loan. Upon the occurrence and
during the continuance of an Event of Default, the Lenders may
require accrued interest to be payable on demand or at regular
intervals more frequent than each Payment Date. All payments of
interest hereunder shall be made to the Agent for the account of
each Lender in accordance with such Lender's Percentage Interest
therein.
2.23. Section 3.5.1 of the Credit Agreement is amended to read
in its entirety as follows:
3.5.1. Reserve Requirements, etc. If any Legal Requirement
arising subsequent to the date hereof (including without
limitation any modification or change in the interpretation or
administration of any pre-existing Legal Requirement) shall
(a) impose, modify, increase or deem applicable any insurance
assessment, reserve, special deposit or similar requirement
against the Letters of Credit, (b) impose, modify, increase or
deem applicable any other requirement or condition with respect
to the Letters of Credit, or (c) change the basis of taxation of
payments in respect of any Letter of Credit (other than changes
in the rate of taxes measured by the overall net income of such
Lender) and the effect of any of the foregoing shall be to
increase the cost to any Lender of issuing, making, funding or
maintaining its respective Percentage Interest in any Letter of
Credit, to reduce the amounts received or receivable by such
Lender under this Agreement or to require such Lender to make any
payment or forego any amounts otherwise payable to such Lender
under this Agreement, then such Lender may claim compensation
from the Company under Section 3.5.5.
2.24. Section 3.5.6 of the Credit Agreement is amended to read
in its entirety as follows:
3.5.6. Mitigation. Each Lender shall take such
commercially reasonable steps as it may determine are not
disadvantageous to it, including changing lending offices to the
extent feasible, in order to reduce amounts otherwise payable by
the Company to such Lender pursuant to Section 3.5.
2.25. Section 3.6 of the Credit Agreement is amended to read in
its entirety as follows:
3.6. Computation of Interest and Fees. For purposes of
this Agreement, interest, commitment fees and Letter of Credit
fees (and any other amount expressed as interest or such fees)
shall be computed on the basis of a 365-day year for actual days
elapsed. If any payment required by this Agreement becomes due
on any day that is not a Banking Day, such payment shall be made
on the next succeeding Banking Day. If the due date for any
payment of principal is extended as a result of the immediately
preceding sentence, interest shall be payable for the time during
which payment is extended at the Applicable Rate.
2.26. Section 3 of the Credit Agreement is amended by adding
thereto a new Section 3.7 reading in its entirety as follows:
3.7. Amendment Fee. Not later than March 31, 2000 the
Company shall pay to the Agent for the benefit of the Lenders in
accordance with their respective Percentage Interests the sum of
$75,000, respectively the unpaid remainder of an amendment fee
owing to the Lenders in connection with Amendment No. 5 hereof
dated as of April 15, 1999; provided that such $75,000 shall be
payable in full at any time prior to March 31, 2000 upon demand
by the Agent submitted to the Company in writing following the
occurrence of a Default or upon the termination of the
Commitments of the Lenders prior to March 31, 2000.
2.27. Section 4.4 of the Credit Agreement is amended to read in
its entirety as follows:
4.4. Voluntary Prepayments. In addition to the prepayments
required by Section 4.3, the Company may from time to time prepay
all or any portion of the Loan (in a minimum amount of $1,000,000
and an integral multiple of $500,000, or such lesser amount as is
then outstanding), without premium or penalty of any type. The
Company shall give the Agent at least one Banking Day prior
notice of its intention to prepay the Revolving Loan under this
Section 4.4, specifying the date of payment and the total amount
to be paid on such date.
2.28. Section 4.6.1 of the Credit Agreement is amended by
deleting the second sentence thereof.
2.29. Sections 6.5.1 and 6.5.2 of the Credit Agreement are each
deleted in their entirety.
2.30. Section 6.5.3 of the Credit Agreement is amended to read
in its entirety as follows:
6.5.3. Consolidated Operating Cash Flow to Consolidated
Debt Service. For the period of two consecutive fiscal quarters
of the Company ending on June 30, 1999 and for the period of
three consecutive fiscal quarters of the Company ending on
September 30, 1999 the Consolidated Operating Cash Flow shall
equal or exceed 90% of Consolidated Debt Service. For the period
of four consecutive fiscal quarters of the Company ending on
December 31, 1999 the Consolidated Operating Cash Flow shall
equal or exceed 100% of Consolidated Debt Service. For each
period of four consecutive fiscal quarters of the Company ending
on or after March 31, 2000, the Consolidated Operating Cash Flow
shall equal or exceed 150% of Consolidated Debt Service.
Notwithstanding any other provision of this Agreement, for the
purpose of calculating compliance with this Section 6.5.3 there
shall be excluded from Consolidated Debt Service all interest and
principal paid or accrued in respect of the Indebtedness to
Diamond Shamrock Refining and Marketing Company listed in
paragraph 7 of Exhibit 7.3 hereto.
2.31. Section 6.5.4 of the Credit Agreement is amended to read
in its entirety as follows:
6.5.4. Capital Expenditures. The aggregate amount of
Capital Expenditures of the Company and its Subsidiaries,
determined on a Consolidated basis, for the fiscal year of the
Company ending December 31, 1999 will not exceed $1,000,000. The
aggregate amount of Capital Expenditures of the Company and its
Subsidiaries, determined on a Consolidated basis, for each fiscal
year of the Company ending on or after December 31, 2000 shall
not exceed the sum of $1,200,000 plus the amount by which Capital
Expenditures made in the immediately preceding fiscal year were
less than $1,000,000.
2.32. Section 6.5.5 of the Credit Agreement is amended to read
in its entirety as follows:
6.5.5. Minimum Consolidated EBITDA. (a) For each fiscal
quarter of the Company, commencing with the fiscal quarter ending
March 31, 1999, the Consolidated EBITDA shall equal or exceed
zero; and (b) for each period of one or more consecutive fiscal
quarters of the Company specified below, the Consolidated EBITDA
of the Company shall equal or exceed the amount set forth below
next to such period.<PAGE>
Period Amount
------ ------
Fiscal quarter ending $1,000,000
March 31, 1999
Two consecutive fiscal $1,000,000
quarters ending
June 30, 1999
Three consecutive fiscal $2,000,000
quarters ending
September 30, 1999
Fiscal year ending $4,000,000
December 31, 1999
Fiscal quarter ending $2,000,000
March 31, 2000
Two consecutive fiscal $4,000,000
quarters ending
June 30, 2000
Three consecutive fiscal $6,000,000
quarters ending
September 30, 2000
Fiscal year ending $8,000,000
December 31, 2000
2.33. Sections 6.5.6 and 6.5.7 of the Credit Agreement are each
deleted in their entirety.
2.34. Section 6.6.10 of the Credit Agreement is amended by
deleting the phrase "Prior to the advance of the Term Loan or the Term
Loan Closing Date,".
2.35. Section 6.6.15 of the Credit Agreement is amended to read
in its entirety as follows:
6.6.15. Indebtedness of the Obligors to Varde in respect of
the Varde Revolving Loan, so long as the principal amount thereof
at any time outstanding does not exceed $3,000,000, the rate of
interest thereon does not exceed 11% per annum and the stated
maturity thereof is not earlier than January 2, 2001.
2.36. Section 6.8.10 of the Credit Agreement is amended by
deleting the phrase "Prior to the advance of the Term Loan or the Term
Loan Closing Date,".
2.37. Section 6.10.1 of the Credit Agreement is amended to read
in its entirety as follows:
6.10.1. The Company may make Distributions in respect of
the Varde Securities, the Varde Term Loan and the Varde Revolving
Loan so long as the total Commitments of the Lenders under this
Agreement shall have been reduced irrevocably to not more than
$20,000,000 and, after giving effect to the payment of such
Distributions, the sum of the outstanding principal balance of
the Revolving Loan plus the Letter of Credit Exposure shall not
be greater than an amount equal to the Maximum Amount of
Revolving Credit Outstanding minus $2,000,000.
2.38. Section 6.13 of the Credit Agreement is amended to read in
its entirety as follows:
6.13. Voluntary Prepayments of Other Indebtedness. Neither
the Company nor any of its Subsidiaries shall make any voluntary
prepayment of principal of or interest on any Financing Debt
(other than the Varde Revolving Loan and the Credit Obligations
and interest on the Varde Term Loan) or make any voluntary
redemptions or repurchases of Financing Debt (other than the
Varde Revolving Loan and the Credit Obligations), except as
permitted by Section 6.10; provided, however, that, so long as at
the time of such payment no Default shall exist and the
outstanding principal balance of the Varde Revolving Loan shall
be zero, the Company may make payments of principal of the Varde
Term Loan from any Net Debt Proceeds, Net Equity Proceeds, Net
Asset Sale Proceeds, proceeds from the settlement or successful
litigation of any legal claim, including without limitation the
DFSC Claim, or up to $250,000 of Excess Cash Flow of the Company
for fiscal year 1999 or any succeeding fiscal year.
2.39. Section 7.14.7 of the Credit Agreement is amended to read
in its entirety as follows:
7.14.7. TNRCC Investigation. The total cost to the Company
and the Obligors in current dollars of the liabilities associated
with the RCRA Facility Investigation plan pending before the
TNRCC will not exceed in the aggregate $500,000.
2.40. Section 8.5 of the Credit Agreement is amended to read in
its entirety as follows:
8.5. Application of Proceeds. There is hereby established
with the Agent a trust account (the "Cash Concentration
Account"), which shall exist solely for the benefit of the
Lenders. All moneys received by the Collateral Agent in respect
of the foreclosure or other realization of the Credit Security
(collectively, the "Shared Proceeds"), shall, promptly upon
receipt, be deposited in the Cash Concentration Account, to be
held in trust for the benefit of the Lenders. Such moneys shall
be held by the Collateral Agent without interest and shall be
applied promptly following their receipt as follows:
(a) Any and all sums advanced by the Agent (including in
its capacity as Collateral Agent under the Credit Document) in
accordance with the terms of the Security Documents in order to
preserve the Credit Security or preserve its security interest in
the Credit Security, together with interest thereon at the
Overdue Reimbursement Rate.
(b) In the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities of
the Obligors, after an Event of Default shall have occurred and
be continuing, to the payment of the expenses of retaking,
holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the Credit Security, or of any
exercise by the Collateral Agent of its rights under any of the
Security Documents, together with reasonable attorneys' fees and
court costs and all amounts paid by any Lender or the Collateral
Agent under any of the Security Documents.
(c) To the payment of the Revolving Loan and Letter of
Credit obligations, including without limitation, when
applicable, payment to the Agent to cash collateralize in full
the aggregate stated amount of Letters of Credit and other
contingent obligations outstanding under the Section 2.3 of the
Credit Agreement.
Any moneys remaining in the Cash Concentration Account after
payment in full of the Credit Obligations and the termination of
all of the obligations of the lenders under the Credit Agreement
shall be paid to the Company, subject to the rights of third
party creditors of which the Collateral Agent has actual notice.
So long as the Varde Term Loan or the Varde Revolving Loan shall
be outstanding, Section 4 of the Intercreditor Agreement shall
govern the application of proceeds pursuant to this Section 8.5
and in the event of a conflict between the terms of this Section
8.5 and Section 4 of the Intercreditor Agreement the terms of
Section 4 of the Intercreditor Agreement shall govern.
2.41. Section 11.1.1 of the Credit Agreement is amended by
deleting from the introductory paragraph thereof the phrase ", Term
Loan".
2.42. Section 11.3 of the Credit Agreement is amended by
deleting from subsection (a) thereof the phrase ", or fails to provide
its portion of any Eurodollar Pricing Option pursuant to Section 3.2.1
or on account of a Legal Requirement as contemplated by Section
3.2.5".
2.43. Section 16 of the Credit Agreement is amended by deleting
from the proviso thereto the reference to Section 3.2.4.
2.44. Exhibit 5.1.9 of the Credit Agreement is amended by
revising the principal amount of the liability in respect of the
"Senior B2 Notes Varde (Fixed)" from $500,000 to $600,000.
2.45. Exhibit 10.1 to the Credit Agreement is amended to read in
its entirety in the form of Exhibit 10.1 hereto.
3. Waiver of Financial Covenant Defaults. Subject to all of the
terms and conditions hereof and in reliance upon the representations
and warranties set forth or incorporated by reference in Section 4
hereof, each of the Lenders hereby waives any Default under Section
6.5 of the Credit Agreement existing prior to March 31, 1999. Such
waiver shall be limited to such Defaults and shall not constitute or
imply any waiver of any other Default now existing or hereafter
occurring (including without limitation any Default under Section 6.5
occurring on or after March 31, 1999), no matter how similar to the
Defaults waived hereby.
4. Representations and Warranties. In order to induce the Lenders to
enter into this Agreement, each of the Pride Entities jointly and
severally represents and warrants to each of the Lenders that:
4.1. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the
making of any borrowing under the Amended Credit Agreement, nor the
guaranteeing of the Credit Obligations, nor the securing of the Credit
Obligations with the Credit Security, nor the consummation of any
transaction referred to in or contemplated by this Agreement, the
Amended Credit Agreement or any other Credit Document, nor the
fulfillment of the terms hereof or thereof or of any other agreement,
instrument, deed or lease contemplated by this Agreement, the Amended
Credit Agreement or any other Credit Document, has constituted or
resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which any of the Pride
Entities is a party or by which it is bound, or of the Charter or
By-laws of any of the Pride Entities;
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to any of the
Pride Entities;
(c) the creation under any agreement, instrument, deed or
lease of any Lien (other than Liens on the Credit Security which
secure the Credit Obligations and Liens permitted by Section 6.8
of the Amended Credit Agreement) upon any of the assets of any of
the Pride Entities; or
(d) any redemption, retirement or other repurchase
obligation of any of the Pride Entities under any Charter,
By-law, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or
filing with, any governmental or administrative authority or any other
Person is required to be obtained or made by any of the Pride Entities
in connection with the execution and delivery of this Agreement, the
performance of this Agreement, the Amended Credit Agreement or any
other Credit Document, the transactions contemplated hereby or
thereby, the making of any borrowing under the Amended Credit
Agreement, the guaranteeing of the Credit Obligations or the securing
of the Credit Obligations with the Credit Security.
4.2. Defaults. Immediately after giving effect to the
Amendment, no Default shall exist.
4.3. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to the Amendment, the representations
and warranties set forth in Section 7 of the Amended Credit Agreement
will be true and correct as if originally made on and as of the
Amendment Closing Date (except to the extent of any representation or
warranty which refers to a specific earlier date).
5. Conditions. The effectiveness of each of the amendments set forth
in Section 2 hereof and of the waiver set forth in Section 3 hereof
shall be subject to the satisfaction on or before the Amendment
Closing Date of each of the following conditions:
5.1. Officer's Certificate. The representations and warranties
contained in Section 4 hereof shall be true and correct on and as of
the Amendment Closing Date with the same force and effect as though
originally made on and as of the Amendment Closing Date; immediately
after giving effect to such amendments, no Default shall exist; no
Material Adverse Change shall have occurred since [December 31, 1998]
except as previously disclosed by the Company in writing to the
Lenders; and the Company shall have furnished to the Lenders on or
before the Amendment Closing Date a certificate to these effects
signed by a Financial Officer of the Company.
5.2. Proper Proceedings. All proper proceedings shall have been
taken by each of the Pride Entities to authorize this Agreement, the
Amended Credit Agreement and the transactions contemplated hereby and
thereby. On or before the Amendment Closing Date, the Agent shall
have received copies of all documents, including legal opinions of
counsel and records of corporate proceedings which the Agent may have
requested in connection therewith, such documents, where appropriate,
to be certified by proper corporate or governmental authorities.
5.3. Varde. Varde shall have consented to the terms and
conditions of this Agreement and the Amended Credit Agreement, and the
Varde Credit Agreement shall have been amended in a manner
satisfactory in form and substance to the Required Revolving Lenders
which provides, in documentation satisfactory in form and substance to
the Required Revolving Lenders, for the amendment of covenants and
extension of maturity comparable to the corresponding provisions of
the Amended Credit Agreement and for the Varde Revolving Loan to be in
a commitment amount of not less than $3,000,000 for a period ending
not sooner than January 2, 2001 and the "Borrowing Base" as defined in
the Varde Credit Agreement as of the Amendment Closing Date shall be
not less than $2,500,000, as evidenced by a "Borrowing Base
Certificate" as defined in the Varde Credit Agreement executed by the
Company and delivered to the Agent.
5.4. Amendment Fee. The Company shall have paid to the Agent
for the benefit of the Lenders in accordance with their respective
Percentage Interests the sum of $25,000, representing a one-quarter
payment of an amendment fee owing to the Lenders in the total amount
of $100,000, the remainder of which shall be paid as provided in
Section 3.7 of the Amended Credit Agreement.
5.5. Execution and Delivery. Each of the Pride Entities, the
Lenders, the Agent and the Documentation Agent shall have executed and
delivered this Agreement.
5.6. Expenses. The Company shall have paid to the Agent all
reasonable expenses, fees and charges payable to the Agent's counsel,
Ropes & Gray.
6. Further Assurances. The Company will, promptly upon the request
of the Agent from time to time, execute, acknowledge and deliver, and
file and record, all such instruments and notices, and take all such
action, as the Agent deems necessary or advisable to carry out the
intent and purposes of this Agreement.
7. Consent to Dissolution of Desulfur Partnership. The Required
Lenders hereby consent to the dissolution of Desulfur Partnership.
8. General. The Amended Credit Agreement and all of the other Credit
Documents are each confirmed as being in full force and effect. This
Agreement, the Amended Credit Agreement and the other Credit Documents
referred to herein or therein constitute the entire understanding of
the parties with respect to the subject matter hereof and thereof and
supersede all prior and current understandings and agreements, whether
written or oral, with respect to such subject matter. The invalidity
or unenforceability of any provision hereof shall not affect the
validity and enforceability of any other term or provision hereof.
The headings in this Agreement are for convenience of reference only
and shall not alter, limit or otherwise affect the meaning hereof.
Each of this Agreement and the Amended Credit Agreement is a Credit
Document and may be executed in any number of counterparts, which
together shall constitute one instrument, and shall bind and inure to
the benefit of the parties and their respective successors and
assigns, including as such successors and assigns all holders of any
Note. This Agreement shall be governed by and construed in accordance
with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.
Each of the undersigned has caused this Agreement to be executed
and delivered by its duly authorized officer as an agreement under
seal as of the date first above written.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner
By_________________________________
Title:
PRIDE REFINING, INC.
By_________________________________
Title:
PRIDE SGP, INC.
By_________________________________
Title:
PRIDE BORGER, INC.
By_________________________________
Title:
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By_________________________________
Title:
BANKBOSTON, N.A., for Itself and as
Agent
By_________________________________
Authorized Officer
LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent
By_________________________________
Authorized Officer
UNION BANK OF CALIFORNIA, N.A.
By_________________________________
Authorized Officer
Consented to:
VARDE PARTNERS, INC.
By _________________________________
Authorized Officer
PAGE
<PAGE>
EXHIBIT 10.1
PERCENTAGE INTERESTS
Principal Amount Approximate
Lender of Revolving Commitment Percentage Interest
- ------ ----------------------- -------------------
BankBoston, N.A. $17,000,000 30.91%
Lehman Commercial 21,000,000 38.18%
Paper Inc.
Union Bank of
California, N.A. 17,000,000 30.91%
---------- ------
TOTAL $55,000,000 100%
========== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,740
<SECURITIES> 0
<RECEIVABLES> 16,627
<ALLOWANCES> 0
<INVENTORY> 7,842
<CURRENT-ASSETS> 27,736
<PP&E> 68,541
<DEPRECIATION> 23,632
<TOTAL-ASSETS> 82,243
<CURRENT-LIABILITIES> 28,184
<BONDS> 43,753
0
19,529
<COMMON> (23,728)
<OTHER-SE> (962)
<TOTAL-LIABILITY-AND-EQUITY> 82,243
<SALES> 83,166
<TOTAL-REVENUES> 83,166
<CGS> 79,042
<TOTAL-COSTS> 79,042
<OTHER-EXPENSES> 868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,490
<INCOME-PRETAX> (752)
<INCOME-TAX> (52)
<INCOME-CONTINUING> (700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (700)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
