SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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) 677-5444
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Indicate the number of units outstanding of each of the
issuer's classes of units, as of the latest practicable date.
Class Outstanding at August 1, 2000
----- --------------------------
Common Units 4,950,000
<PAGE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIDE COMPANIES, L.P.
BALANCE SHEETS
(Amounts in thousands, except unit amounts)
<CAPTION>
June 30,
2000 December 31,
(unaudited) 1999
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,632 $ 16,183
Accounts receivable, less allowance
for doubtful accounts 11,108 6,513
Other current assets 523 338
----------- -----------
Total current assets 15,263 23,034
Property, plant and equipment 30,574 30,669
Accumulated depreciation (14,633) (14,048)
----------- -----------
Property, plant and equipment - net 15,941 16,621
Assets no longer used in the business 4,235 4,235
Deferred financing cost 2,556 3,546
Other assets 183 70
----------- -----------
$ 38,178 $ 47,506
=========== ===========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIENCY):
Current liabilities:
Accounts payable $ 11,751 $ 16,714
Accrued payroll and related benefits 216 552
Accrued taxes 2,507 2,659
Other accrued liabilities 594 724
Net current liabilities of
discontinued operations 1,276 2,837
Current portion of long-term debt 25,708 25,799
----------- -----------
Total current liabilities 42,052 49,285
Other long-term liabilities 1,087 1,345
Net long-term liabilities of
discontinued operations 8,604 8,311
Redeemable preferred equity 17,079 17,079
Partners' capital (deficiency):
Preferred units to the Special
General Partner (3,145 units
authorized, 3,144 units
outstanding) 3,144 3,144
Common units (5,275,000 units
authorized, 4,950,000 units
outstanding) (32,645) (30,557)
General partners' interest (1,143) (1,101)
----------- -----------
$ 38,178 $ 47,506
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Three Months Ended June 30,
2000 1999
------------- -----------
<S> <C> <C>
Revenues $ 63,721 $ 27,390
Cost of sales and operating expenses,
excluding depreciation 62,463 25,945
Marketing, general and
administrative expenses 770 884
Depreciation 364 364
----------- -----------
Operating income 124 197
Other income (expense):
Interest income 179 65
Interest expense (including interest
paid in kind of $803 and $677,
respectively, and increasing rate
accrued interest of ($129) and $164,
respectively) (820) (1,463)
Credit and loan fees (including
amortization of $495 and $440,
respectively, and credit loan fees
paid in kind of $0 and $100,
respectively) (529) (659)
Other - net (4) 5
----------- -----------
(1,174) (2,052)
----------- -----------
Net loss from continuing operations (1,050) (1,855)
Discontinued operations:
Net loss from operations
of the Crude Gathering
System prior to
August 1, 1999 - (632)
----------- -----------
Net loss $ (1,050) $ (2,487)
=========== ===========
Basic and diluted loss
per Common Unit:
Net loss from continuing
operations $ (.30) $ (.46)
Net loss from discontinued
operations - (.13)
----------- -----------
Net loss $ (.30) $ (.59)
=========== ===========
Numerator:
Net loss from continuing
operations $ (1,050) $ (1,855)
Preferred distributions (462) (474)
----------- -----------
Net loss from continuing
operations less preferred
distributions (1,512) (2,329)
Net loss from continuing
operations allocable to 2%
general partner interest (30) (47)
----------- -----------
Numerator for basic and diluted
earnings per unit from
continuing operations $ (1,482) $ (2,282)
=========== ===========
Net loss from
discontinued operations $ - $ (632)
Net loss from
discontinued operations
allocable to 2% general
partner interest - (13)
----------- -----------
Numerator for basic and
diluted earnings per
unit from discontinued
operations $ - $ (619)
=========== ===========
Numerator for basic and
diluted earnings per
unit $ (1,482) $ (2,901)
=========== ===========
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 OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Six Months Ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 114,014 $ 48,711
Cost of sales and operating expenses,
excluding depreciation 111,422 46,443
Marketing, general and
administrative expenses 1,581 1,808
Depreciation 735 723
----------- -----------
Operating income (loss) 276 (263)
Other income (expense):
Interest income 304 100
Interest expense (including interest
paid in kind of $1,571 and $1,318,
respectively, and increasing rate
accrued interest of ($258) and $249,
respectively) (1,659) (2,842)
Credit and loan fees (including
amortization of $990 and $772,
respectively, and credit and loan
fees paid in kind of $0 and $100,
respectively) (1,090) (1,016)
Other - net 39 51
----------- -----------
(2,406) (3,707)
----------- -----------
Net loss from continuing operations (2,130) (3,970)
Discontinued operations:
Net income from operations
of the Crude Gathering
System prior to
August 1, 1999 - 783
----------- -----------
Net loss $ (2,130) $ (3,187)
=========== ===========
Basic and diluted loss
per Common Unit:
Net loss from continuing
operations $ (.60) $ (.97)
Net income from discontinued
operations - .15
----------- -----------
Net loss $ (.60) $ (.82)
=========== ===========
Numerator:
Net loss from continuing
operations $ (2,130) $ (3,970)
Preferred distributions (914) (932)
----------- -----------
Net loss from continuing
operations less preferred
distributions (3,044) (4,902)
Net loss from continuing
operations allocable to 2%
general partner interest (61) (98)
----------- -----------
Numerator for basic and diluted
earnings per unit from
continuing operations $ (2,983) $ (4,804)
=========== ===========
Net income from
discontinued operations $ - $ 783
Net income from
discontinued operations
allocable to 2% general
partner interest - 16
----------- -----------
Numerator for basic and
diluted earnings per
unit from discontinued
operations $ - $ 767
=========== ===========
Numerator for basic and
diluted earnings per
unit $ (2,983) $ (4,037)
=========== ===========
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>
Six Months Ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,130) $ (3,187)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 735 1,743
Amortization of loan costs 990 772
Deferred tax benefit - (65)
Gain on sale of property,
plant and equipment (47) (18)
Paid in kind interest and credit
and loan fees 1,571 1,418
Increasing rate accrued interest (258) 249
Lower of cost or market adjustment - (1,197)
Net effect of changes in:
Accounts receivable (4,478) (6,598)
Other current assets (185) 1,015
Accounts payable and other
long-term liabilities (6,102) 12,523
Accrued liabilities (864) 546
----------- -----------
Total adjustments (8,638) 10,388
----------- -----------
Net cash provided by (used in)
operating activities (10,768) 7,201
Cash flows from investing activities:
Purchases of property, plant and
equipment (111) (662)
Proceeds from asset disposals 103 114
Other (113) -
----------- -----------
Net cash used in investing activities (121) (548)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 24 14,669
Payments on debt and credit
facilities (1,686) (16,209)
----------- -----------
Net cash used in financing activities (1,662) (1,540)
----------- -----------
Net increase (decrease) in cash and
cash equivalents (12,551) 5,113
Cash and cash equivalents at the
beginning of the period 16,183 2,592
----------- -----------
Cash and cash equivalents at the
end of the period $ 3,632 $ 7,705
=========== ===========
See accompanying notes.
</TABLE>
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 a 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. (the "Equilon Agreement") to market through its
products pipeline and Products Terminals.
Prior to October 1, 1999, the Partnership also owned and operated
a crude oil gathering business that gathered, transported, resold and
redelivered crude oil in the Texas market (the "Crude Gathering
System"). On October 1, 1999, the Partnership sold the operating
assets utilized by the Crude Gathering System to Sun Pipe Line
Services, Inc. ("Sun") for $29,595,000 in cash proceeds and the
assumption by Sun of certain indebtedness in the amount of $5,334,000
(the "Crude Gathering Sale"). Accordingly, the Crude Gathering System
has been presented as discontinued operations for all periods.
The Products Marketing Business operates the Products Terminals
and one common carrier products pipeline that originates at the
Abilene Terminal and terminates at the San Angelo Terminal (the "San
Angelo Pipeline"). 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 Pride SGP (collectively
the "General Partners") collectively own a 2% general partner
interest. In addition to its general partner interest, Pride SGP owns
the Series G Preferred Units (See Note 8) and 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. All significant 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, 1999
include a summary of significant accounting policies that should be
read in conjunction with this quarterly report on Form 10-Q. The
Partnership has one corporate subsidiary which is a taxable entity
whose operations are subject to federal income taxes.
3. Net Loss Per Common Unit
Basic net loss per Common Unit is computed using the weighted
average number of Common Units outstanding. Diluted net loss per
Common Unit is computed by adjusting the Common 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 second quarters of 2000 and 1999
and the first six months of 2000 and 1999.
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, the Series G Preferred Units (See
Note 8) 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.
On December 31, 1997, certain members of management invested an
aggregate of $2.0 million in the form of a note payable to Varde
Partners, Inc. ("Varde") and received a one-third economic non-
directive interest in the following: (i) $6.0 million of the B Term
Loan, (ii) C Term Loan, (iii) Subordinate Note A, (iv) Series B
Preferred Units, (v) Series C Preferred Units and (vi) Series D
Preferred Units (See Notes 6 and 7). The note payable to Varde is
secured by management's interest in such securities. Any current cash
yield on management's share of such securities is paid to Varde as
interest, net of applicable federal income tax.
On July 25, 2000, the Managing General Partner of the Partnership
purchased a call option from J-Hawk Corporation for $150,000 giving
the Managing General Partner the right to purchase 930,000 Common
Units of the Partnership. The call option is exercisable at any time
from July 25, 2000 until December 31, 2000. Prior to December 2,
2000, the exercise price per unit is $0.27, and from December 2, 2000
to December 31, 2000, the exercise price per unit is $0.30.
The units underlying the call option were acquired by J-Hawk
Corporation in a separate transaction that also closed on July 25,
2000. The Managing General Partner was paid a $50,000 finder's fee by
the Seller.
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.
5. Discontinued Operations
As previously discussed, on October 1, 1999, the Partnership sold
the operating assets utilized by the Crude Gathering System to Sun for
$29,595,000 in cash proceeds and the assumption by Sun of certain
indebtedness in the amount of $5,334,000. Accordingly, the assets,
liabilities and operating results of the Crude Gathering System have
been segregated from the continuing operations and are reported as
discontinued operations. Interest expense, except for interest on the
note assumed by Sun, and general corporate administrative expenses
were not allocated to the discontinued operations. However, interest
expense related to continuing operations has declined since
$15,000,000 of the proceeds were used to reduce debt.
After the sale, the Partnership continues to be responsible for
certain environmental liabilities associated with the Crude Gathering
System including five on-going remediation sites, any refined product
contamination associated with the assets sold and certain inactive
crude gathering lines retained by the Partnership. Other than
$95,000 currently accrued for remediation of the sites, the
Partnership does not expect future expenditures related to these
retained environmental liabilities to be material.
Revenues for the Crude Gathering System were $79,687,000 and
$141,600,000 for the second quarter of 1999 and the first six months
of 1999, respectively. Under the terms of the asset sale, the
Partnership retained receivables of $13,669,000, other payables
of $20,410,000, and crude suspense liability of $10,935,000 as of the
disposal date of October 1, 1999.
In connection with the Crude Gathering System operations, as
first purchaser of crude oil the Partnership was responsible for
distribution of payments to the various revenue and royalty interest
owners. Often, the legal rights of the interest owners were unclear
or the owners could not be located for long periods of time. When
such was the case, the Partnership retained the liability for the
payments until the ownership interest was clarified or the owners
located, at which time payment was made. When an owner could not be
located, state statutes generally required that the unpaid amounts be
escheated to the state after the passage of a specified number of
years. Because such liabilities take years to be resolved and paid,
an estimate has been made of the amounts expected to be paid during
the next year and included in net current liabilities of discontinued
operations with the remainder included in net long-term liabilities of
discontinued operations. At June 30, 2000 and December 31, 1999, net
long-term liabilities of discontinued operations included $8,685,000
and $8,392,000, respectively, related to crude suspense liabilities.
Net current liabilities of discontinued operations included the
following components (in thousands) as of:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Accounts receivable $ (146) $ (263)
Accounts payable 437 1,109
Crude suspense liability 771 1,531
Accrued payroll and related benefits 244 398
Accrued taxes (30) -
Other accrued liabilities - 62
-------- --------
$ 1,276 $ 2,837
======== ========
Net long-term liabilities of discontinued operations included the
following components (in thousands) as of:
June 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Other assets $ (81) $ (81)
Crude suspense liability 8,685 8,392
-------- --------
$ 8,604 $ 8,311
======== ========
</TABLE>
<PAGE>
6. Long-term Debt
On December 31, 1997, 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, as amended, is currently a $1,000,000
facility and provides for the issuance of letters of credit to third
parties to support the Partnership's purchase or exchange of petroleum
products and 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 certain payables for refined products. The
amount available under the borrowing base net of outstanding letters
of credit and advances under the BankBoston Revolver was $4,919,000
as of June 30, 2000; however, the amount that can be drawn under
the facility is currently limited to $1,000,000.
The BankBoston facility matures January 2, 2001. Though no
advances had been drawn under the letter of credit facility at June
30, 2000, the Partnership did have approximately $721,000 in
outstanding letters of credit. The Partnership had $24,000 in
advances outstanding under the BankBoston Revolver for direct cash
borrowings as of June 30, 2000. The fee on outstanding letters of
credit was 2.5% per annum as of June 30, 2000. 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 9.5% at June 30, 2000. The credit
agreement evidencing the BankBoston Revolver also requires the
Partnership to pay an agency fee of $50,000 per annum and restricts
the payment of distributions to unitholders throughout the term of the
credit agreement.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership, subsequent interest being paid in
kind, proceeds from the Crude Gathering Sale being applied to the A
Term Loan and scheduled principal payments, Varde now holds a Series A
Term Loan of $3,620,000 ("A Term Loan"), Series B Term Loan of
$12,806,000 ("B Term Loan"), Series C Term Loan of $6,103,000 ("C Term
Loan") and Series A Unsecured Loan of $3,155,000 ("Subordinate Note
A") as of June 30, 2000.
Under the amended terms, cash interest payments on the Varde
Revolver and cash interest and principal payments on the A Term Loan
are limited to $2,500,000 per annum. Any excess on the Varde Revolver
and A Term Loan along with interest on the B Term Loan, C Term Loan,
Subordinate Note A, and distributions on Varde's preferred securities
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 $4,720,000 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 $4,720,000 of the B Term
Loan which is subject to interest rates of 12% through maturity. At
June 30, 2000, the Subordinate Note A is convertible into 501,000
Common Units and bears interest at prime plus one percent.
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 in the second quarters of
2000 and 1999 reflects the reversal of $129,000 and an accrual of
$164,000, respectively, which is based on the difference between the
effective interest rates and the stated rates. As a result of the
cash interest and principal payment limitations, 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 the Partnership pays off such debt and preferred equity
securities with proceeds from the DESC Claim (See Note 9).
Effective April 15, 1999, the Partnership has a $3,000,000
revolving credit facility with Varde ("Varde Revolver"). Advances
under the Varde Revolver bear interest at 11% per annum, payable
monthly. The Partnership did not have any outstanding borrowing under
the Varde Revolver as of June 30, 2000. Cash advances under the
Varde Revolver mature January 2, 2001.
Fees paid to Varde in the form of additional Series B Term Loans
were $100,000 in 1999.
The A Term Loan is due on 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
Agreement as well as make payments of excess cash flow for the
preceding year. Varde agreed to forego all regular principal payments
in 1998 and 1999. However, as previously mentioned in connection with
the Crude Gathering Sale, the Partnership applied $15,000,000 of the
cash proceeds to the A Term Loan on October 1, 1999. The Partnership
also made a scheduled principal payment of $1,353,000 in the second
quarter of 2000.
The Partnership received $45,706,000 on July 25, 2000, in
connection with the DESC Claim (See Note 9) and expects to receive an
additional $15,716,000, representing the interest component of the
DESC Claim, in August, 2000. Provided the dispute with Varde (See
Note 9) concerning the application of the proceeds from the DESC Claim
is resolved favorably, the Partnership plans to use a portion of the
proceeds to retire all of Varde's outstanding debt.
The Partnership must maintain compliance with certain financial
and other covenants, as defined in the credit agreements with the
lenders. In addition, the agreements contain restrictive covenants
including, among other things, provisions concerning additional
indebtedness and commitments, restriction on payments, sale of assets,
and certain affiliate transactions. At June 30, 2000, the
Partnership was not in compliance with the consolidated operating cash
flow to consolidated debt service ("COCF/CDS Covenant"), earnings
before interest, taxes, depreciation and amortization covenant
("EBITDA Covenant") and the requirement that the auditors' opinion on
the financial statements contain no material qualifications or going
concern uncertainties. Furthermore, as the covenants in the current
loan agreement for the year 2000 were based on the combined results of
the Products Marketing Business and the Crude Gathering System,
management believes it is unlikely the Partnership can comply with its
current debt covenants in the future. Accordingly, at June 30, 2000,
all debt has been classified as current and BankBoston has requested
their facility be refinanced. The Partnership plans on further
reducing the BankBoston facility to $750,000 and retaining a portion
of the proceeds from the DESC Claim (see Note 9) to provide the
necessary working capital while the Partnership seeks a new working
capital facility. However, there can be no assurance that the
Partnership will be successful in obtaining a new working capital
facility. Substantially all of the Partnership's assets are pledged
as collateral to Varde and BankBoston in connection with the credit
agreements.
7. Redeemable Preferred Equity
Effective April 15, 1999, the Partnership amended the terms of its
Partnership Agreement and preferred equity securities effective as of
January 1, 1998. As a result of the amendment, preferred equity
securities are treated as accumulated arrearages rather than being
considered paid in kind. This reduces the amount of preferred equity
on the balance sheet and also affects the tax treatment of the
distributions to the unitholders and holders of the preferred equity
securities.
In conjunction with Varde's assumption of the previous existing
bank debt, Varde received preferred equity securities. As a result of
the assumption, Varde now holds preferred equity securities including
$9,322,000 of Series B Cumulative Preferred Units ("Series B Preferred
Units"), $5,000,000 of Series C Cumulative Preferred Units ("Series C
Preferred Units") and $2,757,000 of Series D Cumulative Preferred
Units ("Series D Preferred Units') which are all redeemable on
December 31, 2002. At June 30, 2000, 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. During the second
quarters of 2000 and 1999, the Partnership accumulated arrearages of
$462,000 and $422,000, respectively, on these preferred equity
securities. Through June 30, 2000, these securities had total
accumulated arrearages of $4,188,000. Provided the dispute with Varde
(See Note 9) concerning the application of the proceeds from the DESC
Claim is resolved favorably, the Partnership currently intends to
redeem all except $5,000,000 of the most junior preferred equity
securities. The Partnership expects to redeem additional preferred
equity securities once a new working capital facility is in in place.
The Partnership also accumulated arrearages of $52,000 on
preferred equity securities owned by Pride SGP in the second quarter
of 1999. These accumulated arrearages were canceled on October 1,
1999 as part of an exchange between Pride SGP and the Partnership.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Cash Distributions and
Preferred Arrearages."
8. Partners' Capital (Deficiency)
At June 30, 2000, Pride SGP held the Series G Preferred Units in
the face amount of $3,144,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition - Cash Distributions and Preferred Arrearage." The Series G
Preferred Units are subordinate to the Series B Preferred Units,
Series C Preferred Units and Series D Preferred Units and at the
Partnership's option may be redeemed on the latter of the retirement
of the senior preferred units or October 1, 2004. The Series G
Preferred Units will not accrue any distributions prior to October 1,
2004. Beginning October 1, 2004, distributions will accrue on these
securities at a rate equal to the lesser of (i) the Partnership's net
income less any distributions accrued or paid on any preferred
securities issued to Varde or (ii) 10% per annum.
At June 30, 2000 and December 31, 1999, 4,950,000 Common Units
are outstanding, representing a 98% limited partner interest. Pride
SGP and the public own 250,000 and 4,700,000 Common Units,
respectively.
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, the termination of
the credit agreement and the redemption of all preferred equity
securities.
At June 30, 2000, the Series B Preferred Units, Series C Preferred
Units and Subordinate Note A held by Varde are convertible into
2,774,000 Common Units. If Varde converted all their securities into
Common Units, the number of Common Units outstanding would increase
from 4,950,000 Common Units to 7,724,000 Common Units.
9. Contingencies
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.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the remaining cost to comply with
this study approximates $136,000 and had accrued for this amount at
June 30, 2000. Management does not believe any significant
additional amounts will be required to maintain compliance with this
study or other environmental requirements other than routine
expenditures in the ordinary course of business.
On September 5, 1995, the Partnership filed a substantial claim in
the United States Court of Federal Claims against the United States of
America (DESC) relating to erroneous pricing of fuel purchased over a
period of several years from the Partnership and its predecessors (the
"DESC Claim"). The Partnership had sued the DESC 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.
On May 10, 2000, the presiding judge in the Partnership's pending
DESC Claim against the DESC rendered a judgment in favor of the
Partnership in the 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), with statutory interest
under the Contract Disputes Act estimated to be $15.7 million through
July 25, 2000. The total award is estimated to be approximately $61.4
million (assuming interest through July 25, 2000). The DESC did not
appeal the decision and Pride received $45.7 million of the judgment
on July 25, 2000 and expects to receive the remaining interest
component in August, 2000.
Due to various layers of debt and the Partnership's preferred
equity, and taking into consideration preferential calls on available
cash contained in the Partnership's debt instruments and preferred
equity instruments (including distributions paid in kind on debt and
accumulated arrearages owed on preferred instruments) and payments
under the Partnership's bonus plan, it is expected that a common
unitholder will be allocated income upon payment of the judgment
without a corresponding distribution of cash to offset the tax
liability that arises from such income. The Partnership had
originally estimated that the net taxable income from the judgment
that would be allocable to common unitholders would be approximately
$41.0 million (or $8.28 per Common Unit). However, due to the dispute
with Varde (see below), the timing and amount of certain deductions
related to the DESC Claim is uncertain. As previously mentioned, the
judgment would not be paid in a lump sum with the result that for tax
purposes such net income will be reported to common unitholders in two
different months.
In accordance with the Partnership's partnership agreement, the
Partnership's managing general partner has determined that for tax
purposes it is necessary to establish a convention under which the
income and certain expenses attributable to the judgment will be
allocated to the holders of Common Units. Under that convention,
common unitholders as of the close of business on the last business
day of any month or months during which any proceeds are received by
the Partnership will be allocated the income attributable to the
portion of the proceeds from the judgment actually received by the
Partnership during that month. The Partnership intends to take the
position that suspended losses will be available to offset net income
attributable to the judgment; however, it is not certain the Internal
Revenue Service would agree with this position. 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. Each common unitholder should consult with his
own tax advisor regarding his use of suspended losses.
The Partnership had originally planned on eventually retiring all
of Varde's debt and preferred equity securities with the proceeds from
the DESC Claim and after a new working capital facility was in place.
However, Varde is now taking the position that, after payment of the A
Term Loan and $5,000,000 on the B Term Loan, it is entitled to one-
third of the proceeds free and clear of any obligation to apply such
proceeds to any of its notes or preferred equity securities. The
Partnership had paid $16.6 million on July 25, 2000 and July 26, 2000,
prior to Varde taking this position. The Partnership had designated
the payments be used to retire the A Term Loan and B Term Loan. The
Partnership strongly believes that the credit agreement between the
Partnership and Varde clearly requires Varde to apply the remaining
one-third of the proceeds to repay Varde's most senior securities. If
Varde were to prevail on this issue, Varde would still own
approximately $17.6 million of the Partnership's preferred equity
securities if all the proceeds from the DESC Claim were used to pay
off debt and redeem preferred equity securities.
The Partnership has advised Varde that it does not intend to make
any further payment until the issue is resolved. The Partnership
filed suit against Varde in the District Court of Taylor County,
Texas, on August 3, 2000, demanding among other things that Varde
apply the proceeds from the DESC Claim in accordance with the credit
agreement.
On August 8, 2000, Varde filed a notice of motion for summary
judgment in lieu of complaint in the amount of $18.6 million plus
interest from August 8, 2000 on the ground that the action is based
upon an instrument for the payment of money only and the claim that
there is no defense to their action. The motion was filed in the
Supreme Court of New York County, New York.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Overview
Pride Companies, L.P. (the "Partnership") is a Delaware limited
partnership which owns and operates a products marketing business
("Products Marketing Business"). Prior to the sale of the operating
assets utilized by the crude gathering business ("Crude Gathering
System") to Sun Pipe Line Services, Inc. ("Sun") on October 1, 1999
(the "Crude Gathering Sale"), the Partnership also operated the crude
gathering business.
The following is a discussion of the financial condition and
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-K 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 sales volume
at the Products Terminals, (iii) the impact of current and future laws
and governmental regulations affecting the petroleum industry in
general and the Partnership's operations in particular, (iv) 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, (v) fluctuations in
refined product prices and their impact on working capital and the
borrowing base under the Partnership's credit agreements, and (vi)
resolution of the dispute with Varde Partners, Inc. ("Varde")
concerning the application of proceeds from the DESC claim. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition" and "Part II. Other
Information, Item 1. Legal Proceedings."
General
As a result of the Crude Gathering Sale on October 1, 1999, the
Partnership's operating results for the Products Marketing Business
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 (ii) the sales
volume at the Products Terminals. 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.
The Crude Gathering System was sold on October 1, 1999 and
accordingly the Crude Gathering System is treated as a discontinued
operation in the financial statements of the Partnership. The Crude
Gathering System's operating results depended principally on (i) the
volume of throughput on and margins from the transportation and resale
of crude oil from the Partnership's Crude Gathering System and (ii)
the amount of crude oil produced in the areas the Partnership
gathered. Margins from the Crude Gathering System were influenced by
the level of competition and the price of crude oil. When prices were
higher, crude oil could generally be resold at higher margins.
Additionally, transportation charges trended upward when higher crude
oil prices resulted in increased exploration and development.
Conversely, when crude oil prices decreased, exploration and
development declined and margins on the resale of crude oil as well as
transportation charges tended to decrease.
In evaluating the financial performance of the Partnership,
management believes it is important to look at operating income
excluding depreciation in addition to operating income which is after
depreciation. Operating income excluding depreciation measures the
Partnership's ability to generate and sustain working capital and
ultimately cash flows from operations. However, such measure is
before debt service, so it does not indicate the amount available for
distribution, reinvestment or other discretionary uses. Gross
revenues primarily reflect the level of crude oil prices and are not
necessarily an accurate reflection of the Partnership's profitability.
Second Quarter 2000 Compared to Second Quarter 1999
General. Net loss for the second quarter of 2000 was $1.1
million compared to net loss of $2.5 million for the second quarter of
1999. The results for the second quarter of 1999 included $632,000 of
net loss from discontinued operations.
Continuing Operations (Products Marketing Business). Net loss
from continuing operations was $1.1 million for the second quarter of
2000 compared to net loss from continuing operations of $1.9 million
for the second quarter of 1999. The results for the second quarter of
2000 improved due to lower interest expense due to the payment of
$15.0 million on the A Term Loan (See "- Financial Condition") from
the proceeds on the sale of the Crude Gathering System and lower
credit and loan fees.
Operating income for the Products Marketing Business was $124,000
for the second quarter of 2000 compared to operating income of
$197,000 for the second quarter of 1999. Depreciation expense for the
Products Marketing Business was $364,000 for both the second quarters
of 2000 and 1999. Operating income excluding depreciation for the
Products Marketing Business was $488,000 for the second quarter of
2000 compared to operating income excluding depreciation of $561,000
for the second quarter of 1999. The decline in the second quarter of
2000 was primarily due to a $504,000 decline in gross margins which
was partially offset by a $317,000 reduction in operating expenses and
a $114,000 reduction in marketing, general and administrative
expenses. During the second quarter of 2000, the Partnership marketed
19,328 barrels per day ("BPD") of refined products compared to 13,751
BPD for the second quarter of 1999. The net margin per barrel (after
marketing, general and administrative expenses) for the second quarter
of 2000 was $0.07 compared to $0.16 for the second quarter of 1999.
Discontinued Operations (Crude Gathering System). Net loss from
discontinued operations was $632,000 for the second quarter of 1999.
Operating loss, depreciation expense and operating income excluding
depreciation from discontinued operations was $310,000, $511,000 and
$201,000, respectively, for the second quarter of 1999. The volume of
crude oil gathered by the Crude Gathering System was 37,308 BPD for
the second quarter of 1999. For the second quarter of 1999, net
margin was negative $0.09 per barrel.
First Six Months of 2000 Compared to First Six Months of 1999
General. Net loss for the first six months of 2000 was $2.1
million compared to net loss of $3.2 million for the first six months
of 1999. The results for the first six months of 1999 included
$783,000 of net income from discontinued operations.
Continuing Operations (Products Marketing Business). Net loss
from continuing operations was $2.1 million for the first six months
of 2000 compared to net loss from continuing operations of $4.0
million for the first six months of 1999. The results for the first
six months of 2000 improved due to lower operating expenses and
marketing, general and administrative expenses and lower interest
expense due to the payment of $15.0 million on the A Term Loan (See "-
Financial Condition") from the proceeds on the sale of the Crude
Gathering System.
Operating income for the Products Marketing Business was $276,000
for the first six months of 2000 compared to operating loss of
$263,000 for the first six months of 1999. Depreciation expense for
the Products Marketing Business was $735,000 for the first six months
of 2000 compared to $723,000 for the first six months of 1999.
Operating income excluding depreciation for the Products Marketing
Business was $1.0 million for the first six months of 2000 compared to
operating income excluding depreciation of $460,000 for the first six
months of 1999. The improvement in the first six months of 2000 was
primarily due to a $681,000 reduction in operating expenses and a
$227,000 reduction in marketing, general and administrative expenses.
During the first six months of 2000, the Partnership marketed 17,482
BPD of refined products compared to 13,768 BPD for the first six
months of 1999. The net margin per barrel (after marketing, general
and administrative expenses) for the first six months of 2000 was
positive $0.09 compared to negative $0.11 for the first six months of
1999.
Discontinued Operations (Crude Gathering System). Net income from
discontinued operations was $783,000 for the first six months of 1999
and included 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 June 30,
1999. Operating income, depreciation expense and operating income
excluding depreciation from discontinued operations was $1.4 million,
$1.0 million and $2.4 million, respectively, for the first six months
of 1999. The volume of crude oil gathered by the Crude Gathering
System was 38,780 BPD for the first six months of 1999. For the first
six months of 1999, net margin was $0.20 per barrel.
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 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 $439,000 in the last six months of 2000 and for the year
ended December 31, 2001 on several projects to maintain compliance
with various other environmental requirements including $136,000
related to an investigative study by the Texas Natural Resource
Conservation Commission and $95,000 related to the cleanup of an
existing crude oil leak. The remaining $208,000 is for various
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 remaining cost to comply with
this study approximates $136,000 and had accrued for this amount at
June 30, 2000. 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. Beginning January 1, 2002, the Aledo Terminal will
also be subject to the RFG requirement. 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.
After the Crude Gathering Sale, the Partnership continues to be
responsible for certain environmental liabilities associated with the
Crude Gathering System including five on-going remediation sites, any
refined product contamination associated with the assets sold and
certain inactive crude gathering lines retained by the Partnership.
Other than $95,000 currently accrued for remediation of the sites, the
Partnership does not expect future expenditures related to these
retained environmental liabilities to be material.
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. The Partnership is
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.
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.
Other Factors. On May 10, 2000, the presiding judge in the
Partnership's pending DESC Claim against the DESC rendered a judgment
in favor of the Partnership in the 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), with statutory
interest under the Contract Disputes Act estimated to be $15.7 million
through July 25, 2000. The total award is estimated to be
approximately $61.4 million (assuming interest through July 25, 2000).
The DESC did not appeal the decision and Pride received $45.7 million
of the judgment on July 25, 2000 and expects to receive the remaining
interest component in August, 2000.
Due to various layers of debt and the Partnership's preferred
equity, and taking into consideration preferential calls on available
cash contained in the Partnership's debt instruments and preferred
equity instruments (including distributions paid in kind on debt and
accumulated arrearages owed on preferred instruments) and payments
under the Partnership's bonus plan, it is expected that a common
unitholder will be allocated income upon payment of the judgment
without a corresponding distribution of cash to offset the tax
liability that arises from such income. The Partnership had
originally estimated that the net taxable income from the judgment
that would be allocable to common unitholders would be approximately
$41.0 million (or $8.28 per Common Unit). However, due to the dispute
with Varde (see below), the timing and amount of certain deductions is
uncertain. As previously mentioned, the judgment will not be paid in
a lump sum with the result that for tax purposes such net income will
be reported to common unitholders in two different months.
In accordance with the Partnership's partnership agreement, the
Partnership's managing general partner has determined that for tax
purposes it is necessary to establish a convention under which the
income and certain expenses attributable to the judgment will be
allocated to the holders of common units. Under that convention,
common unitholders as of the close of business on the last business
day of any month or months during which any proceeds are received by
the Partnership will be allocated the income attributable to the
portion of the proceeds from the judgment actually received by the
Partnership during that month. The Partnership intends to take the
position that suspended losses will be available to offset net income
attributable to the judgment; however, it is not certain the Internal
Revenue Service would agree with this position. 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. Each common unitholder should consult with his
own tax advisor regarding his use of suspended losses.
The Partnership had originally planned on eventually retiring all
of Varde's debt and preferred equity securities with the proceeds from
the DESC Claim and after a new working capital facility was in place.
However, Varde is now taking the position that, after payment of the A
Term Loan and $5,000,000 on the B Term Loan, it is entitled to one-
third of the proceeds free and clear of any obligation to apply such
proceeds to any of its notes or preferred equity securities. The
Partnership had paid $16.6 million on July 25, 2000 and July 26, 2000,
prior to Varde taking this position. The Partnership had designated
the payments be used to retire the A Term Loan and B Term Loan. The
Partnership strongly believes that the credit agreement between the
Partnership and Varde clearly requires Varde to apply the remaining
one-third of the proceeds to repay Varde's most senior securities. If
Varde were to prevail on this issue, Varde would still own
approximately $17.6 million of the Partnership's preferred equity
securities if all the proceeds from the DESC Claim were used to pay
off debt and redeem preferred equity securities.
The Partnership has advised Varde that it does not intend to make
any further payment until the issue is resolved. The Partnership
filed suit against Varde in the District Court of Taylor County,
Texas, on August 3, 2000, demanding among other things that Varde
apply the proceeds from the DESC Claim in accordance with the credit
agreement.
On August 8, 2000, Varde filed a notice of motion for summary
judgment in lieu of complaint in the amount of $18.6 million plus
interest from August 8, 2000 on the ground that the action is based
upon an instrument for the payment of money only and the claim that
there is no defense to their action. The motion was filed in the
Supreme Court of New York County, New York.
<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
With respect to the Products Marketing Business, 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. From September 30, 1998 to
December 31, 1999, Equilon maintained the refined products inventory
in tanks leased to Equilon by the Partnership at the Partnership's
marketing facilities. As a result, the Partnership purchased product
inventory daily from Equilon, thereby eliminating most of the carrying
costs, including interest costs. Further, this arrangement
substantially reduced the lag between the time the Partnership paid
Equilon for the product, 10 to 20 days after the sale, and the time
the Partnership received payment from its customers. Beginning
January 1, 2000, the Partnership is required to reimburse Equilon its
carrying costs of inventory, including interest costs. To offset the
interest costs associated with carrying the inventory and to reduce
the letters of credit fees, the Partnership deposited $14.0 million
with Equilon in the first and second quarters of 2000, which is
included as an offset in accounts payable. Equilon will pay the
Partnership interest income on the difference between the amount
deposited and the value of the refined products inventory maintained
by Equilon at the Partnership's terminals.
On December 31, 1997, 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, as amended, is currently a $1.0 million
facility and 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 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 certain payables for refined products.
The amount available under the borrowing base net of outstanding
letters of credit and advances under the BankBoston Revolver was $4.9
million as of June 30, 2000; however, the amount that can be drawn
under the facility is currently limited to $1.0 million.
The BankBoston facility matures January 2, 2001. Though no
advances had been drawn under the letter of credit facility at
June 30, 2000, the Partnership did have approximately $721,000 in
outstanding letters of credit. The Partnership had $24,000 in
advances outstanding under the BankBoston Revolver for direct cash
borrowings as of June 30, 2000. The fee on outstanding letters of
credit was 2.5% per annum as of June 30, 2000. 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 9.5% at June 30, 2000. The credit
agreement evidencing the BankBoston Revolver also requires the
Partnership to pay an agency fee of $50,000 per annum and restricts
the payment of distributions to unitholders throughout the term of the
credit agreement.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership, subsequent interest being paid in
kind, proceeds from the Crude Gathering Sale being applied to the A
Term Loan and scheduled principal payments, Varde now holds a Series A
Term Loan of $3.6 million ("A Term Loan"), Series B Term Loan of $12.8
million ("B Term Loan"), Series C Term Loan of $6.1 million ("C Term
Loan") and Series A Unsecured Loan of $3.2 million ("Subordinate Note
A") as of June 30, 2000.
Under the amended terms, cash interest payments on the Varde
Revolver and cash interest and principal payments on the A Term Loan
are limited to $2.5 million per annum. Any excess on the Varde
Revolver and A Term Loan along with interest on the B Term Loan, C
Term Loan, Subordinate Note A, and distributions on Varde's preferred
securities 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 $4.7 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 $4.7 million of the B Term
Loan which is subject to interest rates of 12% through maturity. At
June 30, 2000, the Subordinate Note A is convertible into 501,000
Common Units and bears interest at prime plus one percent.
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 in the second quarters of
2000 and 1999 reflects the reversal of $129,000 and an accrual of
$164,000, respectively, which is based on the difference between the
effective interest rates and the stated rates. As a result of the
cash interest payment limitations, 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
the Partnership pays off such debt and preferred equity securities
with proceeds from the DESC Claim. See "Part II. Other Information,
Item 1. Legal Proceedings."
Effective April 15, 1999, the Partnership has a $3.0 million
revolving credit facility with Varde ("Varde Revolver"). Advances
under the Varde Revolver bear interest at 11% per annum, payable
monthly. The Partnership did not have any outstanding borrowing under
the Varde Revolver as of June 30, 2000. Cash advances under the
Varde Revolver mature January 2, 2001.
Fees paid to Varde in the form of additional Series B Term Loans
were $100,000 in 1999.
The A Term Loan is due on 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
Agreement as well as make payments of excess cash flow for the
preceding year. Varde agreed to forego all regular principal payments
in 1998 and 1999. However, as previously mentioned in connection with
the Crude Gathering Sale, the Partnership applied $15.0 million of the
cash proceeds to the A Term Loan on October 1, 1999. The Partnership
also made a scheduled principal payment of $1.4 million in the second
quarter of 2000.
The Partnership received $45,706,000 on July 25, 2000 in
connection with the DESC Claim (See "Part II. Other Information, Item
1. Legal Proceedings.") and expects to receive an additional
$15,716,000, representing the interest component of the DESC Claim, in
August, 2000. Provided the dispute with Varde (See "Part II. Other
Information, Item 1. Legal Proceedings") concerning the application
of the proceeds from the DESC Claim is resolved favorably, the
Partnership plans to use a portion of the proceeds to retire all of
Varde's outstanding debt.
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. The
securities held by Varde have certain antidilution provisions and
registration rights.
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 the following:
(i) $6.0 million of the B Term Loan, (ii) C Term Loan, (iii)
Subordinate Note A, (iv) Series B Cumulative Convertible Preferred
Units ("Series B Preferred Units"), (v) Series C Cumulative
Convertible Preferred Units ("Series C Preferred Units") and (vi)
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 current cash yield on management's
share of such securities is paid to Varde as interest, net of
applicable federal income tax.
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, pro rata to the Series B
Preferred Units and Series C Preferred Units, and Series D Preferred
Units.
Cash flows will be significantly affected by fluctuations in the
cost and volume of refined products and the timing of accounts
receivable collections. For the first six months of 2000, cash was
utilized as a result of an increase in accounts receivable (as a
result of the higher refined product prices) and a decrease in
accounts payable (resulting from the $14.0 million in cash deposited
with Equilon). For the first six months of 1999, cash was provided by
an increase in accounts payable (resulting from the higher crude oil
prices and refined product prices). This was partially offset by an
increase in accounts receivable (resulting from higher crude oil
prices and refined product prices).
The Partnership must maintain compliance with certain financial
and other covenants, as defined in the credit agreements with the
lenders. In addition, the agreements contain restrictive covenants
including, among other things, provisions concerning additional
indebtedness and commitments, restriction on payments, sale of assets,
and certain affiliate transactions. At June 30, 2000, the
Partnership was not in compliance with the consolidated operating cash
flow to consolidated debt service ("COCF/CDS Covenant"), earnings
before interest, taxes, depreciation and amortization covenant
("EBITDA Covenant") and the requirement that the auditors' opinion on
the financial statements contain no material qualification or going
concern uncertainties. Furthermore, as the covenants in the current
loan agreement for the year 2000 were based on the combined results of
the Products Marketing Business and the Crude Gathering System,
management believes it is unlikely the Partnership can comply with its
current debt covenants. Accordingly, at June 30, 2000, all debt has
been classified as current and BankBoston has requested their facility
be refinanced. The Partnership plans on further reducing the
BankBoston facility to $750,000 and retaining a portion of the
proceeds from the DESC Claim (See "Part II. Other Information, Item
1. Legal Proceedings") to provide the necessary working capital while
the Partnership seeks a new working capital facility. However, there
can be no assurance that the Partnership will be successful in
obtaining a new working capital facility. Substantially all of the
Partnership's assets are pledged as collateral to Varde and BankBoston
in connection with the credit agreements.
The Partnership continues to incur net losses and it has a
working capital deficiency. Operating results have suffered as a
result of increasing competition, depressed operating margins and
higher financing costs. The loss from continuing operations for the
second quarter of 2000 was $1.1 million compared to $1.9 million for
the second quarter of 1999. At June 30, 2000, the Partnership was not
in compliance with certain financial covenants contained in the
various credit agreements resulting in the Partnership's debt being
classified as current.
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. Under a new military
aviation fuel contract with the U.S. Government which began April 1,
2000 and ends March 31, 2001, the Partnership will supply
approximately 52.3 million gallons, which is a 107% increase over the
volumes that it supplied under the contract which began April 1, 1999
and ended March 31, 2000; however, margins under the new contract will
be below last year's contract.
As a result of problems associated with the startup of the new
products pipeline by Equilon in 1998, Equilon 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 leased certain
tankage from the Partnership and sells refined products to the
Partnership daily from such facilities, 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 provided the Partnership reimburses Equilon for
its carrying costs beginning January 1, 2000, which primarily includes
interest costs. To offset such carrying costs and to reduce letters
of credit fees, the Partnership deposited cash of $14.0 million in the
first and second quarters of 2000 with Equilon, which is included as
an offset in accounts payable. As a result, Equilon will not include
interest charges in their carrying costs of inventory. In addition,
Equilon will pay the Partnership interest on the excess of the $14.0
million cash deposit over the value of the inventory, which was
approximately $12.5 million at June 30, 2000.
The Partnership has been able to achieve certain reductions in
operating expenses and marketing, general and administrative expenses
over the years. The expenses of the Products Marketing Business have
recently been reduced through staff reductions and computer
automation. 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.
As a result of the receipt of $45.7 million on July 25 2000 and
the expected receipt of $15.7 million in August, 2000, from the DESC
Claim, the Partnership believes that it will have adequate liquidity
after any payments to Varde. Further, management is attempting to
sell the idle refining equipment and pipeline to further increase
working capital.
Capital Expenditures
Capital expenditures totaled $20,000 and $111,000 for the second
quarter of 2000 and the first six months of 2000, respectively,
compared to $392,000 and $662,000 for the second quarter of 1999 and
the first six months of 1999, respectively. The second quarter of
1999 and first six months of 1999 included $107,000 and $326,000,
respectively, in capital expenditures for the Crude Gathering System.
Management anticipates spending $287,000 in the last six months
of 2000 for environmental expenditures, of which $184,000 was accrued
at June 30, 2000 and capital expenditures for 2000, are budgeted at
$200,000.
Cash Distributions and Preferred Arrearages
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities effective as
of January 1, 1998. As a result of the amendment, preferred equity
securities are treated as accumulated arrearages rather than being
considered paid in kind. This reduces the amount of preferred equity
on the balance sheet and also affects the tax treatment of the
distributions to the unitholders and holders of the preferred equity
securities.
In conjunction with Varde's assumption of the previous existing
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. At June 30, 2000, 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. During the second quarters of 2000 and 1999, the Partnership
accumulated arrearages of $462,000 and $422,000, respectively, on
these preferred equity securities. Through June 30, 2000, these
securities had total accumulated arrearages of $4.2 million. Provided
the dispute with Varde (See "Item II. Other Information, Part 1.
Legal Proceedings") concerning the application of the proceeds from
the DESC Claim is resolved favorably, the Partnership currently
intends to redeem all except $5.0 million of the most junior preferred
equity securities. The Partnership expects to redeem additional
preferred equity securities once a new working capital facility is in
place.
The Partnership also accumulated arrearages of $52,000 on
preferred equity securities owned by Pride SGP in the second quarter
of 1999. These accumulated arrearages were canceled on October 1,
1999 as part of an exchange between Pride SGP and the Partnership (see
below).
In connection with the Crude Gathering Sale, Pride SGP exchanged
(a) certain trunklines and related pumping facilities owned by Pride
SGP, (b) interest payable to Pride SGP from the Partnership of
$548,000, (c) rentals payable to Pride SGP from the Partnership of
$2.1 million, (d) the Series E Preferred Units ("Series E Preferred
Units") in the face amount of $2.0 million held by Pride SGP, and (e)
the Series F Preferred Units ("Series F Preferred Units") in the face
amount of $450,000 held by Pride SGP for (y) $2.0 million in cash and
(z) newly issued Series G Preferred Units ("Series G Preferred Units")
in the face amount of $3.1 million. The Series G Preferred Units are
subordinate to the Series B Preferred Units, Series C Preferred Units
and Series D Preferred Units and at the Partnership's option may be
redeemed on the latter of the retirement of the senior preferred units
or October 1, 2004. The Series G Preferred Units will not accrue any
distributions prior to October 1, 2004. Beginning October 1, 2004,
distributions will accrue on these securities at a rate equal to the
lesser of (i) the Partnership's net income less any distributions
accrued or paid on any preferred securities issued to Varde or (ii)
10% per annum.
At June 30, 2000, Pride SGP held the Series G Preferred Units in
the face amount of $3.1 million.
At June 30, 2000 and December 31, 1999, 4,950,000 Common Units
were outstanding, representing a 98% limited partner interest. Pride
SGP and the public own 250,000 and 4,700,000 Common Units,
respectively.
The Common Units rank behind the Partnership's bank indebtedness,
its indebtedness with Varde and the Series B Preferred Units, Series C
Preferred Units, Series D Preferred Units and Series G Preferred
Units (collectively "Preferred Equity"). As a result of the layers of
debt and the Preferred Equity ahead of the Common Units and taking
into consideration the various preferential calls on available cash
contained in the debt instruments and Preferred Equity instruments
(including accumulated arrearages on the Preferred Equity), it is
possible that a common unitholder will be allocated income under the
Partnership Agreement without a corresponding distribution of cash
to offset the tax liability that arises upon such allocation of income
at such time as operations, assets sales or the DESC Claim generate
cash which can be used to repay indebtedness under the Varde credit
agreement or retire the Preferred Equity. The actual impact on a
common unitholder of repayment of debt and retirement of the Preferred
Equity is dependent upon each common unitholder's personal tax basis
in his or her Common Units and his/her overall personal tax situation.
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 related to letters of credit, and the termination of the
credit agreement and the redemption of all preferred equity
securities.
At June 30, 2000, the Series B Preferred Units, Series C
Preferred Units and Subordinate Note A held by Varde are convertible
into 2,774,000 Common Units. If Varde converted all of their
securities into Common Units, the number of Common Units outstanding
would increase from 4,950,000 Common Units to 7,724,000 Common Units.
<PAGE>
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the remaining cost to comply with
this study approximates $136,000 and had accrued for this amount at
June 30, 2000. Management does not believe any significant
additional amounts will be required to maintain compliance with this
study or other environmental requirements other than routine
expenditures in the ordinary course of business.
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America (DESC) relating to erroneous pricing of fuel purchased over
a period of several years from the Partnership and its predecessors
(the "DESC Claim"). The Partnership had sued the DESC 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.
On May 10, 2000, the presiding judge in the Partnership's pending
DESC Claim against the DESC rendered a judgment in favor of the
Partnership in the 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), with statutory interest
under the Contract Disputes Act estimated to be $15.7 million through
July 25, 2000. The total award is estimated to be approximately $61.4
million (assuming interest through July 25, 2000). The DESC did not
appeal the decision and Pride received $45.7 million of the judgment
on July 25, 2000 and expects to receive the remaining interest
component in August, 2000.
Due to various layers of debt and the Partnership's preferred
equity, and taking into consideration preferential calls on available
cash contained in the Partnership's debt instruments and preferred
equity instruments (including distributions paid in kind on debt and
accumulated arrearages owed on preferred instruments) and payments
under the Partnership's bonus plan, it is expected that a common
unitholder will be allocated income upon payment of the judgment
without a corresponding distribution of cash to offset the tax
liability that arises from such income. The Partnership had
originally estimated that the net taxable income from the judgment
that would be allocable to common unitholders would be approximately
$41.0 million (or $8.28 per Common Unit). However, due to the dispute
with Varde (see below), the timing and amount of certain deductions
related to the DESC Claim is uncertain. As previously mentioned, the
judgment will not be paid in a lump sum with the result that for tax
purposes such net income will be reported to common unitholders in two
different months.
In accordance with the Partnership's partnership agreement, the
Partnership's managing general partner has determined that for tax
purposes it is necessary to establish a convention under which the
income and certain expenses attributable to the judgment will be
allocated to the holders of common units. Under that convention,
common unitholders as of the close of business on the last business
day of any month or months during which any proceeds are received by
the Partnership will be allocated the income attributable to the
portion of the proceeds from the judgment actually received by the
Partnership during that month. The Partnership intends to take the
position that suspended losses will be available to offset net income
attributable to the judgment; however, it is not certain the Internal
Revenue Service would agree with this position. 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. Each common unitholder should consult with his
own tax advisor regarding his use of suspended losses.
The Partnership had originally planned on eventually retiring all
of Varde's debt and preferred equity securities with the proceeds from
the DESC Claim and after a new working capital facility was in place.
However, Varde is now taking the position that, after payment of the A
Term Loan and $5,000,000 on the B Term Loan, it is entitled to one-
third of the proceeds free and clear of any obligation to apply such
proceeds to any of its notes or preferred equity securities. The
Partnership had paid $16.6 million on July 25, 2000 and July 26, 2000,
prior to Varde taking this position. The Partnership had designated
the payments be used to retire the A Term Loan and B Term Loan. The
Partnership strongly believes that the credit agreement between the
Partnership and Varde clearly requires Varde to apply the remaining
one-third of the proceeds to repay Varde's most senior securities. If
Varde were to prevail on this issue, Varde would still own
approximately $17.6 million of the Partnership's preferred equity
securities if all the proceeds from the DESC Claim were used to pay
off debt and redeem preferred equity securities.
The Partnership has advised Varde that it does not intend to make
any further payment until the issue is resolved. The Partnership
filed suit against Varde in the District Court of Taylor County,
Texas, on August 3, 2000, demanding among other things that Varde
apply the proceeds from the DESC Claim in accordance with the credit
agreement.
On August 8, 2000, Varde filed a notice of motion for summary
judgment in lieu of complaint in the amount of $18.6 million plus
interest from August 8, 2000 on the ground that the action is based
upon an instrument for the payment of money only and the claim that
there is no defense to their action. The motion was filed in the
Supreme Court of New York County, New York.
Item 2. Changes in Securities
None.
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.
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 second
quarters of 2000 and 1999, the Partnership accumulated arrearages of
$462,000 and $422,000, respectively, on these preferred equity
securities. Through June 30, 2000, these securities had total
accumulated arrearages of $4.2 million. Provided the dispute with
Varde (See "-Item 1. Legal Proceedings") concerning the application
of the proceeds from the DESC Claim is resolved favorably, the
Partnership currently intends to redeem all except $5.0 million of the
most junior preferred equity securities held by Varde. The
Partnership expects to redeem additional preferred equity securities
once a new working capital facility is in place.
The Partnership must maintain compliance with certain financial
and other covenants, as defined in the credit agreements with the
lenders. In addition, the agreements contain restrictive covenants
including, among other things, provisions concerning additional
indebtedness and commitments, restriction on payments, sale of assets,
and certain affiliate transactions. At June 30, 2000, the Partnership
was not in compliance with the consolidated operating cash flow to
consolidated debt service ("COCF/CDS Covenant"), earnings before
interest, taxes, depreciation and amortization covenant ("EBITDA
Covenant") and the requirement that the auditors' opinion on the
financial statements contain no material qualification or going
concern certainties. Furthermore, as the covenants in the current
loan agreement for the year 2000 were based on the combined results of
the Products Marketing Business and the Crude Gathering System,
management believes it is unlikely the Partnership can comply with its
current debt covenants. Accordingly, at June 30, 2000, all debt has
been classified as current and BankBoston has requested their facility
be refinanced. The Partnership plans on further reducing the
BankBoston facility to $750,000 and retaining a portion of the
proceeds from the DESC Claim (See "-Item 1. Legal Proceedings") to
provide the necessary working capital while the Partnership seeks a
new working capital facility. However, there can be no assurance that
the Partnership will be successful in obtaining a new working capital
facility. Substantially all of the Partnership's assets are pledged
as collateral to Varde and BankBoston in connection with the credit
agreements.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As a result of the proceeds from the DESC Claim, the fair value
of the debt and preferred equity securities has increased
significantly relative to the face amount of such debt and preferred
equity securities. No other 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 Third 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-KA for the fiscal year ended December 31, 1999
(Commission File No. 1-10473)).
4.3 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File No.
1-10473)).
4.4 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit 4.5
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (Commission File No.
1-10473)).
27. Financial Data Schedule for the Second Quarter of 2000.
b. Reports on Form 8-K:
Notice to common unitholders concerning the Defense
Energy Support Center's decision not to appeal the
$45.7 million judgment in favor of the Partnership,
plus estimated statutory interest through July 25,
2000 of $15.7 million dated July 25, 2000.
Announcement that Pride Refining, Inc., the managing
general partner of the Partnership, had entered into
a call option with J-Hawk Corporation giving Pride
Refining, Inc. the right to purchase 930,000 Common
Units of the Partnership dated July 27, 2000.
Notice to common unitholders of dispute with
Varde concerning the application of proceeds
from the DESC Claim to Varde's debt and
preferred equity securities dated July 28, 2000.
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: August 14, 2000 /s/ Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
Date: August 14, 2000 /s/ George Percival
Principal Financial Officer
(Signing as Principal Financial
Officer)
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 Third 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-KA for the fiscal year ended December 31, 1999
(Commission File No. 1-10473)).
4.3 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File No.
1-10473)).
4.4 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit 4.5
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (Commission File No.
1-10473)).
27. Financial Data Schedule for the Second Quarter of 2000.
<PAGE>
