UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8704
HOWELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1223027
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 Fannin, Suite 1500, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 658-4000
(Registrant's telephone number, including area code)
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 shares outstanding on each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
----------------------------- ----------------------------
Common Stock, $1.00 par value 4,935,796
This report contains 14 pages
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Form 10-Q
INDEX
Page No.
-------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Earnings --
Three and six months ended June 30, 1996 and 1995 3
Consolidated Balance Sheets --
June 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows --
Six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 4. Results of the Votes of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 1)
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Howell Corporation and Subsidiaries
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Revenues $180,180 $169,768 $346,437 $321,284
-------- -------- -------- --------
Cost and expenses:
Products including operating expenses 172,961 161,744 332,548 308,567
Selling, general and administrative expenses 2,849 3,086 5,750 5,942
-------- -------- -------- --------
175,810 164,830 338,298 314,509
-------- -------- -------- --------
Other income (expense):
Interest expense (1,893) (2,268) (3,839) (2,895)
Interest income 25 69 39 112
Other-net - 17 4 13
-------- -------- -------- --------
(1,868) (2,182) (3,796) (2,770)
-------- -------- -------- --------
Earnings before income taxes 2,502 2,756 4,343 4,005
Provision for income taxes 953 999 1,599 1,416
-------- -------- -------- --------
Net earnings $ 1,549 $ 1,757 $ 2,744 $ 2,589
======== ======== ======== ========
Net earnings per common share $ .19 $ .24 $ .31 $ .29
======== ======== ======== ========
Cash dividends per common share $ .04 $ .04 $ .08 $ .08
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Howell Corporation and Subsidiaries
<CAPTION>
June 30, December 31,
1996 1995
------- ------------
(In thousands)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,377 $ 3,742
Trade accounts receivable, less allowance for
doubtful accounts of $239,000 in 1996
and 1995 64,137 65,288
Inventories 4,315 5,428
Other current assets 1,010 1,712
--------- ---------
Total current assets 75,839 76,170
--------- ---------
Property, plant and equipment:
Oil and gas properties, utilizing the full-cost
method of accounting 277,327 278,505
Fee mineral interests, unproven 18,188 18,188
Other 111,386 107,735
Less accumulated depreciation, depletion and
amortization (215,022) (209,087)
--------- ---------
Net property and equipment 191,879 195,341
--------- ---------
Other assets, net of accumulated amortization of
$60,000 and $51,000 in 1996 and 1995, respectively 1,970 1,815
--------- ---------
Total assets $ 269,688 $ 273,326
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 8,612 $ 8,068
Accounts payable 58,730 61,771
Accrued liabilities 6,775 7,141
--------- ---------
Total current liabilities 74,117 76,980
--------- ---------
Deferred income taxes 22,448 20,971
--------- ---------
Other liabilities 150 150
--------- ---------
Long-term debt 92,785 96,205
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value; 690,000 shares
issued and outstanding in 1996 and 1995,
liquidation value of $39,500,000 690 690
Common stock, $1 par value; 4,935,796 shares
issued and outstanding in 1996; 4,933,446
shares issued and outstanding in 1995 4,936 4,933
Additional paid-in capital 34,413 34,390
Retained earnings 40,149 39,007
--------- ---------
Total shareholders' equity 80,188 79,020
--------- ---------
Total liabilities and shareholders' equity $ 269,688 $ 273,326
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
<CAPTION>
Six Months Ended June 30,
1996 1995
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 2,744 $ 2,589
Adjustments for noncash items:
Depreciation, depletion and amortization 8,270 7,491
Deferred income taxes 1,477 844
Gain on sales of assets (58) (9)
Changes in components of working capital from operations:
Decrease (increase)in trade accounts receivable 1,151 (12,312)
Decrease (increase) in inventories 1,113 (63)
Decrease in other current assets 702 255
(Decrease) increase in accounts payable (3,041) 9,629
(Decrease) increase in accrued and other liabilities (366) 4,371
-------- --------
Cash provided by operating activities 11,992 12,795
-------- --------
INVESTING ACTIVITIES:
Proceeds from the disposition of property 966 155
Additions to property, plant and equipment (5,677) (78,837)
Other, net (194) (1,175)
-------- --------
Cash utilized in investing activities (4,905) (79,857)
-------- --------
FINANCING ACTIVITIES:
Long-term debt:
Borrowings under revolving credit agreement 250 15,300
(Repayments) borrowings under term loan agreement (3,101) 57,500
Other repayments (25) (23)
Cash dividends:
Common shareholders (394) (387)
Preferred shareholders (1,208) (1,208)
Exercise of stock options 26 92
-------- --------
Cash (utilized in) provided by financing activities (4,452) 71,274
-------- --------
NET INCREASE IN CASH BALANCE $ 2,635 $ 4,212
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid for:
Interest $ 3,731 $ 1,336
======= =======
Income taxes $ 142 $ 469
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
June 30, 1995 and 1994
Note 1 - Basis of Financial Statement Preparation
The consolidated financial statements included herein have been prepared by
Howell Corporation (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and in accordance with
generally accepted accounting principles. In the opinion of management, all
adjustments (all of which are normal and recurring) have been made which are
necessary for a fair statement of the results of operations for the three and
six months ended June 30, 1996 and June 30, 1995. These consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's latest Form 10-K.
Note 2 - Adoption of New Accounting Standards
Impairment of Long-Lived Assets
In 1995, Statement of Financial Accounting Standards No. 121, "Impairment
of Long-Lived Assets" ("Statement 121") was issued. Statement 121 contains
provisions for recording impairment of long-lived assets that are not expected
to produce net cash flows in the future to fully recover the remaining cost of
the related assets. The Company adopted Statement 121 in the first quarter of
1996. The Company was not required to record impairment of any of its assets.
Stock-Based Compensation
In October 1995, Statement of Financial Accounting Standards No. 123,
"Stock-Based Compensation" ("Statement 123") was issued. Statement 123 permits,
but does not require, a fair value based method of accounting for employee stock
option plans which results in compensation expense being recognized in the
results of operations when stock options are granted. Statement 123 is
effective for the Company in the first quarter of 1996. The Company will
continue the use of its current intrinsic value based method of accounting for
such plans where no compensation expense is recognized. However, as required by
Statement 123, the Company will provide pro forma disclosure of net income and
earnings per share in the notes to the consolidated financial statements of its
1996 annual report as if the fair value based method of accounting had been
applied.
Note 3 - Inventories
The components of inventories at the balance sheet dates are as follows:
June 30, December 31,
1996 1995
-------- -----------
(In thousands)
Refined products $1,667 $1,494
Crude oil 1,840 2,140
Chemicals 732 1,695
Other materials and supplies 76 99
------ ------
$4,315 $5,428
====== ======
Note 4 - Financial Instruments and Hedging Activities
In order to mitigate the effects of future price fluctuations, the Company uses
a limited program of hedging its crude oil inventories. Crude oil futures and
options contracts are used as the hedging tools. Changes in the market value of
the futures transactions are deferred until the gain or loss is recognized on
the hedged transactions.
In 1995, the Company purchased a put option and sold a call option covering
3,300 barrels per day of oil production for an eighteen month period beginning
March 1, 1995. The option strike prices are based on the average price of crude
oil on the organized exchange, with monthly settlement. The strike prices are
$17 per barrel for the put option and $20 per barrel for the call option. The
premiums for the options are being amortized over the option period.
In July 1996, the Company purchased a put option and sold a call option covering
3,300 barrels per day of oil production for a six month period beginning upon
the expiration of the options discussed above. The strike prices are $16.50 per
barrel for the put option and $21.10 per barrel for the call option. There was
no net premium cost of these options.
Note 5 - Earnings Per Share
Earnings per common share has been computed by dividing net earnings, after
reduction for preferred stock dividends, by the weighted average number of
common shares outstanding. Shares issuable in connection with stock options are
not included in the per share computations since their dilutive effect is less
than 3%. Earnings per share assuming full dilution does not result in a
difference from earnings per share assuming no dilution. The common shares
issuable upon conversion of the convertible preferred stock are anti-dilutive,
and the common shares issuable in connection with stock options result in a
dilutive effect of less than 3%.
Note 6 - Income Taxes
The effective tax rate for the first six months of 1996 and 1995 was 37% and
35%, respectively.
Note 7 - Litigation and Contingent Liabilities
Donna Refinery Partners, Ltd. v. Howell Crude Oil Company and Howell
Corporation; District Court of Harris County, Texas; No. 89-033634. In December
1993, a jury verdict of $1.9 million was rendered against the Company in this
lawsuit alleging breach of contract. The trial judge reduced the jury verdict
to approximately $675,000. The Company believes the judgment is in error. The
Company filed a motion for a new trial that was denied, so the Company appealed
the decision. Donna has filed an appeal to increase the recovery by $1.25
million. On June 6, 1996, the Fourteenth Court of Appeals affirmed the judgment
of the lower court. The Company is currently perfecting its rights to appeal
this case to the Texas Supreme Court. The Company does not believe that the
ultimate resolution of this matter will have a material adverse effect on the
financial condition or results of operations of the Company.
Mobile Mineral Corporation, et al, v. Howell Crude Oil Company, et al; Circuit
Court of Mobile County, Alabama; CV-95-1564. This lawsuit was filed as a class
action in May 1995 by one working interest owner and two royalty owners in the
North Frisco City Field alleging breach of contracts by not paying the
plaintiffs " . . . the highest available price for oil". Damages claimed by the
plaintiffs are approximately $3.8 million and are based on numerous damage
theories including, but not limited to, allegations of breach of contract and
fraud. The complaint also seeks punitive damages. The Company filed an answer
denying all charges. On June 28, 1996, the Court entered an order denying class
certification.
Related to this matter, the Company, on July 11, 1995, received a demand letter
from the working interest owners in the North Frisco City Field and in the North
Rome Field indicating the Company had not paid according to the terms of a "call
on production".
The Company was granted a call on a portion of this production but has never
exercised the call. Accordingly, the Company has filed petitions for
declaratory judgment to that effect in cases styled Howell Petroleum
Corporation, et al, vs. Shore Oil Company, et al, District Court of Harris
County, Texas; No. 95-037180 and Howell Petroleum Corporation, et al, vs
Tenexco, Inc., et al, District Court of Harris County, Texas; No. 95-037970.
The defendants in this action have counterclaimed against the Company. These
claims are similar in nature to the Alabama litigation. One of the defendants,
John Faulkinberry, has filed a counterclaim against the Company seeking actual
damages of $75,000 and punitive damages of $100,000,000. The Company does not
believe that the ultimate resolution of these matters will have a material
adverse effect on the financial condition or results of operations of the
Company.
There are various other lawsuits and claims against the Company, none of which,
in the opinion of management, will have a material adverse effect on the
Company.
In January 1995, an Agreed Order with the Texas Natural Resource Conservation
Commission was signed by the Company with respect to alleged violations of rules
regarding the permitting and storage of hazardous wastes at a facility that was
previously owned by the Company. Penalties totaling $26,000 were assessed and
paid by the Company. Additional testing and monitoring of the groundwater and
formal approval of the remediation work is still required. The Company has
completed the remediation work related to hazardous waste storage rule
violations. The new owner of the facility has accepted responsibility for the
first $100,000 of costs related to additional testing, monitoring and
remediation, if necessary, of the groundwater. Should the costs for these
activities exceed $100,000, the Company could be responsible for some portion of
the additional costs. The Company does not believe that this matter will have a
material adverse effect on the financial condition or results of operations of
the Company.
The Channelview facility is discharging wastewater pursuant to a state
wastewater discharge permit. Industries located in the state of Texas are
required to obtain wastewater discharge permits from the state and from the
Environmental Protection Agency ("EPA"). When the Company purchased the
Channelview facility in 1988, it requested and obtained a transfer of these
permits. In 1990, the Company applied for a renewal of both the federal and the
state wastewater permits. The state permit was reissued in 1992. During 1993,
the Company determined that the federal wastewater discharge permit may have
expired prior to the EPA's transfer of the permit to the Company. The EPA has
been contacted to resolve this issue, and the Company will be negotiating to
obtain a renewed permit. Penalties may potentially be imposed upon the Company
as a result of this matter; however, until this matter is resolved, the amount
of such penalties, if any, cannot be quantified. While penalties may be
material and the actions of regulatory bodies are not subject to accurate
prediction, based on information currently available to the Company and on the
circumstances present at its Channelview facility (including the existence of
the state permit, the Company's compliance with the more stringent state permit
and the ability, if required, to operate the Channelview facility utilizing
holding tanks and offsite third party treatment facilities in the absence of a
permit), the Company does not believe that this matter will have a material
adverse effect on the financial condition or results of operations of the
Company.
Note 8. Letters of Intent
On May 29, 1996, the Company announced that it had signed a Letter of Intent to
sell the assets of its technical fuels and chemical processing subsidiary to
Schenectady International, Inc. The sale is subject to the negotiation of an
Asset Purchase Agreement, to customary due diligence and to regulatory review.
The closing of the transaction is currently contemplated to take place during
the fourth quarter of 1996. The offer price is $31 million and is subject to
adjustment based upon the findings of due diligence. The Company will use the
net proceeds from the sale to reduce debt.
On July 18, 1996, the Company announced that it had signed a Letter of Intent
with Basis Petroleum, Inc. ("Basis"), a wholly-owned subsidiary of Salomon,
Inc., covering the contributions by the Company and Basis of their respective
crude oil gathering, marketing and transportation activities to form a Master
Limited Partnership ("MLP"). Later in 1996, interests in the MLP will be
offered for sale to the public pursuant to a prospectus. The Letter of Intent
is subject to the negotiation of a Definitive Agreement, to customary due
diligence and to regulatory review.
The assets that the Company will contribute include its crude oil gathering,
marketing and pipeline assets, as well as the crude oil trucking portion of its
transportation segment. Proceeds from the public offering attributable to the
Company's interest in the MLP will be used to reduce debt and to support the
growth of the Company's oil and gas exploration and production operations.
After the public offering, the Company will own 46% of the General Partner and a
subordinated interest in the MLP. The Company expects the transaction to close
during the fourth quarter of 1996.
On July 23, 1996, the Company announced that it had signed a Letter of Intent
with an investor group led by the current management of its subsidiary, Howell
Transportation Services, Inc., to sell the stock of that entity to the investor
group. This transaction will transfer the remaining transportation and
logistics assets that would be left after the formation of the MLP. The Letter
of Intent is subject to the negotiation of a Definitive Agreement, customary due
diligence and the successful formation of the MLP. The Company expects the
transaction to close during the fourth quarter of 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 2)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's principal business segments are oil and gas exploration and
production, crude oil marketing, technical fuels and chemical processing, and
transportation. Results of operations by segment for the three and six months
ended June 30, 1996 and June 30, 1995 are presented below and discussed in the
following sections. The "Other" segment includes primarily depreciation and
amortization of certain assets not directly related to those segments identified
above. Selling, general and administrative expenses incurred by each business
segment are included in the determination of the operating profit (loss) for
that business segment. General corporate expenses comprise the balance of
selling, general and administrative expenses.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands)
Revenues
<S> <C> <C> <C> <C>
Oil and gas exploration and production $ 8,503 $ 8,189 $ 17,070 $ 15,735
Crude oil marketing 168,143 157,572 319,990 296,452
Technical fuels and chemical processing 6,719 7,044 15,187 14,741
Transportation 3,911 3,887 8,170 7,849
Intersegment sales (7,096) (6,924) (13,980) (13,493)
-------- -------- -------- --------
$180,180 $169,768 $346,437 $321,284
======== ======== ======== ========
Earnings
Oil and gas exploration and production $ 2,363 $ 2,265 $ 4,313 $ 3,977
Crude oil marketing 2,973 3,134 5,401 3,647
Technical fuels and chemical processing (220) 363 (112) 625
Transportation 80 177 245 513
Other (32) (58) (64) (123)
-------- -------- -------- --------
Operating profit 5,164 5,881 9,783 8,639
General corporate expenses (794) (943) (1,644) (1,864)
Other income (expense) (1,868) (2,182) (3,796) (2,770)
-------- -------- -------- --------
Earnings before taxes 2,502 2,756 4,343 4,005
Provision for income taxes 953 999 1,599 1,416
-------- -------- -------- --------
Net earnings $ 1,549 $ 1,757 $ 2,744 $ 2,589
======== ======== ======== ========
</TABLE>
Oil & Gas Exploration and Production
Revenues of the oil and gas exploration and production segment for the three
months ended June 30, 1996 and 1995 were as follows:
Three Months Ended June 30,
1996 1995
---- ----
(In thousands)
Sales of oil and natural gas $7,026 $7,151
Sales of LaBarge other products 320 419
Gas marketing 916 526
Minerals leasing and other 241 93
------ ------
Total revenues $8,503 $8,189
====== ======
Production and sales data for the three months ended June 30, 1996 and 1995 were
as follows:
Three Months Ended June 30,
1996 1995
---- ----
Production:
Crude oil (bbls per day) 3,202 3,706
Natural gas (Mcf per day) 8,981 9,683
Natural gas liquids (bbls per day) 231 206
Sales prices:
Crude oil (per bbl) $17.36 $16.69
Natural gas (per Mcf) $1.99 $1.46
Natural gas liquids (per bbl) $11.91 $10.04
Revenues from sales of crude oil and natural gas decreased $0.1 million in the
1996 second quarter when compared to the same quarter in 1995. The decrease is
attributable to lower production volumes, substantially offset by higher sales
prices for oil and gas. Natural gas production volumes declined from 9,683 Mcf
per day to 8,981 Mcf per day. In the second quarter of 1996, the plant that
processes the Company's LaBarge production was shut down for a plant turnaround.
A turnaround did not occur in 1995. Crude oil production volumes declined due
to natural decline curves.
Revenues from sales of other products at LaBarge decreased in the second quarter
of 1996 when compared to the second quarter of 1995 due to the plant turnaround
discussed above.
Operating profit of the oil and gas exploration and production segment in the
second quarter of 1996 was $2.4 million, an increase of $0.1 million over the
second quarter of 1995. The decline in revenues discussed above was offset by
lower operating costs and DD&A due to the reduced production volumes.
Crude Oil Marketing
Operating profit of the crude oil marketing segment for the three months ended
June 30, 1996 decreased $0.2 million when compared to the three months ended
June 30, 1995. The decrease in operating profit is attributable primarily to
lower pipeline volumes largely offset by increased marketing margins and reduced
general and administrative costs from the prior year period.
Technical Fuels and Chemical Processing
The technical fuels and chemical processing segment generated an operating loss
of $0.2 million in the second quarter of 1996, a decline of $0.6 million over
the same period in 1995. The decrease in operating results is primarily
attributable to a reduction in chemical toll processing business, lower sales
volumes of research and reference fuels and increased operating costs associated
with tolling activities.
Transportation
The transportation segment reported an operating profit of $0.1 million for the
six months ended June 30, 1996. The decrease in operating profit from the 1995
quarter, despite a small increase in revenues, resulted from additional fuel and
operational costs.
Other Income (Expense)
Interest expense for the three months ended June 30, 1996 decreased $0.4 million
when compared to the same period in 1995. The decrease is due to a reduction in
long-term debt balances between the two periods.
Provision for Income Taxes
For the first six months of 1996 and 1995 the provision for income taxes was
calculated at rates of 37% and 35%, respectively. The variance from the federal
statutory rate of 34% was due to the effects of the percentage depletion
deduction offset by the provision for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operating activities in the first six months of
1996 of $12.0 million. During the period, the Company utilized the cash flow
generated from operations and $1.0 million from the disposition of properties to
invest $5.7 million in additions to property, plant and equipment, to pay a
total of $1.6 million of cash dividends to its common and preferred
shareholders, to reduce debt by $2.9 million and to increase its cash balances
by $2.6 million.
In order to better focus on exploration and production, the Company has taken
several steps in order to reduce the activities of the Company to that single
business.
On May 29, 1996, the Company announced that it had signed a Letter of Intent to
sell the assets of its technical fuels and chemical processing subsidiary to
Schenectady International, Inc. The sale is subject to the negotiation of an
Asset Purchase Agreement, to customary due diligence and to regulatory review.
The closing of the transaction is currently contemplated to take place during
the fourth quarter of 1996. The offer price is $31 million and is subject to
adjustment based upon the findings of due diligence. The Company will use the
net proceeds from the sale to reduce debt.
On July 18, 1996, the Company announced that it had signed a Letter of Intent
with Basis Petroleum, Inc. ("Basis"), a wholly-owned subsidiary of Salomon,
Inc., covering the contributions by the Company and Basis of their respective
crude oil gathering, marketing and transportation activities to form a Master
Limited Partnership ("MLP"). Later in 1996, interests in the MLP will be
offered for sale to the public pursuant to a prospectus. The Letter of Intent
is subject to the negotiation of a Definitive Agreement, to customary due
diligence and to regulatory review.
The assets that the Company will contribute include its crude oil gathering,
marketing and pipeline assets, as well as the crude oil trucking portion of its
transportation segment. Proceeds from the public offering attributable to
the Company's interest in the MLP will be used to reduce debt and to support
the growth of the Company's oil and gas exploration and production
operations. After the public offering, the Company will own 46% of the
General Partner and a subordinated interest in the MLP. The Company expects
the transaction to close during the fourth quarter of 1996.
On July 23, 1995, the Company announced that it had signed a Letter of Intent
with an investor group led by the current management of its subsidiary, Howell
Transportation Services, Inc., to sell the stock of that entity to the investor
group. This transaction will transfer the remaining transportation and
logistics assets that would be left after the formation of the MLP. The Letter
of Intent is subject to the negotiation of a Definitive Agreement, customary due
diligence and the successful formation of the MLP. The Company expects the
transaction to close during the fourth quarter of 1996.
Upon the successful completion of these transactions, management will focus on
its oil and gas exploration and production operations. As a result of these
transactions, the Company expects to eliminate most of its outstanding debt.
PART II. OTHER INFORMATION
Item 4. Results of Votes of Security Holders
The Annual Meeting of the Shareholders of the Company was held on April 29,
1996, for the following purposes.
(1) To elect three members to the Board of Directors to serve a three-year
term as Class II Directors.
The results of the voting for each of the nominees for director were as
follows:
Shares Shares Broker
For Withheld Non-Votes
------ -------- ---------
Robert M. Ayres, Jr. 4,181,503 74,751 -
Ronald E. Hall 4,177,378 78,876 -
Otis A. Singletary 4,181,878 74,376 -
A simple majority of the shares of common stock represented at the meeting
was required for each nominee to be elected. Therefore all nominees for
director were elected.
(2) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending December 31, 1996.
The results of the voting on this matter were as follows:
Shares For 4,247,994
Shares Against 3,150
Shares Abstaining 5,110
Broker Non-Votes -
A simple majority of the common shares represented was required for
ratification; therefore, the appointment was ratified.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
10.1 Second Amendment to Credit Agreement between Howell Crude Oil
Company and Bank One, Texas, National Association, as Agent and
Lender.
11 Computation of Earnings per Share
(b) Reports on Form 8-K
A report on Form 8-K was filed on May 31, 1996 announcing that the
Registrant had signed a letter of intent to sell the assets of its subsidiary,
Howell Hydrocarbons & Chemicals, Inc., to Schenectady International, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Howell Corporation
(Registrant)
Date: August 6, 1996 /s/ Allyn R. Skelton, II
------------------------
Allyn R. Skelton, II
Senior Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
BETWEEN
HOWELL CRUDE OIL COMPANY
AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION,
AS AGENT AND LENDER
May 22, 1996
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above 1
1.2 Terms Defined in Credit Agreement 1
1.3 References 1
1.4 Articles and Sections 2
1.5 Number and Gender 2
ARTICLE II AMENDMENT TO CREDIT AGREEMENT
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items 2
3.2 Accuracy of Representations and Warranties;
No Default or Event of Default 3
3.3 Payment of Other Fees and Expenses 3
3.4 Matters Satisfactory to Agent. 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization 3
4.2 Valid and Binding Obligations 3
4.3 Representations and Warranties in Credit Agreement 3
4.4 No Default or Event of Default 3
ARTICLE V MISCELLANEOUS
5.1 Rights of Third Parties 4
5.2 Survival Upon Unenforceability 4
5.3 Ratification 4
5.4 Governing Law 4
5.5 Jurisdiction and Venue 4
5.6 Entire Agreement; No Oral Agreements 4
5.7 Waiver of Rights to Jury Trial 5
5.8 Counterparts 5
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of May 22, 1996, is entered into by and among HOWELL CRUDE OIL COMPANY, a
Delaware corporation (the "Borrower"), each lender that is or becomes a party to
the Credit Agreement (as defined below) as provided in Section 9.1 thereof
(individually, together with its successors and assigns, a "Lender" and,
collectively, together with their respective successors and assigns, the
"Lenders"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent, and the Lenders are parties to the
Credit Agreement dated as of March 31, 1995, as amended from time to time (as
amended, the "Credit Agreement"); and
WHEREAS, the Borrower, the Agent, and the Lenders desire to amend the
Credit Agreement as provided hereinbelow;
NOW THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth and for other good
and valuable consideration, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Amendment, the terms
"Agent," "Amendment," "Borrower," "Credit Agreement," "Lender," and "Lenders"
shall have the meanings assigned to them hereinabove.
1.2 Terms Defined in Credit Agreement. Each term defined in the
Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement, unless expressly provided herein
to the contrary.
1.3 References. References in this Amendment to Article or Section
numbers shall be to Articles and Sections of this Amendment, unless expressly
stated herein to the contrary. References in this Amendment to "hereby,"
"herein," "hereinabove," "hereinafter," "hereinbelow," "hereof," "hereunder" and
words of similar import shall be to this Amendment in its entirety and not only
to the particular Article or Section in which such reference appears.
1.4 Articles and Sections. This Amendment, for convenience only, has
been divided into Articles and Sections, and all rights, powers, privileges,
duties, and other legal relations of the parties hereto shall be determined from
this Amendment as an entirety and without regard to such divisions into Articles
and Sections and without regard to headings prefixed to such Articles and
Sections.
1.5 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural, and
likewise, the plural shall be understood to include the singular. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine, and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
ARTICLE II
AMENDMENT TO CREDIT AGREEMENT
Amendment of Section 1.2. The definition of the term "Commitment
Termination Date" set forth in Section 1.2 of the Credit Agreement is hereby
amended to read as follows:
"'Commitment Termination Date' shall mean June 1, 1997."
ARTICLE III
CONDITIONS
The obligation of the Agent and the Lenders to amend the Credit
Agreement as provided herein is subject to the fulfillment of the following
conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Agent shall have
received multiple counterparts, as requested by the Agent, of the following
documents and other items, appropriately executed when necessary and in form and
substance satisfactory to the Agent:
(a) this Amendment executed by the Borrower;
(b) a Notice of Final Agreement; and
(c) such other agreements, documents, instruments,
opinions, certificates, waivers, consents, and evidence as
the Agent or any Lender may reasonably request.
3.2 Accuracy of Representations and Warranties; No Default or Event
of Default. The representations and warranties contained in Article IV of this
Amendment shall be true and correct in all material respects; and, after giving
effect to this Amendment, no Default or Event of Default shall have occurred and
be continuing.
3.3 Payment of Other Fees and Expenses. The Agent shall have
received reimbursement from the Borrower, or special legal counsel for the Agent
shall have received payment from the Borrower, for all reasonable fees and
expenses of counsel to the Agent for which the Borrower is responsible pursuant
to applicable provisions of this Amendment and the Credit Agreement for which
invoices have been presented as of or prior to the date hereof.
3.4 Matters Satisfactory to Agent. All matters incident to the
consummation of the transactions hereby contemplated shall be reasonably
satisfactory to the Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Amendment and
amend the Credit Agreement as provided herein, the Borrower represents and
warrants to the Agent and each Lender that:
4.1 Due Authorization. The execution and delivery by the Borrower of
this Amendment and the performance of its obligations hereunder are within the
corporate power of the Borrower, have been duly authorized by all necessary
corporate action by the Borrower, and do not and will not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law or the articles or certificate of incorporation, or bylaws,
or other organizational or governing documents of the Borrower, (c) contravene
or conflict with any indenture, instrument, or other agreement to which the
Borrower is a party or by which any Property of the Borrower may be presently
bound or encumbered, or (d) result in or require the creation or imposition of
any Lien in or upon any Property of the Borrower under any such indenture,
instrument, or other agreement other than the Loan Documents.
4.2 Valid and Binding Obligations. This Amendment, when duly
executed and delivered by the Borrower, will be the legal, valid, and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms.
4.3 Representations and Warranties in Credit Agreement. As of the
date hereof, all representations and warranties set forth in the Credit
Agreement are true and correct in all material respects.
4.4 No Default or Event of Default. After giving effect to this
Amendment, no Default or Event of Default exists.
ARTICLE V
MISCELLANEOUS
5.1 Rights of Third Parties. All provisions herein are imposed
solely and exclusively for the benefit of the Agent, the Lenders, and the
Borrower and their successors and permitted assigns. No other Person shall have
any right, benefit, priority, or interest hereunder or as a result hereof or
have standing to require satisfaction of provisions hereof in accordance with
their terms.
5.2 Survival Upon Unenforceability. In the event any one or more of
the provisions contained in this Amendment shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision hereof.
5.3 Ratification. Except as expressly amended by this Amendment, the
Credit Agreement shall remain in full force and effect. The Credit Agreement,
as hereby amended, and all rights and powers created thereby or thereunder are
in all respects ratified and confirmed.
5.4 Governing Law. This Amendment and all issues arising in
connection herewith and the transactions contemplated hereby shall be governed
by and construed in accordance with the laws of the State of Texas (without
giving effect to principles thereof relating to conflicts of law).
5.5 Jurisdiction and Venue. All actions or proceedings with respect
to, arising directly or indirectly in connection with, out of, related to, or
from this Amendment may be litigated, at the sole discretion and election of the
Agent, in courts having situs in Houston, Harris County, Texas. The Borrower
hereby submits to the jurisdiction of any local, state, or federal court located
in Houston, Harris County, Texas, and hereby waives any rights it may have to
transfer or change the jurisdiction or venue of any litigation brought against
it by the Agent or any Lender in accordance with this Section.
5.6 Entire Agreement; No Oral Agreements. This Amendment constitutes
the entire agreement of the parties hereto with respect to the subject hereof
and supersedes any prior agreement among the parties hereto, whether written or
oral, relating to the subject hereof. This written agreement and the other writ
ten Loan Documents represent, collectively, the final agreement among the
parties hereto and thereto and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no
unwritten oral agreements among the parties.
5.7 Waiver of Rights to Jury Trial. The Borrower, the Agent, and
each Lender hereby knowingly, voluntarily, intentionally, irrevocably, and
unconditionally waive all rights to trial by jury in any action, suit,
proceeding, counterclaim, or other litigation that relates to or arises out of
this Amendment or the acts or omissions of the Agent or any Lender in the
enforcement of any of the terms or provisions of this Amendment or otherwise
with respect hereto. The provisions of this Section are a material inducement
for the Agent and the Lenders entering into this Amendment.
5.8 Counterparts. For convenience of the parties, this Amendment may
be executed in multiple counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.
BORROWER:
HOWELL CRUDE OIL COMPANY
By:/s/ Mark J. Gorman
------------------------
Mark J. Gorman
President
AGENT AND LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ John B. Lane
------------------------
John B. Lane
Vice President
(Signatures Continued on Next Page)
LENDER:
BANK OF MONTREAL
By: /s/ Robert L. Roberts
------------------------
Robert L. Roberts
Director, U. S. Corporate Banking
LENDER:
COMPASS BANK - HOUSTON
By: /s/ Dorothy Marchand Wilson
------------------------
Dorothy Marchand Wilson
Vice President
LENDER:
DEN NORSKE BANK AS
By: /s/ William V. Moyer
------------------------
William V. Moyer
Vice President
By: /s/ Haakon Sandborg
------------------------
Name: Haakon Sandborg
Title: Senior Vice President
Joining in the execution hereof to evidence their consent to the terms
hereof:
HOWELL CORPORATION
By: /s/ Allyn R. Skelton, II
------------------------
Allyn R. Skelton II
Senior Vice President
and Chief Financial Officer
HOWELL PIPELINE TEXAS, INC.
By: /s/ Allen R. Stanley
------------------------
Allen R. Stanley
President
HOWELL PIPELINE USA, INC.
By: /s/ Allen R. Stanley
------------------------
Allen R. Stanley
President
EXHIBIT 11
<TABLE>
HOWELL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share amounts)
PRIMARY EARNINGS PER SHARE
<S> <C> <C> <C> <C>
Computation for Statement of Earnings
Reconciliation of net income per statement of
earnings to amount used in calculation of earnings
per share - assuming no dilution:
Net earnings $1,549 $1,757 $2,744 $2,589
Subtract - Dividend to preferred shareholders 604 604 1,208 1,208
------ ------ ------ ------
Net earnings, as adjusted $ 945 $1,153 $1,536 $1,381
====== ====== ====== ======
Weighted average number of common shares
outstanding 4,935 4,842 4,935 4,839
====== ====== ====== ======
Earnings per share - assuming no dilution <F1> $ .19 $ .24 $ .31 $ .29
====== ====== ====== ======
Additional Primary Computation
Net earnings, as adjusted per primary
computation above $ 945 $1,153 $1,536 $1,381
====== ====== ====== ======
Adjustment to weighted average number of
shares outstanding:
Weighted average number of shares outstanding
per primary computation above 4,935 4,842 4,935 4,839
Add - Dilutive effect of outstanding options
(as determined by application of the treasury
stock method) 97 130 98 100
------ ------ ------ ------
Weighted average number of shares outstanding,
as adjusted 5,032 4,972 5,033 4,939
====== ====== ====== ======
Primary earnings per share, as adjusted <F2> $ .19 $ .23 $ .31 $ .28
====== ====== ====== ======
FULLY DILUTED EARNINGS PER SHARE
Computation for Statement of Earnings
Net earnings, as adjusted per
primary computation above $ 945 $1,153 $1,536 $1,381
====== ====== ====== ======
Weighted average number of common shares
outstanding, per primary computation above 4,935 4,842 4,935 4,839
====== ====== ====== ======
Earnings per share - assuming full
dilution <F1> $ .19 $ .24 $ .31 $ .29
====== ====== ====== ======
Additional Fully Diluted Computation
Additional adjustment to net earnings,
as adjusted per fully diluted computation above:
Net earnings, as adjusted per fully
diluted computation above $ 945 $1,153 $1,536 $1,381
Add - Dividend to preferred shareholders 604 604 1,208 1,208
------ ------ ------ ------
Net earnings, as adjusted $1,549 $1,757 $2,744 $2,589
====== ====== ====== ======
Additional adjustment to weighted average number
of shares outstanding:
Weighted average number of shares outstanding,
per fully diluted computation above 4,935 4,842 4,935 4,839
Add - Dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 97 130 98 121
Shares issuable from assumed exercise of
convertible preferred stock 2,091 2,091 2,091 2,091
------ ------ ------ ------
Weighted average number of common shares,
as adjusted 7,123 7,063 7,124 7,051
====== ====== ====== ======
Fully diluted earnings per share <F3> $ .22 $ .25 $ .39 $ .37
====== ====== ====== ======
<FN>
<F1>
These amounts agree with the reported amounts on the statements of earnings.
<F2>
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
<F3>
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although it is contrary to paragraph 40 of APB Opinion No. 15 because it
produces an anti-dilutive result.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL STATEMENT INFORMATION FROM THE FORM 10-Q OF
HOWELL CORPORATION FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6377
<SECURITIES> 0
<RECEIVABLES> 64137
<ALLOWANCES> 239
<INVENTORY> 4315
<CURRENT-ASSETS> 75839
<PP&E> 406901
<DEPRECIATION> 215022
<TOTAL-ASSETS> 269688
<CURRENT-LIABILITIES> 74117
<BONDS> 92785
0
690
<COMMON> 4936
<OTHER-SE> 74562
<TOTAL-LIABILITY-AND-EQUITY> 269688
<SALES> 180180
<TOTAL-REVENUES> 180180
<CGS> 172961
<TOTAL-COSTS> 172961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1893
<INCOME-PRETAX> 2502
<INCOME-TAX> 953
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1549
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
