UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 10, 2000
PRIDE COMPANIES, L.P.
(Exact name of registrant as specified in its charter)
Delaware 001-10473 75-2313597
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
1209 North Fourth Street
Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (915) 677-5444
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Item 5. Other Events
On May 10, 2000, the presiding judge in the Partnership's pending
lawsuit (the "Lawsuit") against the Defense Energy Support Center
("DESC"), rendered a judgment in favor of the Partnership in the
amount of $45.7 million, with statutory interest under the Contract
Disputes Act estimated to be $15.1 million through May 10, 2000. The
total award is estimated to be approximately $60.8 million (assuming
interest through May 10, 2000). If this amount is ultimately
recovered by the Partnership, the Partnership will, after $6.2 million
of legal and certain other expenses, receive net proceeds of
approximately $54.6 million as of May 10, 2000, which will result in
an allocation of a significant amount of taxable income to common
unitholders without a corresponding cash distribution to pay any
resulting income taxes.
The Partnership had sued the DESC, a part of the U.S. Department
of Defense, based on an illegal economic price adjustment ("EPA")
provision present in 12 jet fuel contracts between the Partnership and
the DESC. Although the DESC acknowledged the illegality of the EPA
provision, the parties disagreed on whether the Partnership had
incurred damages. The court held that the Partnership had not been
paid the fair market value for fuel sold under the applicable
contracts, and an additional amount of $45.7 million (comprised of an
additional long-term contract premium of $23.4 million and an
additional transportation premium of $22.3 million) should have been
paid by the DESC to the Partnership.
It is anticipated that the DESC will appeal the judgment, and it
is unclear when the Partnership will receive any sums under the
Lawsuit or whether the Partnership will ultimately be successful upon
appeal. In addition, upon any final resolution of the Lawsuit, a
substantial portion of Lawsuit proceeds must be distributed to the
Partnership's creditors and preferred unitholders, and substantially
all of the Partnership's debt and all of the preferred equity must be
retired prior to any distribution of proceeds to the common
unitholders. The publicly traded common units ("Common Units") rank
behind the Partnership's indebtedness and preferred equity. As a
result of the layers of debt and the preferred equity, and taking into
consideration the various preferential calls on available cash
contained in the debt instruments and preferred equity instruments
(including accumulated arrearages owed on the preferred equity
instruments), as well as payments under the Partnership's existing
bonus plan, it is likely that no distributions of cash will be made
to common unitholders upon any recovery on the judgment. Neverthe-
less, a common unitholder will be allocated income upon collection of
the judgment with the result that he will not receive any cash to
offset any tax liability that arises from such allocation of income.
The actual tax impact on a common unitholder depends upon his
overall personal tax situation and whether he has suspended losses
which can be used to offset the allocation of income. Even if a
common unitholder has sufficient suspended losses which can be used to
offset that income, it is not clear whether these losses can be used
to offset his share of the statutory interest income component of the
Lawsuit recovery. In particular, persons who purchase common units
from and after May 10, 2000, will likely be allocated substantial
income for tax purposes without adequate losses to offset that income
and without a distribution from the Partnership to pay the resulting
tax liability.
The Partnership estimates, based on the current covenants and
restrictions in the various debt and preferred equity instruments,
that if full recovery of the Lawsuit were obtained as of May 10, 2000,
approximately $23.9 million would be required to be distributed to the
holders of debt and preferred equity, approximately $6.2 million would
be paid in legal fees and certain other expenses, approximately $6.8
million is estimated to be used to fund the Partnership's existing
executive bonus plan, the taxable income allocable to common
unitholders would be approximately $47.8 million net of the legal fees
and bonus expenses (or $9.46 per Common Unit), and no cash would be
available for distribution to the common unitholders. Consequently,
unitholders who own Common Units when any recovery against the
judgment is received may not have adequate suspended losses to offset
the income allocation and will not receive a distribution from the
Partnership to pay any resulting tax liability. Common unitholders
should consult with their own tax advisor to determine whether they
have suspended passive losses and whether such losses (or others) can
be utilized to offset any income allocated to them related to the
Lawsuit recovery.
Should a full recovery be made, the Partnership plans on retiring
an additional $26.6 million of debt and preferred equity assuming the
judgment is collected on July 1, 2001 in order to keep interest and
distributions at rates of 11% to 17% from accumulating. The
additional payment results in a total retirement of $50.5 million of
debt and preferred equity from the Lawsuit proceeds. After the
additional retirement of the debt and preferred equity there will
still be $5.6 million of preferred equity senior to the Common Units,
but by retiring an additional $26.6 million of debt and equity, it
improves the likelihood that common unitholders will receive
distributions in the future. As previously mentioned, the debt and
preferred equity instruments restrict the payment of distributions to
common unitholders as long as the preferential instruments are
outstanding.
Pride Companies, L.P., headquartered in Abilene, Texas, is a
Delaware limited partnership and it owns and operates a common carrier
products pipeline system and three products terminals in Abilene,
Texas, San Angelo, Texas and Aledo, Texas, which are used to market
conventional gasoline, low sulfur diesel fuel, and military aviation
fuel.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release, dated May 10, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
Managing General Partner
By: Brad Stephens
Chief Executive Officer
Date: May 10, 2000
<PAGE>
Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
JUDGE RULES FOR PRIDE COMPANIES, L.P. IN CONTRACT DISPUTE
WASHINGTON, D.C. - May 10, 2000 - The Court of Federal Claims ruled
today that the Defense Energy Support Center ("DESC") had underpaid
Pride Companies, L.P. ("Pride") $45.7 million under existing contracts
between the DESC and Pride. If the judgment with interest is
ultimately recovered, there will be allocation of a significant amount
of taxable income to common unitholders without a corresponding cash
distribution to pay any resulting income taxes.
Pride had filed suit (the "Lawsuit") against the DESC, which is a
part of the Department of Defense, for underpayments under 12 jet fuel
contracts. The presiding judge found that the economic price
adjustment ("EPA") clause present in each of the contracts was
impermissible and that Pride was entitled to additional payments of
$45.7 million under the contracts, together with statutory interest of
$15.1 million through May 10, 2000, for a total award of $60.8 million
as of May 10, 2000.
It is anticipated that the DESC will appeal the judgment, and it
is unclear when the Partnership will receive any sums under the
Lawsuit or whether the Partnership will ultimately be successful upon
appeal. In addition, upon any final resolution of the Lawsuit, a
substantial portion of Lawsuit proceeds must be distributed to the
Partnership's creditors and preferred unitholders, and substantially
all of the Partnership's debt and all of the preferred equity must be
retired prior to any distribution of proceeds to the common
unitholders. The publicly traded common units ("Common Units") rank
behind the Partnership's indebtedness and preferred equity. As a
result of the layers of debt and the preferred equity, and taking into
consideration the various preferential calls on available cash
contained in the debt instruments and preferred equity instruments
(including accumulated arrearages owed on the preferred equity
instruments), as well as payments under the Partnership's existing
bonus plan, it is likely that no distributions of cash will be made
to common unitholders upon any recovery on the judgment. Never-
theless, a common unitholder will be allocated income upon collection
of the judgment with the result that he will not receive any cash to
offset any tax liability that arises from such allocation of income.
The actual tax impact on a common unitholder depends upon his
overall personal tax situation and whether he has suspended losses
which can be used to offset the allocation of income. Even if a
common unitholder has sufficient suspended losses which can be used to
offset that income, it is not clear whether these losses can be used
to offset his share of the statutory interest income component of the
Lawsuit recovery. In particular, persons who purchase common units
from and after May 10, 2000, will likely be allocated substantial
income for tax purposes without adequate losses to offset that income
and without a distribution from the Partnership to pay the resulting
tax liability.
The Partnership estimates, based on the current covenants and
restrictions in the various debt and preferred equity instruments,
that if full recovery of the Lawsuit were obtained as of May 10, 2000,
approximately $23.9 million would be required to be distributed to the
holders of debt and preferred equity, approximately $6.2 million would
be paid in legal fees and certain other expenses, approximately $6.8
million is estimated to be used to fund the Partnership's existing
executive bonus plan, the taxable income allocable to common
unitholders would be approximately $47.8 million net of the legal fees
and bonus expenses (or $9.46 per Common Unit), and no cash would be
available for distribution to the common unitholders. Consequently,
unitholders who own Common Units when any recovery against the
judgment is received may not have adequate suspended losses to offset
the income allocation and will not receive a distribution from the
Partnership to pay any resulting tax liability. Common unitholders
should consult with their own tax advisor to determine whether they
have suspended passive losses and whether such losses (or others) can
be utilized to offset any income allocated to them related to the
Lawsuit recovery.
Should a full recovery be made, the Partnership plans on retiring
an additional $26.6 million of debt and preferred equity assuming the
judgment is collected on July 1, 2001 in order to keep interest and
distributions at rates of 11% to 17% from accumulating. The
additional payment results in a total retirement of $50.5 million of
debt and preferred equity from the Lawsuit proceeds. After the
additional retirement of the debt and preferred equity there will
still be $5.6 million of preferred equity senior to the Common Units,
but by retiring an additional $26.6 million of debt and equity, it
improves the likelihood that common unitholders will receive
distributions in the future. As previously mentioned, the debt and
preferred equity instruments restrict the payment of distributions to
common unitholders as long as the preferential instruments are
outstanding.
Pride Companies, L.P., headquartered in Abilene, Texas, is a
Delaware limited partnership and it owns and operates a common carrier
products pipeline system and three products terminals in Abilene,
Texas, San Angelo, Texas and Aledo, Texas, which are used to market
conventional gasoline, low sulfur diesel fuel, and military aviation
fuel.
Safe Harbor Statement: Certain information included in this
release contains forward-looking statements made pursuant to the
Private Securities Litigation Reform Act of 1995 ("Reform Act"). Such
statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual
results and performance of Pride to differ materially from any
expected future results or performance, expressed or implied, by the
forward-looking statements. In connection with the safe harbor
provisions of the Reform Act, Pride has identified important factors
that could cause actual results to differ materially from such
expectations, including operating uncertainty, acquisition
uncertainty, uncertainties relating to geothermal resources,
uncertainties relating to domestic and international economic and
political conditions and uncertainties regarding the impact of
regulations, changes in government policy and competition. Reference
is made to all of Pride's SEC filings, including Pride's 10-K dated
April 14, 2000, incorporated herein by reference, for a description of
such factors. Pride assumes no responsibility to update forward-
looking information contained herein.
