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, 2000
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, 2000
----------------------------- -------------------------------
Common Stock, $1.00 par value 5,524,907
This report contains 15 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 nine months ended September 30, 2000 and 1999
(unaudited)................................................. 3
Condensed Consolidated Balance Sheets -- September 30, 2000
(unaudited)and December 31, 1999............................ 4
Condensed Consolidated Statements of Cash Flows -- Nine
months ended September 30, 2000 and 1999 (unaudited)........ 5
Notes to Condensed Consolidated Financial Statements
(unaudited)................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Part II.Other Information
Item 6. Exhibits and Reports on Form 8-K.............................. 15
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 1)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues .............................................................. $21,300 $13,368 $58,365 $33,428
------- ------- ------- -------
Cost and expenses:
Lease operating expenses ............................................ 7,961 6,019 22,225 16,834
Depreciation, depletion, and amortization............................ 1,863 1,367 5,394 4,926
General and administrative expenses.................................. 1,025 828 2,880 3,360
------- ------- ------- -------
10,849 8,214 30,499 25,120
------- ------- ------- -------
Other income (expense):
Interest expense .................................................... (1,575) (1,642) (4,768) (5,640)
Interest income ..................................................... 40 24 108 84
Other-net ........................................................... - 31 1 31
------- ------- ------- -------
(1,535) (1,587) (4,659) (5,525)
------- ------- ------- -------
Earnings before income taxes .......................................... 8,916 3,567 23,207 2,783
Income tax provision .................................................. 3,282 1,230 8,355 992
------- ------- ------- -------
Net earnings from continuing operations ............................... 5,634 2,337 14,852 1,791
------- ------- ------- -------
Discontinued operations:
Net earnings (loss) (less applicable income taxes of $44 and $664 for
the three and nine months ended September 30, 1999, respectively).... - (92) - 1,112
------- ------- ------- -------
Net earnings .......................................................... 5,634 2,245 14,852 2,903
Less: Preferred stock dividends ..................................... (604) (604) (1,811) (1,811)
------- ------- ------- -------
Net earnings applicable to common shares .............................. $ 5,030 $ 1,641 $13,041 $ 1,092
======= ======= ======= =======
Basic earnings (loss) per common share:
Continuing operations ............................................... $ 0.91 $ 0.32 $ 2.36 $ -
Discontinued operations ............................................. - (0.02) - 0.20
------- ------- ------- -------
Net earnings per common share (basic)................................ $ 0.91 $ 0.30 $ 2.36 $ 0.20
======= ======= ======= =======
Weighted average shares outstanding (basic)............................ 5,524 5,472 5,522 5,472
======= ======= ======= =======
Diluted earnings (loss) per common share:
Continuing operations ............................................... $ 0.72 $ 0.30 $ 1.90 $ -
Discontinued operations ............................................. - (0.01) - 0.20
------- ------- ------- -------
Net earnings per common share (diluted) ............................. $ 0.72 $ 0.29 $ 1.90 $ 0.20
======= ======= ======= =======
Weighted average shares outstanding (diluted).......................... 7,841 7,665 7,802 5,528
======= ======= ======= =======
Cash dividends per common share ....................................... $ 0.04 $ 0.04 $ 0.12 $ 0.12
======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................... $ 5,372 $ 2,112
Trade accounts receivable, less allowance
for doubtful accounts of $66 and $156
in 2000 and 1999, respectively............. 11,951 10,978
Deferred income taxes ........................ 957 2,027
Other current assets ......................... 752 2,440
-------- --------
Total current assets ....................... 19,032 17,557
-------- --------
Property, plant and equipment:
Oil and gas properties, utilizing the
full-cost method of accounting ............ 393,110 382,393
Unproven properties .......................... 21,143 21,143
Other ........................................ 2,784 2,759
Less accumulated depreciation, depletion
and amortization .......................... (318,644) (313,249)
-------- --------
Net property and equipment ................. 98,393 93,046
-------- --------
Deferred income taxes - long term .............. 1,779 3,600
Other assets ................................... 710 780
Assets related to discontinued operations ...... - 3,000
======== ========
Total assets ............................... $119,914 $117,983
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ............................. $ 12,509 $ 10,513
Accrued liabilities .......................... 6,693 3,934
Income taxes payable ......................... - 140
-------- --------
Total current liabilities .................. 19,202 14,587
-------- --------
Other liabilities .............................. 587 716
-------- --------
Long-term debt ................................. 67,000 82,000
-------- --------
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; 5,524,907 shares
issued and outstanding in 2000 and 5,471,782
shares issued and outstanding in 1999....... 5,525 5,472
Additional paid-in capital ................... 41,071 40,829
Unearned compensation ........................ (226) -
Retained deficit ............................. (13,935) (26,311)
-------- --------
Total shareholders' equity ................. 33,125 20,680
======== ========
Total liabilities and shareholders' equity.. $119,914 $117,983
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings from continuing operations ........ $14,852 $ 1,791
Adjustments for non-cash items:
Depreciation, depletion and amortization...... 5,394 4,926
Deferred income taxes ........................ 3,103 1,043
Other ........................................ 52 (30)
------- -------
Earnings from continuing operations plus
non-cash items ............................... 23,401 7,730
Changes in components of working capital
from operations:
Increase in trade accounts receivable ........ (973) (338)
Decrease in federal income tax receivables ... - 5,701
Decrease in other current assets ............. 1,688 289
Increase in accounts payable ................. 1,986 1,013
Increase (decrease) in accrued and other
liabilities................................ 2,805 (2,545)
Decrease in income tax payable ............... (140) (545)
------- -------
Cash provided by continuing operations ......... 28,767 11,305
Cash provided by (utilized in) discontinued
operations ................................ (167) 2,024
------- -------
Cash provided by operating activities .......... 28,600 13,329
------- -------
INVESTING ACTIVITIES:
Proceeds from the disposition of property....... 3,000 28,684
Additions to property, plant and equipment...... (10,740) (2,134)
Other, net ..................................... (142) 219
------- -------
Cash provided by (utilized in) investing
activities ................................ (7,882) 26,769
------- -------
FINANCING ACTIVITIES:
Repayments under credit agreements, net ........ (15,000) (43,000)
Cash dividends:
Common shareholders ....................... (664) (656)
Preferred shareholders .................... (1,811) (1,811)
Exercise of stock options ...................... 17 -
------- -------
Cash utilized in financing activities .......... (17,458) (45,467)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................... 3,260 (5,369)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.. 2,112 5,871
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....... $ 5,372 $ 502
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid for:
Interest ....................................... $ 3,447 $ 5,664
======= =======
Income taxes ................................... $ 5,611 $ 481
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
September 30, 2000 and 1999
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
nine months ended September 30, 2000 and 1999. The results of operations for the
three and nine months ended September 30, 2000 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 1 to the consolidated financial statements in
its Annual Report on Form 10-K for the year ended December 31, 1999. These
condensed 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 1999 financial presentation to
conform with the 2000 presentation.
Note 2 - New Accounting Standards
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101, as amended, in the fourth quarter of
fiscal 2000. The Company does not expect the adoption of SAB 101 to have a
material effect on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, was amended in June 1999 by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement No. 133 - an amendment of FASB
Statement No. 133." SFAS No. 133 as amended, is effective for fiscal years
beginning after June 15, 2000, and 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
asset or liability measured at its fair value will be reported in the period of
change as either a component of earnings or a component of other comprehensive
income. Retroactive application to periods prior to adoption is not allowed.
There is no current impact on the Company's financial statements as the
Company's current hedging activities expire on December 31, 2000. The Company
currently has no hedging agreements in place for periods beginning January 1,
2001. Should the Company enter into any hedging agreements for periods after
December 31, 2000, the effects of those agreements will be evaluated at that
point in time.
Note 3 - Financial Instruments and Hedging Activities
In order to mitigate the effects of future price fluctuations, the Company from
time to time uses limited programs to hedge 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 was not engaged in a hedging
program during the first quarter of 1999.
-6-
<PAGE>
The Company has entered into two hedging programs for the year 2000. The first
program is a purchase of a put option and a sale of a call option covering 1,700
barrels of oil per day effective January 1, 2000, through December 31, 2000. The
strike prices are $17.25 per barrel for the put option and $22.00 per barrel for
the call option. The second program is a purchase of a put option and a sale of
a call option covering 1,800 barrels of oil per day effective January 1, 2000,
through December 31, 2000. The strike prices are $18.50 per barrel for the put
option and $26.00 per barrel for the call option. Each program provides for
monthly settlements and is based on monthly average oil prices. There are no
premiums associated with either program. During the three and nine months ended
September 30, 2000, the strike prices of the call options were exceeded,
resulting in a reduction of revenues of $2.4 million and $5.4 million,
respectively, 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
nine months ended September 30, 2000, would have increased from $26.24 to $29.77
and from $24.97 to $27.67, respectively.
Note 4 - Accumulated Depreciation, Depletion and Amortization
The Company's depletion rate for the three and nine months ended September 30,
2000, was $2.20 and $2.16 per equivalent barrel, respectively, versus a rate of
$1.67 and $1.90, respectively, for the same periods ended September 30, 1999.
Note 5 - Acquisitions & Dispositions
On November 3, 2000, the Company purchased certain interests in the South Elk
Basin field for $3.4 million.
During the second quarter of 2000, the Company purchased certain interests in
the Salt Creek and Salt Creek South fields for $2.4 million.
On February 28, 2000, the Company entered into a Purchase and Sale Agreement to
sell its 46% interest in Genesis Energy, L.L.C for $3.0 million. The proceeds
from the sale were used to reduce debt and no gain or loss was recognized on the
sale. The Company owns subordinated units in Genesis Crude Oil, L.P. and carries
that investment at zero. The Company does not expect to receive any proceeds for
its subordinated units.
The results have been classified as discontinued operations in the accompanying
consolidated financial statements. As a result of the Company's direct and
indirect interest in Genesis, the Company recognized a net loss of $0.1 million
during the three and nine months ended September 30, 1999. There were no pre-tax
earnings during the three and nine months ended September 30, 2000.
Note 6 - Litigation
Howell Pipeline Texas, Inc. v. Exxon Pipeline Company, 125th Judicial District,
District Court of Harris County, Texas, Cause No. 1999 - 32526. On June 25,
1999, Howell Pipeline Texas, Inc. ("HPTex") sued Exxon Pipeline Company
("Exxon") for failure to pay rent for the use of certain crude oil storage tanks
("Tanks"). Exxon notified HPTex of its intention to cancel a lease on the Tanks
effective March 31, 1996. Exxon stopped paying rent but did not vacate the
premises after notification of the lease cancellation. Exxon continued to store
crude oil and hydrostatic test water for an additional eighteen months. HPTex
claims Exxon owes in excess of $2 million in rent plus interest and attorney's
fees.
Exxon filed a counterclaim against HPTex in which Exxon claims that HPTex is
responsible for the removal costs associated with certain contents of the Tanks.
Exxon claims it "has incurred actual damages in an amount not to exceed $2
million."
-7-
<PAGE>
The Company believes that the ultimate resolution will not have a material
adverse impact on its results of operations, financial position 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 7 - Earnings 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 on the following two pages 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.
-8-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
Increase
in Earnings
Number per
Increase of Incremental
in Income Shares Share
---------- --------- ---------
<S> <C> <C> <C>
Options...................................... - 226,664 -
Dividends on convertible preferred stock..... 603,750 2,090,909 $0.29
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Income
Available
from
Continuing Common
Operations Shares Per Share
---------- --------- ---------
<S> <C> <C> <C> <C>
$5,030,250 5,523,554 $0.91
Common stock options......................... - 226,664 -
---------- --------- ---------
$5,030,250 5,750,218 $0.87 Dilutive
Dividends on convertible preferred stock..... 603,750 2,090,909 -
========== ========= =========
$5,634,000 7,841,127 $0.72 Dilutive
========== ========= =========
</TABLE>
Note: Because diluted EPS from continuing operations decreases from $0.91 to
$0.72 when common stock options and convertible preferred shares are included in
the computation, those common stock options and convertible preferred shares are
dilutive for continuing operations. Therefore, diluted EPS from continuing
operations is reported as $0.72.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
Increase
in Earnings
Number per
Increase of Incremental
in Income Shares Share
---------- --------- ---------
<S> <C> <C> <C>
Options..................................... - 102,665 -
Dividends on convertible preferred stock.... $ 603,750 2,090,909 $0.29
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Income
Available
from
Continuing Common
Operations Shares Per Share
---------- --------- ---------
<S> <C> <C> <C> <C>
$1,694,250 5,471,782 $0.32
Common stock options.......................... - 102,665 -
---------- --------- ---------
$1,694,250 5,574,447 $0.31 Dilutive
Dividends on convertible preferred stock...... 603,750 2,090,909 -
========== ========= =========
$2,298,000 7,665,356 $0.30 Dilutive
========== ========= =========
</TABLE>
Note: Because diluted EPS from continuing operations decreases from $0.32 to
$0.30 when common stock options and convertible preferred shares are included in
the computation, those common stock options and convertible preferred shares are
dilutive for continuing operations. Therefore, diluted EPS from continuing
operations is reported as $0.30.
-9-
<PAGE>
<TABLE>
<CAPTION>
Nine months Ended September 30, 2000
Increase
in Earnings
Number per
Increase of Incremental
in Income Shares Share
---------- --------- ---------
<S> <C> <C> <C>
Options..................................... - 188,191 -
Dividends on convertible preferred stock.... $1,811,250 2,090,909 $0.87
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Income
Available
from
Continuing Common
Operations Shares Per Share
---------- --------- ---------
<S> <C> <C> <C> <C>
$13,040,750 5,522,437 $2.36
Common stock options.......................... - 188,191 -
---------- --------- ---------
$13,040,750 5,710,628 $2.28 Dilutive
Dividends on convertible preferred stock...... 1,811,250 2,090,909 -
========== ========= =========
$14,852,000 7,801,537 $1.90 Dilutive
========== ========= =========
</TABLE>
Note: Because diluted EPS from continuing operations decreases from $2.36 to
$1.90 when common stock options and convertible preferred shares are included in
the computation, those common stock options and convertible preferred shares are
dilutive for continuing operations. Therefore, diluted EPS from continuing
operations is reported as $1.90.
<TABLE>
<CAPTION>
Nine months Ended September 30, 1999
Increase
in Earnings
Number per
Increase of Incremental
in Income Shares Share
---------- --------- ---------
<S> <C> <C> <C>
Options..................................... - 56,593 -
Dividends on convertible preferred stock.... $1,811,250 2,090,909 $0.87
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Net Loss
Available
from
Continuing Common
Operations Shares Per Share
---------- --------- ---------
<S> <C> <C> <C> <C>
$ (20,250) 5,471,782 $0.00
Common stock options.......................... - 56,593 -
---------- --------- ---------
$ (20,250) 5,528,375 $0.00 Antidilutive
Dividends on convertible preferred stock...... 1,811,250 2,090,909 -
========== ========= =========
$1,791,000 7,619,284 $0.24 Antidilutive
========== ========= =========
</TABLE>
Note: Because diluted EPS from continuing operations increases from $0.00 to
$0.24 when convertible preferred shares are included in the computation, those
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 $0.00.
-10-
<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 nine months ended September 30, 2000 and
1999, are discussed below.
<TABLE>
<CAPTION>
Oil and Gas Production
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues (in thousands):
Sales of oil and natural gas............. $21,240 $13,341 $58,180 $32,991
Sales of LaBarge other products.......... - - - 180
Gas marketing............................ - - - 83
Minerals leasing and other............... 60 27 185 174
------- ------- ------- -------
Total revenues...................... $21,300 $13,368 $58,365 $33,428
======= ======= ======= =======
Operating profit (in thousands).......... $10,451 $ 5,154 $27,866 $ 8,308
======= ======= ======= =======
Operating information:
Average net daily production:
Oil (Bbls)........................... 7,431 7,017 7,267 7,472
NGL (Bbls)........................... 334 373 406 414
Natural gas (Mcf).................... 7,896 7,482 7,700 8,439
Equivalent (Bbls).................... 9,081 8,637 8,956 9,293
Average sales prices:
Oil (per Bbl, net of hedge effects).. $ 26.24 $ 17.51 $ 24.97 $ 13.54
NGL (per Bbl)........................ $ 22.82 $ 13.99 $ 20.25 $ 9.90
Natural gas (per Mcf)................ $ 3.58 $ 2.26 $ 2.94 $ 1.84
</TABLE>
Revenues for the three months ended September 30, 2000, increased $7.9 million
when compared to the three months ended September 30, 1999, primarily due to a
50% increase in the average oil price, a 63% increase in the average NGL price
and a 58% increase in the average natural gas price. A 5% increase in average
net daily production also contributed to the increased revenues.
For the nine months ended September 30, 2000, revenues increased $24.9 million
from the same period in 1999. The change was primarily due to an 84% increase in
average oil prices, a 105% increase in average NGL prices, and a 60% increase in
average gas prices. These increases were partially offset by the effects of
lower production volumes which resulted from the sale of certain non-strategic
properties during the first quarter of 1999.
The Company has entered into two hedging programs for the year 2000. The first
program is a purchase of a put option and a sale of a call option covering 1,700
barrels of oil per day effective January 1, 2000, through December 31, 2000. The
strike prices are $17.25 per barrel for the put option and $22.00 per barrel for
the call option. The second program is a purchase of a put option and a sale of
a call option covering 1,800 barrels of oil per day effective January 1, 2000,
through December 31, 2000. The strike prices are $18.50 per barrel for the put
option and $26.00 per barrel for the call option. Each program provides for
monthly settlements and is based on monthly average oil prices. There are no
premiums associated with either program. During the three and nine months ended
September 30, 2000, the strike prices of the call options were exceeded,
resulting in a reduction of revenues of $2.4 million and $5.4 million,
respectively, 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
nine months ended September 30, 2000, would have increased from $26.24 to $29.77
and from $24.97 to $27.67, respectively.
-11-
<PAGE>
The Company's operating profit increased $5.3 million when comparing the three
months ended September 30, 2000, to the same period of 1999. The change was
primarily due to the increase in revenues. The revenue increase was partially
offset by higher lease operating expenses of $1.0 million, higher production
taxes of $0.9 million, and higher depletion costs of $0.5 million. Lease
operating expenses increased due to the acquisitions made in the second quarter
of 2000 and increased activity that was stimulated by higher commodity prices.
Production taxes increased as a result of higher commodity prices. Additionally,
the revenue increase was offset by higher general and administrative expenses of
$0.2 million.
For the nine months ended September 30, 2000, operating profits increased $19.6
million when compared to the 1999 period. The improvement was primarily due to
the increase in revenues. The revenue increase was offset by expense increases
of $3.3 million in production taxes, $2.5 million in lease operating expenses
and $0.5 million in depletion expenses. Production taxes increased as a result
of higher commodity prices. Lease operating expenses increased due to the
acquisitions made in the second quarter of 2000 and increased activity that was
stimulated by higher commodity prices. Also contributing to the increased
operating profit was a $0.5 million decrease in general and administrative
expenses and a $0.3 million decrease in LaBarge expenses resulting from the sale
of the LaBarge project in the first quarter of 1999.
Interest Expense
Interest expense for the three and nine months ended September 30, 2000,
decreased $0.1 million and $0.9 million, respectively, from the 1999 levels. The
decrease was a result of decreased average debt outstanding of $14.5 million and
$21.5 million for the three and nine months ended September 30, 2000,
respectively, partially offset by higher average interest rates. The primary
reason for the decrease in average debt was due to an increase in cash flow
primarily as a result of increased revenues and the sale of various non-integral
properties during the first quarter of 1999.
Provision for Income Taxes
The Company's effective tax rate for the three months ended September 30, 2000
and 1999 was 37% and 36%, respectively. For the nine months ended September 30,
2000 and 1999 the effective tax rate was 36%.
RESULTS FROM DISCONTINUED OPERATIONS
Crude Oil Marketing
During the first quarter of 2000, the Company sold its 46% interest in Genesis
Energy, L.L.C for $3.0 million. The proceeds from the sale were used to reduce
debt and no gain or loss was recognized on the sale. The Company owns
subordinated units in Genesis Crude Oil, L.P. and carries that investment at
zero. The Company does not expect to receive any proceeds for its subordinated
units.
The results have been classified as discontinued operations in the accompanying
consolidated financial statements. As a result of the Company's interest in
Genesis, the Company recognized a net loss of $0.1 million during the three and
nine months ended September 30, 1999. There were no pre-tax earnings during the
three and nine months ended September 30, 2000.
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Technical Fuels and Chemical Processing
On July 31, 1997, the Company sold substantially all of the assets of its
research and reference fuels and custom chemical manufacturing business. On
January 4, 1999, the Company sold its right to participate in the future
earnings of the purchaser for $2.0 million. The Company recognized a $0.1
million loss and a gain of $1.3 million during the three and nine months ended
September 30, 1999, respectively. There were no pre-tax earnings during the
three and nine months ended September 30, 2000. The results of the technical
fuels and chemical processing business have been classified as discontinued
operations in the accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operations for the nine months ended September 30,
2000, was $28.8 million. This compares to $11.3 million for the same period
during 1999. The Company's debt decreased by $15.0 million during the first nine
months of 2000 while there was a $43.0 million decrease during the first nine
months of 1999. Capital expenditures for the nine months ended September 30,
2000, were $10.7 million compared to $2.1 million for the 1999 period.
The Company's total debt, all long term, at September 30, 2000, was $67.0
million. At September 30, 2000, the Company's borrowing base under the terms of
its Credit Facility was $100.0 million.
During the first nine months of 2000, the Company paid common dividends of $0.7
million and preferred dividends of $1.8 million.
The Company has issued and outstanding 690,000 shares of $3.50 Convertible
Preferred Stock, Series A, ("Preferred Stock"). Each share of Preferred Stock
has a liquidation preference of $50.00 plus accrued and unpaid dividends. The
Preferred Stock is convertible, at the option of the holder at any time, unless
previously redeemed, into shares of Common Stock of the Company at an initial
conversion price of $16.50 per share of Common Stock, subject to adjustment
under certain conditions. The Preferred Stock is not subject to any mandatory
redemption or sinking fund provision. Subject to certain limitations, the
Preferred Stock is redeemable, for cash, at the option of the Company, in whole
or in part, at any time. The redemption price is $50.50, but reduces to $50.00
on April 23, 2001.
OTHER
The Company acquired significant oil and gas properties from Amoco Production
Company in 1997. A portion of the acquisition cost was allocated to an oil
property that is a potential CO2 flood candidate. In light of the unusually low
oil price environment for nearly two years following the acquisition, limited
evaluation work was done during that period. With the strong rebound of oil
prices, Company personnel and consultants are now studying the properties to
determine the feasibility of such a project.
At September 30, 2000, $14.6 million attributable to this property is included
in unproven properties on the balance sheet. If the evaluation determines that
the CO2 flood project is not feasible, the associated costs will be transferred
to the full cost pool and would result in increasing depletion expense by
approximately 15% in future periods. The Company has not recognized any proved
reserves attributable to the CO2 potential of this property. If the Company
decides to go forward with the project, one or more successful pilot programs
will be necessary in order to record any proved reserves. It is expected that
the development costs would be funded from cash flow.
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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, changes in the level
and timing of future costs and expenses related to drilling and operating
activities, and the operating and financial performance of Genesis.
Words such as "anticipated", "expect", "estimate", "project", and similar
expressions are intended to identify forward-looking statements.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none.
(b) Reports on Form 8-K - none.
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 13, 2000 /s/ Allyn R. Skelton, II
-------------------------
Allyn R. Skelton, II
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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