-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hs3jAfpUV6jj16fdZIUf9ZEnZlLiKLHUdfsIbFqAbu3UdVQWG+vB6ekTnPi4sbeg mjCYdFVkMn+rHqOuyczfGQ== 0000859636-97-000007.txt : 19970912 0000859636-97-000007.hdr.sgml : 19970912 ACCESSION NUMBER: 0000859636-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIDE COMPANIES LP CENTRAL INDEX KEY: 0000859636 STANDARD INDUSTRIAL CLASSIFICATION: 4610 IRS NUMBER: 752313597 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10473 FILM NUMBER: 97664031 BUSINESS ADDRESS: STREET 1: 1209 N FOURTH ST CITY: ABILENE STATE: TX ZIP: 79601 BUSINESS PHONE: 9156748000 MAIL ADDRESS: STREET 1: PO BOX 3237 CITY: ABILENE STATE: TX ZIP: 79604 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 Commission file number 1-10473 PRIDE COMPANIES, L.P. (Name of registrant) Delaware 75-2313597 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1209 North Fourth Street, Abilene, Texas 79601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (915) 674-8000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of units outstanding of each of the issuer's classes of units, as of the latest practicable date. Class Outstanding at August 1, 1997 _____________ _____________________________ Common Units 4,950,000 PART I. Item 1. Financial Information PRIDE COMPANIES, L.P. BALANCE SHEETS (Amounts in thousands, except unit amounts)
June 30, 1997 December 31, (unaudited) 1996 ___________ ____________ ASSETS: Current assets: Cash and cash equivalents $ 278 $ 472 Accounts receivable, less allowance for doubtful accounts 12,601 18,163 Inventories 17,482 19,171 Prepaid expenses 622 1,286 ___________ ___________ Total current assets 30,983 39,092 Property, plant and equipment 136,803 136,778 Accumulated depreciation 40,374 37,224 ___________ ___________ Property, plant and equipment - net 96,429 99,554 Other assets 1,048 1,070 ___________ ___________ $ 128,460 $ 139,716 LIABILITIES AND PARTNERS' CAPITAL: Current liabilities: Accounts payable $ 24,499 $ 32,316 Accrued payroll and related benefits 1,690 1,498 Accrued taxes 3,760 4,805 Other accrued liabilities 1,971 2,095 Current portion of long-term debt 9,753 6,516 ___________ ___________ Total current liabilities 41,673 47,230 Long-term debt, excluding current portion 47,925 50,417 Deferred income taxes 2,480 2,590 Other long-term liabilities 10,299 9,881 Partners' capital: Common units (5,275,000 units authorized and 4,950,000 outstanding) 26,029 29,474 General partners' interest 54 124 ___________ ___________ Total partners' capital 26,083 29,598 ___________ ___________ $ 128,460 $ 139,716 See accompanying notes. /TABLE PRIDE COMPANIES, L.P. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per unit amounts)
Three Months Ended June 30, 1997 1996 ______________ ___________ Revenues $ 127,624 $ 154,422 Cost of sales and operating expenses, before depreciation 122,891 149,401 Marketing, general and administrative expenses 2,460 2,527 Depreciation 1,716 1,755 ____________ ___________ Operating income (loss) 557 739 Other income (expense): Interest income 7 66 Interest expense (1,351) (1,432) Credit and loan fees (299) (756) Other - net 477 8 ____________ ___________ Income (loss) before income taxes (609) (1,375) Income tax expense (benefit) (7) (19) ____________ ___________ Net income (loss) $ (602) $ (1,356) General partners' interest $ (12) $ (27) Net income (loss) allocable to unitholders $ (590) $ (1,329) Net income (loss) per unit - before conversion $ (0.12) $ (0.13) Net income (loss) per unit - after conversion $ (0.12) $ (0.27) See accompanying notes. /TABLE PRIDE COMPANIES, L.P. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per unit amounts)
Six Months Ended June 30, 1997 1996 ____________ ___________ Revenues $ 270,079 $ 304,786 Cost of sales and operating expenses, before depreciation 262,262 292,675 Marketing, general and administrative expenses 4,851 5,094 Depreciation 3,434 3,520 ____________ ___________ Operating income (loss) (468) 3,497 Other income (expense): Interest income 16 86 Interest expense (2,685) (2,923) Credit and loan fees (888) (1,561) Other - net 456 35 ____________ ___________ Income (loss) before income taxes (3,569) (866) Income tax expense (benefit) (54) (18) ____________ ___________ Net income (loss) $ (3,515) $ (848) General partners' interest $ (70) $ (17) Net income (loss) allocable to unitholders $ (3,445) $ (831) Net income (loss) per unit - before conversion $ (0.70) $ (0.08) Net income (loss) per unit - after conversion $ (0.70) $ (0.17) See accompanying notes. /TABLE PRIDE COMPANIES, L.P. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Six Months Ended June 30, 1997 1996 ____________ ___________ Cash flows from operating activities: Net income (loss) $ (3,515) $ (848) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Noncash charges (credits) to earnings: Depreciation 3,434 3,520 (Gain) loss on sale of property, plant and equipment (259) (26) Deferred tax benefit (110) (64) Retirement of property, plant and equipment 122 0 Net effect of changes in: Accounts receivable 5,562 2,411 Inventories 1,689 (1,831) Prepaid expenses 664 669 Accounts payable and other long-term liabilities (7,399) 686 Accrued liabilities (977) (25) ____________ ___________ Total adjustments 2,726 5,340 ____________ ___________ Net cash provided by (used in) operating activities (789) 4,492 Cash flows from investing activities: Purchases of property, plant and equipment (500) (964) Proceeds from disposal of property, plant and equipment 343 43 Other 7 (18) ____________ ___________ Net cash provided by (used in) investing activities (150) (939) Cash flows from financing activities: Proceeds from debt and credit facilities 75,436 9,235 Payments on debt and credit facilities (74,691) (12,366) Other 0 (4) ____________ ___________ Net cash provided by (used in) financing activities 745 (3,135) ____________ ___________ Net increase (decrease) in cash and cash equivalents (194) 418 Cash and cash equivalents at the beginning of the period 472 288 ____________ ___________ Cash and cash equivalents at the end of the period $ 278 $ 706 See accompanying notes. /TABLE PRIDE COMPANIES, L.P. NOTES TO FINANCIAL STATEMENTS 1. Organization Pride Companies, L.P. (the "Partnership"), a Delaware limited partnership, owns and operates a modern simplex petroleum refinery facility located near Abilene, Texas (the "Refinery"), a crude oil gathering business (the "Crude Gathering System") that gathers, transports, and resells and redelivers crude oil in the Texas and New Mexico markets, and certain integrated product pipeline operations (the "Products System"). The Partnership's operations are considered a single industry segment, the refining of crude oil and the sale of the resulting petroleum products. The primary purpose of the Crude Gathering System is to supply the Refinery with crude oil. In that connection, it purchases and resells crude oil in order to provide a supply of the appropriate grade of crude oil at strategic locations for input into the Refinery. The Crude Gathering System consists of a series of gathering lines and a fleet of trucks which transport crude oil into third party pipelines and into the system's primary asset, a common carrier pipeline which delivers crude oil to and terminates at the Refinery. The Products System consists of certain product pipelines which originate at the Refinery and terminate at the Partnership's marketing terminals. Pride Refining, Inc. (the "Managing General Partner") owns a 1.9% general partner interest in and serves as the managing general partner of the Partnership. Pride SGP, Inc. ("Special General Partner" or "Pride SGP") owns a 0.1% general partner interest in and serves as the special general partner of the Partnership. The Managing General Partner and the Special General Partner (collectively the "General Partners") collectively own a 2% general partner interest. The Partnership adopted certain amendments to its partnership agreement (the "Amendments"), which were effective December 31, 1996 and modified the capital structure of the Partnership. In addition to its general partner interest, the Special General Partner owns a 4.9% interest in the Partnership through ownership of common limited partner units with terms specified by the Amendments ("Common Units"). Public ownership represented by the remaining Common Units is 93.1%. Prior to the effectiveness of the Amendments, the Special General Partner owned a 51.7% limited partner interest in the Partnership through ownership of common limited partner units ("Old Common Units"), and the public owned a 46.3% interest in the Partnership through ownership of convertible preferred limited partner units ("Preferred Units"). 2. Accounting Policies The financial statements of the Partnership include all of its majority owned subsidiaries including limited partnership interests where the Partnership has significant control through related parties. All intercompany transactions have been eliminated and minority interest has been provided where applicable. The financial statements included in this quarterly report on Form 10-Q are unaudited and condensed and do not contain all information required by generally accepted accounting principles to be included in a full set of financial statements. In the opinion of management, all material adjustments necessary to present fairly the financial position, results of operations, and cash flows for such periods have been included. Interim period results are not necessarily indicative of the results to be achieved for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements of the Partnership presented in its Annual Report on Form 10-K for the year ended December 31, 1996 include a summary of significant accounting policies that should be read in conjunction with this quarterly report on Form 10-Q. Certain amounts in the financial statements for the prior year have been reclassified to conform to the 1997 presentation. The Partnership has two subsidiaries that are corporations which are separate taxable entities whose operations are subject to federal income taxes. Net Income (Loss) per Unit - Before Conversion is calculated using the actual weighted average number of units outstanding during the period (4,950,000 Common Units for the period ended June 30, 1997 and 4,700,000 Preferred Units and 5,250,000 Old Common Units for the period ended June 30, 1996) divided into the Partnership's net income (loss) after adjusting for general partner allocations. Net Income (Loss) per Unit - After Conversion is calculated based on the weighted average number of Common Units outstanding as a result of the Amendments which were effective December 31, 1996 (4,950,000 Common Units for the periods ended June 30, 1997 and 1996) divided into the Partnership's net income (loss) after adjusting for general partner allocations. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("SFAS 128"). The adoption of SFAS 128 is not expected to have a material effect on the Partnership's prior periods or present earnings per unit calculation. 3. Related Party Transactions In accordance with the Second Amended and Restated Agreement of Limited Partnership of Pride Companies, L.P. ("Partnership Agreement"), the Managing General Partner conducts, directs and exercises control over substantially all of the activities of the Partnership. The Managing General Partner has a 1.9% interest in the income and cash distributions of the Partnership, subject to certain adjustments. Certain members of the management of the Managing General Partner are also members of the management of Pride SGP, which has a 0.1% general partner interest and a 4.9% limited partner interest in the Partnership. The Partnership has no directors or officers; however, directors and officers of the Managing General Partner are employed by the Partnership to function in this capacity. Compensation of these persons and any other expenses incurred on behalf of the Partnership by the Managing General Partner and Pride SGP are paid by the Partnership. Certain conflicts of interest, including potential non-arm's length transactions, could arise as a result of the relationships described above. The Board of Directors and management of the Managing General Partner have a duty to manage the Partnership in the best interests of the unitholders and consequently must exercise good faith and integrity in handling the assets and affairs of the Partnership. 4. Inventories
Inventories are valued at the At At lower of cost or market and June 30, December 31, consist of: 1997 1996 (in thousands) _____________________________ ___________ ___________ Crude oil $ 11,194 $ 14,543 Refined products and blending materials 8,386 12,002 ___________ ___________ 19,580 26,545 LIFO reserve (3,060) (8,381) ___________ ___________ Petroleum inventories 16,520 18,164 Spare parts and supplies 962 1,007 ___________ ___________ $ 17,482 $ 19,171
The last-in/first-out (LIFO) inventory cost method is used for crude oil and refined products and blending materials. The weighted average inventory cost method is used for spare parts and supplies. 5. Long-Term Debt The Partnership's credit facility was amended and restated on August 13, 1996. On August 14, 1997, the Partnership's credit facility was amended to extend the maturity date to July 1, 1998. The Partnership has a $6.5 million standby letter of credit facility for general corporate purposes and the purchase of crude oil and other refinery feedstocks ("Facility A") and a $42.5 million standby letter of credit facility for the purchase of crude oil ("Facility B"). The fee on outstanding Facility A and Facility B standby letters of credit is 1 and 1/2% per annum. For the unused portion of the standby letter of credit facility, the fee is one-half of 1% per annum. Though no advances had been drawn under either the Facility A or Facility B standby letter of credit facility, the Partnership did have approximately $721,000 and $37.8 million, respectively, in outstanding standby letters of credit at June 30, 1997. The credit agreement also provides, at the banks' discretion, an additional $8.0 million standby letter of credit facility for the purchase of crude oil and other refinery feedstocks ("Special LC Facility"). The fee on outstanding Special LC Facility standby letters of credit is 3% per annum. There is no commitment fee for the unused portion of the Special LC Facility. The Partnership had no outstanding standby letters of credit under the Special LC Facility as of June 30, 1997. As a result of the decline in crude oil prices in the first quarter of 1997 and management's expectations for lower average crude oil prices for the remainder of the year as compared with 1996, the Partnership believes its current letter of credit facilities, supplemented by the Special LC Facility, are adequate. The Partnership has available to it a revolving line of credit of $12.0 million ("Revolver"), a $23.9 million term loan (the "Term Loan") and a total of $16.8 million in three series of convertible senior secured notes (collectively the "Senior Secured Notes"). At June 30, 1997, the balances outstanding on the Revolver, Term Loan and the Senior Secured Notes were $7.4 million, $23.9 million and $16.8 million, respectively. Under the amended credit facility, the Partnership is required to make quarterly principal payments on the Term Loan in the amount of excess cash, as defined in the credit agreement, for the preceding quarter. The Partnership has classified $1.2 million of the Term Loan as current as of June 30, 1997. Advances under the Revolver and Term Loan bear interest at prime plus 1 and 1/2% and 2%, respectively, payable monthly. The prime rate was 8 and 1/2% as of June 30, 1997. The Senior Secured Notes issued to the lenders under the credit facility consist of $2.5 million in Convertible Senior Secured Series A Promissory Notes ("Note A"), $9.3 million in Convertible Senior Secured Series B Promissory Notes ("Note B"), and $5.0 million in Convertible Senior Secured Series C Promissory Notes ("Note C"). The Senior Secured Notes bear interest at prime plus 1% payable monthly, and have the same maturity as the credit facility. Under certain circumstances, the Senior Secured Notes are convertible at the holders' election into Common Units. The entire amount outstanding under the Senior Secured Notes has been classified as long-term as of June 30, 1997. The Partnership has pledged substantially all its assets as collateral for the credit facility and the Senior Secured Notes. In addition, the General Partners guaranteed the facility and Pride SGP as guarantor has pledged its assets at no cost to the Partnership as collateral for such loans. The Partnership may elect to prepay the credit facilities without any prepayment penalty. Advances under the Revolver are subject to repayment on a daily basis. As a result, the full amount outstanding at June 30, 1997 has been included in the current portion of long-term debt. The Revolver is subject to a borrowing base which includes a reduction by the amount of letters of credit issued under Facility A. Subject to the borrowing base, the Partnership may borrow any amounts previously repaid. The fee for the unused portion of the Revolver is one-half of 1% per annum. The credit facility also requires the Partnership to pay a monthly fee of $10,000. The Partnership has two outstanding financing agreements to fund working capital with Pride SGP which were entered into on March 26, 1993 and September 7, 1995. Pride SGP made the unsecured loans to the Partnership in the principal amount of $2.5 million bearing interest at prime plus 1%. The prime rate was 8 and 1/2% at June 30, 1997. The loans mature July 1, 1998. The Partnership also has a nonrecourse loan from Diamond Shamrock with an outstanding balance of $5.8 million at June 30, 1997, bearing interest at 8% per annum with monthly interest payments. The assets of Pride Borger, Inc. ("Pride Borger"), which owns 50% of the Texas Plains System, are pledged as collateral. Pride Borger also guarantees the note. Monthly principal payments are made to Diamond Shamrock based on the number of throughput barrels for the prior month in the Texas Plains System. Current maturities are estimated to be $147,000 at June 30, 1997. On January 9, 1995, the Partnership executed a note to a local bank related to the renovation and refinancing of its administrative offices in Abilene. Prior to this, the Partnership leased additional office space from a third party. The note bears interest at prime plus one-half of 1% and had an outstanding principal balance of $365,000 as of June 30, 1997. The note matures January 9, 2000. The Partnership has classified $17,000 of the note as current as of June 30, 1997. During 1995, the Partnership converted non-interest bearing accounts payable to the United States Government related to pricing adjustments which had been accrued since 1993 to a $2.4 million installment loan. The principal balance was $901,000 as of June 30, 1997. The note bears interest based on the rate set by the Secretary of the Treasury. This rate was 6.375% as of June 30, 1997. The note requires monthly payments of $84,000 and matures June 1, 1998. The Partnership has classified the entire balance of the note as current as of June 30, 1997. 6. Common Units At June 30, 1997, 4,950,000 Common Units were outstanding, representing a 98% limited partner interest in the Partnership. The general partners are entitled to 2% of all distributions. Under the terms of the Partnership's credit agreement, the bank restricted the payment of distributions to unitholders throughout the term of the credit agreement. Future distributions will be dependent on, among other things, payment in full of the bank debt, expiration of all liabilities related to letters of credit, and the termination of the credit agreement. 7. Contingencies The Partnership has filed a substantial claim against the Defense Fuel Supply Center relating to erroneous pricing of fuel purchased over a period of several years from the Partnership and its predecessors. The ultimate outcome of this matter cannot presently be determined. The Partnership is involved in various claims and routine litigation incidental to its business for which damages are sought. Management believes that the outcome of all claims and litigation is either adequately insured or will not have a material adverse effect on the Partnership's financial position or results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Overview Pride Companies, L.P. is a Delaware limited partnership which owns and operates a petroleum refining business ("Refinery"), products pipeline business ("Products System"), and crude oil gathering business ("Crude Gathering System"). The Crude Gathering System is the primary source of crude supply for the Refinery, although some gathering is done for others. It gathers crude at the wellhead and then buys and sells crude oil so that it can deliver crude to the Refinery. After the crude is processed into petroleum products at the Refinery, it is marketed and if necessary transported to the Partnership's terminals through the Products System's pipelines. The following is a discussion of the results of operations of the Partnership. This discussion should be read in conjunction with the financial statements included in this report. Forward Looking Statements This Form 10-Q contains certain forward looking statements. Such statements are typically punctuated by words or phrases such as "anticipate," "estimate," "projects," "should," "may," "management believes," and words or phrases of similar import. Such statements are subject to certain risks, uncertainties or assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Among the key factors that may have a direct bearing on the Partnership's results of operations and financial conditions are: (i) the rate of utilization of the Refinery, (ii) the margins between the prices of the Partnership's refined petroleum products and the cost of crude oil, (iii) the volume throughput on and margins from the transportation and resale of crude oil from the Partnership's Crude Gathering System, (iv) the impact of current and future laws and governmental regulations affecting the refining industry in general and the Partnership's operations in particular, (v) the ability of the Partnership to effect a restructuring and recapitalization prior to the maturity of its credit facility, (vi) the ability of the Company to sustain cash flow from operations sufficient to realize its investments in operating assets of the Company, and (vii) the continuation of operations utilizing the Refinery similar to the Company's current operating structure. General The Partnership's current operating results depend principally on the rate of utilization of the Refinery, the margins between the prices of its refined petroleum products and the cost of crude oil, the volume throughput on the Products System, and the volume throughput on and margins from the transportation and resale of crude oil from its Crude Gathering System. Higher Refinery utilization allows the Partnership to spread its fixed costs across more barrels, thereby lowering the fixed costs per barrel of crude oil processed. The refining business is highly competitive, and the Partnership's margins are significantly impacted by general industry margins. Industry margins are determined by a variety of regional, national, and global trends, including oil prices, weather, and economic conditions, among other things. The Refinery's military aviation fuel prices are influenced by these trends since the pricing for military aviation fuel is based on Jet A, a kerosene-based product, and the price of diesel and heating fuels affects the price of kerosene. Margins in the Crude Gathering System are influenced by the level of competition and the price of crude oil. When prices are higher, crude oil can generally be resold at higher margins. Additionally, transportation charges trend upward when higher crude oil prices stimulate increased exploration and development. Conversely, when crude oil prices decrease, margins on the resale of crude oil as well as transportation charges tend to decrease. In addition, the intrasystem pricing of crude oil between the Refinery and the Crude Gathering System is based in part on an adjusted Midland spot price for crude oil above the Partnership's posted price for such crude oil (the "Premium"). The total intrasystem price for crude oil between the Refinery and the Crude Gathering System includes the Premium, the Partnership's posted price and transportation costs. An increase in the Premium for crude oil will have a negative impact on the Refinery and have a positive impact on the Crude Gathering System. On the other hand, a decrease in the Premium for crude oil will have a positive impact on the Refinery and a negative impact on the Crude Gathering System. For the second quarter of 1997, the average Premium for crude oil was $1.72 compared to $3.08 for the second quarter of 1996. The average Premium for crude oil was $2.01 for the six months ended June 30, 1997 compared to $2.58 for the six months ended June 30, 1996. As a result, the Refinery was positively affected and the Crude Gathering System was negatively affected in both the second quarter of 1997 and the first six months of 1997 due to the decline in the Premium during such periods. In evaluating the financial performance of the Partnership, management believes it is important to look at operating income, before depreciation, in addition to operating income which is after depreciation. Operating income, before depreciation, measures the Partnership's ability to generate and sustain working capital and cash flows from operations. However, such measure is before debt service, so it does not indicate the amount available for distribution, reinvestment or other discretionary uses. Gross revenues primarily reflect the level of crude oil prices and are not necessarily an accurate reflection of the Partnership's profitability. Also important to the evaluation of the Refinery's performance are barrels of crude oil refined, gross margin (revenue less cost of crude) per barrel, and operating expense per barrel, before depreciation. Second Quarter 1997 Compared to Second Quarter 1996 General. Net loss for the second quarter of 1997 was $602,000 compared to net loss of $1.4 million for the second quarter of 1996. The improvement was a result of increased refining margins, lower interest expense and credit and loan fees of $538,000, and an increase in "Other - net" of $469,000 in the second quarter of 1997 compared to the second quarter of 1996. "Other - net" increased as a result of the sale of the Refinery's product trucks in the second quarter of 1997. The improvement was partially offset by weaker crude gathering margins during the second quarter of 1997 compared to the same period last year. Operating income was $557,000 for the second quarter of 1997 compared to $739,000 for the second quarter of 1996. Operating income, before depreciation, for the second quarter of 1997 decreased to $2.3 million from $2.5 million for the second quarter of 1996. The following table details the operating income (loss); depreciation; and the operating income (loss), before depreciation (in thousands), for the second quarter of 1997 and 1996.
Operating Income Operating (Loss) Income Before (Loss) Deprec. Deprec. _______ _______ ________ Second Quarter 1997 Refinery and Products System $ 463 $ 1,237 $ 1,700 Crude Gathering System 94 479 573 _______ _______ ________ Total $ 557 $ 1,716 $ 2,273 Second Quarter 1996 Refinery and Products System $(3,269) $ 1,251 $ (2,018) Crude Gathering System 4,008 504 4,512 _______ _______ ________ Total $ 739 $ 1,755 $ 2,494
Refinery and Products System. Operating income of the Refinery and Products System was $463,000 for the second quarter of 1997 compared to operating loss of $3.3 million for the second quarter of 1996. Depreciation expense for the Refinery and Products System was approximately $1.2 million for the second quarter of 1997 and $1.3 million for the second quarter of 1996. Operating income, before depreciation, of the Refinery and Products System was $1.7 million for the second quarter of 1997 compared to operating loss, before depreciation, of $2.0 million for the second quarter of 1996. Operating income of the Refinery was $163,000 for the second quarter of 1997 compared to operating loss of $3.5 million for the same period in 1996. Depreciation expense for the Refinery alone was $1.0 million for both the second quarter of 1997 and the second quarter of 1996. Operating income, before depreciation, of the Refinery was $1.2 million for the second quarter of 1997 compared to operating loss, before depreciation, of $2.5 million for the second quarter of 1996. Refinery gross margin per barrel was $1.85 for the second quarter of 1997 versus $0.57 for the same period in 1996. The increase in the gross margin primarily reflects the decrease in the Premium for crude oil purchased from the Crude Gathering System. Refinery throughput averaged 32,809 BPD for the second quarter of 1997 versus 31,352 BPD for the same period in 1996. Operating expenses per barrel, before depreciation, were $1.02 for the second quarter of 1997 compared to $1.07 for the second quarter of 1996. Operating income for the Products System was $300,000 for the second quarter of 1997 compared to $262,000 for the second quarter of 1996. Depreciation expense for the Products System was $217,000 for the second quarter of 1997 compared to $220,000 for the second quarter of 1996. Operating income, before depreciation, for the Products System increased to $517,000 for the second quarter of 1997 from $482,000 for the same period in 1996. Total transportation volumes were 13,094 BPD for the second quarter of 1997 compared to 12,806 BPD for the same period in 1996. Crude Gathering System. Operating income for the Crude Gathering System was $94,000 for the second quarter of 1997 compared to $4.0 million for the same period in 1996 due to a decline in crude gathering margins. The Premium for crude oil sold to the Refinery was substantially lower in the second quarter of 1997 than the second quarter of 1996, but the amount paid above posting for such crude oil to third parties did not decrease accordingly. The amount paid above posting for crude oil to third parties should decrease in the future as the crude oil market's expectation for a high Premium diminishes. Depreciation expense for the Crude Gathering System decreased to $479,000 for the second quarter of 1997 from $504,000 for the second quarter of 1996. Operating income, before depreciation, for the Crude Gathering System was $573,000 for the second quarter of 1997 and $4.5 million for the second quarter of 1996. The net margin was $0.02 per barrel for the second quarter of 1997 versus $0.74 per barrel for the same period in 1996. Due to the elimination of several marginal contracts, the volume of crude oil gathered by the Crude Gathering System decreased to 49,729 BPD for the second quarter of 1997 from 59,854 BPD for the second quarter of 1996. First Six Months 1997 Compared to First Six Months 1996 General. Net loss for the first six months of 1997 was $3.5 million compared to net loss of $848,000 for the first six months of 1996. The decline was primarily a result of weaker crude gathering margins during the first six months of 1997. This was partially offset by improved refining margins and lower interest and credit and loan fees of $911,000 during the first six months of 1997. Interest and credit and loan fees decreased due to the lower interest rates that became effective upon completion of phase two of the refinancing and restructuring and the accrual during the first six months of 1996 for facility fees of $694,000. Operating loss was $468,000 for the first six months of 1997 compared to operating income of $3.5 million for the first six months of 1996. Operating income, before depreciation, decreased for the first six months of 1997 to $3.0 million from $7.0 million for the first six months of 1996. The table below details the operating income (loss); depreciation; and the operating income (loss), before depreciation by division (in thousands) for the first six months of 1997 and 1996.
Operating Income Operating (Loss) Income Before (Loss) Deprec. Deprec. _______ _______ ________ First Six Months 1997 Refinery and Products System $(1,725) $ 2,474 $ 749 Crude Gathering System 1,257 960 2,217 _______ _______ ________ Total $ (468) $ 3,434 $ 2,966 First Six Months 1996 Refinery and Products System $(2,685) $ 2,500 $ (185) Crude Gathering System 6,182 1,020 7,202 _______ _______ ________ Total $ 3,497 $ 3,520 $ 7,017
Refinery and Products System. Operating loss of the Refinery and Products System was $1.7 million for the first six months of 1997 compared to operating loss of $2.7 million for the first six months of 1996. Depreciation expense for the Refinery and Products System was approximately $2.5 million for the first six months of 1997 and the first six months of 1996. Operating income, before depreciation, of the Refinery and Products System was $749,000 for the first six months of 1997 compared to operating loss, before depreciation, of $185,000 for the first six months of 1996. Operating loss of the Refinery was $2.1 million for the first six months of 1997 compared to $3.3 million for the first six months of 1996. Refining margins increased for the first six months of 1997 due to the lower Premium for crude oil during such period. Depreciation expense for the Refinery alone was $2.0 million for the first six months of 1997 and $2.1 million for the first six months of 1996. Operating loss, before depreciation, of the Refinery was $41,000 for the first six months of 1997 compared to $1.2 million for the first six months of 1996. Refinery gross margin per barrel was $1.47 for the first six months of 1997 versus $1.30 for the same period in 1996. Refinery throughput averaged 31,783 BPD during the first six months of 1997 versus 32,264 BPD for the same period in 1996. Operating expenses per barrel, before depreciation, were $1.07 for the first six months of 1997 versus $1.08 for the same period in 1996. Operating income for the Products System was $355,000 for the first six months of 1997 compared to $610,000 for the first six months of 1996. Depreciation expense for the Products System was $435,000 for the first six months of 1997 and $441,000 for the first six months of 1996. Operating income, before depreciation, for the Products System decreased to $790,000 for the first six months of 1997 from $1.1 million for the same period in 1996 as a result of decreased volumes and increased operating cost due to leak repairs. Total transportation volumes were 12,791 BPD for the first six months of 1997 compared to 13,392 BPD for the same period in 1996 due to a decline in shipments to the San Angelo terminal. Crude Gathering System. Operating income for the Crude Gathering System was $1.3 million for the first six months of 1997 compared to $6.2 million for the same period in 1996 due to the decrease in the Premium for crude oil for the first six months of 1997. Depreciation expense for the Crude Gathering System was $960,000 for the first six months of 1997 and $1.0 million for the first six months of 1996. Operating income, before depreciation, for the Crude Gathering System was $2.2 million for the first six months of 1997 and $7.2 million for the first six months of 1996. The net margin was $0.14 per barrel for the first six months of 1997 compared to $0.54 per barrel for the first six months of 1996. Due to the elimination of several marginal contracts, the volume of crude oil gathered by the Crude Gathering System decreased to 49,162 BPD for the first six months of 1997 from 63,212 BPD for the first six months of 1996. Factors and Trends Affecting Operating Results A number of factors have affected the Partnership's operating results, both indirectly and directly, such as environmental compliance, other regulatory matters, industry trends and price of crude oil, inventory prices, and seasonality and weather. The Managing General Partner expects that such conditions will continue to affect the Partnership's business to varying degrees in the future. The order in which these factors are discussed is not intended to represent their relative significance. Environmental Compliance. Increasing public and governmental concern about air quality is expected to result in continued regulation of air emissions. Regulations relating to carbon monoxide and regulations on oxygen content in gasoline and sulfur content in diesel fuel are expected to be increasingly important as a means of improving air quality in urban areas. The Partnership plans to spend approximately $1.3 million in the aggregate in 1997, 1998 and 1999 on several projects to maintain compliance with various environmental requirements including $400,000 for a sewer system upgrade and $380,000 for tank cleanup. If the refinancing is completed or the banks' consent is obtained to discontinue refinery operations, environmental expenditures are estimated to be $500,000 to $1.8 million in the aggregate for 1997, 1998 and 1999 (see "Financial Condition - Financial Resources and Liquidity"). Effective January 1, 1995, the Clean Air Act Amendment of 1990 required that certain areas of the country use reformulated gasoline ("RFG"). The Abilene and San Angelo market areas do not require RFG. Collin, Dallas, Denton, and Tarrant Counties, which comprise the Dallas-Fort Worth ("DFW") metroplex area, do require RFG; however, the Partnership's Aledo terminal lies outside this area and is allowed to supply conventional gasoline that is not destined for sale in these four counties. New regulations took effect that imposed new quality standards for conventional gasoline in the rest of the country; however, they were much less restrictive than the RFG regulations. Management does not believe that these have had or will have a material adverse effect on the Partnership's operations. Other Regulatory Requirements. The Partnership is also subject to the rules and regulations of, among others, the Occupational Safety and Health Administration, Texas Air Control Board, Texas Railroad Commission, and Texas Water Commission. Industry Trends and Price of Crude Oil. Industry trends and the price of crude oil will continue to affect the Partnership's business. While refined products are generally sold at a margin above crude oil prices, fluctuations in the price of crude oil can have a significant short-term effect on refining margins because there is usually a lag in the movement of product prices, both up and down, in relation to the movement of crude oil prices. The general level of crude oil prices can also have a significant effect on the margins in the crude gathering business. Margins in the Crude Gathering System generally tend to be influenced by competition, the general price level of crude oil and the Premium. When prices are higher, crude oil can generally be resold at higher margins. Additionally, transportation charges are slightly less competitive when higher crude oil prices result in increased exploration and development. Conversely, when crude oil prices decrease, margins on the resale of crude oil and transportation charges generally tend to decrease. Inventory Prices. The Partnership utilizes the last- in/first-out (LIFO) method of determining inventory values. LIFO minimizes the effect of fluctuations in inventory prices on earnings by matching current costs with current revenue. The LIFO method is the predominant method used in the refining industry. Seasonality and Weather. Gasoline consumption is typically highest in the United States in the summer months and lowest in the winter months. As a result, margins for gasoline tend to be higher in the summer months. Diesel consumption in the southern United States is generally higher just prior to and during the winter months when commercial trucking is routed on southern highways to avoid severe weather conditions further north. Additionally, diesel fuel prices tend to increase during the winter months when refiners divert heating fuels to northern areas. The Refinery's military aviation fuel prices are influenced by these trends since the pricing for military aviation fuel is based on Jet A, a kerosene based product, and the price of diesel and heating fuels affect the price of kerosene. Financial Condition Inflation The Partnership's operations would be adversely impacted by significant, sustained increases in crude oil and other energy prices. Although the Partnership's operating costs are generally impacted by inflation, the Managing General Partner does not expect general inflationary trends to have a material adverse impact on the Partnership's business. Financial Resources and Liquidity The Partnership receives payments from the United States Government, major oil companies, and other customers within approximately 7 to 15 days from shipment in the case of products sales and by the 20th of the following month in the case of third- party crude oil sales and exchanges. The Partnership maintains inventory in the amount of approximately 14 to 20 days of sales. The Partnership generally pays for crude oil feedstock on the 20th of the month following the month in which it is received. As a result, the Partnership's operating cycle is such that it generally receives cash for the refined products on a basis roughly equal to the average terms on which it pays for the crude oil feedstock. Letters of credit are an integral part of the operations of the Crude Gathering System since the Partnership takes title to both first purchased barrels and custom gathered barrels. The Partnership's credit facility was amended and restated on August 13, 1996. On August 14, 1997, the Partnership's credit facility was amended to extend the maturity date to July 1, 1998. The Partnership has a $6.5 million standby letter of credit facility for general corporate purposes and the purchase of crude oil and other refinery feedstocks ("Facility A") and a $42.5 million standby letter of credit facility for the purchase of crude oil ("Facility B"). The fee on outstanding Facility A and Facility B standby letters of credit is 1 and 1/2% per annum. For the unused portion of the standby letter of credit facility, the fee is one-half of 1% per annum. Though no advances had been drawn under either the Facility A or Facility B standby letter of credit facility, the Partnership did have approximately $721,000 and $37.8 million, respectively, in outstanding standby letters of credit at June 30, 1997. The credit agreement also provides, at the banks' discretion, an additional $8.0 million standby letter of credit facility for the purchase of crude oil and other refinery feedstocks ("Special LC Facility"). The fee on outstanding Special LC Facility standby letters of credit is 3% per annum. There is no commitment fee for the unused portion of the Special LC Facility. The Partnership had no outstanding standby letters of credit under the Special LC Facility as of June 30, 1997. As a result of the decline in crude oil prices in the first quarter of 1997 and management's expectations for lower average crude oil prices for the remainder of the year compared with 1996, the Partnership believes its current letter of credit facilities, supplemented by the Special LC Facility, are adequate. The Partnership has available to it a revolving line of credit of $12.0 million ("Revolver"), a $23.9 million term loan (the "Term Loan") and a total of $16.8 million in three series of convertible senior secured notes (collectively the "Senior Secured Notes"). At June 30, 1997, the balances outstanding on the Revolver, Term Loan and the Senior Secured Notes were $7.4 million, $23.9 million and $16.8 million, respectively. Under the amended credit facility, the Partnership is required to make quarterly principal payments on the Term Loan in the amount of excess cash, as defined in the credit agreement, for the preceding quarter. The Partnership has classified $1.2 million of the Term Loan as current as of June 30, 1997. Advances under the Revolver and Term Loan bear interest at prime plus 1 and 1/2% and 2%, respectively, payable monthly. The prime rate was 8 and 1/2% as of June 30, 1997. The Senior Secured Notes issued to the lenders under the credit facility consist of $2.5 million in Convertible Senior Secured Series A Promissory Notes ("Note A"), $9.3 million in Convertible Senior Secured Series B Promissory Notes ("Note B"), and $5.0 million in Convertible Senior Secured Series C Promissory Notes ("Note C"). The Senior Secured Notes bear interest at prime plus 1% payable monthly, and have the same maturity as the credit facility. Under certain circumstances, the Senior Secured Notes are convertible at the holders' election into Common Units. The entire amount outstanding under the Senior Secured Notes has been classified as long-term as of June 30, 1997. The Partnership has pledged substantially all its assets as collateral for the credit facility and the Senior Secured Notes. In addition, the General Partners guaranteed the facility and Pride SGP as guarantor has pledged its assets at no cost to the Partnership as collateral for such loans. The Partnership may elect to prepay the credit facilities without any prepayment penalty. Advances under the Revolver are subject to repayment on a daily basis. As a result, the full amount outstanding at June 30, 1997 has been included in the current portion of long-term debt. The Revolver is subject to a borrowing base which includes a reduction by the amount of letters of credit issued under Facility A. Subject to the borrowing base, the Partnership may borrow any amounts previously repaid. The fee for the unused portion of the Revolver is one-half of 1% per annum. The credit facility also requires the Partnership to pay a monthly fee of $10,000. The Partnership has two outstanding financing agreements to fund working capital with Pride SGP which were entered into on March 26, 1993 and September 7, 1995. Pride SGP made the unsecured loans to the Partnership in the principal amount of $2.5 million bearing interest at prime plus 1%. The prime rate was 8 and 1/2% at June 30, 1997. The loans mature July 1, 1998. The Partnership also has a nonrecourse loan from Diamond Shamrock with an outstanding balance of $5.8 million at June 30, 1997, bearing interest at 8% per annum with monthly interest payments. The assets of Pride Borger, Inc. ("Pride Borger"), which owns 50% of the Texas Plains System, are pledged as collateral. Pride Borger also guarantees the note. Monthly principal payments are made to Diamond Shamrock based on the number of throughput barrels for the prior month in the Texas Plains System. Current maturities are estimated to be $147,000 at June 30, 1997. On January 9, 1995, the Partnership executed a note to a local bank related to the renovation and refinancing of its administrative offices in Abilene. Prior to this, the Partnership leased additional office space from a third party. The note bears interest at prime plus one-half of 1% and had an outstanding principal balance of $365,000 as of June 30, 1997. The note matures January 9, 2000. The Partnership has classified $17,000 of the note as current as of June 30, 1997. During 1995, the Partnership converted non-interest bearing accounts payable to the United States Government related to pricing adjustments which had been accrued since 1993 to a $2.4 million installment loan. The principal balance was $901,000 as of June 30, 1997. The note bears interest based on the rate set by the Secretary of the Treasury. This rate was 6.375% as of June 30, 1997. The note requires monthly payments of $84,000 and matures June 1, 1998. The Partnership has classified the entire balance of the note as current as of June 30, 1997. Cash flows have been and will continue to be significantly affected by fluctuations in the cost and volume of crude oil and refined products held in inventory and the timing of accounts receivable collections. Cash flows are also affected by refining margins and crude oil gathering margins. The Partnership's operations have generated losses in each of the last six years and current ratios of less than one to one in each of the last four years. These financial results are primarily a result of depressed refining margins along with increasing depreciation expense and interest expense and related fees through 1995. Crude gathering volumes have also decreased. Under the new jet fuel contract with the U. S. Government which began on April 1, 1997 and ends on March 31, 1998, the Partnership will supply approximately 2.5% less military aviation fuel than it supplied under the previous contract; however, the prices awarded compared to the base reference price net of transportation under this contract have improved approximately 0.9 cents per gallon from the prices in the previous contract, which will more than offset the impact of the reduced volumes. The losses incurred in the first six months of 1997 were funded by additional borrowing which became available under the Partnership's revolving credit facility. The Partnership's return to profitability is principally dependent upon restructuring its credit facility, increased volumes and/or improved profit margins, as well as continued cost control initiatives. The Partnership's long-term viability is dependent upon its effecting a restructuring and recapitalization. Although no assurances can be given, management believes the extension of the existing facility to July 1, 1998 alleviates short-term threats to the liquidity of the Partnership. The Partnership announced on June 20, 1997 that it had executed a long-term product supply agreement (the "Agreement") with Texaco Trading & Transportation, Inc. ("TTTI"), a wholly-owned subsidiary of Texaco, Inc. The Agreement has a 10-year primary term beginning upon completion of TTTI's recently announced new system of pipelines and terminals and has renewal provisions for up to an additional 10 years. It provides that the Partnership will purchase all gasoline and middle distillates (principally diesel and jet fuel), which it may desire to purchase, exclusively from TTTI. The Partnership will purchase gasoline, diesel and jet fuel from TTTI for delivery to the Partnership's existing customer base, which includes wholesale customers, exchange partners, and military bases, primarily using the Partnership's existing pipelines and terminals. The Partnership is not required by the Agreement to discontinue its refining operations, but it is anticipated that such operations may, if the banks in its credit facility consent, as discussed below, be phased into a products and crude oil terminal operations within the next nine months. The Partnership is in the process of evaluating the cost of such transition, costs of decommissioning equipment and related environmental compliance costs, and the Partnership currently estimates such costs at no more than $1.8 million. The Agreement with TTTI will allow the Partnership to expand its crude gathering operations, conducted under the name Pride Pipeline Company. It is contemplated that the arrangement with TTTI will enable the Partnership to transport crude oil it now gathers to attractive markets, including Cushing, Oklahoma. Currently a large portion of Pride Pipeline Company gathered crude oil is restricted to use as refinery feed stock. The Partnership anticipates that the new arrangement will produce operating cash flows similar to the level that the Partnership has experienced for the last four years. However, the Partnership believes that cash flows should be less volatile since the Agreement will result in more stable product margins and eventually decrease the Partnership's exposure to volatility in refining margins. The Partnership also believes that the Agreement will better enable the Partnership to remain competitive as environmental standards change and the industry trends toward consolidation and realignments in the future. The Partnership has not received approval from the banks in its credit facility to discontinue or phase down refinery operations, and the banks may or may not grant that consent. Such consent is required under the current loan agreement prior to discontinuance or phase down of the refinery. The Partnership will continue its previously announced efforts to refinance with additional third party creditors its letter of credit facility, the Revolver, Term Loan and Senior Secured Notes. The Partnership does not plan to accelerate any phase down of refinery operations until the refinancing is completed or the banks' consent is obtained which, until that time, will limit the Partnership's ability to fully realize the benefits of the Agreement. If the refinancing is completed or the banks' consent is obtained and the Partnership holds these assets for disposal, it is possible a loss would be recognized on such assets. The most significant and urgent need of the Partnership is to effect a restructuring and recapitalization of the Partnership's debt and equity. On August 13, 1996, the Partnership completed the first of three phases ("Phase One") which called for the execution of documents with the banks' lenders. Phase Two ("Phase Two") was completed effective December 31, 1996 when the Unitholders adopted an amendment to the Partnership Agreement. The amendment included the conversion of the outstanding Preferred Units and Old Common Units into Common Units and the cancellation of all preferred and common unit arrearages. As part of Phase Two, the banks converted a portion of their Term Loan into Senior Secured Notes, lowered certain interest rates and credit and loan fees and extended the maturity. In phase three ("Phase Three"), the Partnership plans to refinance with additional third party creditors the letter of credit facility, the Revolver, the Term Loan and a portion of the Senior Secured Notes. Any Series B and Series C Senior Secured Notes not refinanced would automatically convert to a preferred convertible equity security. During the first six months of 1997, the Partnership expensed $367,000 related to the restructuring of the Limited Partnership Agreement and its credit facility and recapitalization. This is in addition to the $2.0 million expensed during the two year period ended December 31, 1996. On August 14, 1997, an amendment was executed to extend the maturity date of the credit facility to July 1, 1998 in exchange for a fee of $90,000. The Managing General Partner had originally hoped to complete Phase Three by the end of the first quarter of 1997. The Managing General Partner and its advisors, with the concurrence of the bank lenders, concluded that conditions were not optimal to pursue the Phase Three financing as originally contemplated. At this time, the Managing General Partner cannot predict when, or if, Phase Three will be completed. If the Partnership is successful in arranging a complete restructuring and recapitalization of the Partnership, the Managing General Partner believes it will enhance the Partnership's financial strength, flexibility and future access to capital markets as well as lower interest expense. However, if the Partnership fails to complete Phase Three, it will have to pursue other means of effecting a restructuring and recapitalization, including redeployment of assets, asset sales and strategic alliances, prior to the maturity of its credit facility on July 1, 1998. Capital Expenditures The Partnership incurred capital expenditures of $131,000 for the second quarter of 1997. Cash Distributions At June 30, 1997, 4,950,000 Common Units were outstanding, representing a 98% limited partner interest in the Partnership. The general partners are entitled to 2% of all distributions. Under the terms of the Partnership's credit agreement, the bank restricted the payment of distributions to unitholders throughout the term of the credit agreement. Future distributions will be dependent on, among other things, payment in full of the bank debt, expiration of all liabilities for letters of credit, and the termination of the credit agreement. PART II. Other Information Item 1. Legal Proceedings The Partnership has filed a substantial claim against the Defense Fuel Supply Center relating to erroneous pricing of fuel purchased over a period of several years from the Partnership and its predecessors. The ultimate outcome of this matter cannot presently be determined. The Partnership is involved in various claims and routine litigation incidental to its business for which damages are sought. Management believes that the outcome of all claims and litigation is either adequately insured or will not have a material adverse effect on the Partnership's financial position or results of operations. Item 2. Changes in Securities None Item 3. Defaults in Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits: 4.1 Certificate of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1- 10473)). 4.2 Second Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 4.3 Deposit Agreement among the Partnership and the Depository (incorporated by reference to Exhibit 4.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.4 Transfer Application (included as Exhibit A to the Deposit Agreement, which is incorporated by reference to Exhibit 4.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.5 Form of Depositary Receipt for Common Units of Pride Companies, L.P. (incorporated by reference to Exhibit 4.5 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 27 Financial Data Schedule for the Second Quarter of 1997. 28.1 Fifth Amendment to Loan Agreement, dated as of August 14, 1997, among the Partnership ("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and NationsBank of Texas, N.A. as Agent, and NationsBank of Texas, N.A. and Bank One Texas, N.A. as Lenders. b. Reports on Form 8-K: The Partnership filed a Form 8-K, dated as of June 20, 1997, reporting the execution of a long-term product supply agreement (the "Agreement") with Texaco Trading and Transportation, Inc. (Commission File No. 1-10473). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRIDE COMPANIES, L.P. By: Pride Refining, Inc. as its Managing General Partner (Registrant) August 14, 1997 Brad Stephens Date Brad Stephens Chief Executive Officer (Signing on behalf of Registrant) August 14, 1997 George Percival Date George Percival Chief Financial Officer (Signing as Principal Financial Officer) PRIDE COMPANIES, L.P. Exhibits to Report to Form 10-Q INDEX TO EXHIBITS Exhibit Number (Reference to Item 601 of Regulation S-K) _________________ 4.1 Certificate of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1- 10473)). 4.2 Second Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 4.3 Deposit Agreement among the Partnership and the Depository (incorporated by reference to Exhibit 4.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.4 Transfer Application (included as Exhibit A to the Deposit Agreement, which is incorporated by reference to Exhibit 4.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.5 Form of Depositary Receipt for Common Units of Pride Companies, L.P. (incorporated by reference to Exhibit 4.5 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 27 Financial Data Schedule for the Second Quarter of 1997. 28.1 Fifth Amendment to Loan Agreement, dated as of August 14, 1997, among the Partnership ("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and NationsBank of Texas, N.A. as Agent, and NationsBank of Texas, N.A. and Bank One Texas, N.A. as Lenders. EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 278 0 12,601 0 17,482 30,983 136,803 40,374 128,460 41,673 47,925 0 0 26,029 54 128,460 270,079 270,079 262,262 262,262 3,434 0 2,685 (3,569) (54) (3,515) 0 0 0 (3,515) (.70) (.70)
EX-99 3 EXHIBIT 28.1 FIFTH AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT AGREEMENT THIS FIFTH AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT AGREEMENT (herein called the "Amendment") is made as of the 14th day of August, 1997, by and among Pride Companies, L.P., a Delaware limited partnership ("Borrower"), Pride Refining, Inc., a Texas corporation ("Pride Refining"), Pride SGP, Inc., a Texas corporation ("Pride SGP"), Desulfur Partnership, a Texas general partnership ("Desulfur Partnership"), Pride Marketing of Texas (Cedar Wind), Inc., a Texas corporation ("Pride Marketing"), Pride Borger, Inc., a Delaware corporation ("Pride Borger"), NationsBank of Texas, N.A., a national banking association, as Agent ("Agent"), and Lenders named on Schedule 1 to the Original Agreement ("Lenders"), W I T N E S S E T H; WHEREAS, Borrower, Pride Refining, Pride SGP, Desulfur Partnership, Pride Marketing, Pride Borger, Agent and Lenders have entered into that certain Fifth Restated and Amended Credit Agreement dated as of August 13, 1996, as amended by that certain First Amendment to Fifth Restated and Amended Credit Agreement dated as of August 17, 1996, that certain Second Amendment to Fifth Restated and Amended Credit Agreement dated as of February 25, 1997, that certain Third Amendment to Fifth Restated and Amended Credit Agreement dated as of March 31, 1997, that certain Fourth Amendment to Fifth Restated and Amended Credit Agreement dated as of May 15, 1997 (as so amended, the "Original Agreement") for the purpose and consideration therein expressed, whereby Lenders became obligated to make loans to Borrower as therein provided; WHEREAS, Borrower has requested Agent and Lenders to extend the Maturity Date, and Agent and Lenders have agreed to do so, subject to the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement and in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. Definitions and References Section 1.1. Terms Defined in the Original Agreement. Unless the context otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. Section 1.2. Other Defined Terms. Unless the context otherwise requires, the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Amendment" shall mean this Fifth Amendment to Fifth Restated and Amended Credit Agreement. "Credit Agreement" shall mean the Original Agreement as amended hereby. ARTICLE II. Amendments to Original Agreement Section 2.1. Defined Terms. The definitions of "Excess Cash" and "Maturity Date" in Section 1.1 of the Original Agreement are hereby amended in their entirety to read as follows: "Excess Cash" shall mean for any Calendar Quarter the Adjusted Income of Borrower. For purposes of this definition, the term "Adjusted Income of Borrower" for any Calendar Quarter means EBITDAR for such Calendar Quarter, minus Fixed Charges for such period, minus Capital Expenditures permitted by Section 7.06 hereof actually made during such period. "Maturity Date" shall mean the earlier to occur of July 1, 1998, or the date of any Acceleration. Section 2.2 Partnership Insurance. A new Section 6.22 is hereby added to the Original Agreement to read as follows: "6.22. Partnership Liability Insurance. Each Related Person shall maintain Partnership Liability Insurance issued by Companies, and in amount, form and content acceptable to Lenders." ARTICLE III. Conditions of Effectiveness Section 3.1. Effective Date. This Amendment shall become effective as of the date first above written when, and only when (i) Agent shall have received, at Agent's office, a counterpart of this Amendment executed and delivered by Borrower and each Lender, (ii) Borrower shall have paid to Agent for the benefit of Lenders, in consideration of Lenders agreeing to the transactions contemplated herein, an amendment fee in the amount of $90,000, (iii) Borrower shall have paid to Agent, in cash, all fees and expenses, including legal and other professional fees and expenses incurred, by the Agent prior to the date of this Amendment to the extent that same have been billed on or prior to the date of this Amendment, and (iv) Borrower shall have delivered to Agent the following: (x) copies of all Partnership liability policies for Borrower, and (y) a certificate from the Borrower certifying to the enclosure of true and correct copies of the Petroleum Products Supply Agreement between Texaco Trading and Transportation, Inc. and Borrower dated June 11, 1997, together with all schedules and exhibits thereto, and all other documents executed in connection therewith prior to, on and after the date of its execution, which certificate shall be true and correct. Section 3.2. Conditions Subsequent. This Amendment shall no longer be effective and it shall be an Event of Default under the Credit Agreement if the Borrower or another Related Person shall not have delivered all of the items on Schedule 1 attached hereto on or before the dates specified. ARTICLE IV. Representations and Warranties Section 4.1. Representations and Warranties of Borrower. In order to induce each Lender to enter into this Amendment, each Related Person represents and warrants to each Lender that: (a) The representations and warranties contained in Article V of the Original Agreement are true and correct at and as of the time of the effectiveness hereof. (b) Each Related Person ia duly authorized to execute and deliver this Amendment, and Borrower is and will continue to be duly authorized to borrow monies and to perform its obligations under the Credit Agreement. Each Related Person has duly taken all corporate and partnership action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of such Related Person hereunder and thereunder. (c) The execution and delivery by each Related Person of this Amendment, the performance by each Related Person of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the partnership agreement, articles of incorporation and bylaws of any Related Person, or of any material agreement, judgment, license, order or permit applicable to or binding upon any Related Person, or result in the creation of any lien, charge or encumbrance upon any assets or properties of any Related Person. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by each Related Person of this Amendment or to consummate the transactions contemplated hereby or thereby. (d) When duly executed and delivered, this Amendment will be a legal and binding obligation of each Related Person, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. ARTICLE V. Miscellaneous Section 5.1. Ratification of Agreements. The Original Agreement as hereby amended and all other Loan Documents are hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall he deemed to be a reference to the Original Agreement as hereby amended. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lenders under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement, the Notes or any other Loan Document nor constitute a waiver of any Default or Event of Default. Section 5.2. Survival of Agreements. All representations, warranties, covenants and agreements of the Related Person herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by any Related Person hereunder or under the Credit Agreement to any Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower under this Amendment, and under the Credit Agreement. Section 5.3. Loan Documents. This Amendment is a Loan Document, and all provisions in the Credit Agreement pertaining to Loan Documents apply hereto. Section 5.4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. Section 5.5. Collateral Documents. Each Related Person hereby agrees to deliver to Agent within ten days from the date hereof, such supplements, amendments and/or modifications of and to the existing Collateral Documents as the Agent shall request, in form and substance acceptable to the Agent, to reflect of record the extension of the Maturity Date. Section 5.6. Counterparts. This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. BORROWER: PRIDE COMPANIES, L,P., a Delaware limited partnership By: PRIDE REFINING, INC, a Texas corporation, Managing General Partner By: Brad Stephens Chief Executive officer GUARANTORS: PRIDE REFINING, INC, By: Brad Stephens Chief Executive officer PRIDE SGP, INC. By: Brad Stephens Chief Executive Officer PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. By: Brad Stephens President DESULFUR PARTNERSHIP By: Pride Marketing of Texas (Cedar Wind), Inc., its General Partner By: Brad Stephens President PRIDE BORGER, INC, By: Wayne Malone President AGENT: NATIONSBANK OF TEXAS, N,A, By: Jay T. Wampler Senior Vice President LENDERS: NATIONSBANK OF TEXAS, N.A. By: Jay T. Wampler Senior Vice President BANK ONE, TEXAS, N.A. By: Randall Durant Vice President CONSENT AND AGREEMENT Each of Pride Refining, Pride SGP and Desulfur Partner hereby consents to the provisions of this Agreement and the transactions contemplated herein and hereby ratifies and confirms the Second Restated Guaranty Agreement dated as of August 13, 1996, made by it for the benefit of Lenders and Agent, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. PRIDE REFINING, INC. By: Brad Stephens Chief Executive Officer PRIDE SGP, INC. By: Brad Stephens President DESULFUR PARTNERSHIP By: Pride Marketing of Texas (Cedar Wind), Inc., its general partner By: Brad Stephens President CONSENT AND AGREEMENT Pride Marketing hereby consents to the provisions of this Amendment and the transactions contemplated herein and hereby ratifies and confirms the Restated Guaranty Agreement dated as of August 13, 1996, made by it for the benefit of Lenders and Agent, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. By: Brad Stephens President PRIDE BORGER, INC. By: Wayne Malone President SCHEDULE 1 LIST OF REQUESTED DOCUMENTS 1. All pleadings filed, orders entered and documentary or deposition evidence submitted in the DFSC litigation, together with a copy of all court transcripts from any hearings or trial in such litigation. Date - September 5, 1997. AGREEMENT This Agreement is entered into by the undersigned as of August 14, 1997. Reference is hereby made to that certain Note Agreement dated as of August 13, 1996 (as from time to time amended, modified or supplemented, the "Note Agreement") among Pride Companies, L.P., a Delaware limited partnership (the "Company"), Pride Refining, Inc., a Texas corporation ("Managing General Partner"), Pride SGP, Inc., a Texas corporation ("Special General Partner") and Bank One, Texas, N.A. and NationsBank of Texas, N.A., as Purchasers ("Purchasers"). Capitalized terms used and not otherwise defined herein have the meanings given them in the Note Agreement. The Company has requested Purchasers to extend the maturity date of the Series A Notes, the Series B Notes and the Series C Notes, and Purchasers have agreed to do so, subject to the terms and conditions contained herein. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Amendments to Note Agreement. Each reference in Paragraphs 1A, 1B and 1C of the Note Agreement to a maturity date of "April 1, 1998" for the Series A Notes, the Series B Notes and the Series C Notes is hereby amended to read "July 1, 1998." 2. Conditions to Effectiveness of Agreement. This Agreement shall become effective as of the date first above written when and only when Purchasers shall have received a counterpart of this Agreement executed and delivered by all parties hereto, and all conditions to the Fifth Amendment to Fifth Restated and Amended Credit Agreement dated this date by and among the Company, the Managing General Partner, the Special General Partners, and others have been met. This Agreement shall no longer be effective and it shall be an Event of Default under the Note Agreement if the Company shall not have complied with all Conditions Subsequent to such Fifth Amendment to Fifth Restated and Amended Credit Agreement dated this date. 3. Ratification of Documents; Securities Documents. The Note Agreement as amended hereby is ratified and confirmed in all respects. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein operate as a waiver of any right, power or remedy of any Purchaser under the Note Agreement nor constitute a waiver of any provision of the Note Agreement. This Agreement is a Securities Document, and all provisions in the Note Agreement pertaining to Securities Documents apply hereto. 4. Counterparts. This Agreement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. THIS AGREEMENT AND THE OTHER SECURITIES DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of August 14, 1997. PRIDE COMPANIES, L.P. By: Pride Refining, Inc., Managing General Partner By: Brad Stephens Chief Executive Officer PRIDE REFINING, INC, By: Brad Stephens Chief Executive officer PRIDE SGP, INC. By: Brad Stephens Chief Executive Officer NATIONSBANK OF TEXAS, N.A. By: Jay T. Wampler Senior Vice President BANK ONE, TEXAS, N.A. By: Randall Durant Vice President CONSENT AND AGREEMENT Each of Pride Refining, Pride SGP and Desulfur Partner hereby consents to the provisions of this Agreement and the transactions contemplated herein and hereby ratifies and confirms the Second Restated Guaranty Agreement dated as of August 13, 1996, made by it for the benefit of Lenders, Agent (as such terms are defined in the Credit Agreement), and Purchasers and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. PRIDE REFINING, INC. By: Brad Stephens Chief Executive Officer PRIDE SGP, INC. By: Brad Stephens President DESULFUR PARTNERSHIP By: Pride Marketing of Texas (Cedar Wind), Inc., its general partner By: Brad Stephens President CONSENT AND AGREEMENT Each of the undersigned hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms the Restated Guaranty Agreement dated as of August 13, 1996, made by it for the benefit of Lenders, Agent, and Purchasers and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. By: Brad Stephens President PRIDE BORGER, INC. By: Dave Caddell Vice President -----END PRIVACY-ENHANCED MESSAGE-----