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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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:
(325) 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 May 14, 2003
----- ---------------------------
Common Units 49,531
Indicate by checkmark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
Indicate by checkmark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes [X] No [ ]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIDE COMPANIES, L. P.
BALANCE SHEETS
(Amounts in thousands, except unit amounts)
March 31,
2003 December 31,
(unaudited) 2002
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,978 $ 12,158
Restricted cash 766 1,002
Accounts receivable, less allowance
for doubtful accounts 14,698 13,437
Inventories 106 117
Other current assets 166 326
----------- -----------
Total current assets 18,714 27,040
Property, plant and equipment 31,225 31,225
Accumulated depreciation (18,597) (18,212)
----------- -----------
Property, plant and equipment - net 12,628 13,013
Other assets 5 5
----------- -----------
$ 31,347 $ 40,058
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Accounts payable $ 281 $ 6,779
Accrued payroll and related benefits 152 183
Accrued taxes 1,878 3,460
Other accrued liabilities 141 258
----------- -----------
Total current liabilities 2,452 10,680
Redeemable preferred equity 11,337 11,500
Partners' capital:
Preferred units to the Special
General Partner (3,144 units
authorized, 514 units outstanding) 514 514
Common units (52,750 units
authorized, 49,531 units
outstanding) 7,610 7,925
General partners' interest 9,434 9,439
----------- -----------
$ 31,347 $ 40,058
=========== ===========
See accompanying notes.
PRIDE COMPANIES, L. P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except unit amounts and per unit amounts)
Three Months Ended March 31,
2003 2002
----------- -----------
Revenues $ 75,633 $ 47,684
Cost of sales and operating expenses,
excluding depreciation 73,723 46,939
Marketing, general and
administrative expenses 984 895
Depreciation 385 363
----------- -----------
Operating income (loss) 541 (513)
Other income (expense):
Interest income 19 48
Interest expense (including interest
paid in kind of $0 and $2,
respectively) (1) (24)
Credit and loan fees (21) 136
Gain on sale of assets - 1,152
Other - net 5 (89)
----------- -----------
2 1,223
----------- -----------
Net income before reorganization
items and extraordinary gain 543 710
Reorganization items:
Professional fees and administrative
expenses - 225
Discount on retirement of Debt and
Redeemable Preferred Equity - (21)
----------- -----------
Net income before extraordinary gain 543 506
Extraordinary gain - Income from
cancellation of indebtedness - 9,543
----------- -----------
Net income $ 543 $ 10,049
=========== ===========
Basic and diluted net income per
Common Unit:
Net income before extraordinary
gain less preferred distributions $ 6.52 $ 6.74
Extraordinary gain - -
----------- -----------
Basic and diluted net income $ 6.52 $ 6.74
=========== ===========
Numerator for basic and diluted net
income per Common Unit:
Net income before extraordinary gain $ 543 $ 506
Preferred distributions (213) (165)
----------- -----------
Net income before extraordinary gain
less preferred distributions 330 341
Net income before extraordinary gain
less preferred distributions
allocable to 2% general partner
interest 7 7
----------- -----------
Numerator for basic and diluted net
income before extraordinary gain
less preferred distributions
per Common Unit $ 323 $ 334
=========== ===========
Extraordinary gain $ - $ 9,543
Extraordinary gain allocable 100%
to general partner interest - 9,543
----------- -----------
Numerator for basic and diluted
extraordinary gain per Common Unit $ - $ -
=========== ===========
Numerator for basic and diluted net
income per Common Unit $ 323 $ 334
=========== ===========
Denominator:
Denominator for basic and diluted net
income per Common Unit 49,531 49,531
=========== ===========
See accompanying notes.
PRIDE COMPANIES, L. P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three Months Ended March 31,
2003 2002
----------- -----------
Cash flows from operating activities:
Net income before reorganization
items and extraordinary gain $ 543 $ 710
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities
before reorganization items:
Depreciation 385 363
Gain on sale of property,
plant and equipment - (1,152)
Paid in kind interest - 2
Net effect of changes in:
Restricted cash 236 68
Accounts receivable (1,261) 2,424
Other current assets 171 231
Accounts payable and other
long-term liabilities (6,498) 899
Accrued liabilities (1,730) 304
----------- -----------
Total adjustments (8,697) 3,139
----------- -----------
Net cash provided by (used in)
operating activities before
reorganization items (8,154) 3,849
Reorganization items:
Professional fees and administrative
expenses - (225)
Extraordinary gain - Income from
cancellation of indebtedness - 9,543
Net effect of changes in:
Accounts payable and other
long-term liabilities - (9,557)
Accrued liabilities - (1,181)
----------- -----------
Net cash used in operating activities
from reorganization items - (1,420)
----------- -----------
Net cash provided by (used in)
operating activities (8,154) 2,429
Cash flows from investing activities:
Purchases of property, plant and
equipment - (2,023)
Proceeds from asset disposals - 5,488
Other - 22
----------- -----------
Net cash provided by investing activities - 3,487
Cash flows from financing activities:
Redemption of redeemable preferred
equity (163) -
Distributions on redeemable preferred
equity (863) -
Redemption of G Preferred Units - (50)
----------- -----------
Net cash used in financing activities
before reorganization items (1,026) (50)
Payments on pre-petition debt - (11,000)
----------- -----------
Net cash used in financing activities
from reorganization items - (11,000)
----------- -----------
Net cash used in financing activities (1,026) (11,050)
----------- -----------
Net decrease in cash and
cash equivalents (9,180) (5,134)
Cash and cash equivalents at the
beginning of the period 12,158 13,294
----------- -----------
Cash and cash equivalents at the
end of the period $ 2,978 $ 8,160
=========== ===========
See accompanying notes.
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 three products terminals
located in Abilene, Texas (the "Abilene Terminal"); San Angelo, Texas
(the "San Angelo Terminal"); and Aledo, Texas (the "Aledo Terminal")
(collectively the "Products Terminals") and one common carrier
products pipeline system that transports refined products from the
Abilene Terminal to the San Angelo Terminal (the "San Angelo
Pipeline") that are used to market conventional gasoline, low sulfur
diesel fuel and military aviation fuel (the "Products Marketing
Business"). In April 1998, the Partnership began purchasing those
refined products from Equilon Enterprises Company LLC which is now
doing business as Shell Oil Products U. S. ("Shell") pursuant to the
agreement (the "Shell Agreement") to market through its Products
Terminals and the San Angelo Pipeline. The Partnership's operations
are conducted primarily in the State of Texas.
Prior to April 1998, the Partnership operated a simplex petroleum
refinery facility in Abilene, Texas (the "Refinery") and produced its
own refined products. The Refinery was idled when the Partnership
began purchasing its refined products requirements from Shell. At the
same time, the Partnership idled a pipeline which transported refined
product from the Abilene Terminal to the Aledo Terminal (the "Aledo
Pipeline"). On January 18, 2002, the Partnership sold both the
remaining Refinery equipment and Aledo Pipeline to Alon USA Refining,
Inc. ("Alon") for $5,400,000 (see Note 6).
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. The Partnership
succeeded in January 1990 to the businesses of Pride SGP, Inc.
("Special General Partner" or "Pride SGP") which 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. As of March 31, 2003, Pride SGP owned the G Preferred Units
of the Partnership with a stated value of $514,000 and a 4.9% interest
in the Partnership through ownership of common limited partner units
("Common Units"), in addition to its general partner interest. On May
6, 2003, the Partnership redeemed the remaining G Preferred Units held
by Pride SGP for their stated value of $514,000 (see Notes 4 and 8).
Also, on May 6, 2003, Pride SGP transferred its 4.9% interest in the
Partnership through ownership of Common Units to two of its
shareholders (see Notes 4 and 8). As a result of the redemption of
certain shareholders' (referred to herein as the "Departing
Shareholders") interests in Pride SGP on April 3, 2002, all of the
outstanding stock of Pride SGP is owned by certain officers of the
Managing General Partner (see Notes 4, 8 and 10). Management, which
is comprised of the officers of the Managing General Partner (the
"Management"), collectively owned a 39.7% interest as of March 31,
2003 in the Partnership through their ownership of Common Units. As
discussed earlier, on May 6, 2003, Pride SGP transferred its Common
Units to two of its shareholders who are also members of Management.
As a result, Management owns 44.6% of the Partnership through their
ownership of Common Units as of May 6, 2003. The remaining Common
Units, representing an aggregate 53.4% interest in the Partnership,
are publicly held. An owner of Common Units is referred to herein as
a common unitholder ("Common Unitholder"). Management and the
Chairman of the Managing General Partner own 46.6% of the Partnership
through their ownership of Common Units and their ownership of the
General Partners. In accordance with the Third Amended and Restated
Agreement of Limited Partnership of Pride Companies, L. P. (the
"Partnership Agreement"), the Managing General Partner conducts,
directs and exercises control over substantially all of the activities
of 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.
On January 17, 2001, the Partnership filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy") in
the U. S. Bankruptcy Court for the Northern District of Texas, Abilene
Division (the "Bankruptcy Court"), and was authorized to continue
managing and operating its business as a debtor in possession subject
to the control and supervision of the Bankruptcy Court. The filing
was necessitated by certain actions taken by Varde Partners, Inc.
("Varde") which was the Partnership's primary lender and also owned
two-thirds of the Partnership's redeemable preferred equity (see Notes
6, 7 and 10).
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing of Texas (Cedar Wind), Inc.
(formerly a wholly-owned subsidiary of the Partnership) ("Pride
Marketing") each filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code in the Bankruptcy Court, and each of them was
authorized to continue managing and operating its business as a debtor
in possession subject to the control and supervision of the Bankruptcy
Court.
On January 11, 2002, the Partnership and Managing General
Partner's Bankruptcy Plan was confirmed by the Bankruptcy Court and
the Partnership and Managing General Partner emerged from Bankruptcy
on January 22, 2002 (see Notes 10 and 11).
Pride SGP's bankruptcy petition was dismissed on May 2, 2002.
Pride Marketing, which was inactive, was liquidated on July 17,
2002.
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, 2002
include a summary of significant accounting policies that should be
read in conjunction with this quarterly report on Form 10-Q.
3. Net Income (Loss) Per Common Unit
Basic net income (loss) per Common Unit is computed using the
weighted average number of Common Units outstanding. Diluted net
income (loss) per Common Unit is computed by adjusting the Common
Units outstanding and net income (loss) for the potential dilutive
effect of the convertible securities and unit appreciation rights.
The effect of the convertible securities for the first quarter of 2002
and unit appreciation rights for both the first quarter of 2003 and
2002 was antidilutive. The Partnership did not have any convertible
securities outstanding for the first quarter of 2003. The unit
appreciation rights were considered antidilutive since the exercise
price was greater than the average market price of the Common Units
for the first quarter of 2003. Effective May 5, 2003, every one-
hundred pre-split Common Units were converted into one post-split
Common Unit. Any fractional Common Units were rounded to the nearest
whole unit (and a .5 Common Unit was rounded to the next higher unit).
Due to rounding, the transfer agent estimates there are currently
49,531 Common Units outstanding. As a result of the reverse Common
Unit split and the issuance of Common Units due to rounding of
fractional units, the Common Units and the basic net income and
diluted net income per Common Unit for both the first quarters of 2003
and 2002 have been adjusted to reflect those events.
4. Related Party Transactions
In accordance with the 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.
Members of Management of the Managing General Partner collectively
owned a 39.7% interest in the Partnership, as of March 31, 2003,
through their ownership of Common Units. As of March 31, 2003, Pride
SGP had a 0.1% general partner interest, $514,000 in G Preferred Units
and a 4.9% interest in the Partnership through its ownership of Common
Units (see Notes 1 and 8 for subsequent events).
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.
Effective December 31, 1997, Management invested an aggregate of
$2,000,000 in the form of a note payable to Varde and received a one-
third economic non-directive interest in the following securities
issued by the Partnership to Varde: (i) $6,000,000 of the B Term Loan,
(ii) C Term Loan, (iii) Subordinate Note A, (iv) B Preferred Units,
(v) C Preferred Units and (vi) D Preferred Units (see Notes 6 and 7).
The note payable to Varde was secured by Management's interest in such
securities. Any current cash yield on Management's share of such
securities was payable to Varde as interest, net of applicable federal
income tax. On January 22, 2002, Management received $11,500,000 in
New Redeemable Preferred Equity of the Partnership for its one-third
interest in the C Term Loan, Subordinate Note A and Redeemable
Preferred Equity (see Notes 6, 7 and 10).
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP settlement agreement ("Pride
SGP Settlement Agreement") with Pride SGP and the Departing
Shareholders of Pride SGP (see Notes 1, 8 and 10). Under the Pride
SGP Settlement Agreement, the Partnership redeemed $104,000 of the G
Preferred Units held by Pride SGP for $50,000 on March 18, 2002 and,
on April 3, 2002, redeemed G Preferred Units with a stated value of
$2,526,000 from the Departing Shareholders of Pride SGP for $500,000
and a non-interest bearing payable of $725,000 which was retired on
October 10, 2002. Pride SGP had distributed G Preferred Units with a
stated value of $2,526,000 to the Departing Shareholders of Pride SGP
in exchange for their interest in Pride SGP. As a result of the
redemption of the Departing Shareholders' interests in Pride SGP, all
of the outstanding stock of Pride SGP is now owned by Messrs.
Stephens, Malone and Caddell.
On May 6, 2003, the Partnership redeemed the remaining G
Preferred Units held by Pride SGP at their stated value of $514,000
(see Notes 1 and 8). The Partnership redeemed the G Preferred Units
held by Pride SGP in exchange for Pride SGP agreeing to subordinate
the increase in its tax capital account.
The Partnership purchased an aircraft for $1,817,000 in March of
2002. In order to conserve working capital, the Partnership on May
24, 2002 sold the aircraft to the shareholders of the Managing General
Partner and the Chief Financial Officer at the same price and then
leased it back at a monthly rental of $18,000 over a term of seven
years. The Partnership is responsible for taxes, insurance and
maintenance and any other expenses of the aircraft during the lease
term. At the end of the seventh year, the Partnership will have the
option to continue leasing the aircraft. The Partnership has the
option to purchase the aircraft after the sixth year for $1,300,000.
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 Common Unitholders and, consequently, must
exercise good faith and integrity in handling the assets and affairs
of the Partnership.
5. Discontinued Operations
On October 1, 1999, the Partnership sold the operating assets
utilized by the crude gathering business ("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 Partnership retained certain liabilities associated
with the Crude Gathering System.
After the sale, the Partnership continues to be responsible for
certain environmental liabilities associated with the Crude Gathering
System including three on-going remediation sites, any refined product
contamination associated with the assets sold and certain inactive
crude gathering lines retained by the Partnership. The Partnership
has accrued $92,000 for remediation of the sites.
In accordance with applicable Bankruptcy rules, a significant
portion of the debt associated with the Crude Gathering System was
cancelled in the first quarter of 2002 because the holders of such
claims did not file timely proofs of claim in the Bankruptcy (see
Notes 1 and 10).
6. Long-term Debt
Wells Fargo Bank, N.A. ("Wells Fargo") currently provides a
$721,000 letter of credit for the Partnership which is secured by a
certificate of deposit.
On December 31, 1997, Varde purchased and assumed the then
existing lenders' rights and obligations under the Partnership's
outstanding bank debt. Varde concurrently made additional loans to
the Partnership. As a result of Varde's assumption of the
Partnership's bank debt and additional loans made by it, Varde owned
the following securities of the Partnership: $20,000,000 of a Series A
Term Loan (the "A Term Loan"), $9,500,000 of a Series B Term Loan (the
"B Term Loan"), $4,689,000 of a Series C Term Loan (the "C Term
Loan"), $2,500,000 of a Subordinate Note A (the "Subordinate Note A"),
$9,322,000 of Series B Cumulative Convertible Preferred Units ("B
Preferred Units"), $5,000,000 of Series C Cumulative Convertible
Preferred Units ("C Preferred Units") and $2,757,000 of Series D
Cumulative Preferred Units ("D Preferred Units"). The A Term Loan, B
Term Loan, C Term Loan and Subordinate Note A are collectively
referred to herein as the debt (the "Debt"). The B Preferred Units,
the C Preferred Units and the D Preferred Units are collectively
referred to herein as redeemable preferred equity (the "Redeemable
Preferred Equity"). Effective December 31, 1997, Management invested
an aggregate of $2,000,000 in the form of a note payable to Varde and
received a one-third economic non-directive interest in the following
securities issued by the Partnership to Varde: (i) $6,000,000 of the B
Term Loan, (ii) the C Term Loan, (iii) the Subordinate Note A, (iv)
the B Preferred Units, (v) the C Preferred Units and (vi) the D
Preferred Units (see Note 4). The note payable to Varde was secured
by Management's interest in such securities. Any current cash yield
on Management's share of such securities was payable to Varde as
interest, net of applicable federal income tax.
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 sale of the Crude Gathering System being
applied to the A Term Loan, scheduled principal payments, payments out
of the proceeds from the Partnership's litigation against the United
States Defense Energy Support Center and payments under the Varde
Settlement Agreement, Varde's interest in such Debt and Redeemable
Preferred Equity was completely paid off.
Management's one-third interest in the C Term Loan, Subordinate
Note A and Redeemable Preferred Equity was converted into the New
Redeemable Preferred Equity on January 22, 2002 pursuant to the Plan
(see Notes 4 and 7).
Prior to the Bankruptcy, cash interest and distributions were
limited under the loan documents. Interest in excess of those
limitations on the A Term Loan, B Term Loan, C Term Loan and
Subordinate Note A were paid in kind. Distributions in excess of
those limitations on the Redeemable Preferred Equity accumulated in
arrears (see Note 7). From January 1, 2002 through January 22, 2002,
the Partnership recorded paid in kind interest of $2,000 on the
Subordinate Note A. The Subordinate Note A bore interest at prime
plus one percent. The prime rate was 4.75% at January 22, 2002.
On November 21, 2001, pursuant to the Varde Settlement Agreement,
Varde received $12,000,000 and an allowed unsecured claim for
$11,000,000 (net of a $2,000,000 discount) ("Allowed Unsecured Claim")
from the Partnership and Varde's two-thirds interest in the C Term
Loan, Subordinate Note A, and Redeemable Preferred Equity were retired
(the amount of the securities retired were $4,110,000, $2,216,000 and
$16,491,000 (which included accrued distributions on the Redeemable
Preferred Equity of $5,104,000), respectively).
The Partnership also recorded a premium of $183,000 in connection
with the Varde Settlement Agreement since the $12,000,000 payment to
Varde and the Allowed Unsecured Claim of $11,000,000 exceeded Varde's
share of the Debt and Redeemable Preferred Equity as of November 21,
2001. The Allowed Unsecured Claim of $11,000,000 did not accrue any
interest from November 21, 2001, to January 22, 2002, the date it was
paid.
On January 22, 2002, Management received $11,500,000 in New
Redeemable Preferred Equity of the Partnership for its one-third
interest in the C Term Loan, Subordinate Note A, and Redeemable
Preferred Equity (the balance on these securities as of January 22,
2002 was $2,055,000, $1,113,000 and $8,353,000 (which included accrued
distributions on the Redeemable Preferred Equity of $2,660,000),
respectively) (see Notes 4 and 7).
The Partnership does not currently have a working capital loan
facility. As a result of its receipt of $5,400,000 from the sale of
the remaining Refinery equipment and the Aledo Pipeline (see Note 1)
and $4,000,000 from the reduction of the Shell deposit in the first
quarter of 2002, the Partnership believes it does not currently need
such a facility. The Partnership expects that, for the foreseeable
future, it will be able to fund its working capital requirements and
its planned capital expenditures from cash on hand and cash generated
from operations.
7. Redeemable Preferred Equity
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received $17,079,000 of Redeemable Preferred Equity
including $9,322,000 of B Preferred Units, $5,000,000 of C Preferred
Units and $2,757,000 of D Preferred Units which were all redeemable on
December 31, 2002 (see Note 6). The preferential quarterly payments
on the B Preferred Units and C Preferred Units were 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 accumulated in arrears at 8% per annum in the first three
years. The preferential quarterly payments on the D Preferred Units
were 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 accumulated in arrears at 13% per annum in
the first three years. On November 21, 2001, the accumulated
arrearages on the Redeemable Preferred Equity were reduced by
$5,104,000 as a result of Varde receiving $12,000,000 and the Allowed
Unsecured Claim of $11,000,000 (net of a $2,000,000 discount) under
the Varde Settlement Agreement for its two-thirds interest in the C
Term Loan, Subordinate Note A and Redeemable Preferred Equity. No
arrearages accumulated on the Redeemable Preferred Equity during the
first quarter of 2002 (see Note 10).
On January 22, 2002, Management received $11,500,000 of Senior
Preferred Units of the Partnership ("New Redeemable Preferred Equity")
for its one-third interest in the C Term Loan, Subordinate Note A, and
Redeemable Preferred Equity which included accumulated arrearages on
such Redeemable Preferred Equity of $2,660,000. The New Redeemable
Preferred Equity issued to Management accrues distributions at 7.5%
per annum. Pursuant to the Plan, Management's C Term Loan and
Subordinate Note A were converted into $3,200,000 of New Redeemable
Preferred Equity which matures January 15, 2012 and is redeemable in
ten equal annual installments which began on January 15, 2003 and
Management's Redeemable Preferred Equity was converted into $8,300,000
of New Redeemable Preferred Equity which matures January 15, 2017 and
is redeemable in fifteen equal annual installments which began on
January 15, 2003. For the first quarters of 2003 and 2002, the New
Redeemable Preferred Equity accrued distributions of $213,000 and
$165,000, respectively. The accrued distributions, as of March 31,
2003, on the New Redeemable Preferred Equity were $177,000 which
reflects the payment of $1,026,000 (which included distributions and
principal payments of $863,000 and $163,000, respectively) made on
January 15, 2003 with respect to those securities (see below).
Under the terms of the New Redeemable Preferred Equity, the
Partnership was to redeem the New Redeemable Preferred Equity in ten
annual installments of $1,406,000 and then five annual installments of
$940,000 beginning January 15, 2003. The Partnership is required to
redeem the New Redeemable Preferred Equity upon a change in control or
a change in financial condition. On January 15, 2003, the Partnership
paid $1,026,000 on the New Redeemable Preferred and asked Messrs.
Stephens and Malone to defer principal payments of $380,000 until July
15, 2003 in order to conserve cash, to which they agreed.
8. Partners' Capital
At March 31, 2003, Pride SGP held the Series G Preferred Units
with a stated value of $514,000 ("G Preferred Units"). On May 6,
2003, the remaining G Preferred Units were redeemed by the Partnership
at their stated value of $514,000 (see Notes 1 and 4).
The Partnership had 49,531 Common Units outstanding, representing
a 98% limited partner interest, at March 31, 2003 and December 31,
2002, after adjustment for the reverse Common Unit split and the
rounding of fractional Common Units that occurred on May 5, 2003 (see
Note 3). As of May 6, 2003, Management and the public owned 22,540
and 26,991 Common Units, respectively.
The terms of the New Redeemable Preferred Equity require that all
distributions on the New Redeemable Preferred Equity must be current
before any distributions are paid on the Common Units. Further, under
the Partnership Agreement, distributions payable on the Common Units
are equal to 98% of the Available Cash (as defined in the Partnership
Agreement) of the Partnership for a particular quarter. Generally,
Available Cash is equal to the net income of the Partnership plus
depreciation less debt payments and payments with respect to certain
preferred equity, capital expenditures and investments. Available
Cash may also be increased or decreased by reductions of or additions
to, respectively, certain reserves established by the Managing General
Partner in accordance with the Partnership Agreement. Based on
current operations and annual payments on the New Redeemable Preferred
Equity, Management does not expect to pay distributions to Common
Unitholders for the foreseeable future.
Currently, the Common Units rank behind trade payables, as well
as the New Redeemable Preferred Equity. As a result of trade payables
and the New Redeemable Preferred Equity ranking ahead of the Common
Units and taking into consideration the various preferential calls on
available cash provided for in the New Redeemable Preferred Equity
(including annual distributions and required amortization of the New
Redeemable Preferred Equity), Common Unitholders could be allocated
taxable income under the Partnership Agreement in the future without a
corresponding distribution of cash to offset any potential tax
liability.
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 has no off-balance sheet arrangements or
transactions with unconsolidated, special purpose entities that would
expose the Partnership to liability that is not reflected on the face
of its financial statements.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Commission on Environmental Quality.
Management estimates the remaining cost to comply with this study
approximates $15,000 and had accrued for this amount at March 31,
2003.
The Partnership continues to be responsible for certain
environmental liabilities associated with the Crude Gathering System
sold to Sun including three on-going remediation sites, any refined
product contamination associated with the assets sold and certain
inactive crude gathering lines retained by the Partnership. The
Partnership has accrued $92,000 as of March 31, 2003 for remediation
of the sites (see Note 5).
Management does not presently foresee any significant additional
amounts required to maintain compliance with the study, the retained
environmental liabilities of the Crude Gathering System or other
environmental requirements other than routine expenditures in the
ordinary course of business.
In April 2001, a Common Unitholder notified the Partnership he
believes the Partnership should be classified as a corporation rather
than a partnership for federal income tax purposes. At issue is the
requirement that a publicly traded partnership have a sufficient
percentage of income that consists of "qualifying income" under
Section 7704(d)(1) of the Internal Revenue Code to be taxed as a
partnership, rather than a corporation, for federal income tax
purposes. The Common Unitholder demanded that the Partnership
immediately withdraw its Schedule K-1's; however, the Partnership did
not change its position that it will continue to be taxed as a
partnership because a sufficient portion of its income constitutes
"qualifying income" and, therefore, the Partnership does not plan on
withdrawing the Schedule K-1's.
If the Partnership were taxed as a corporation rather than a
partnership for federal income tax purposes, the Partnership's results
of operations, and the tax treatment to the Partnership and its Common
Unitholders, would materially differ from the amounts presented
herein. However, the Partnership intends to vigorously defend its
status as a partnership for federal income tax purposes.
For the first quarter of 2002, the Partnership received a credit
for legal fees of $138,000 in connection with the dispute with Varde.
10. Bankruptcy
As previously discussed in Note 1, on January 17, 2001, the
Partnership filed Bankruptcy and was authorized to continue managing
and operating its business as a debtor in possession subject to the
control and supervision of the Bankruptcy Court. The filing was
necessitated by certain actions taken by Varde which was the
Partnership's primary lender and also owned two-thirds of the
Redeemable Preferred Equity (see Notes 6 and 7). Varde was claiming a
transaction fee of $17,621,000 and the rights to certain securities it
had assigned to Management effective December 31, 1997 (see Note 4).
An adversary proceeding involving all of the contested issues between
Varde and the Partnership was completed on April 6, 2001, and the
Bankruptcy Court issued its initial ruling on September 4, 2001
("Initial Ruling").
On January 18, 2001, the Managing General Partner, the Special
General Partner and Pride Marketing each filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code in the Bankruptcy
Court, and each of them was authorized to continue managing and
operating its business as debtors in possession subject to the control
and supervision of the Bankruptcy Court (see Note 1).
On or about May 17, 2001, the Partnership, the Managing General
Partner, and Pride SGP filed their proposed Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code and their
proposed Disclosure Statement relating thereto with the Bankruptcy
Court. To reflect the Initial Ruling of the Bankruptcy Court; the
Varde settlement agreement entered into by the Partnership, Varde and
others effective October 18, 2001 (the "Varde Settlement Agreement");
and certain other matters, the Partnership and the Managing General
Partner thereafter amended their Plan of Reorganization and their
Disclosure Statement several times. The Third Amended and Restated
Joint Plan of Reorganization of the Partnership and the Managing
General Partner dated November 19, 2001 (as amended by modifications
thereto filed with the Bankruptcy Court on January 8, 2002 and January
11, 2002, respectively) is referred to herein as the "Plan" and the
Third Amended and Restated Disclosure Statement for Debtors' Joint
Chapter 11 Plan of Reorganization dated November 19, 2001 is referred
to herein as the "Disclosure Statement." The Plan and Disclosure
Statement were mailed to the impaired creditors and equity holders who
were entitled to vote on confirmation of the Plan.
On January 11, 2002 (the "Confirmation Date"), the Bankruptcy
Court signed an order confirming the Plan after the Court heard
testimony on January 8, 2002 that all classes entitled to vote
("Impaired Classes") had voted in favor of the Plan. The Partnership
and the Managing General Partner emerged from Bankruptcy on January
22, 2002 (the "Effective Date").
The Partnership paid or incurred $204,000 (includes a discount of
$21,000 on conversion of the Debt and Redeemable Preferred Equity held
by Management into the New Redeemable Preferred Equity) in bankruptcy
related expenses for the first quarter of 2002.
Since holders of certain of the Partnership's debt did not file
timely proofs of claim in the Bankruptcy, the Partnership reported
extraordinary gain of $9,543,000 in the first quarter of 2002 for
financial purposes.
On May 22, 2001, Messrs. Doug Morris, Brad Morris, Jimmy Morris,
Tommy Broyles, and Mike Dunigan, as beneficiary of certain Dunigan
family trusts, (collectively the "Claimants") each filed a proof of
claim against the Partnership and the Managing General Partner in the
amount of $14,541,000 each plus interest, attorney fees and costs.
The Claimants were shareholders of Pride SGP and directors of Pride
SGP with the exception of Mr. Jimmy Morris who was an advisory
director. The Claimants alleged that they and Pride SGP were
wrongfully deprived of assets, rents payable, interest due and other
claims as a result of certain transactions beginning in 1994. On
December 10, 2001, those shareholders and Pride SGP withdrew their
proof of claim.
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP Settlement Agreement (see
Notes 1 and 4) with Pride SGP and the Departing Shareholders of Pride
SGP. Under the Pride SGP Settlement Agreement, the Partnership
redeemed G Preferred Units with a stated value of $104,000 from Pride
SGP for $50,000 on March 18, 2002 and, on April 3, 2002, redeemed G
Preferred Units with a stated value of $2,526,000 from the Departing
Shareholders of Pride SGP for $500,000 and a non-interest bearing
payable of $725,000 which was retired on October 10, 2002. Pride SGP
had distributed G Preferred Units with a stated value of $2,526,000 to
the Departing Shareholders of Pride SGP in exchange for their interest
in Pride SGP. As a result of the redemption of the Departing
Shareholders' interests in Pride SGP, all of the outstanding stock of
Pride SGP is now owned by Messrs. Stephens, Malone and Caddell.
On May 22, 2001, five former employees filed proofs of claim
totaling $3,213,000 plus amounts unknown related to unpaid
compensation for 1998 through 2000. The Partnership entered into an
agreement with the five former employees to settle the dispute for
$625,000. As a result of the agreement, the Partnership accrued an
additional loss of $555,000 on disposal of the discontinued operations
for the year ended December 31, 2002 since the former employees worked
for the Crude Gathering System. The Partnership paid the $625,000 to
the five former employees on November 22, 2002 (see Note 5).
Pride SGP's bankruptcy petition was dismissed on May 2, 2002.
Pride Marketing, which was inactive, was liquidated on July 17,
2002.
11. Plan of Reorganization
On January 17, 2001, the Partnership filed Bankruptcy with the
Bankruptcy Court in Abilene, Texas (see Notes 1 and 10). On January
11, 2002, the Bankruptcy Court signed an order, after a hearing on
January 8, 2002, confirming, under Chapter 11 of the United States
Bankruptcy Code, the Plan submitted by the Partnership and the
Managing General Partner. The Plan took effect on January 22, 2002
and the two companies emerged from bankruptcy at that time. All
creditors whose claims were not disputed or who filed proofs of claim
that were allowed under the Bankruptcy Code are expected to be paid in
full as provided in the Plan.
The Bankruptcy Court issued a final decree closing the Bankruptcy
case of the Partnership and Managing General Partner on October 31,
2002.
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 (the
"Partnership") which owns and operates three products terminals
located in Abilene, Texas (the "Abilene Terminal"); San Angelo, Texas
(the "San Angelo Terminal"); and Aledo, Texas (the "Aledo Terminal")
(collectively the "Products Terminals") and one common carrier
products pipeline system that transports refined products from the
Abilene Terminal to the San Angelo Terminal (the "San Angelo
Pipeline") that are used to market conventional gasoline, low sulfur
diesel fuel, and military aviation fuel ("Products Marketing
Business"). Pride Refining, Inc. is the managing general partner of
the Partnership ("Managing General Partner"). Pride SGP, Inc. ("Pride
SGP" or "Special General Partner") is the special general partner of
the Partnership. The officers ("Management") of the Managing General
Partner operate the Products Marketing 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-Q contains certain forward looking statements. Such
statements are typically punctuated by words or phrases such as
"anticipate," "estimate," "projects," "should," "may," "management
believes," and words or phrases of similar import. Such statements
are subject to certain risks, uncertainties or assumptions. Should
one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Among the
key factors that may have a direct bearing on the Partnership's
results of operations and financial condition in the future are: (i)
the margins between the revenue realized by the Partnership on the
sale of refined products and the cost of those products purchased from
Equilon Enterprises Company LLC which is now doing business as Shell
Oil Products U. S. ("Shell") 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 and
obligations under the New Redeemable Preferred Equity and (v)
fluctuations in refined product prices and their impact on working
capital. See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Financial Condition"
and "Part II. Other Information, Item 1. Legal Proceedings."
General
The Partnership's operating results for the Products Marketing
Business 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 Shell 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.
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 refined product prices and are
not necessarily an accurate reflection of the Partnership's
profitability.
First Quarter 2003 Compared to First Quarter 2002
General. Net income for the first quarter of 2003 was $543,000
compared to $10,049,000 for the first quarter of 2002. The results
for the first quarter of 2002 included an extraordinary gain of
$9,543,000 related to cancellation of indebtedness income for
financial purposes and reorganization items of $204,000. Net income
before reorganization items and extraordinary gain was $710,000 for
the first quarter of 2002.
Other income for the first quarter of 2002 included gain on sale
of assets of $1,152,000 related to the sale of the Refinery equipment
and Aledo Pipeline to Alon USA Refining, Inc. ("Alon") for $5,400,000
(see Note 1).
Operating income was $541,000 for the first quarter of 2003
compared to operating loss of $513,000 for the first quarter of 2002.
Depreciation expense was $385,000 and $363,000 for the first quarters
of 2003 and 2002, respectively. Operating income excluding
depreciation was $926,000 for the first quarter of 2003 compared to
operating loss excluding depreciation of $150,000 for the first
quarter of 2002. The increase in the first quarter of 2003 was
primarily due to an increase in gross margin of $1,097,000 as a result
of improved diesel margins. During the first quarter of 2003, the
Partnership marketed 19,614 barrels per day ("BPD") of refined
products compared to 19,787 BPD for the first quarter of 2002. The
net margin per barrel (after marketing, general and administrative
expenses) for the first quarter of 2003 was positive $0.31 compared to
negative $0.29 for the first quarter of 2002.
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, refined
product prices and, with respect to certain products, seasonality and
weather. The Managing General Partner expects that such conditions
will continue to affect the Partnership's business to varying degrees
in the future. The order in which these factors are discussed is not
intended to represent their relative significance.
Environmental Compliance. Increasing public and governmental
concern about air quality is expected to result in continued
regulation of air emissions. Regulations relating to carbon monoxide
and regulations on oxygen content in gasoline and sulfur content in
both diesel fuel and gasoline are expected to be increasingly
important in urban areas. In addition, the Partnership plans to spend
approximately $400,000 from April 1, 2003 through December 31, 2004 on
several projects to maintain compliance with various other
environmental requirements, including $15,000 for 2003 related to an
investigative study by the Texas Commission on Environmental Quality
and an aggregate of $92,000 for 2003 and 2004 related to the cleanup
of an existing leak. The remaining $293,000 is for various operating
expenses to be incurred in the ordinary course of business.
The Partnership is currently involved in the final stages of
Phase II of an investigative study by the Texas Commission on
Environmental Quality. Management estimates the remaining cost to
comply with this study approximates $15,000 and had accrued for this
amount at March 31, 2003.
The Partnership continues to be responsible for certain
environmental liabilities associated with the crude gathering business
sold to Sun Pipeline Services, Inc. ("Sun") on October 1, 1999
including three on-going remediation sites, any refined product
contamination associated with the assets sold and certain inactive
crude gathering lines retained by the Partnership. The Partnership
has accrued $92,000 as of March 31, 2003 for remediation of the sites.
Effective January 1, 1995, the Clean Air Act Amendment of 1990
required that certain areas of the country use reformulated gasoline
("RFG"). The Abilene and San Angelo market areas do not require RFG.
Collin, Dallas, Denton, and Tarrant Counties, which comprise the
Dallas-Fort Worth ("DFW") metroplex area, do require RFG; however, the
Partnership's Aledo Terminal lies outside this area and is allowed to
supply conventional gasoline that is not destined for sale in these
four counties. In addition to the requirement for RFG in certain
areas, new but much less restrictive regulations took effect that
impose new quality standards for conventional gasoline in the rest of
the country. Management does not believe that these have had or will
have a material adverse effect on the Partnership's operations.
Management does not presently foresee any significant additional
amounts required to maintain compliance with the study, the retained
environmental liabilities of the crude gathering business or other
environmental requirements other than routine expenditures in the
ordinary course of business.
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 Commission on
Environmental Quality, United States Department of Transportation and
United States Environmental Protection Agency.
Industry Trends and Refined Product Prices. The Partnership is
impacted by fluctuations in the cost of refined products purchased
from Shell 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. None.
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
On January 17, 2001, the Partnership filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy ") in
the U. S. Bankruptcy Court for the Northern District of Texas, Abilene
Division (the "Bankruptcy Court"), and was authorized to continue
managing and operating its business as a debtor in possession subject
to the control and supervision of the Bankruptcy Court. The filing
was necessitated by certain actions taken by Varde Partners, Inc.
("Varde") which was the Partnership's primary lender and also owned
two-thirds of the Redeemable Preferred Equity (see below). Varde was
claiming a transaction fee of $17,621,000 and the rights to certain
securities it had assigned to Management effective December 31, 1997.
An adversary proceeding involving all of the contested issues between
Varde and the Partnership was completed on April 6, 2001, and the
Bankruptcy Court issued its initial ruling on September 4, 2001 (the
"Initial Ruling").
On January 18, 2001, the Managing General Partner, the Special
General Partner and Pride Marketing of Texas (Cedar Wind), Inc.
(formerly a wholly-owned subsidiary of the Partnership) ("Pride
Marketing") each filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code in the Bankruptcy Court, and each of them was
authorized to continue managing and operating its business as debtors
in possession subject to the control and supervision of the Bankruptcy
Court.
On or about May 17, 2001, the Partnership, the Managing General
Partner, and Pride SGP filed their proposed Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code and their
proposed Disclosure Statement relating thereto with the Bankruptcy
Court. To reflect the Initial Ruling of the Bankruptcy Court; the
Varde settlement agreement entered into by the Partnership, Varde and
others effective October 18, 2001 (the "Varde Settlement Agreement");
and certain other matters, the Partnership and the Managing General
Partner thereafter amended their Plan of Reorganization and their
Disclosure Statement several times. The Third Amended and Restated
Plan of Reorganization of the Partnership and the Managing General
Partner dated November 19, 2001 (as amended by modifications thereto
filed with the Bankruptcy Court on January 8, 2002 and January 11,
2002, respectively) is referred to herein as the "Plan" and the Third
Amended and Restated Disclosure Statement for Debtors' Joint Chapter
11 Plan of Reorganization dated November 19, 2001 is referred to
herein as the "Disclosure Statement." The Plan and Disclosure
Statement were mailed to the impaired creditors and equity holders who
were entitled to vote on confirmation of the Plan.
On January 11, 2002 (the "Confirmation Date"), the Bankruptcy
Court signed an order confirming the Plan after the Court heard
testimony on January 8, 2002 that all classes entitled to vote
("Impaired Classes") had voted in favor of the Plan. The Partnership
and the Managing General Partner emerged from Bankruptcy on January
22, 2002 (the "Effective Date").
The Partnership paid or incurred $204,000 (includes a discount of
$21,000 on conversion of the Debt and Redeemable Preferred Equity held
by Management into the New Redeemable Preferred Equity) in bankruptcy
related expenses for the first quarter of 2002 (see "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition - Cash Distributions and
Preferred Arrearages").
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. As a result of problems
associated with the startup of the products pipeline by Shell in 1998,
Shell agreed to certain contract concessions including maintaining the
Partnership's refined products inventory at the Products Terminals and
in the San Angelo Pipeline provided the Partnership reimburses Shell
for its carrying costs, which primarily includes interest costs (see
"Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation - Results of Operations - Forward Looking
Statements"). This arrangement substantially reduces the lag between
the time the Partnership pays Shell for the product, 10 to 20 days
after the sale, and the time the Partnership receives payment from its
customers.
As previously discussed, the Partnership is required to reimburse
Shell its carrying costs of inventory, including interest costs
beginning January 1, 2000. As an alternative to providing Shell with
a letter of credit to secure the Partnership's payable to Shell and to
offset the interest costs associated with carrying the inventory, the
Partnership deposited $14,000,000 with Shell in the first and second
quarters of 2000 and maintained the $14,000,000 deposit through
January 21, 2002. On January 22, 2002, Shell reduced the deposit by
$4,000,000. Generally, the deposit is included as an offset to
accounts payable in the financial statements; however, to the extent
the deposit to Shell exceeds the payable to Shell, the excess is
reclassified from accounts payable in the balance sheet to accounts
receivable. Since the deposit exceeded the payable at March 31, 2003,
the Partnership reclassified $2,072,000 from accounts payable to
accounts receivable. Shell pays the Partnership interest income on
the amount by which the deposit exceeds the value of the refined
products inventory maintained by Shell.
Wells Fargo Bank, N.A. ("Wells Fargo") currently provides a
$721,000 letter of credit for the Partnership which is secured by a
certificate of deposit.
On December 31, 1997, Varde purchased and assumed the then
existing lenders' rights and obligations under the Partnership's
outstanding bank debt. Varde concurrently made additional loans to
the Partnership. As a result of Varde's assumption of the
Partnership's bank debt and additional loans made by it, Varde owned
the following securities of the Partnership: $20,000,000 of a Series A
Term Loan (the "A Term Loan"), $9,500,000 of a Series B Term Loan (the
"B Term Loan"), $4,689,000 of a Series C Term Loan (the "C Term
Loan"), $2,500,000 of a Subordinate Note A (the "Subordinate Note A"),
$9,322,000 of Series B Cumulative Convertible Preferred Units ("B
Preferred Units"), $5,000,000 of Series C Cumulative Convertible
Preferred Units ("C Preferred Units") and $2,757,000 of Series D
Cumulative Preferred Units ("D Preferred Units"). The A Term Loan, B
Term Loan, C Term Loan and Subordinate Note A are collectively
referred to herein as the debt (the "Debt"). The B Preferred Units,
the C Preferred Units and the D Preferred Units are collectively
referred to herein as redeemable preferred equity (the "Redeemable
Preferred Equity"). Effective December 31, 1997, Management invested
an aggregate of $2,000,000 in the form of a note payable to Varde and
received a one-third economic non-directive interest in the following
securities issued by the Partnership to Varde: (i) $6,000,000 of the B
Term Loan, (ii) the C Term Loan, (iii) the Subordinate Note A, (iv)
the B Preferred Units, (v) the C Preferred Units and (vi) the D
Preferred Units. The note payable to Varde was secured by
Management's interest in such securities. Any current cash yield on
Management's share of such securities was payable to Varde as
interest, net of applicable federal income tax.
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 sale of the crude gathering business being
applied to the A Term Loan, scheduled principal payments, payments out
of the proceeds from the Partnership's litigation against the United
States Defense Energy Support Center and payments under the Varde
Settlement Agreement, Varde's interest in such Debt and Redeemable
Preferred Equity was completely paid off.
Management's one-third interest in the C Term Loan, Subordinate
Note A and Redeemable Preferred Equity were converted into the New
Redeemable Preferred Equity on January 22, 2002 pursuant to the Plan
(see "Part II. Other Information, Item 1. Legal Proceedings").
Prior to the Bankruptcy, cash interest and distributions were
limited under the loan documents. Interest in excess of those
limitations on the A Term Loan, B Term Loan, C Term Loan and
Subordinate Note A were paid in kind. Distributions in excess of
those limitations on the Redeemable Preferred Equity accumulated in
arrears (see "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Financial Condition -
Cash Distributions and Preferred Arrearages"). From January 1, 2002
through January 22, 2002, the Partnership recorded paid in kind
interest of $2,000 on the Subordinate Note A. The Subordinate Note A
bore interest at prime plus one percent. The prime rate was 4.75% at
January 22, 2002.
On November 21, 2001, pursuant to the Varde Settlement Agreement,
Varde received $12,000,000 and an allowed unsecured claim for
$11,000,000 (net of a $2,000,000 discount) ("Allowed Unsecured Claim")
from the Partnership and Varde's two-thirds interest in the C Term
Loan, Subordinate Note A, and Redeemable Preferred Equity were retired
(the amount of the securities retired were $4,110,000, $2,216,000 and
$16,491,000 (which included accrued distributions on the Redeemable
Preferred Equity of $5,104,000), respectively) (see "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition - Cash Distributions and
Preferred Arrearages").
The Partnership also recorded a premium of $183,000 in connection
with the Varde Settlement Agreement since the $12,000,000 payment to
Varde and the Allowed Unsecured Claim of $11,000,000 exceeded Varde's
share of the Debt and Redeemable Preferred Equity as of November 21,
2001. The Allowed Unsecured Claim of $11,000,000 did not accrue any
interest from November 21, 2001, to January 22, 2002, the date it was
paid.
On January 22, 2002, Management received $11,500,000 in New
Redeemable Preferred Equity of the Partnership for its one-third
interest in the C Term Loan, Subordinate Note A, and Redeemable
Preferred Equity (the balance on these securities as of January 22,
2002 was $2,055,000, $1,113,000 and $8,353,000 (which included accrued
distributions on the Redeemable Preferred Equity of $2,660,000),
respectively) (see "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Financial Condition -
Cash Distributions and Preferred Arrearages").
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 quarter of 2003, cash was
utilized due to a decrease in accounts payable (as a result of a
decrease in refined product prices and a reduction in the accounts
payable cycle), an increase in accounts receivable (as a result of the
reclassification of $2,072,000 from accounts payable to accounts
receivable at March 31, 2003 related to the Shell payable), and a
reduction in accrued liabilities due to a decrease in taxes payable.
For the first quarter of 2002, cash was provided by a decrease in
accounts receivable (as a result of $6,772,000 being reclassified from
accounts payable to accounts receivable at December 31, 2001 related
to the Shell payable which was partially offset by an increase in
refined product prices) and an increase in accounts payable (as a
result of the $4,000,000 reduction in the Shell deposit which was
partially offset by an increase in refined product prices).
The Partnership's ability to improve its 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 Government that began April 1, 2003
and ends March 31, 2004, the Partnership will supply approximately
20,450,000 gallons, which is a 40% decline from the volumes that it
supplied under the previous contract with the Government, that began
April 1, 2002 and ended March 31, 2003. The Partnership believes that
its profit margins under the new contract will be approximately
$626,000 less than those under the previous contract.
The Partnership's 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.
The Partnership does not currently have a working capital loan
facility. As a result of its receipt of $5,400,000 from the sale of
the remaining refinery equipment and the Aledo pipeline and $4,000,000
from the reduction of the Shell deposit in the first quarter of 2002,
the Partnership believes it does not currently need such a facility.
The Partnership expects that, for the foreseeable future, it will be
able to fund its working capital requirements and its planned capital
expenditures from cash on hand and cash generated from operations.
Capital Expenditures
The Partnership did not incur any capital expenditures during the
first quarter of 2003. Capital expenditures totaled $2,023,000 for
the first quarter of 2002. Included in capital expenditures was the
purchase of an aircraft for $1,817,000 that the Partnership later sold
to the shareholders of the Managing General Partner and the Chief
Financial Officer at the same price and then leased it back at a
monthly rental of $18,000 over a term of seven years (see Note 4 in
the Financial Statements for additional information on the lease
terms).
Management anticipates spending $281,000 for the last nine months
of 2003 for environmental expenditures, of which $85,000 was accrued
at March 31, 2003. Another $22,000 was accrued at March 31, 2003 for
environmental expenditures expected to be incurred during the year
ended December 31, 2004. Maintenance capital expenditures for 2003
are budgeted at $100,000.
Cash Distributions and Preferred Arrearages
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received $17,079,000 of Redeemable Preferred Equity
including $9,322,000 of B Preferred Units, $5,000,000 of C Preferred
Units and $2,757,000 of D Preferred Units which were all redeemable on
December 31, 2002 (see "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation - Financial Condition
- - Financial Resources and Liquidity"). The preferential quarterly
payments on the B Preferred Units and C Preferred Units were 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 accumulated in arrears at 8% per annum in the
first three years. The preferential quarterly payments on the D
Preferred Units were 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 accumulated in arrears
at 13% per annum in the first three years. On November 21, 2001, the
accumulated arrearages on the Redeemable Preferred Equity were reduced
by $5,104,000 as a result of Varde receiving $12,000,000 and the
Allowed Unsecured Claim of $11,000,000 (net of a $2,000,000 discount)
under the Varde Settlement Agreement for its two-thirds interest in
the C Term Loan, Subordinate Note A and Redeemable Preferred Equity
(see "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation - Financial Condition - Financial
Resources and Liquidity"). No arrearages accumulated on the
Redeemable Preferred Equity during the first quarter of 2002 .
On January 22, 2002, Management received $11,500,000 of Senior
Preferred Units of the Partnership ("New Redeemable Preferred Equity")
for its one-third interest in the C Term Loan, Subordinate Note A, and
Redeemable Preferred Equity which included accumulated arrearages on
such Redeemable Preferred Equity of $2,660,000 (see "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition - Financial Resources and
Liquidity"). The New Redeemable Preferred Equity issued to Management
accrues distributions at 7.5% per annum. Pursuant to the Plan,
Management's C Term Loan and Subordinate Note A were converted into
$3,200,000 of New Redeemable Preferred Equity which matures January
15, 2012 and is redeemable in ten equal annual installments which
began on January 15, 2003 and Management's Redeemable Preferred Equity
was converted into $8,300,000 of New Redeemable Preferred Equity which
matures January 15, 2017 and is redeemable in fifteen equal annual
installments which began on January 15, 2003. For the first quarters
of 2003 and 2002, the New Redeemable Preferred Equity accrued
distributions of $213,000 and $165,000, respectively. The accrued
distributions, as of March 31, 2003, on the New Redeemable Preferred
Equity were $177,000 which reflects the payment of $1,026,000 (which
included distributions and principal payments of $863,000 and
$163,000, respectively) made on January 15, 2003 with respect to those
securities (see below).
Under the terms of the New Redeemable Preferred Equity, the
Partnership was to redeem the New Redeemable Preferred Equity in ten
annual installments of $1,406,000 and then five annual installments of
$940,000 beginning January 15, 2003. The Partnership is required to
redeem the New Redeemable Preferred Equity upon a change in control or
a change in financial condition. On January 15, 2003, the Partnership
paid $1,026,000 on the New Redeemable Preferred and asked Messrs.
Stephens and Malone to defer principal payments of $380,000 until July
15, 2003 in order to conserve cash, to which they agreed.
At March 31, 2003, Pride SGP held the Series G Preferred Units
with a stated value of $514,000 ("G Preferred Units"). On May 6,
2003, the remaining G Preferred Units were redeemed by the Partnership
at their stated value of $514,000 (see "Part II. Other Information,
Item 1. Legal Proceedings").
The Partnership had 49,531 common limited partner units ("Common
Units") outstanding, representing a 98% limited partner interest, at
March 31, 2003 and December 31, 2002, after adjustment for the reverse
Common Unit split and the rounding of fractional Common Units that
occurred on May 5, 2003 (see Note 3). As of May 6, 2003, Management
and the public owned 22,540 and 26,991 Common Units, respectively.
The terms of the New Redeemable Preferred Equity require that all
distributions on the New Redeemable Preferred Equity must be current
before any distributions are paid on the Common Units. Further, under
the Third Amended and Restated Agreement of Limited Partnership of
Pride Companies, L. P. (the "Partnership Agreement"), distributions
payable on the Common Units are equal to 98% of the Available Cash (as
defined in the Partnership Agreement) of the Partnership for a
particular quarter. Generally, Available Cash is equal to the net
income of the Partnership plus depreciation less debt payments and
payments with respect to certain preferred equity, capital
expenditures and investments. Available Cash may also be increased or
decreased by reductions of or additions to, respectively, certain
reserves established by the Managing General Partner in accordance
with the Partnership Agreement. Based on current operations and
annual payments on the New Redeemable Preferred Equity, Management
does not expect to pay distributions to Common Unitholders for the
foreseeable future.
Currently, the Common Units rank behind trade payables, as well
as the New Redeemable Preferred Equity. As a result of trade payables
and the New Redeemable Preferred Equity ranking ahead of the Common
Units and taking into consideration the various preferential calls on
available cash provided for in the New Redeemable Preferred Equity
(including annual distributions and required amortization of the New
Redeemable Preferred Equity), Common Unitholders could be allocated
taxable income under the Partnership Agreement in the future without a
corresponding distribution of cash to offset any potential tax
liability.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Under an agreement with Shell, Shell maintained refined products
inventory for the Partnership during the first quarters of 2003 and
2002 thus eliminating the Partnership's exposure to changing refined
product prices (see "Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operation - Financial Condition -
Financial Resources and Liquidity").
The Partnership did not have any debt outstanding under credit
facilities as of March 31, 2003.
Item 4. Controls and Procedures
The Partnership maintains controls and procedures designed to
ensure that information required to be disclosed in the reports that
the Partnership files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC. Within 90 days
prior to the filing date of this report, an evaluation was performed
under the supervision and with the participation of the Partnership's
management, including the Chief Executive Officer and the Chief
Financial Officer of the Managing General Partner of the Partnership,
of the effectiveness of the design and operation of the Partnership's
disclosure controls and procedures. Based upon that evaluation,
management, including the Chief Executive Officer and the Chief
Financial Officer of the Managing General Partner of the Partnership,
concluded that the Partnership's disclosure controls and procedures
were adequate and effective as of March 31, 2003.
No significant changes in the Partnership's internal controls or
in other factors have occurred that could significantly affect
controls subsequent to March 31, 2003.
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 has no off-balance sheet arrangements or
transactions with unconsolidated, special purpose entities that would
expose the Partnership to liability that is not reflected on the face
of its financial statements.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Commission on Environmental Quality.
Management estimates the remaining cost to comply with this study
approximates $15,000 and had accrued for this amount at March 31,
2003.
The Partnership continues to be responsible for certain
environmental liabilities associated with the crude gathering business
system sold to Sun including three on-going remediation sites, any
refined product contamination associated with the assets sold and
certain inactive crude gathering lines retained by the Partnership.
The Partnership has accrued $92,000 as of March 31, 2003 for
remediation of the sites (see "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operation - Results of
Operations - Other Factors").
Management does not presently foresee any significant additional
amounts required to maintain compliance with the study, the retained
environmental liabilities of the crude gathering business or other
environmental requirements other than routine expenditures in the
ordinary course of business.
In April 2001, a Common Unitholder notified the Partnership he
believes the Partnership should be classified as a corporation rather
than a partnership for federal income tax purposes. At issue is the
requirement that a publicly traded partnership have a sufficient
percentage of income that consists of "qualifying income" under
Section 7704(d)(1) of the Internal Revenue Code to be taxed as a
partnership, rather than a corporation, for federal income tax
purposes. The Common Unitholder demanded that the Partnership
immediately withdraw its Schedule K-1's; however, the Partnership did
not change its position that it will continue to be taxed as a
partnership because a sufficient portion of its income constitutes
"qualifying income" and, therefore, the Partnership does not plan on
withdrawing the Schedule K-1's.
If the Partnership were taxed as a corporation rather than a
partnership for federal income tax purposes, the Partnership's results
of operations, and the tax treatment to the Partnership and its Common
Unitholders, would materially differ from the amounts presented
herein. However, the Partnership intends to vigorously defend its
status as a partnership for federal income tax purposes.
For the first quarter of 2002, the Partnership received a credit
for legal fees of $138,000 in connection with the dispute with Varde.
The Partnership paid or incurred $204,000 (includes a discount of
$21,000 on conversion of the Debt and Redeemable Preferred Equity held
by Management into the New Redeemable Preferred Equity) in bankruptcy
related expenses for the first quarter of 2002 (see "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition - Cash Distributions and
Preferred Arrearages").
Since holders of certain of the Partnership's debt did not file
timely proofs of claim in the Bankruptcy, the Partnership reported
extraordinary gain of $9,543,000 in the first quarter of 2002 for
financial purposes.
On May 22, 2001, Messrs. Doug Morris, Brad Morris, Jimmy Morris,
Tommy Broyles, and Mike Dunigan, as beneficiary of certain Dunigan
family trusts, (collectively the "Claimants") each filed a proof of
claim against the Partnership and the Managing General Partner in the
amount of $14,541,000 each plus interest, attorney fees and costs.
The Claimants were shareholders of Pride SGP and directors of Pride
SGP with the exception of Mr. Jimmy Morris who was an advisory
director. The Claimants alleged that they and Pride SGP were
wrongfully deprived of assets, rents payable, interest due and other
claims as a result of certain transactions beginning in 1994. On
December 10, 2001, those shareholders and Pride SGP withdrew their
proof of claim.
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP settlement agreement ("Pride
SGP Settlement Agreement") with Pride SGP and the Departing
Shareholders of Pride SGP. Under the Pride SGP Settlement Agreement,
the Partnership redeemed G Preferred Units with a stated value of
$104,000 from Pride SGP for $50,000 on March 18, 2002 and, on April 3,
2002, redeemed G Preferred Units with a stated value of $2,526,000
from the Departing Shareholders of Pride SGP for $500,000 and a non-
interest bearing payable of $725,000 which was retired on October 10,
2002. Pride SGP had distributed G Preferred Units with a stated value
of $2,526,000 to the Departing Shareholders of Pride SGP in exchange
for their interest in Pride SGP. As a result of the redemption of the
Departing Shareholders' interests in Pride SGP, all of the outstanding
stock of Pride SGP is now owned by Messrs. Stephens, Malone and
Caddell.
On May 22, 2001, five former employees filed proofs of claim
totaling $3,213,000 plus amounts unknown related to unpaid
compensation for 1998 through 2000. The Partnership entered into an
agreement with the five former employees to settle the dispute for
$625,000. As a result of the agreement, the Partnership accrued an
additional loss of $555,000 on disposal of the discontinued operations
for the year ended December 31, 2002 since the former employees worked
for the Crude Gathering System. The Partnership paid the $625,000 to
the five former employees on November 22, 2002.
On January 17, 2001, the Partnership filed Bankruptcy with the
Bankruptcy Court in Abilene, Texas (see "Item 2. Management's
Discussion and Analysis of Financial Conditions and Results of
Operation - Financial Condition - Financial Resources and Liquidity").
On January 11, 2002, the Bankruptcy Court signed an order, after a
hearing on January 8, 2002, confirming, under Chapter 11 of the United
States Bankruptcy Code, the Plan submitted by the Partnership and the
Managing General Partner. The Plan took effect on January 22, 2002
and the two companies emerged from bankruptcy at that time. All
creditors whose claims were not disputed or who filed proofs of claim
that were allowed under the Bankruptcy Code are expected to be paid in
full as provided in the Plan.
The Bankruptcy Court issued a final decree closing the Bankruptcy
case of the Partnership and Managing General Partner on October 31,
2002.
Pride SGP's bankruptcy petition was dismissed on May 2, 2002.
Pride Marketing, which was inactive, was liquidated on July 17,
2002.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
Under the terms of the New Redeemable Preferred Equity, the
Partnership was to begin redeeming the New Redeemable Preferred Equity
in ten annual installments of $1,406,000 and then five annual
installments of $940,000 beginning January 15, 2003 (see "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition - Cash Distributions and
Preferred Arrearages"). On January 15, 2003, the Partnership paid
$1,026,000 on the New Redeemable Preferred and asked Messrs. Stephens
and Malone to defer principal payments of $380,000 until July 15, 2003
in order to conserve cash, to which they agreed.
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 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-K 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)).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b. Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PRIDE COMPANIES, L. P.
(Registrant)
By: Pride Refining, Inc.
as its Managing General Partner
Date: May 15, 2003 /s/ Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
Date: May 15, 2003 /s/ George Percival
Principal Financial Officer
(Signing as Principal Financial
Officer)
CERTIFICATIONS
I, Brad Stephens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pride
Companies, L.P.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 By: /s/Brad Stephens
Brad Stephens
Chief Executive Officer
I, George Percival, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pride
Companies, L.P.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 By: /s/George Percival
George Percival
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-K 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)).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pride Companies, L.P. (the
"Partnership"), on Form 10-Q for the quarterly period ended March 31,
2003, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), the undersigned, in the capacities and on the
dates indicated below, hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Act of 1934; and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of the Partnership.
Date: May 15, 2003 By: /s/Brad Stephens
Brad Stephens
Chief Executive Officer
Date: May 15, 2003 By: /s/George Percival
George Percival
Principal Financial Officer
A signed original of this written statement required by Section 906
has been provided to Pride Companies, L.P. and will be retained by
Pride Companies, L.P. and furnished to the Securities and Exchange
Commission or its staff upon request.
This Certification shall not be deemed to be "filed" or part of the
referenced Quarterly Report on Form 10-Q or incorporated by reference
into any of the registrant's filings with the Securities and Exchange
Commission by implication or by any reference in any such filing to
such report.