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, 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 July 31, 2000
----------------------------- -------------------------------
Common Stock, $1.00 par value 5,523,407
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, 2000 and 1999
(unaudited)................................................. 3
Condensed Consolidated Balance Sheets --
June 30, 2000 (unaudited) and December 31, 1999............. 4
Condensed Consolidated Statements of Cash Flows -- Six months
ended June 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................................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.............................. 14
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
(ITEM 1)
================================================================================
Consolidated Statements of Operations (Unaudited)
HOWELL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Revenues........................... $18,789 $11,182 $37,065 $20,060
-------- -------- -------- --------
Cost and expenses:
Lease operating expenses......... 7,452 4,927 14,264 10,815
Depreciation, depletion, and
amortization................... 1,780 1,445 3,531 3,559
General and administrative
expenses....................... 748 1,292 1,855 2,532
-------- -------- -------- --------
9,980 7,664 19,650 16,906
-------- -------- -------- --------
Other income (expense):
Interest expense................. (1,526) (1,727) (3,193) (3,998)
Interest income.................. 22 22 68 60
Other-net........................ 1 1 1 -
-------- -------- -------- --------
(1,503) (1,704) (3,124) (3,938)
-------- -------- -------- --------
Earnings (loss) before income
taxes.......................... 7,306 1,814 14,291 (784)
Income tax provision (benefit)..... 2,628 636 5,073 (238)
-------- -------- -------- --------
Net earnings (loss) from
continuing operations.......... 4,678 1,178 9,218 (546)
-------- -------- -------- --------
Discontinued operations:
Net earnings (loss) (less
applicable income taxes of
$(54) and $620 for the three
and six months ended June 30,
1999, respectively)............ - (103) - 1,204
-------- -------- -------- --------
Net earnings....................... 4,678 1,075 9,218 658
Less: Preferred stock dividends.. (604) (604) (1,208) (1,208)
-------- -------- -------- --------
Net earnings (loss) applicable to
common shares.................. $ 4,074 $ 471 $ 8,010 $ (550)
======== ======== ======== ========
Basic earnings (loss) per common
share:
Continuing operations............ $ 0.74 $ 0.10 $ 1.45 $ (0.32)
Discontinued operations.......... - (0.01) - 0.22
-------- -------- -------- --------
Net earnings (loss) per common
share (basic).................. $ 0.74 $ 0.09 $ 1.45 $ (0.10)
======== ======== ======== ========
Weighted average shares
outstanding (basic)............ 5,523 5,472 5,522 5,472
======== ======== ======== ========
Diluted earnings (loss) per common
share:
Continuing operations............ $ 0.60 $ 0.10 $ 1.19 $ (0.32)
Discontinued operations.......... - (0.01) - 0.22
-------- -------- -------- --------
Net earnings (loss) per common
share (diluted)................ $ 0.60 $ 0.09 $ 1.19 $ (0.10)
======== ======== ======== ========
Weighted average shares
outstanding (diluted).......... 7,799 5,539 7,776 5,472
======== ======== ======== ========
Cash dividends per common share.... $ 0.04 $ 0.04 $ 0.08 $ 0.08
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
================================================================================
Consolidated Balance Sheets
HOWELL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ 288 $ 2,112
Trade accounts receivable, less allowance
for doubtful accounts of $66 and $156
in 2000 and 1999, respectively.......... 10,929 10,978
Deferred income taxes..................... 1,593 2,027
Other current assets...................... 303 2,440
--------- ---------
Total current assets.................... 13,113 17,557
--------- ---------
Property, plant and equipment:
Oil and gas properties, utilizing the
full-cost method of accounting.......... 388,979 382,393
Unproven properties....................... 21,143 21,143
Other..................................... 2,784 2,759
Less accumulated depreciation, depletion
and amortization........................ (316,781) (313,249)
--------- ---------
Net property and equipment.............. 96,125 93,046
--------- ---------
Deferred income taxes....................... 1,973 3,600
Other assets................................ 716 780
Assets related to discontinued operations... - 3,000
--------- ---------
Total assets............................ $111,927 $117,983
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable.......................... $ 10,626 $ 10,513
Accrued liabilities....................... 4,317 3,934
Income taxes payable...................... 68 140
--------- ---------
Total current liabilities............... 15,011 14,587
--------- ---------
Other liabilities........................... 630 716
--------- ---------
Long-term debt.............................. 68,000 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; 5,523,407
shares issued and outstanding in 2000;
5,471,782 shares issued and outstanding
in 1999................................. 5,523 5,472
Additional paid-in capital................ 41,059 40,829
Unearned compensation..................... (243) -
Retained deficit.......................... (18,743) (26,311)
--------- ---------
Total shareholders' equity.............. 28,286 20,680
--------- ---------
Total liabilities and shareholders'
equity............................... $111,927 $117,983
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
================================================================================
Consolidated Statements of Cash Flows (Unaudited)
HOWELL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations.. $ 9,218 $ (546)
Adjustments for non-cash items:
Depreciation, depletion and amortization...... 3,531 3,559
Deferred income taxes......................... 2,061 233
Other......................................... 35 -
-------- --------
Earnings from continuing operations plus
non-cash operating items.................... 14,845 3,246
Changes in components of working capital from
operations:
Decrease in trade accounts receivable......... 49 2,159
Decrease in federal income tax receivables.... - 5,701
Decrease in other current assets.............. 2,137 351
Increase (decrease) in accounts payable....... 103 (2,228)
Increase (decrease) in accrued and other
liabilities................................. 426 (1,784)
Decrease in income tax payable................ (72) (603)
-------- --------
Cash provided by continuing operations.......... 17,488 6,842
Cash provided by (utilized in) discontinued
operations.................................. (118) 1,975
-------- --------
Cash provided by operating activities........... 17,370 8,817
-------- --------
INVESTING ACTIVITIES:
Proceeds from the disposition of property....... 3,000 28,439
Additions to property, plant and equipment...... (6,611) (202)
Other, net...................................... 64 210
-------- --------
Cash provided by (utilized in) investing
activities.................................. (3,547) 28,447
-------- --------
FINANCING ACTIVITIES:
Repayments under credit agreements, net......... (14,000) (41,094)
Cash dividends:
Common shareholders........................ (442) (437)
Preferred shareholders..................... (1,208) (1,208)
Exercise of stock options....................... 3 -
-------- --------
Cash utilized in financing activities........... (15,647) (42,739)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS................................. (1,824) (5,475)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.. 2,112 5,871
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 288 $ 396
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Net cash paid for:
Interest........................................ $ 2,808 $ 4,026
======== ========
Income taxes.................................... $ 3,091 $ 105
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
================================================================================
Notes to Consolidated Financial Statements (Unaudited)
HOWELL CORPORATION AND SUBSIDIARIES
June 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
six months ended June 30, 2000 and 1999. The results of operations for the three
and six months ended June 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 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 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. The
Company has not quantified the impact of adoption on its financial statements.
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.
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 six months ended
June 30, 2000, the strike prices of the call options were exceeded, resulting in
a reduction of revenues of $1.5 million and $3.0 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 six months ended
June 30, 2000, would have increased from $24.30 to $26.54 and from $24.31 to
$26.58, respectively.
-6-
<PAGE>
Note 4 - Accumulated Depreciation, Depletion and Amortization
The Company's depletion rate for the three and six months ended June 30, 2000,
was $2.15 and $2.14 per equivalent barrel, respectively, versus a rate of $1.76
and $2.00, respectively, for the same periods ended June 30, 1999.
Note 5 - Acquisitions & Dispositions
During the second quarter of 2000, the Company closed on the purchases of Hunt
Oil Company's interest in the Salt Creek and Salt Creek South fields and
ExxonMobil Corporation's interest in the Salt Creek field. The acquisition costs
totaled $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 six months ended June 30, 1999. There were no pre-tax
earnings during the three and six months ended June 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."
The Company believes that the ultimate resolution will not have a material
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 (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.
-7-
<PAGE>
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, 2000
Earnings
Increase per
Increase in Number Incremental
in Earnings of Shares Share
------------ ----------- -----------
<S> <C> <C> <C>
Options................................... - 185,305 -
Dividends on convertible preferred stock.. $ 603,750 2,090,909 $0.29
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Earnings
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- -----------
<S> <C> <C> <C> <C>
$ 4,074,250 5,523,061 $ 0.74
Common stock options...................... - 185,305 -
------------ ----------- -----------
$ 4,074,250 5,708,366 $ 0.71 Dilutive
Dividends on convertible preferred stock.. 603,750 2,090,909 -
------------ ----------- -----------
$ 4,678,000 7,799,275 $ 0.60 Dilutive
============ =========== ===========
</TABLE>
Note: Because EPS from continuing operations decreases from $0.74 to $0.71 when
common stock options are included in the computation and because EPS decreases
from $0.71 to $0.60 when the convertible preferred shares are included in the
computation, diluted EPS from continuing operations is reported as $0.60.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
Earnings
Increase per
Increase in Number Incremental
in Earnings of Shares Share
------------ ----------- -----------
<S> <C> <C> <C>
Options................................... - 67,113 -
Dividends on convertible preferred stock.. $ 603,750 2,090,909 $0.29
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Earnings
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- -----------
<S> <C> <C> <C> <C>
$ 574,250 5,471,782 $ 0.10
Common stock options...................... - 67,113 -
------------ ----------- -----------
$ 574,250 5,538,895 $ 0.10 Dilutive
Dividends on convertible preferred stock.. 603,750 2,090,909 -
------------ ----------- -----------
$ 1,178,000 7,629,804 $ 0.15 Antidilutive
============ =========== ===========
</TABLE>
Note: Because EPS from continuing operations increases from $0.10 to $0.15 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 $0.10.
-8-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
Earnings
Increase per
Increase in Number Incremental
in Earnings of Shares Share
------------ ----------- -----------
<S> <C> <C> <C>
Options................................... - 163,604 -
Dividends on convertible preferred stock.. $ 1,207,500 2,090,909 $ 0.58
</TABLE>
<TABLE>
<CAPTION>
Computation of Diluted Earnings per Share
Earnings
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- -----------
<S> <C> <C> <C> <C>
$ 8,010,500 5,521,872 $ 1.45
Common stock options...................... - 163,604 -
------------ ----------- -----------
$ 8,010,500 5,685,476 $ 1.41 Dilutive
Dividends on convertible preferred stock.. 1,207,500 2,090,909 -
------------ ----------- -----------
$ 9,218,000 7,776,385 $ 1.19 Dilutive
============ =========== ===========
</TABLE>
Note: Because EPS from continuing operations decreases from $1.45 to $1.41 when
common stock options are included in the computation and because EPS decreases
from $1.41 to $1.19 when the convertible preferred shares are included in the
computation, diluted EPS from continuing operations is reported as $1.19.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
Earnings
Increase per
Increase in Number Incremental
in Earnings of Shares Share
------------ ----------- -----------
<S> <C> <C> <C>
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
Net Loss
Available
from
Continuing Common
Operations Shares Per Share
------------ ----------- -----------
<S> <C> <C> <C> <C>
$(1,753,500) 5,471,782 $(0.32)
Common stock options...................... - 33,556 -
------------ ----------- -----------
$(1,753,500) 5,505,338 $(0.32) Antidilutive
Dividends on convertible preferred stock.. 1,207,500 2,090,909 -
------------ ----------- -----------
$ (546,000) 7,596,247 $(0.07) Antidilutive
============ =========== ===========
</TABLE>
Note: Because EPS from continuing operations increases from $(0.32) to $(0.07)
when common stock 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 from continuing
operations. Therefore, diluted EPS from continuing operations is reported as
$(0.32).
-9-
<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, 2000 and 1999,
are discussed below.
<TABLE>
<CAPTION>
Oil and Gas Production
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (in thousands):
Sales of oil and natural gas..... $18,733 $10,974 $36,940 $19,650
Sales of LaBarge other products.. - - - 180
Gas marketing.................... - 63 - 83
Other............................ 56 145 125 147
------- ------- ------- -------
Total revenues.............. $18,789 $11,182 $37,065 $20,060
======= ======= ======= =======
Operating profit (in thousands).. $ 8,809 $ 3,518 $17,415 $ 3,154
======= ======= ======= =======
Operating information:
Average net daily production:
Oil (Bbls)................... 7,250 6,847 7,184 7,703
NGL (Bbls)................... 426 407 443 435
Natural gas (Mcf)............ 7,404 9,048 7,602 8,925
Equivalent (Bbls)............ 8,910 8,762 8,894 9,626
Average sales prices:
Oil (Bbls)................... $ 24.30 $ 14.90 $ 24.31 $ 11.71
NGL (Bbls)................... $ 17.52 $ 9.48 $ 19.27 $ 8.11
Natural gas (per Mcf)........ $ 3.00 $ 1.63 $ 2.60 $ 1.66
</TABLE>
Revenues for the three months ended June 30, 2000, increased $7.6 million when
compared to the three months ended June 30, 1999, primarily due to a 63%
increase in the average oil price, an 85% increase in the average NGL price and
an 84% increase in the average natural gas price. A 2% increase in average net
daily production also contributed to the increased revenues.
For the six months ended June 30, 2000, revenues increased $17.0 million from
the same period in 1999. The change was primarily due to a 108% increase in
average oil prices, a 138% increase in average NGL prices, and a 57% 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.
-10-
<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 six months ended
June 30, 2000, the strike prices of the call options were exceeded, resulting in
a reduction of revenues of $1.5 million and $3.0 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 six months ended
June 30, 2000, would have increased from $24.30 to $26.54 and from $24.31 to
$26.58, respectively.
The Company's operating profit increased $5.3 million when comparing the three
months ended June 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 $1.5 million and higher production taxes of
$1.0 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 Company benefited from a $0.5 million decrease in
general and administrative expenses.
For the six months ended June 30, 2000, operating profits increased $14.3
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 $2.4 million in production taxes and $1.5 million in lease operating
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 $0.7 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 six months ended June 30, 2000, decreased
$0.2 million and $0.8 million, respectively, from the 1999 levels. The decrease
was a result of decreased average debt outstanding of $14.9 million and $23.9
million for the three and six months ended June 30, 2000, respectively. 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 June 30, 2000 and
1999 was 36.0% and 35.1%, respectively. For the six months ended June 30, 2000
and 1999 the effective tax rate was 35.5% and 36.7%, respectively.
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
six months ended June 30, 1999. There were no pre-tax earnings during the three
and six months ended June 30, 2000.
-11-
<PAGE>
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 gain of
$1.4 million during the six months ended June 30, 1999. There were no pre-tax
earnings during the three and six months ended June 30, 2000, nor during the
three months ended June 30, 1999. 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 six months ended June 30, 2000,
was $14.8 million. This compares to $3.2 million for the same period during
1999. The Company's debt decreased by $14.0 million during the first six months
of 2000 while there was a $41.1 million decrease during the first six months of
1999. Capital expenditures for the six months ended June 30, 2000, were $6.6
million compared to $0.2 million for the 1999 period.
The Company's total debt, all long term, at June 30, 2000, was $68.0 million. At
June 30, 2000, the Company's borrowing base under the terms of its Credit
Facility was $100.0 million.
During the first six months of 2000, the Company paid common dividends of $0.4
million and preferred dividends of $1.2 million.
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. It is expected that over the next
six months management will have enough information to make an informed judgment
about whether to implement the CO2 flood project.
At June 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 16% 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.
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.
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<PAGE>
Words such as "anticipated", "expect", "estimate", "project", and similar
expressions are intended to identify forward-looking statements.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none.
(b) Reports on Form 8-K
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 10, 2000 /s/ Allyn R. Skelton, II
-------------------------
Allyn R. Skelton, II
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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