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 September 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 October 31, 1997
_________________________________ ____________________________________
Common Stock, $1.00 par value 5,464,642
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This report contains 16 pages
HOWELL CORPORATION AND SUBSIDIARIES
Form 10-Q
INDEX
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Page No.
________
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Part I. Financial Information
Item 1. Consolidated Statements of Earnings --
Three and nine months ended September 30, 1997 and 1996 (unaudited)......... 3
Consolidated Balance Sheets --
September 30, 1997 (unaudited) and December 31, 1996........................ 4
Consolidated Statements of Cash Flows --
Nine months ended September 30, 1997 and 1996 (unaudited)................... 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 6. Exhibits and Reports on Form 8-K.............................................. 14
</TABLE>
PART I. FINANCIAL INFORMATION
(ITEM 1)
<TABLE>
<CAPTION>
========================================================================================================
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Howell Corporation and Subsidiaries
- --------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Revenues ........................................... $ 7,522 $ 201,222 $ 24,493 $ 533,734
--------- --------- --------- ---------
Cost and expenses:
Products including operating expenses ........... 5,816 194,734 17,359 514,043
Selling, general and administrative expenses .... 1,192 2,412 3,656 7,364
--------- --------- --------- ---------
7,008 197,146 21,015 521,407
--------- --------- --------- ---------
Other income (expense):
Interest expense ................................ (210) (1,716) (1,064) (5,323)
Interest income ................................. 24 34 75 73
Net earnings of investees ....................... 229 -- 736 --
Other-net ....................................... 301 (1) 128 1
--------- --------- --------- ---------
344 (1,683) (125) (5,249)
--------- --------- --------- ---------
Earnings before income taxes ....................... 858 2,393 3,353 7,078
Provision for income taxes ......................... 150 887 1,062 2,573
--------- --------- --------- ---------
Net earnings from continuing operations............. 708 1,506 2,291 4,505
--------- --------- --------- ---------
Discontinued operations:
Net earnings (loss) from Howell Hydrocarbons
(less applicable income taxes of $70 and $129
for the three months ended September 30, 1997
and 1996, respectively; and $379 and $42 for
the nine months ended September 30, 1997 and
1996, respectively.) ............................ 54 184 512 (71)
Gain on sale of Howell Hydrocarbons (less
applicable income taxes of $126 for the three and
nine months ended September 30,1997) ............ 245 0 245 0
--------- --------- --------- ---------
Net earnings from discontinued operations .......... 299 184 757 (71)
--------- --------- --------- ---------
Net earnings ....................................... $ 1,007 $ 1,690 $ 3,048 $ 4,434
========= ========= ========= =========
Weighted average shares outstanding (primary) ...... 5,394 5,041 5,222 5,036
========= ========= ========= =========
Primary earnings (loss) per common share:
Continuing operations ........................... $ 0.02 $ 0.18 $ 0.09 $ 0.53
Discontinued operations ......................... 0.01 0.04 0.10 (0.01)
Gain on sale of Howell Hydrocarbons ............. 0.05 0.00 0.05 0.00
--------- --------- --------- ---------
Net earnings per common share (primary) ......... $ 0.08 $ 0.22 $ 0.24 $ 0.52
========= ========= ========= =========
Cash dividends per common share .................... $ 0.04 $ 0.04 $ 0.16 $ 0.16
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
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CONSOLIDATED BALANCE SHEETS
Howell Corporation and Subsidiaries
- -----------------------------------------------------------------------------------------------------
September 30, December 31,
1997 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------
(In thousands)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 52 $ 3,253
Trade accounts receivable, less allowance for doubtful accounts of
$141,000 in 1997 and $251,000 in 1996 ............................ 4,018 5,472
Inventories ........................................................ 50 38
Other current assets ............................................... 554 1,185
--------- ---------
Total current assets .............................................. 4,674 9,948
--------- ---------
Property, plant and equipment:
Oil and gas properties, utilizing the full-cost method of accounting 287,624 280,766
Fee mineral properties, unproven ................................... 18,184 18,180
Other .............................................................. 2,665 2,601
Less accumulated depreciation, depletion and amortization .......... (204,871) (198,052)
--------- ---------
Net property and equipment ....................................... 103,602 103,495
--------- ---------
Investment in investees ............................................... 18,602 21,802
Property to be disposed of ............................................ -- 19,772
Other assets .......................................................... 2,335 2,180
========= =========
Total assets ...................................................... $ 129,213 $ 157,197
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt .................................. $ -- $ 5,868
Accounts payable ................................................... 2,740 3,928
Accrued liabilities ................................................ 6,832 10,071
Income tax payable ................................................. 1,383 2,340
--------- ---------
Total current liabilities ......................................... 10,955 22,207
--------- ---------
Deferred income taxes ................................................. 21,950 23,850
--------- ---------
Other liabilities ..................................................... 352 511
--------- ---------
Long-term debt ........................................................ 3,500 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; 5,112,004 issued and outstanding
in 1997; 4,947,196 issued and outstanding in 1996 ............... 5,112 4,947
Additional paid-in capital ......................................... 36,141 34,532
Retained earnings .................................................. 50,513 49,879
--------- ---------
Total shareholders' equity ........................................ 92,456 90,048
--------- ---------
Total liabilities and shareholders' equity ........................ $ 129,213 $ 157,197
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
1997 1996
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings ................................................................ $ 2,291 $ 4,505
Adjustments for noncash items:
Depreciation, depletion and amortization ................................. 6,773 10,834
Investees earnings ....................................................... (736) --
Investee dividends ....................................................... 94 --
Deferred income taxes .................................................... (1,900) 688
Gain on sales of assets .................................................. (139) (80)
-------- --------
Earnings from continuing operations plus noncash operating items ............ 6,383 15,947
Changes in components of working capital from operations:
Decrease (increase) in trade accounts receivable ......................... 1,454 (12,479)
Increase in inventories .................................................. (12) (1,042)
Decrease in other current assets ......................................... 631 155
(Decrease) increase in accounts payable .................................. (1,188) 10,407
(Decrease) increase in accrued and other liabilities ..................... (4,355) 1,988
-------- --------
Cash provided by continuing activities ...................................... 2,913 14,976
Cash provided by discontinued operations .................................... 1,250 1,244
-------- --------
Cash provided by operating activities ....................................... 4,163 16,220
-------- --------
INVESTING ACTIVITIES:
Proceeds from the disposition of discontinued operations and other property . 20,049 995
Additions to property, plant and equipment .................................. (7,515) (8,224)
Other, net .................................................................. 237 (183)
-------- --------
Cash provided by (utilized in) investing activities ......................... 12,771 (7,412)
-------- --------
FINANCING ACTIVITIES:
Long-term debt:
Net (repayment) borrowing of revolving bank credit agreement-HPC ......... (17,081) 450
Net (repayment) of term loan agreement-HCO ............................... -- (6,518)
Net (repayment) of other long-term borrowings ............................ (2,418) (38)
Issuance of common stock .................................................... 1,774 70
Cash paid for dividends ..................................................... (2,414) (2,404)
-------- --------
Cash utilized in financing activities ....................................... (20,139) (8,440)
-------- --------
NET (DECREASE) INCREASE IN CASH BALANCE .................................... $ (3,205) $ 368
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid for:
Interest .................................................................... $ 478 $ 5,375
======== ========
Income taxes ................................................................ $ 3,055 $ 1,891
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
September 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
nine months ended September 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, June, July, August, and September. The payments required for the
first nine months of 1996 under the call options and premiums amortized
totaled $1.5 million and were recorded as a reduction of revenue. The
payments required for the third quarter 1996 were $0.7 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 included in the per share computations since their dilutive
effect is greater 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. The common shares issuable in connection with stock options
result in a dilutive effect of more than 3% and as a result primary earnings
per share are disclosed.
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 from Continuing Operations was 32% and 36% for the
first nine 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. On August 18, 1997, the Company filed a motion for
rehearing. 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, results
of operations or cash flows. The case (as to the remaining interest owners)
is currently set for trial on February 16, 1998.
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 $7.0 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, results of operations or cash
flows.
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 - Dispositions
On July 31, 1997 Howell Hydrocarbons & Chemicals, Inc. (the "Seller"), a
wholly-owned subsidiary of the Company, 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").
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 Company, and
(b) the Company 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 Company received
a payment of $19.8 million in cash, which included $14.8 million for the
property, plant, equipment and related items, and $5.0 million in payment of
working capital items. 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 resulted in a pre-tax gain of $0.4 million and the proceeds of the
sale were used by the Company to reduce its outstanding indebtedness. The
sale completes the divestiture by the Company 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 Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
$0 $111 $112 $343
=== ==== ==== ====
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.
On July 29, 1997, the Board of Directors of Genesis Energy, L.L.C. cancelled the
$3.45 million note payable by Howell Crude Oil Company ("HCO") to the General
Partner. The note was distributed to HCO as a non-cash transaction and, as such,
is not reflected in the Consolidated Statement of Cash Flows for the quarter
ended September 30, 1997.
Note 8 - Subsequent Events
On October 1, 1997, the Company acquired Voyager Energy Corporation
("Voyager"), an oil and gas exploration and production company, for 352,638
shares of common stock of the Company in a tax-free reorganization. The
shares issued by the Corporation in the merger represent in the aggregate
approximately 6.5 percent of the Company's common stock outstanding after
completion of the transaction. The Company assumed approximately $1.3
million in Voyager indebtedness as a result of the merger.
Note 9 - Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components. SFAS 130 is effective for periods
beginning after December 15, 1997. Based on the provisions of the SFAS 130,
it is anticipated that the Company will not have a change in its reporting
requirements.
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 nine months
ended September 30, 1997 and 1996 are presented below and discussed in the
following sections.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Revenues
Oil and gas exploration and production ............. $ 7,522 $ 8,318 $ 24,493 $ 25,388
Crude oil marketing and transportation ............. 0 197,232 0 520,974
Intersegment sales ................................. 0 (4,328) 0 (12,628)
========= ========= ========= =========
Revenues from continuing operations ................ $ 7,522 $ 201,222 $ 24,493 $ 533,734
========= ========= ========= =========
Earnings
Oil and gas exploration and production ............. $ 1,251 $ 2,348 $ 5,674 $ 6,661
Crude oil marketing and transportation ............. 0 2,589 0 8,235
--------- --------- --------- ---------
Operating profit ................................... 1,251 4,937 5,674 14,896
General corporate expenses ......................... (737) (861) (2,196) (2,569)
Other income (expense) ............................. 344 (1,683) (125) (5,249)
--------- --------- --------- ---------
Earnings before income taxes ....................... 858 2,393 3,353 7,078
Provision for income taxes ......................... 150 887 1,062 2,573
--------- --------- --------- ---------
Net earnings from continuing operations............. 708 1,506 2,291 4,505
--------- --------- --------- ---------
Net earnings (loss) from Howell Hydrocarbons
(less applicable income taxes of $70 and $129
for the three months ended September 30, 1997
and 1996, respectively; and $379 and $42 for
the nine months ended September 30, 1997 and
1996, respectively.) ............................ 54 184 512 (71)
Gain on sale of Howell Hydrocarbons (less
applicable income taxes of $126 for the three and
nine months ended September 30,1997) ............ 245 0 245 0
--------- --------- --------- ---------
Net earnings from discontinued operations .......... 299 184 757 (71)
--------- --------- --------- ---------
Net earnings ....................................... $ 1,007 $ 1,690 $ 3,048 $ 4,434
========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
Continuing Operations
Oil & Gas Exploration and Production
Revenues of the oil and gas exploration and production segment for the three
months and nine months ended September 30, 1997 and 1996 were as follows:
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
Sales of oil, natural gas, and NGL's... $6,268 $6,992 $20,142 $20,953
Sales of LaBarge other products........ 413 348 1,258 1,182
Gas marketing.......................... 560 782 2,291 2,665
Minerals leasing and other............. 281 196 802 588
------ ------ ------ -------
Total revenues.................. $7,522 $8,318 $24,493 $25,388
====== ====== ======= =======
Production and sales data for the three months and nine months ended
September 30, 1997 and 1996 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Production:
Crude oil (bbls per day)............. 2,791 3,108 2,880 3,167
Natural gas (Mcf per day)............ 8,894 8,254 8,723 9,043
Natural gas liquids (bbls per day)... 247 212 229 216
Sales prices:
Crude oil (per bbl).................. $17.12 $17.86 $17.79 $17.46
Natural gas (per Mcf)................ $ 1.95 $ 2.00 $ 2.22 $ 2.02
Natural gas liquids (per bbl)........ $12.19 $12.67 $13.80 $12.21
Revenues from the sale of crude oil and natural gas decreased for the three
months ended September 30, 1997 due primarily to a 10% decrease in the crude
oil average daily production and a general decrease in the crude oil and
natural gas average sales price. These effects were partially offset by an
8% increase in the average daily natural gas production.
For the nine months ended September 30, 1997, revenues from the sales of
crude oil and natural gas decreased $0.8 million due primarily to a 9%
decrease in average daily crude oil production and a 4% decrease in average
daily natural gas production. The decrease was partially offset by a 10%
increase in average natural gas prices and a 13% increase in average natural
gas liquid prices during the nine month period ended September 30, 1997.
The Company's average sales price of its crude oil production during the
third quarter of 1996 and the nine months ending September 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, June, July, August, and September 1996,
resulting in a reduction of revenues of $0.7 million for the third quarter
1996 and a reduction of revenues of $0.5 million and $1.5 million for the
nine months ended September 30, 1997 and 1996, respectively. Without the
effects of the options, the average sales price of the Company's crude oil
production for the third quarter 1996 would have been $20.21 and for the nine
months ended September 30, 1997 and 1996, would have been $18.44 and $19.19,
respectively. See Note 2 of Notes to Consolidated Financial Statements.
Operating profit of the oil and gas exploration and production segment in the
third quarter of 1997 was $1.3 million, a decrease of $1.0 million from the
third quarter of 1996. The decrease can be attributed primarily to the
reduced revenues discussed above. Also contributing to the decrease was an
increase of workover expense of $0.6 million during the current period
primarily due to non-recurring Main Pass workovers. 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 nine months ended September 30, 1997 was $5.7 million, a decrease of $1.0
million from 1996. The decrease can be attributed primarily to the reduction
in revenues discussed above. The decrease was also a result of non-recurring
workover expense. The decrease was partially offset by a decrease in
depreciation, depletion and amortization expense.
General Corporate Expense
General Corporate Expense decreased 14% and 15% for the three months and nine
months ended September 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 nine months ended September 30,
1997 decreased $1.5 million and $4.3 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 17% and 37% for the three months ended September 30,
1997 and 1996, respectively. The percentage depletion deduction resulted in
a lower 1997 effective tax rate. The effective tax rate was 32% and 36% for
the nine months ended September 30, 1997 and 1996, respectively.
Discontinued Operations
The technical fuels and chemical processing business reported earnings of
$0.1 million and $0.5 million for the three months and nine months ended
September 30, 1997, respectively. Upon disposition of the business, a net
gain on the sale of the Hydrocarbon assets of $0.2 million was recognized
during the three and nine months ended September 30, 1997. 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
$0 $111 $112 $343
=== ==== ==== ====
See Note 6 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flow from operating activities of $4.2 million,
proceeds from the disposition of property and other investing activities of
$20.0 million, and from the issuance of common stock of $1.8 million during
the nine months ended September 30, 1997. During this period, the Company
utilized this cash flow and $3.2 million of the cash on hand at December 31,
1996 to reduce long term debt of $19.5 million, invest $7.5 million in
additions to property, plant and equipment, to pay $2.4 million of cash
dividends to common and preferred shareholders.
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
proceeds from the sale were $19.8 million in cash which were 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 October 1, 1997, the Company acquired Voyager Energy Corporation
("Voyager"), an oil and gas exploration and production company, for 352,638
shares of common stock of the Company in a tax-free reorganization. The
shares issued by the Corporation in the merger represent in the aggregate
approximately 6.5 percent of the Company's common stock outstanding after
completion of the transaction. The Company assumed approximately $1.3
million in Voyager indebtedness as a result of the merger.
PART II. OTHER INFORMATION
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: November 14, 1997 /s/ J. Richard Lisenby
-----------------------
J. Richard Lisenby
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE>
<CAPTION>
EXHIBIT 11
- -------------------------------------------------------------------------------------------------
HOWELL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
- -------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
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 ............ $ 708 $ 1,506 $ 2,291 $ 4,505
Subtract - Dividend to preferred shareholders ...... 604 604 1,811 1,811
------- ------- ------- -------
Net earnings from continuing operations,
as adjusted ..................................... $ 104 $ 902 $ 480 $ 2,694
======= ======= ======= =======
Discontinued operations:
Net earnings (loss) from Howell Hydrocarbons
(less applicable income taxes) .................. $ 54 $ 184 $ 512 $ (71)
======= ======= ======= =======
Gain on sale of Howell Hydrocarbons
(less applicable income taxes) ........................ $ 245 $ 0 $ 245 $ 0
======= ======= ======= =======
Weighted average number of common shares
outstanding ..................................... 5,096 4,938 5,034 4,936
======= ======= ======= =======
Earnings (loss) per share - assuming no dilution :
Continuing operations .............................. $ 0.02 $ 0.18 $ 0.10 0.55
Discontinued operations ............................ 0.01 0.04 0.10 (0.01)
Gain on sale of Howell Hydrocarbons ................ 0.05 0.00 0.05 0.00
------- ------- ------- -------
Net earnings per share assuming no dilution ........ $ 0.08 $ 0.22 $ 0.25 $ 0.54
======= ======= ======= =======
Additional Primary Computation
- ------------------------------
Net earnings, as adjusted per primary computation above
Continuing operations .............................. $ 104 $ 902 $ 480 $ 2,694
======= ======= ======= =======
Discontinued operations ............................ $ 54 $ 184 $ 512 $ (71)
======= ======= ======= =======
Gain on sale of Howell Hydrocarbons ................ $ 245 $ 0 $ 245 $ 0
======= ======= ======= =======
Adjustment to weighted average number of
shares outstanding:
Weighted average number of shares outstanding
per primary computation above ...................... 5,096 4,938 5,034 4,936
Add - Dilutive effect of outstanding options
(as determined by application of the treasury
stock method) ................................... 298 103 188 100
------- ------- ------- -------
Weighted average number of shares outstanding,
as adjusted ........................................ 5,394 5,041 5,222 5,036
======= ======= ======= =======
Primary earnings (loss) per share, as adjusted (a):
Continuing operations .............................. $ 0.02 $ 0.18 $ 0.09 $ 0.53
Discontinued operations ............................ 0.01 0.04 0.10 (0.01)
Gain on sale of Howell Hydrocarbons ................ 0.05 0.00 0.05 0.00
------- ------- ------- -------
Net earnings per share ................................ $ 0.08 $ 0.22 $ 0.24 $ 0.52
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statement of Earnings
Net earnings, as adjusted per primary computation above
Continuing operations ................................................. $ 104 $ 902 $ 480 $ 2,694
======= ======= ======= =======
Discontinued operations ............................................... $ 54 $ 184 $ 512 $ (71)
======= ======= ======= =======
Gain on sale of Howell Hydrocarbons ................................... $ 245 $ 0 $ 245 $ 0
======= ======= ======= =======
Weighted average number of common shares
outstanding, per primary computation above ............................. 5,096 4,938 5,034 4,936
======= ======= ======= =======
Earnings (loss) per share assuming full dilution:
Continuing operations .................................................... $ 0.02 $ 0.18 $ 0.10 $ 0.55
Discontinued operations ............................................... 0.01 0.04 0.10 (0.01)
Gain on sale of Howell Hydrocarbons ................................... 0.05 0.00 0.05 0.00
------- ------- ------- -------
Net earnings per share assuming full dilution ............................ $ 0.08 $ 0.22 $ 0.25 $ 0.54
======= ======= ======= =======
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 ............................. $ 104 $ 902 $ 480 $ 2,694
Add - Dividend to preferred shareholders ................................. 604 604 1,811 1,811
------- ------- ------- -------
Net earnings from continuing operations,
as adjusted .............................................................. $ 708 $ 1,506 $ 2,291 $ 4,505
======= ======= ======= =======
Discontinued operations:
Net earnings (loss) from Howell Hydrocarbons
(less applicable income taxes) ..................................... $ 54 $ 184 $ 512 $ (71)
======= ======= ======= =======
Gain on sale of Howell Hydrocarbons (less
applicable income taxes) ........................................... $ 245 $ 0 $ 245 $ 0
======= ======= ======= =======
Additional adjustment to weighted average number
of shares outstanding:
Weighted average number of shares outstanding,
per fully diluted computation above .................................... 5,096 4,938 5,034 4,936
Add - Dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) .......................................................... 298 103 188 100
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 .............................................................. 7,485 7,132 7,313 7,127
======= ======= ======= =======
Fully diluted earnings (loss) per share:
Continuing operations .................................................... $ 0.09 $ 0.21 $ 0.31 $ 0.63
Discontinued operations .................................................. 0.01 0.03 0.07 (0.01)
Gain on sale of Howell Hydrocarbons ...................................... 0.03 0.00 0.03 0.00
------- ------- ------- -------
Fully diluted earnings per share (b) ..................................... $ 0.13 $ 0.24 $ 0.41 $ 0.62
======= ======= ======= =======
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) as required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in a dilution greater than 3%
(b) 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 nine months ended September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000745113
<NAME> TARRANT FENDLEY
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 52
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<RECEIVABLES> 4018
<ALLOWANCES> 141
<INVENTORY> 50
<CURRENT-ASSETS> 4674
<PP&E> 306073
<DEPRECIATION> 204871
<TOTAL-ASSETS> 129213
<CURRENT-LIABILITIES> 10955
<BONDS> 3500
0
690
<COMMON> 5112
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<EPS-PRIMARY> .24
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</TABLE>
