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, 1999
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, 1999
- --------------------------------- ------------------------------------
Common Stock, $1.00 par value 5,471,782
This report contains 14 pages
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Form 10-Q
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Condensed Consolidated Statements of Operations --
Three and six months ended June 30, 1999 and 1998 (unaudited) 3
Condensed Consolidated Balance Sheets --
June 30, 1999 (unaudited) and December 31, 1998........... 4
Condensed Consolidated Statements of Cash Flows --
Six months ended June 30, 1999 and 1998 (unaudited)....... 5
Notes to Condensed Consolidated Financial Statements (unaudited) 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
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 1)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Revenues............................... $11,182 $12,267 $20,060 $26,534
-------- -------- -------- --------
Cost and expenses:
Lease operating expenses............ 4,927 5,774 10,815 14,051
Depreciation, depletion, and
amortization..................... 1,445 2,434 3,559 6,066
Ceiling test write-down............. - - - 66,118
General and administrative expenses. 1,292 1,053 2,532 3,121
-------- -------- -------- --------
7,664 9,261 16,906 89,356
-------- -------- -------- --------
Other income (expense):
Interest expense.................... (1,727) (2,762) (3,998) (5,434)
Interest income..................... 22 35 60 47
Net earnings of Genesis............. 18 104 83 224
Other-net........................... (153) (146) (283) (157)
-------- -------- -------- --------
(1,840) (2,769) (4,138) (5,320)
-------- -------- -------- --------
Earnings (loss) before income taxes.... 1,678 237 (984) (68,142)
Income tax provision (benefit)......... 589 103 (306) (23,120)
-------- -------- -------- --------
Net earnings (loss) from continuing
operations............................. 1,089 134 (678) (45,022)
-------- -------- -------- --------
Discontinued operations:
Net (loss) earnings from Howell
Hydrocarbons(less applicable
income taxes of $(7), $(15),
$688, and $(15), respectively).. (14) (59) 1,336 (59)
-------- -------- -------- --------
Net earnings (loss).................... 1,075 75 658 (45,081)
Less: Preferred stock dividends..... (604) (604) (1,208) (1,208)
-------- -------- -------- --------
Net earnings (loss) applicable to
common shares.......................... $ 471 $ (529) $ (550) $(46,289)
======== ======== ======== ========
Basic earnings (loss) per common share:
Continuing operations............... $ 0.09 $ (0.09) $(0.34) $(8.45)
Discontinued operations............. - (0.01) 0.24 (0.01)
-------- -------- -------- --------
Net earnings (loss) per common share
(basic)................................ $ 0.09 $(0.10) $ (0.10) $ (8.46)
======== ======== ======== ========
Weighted average shares outstanding
(basic)................................ 5,472 5,472 5,472 5,468
======== ======== ======== ========
Diluted earnings (loss) per common share:
Continuing operations............... $ 0.09 $ (0.09) $ (0.34) $ (8.45)
Discontinued operations............. - (0.01) 0.24 (0.01)
-------- -------- -------- --------
Net earnings (loss) per common share
(diluted).............................. $ 0.09 $ (0.10) $ (0.10) $(8.46)
======== ======== ======== ========
Weighted average shares outstanding
(diluted).............................. 5,539 5,472 5,472 5,468
======== ======== ======== ========
Cash dividends per common share........ $ 0.04 $ 0.04 $ 0.08 $ 0.08
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 396 $ 5,871
Trade accounts receivable, less allowance for
doubtful accounts of $161 and $150 in 1999
and 1998, respectively........................ 7,061 9,230
Income tax receivable........................... - 5,701
Deferred income taxes........................... 3,175 3,408
Other current assets............................ 226 577
--------- ---------
Total current assets........................... 10,858 24,787
--------- ---------
Property, plant and equipment:
Oil and gas properties, utilizing the full-cost
method of accounting.......................... 360,350 385,048
Unproven properties............................. 38,554 43,263
Other........................................... 2,682 2,653
Less accumulated depreciation, depletion and
amortization.................................. (311,748) (309,330)
--------- ---------
Net property and equipment..................... 89,838 121,634
--------- ---------
Investment in Genesis.............................. 16,909 16,908
Other assets....................................... 2,752 2,962
========= =========
Total assets................................... $120,357 $166,291
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt............... $ - $ 22,000
Accounts payable................................ 6,427 8,639
Accrued liabilities............................. 3,965 5,520
--------- ---------
Total current liabilities...................... 10,392 36,159
--------- ---------
Other liabilities.................................. 1,175 1,261
--------- ---------
Long-term debt..................................... 82,906 102,000
--------- ---------
Commitments and contingencies Shareholders' equity:
Preferred stock, $1 par value; 690,000 shares
issued and outstanding, liquidation value of
$34,500,000................................... 690 690
Common stock, $1 par value; 5,471,782 shares
issued and outstanding in 1999 and 1998....... 5,472 5,472
Additional paid-in capital...................... 40,829 40,829
Retained deficit................................ (21,107) (20,120)
--------- ---------
Total shareholders' equity..................... 25,884 26,871
========= =========
Total liabilities and shareholders' equity..... $120,357 $166,291
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss from continuing operations................... $ (678) $ (45,022)
Adjustments for non-cash items:
Depreciation, depletion and amortization........... 3,559 72,184
Deferred income taxes.............................. (455) (22,479)
Equity in earnings of investees - net of amortization (83) (224)
Distributions received from Genesis................ 82 79
--------- ---------
Earnings from continuing operations plus non-cash 2,425 4,538
operating items.......................................
Changes in components of working capital from operations:
Decrease (increase) in trade accounts receivable... 2,159 (1,668)
Decrease in federal income tax receivables......... 5,701 -
Decrease in other current assets................... 351 760
(Decrease) increase in accounts payable............ (2,236) 2,873
(Decrease) increase in accrued and other liabilities (1,610) 1,233
Increase in income tax payable..................... 24 1,283
--------- ---------
Cash provided by continuing operations................ 6,814 9,019
Cash provided by (utilized in) discontinued operations 2,003 (535)
--------- ---------
Cash provided by operating activities................. 8,817 8,484
--------- ---------
INVESTING ACTIVITIES:
Proceeds from the disposition of oil and gas properties 28,439 -
Additions to property, plant and equipment............ (202) (17,527)
Refund of deposit for Amoco Beaver Creek acquisition.. - 12,369
Other, net............................................ 210 (677)
--------- ---------
Cash provided by (utilized in) investing activities... 28,447 (5,835)
--------- ---------
FINANCING ACTIVITIES:
Repayments under credit agreements, net............... (41,094) -
Cash dividends:
Common shareholders.............................. (437) (439)
Preferred shareholders........................... (1,208) (1,208)
Exercise of stock options............................. - 65
--------- ---------
Cash utilized in financing activities................. (42,739) (1,582)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. (5,475) 1,067
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 5,871 56
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 396 $ 1,123
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Net cash paid for:
Interest.............................................. $ 4,026 $ 3,656
========= =========
Income taxes.......................................... $ 105 $ 65
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
June 30, 1999 and 1998
Note 1 - Basis of Financial Statement Preparation
The unaudited consolidated financial statements included herein have been
prepared by Howell Corporation (the "Company"), 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, 1999 and 1998. The results of operations for the three
and six months ended June 30, 1999 are not necessarily indicative of results to
be expected for the full year. The accounting policies followed by the Company
are set forth in Note 2 to the consolidated financial statements in its Annual
Report on Form 10-K for the year ended December 31, 1998. 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.
Reclassifications
Certain reclassifications have been made to the 1998 financial presentation to
conform with the 1999 presentation.
Note 2 - New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities that
require an entity to recognize all derivatives as an asset or liability measured
at its fair value. Depending on the intended use of the derivative, changes in
its fair value will be reported in the period of change as either a component of
earnings or a component of other comprehensive income. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Earlier
application of SFAS 133 is encouraged, but retroactive application to periods
prior to adoption is not allowed. The Company has not quantified the impact of
adoption on its financial statements or the date it intends to adopt.
Note 3 - Financial Instruments and Hedging Activities
In order to mitigate the effects of future price fluctuations, the Company from
time to time uses a limited program of hedging its crude oil production. 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. The Company is currently engaged in eight
and nine-month hedging programs, each ending December 31, 1999. The Company was
also engaged in a nine-month hedging program ending December 31, 1998.
The Company entered into two hedging programs during the second quarter of 1999.
The first program is a purchase of a put option and a sale of a call option
covering 1,750 barrels of oil per day effective April 1, 1999, through December
31, 1999. The strike prices are $15.00 per barrel for the put option and $17.00
per barrel for the call option. The second program is a purchase of a put option
and a sale of a call option also covering 1,750 barrels of oil per day effective
from May 1, 1999, through December 31, 1999. The strike prices are $14.50 per
barrel for the put option and $18.80 per barrel for the call option. There are
no premiums associated with either of these programs. The strike price of the
call options was exceeded during each month of the second quarter of 1999
resulting in a reduction of revenues of $0.1 million from what would have been
received had no hedging programs been in place. Without the options the average
price per barrel of oil for the three and six months ended June 30, 1999 would
have increased from $14.90 to $15.06 and from $11.71 to $11.78, respectively.
In 1998, the Company purchased a put option and sold a call option covering
4,800 barrels of oil per day for a nine-month period ended December 31, 1998.
The strike prices were $16.00 per barrel for the put option and $19.25 per
barrel for the call option. There was no premium associated with these options.
During the three months ended June 30, 1998, the Company received $0.6 million
as a result of the options. Without the options the average price per barrel of
oil for the three and six months ended June 30, 1998, would have been reduced
from $11.35 to $10.67 and $11.85 to $11.51, respectively.
Note 4 - Accumulated Depreciation, Depletion and Amortization
During the first quarter of 1998 a pre-tax write-down of the Company's oil and
gas properties of $66.1 million was required as a result of lower energy prices.
On an after-tax basis, the write-down amounted to $43.6 million. When compared
to 1998, the Company's depletion rate for the three and six months ended June
30, 1999, was $1.76 and $2.00 per equivalent barrel, respectively, versus a pre
write-down rate of $2.33 and $2.79, respectively, for the same periods ended
June 30, 1998.
Note 5 - Acquisitions & Dispositions
On January 4, 1999, the Company sold its right to participate in the future
earnings of Specified Fuels & Chemicals, Inc. ("SFC") for $2.0 million. SFC
acquired the Company's research and reference fuel business in July 1997. The
sale and results of the research and reference fuel business have been
classified as discontinued operations in the accompanying consolidated financial
statements. Discontinued Operations had a gain of $1.3 million for the six
months ended June 30, 1999, primarily as a result of the sale.
On January 29, 1999, the Company sold its interest in the LaBarge field, located
in southwestern Wyoming, for $15.8 million. The effective date was January 1,
1999. The properties consisted of three Federal units, 17 producing wells, a
field gathering system, a dehydration plant, a 32-mile dehydrated raw gas
pipeline, and a gas processing plant. In addition to natural gas, the properties
produced carbon dioxide, helium and sulfur. The Company owned a 4.8% working
interest in the Fogarty Creek Unit which contained 12 gross wells (0.6 net
wells) which produced from depths between 14,500 to 17,000 feet.
On March 19, 1999, the Company sold its interests in the Grass Creek Unit in Hot
Springs County, Wyoming, and the Pitchfork Unit in Park County, Wyoming for
$12.6 million, net of closing adjustments. The Company owned a 25% working
interest at Pitchfork and various working interests ranging from 13.08% to
43.14% in different producing horizons at Grass Creek.
The properties sold during the first quarter of 1999 were not considered to be
integral to the Company's future. The cumulative proceeds from these events,
totaling $29.8 million, have been used to eliminate debt.
Note 6 - Litigation
There are various lawsuits and claims against the Company, none of which, in the
opinion of management, will have a materially adverse effect on the Company.
Note 7 - Earnings (Loss) per Share
Basic earnings per common share amounts are calculated using the average number
of common shares outstanding during each period. Diluted earnings per share
assumes conversion of dilutive convertible preferred stocks and exercise of all
stock options having exercise prices less than the average market price of the
common stock using the treasury stock method.
The tables below present the reconciliation of the numerators and denominators
in calculating diluted earnings per share ("EPS") from continuing operations in
accordance with Statement of Financial Accounting Standards No. 128.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
<S> <C> <C> <C>
Earnings
Increase per
Increase in Number Incremental
in Income of Shares Share
------------ ----------- -----------
Options....................... - 67,113 -
Dividends on convertible
preferred stock............... $ 603,750 2,090,909 $ 0.29
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
<S> <C> <C> <C> <C>
Income
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- ----------
$ 485,250 5,471,782 $ 0.09
Common stock options.......... - 67,113 -
------------ ----------- ----------
$ 485,250 5,538,895 $ 0.09 Dilutive
Dividends on convertible
preferred stock............... 603,750 2,090,909 -
============ =========== ==========
$ 1,089,000 7,629,804 $ 0.14 Antidilutive
============ =========== ==========
</TABLE>
Note: Because diluted EPS from continuing operations increases from $0.09 to
$0.14 when convertible preferred shares are included in the computation, the
convertible preferred shares are antidilutive and are ignored in the computation
of diluted EPS from continuing operations. Therefore, diluted EPS from
continuing operations is reported as $0.09.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
<S> <C> <C> <C>
Earnings
Increase per
Increase in Number Incremental
in Income of Shares Share
------------ ----------- -----------
Options....................... - 24,371 -
Dividends on convertible
preferred stock............... $ 603,750 2,090,909 $ 0.29
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
<S> <C> <C> <C> <C>
Income
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- ----------
$ (469,750) 5,471,782 $(0.09)
Common stock options.......... - 24,371 -
------------ ----------- ----------
$ (469,750) 5,496,153 $(0.09) Antidilutive
Dividends on convertible
preferred stock............... 603,750 2,090,909 -
============ =========== ==========
$ 134,000 7,587,062 $ 0.02 Antidilutive
============ =========== ==========
</TABLE>
Note: Because diluted EPS from continuing operations increases from $(0.09) to
$0.02 when common stock options and convertible preferred shares are included in
the computation, those common stock options and convertible preferred shares are
antidilutive and are ignored in the computation of diluted EPS for continuing
operations. Therefore, diluted EPS from continuing operations is reported as
$(0.09).
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
<S> <C> <C> <C>
Earnings
Increase per
Increase in Number Incremental
in Income of Shares Share
----------- ----------- ----------
Options....................... - 33,556 -
Dividends on convertible
preferred stock............... $ 1,207,500 2,090,909 $ 0.58
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
<S> <C> <C> <C> <C>
Net Loss
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- ----------
$(1,885,500) 5,471,782 $(0.34)
Common stock options.......... - 33,556 -
------------ ----------- ----------
$(1,885,500) 5,505,338 $(0.34) Antidilutive
Dividends on convertible
preferred stock............... 1,207,500 2,090,909 -
============= =========== ==========
$ (678,000) 7,596,247 $(0.09) Antidilutive
============ =========== ==========
</TABLE>
Note: Because diluted EPS from continuing operations increases from $(0.34) to
$(0.09) when common stock options and convertible preferred shares are included
in the computation, those common stock options and convertible preferred shares
are antidilutive and are ignored in the computation of diluted EPS for
continuing operations. Therefore, diluted EPS from continuing operations is
reported as $(0.34).
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
<S> <C> <C> <C>
Earnings
Increase per
Increase in Number Incremental
in Income of Shares Share
------------ ----------- ----------
Options....................... - 84,641 -
Dividends on convertible
preferred stock............... $ 1,207,500 2,090,909 $ 0.58
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
<S> <C> <C> <C> <C>
Net Loss
Available
from
Continuing Common
Operations Shares Per Share
------------- ----------- ----------
$(46,229,500) 5,468,232 $(8.45)
Common stock options.......... - 84,641 -
------------- ----------- ----------
$(46,229,500) 5,552,873 $(8.33) Antidilutive
Dividends on convertible
preferred stock............... 1,207,500 2,090,909 -
============= =========== ==========
$(45,022,000) 7,643,782 $(5.89) Antidilutive
============= =========== ==========
</TABLE>
Note: Because diluted EPS from continuing operations increases from $(8.45) to
$(8.33) when common stock options are included in the computation and because
diluted EPS increases from $(8.33) to $(5.89) when convertible preferred shares
are included in the computation, both the common stock options and convertible
preferred shares are antidilutive and are ignored in the computation of diluted
EPS from continuing operations. Therefore, diluted EPS from continuing
operations is reported as $(8.45).
<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.
RESULTS OF CONTINUING OPERATIONS
The Company's principal business segment is oil and gas production. Results of
continuing operations for the three and six months ended June 30, 1999 and 1998,
are discussed below.
<TABLE>
<CAPTION>
Oil and Gas Production
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues (in thousands):
Sales of oil and natural gas........... $ 10,974 $11,621 $19,650 $ 25,062
Sales of LaBarge other products........ - 291 180 782
Gas marketing.......................... 63 265 83 485
Minerals leasing and other............. 145 90 147 205
--------- --------- -------- ---------
Total revenues.................... $ 11,182 $12,267 $20,060 $ 26,534
========= ======== ======== =========
Operating profit (loss) (in thousands). $ 3,518 $ 3,006 $ 3,154 $(62,822)
========= ======== ======== =========
Operating information:
Average net daily production:
Oil and NGL (Bbls)................. 7,254 9,368 8,138 9,792
Natural gas (Mcf).................. 9,048 11,850 8,925 12,542
Average sales prices:
Oil and NGL (per Bbl).............. $ 14.59 $ 11.18 $ 11.51 $ 11.70
Natural gas (per Mcf).............. $ 1.63 $ 1.94 $ 1.66 $ 1.91
</TABLE>
Revenues
Revenues for the three months ended June 30, 1999, decreased $1.1 million when
compared to the three months ended June 30, 1998, primarily due to a 23%
decrease in average net daily production of oil and NGL and a 16% decrease in
the average natural gas price, partially offset by a 31% increase in the average
oil and NGL price. Contributing to the decrease in production was the sale of
the Grass Creek and Pitchfork units in March 1999, the sale of the LaBarge
project in January 1999, and sale of the mineral interest in December 1998.
For the six months ended June 30, 1999, revenues decreased $6.5 million from the
same period in 1998. The change was primarily due to a decrease in average net
daily oil and NGL production and natural gas production of 17% and 29%,
respectively, a decrease in the average gas price of 13%, and a decrease in the
sales of LaBarge other products of 77%. The sale of the Grass Creek and
Pitchfork units in March 1999, the sale of the LaBarge project in January 1999,
and sale of the mineral interest in December 1998, also contributed to the
decrease in revenues.
The Company has entered into two hedging programs during the second quarter of
1999. The first program is a purchase of a put option and a sale of a call
option covering 1,750 barrels of oil per day effective April 1, 1999, through
December 31, 1999. The strike prices are $15.00 per barrel for the put option
and $17.00 per barrel for the call option. The second program is a purchase of a
put option and a sale of a call option also covering 1,750 barrels of oil per
day effective from May 1, 1999, through December 31, 1999. The strike prices are
$14.50 per barrel for the put option and $18.80 per barrel for the call option.
There are no premiums associated with either of these programs. The Company's
average realized sales price of its crude oil production during the three months
ended June 30, 1999, was reduced by the effects of the options the Company had
in place. The strike price of the call options was exceeded during each month of
the second quarter of 1999 resulting in a reduction of revenues of $0.1 million
from what would have been received had no hedging programs been in place.
Without the effects of the options, the average sales price of the Company's
crude oil production would have been $15.06 and $11.78, respectively, for the
three and six months ended June 30, 1999.
Operating Profit
The Company's operating profit increased $0.5 million when comparing the second
quarter of 1999 to the second quarter of 1998. The increase in operating profit
was due to a decrease in operating expenses partially offset by a decrease in
revenues. Operating expenses decreased 17% during the second quarter of 1999
when compared to the second quarter of 1998. The primary reason for the decrease
was a $1.0 million decrease in depletion expense, and a decrease in total
LaBarge expenses of $0.6 million resulting from its sale in the first quarter of
1999. Also contributing to the decrease was a reduction in gas marketing costs,
lease operating expenses and production taxes. Partially offsetting the decrease
in operating expenses was a $0.2 million increase in General and Administrative
expenses resulting from increased medical and legal costs.
For the six-month period ending June 30, 1999, operating profits increased $66.0
million when compared to the six-month period ended June 30, 1998. The increase
is primarily due to a first quarter 1998 pre-tax non-cash write-down of $66.1
million. Excluding the first quarter 1998 write-down, operating profits
decreased $0.1 million when comparing the first six months of 1999 to the same
period of 1998. The effect of decreased revenues during the first six months of
1999 was partially offset by a corresponding reduction of operating expenses
during the same period.
For the six months ending June 30, 1999, operating expenses decreased 27% when
compared to the pre write-down operating expenses during the same period of
1998. The primary reason for the decrease was a $2.5 million decrease in
depletion expense, a decrease in total LaBarge expenses of $1.2 million
resulting from its sale in the first quarter of 1999, a $1.1 million decrease in
lease operating expenses, and a $0.8 million decrease in production taxes. Also
contributing to the decrease in expenses were reductions in gas marketing and
general and administrative expenses. General and Administrative expenses
declined due to the elimination of the management fee paid to Amoco during the
first two months of 1998.
Crude Oil Marketing
The Company has a direct and indirect equity interest in Genesis Crude Oil,
L.P., Genesis Energy, L.P., and Genesis Energy, L.L.C. (collectively referred to
hereinafter as "Genesis"). As a result of the Company's interest, the Company
recognized a net loss of $0.1 million during the three and six months ended June
30, 1999. This represents a decrease in earnings of $0.2 million and $0.3
million, respectively, from the three and six months ended June 30, 1998.
<PAGE>
Interest Expense
Interest expense for the three and six months ended June 30, 1999, decreased
$1.0 million and $1.4 million, respectively, from the 1998 levels as a result of
decreased debt of $54 million since June 30, 1998. The primary reason for this
decrease was the sale of various non-integral properties with the proceeds used
to reduce debt.
Provision for Income Taxes
The Company's effective tax rate for the three months ended June 30, 1999 and
1998 was 35% and 43%, respectively. For the six months ended June 30, 1999 and
1998 the effective tax rate was 31% and 34%, respectively.
RESULTS FROM DISCONTINUED OPERATIONS
Technical Fuels and Chemical Processing
On July 31, 1997, the Company completed the sale and disposition of Howell
Hydrocarbons & Chemicals, Inc. ("HHCI") to Specified Fuels & Chemicals, Inc.
("SFC") which represented substantially all of the assets of its research and
reference fuels and custom chemical manufacturing business.
The results of the technical fuels and chemical processing business have been
classified as discontinued operations in the accompanying consolidated financial
statements. On January 4, 1999, the Company sold its right to participate in the
future earnings of SFC for $2.0 million. Discontinued Operations had a gain of
$1.3 million for the six months ended June 30, 1999, as a result of the sale.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operations for the six months ended June 30, 1999,
was $6.8 million. This compares to $9.0 million of cash provided by continuing
operations during the same 1998 period. The Company's debt decreased by $41.1
million during the first six months of 1999 while there was no change during the
first six months of 1998. Capital expenditures for the six months ended June 30,
1999, were $0.2 million compared to $17.5 million for the 1998 period.
Management estimates that capital expenditures for the balance of 1999 will
approximate $6.0 million. It is expected that cash flow from operations will be
adequate to fund this level of expenditures.
As a result of sales of non-integral properties, the Company's total debt, all
long term, at June 30, 1999, was $82.9 million. At June 30, 1999, the Company's
borrowing base under the terms of its Credit Facility was $92.0 million.
During the first six months of 1999, the Company paid common dividends of $0.4
million and preferred dividends of $1.2 million.
Year 2000 Date Conversion
The Company has implemented its plan that addresses the year 2000 ("Y2K")
conversion issue. The Company has evaluated all computer systems used in its
operations. This includes accounting and financial systems, field and production
systems, and other significant field or office devices that may not be Y2K
compliant. Further, the Company has made a determination of what remedial action
is necessary and has initiated its remedial plan. The Company has completed
corrective action on major office systems and anticipates completion of
corrective action of field systems in the third quarter of 1999.
The Company is also in the process of determining the Y2K status of relevant
outside suppliers and vendors. While the Company cannot control the Y2K
corrective action of third parties, it is in the process of identifying and
contacting its critical suppliers and vendors. Based on their status, the
Company will develop contingency plans. These should be completed during the
third quarter of this year.
The present estimate of the cost of Y2K conversion and compliance is
approximately $420,000. It is not certain that this estimate is correct or that
Year 2000 compliance can be achieved. The Company does not expect a significant
disruption in its operations, but actual results could differ greatly from these
expectations. Some areas that could cause differences to occur are the
availability of personnel trained in this area, the ability to identify and
correct all relevant computer code and non-compliant embedded systems and the
degree of interdependence with third-party suppliers and purchasers. Other areas
outside the Company's control such as problems in the utility, banking, or
transportation systems could have a material disruptive effect on the Company's
ability to produce and deliver oil and gas, receive delivery of materials and
supplies, or disburse or receive funds.
One example of a serious Y2K problem would be the shut down of a field which has
automated controls and/or a monitoring system. As disclosed above, the Company
has examined such controls and systems in all of its major fields and is taking
corrective action, as appropriate. Nevertheless, the Company intends to prepare
a Y2K contingency plan which will address potential risks in the field, and
possible solutions, including manual intervention or equipment replacement. The
Company is unable to anticipate every potential problem and determine a
contingency for every possible Y2K risk. Should essential services such as
electricity be affected adversely, or if other Y2K problems limit or restrict
production from one of the Company's major fields, it could have a material
adverse affect on the Company.
Forward-looking Statements
Statements contained in this Report and other materials filed or to be filed by
the Company with the Securities and Exchange Commission (as well as information
included in oral or other written statements made or to be made by the Company
or its representatives) that are forward-looking in nature are intended to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, relating to matters such as anticipated operating and financial
performance, business prospects, developments and results of the Company. Actual
performance, prospects, developments and results may differ materially from any
or all anticipated results due to economic conditions and other risks,
uncertainties and circumstances partly or totally outside the control of the
Company, including rates of inflation, oil and natural gas prices, uncertainty
of reserve estimates, rates and timing of future production of oil and gas,
exploratory and development activities, acquisition risks, and changes in the
level and timing of future costs and expenses related to drilling and operating
activities.
Words such as "anticipated", "expect", "estimate", "project", and similar
expressions are intended to identify forward-looking statements.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none.
(b) Reports on Form 8-K
A report on Form 8-K/A was filed on April 1, 1999, announcing the
retirement of its term loan and the completed sale of its Grass Creek
and Pitchfork Units.
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 12, 1999 /s/ Allyn R. Skelton, II
-------------------------
Allyn R. Skelton, II
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data schedule contains summary financial information
extracted from the form 10-Q of Howell Corporation for the six months
ended June 30, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 396
<SECURITIES> 0
<RECEIVABLES> 7061
<ALLOWANCES> 161
<INVENTORY> 40
<CURRENT-ASSETS> 10858
<PP&E> 401586
<DEPRECIATION> 311748
<TOTAL-ASSETS> 120357
<CURRENT-LIABILITIES> 10392
<BONDS> 82906
0
690
<COMMON> 5472
<OTHER-SE> 19722
<TOTAL-LIABILITY-AND-EQUITY> 120357
<SALES> 20060
<TOTAL-REVENUES> 20060
<CGS> 14374
<TOTAL-COSTS> 14374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3998
<INCOME-PRETAX> (984)
<INCOME-TAX> (306)
<INCOME-CONTINUING> (678)
<DISCONTINUED> 1336
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 658
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
