UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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, 1997
----------------------------- ----------------------------
Common Stock, $1.00 par value 5,090,155
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This report contains 15 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, 1997 and 1996 3
Consolidated Balance Sheets --
June 30, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows --
Six months ended June 30, 1997 and 1996 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 Votes of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 1)
================================================================================
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
====================================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Revenues $7,904 $174,048 $16,971 $332,512
------ ------- ------ -------
Cost and expenses:
Products including operating expenses 5,500 167,000 11,543 319,309
Selling, general and administrative
expenses 973 2,458 2,464 4,952
------ ------- ------ -------
6,473 169,458 14,007 324,261
Other income (expense): ------ ------- ------ -------
Interest expense (441) (1,778) (854) (3,607)
Interest income 26 25 51 39
Net earnings of investees 68 - 362 -
Other-net (28) - (28) 2
------ ------- ------ -------
(375) (1,753) (469) (3,566)
------ ------- ------ -------
Earnings before income taxes 1,056 2,837 2,495 4,685
Provision for income taxes 417 1,041 912 1,686
------ ------- ------ -------
Net earnings from continuing operations 639 1,796 1,583 2,999
Discontinued operations:
Net earnings from Howell Hydrocarbons
(less applicable income taxes of $53 and $(88) for
the three months ended June 30, 1997 and 1996,
respectively; and $309 and $(87) for the six months
ended June 30, 1997 and 1996, respectively.) 0 (247) 458 (255)
------ ------- ------ -------
Net earnings $ 639 $ 1,549 $ 2,041 $ 2,744
====== ======== ======= ========
Weighted average shares outstanding 5,020 4,935 5,003 4,935
Earnings (loss) per common share: ====== ======== ======= ========
Continuing operations $ 0.01 $ 0.24 $ 0.08 $ 0.36
Discontinued operations 0.00 (0.05) 0.09 (0.05)
------ -------- ------- --------
Net earnings per common share $ .01 $ .19 $ .17 $ .31
====== ======== ======= ========
Cash dividends per common share $ .04 $ .04 $ .08 $ .08
====== ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
================================================================================
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
June 30, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------
(In thousands)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 19 $ 3,253
Trade accounts receivable, less allowance for doubtful accounts of
$144,000 in 1997 and $132,000 in 1996 3,523 5,472
Inventories 51 38
Other current assets 309 1,185
-------- ---------
Total current assets $ 3,902 $ 9,948
-------- ---------
Property, plant and equipment:
Oil and gas properties, utilizing the full- cost method of accounting 285,401 280,766
Fee mineral properties, unproven 18,184 18,180
Other 2,974 2,601
Less accumulated depreciation, depletion and amortization (202,816) (198,052)
-------- ---------
Net property and equipment 103,743 103,495
-------- ---------
Investment in investees 22,105 21,802
Property to be disposed of 18,186 19,772
Other assets 2,336 2,180
-------- ---------
Total assets $150,272 $ 157,197
======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 5,185 $ 5,868
Accounts payable 2,476 3,928
Accrued liabilities 8,214 10,071
Income tax payable 735 2,340
-------- --------
Total current liabilities 16,610 22,207
-------- --------
Deferred income taxes 23,850 23,850
-------- --------
Other liabilities 324 511
-------- --------
Long-term debt 17,581 20,581
Shareholders' equity: -------- --------
Preferred stock, $1 par value; 690,000 shares issued and
outstanding in 1997 and 1996, Liquidation value of $34,500,000 690 690
Common stock, $1 par value; 5,081,030 issued and outstanding
in 1997; 4,947,196 issued and outstanding in 1996 5,081 4,947
Additional paid-in capital 35,823 34,532
Retained earnings 50,313 49,879
-------- --------
Total shareholders' equity 91,907 90,048
-------- --------
Total liabilities and shareholders' equity $150,272 $157,197
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Six Months Ended June 30,
1997 1996
(In thousands)
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $1,583 $2,999
Adjustments for noncash items:
Depreciation, depletion and amortization 4,524 7,241
Investee earnings (507) -
Deferred income taxes - 1,477
(Gain) loss on sales of assets - (58)
------- ------
Earnings from operations plus noncash operating items 5,600 11,659
Changes in components of working capital from operations:
Decrease (increase) in trade accounts receivable 1,949 (199)
(Increase) decrease in inventories (13) 348
Decrease in other current assets 883 1,007
Increase (decrease) in accounts payable 947 (1,670)
(Decrease) increase in accrued and other liabilities (3,882) 24
------- ------
Cash provided by continuing operations 5,484 11,169
Cash provided by discontinued operations 304 823
------- ------
Cash provided by operating activities 5,788 11,992
------- ------
INVESTING ACTIVITIES:
Proceeds from the disposition of property - 966
Additions to property, plant and equipment (5,188) (5,677)
Other, net 31 (194)
------- ------
Cash utilized in investing activities (5,157) (4,905)
------- ------
FINANCING ACTIVITIES:
Long-term debt:
Net (repayment) borrowing of revolving bank credit
agreement-HPC (3,001) 250
Net (repayment) of term loan agreement-HCO - (3,101)
Net (repayment) of other long-term borrowings (682) (25)
Issuance of common stock 1,425 26
Cash paid for dividends (1,607) (1,602)
------- ------
Cash utilized in financing activities (3,865) (4,452)
------- -------
NET (DECREASE) INCREASE IN CASH BALANCE $(3,234) $ 2,635
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid for:
Interest $ 615 $ 3,731
======= =======
Income taxes $ 1,449 $ 142
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
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, 1997 and 1996. 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 - Financial Instruments and Hedging Activities
In order to mitigate the effects of future price fluctuations, the Company used
a limited program of hedging its crude oil production through February 1997.
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 18 month period beginning March
1, 1995. The option strike prices were based on the average price of crude oil
on the organized exchange, with monthly settlement. The strike prices were $17
per barrel for the put option and $20 per barrel for the call option. The
premiums for the options were amortized over the option period. Upon expiration
of the 18-month option period, the Company purchased a put option and sold a
call option covering 100,000 barrels of oil per month for a six-month period
ended February 28, 1997. The strike prices were $16.50 per barrel for the put
option and $21.10 per barrel for the call option. There was no premium
associated with these options.
In 1997, the monthly average price of crude oil on the organized exchange
exceeded the strike price for the call option during January and February, the
final two months of the options. The payments required in 1997 under the call
option totaled $0.5 million and were recorded as a reduction of revenue. During
1996, the monthly average price of crude oil on the organized exchange exceeded
the strike price for the call option in March, April, May and June. The
payments required for the first six months of 1996 under the call options and
premiums amortized totaled $0.8 million and were recorded as a reduction of
revenue. The payments required for the second quarter 1996 were $0.6 million.
Note 3 - Earnings (Loss) Per Share
Earnings (loss) 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%.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share". SFAS
128 establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS previously
found in Accounting Principles Board ("APB") Opinion No. 15, "Earnings per
Share", and makes them comparable to international EPS standards. This
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. Considering the guidelines as prescribed by SFAS 128; management
believes that the adoption of this statement will not have a material effect on
EPS thus pro forma EPS, as suggested for all interim and annual periods prior to
required adoption, have been omitted.
Note 4 - Income Taxes
The effective tax rate was 37% and 36% for the first six months of 1997 and
1996, respectively.
Note 5 - Litigation and Contingent Liabilities
Donna Refinery Partners, Ltd. v. Howell Crude Oil Company and Howell
Corporation; Texas District Court; No. 89-033634. In December 1993 a jury
verdict of $1.9 million was rendered against the Company which was subsequently
reduced by the judge 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. The plaintiff 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's
appeal of this case to the Texas Supreme Court was denied on July 31, 1997. The
Company is reviewing its options at this time. The Company does not believe
that the ultimate resolution of this matter will have a materially adverse
effect on the financial position, results of operations or cash flows of the
Company.
On July 11, 1995 the Company received a demand letter from several 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. 95-037480 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 and Mississippi royalty 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.
Effective July 14, 1997, the Company settled with John Faulkinberry as well as
several other working interest owners. The terms of the settlement are
confidential, but the amounts paid in settlement were not material to the
Company's financial condition or results of operation. The case (as to the
remaining interest owners) is currently set for trial on September 2, 1997, but
due to its docket position this date cannot be considered firm.
Related to this matter, several royalty owners have filed lawsuits against
the Company in Alabama and Mississippi concerning pricing in the North Frisco
City Field. The lawsuits allege the Company violated its contracts with the
plaintiffs by not paying the plaintiffs ". . . the highest available price for
oil." Damages claimed by the plaintiffs include approximately $3.8 million and
are based on numerous damage theories including, but not limited to, allegations
of breach of contract and fraud. The complaints also seek unspecified punitive
damages in the Alabama lawsuits and $7 million punitive damages in the
Mississippi lawsuit. The Company filed answers denying all charges. The
Company does not believe that the ultimate resolution of these matters will have
a materially adverse effect on the financial position, results of operations or
cash flows of the Company. On July 28, 1997, the Company settled the
Mississippi lawsuit. The terms of the settlement are confidential, but the
amounts paid in settlement were not material to the Company's financial
condition or results of operation.
There are various other lawsuits and claims against the Company, none of which,
in the opinion of management, will have a materially adverse effect on the
Company.
Note 6 - Subsequent Event
On July 31, 1997 Howell Hydrocarbons & Chemicals, Inc. (the "Seller"), a wholly-
owned subsidiary of Howell Corporation (the "Registrant"), completed the
previously announced sale and disposition of substantially all of the assets of
its research and reference fuels and custom chemical manufacturing business
to Specified Fuels & Chemicals, L. L. C. ("Buyer"), a company controlled by Bob
G. Gower.
The assets purchased by Buyer included the fee property in Channelview, Texas on
which Seller's refinery was located, all refining facilities located on the fee
property and all related personal property, all inventories of finished
products, work in process, raw materials and supplies related to the business,
substantially all of the accounts receivable on the closing date, all
transferable intellectual property used primarily in the business and all of
Seller's rights under various contracts and leases related to the business. In
connection with the transaction, (a) Buyer received a license to use the name
"Howell Hydrocarbons & Chemicals" for a five year period after closing and
assumed certain obligations of Seller and the Registrant, and (b) the Registrant
agreed not to engage (directly or through affiliates) in any competing business
for a five year period after the closing.
In consideration of the assets sold to Buyer, Seller and the Registrant received
a payment of $19,371,600 in cash at the closing, which included $14,820,000 for
the property, plant, equipment and related items, and $4,551,600 in payment of
estimated working capital items. The amount of the payment for estimated
working capital is subject to adjustment after closing to equal the actual
amount of such items on the closing date. Seller is entitled to receive an
additional payment equal to 55% of the amount by which Buyer's "EBITDA" (as
defined in the agreement) for each twelve month period ending June 30, 1998,
1999, 2000, 2001 and 2002 exceeds the "Minimum EBITDA" (as defined in the
agreement). The Minimum EBITDA amounts for those years are $5 million, $5.175
million, $5.35 million, $5.525 million and $5.7 million, respectively. Buyer is
entitled to repurchase Seller's rights to these additional payments at any time
after June 30, 1998 generally by paying to Seller an amount equal to the greater
of (a) the product obtained by multiplying the EBITDA payment amount for the
immediately preceding twelve month period by the number of twelve month periods
remaining, or (b) an amount fixed by the agreement, which is initially set at
$5.7 million if the repurchase occurs during the twelve month period ending on
June 30, 1999, and which declines for each twelve month period thereafter to
$1.2 million if the repurchase occurs during the twelve month period ending June
30, 2002.
The sale should result in a gain and the proceeds of the sale will be used by
the Registrant to reduce its outstanding indebtedness. The sale completes the
divestiture by the Registrant of all of its non-exploration and production
businesses. In connection with the sale, the Company has given and received
environmental and other indemnities. Should claims be made against the Company
based on these indemnities, the company could be required to perform its
obligations thereunder.
The results of the technical fuels and chemical processing business have been
classified as discontinued operations in the accompanying financial statements.
Discontinued operations also includes the allocation of interest expense (based
on a ratio of net assets of discontinued operations to total consolidated net
assets). Allocated amounts are as follows:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
$60 $115 $112 $232
=== ==== ==== ====
Note 7 - Investment In Investees
The Company owns an approximate 9% interest in Genesis Crude Oil, L.P., the
operating subsidiary of Genesis Energy, L.P. ("Genesis"), a master limited
partnership traded on the New York Stock Exchange. The Company also owns a 46%
interest in Genesis Energy, L.L.C. ("General Partner") a limited liability
company which is the general partner of Genesis. The owner of the remaining 54%
interest in the General Partner is Basis Petroleum, Inc. ("Basis"), which, prior
to May 1, 1997, was a wholly owned subsidiary of Salomon Inc ("Salomon").
Salomon recently reported that on May 1, 1997, it sold the stock of Basis
Petroleum, Inc. to Valero Energy Corporation. On May 1, 1997, Basis informed
the Company that Basis intends to transfer its interest in the General Partner
back to Salomon. Pursuant to the agreement forming the General Partner, the
Company had 30 days from the date of receipt of such notice to make an offer for
Basis's interest in the General Partner. The Company decided not to make an
offer to purchase Basis's interest in the General Partner.
Basis is party to a number of agreements with Genesis, some of which may have
terminated in connection with the transfer to Valero and others which may be
terminated by Basis pursuant to their terms. Whether such contracts will be
terminated or revised by Basis and/or Genesis in the future and the ultimate
effect on Genesis of any such termination or revision cannot be determined at
this time, but may or may not have a material effect on Howell.
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 2)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the Company's financial condition, results of
operations, capital resources and liquidity. This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto. Management's review includes certain forward-
looking statements reflecting the Company's expectations in the near future;
however, many factors which may affect the actual results, especially commodity
prices and changing regulations, are difficult to predict. Accordingly, there
is no assurance that the Company's expectations will be realized.
RESULTS OF OPERATIONS
The Company's principal business segments are oil and gas exploration and
production, crude oil marketing and transportation (until December 1996) and
technical fuels and chemical processing (until June 1997). In July 1997, the
Company sold its technical fuels and chemical processing business and,
consequently, the results of such business shown below have been classified as
discontinued operations. In December 1996, the Company sold its crude oil
marketing and transportation business, receiving in exchange cash and an equity
interest in a limited partnership. Results of the crude oil marketing and
transportation business are included below in "revenues" and "operating profit"
prior to the sale and the earnings attributable to its equity interest in the
limited partnership are included below in "other income (expense)" subsequent to
the sale. 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. Results of operations for the
three months ended and six months ended June 30, 1997 and 1996 are presented
below and discussed in the following sections.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
Revenues
<S> <C> <C> <C> <C>
Oil and gas exploration and production $7,904 $ 8,503 $16,971 $ 17,070
Crude oil marketing and transportation 0 169,910 0 323,742
Intersegment sales 0 (4,365) 0 (8,300)
------ -------- ------- --------
Revenues from continuing operations $7,904 $174,048 $16,971 $332,512
====== ======== ======== ========
Earnings
Oil and gas exploration and production $1,940 $ 2,363 $ 4,423 $ 4,313
Crude oil marketing and transportation 0 3,053 0 5,646
------ -------- -------- --------
Operating profit 1,940 5,416 4,423 9,959
General corporate expenses (509) (826) (1,459) (1,708)
Other income (expense) (375) (1,753) (469) (3,566)
------ -------- -------- --------
Earnings before income taxes 1,056 2,837 2,495 4,685
Provision for income taxes 417 1,041 912 1,686
------ -------- -------- --------
Net earnings from continuing operations 639 1,796 1,583 2,999
Discontinued operations:
Net earnings (loss) from Howell Hydrocarbons
(less applicable income taxes of $53 and $(88)
for the three months ended June 30, 1997 and
1996 respectively; and $309 and $(87) for the
six months ended June 30, 1997 and 1996,
respectively.) 0 (247) 458 (255)
------ -------- -------- --------
$ 639 $ 1,549 $ 2,041 $ 2,744
====== ======== ======== ========
</TABLE>
Continuing Operations
Oil & Gas Exploration and Production
Revenues of the oil and gas exploration and production segment for the three
months and six months ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Sales of oil, natural gas, and NGL's $6,366 $7,026 $13,885 $13,961
Sales of LaBarge other products 415 320 846 834
Gas marketing 720 916 1,731 1,883
Minerals leasing and other 403 241 509 392
------ ------ ------- -------
Total revenues $7,904 $8,503 $16,971 $17,070
====== ====== ======= =======
</TABLE>
Production and sales data for the three months and six months ended June 30,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
Production:
<S> <C> <C> <C> <C>
Crude oil (bbls per day) 2,960 3,202 2,924 3,201
Natural gas (Mcf per day) 8,755 8,981 8,636 9,241
Natural gas liquids (bbls per day) 216 231 219 218
Sales prices:
Crude oil (per bbl) $17.57 $17.36 $18.12 $17.27
Natural gas (per Mcf) $ 1.76 $ 1.99 $ 2.37 $ 2.01
Natural gas liquids (per bbl) $11.42 $11.91 $14.73 $11.93
</TABLE>
Revenues from the sale of crude oil and natural gas decreased for the three
months ended June 30, 1997 due primarily to an 8% decrease in the crude oil
average daily production and a 12% decrease in the natural gas average sales
price. These effects were partially offset by an increase in the crude oil
average sales price.
For the six months ended June 30, 1997, revenues from the sales of crude oil and
natural gas decreased $0.1 million due primarily to a 9% decrease in the crude
oil average daily production and a 7% decrease in the natural gas average daily
production. These effects were partially offset by an 18% increase in the
natural gas average sales price.
The Company's average sales price of its crude oil production during the second
quarter of 1996 and the six months ending June 30, 1997 and 1996, was reduced by
the effects of the put and call options the Company had in place. The strike
price of the call option was exceeded during January and February 1997; and
March, April, May and June, 1996, resulting in a reduction of revenues of $0.6
million for the second quarter 1996 and a reduction of revenues of $0.5 million
and $0.8 million for the six months ended June 30, 1997 and 1996, respectively.
Without the effects of the options, the average sales price of the Company's
crude oil production for the second quarter 1996 would have been $19.39 and for
the six months ended June 30, 1997 and 1996, would have been $19.09 and $18.69,
respectively. See Note 2 of Notes to Consolidated Financial Statements.
Operating profit of the oil and gas exploration and production segment in the
second quarter of 1997 was $1.9 million, a decrease of $0.4 million from the
second quarter of 1996. The decrease can be attributed primarily to the reduced
revenues discussed above. Increased operating expenses were offset by reduced
depreciation, depletion and amortization expenses.
Operating profit of the oil and gas exploration and production segment for the
six months ended June 30, 1997 was $4.4 million, an increase of $0.1 million
from 1996. The increase can be attributed primarily to a 8% decrease in
depreciation, depletion, and amortization expense partially offset by an
increase in general and administrative expense.
General Corporate Expense
General Corporate Expense decreased 38% and 15% for the three months and six
months ended June 30, 1997 and 1996, respectively. The decrease was primarily
due to a reduction in salaries and benefits as a result of a 24% decrease in the
corporate staffing level.
Other Income (Expense)
Interest expense for the three months and six months ended June 30, 1997
decreased $1.4 million and $3.1 million, respectively, when compared to the same
periods in 1996. The decreases are primarily attributable to the repayment of
the Term loan agreement that was collateralized primarily by the Company's
pipeline assets. The loan was repaid with the proceeds from the sale and
conveyance of the crude oil gathering and marketing operations and pipeline
operations of Howell Corporation to Genesis Crude Oil, L.P. See Notes 5 and 6
of the Company's 1996 Annual Report on Form 10-K.
Income Taxes
The effective tax was 39% and 37%, respectively, for the three months ended June
30, 1997 and 1996. An increase in estimated state taxes primarily resulted in
the 1997 increase. The effective tax rate was 37% and 36% for the six months
ended June 30, 1997 and 1996, respectively.
Discontinued Operations
The technical fuels and chemical processing business reported an operating
profit of $0.1 million and $0.9 million for the three months and six months
ended June 30, 1997, respectively. The increase of $0.3 million and $1.0 million
for the three months and six months ended June 30, 1997, respectively, were
primarily due to an increase in chemical tolling activity. Discontinued
operations also includes the allocation of interest expense (based on a ratio of
net assets of discontinued operations to total consolidated assets). Allocated
amounts are as follows:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
(in thousands)
$60 $115 $112 $232
=== ==== ==== ====
See Note 6 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flow from operating activities of $5.8 million and
from the issuance of common stock of $1.4 million in the first six months of
1997. During this period, the Company utilized the cash flow generated from
operations and $3.3 million of the cash on hand at December 31, 1996 primarily
to invest $5.2 million in additions to property, plant and equipment, to pay
$1.6 million of cash dividends to common and preferred shareholders and to
reduce debt by $3.7 million.
The Company sold the assets of its technical fuels and chemical processing
business to Specified Fuels & Chemicals, L.L.C. on July 31, 1997. The sales
price was approximately $20 million in cash subject to certain working capital
adjustments. The proceeds from the sale will be used to retire debt. The
Company may also receive additional consideration each year for the next five
years based upon the performance of the business. In connection with the sale,
the Company has given and received environmental and other indemnities. Should
claims be made against the Company based on these indemnities, the company could
be required to perform its obligations thereunder.
The Company elected to reduce its Borrowing Base to $30 million as of May 1,
1997 pursuant to the credit agreement between Howell Petroleum Corporation and
Bank One, Texas, N.A. This reduction will allow the Company to reduce its
commitment fee cost.
On May 14, 1997, the Company entered into a letter of intent to acquire Voyager
Energy Corp. ("Voyager"), the company founded by Messrs. Clayton and Hebert, in
a tax-free reorganization for approximately 340,000 shares of common stock of
the Company. The Company would assume approximately $1.3 million in Voyager
indebtedness as a result of the merger. Consummation of the transaction is
subject to the execution of a mutually satisfactory definitive agreement, as
well as the approval of the Company's Board of Directors and its common
stockholders.
<PAGE>
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 28,
1997, for the following purposes.
To elect three members to the Board of Directors to serve a three-year term as
Class III Directors.
(a) The results of the voting for each of the nominees for director were
as follows:
Shares Shares Broker
For Withheld Non-Voters
------ -------- ----------
Walter M. Mischer, Sr. 4,400,494 42,689 -
Paul W. Murrill 4,400,750 42,433 -
Jack T. Trotter 4,400,419 42,764 -
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.
(b) To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending December 31, 1997
The results of the voting on this matter were as follows:
Shares For 4,440,733
Shares Against 1,800
Shares Abstaining 650
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) Exhibits
10.1 Howell Corporation 1997 Nonqualified Stock Option Plan
incorporated herein by reference to the Company's Form S-8
Registration Statement, registration No. 333-29089, filed
June 12, 1997.
11 Computation of Earnings per Share
(b) Reports on Form 8-K
A report on Form 8-K was filed on May 14, 1997 announcing:
1) The retirement of Paul N. Howell from Howell Corporation as its
Chief Executive Officer and President. The resignation of Ronald
E. Hall of the Chairmanship of the Corporation's Board of
Directors. However, both will remain as members of the Board of
Directors. The election of Donald W. Clayton to serve as Chairman
and Chief Executive Officer of the Corporation and Richard K.
Hebert to serve as President and Chief Operating Officer of the
Corporation.
2) Adoption of the Howell Corporation 1997 Nonqualified Stock Option
Plan.
3) Form of option for use under Howell Corporation 1997 Nonqualified
Stock Option Plan.
4) Form of indemnity agreement entered into between the Corporation
and each of Messrs. Clayton, Hebert and Brewster.
5) Letter of intent dated May 14, 1997 by and between Howell
Corporation and Voyager Energy Corporation for the proposed
acquisition of Voyager Energy Corporation by Howell Corporation.
A report on Form 8-K was filed on August 11, 1997 announcing the sale
of Howell Corporation's Technical Fuels and Chemical Processing
business segment to Specified Fuels & Chemicals, L.L.C. effective July
31, 1997.
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 14, 1997 /s/ J. Richard Lisenby
-------------------------------------
J. Richard Lisenby
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 11
- --------------------------------------------------------------------------------
HOWELL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands, except per share amounts)
PRIMARY EARNINGS PER SHARE
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 from continuing operations $ 639 $1,796 $1,583 $2,999
Subtract - Dividend to preferred shareholders 604 604 1,208 1,208
------ ------ ------ ------
Net earnings from continuing operations,
as adjusted $ 35 $1,192 $ 375 $1,791
====== ====== ====== ======
Discontinued operations:
Net earnings (loss) from Howell Hydrocarbons
(less applicable income taxes) $ 0 $ (247) $ 458 $ (255)
====== ====== ====== ======
Weighted average number of common shares
outstanding 5,020 4,935 5,003 4,935
====== ====== ====== ======
Earnings (loss) per share - assuming no dilution (a):
Continuing operations $ 0.01 $ 0.24 $ 0.08 $ 0.36
Discontinued operations 0.00 (0.05) 0.09 (0.05)
------ ------ ------ ------
Net earnings per share assuming no dilution $ 0.01 $ 0.19 $ 0.17 $ 0.31
====== ====== ====== ======
Additional Primary Computation
- ------------------------------
Net earnings, as adjusted per primary computation above
Continuing operations $ 35 $1,192 $ 375 $1,791
====== ====== ====== ======
Discontinued operations $ 0 $ (247) $ 458 $ (255)
====== ====== ====== ======
Adjustment to weighted average number of
shares outstanding:
Weighted average number of shares outstanding
per primary computation above 5,020 4,935 5,003 4,935
Add - Dilutive effect of outstanding options
(as determined by application of the treasury
stock method) 176 97 133 98
------ ------ ------ ------
Weighted average number of shares outstanding,
as adjusted 5,196 5,032 5,136 5,033
====== ====== ====== ======
Primary earnings per share, as adjusted (b):
Continuing operations $ 0.01 $ 0.24 $ 0.07 $ 0.36
Discontinued operations 0.00 (0.05) 0.09 (0.05)
------ ------ ------ ------
Net earnings per share $ 0.01 $ 0.19 $ 0.16 $ 0.31
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands, except per share amounts)
<S>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statement of Earnings
- -------------------------------------
Net earnings, as adjusted per primary computation above <C> <C> <C> <C>
Continuing operations $ 35 $1,192 $ 375 $1,791
====== ====== ====== ======
Discontinued operations $ 0 $ (247) $ 458 $ (255)
====== ====== ====== ======
Weighted average number of common shares
outstanding, per primary computation above 5,020 4,935 5,003 4,935
====== ====== ====== ======
Earnings (loss) per share assuming full dilution (a):
Continuing operations $ 0.01 $ 0.24 $ 0.08 $ 0.36
Discontinued operations 0.00 (0.05) 0.09 (0.05)
------ ------ ------ ------
Net earnings per share assuming full dilution (a) $ 0.01 $ 0.19 $ 0.17 $ 0.31
====== ====== ====== ======
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 from continuing operations $ 35 $1,192 $ 375 $1,791
Add - Dividend to preferred shareholders 604 604 1,208 1,208
------ ------ ------ ------
Net earnings from continuing operations,
as adjusted $ 639 $1,796 $1,583 $2,999
====== ====== ====== ======
Discontinued operations:
Net earnings from Howell Hydrocarbons
(less applicable income taxes) $ 0 $ (247) $ 458 $ (255)
====== ====== ====== ======
Additional adjustment to weighted average number
of shares outstanding:
Weighted average number of shares outstanding,
per fully diluted computation above 5,020 4,935 5,003 4,935
Add - Dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 176 97 133 98
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 7,287 7,123 7,227 7,124
====== ====== ====== ======
Fully diluted earnings (loss) per share:
Continuing operations $ 0.09 $ 0.25 $ 0.22 $ 0.42
Discontinued operations 0.00 (0.03) 0.06 (0.04)
------ ------ ------ ------
Fully diluted earnings per share (c) $ 0.09 $ 0.22 $ .28 $ .38
====== ====== ====== ======
</TABLE>
(a) These amounts agree with the reported amounts on the statements of earnings.
(b) 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%.
(c) 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial statement information from the Form 10-Q of
Howell Corporation for the six months ended June 30, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 19
<SECURITIES> 0
<RECEIVABLES> 3523
<ALLOWANCES> 144
<INVENTORY> 51
<CURRENT-ASSETS> 3902
<PP&E> 306559
<DEPRECIATION> 202816
<TOTAL-ASSETS> 150272
<CURRENT-LIABILITIES> 16610
<BONDS> 17581
0
690
<COMMON> 5081
<OTHER-SE> 86136
<TOTAL-LIABILITY-AND-EQUITY> 150272
<SALES> 16971
<TOTAL-REVENUES> 16971
<CGS> 11543
<TOTAL-COSTS> 11543
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 854
<INCOME-PRETAX> 2495
<INCOME-TAX> 912
<INCOME-CONTINUING> 1583
<DISCONTINUED> 458
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2041
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
