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 March 31, 2001
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 April 30, 2001
- ----------------------------- -------------------------------
Common Stock, $1.00 par value 6,084,173
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This report contains 13 pages
HOWELL CORPORATION AND SUBSIDIARIES
Form 10-Q
INDEX
Page No.
Part I. Financial Information
Item 1. Consolidated Statements of Operations --
Three months ended March 31, 2001 and 2000 (unaudited)...... 3
Consolidated Balance Sheets --
March 31, 2001 (unaudited) and December 31, 2000............ 4
Consolidated Statements of Cash Flows -- Three months
ended March 31, 2001 and 2000 (unaudited)................... 5
Notes to Consolidated Financial Statements (unaudited)....... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Part II. Other Information
Item 4. Results of Votes of Security Holders......................... 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
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PART I. FINANCIAL INFORMATION
(ITEM 1)
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Howell Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Three Months Ended March 31,
2001 2000
(In thousands, except
per share amounts)
Revenues....................................... $22,971 $18,276
-------- --------
Cost and expenses:
Lease operating expenses..................... 8,702 6,812
Depreciation, depletion, and amortization.... 2,042 1,751
General and administrative expenses.......... 1,092 1,107
-------- --------
11,836 9,670
-------- --------
Operating Profit............................... 11,135 8,606
-------- --------
Other income (expense):
Interest expense............................. (1,260) (1,667)
Interest income.............................. 25 46
Other-net.................................... 249 -
-------- --------
(986) (1,621)
-------- --------
Earnings before income taxes................... 10,149 6,985
Income tax expense ............................ 3,552 2,445
-------- --------
Net earnings .................................. 6,597 4,540
Less: Preferred stock dividends.............. (604) (604)
-------- --------
Net earnings applicable to common shares....... $ 5,993 $ 3,936
======== ========
Net earnings per common share - basic.......... $ 0.99 $ 0.65
======== ========
Weighted average shares outstanding - basic.... 6,026 6,073
======== ========
Net earnings per common share - diluted........ $ 0.77 $ 0.53
======== ========
Weighted average shares outstanding - diluted.. 8,615 8,516
======== ========
Cash dividends per common share................ $ 0.04 $ 0.04
======== ========
See accompanying Notes to Consolidated Financial Statements.
-3-
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CONSOLIDATED BALANCE SHEETS
Howell Corporation and Subsidiaries
- -------------------------------------------------------------------
March 31, December 31,
2001 2000
(Unaudited)
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents..................... $ 5,647 $ 5,553
Trade accounts receivable, less allowance for
doubtful accounts of $66 in 2001 and 2000... 10,987 12,515
Income tax receivable......................... - 705
Deferred income taxes......................... 59 59
Other current assets.......................... 654 750
---------- ----------
Total current assets........................ 17,347 19,582
---------- ----------
Property, plant and equipment:
Oil and gas properties, utilizing the full-
cost method of accounting................... 326,345 401,851
Unproven properties........................... 20,174 20,174
Other......................................... 3,944 3,737
Less accumulated depreciation, depletion and
amortization................................ (237,002) (320,602)
---------- ----------
Net property, plant and equipment........... 113,461 105,160
---------- ----------
Other assets.................................... 645 672
---------- ----------
Total assets................................ $ 131,453 $ 125,414
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable.............................. $ 13,161 $ 12,880
Accrued liabilities - oil and gas properties.. 1,594 2,521
Accrued liabilities - other................... 2,146 2,605
Income taxes payable.......................... 2,179 319
---------- ----------
Total current liabilities................... 19,080 18,325
---------- ----------
Deferred income taxes........................... 1,615 625
---------- ----------
Other liabilities............................... 502 545
---------- ----------
Long-term debt.................................. 66,000 67,000
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value; 690,000 shares
outstanding, liquidation value of $34,500,000 690 690
Common stock, $1 par value; 6,090,023 shares 6,090 5,525
Additional paid-in capital.................... 46,736 41,079
Unearned compensation......................... (694) (209)
Retained deficit.............................. (8,566) (8,166)
---------- ----------
Total shareholders' equity.................. 44,256 38,919
---------- ----------
Total liabilities and shareholders' equity.. $ 131,453 $ 125,414
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
- -------------------------------------------------------------------
Three Months Ended March 31,
2001 2000
(In thousands)
OPERATING ACTIVITIES:
Net earnings from operations.................... $ 6,597 $ 4,540
Adjustments for non-cash items:
Depreciation, depletion and amortization...... 2,042 1,751
Deferred income taxes......................... 990 1,031
Other......................................... 52 17
---------- ----------
Earnings from operations plus non-cash operating
items......................................... 9,681 7,339
Changes in components of working capital:
Trade accounts receivable..................... 1,528 1,637
Federal income tax receivable................. 705 -
Other current assets.......................... 96 2,012
Accounts payable.............................. 281 (1,040)
Accrued and other liabilities................. (1,405) 6
Income tax payable............................ 1,860 1,408
---------- ----------
Cash provided by continuing operations.......... 12,746 11,362
Cash utilized in discontinued operations........ (25) (53)
---------- ----------
Cash provided by operating activities........... 12,721 11,309
INVESTING ACTIVITIES:
Proceeds from the disposition of property....... 667 3,000
Additions to property, plant and equipment...... (11,010) (2,016)
Other, net...................................... 27 28
---------- ----------
Cash provided by (utilized in) investing
activities................................... (10,316) 1,012
---------- ----------
FINANCING ACTIVITIES:
Repayments under revolving credit agreement, net (1,000) (12,000)
Cash dividends:
Common shareholders........................ (221) (221)
Preferred shareholders..................... (604) (604)
Stock options exercised......................... 111 -
Stock purchased and reissued restricted shares.. (597) -
---------- ----------
Cash utilized in financing activities........... (2,311) (12,825)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 94 (504)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.. 5,553 2,112
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 5,647 $ 1,608
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest........................................ $ 1,288 $ 1,290
========== ==========
Income taxes.................................... $ - $ 12
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
March 31, 2001 and 2000
- -------------------------------------------------------------------
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 United States of America. 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 months ended March 31, 2001 and 2000. The results of
operations for the three months ended March 31, 2001 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,
2000. These consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's latest Form
10-K.
Note 2 - New Accounting Standards
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133
effective January 1, 2001. The Company has reviewed all of its contracts to
determine which, if any, contain derivatives. As of January 1, 2001, the Company
had only one derivative contract and it was accounted for and carried at market
value. Therefore, upon adoption of SFAS No. 133, no transition adjustment was
recorded by the Company.
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 production. Futures and options
contracts are used as the hedging tools.
During the fourth quarter of 2000, the Company purchased a put option covering
7,500 MMBTU per day for NYMEX contract months March through December 2001,
allowing it to benefit should gas prices fall. The premium paid was $0.3 million
and the market value of the position and its carrying value at March 31, 2001,
was $0.1 million.
The Company had entered into two hedging programs for the year 2000. The first
program was 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 were $17.25 per barrel for the put option and $22.00 per
barrel for the call option. The second program was 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 were $18.50 per
barrel for the put option and $26.00 per barrel for the call option. Each
program provided for monthly settlements and was based on monthly average oil
prices. There were no premiums associated with either program. Prior to the
adoption of SFAS No. 133, changes in the market value of the derivatives were
deferred until the gain or loss was recognized on the hedged transactions.
During the first quarter of 2000, the strike prices of the call options were
exceeded, resulting in a reduction of revenues of $1.5 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 months ended March 31, 2000,
would have increased from $24.32 to $26.61.
-6-
Note 4 - Accumulated Depreciation, Depletion and Amortization
The Company's depletion rate for the three months ended March 31, 2001, was
$2.40 per equivalent barrel versus a rate of $2.12 for the same period ended
March 31, 2000.
Note 5 - Acquisitions & Dispositions
On February 28, 2001, the Company announced that it traded producing oil and gas
properties in a tax-free, like-kind exchange. The Company assigned all of its
working interest in Main Pass Blocks 64 and 65 in exchange for a 26% working
interest in the Salt Creek Field Light Oil Unit located in Natrona County,
Wyoming. The Company also paid $7.6 million as part of the transaction. The
trade did not materially affect our reserve base. This trade concluded the
Company's operations in the offshore area of the Gulf of Mexico.
The Company now owns a 98% working interest in the Salt Creek Field Light Oil
Unit, the largest producing unit in the field. The Company increased its current
net production in the field by approximately 1,250 barrels of oil per day and by
320 Mcf of gas per day as a result of this trade.
In addition, the Company received 16,900 undeveloped net acres in the Big Horn
Basin of Wyoming and a cash payment of $0.3 million in exchange for acreage in
the Wind River Basin of Wyoming.
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. There were no pre-tax earnings attributable to the Company's interest in
Genesis during the first three months of 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
adverse effect on its results of operations, financial position or cash flows.
There are various lawsuits and claims arising in the ordinary course of business
against the Company, none of which, in the opinion of management, will have a
material adverse effect on the Company.
Note 7 - Earnings per Share
Prior year's earnings per share ("EPS") have been restated to reflect the 10%
stock dividend issued in the first quarter of 2001.
Basic EPS amounts are calculated using the average number of common shares
outstanding during each period less the average number of restricted shares
outstanding during each period. Diluted EPS assumes conversion of dilutive
convertible preferred stock and exercise of all stock options and restricted
stock having exercise prices less than the average market price of the common
stock using the treasury stock method.
-7-
The tables below present the reconciliation of the numerators and denominators
in calculating diluted EPS from operations in accordance with Statement of
Financial Accounting Standards No. 128.
Three Months Ended March 31, 2001
Earnings
Increase in per
Increase in Number of Incremental
Earnings Shares Share
----------- ----------- -----------
Common stock options and restricted stock. - 288,630 -
Dividends on convertible preferred stock.. $ 603,750 2,300,000 $ 0.26
Computation of Diluted Earnings per Share
Earnings Common
Available Shares Per Share
----------- ----------- -----------
$5,993,250 6,026,056 $ 0.99
Common stock options and restricted stock. - 288,630 -
----------- ----------- -----------
$5,993,250 6,314,686 $ 0.95 Dilutive
Dividends on convertible preferred stock.. 603,750 2,300,000 -
----------- ----------- -----------
$6,597,000 8,614,686 $ 0.77 Dilutive
=========== =========== ===========
Note: Because diluted EPS from operations decreases from $0.99 to $0.95 when
common stock options and restricted stock are included in the computation and
because diluted EPS decreases from $0.95 to $0.77 when convertible preferred
shares are included in the computation, those common stock options, restricted
stock and convertible preferred shares are dilutive.
Therefore, diluted EPS is reported as $0.77.
Three Months Ended March 31, 2000
Earnings
Increase in per
Increase in Number of Incremental
Earnings Shares Share
----------- ----------- -----------
Common stock options...................... - 142,943 -
Dividends on convertible preferred stock.. $ 603,750 2,300,000 $ 0.26
Computation of Diluted Earnings per Share
Earnings Common
Available Shares Per Share
----------- ----------- -----------
$3,936,250 6,072,751 $ 0.65
Common stock options....... - 142,943 -
----------- ----------- -----------
$3,936,250 6,215,694 $ 0.63 Dilutive
Dividends on convertible preferred stock.. 603,750 2,300,000 -
----------- ----------- -----------
$4,540,000 8,515,694 $ 0.53 Dilutive
=========== =========== ===========
Note: Because diluted EPS from operations decreases from $0.65 to $0.63 when
common stock options are included in the computation and because diluted EPS
decreases from $0.63 to $0.53 when convertible preferred shares are included in
the computation, those common stock options and convertible preferred shares are
dilutive. Therefore, diluted EPS is reported as $0.53.
-8-
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 OPERATIONS
The Company's business is oil and gas exploration, production, acquisition and
development. Results of operations for the three months ended March 31, 2001 and
2000, are discussed below.
Three Months Ended March 31,
2001 2000
Revenues (in thousands):
Sales of oil and natural gas................... $22,658 $18,207
Other.......................................... 313 69
-------- --------
Total revenues............................ $22,971 $18,276
======== ========
Operating profit (in thousands)................ $11,135 $ 8,606
======== ========
Operating information:
Average net daily production:
Oil (Bbls)................................. 7,707 7,118
NGL (Bbls)................................. 371 460
Natural gas (Mcf).......................... 7,079 7,799
Equivalent Bbls............................ 9,258 8,878
Average sales prices:
Oil (per Bbl).............................. $ 25.46 $ 24.32
NGL (per Bbl).............................. $ 26.18 $ 20.89
Natural gas (per Mcf)...................... $ 6.47 $ 2.23
Revenues for three months ended March 31, 2001, increased $4.7 million when
compared to the three-month period ended March 31, 2000, primarily due to a 190%
increase in the average gas price, a 25% increase in the average NGL price, and
a 5% increase in the average oil price. Also contributing to the increase was an
8% increase in oil production, partially offset by a 9% decrease in gas
production.
Operating expenses increased $2.2 million during the first quarter of 2001 when
compared to the operating expenses during the first quarter of 2000. The primary
reason for the increase was a $1.5 million increase in lease operating expense,
a $0.3 million increase in production and severance taxes, and a $0.3 million
increase in depreciation, depletion and amortization expense.
The Company had also entered into two hedging programs for the year 2000. The
first program was 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 were $17.25 per barrel for the put option
and $22.00 per barrel for the call option. The second program was 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 were
$18.50 per barrel for the put option and $26.00 per barrel for the call option.
Each program provided for monthly settlements and is based on monthly average
oil prices. There were no premiums associated with either program. During the
first quarter of 2000, the strike prices of the call options were exceeded,
resulting in a reduction of revenues of $1.5 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 months ended March 31, 2000, would have
increased from $24.32 to $26.61.
-9-
Operating profits increased $2.5 million when comparing the first quarter of
2001 to the same period of 2000. This increase is primarily due to increased
energy prices.
In addition to the increase in operating profits, earnings before income taxes
also increased as a result of an increase in other income primarily due to
various litigation settlements.
Interest Expense
Interest expense for the three months ended March 31, 2001, decreased $0.4
million from the 2000 level as a result of decreased debt of $4.0 million.
Provision for Income Taxes
The Company's effective tax rate was 35% for the three months ended March 31,
2001 and 2000.
DISCONTINUED OPERATIONS
Crude Oil Marketing
The Company sold its interest in Genesis Energy, L.L.C. during the first quarter
of 2000 for $3.0 million. The proceeds from the sale were used to reduce debt.
There were no pre-tax earnings from discontinued operations during the first
quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operations, before working capital changes, for the
three months ended March 31, 2001, was $9.7 million. This compares to $7.3
million for the comparable 2000 period. The Company's debt decreased by $1.0
million during the first three months of 2001 compared to a decrease in debt of
$12.0 million during the first three months of 2000. Capital expenditures for
the three months ended March 31, 2001, were $11.0 million compared to $2.0
million for the 2000 period.
The Company's long-term debt, at March 31, 2001, was $66 million. At March 31,
2001, the Company's borrowing base under the terms of its Credit Facility was
$100 million.
During the first three months of 2001, the Company paid cash dividends of $0.2
million on its common stock and $0.6 million on its preferred stock. In
addition, the Company issued a 10% common stock dividend in March 2001. The
common stock dividend was a non-cash transaction; therefore, it is not reflected
in the statement of cash flows.
UNPROVEN PROPERTIES
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 during the next
year management will have enough information to make an informed judgment about
whether to implement the CO2 flood project.
-10-
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.
-11-
PART II. OTHER INFORMATION
Item 4. Results of Votes of Security Holders.
The Annual Meeting of the Shareholders of the Company was held on April 25,
2001, for the following purposes:
To elect three members of the Board of Directors to serve a three-year term as
Class I Directors.
The results of the voting for each of the nominees for director were as
follows:
Shares Authority
For Withheld
--------- ---------
Paul N. Howell 5,278,220 23,696
Donald W. Clayton 5,278,220 23,696
Richard K. Herbert 5,278,220 23,696
A simple majority of the shares of common stock represented at the
meeting was required for each nominee to be elected. Therefore, all
nominees for director were elected.
To ratify the appointment of Deloitte & Touche LLP as independent auditors for
the year ending December 31, 2001.
The results of the voting on this matter were as follows:
Shares For 5,293,381
Shares Against 2,146
Shares Abstaining 6,389
A simple majority of the shares of common stock represented at the
meeting was required for ratification. Therefore, the appointment was
ratified.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none.
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 30, 2001, announcing that
the Board of Directors of Howell Corporation authorized a 10% common
stock dividend.
A report on Form 8-K was filed on February 28, 2001, announcing that
it traded producing oil and gas properties in a tax-free, like-kind
exchange.
-12-
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: May 4, 2001 /s/ Allyn R. Skelton, II
-------------------------
Allyn R. Skelton, II
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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