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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8704
HOWELL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1223027
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 FANNIN, SUITE 1500, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
(713) 658-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding on each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 30, 1997
- ----------------------------- ------------------------------
Common Stock, $1.00 par value 4,995,726
This report contains 10 pages
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HOWELL CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE NO.
Part I. Financial Information
Item 1. Consolidated Statements of Earnings --
Three months ended March 31, 1997 and 1996 ................... 3
Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 ........................ 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 1997 and 1996 .................. 5
Notes to Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .............................. 10
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PART I. FINANCIAL INFORMATION
(ITEM 1)
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Howell Corporation and Subsidiaries
QUARTER ENDED MARCH 31,
----------------------
1997 1996
--------- ---------
(In thousands, except
per share amounts)
Revenues ............................................. $ 17,645 $ 166,257
--------- ---------
Cost and expenses:
Products including operating expenses ........... 13,398 159,587
Selling, general and administrative expenses .... 1,950 2,901
--------- ---------
15,348 162,488
Other income (expense):
Interest expense ................................ (465) (1,946)
Interest income ................................. 25 14
Equity in net earnings of investees ............. 428 --
Other-net ....................................... (132) 4
--------- ---------
(144) (1,928)
Earnings before income taxes ......................... 2,153 1,841
Provision for income taxes ........................... 751 646
--------- ---------
Net earnings ......................................... $ 1,402 $ 1,195
========= =========
Weighted average common shares outstanding ........... 4,985 4,934
========= =========
Net earnings per common share ........................ $ .16 $ .12
========= =========
Cash dividends per common share ...................... $ .04 $ .04
========= =========
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Howell Corporation and Subsidiaries
MARCH 31, DECEMBER 31,
1997 1996
---------- -----------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 20 $ 3,257
Trade accounts receivable, less allowance for doubtful accounts of
$266,000 in 1997 and $267,000 in 1996............................. 9,107 9,805
Inventories........................................................... 2,295 2,530
Other current assets.................................................. 848 1,294
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Total current assets.............................................. 12,270 16,886
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Property, plant and equipment:
Oil and gas properties, utilizing the full-cost method of accounting.. 282,188 280,766
Fee mineral properties, unproven...................................... 18,184 18,180
Other................................................................. 31,191 30,735
Less accumulated depreciation, depletion and amortization............. (215,072) (212,025)
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Net property and equipment........................................ 116,491 117,656
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Investment in investees.................................................... 22,027 21,802
Other assets............................................................... 2,346 2,180
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Total assets...................................................... $ 153,134 $ 158,524
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................................... $ 5,186 $ 5,868
Accounts payable...................................................... 4,064 5,037
Accrued liabilities................................................... 6,742 10,289
Income tax payable.................................................... 1,363 2,340
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Total current liabilities......................................... 17,355 23,534
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Deferred income taxes...................................................... 23,850 23,850
---------- -----------
Other liabilities.......................................................... 467 511
---------- -----------
Long-term debt............................................................. 20,081 20,581
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value; 690,000 shares issued and
outstanding in 1996 and 1995, liquidation value of $34,500,000...... 690 690
Common stock, $1 par value; 4,995,726 issued and outstanding
in 1997; 4,947,196 issued and outstanding in 1996.................. 4,996 4,947
Additional paid-in capital............................................ 35,218 34,532
Retained earnings..................................................... 50,477 49,879
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Total shareholders' equity........................................ 91,381 90,048
---------- -----------
Total liabilities and shareholders' equity........................ $ 153,134 $ 158,524
========== ===========
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Howell Corporation and Subsidiaries
QUARTER ENDED MARCH 31,
1997 1996
--------- ---------
(In thousands)
OPERATING ACTIVITIES:
Net earnings............................................................... $ 1,402 $ 1,195
Adjustments for noncash items:
Depreciation, depletion and amortization............................... 2,807 4,134
Deferred income taxes.................................................. - 622
(Gain) loss on sales of assets......................................... - (55)
Decrease in trade accounts receivable...................................... 698 3,477
Decrease in inventories.................................................... 235 107
Decrease in other current assets........................................... 446 306
(Decrease) in accounts payable............................................. (973) (5,252)
(Decrease) in accrued and other liabilities................................ (4,568) (512)
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Cash provided by operating activities.................................. 47 4,022
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INVESTING ACTIVITIES:
Proceeds from the disposition of property.................................. - 453
Investment in investees.................................................... (225) -
Additions to property, plant and equipment................................. (1,642) (3,826)
Other, net................................................................. (166) (204)
--------- ---------
Cash utilized in investing activities.................................. (2,033) (3,577)
--------- ---------
FINANCING ACTIVITIES:
Long-term debt:
Repayment under revolving credit agreement............................ (500) -
Repayment under term loan agreement................................... - (1,437)
Other repayments....................................................... (682) (12)
Cash dividends:
Common shareholders.................................................... (200) (196)
Preferred shareholders................................................. (604) (604)
Exercise of stock options.................................................. 735 7
--------- ---------
Cash utilized in financing activities.................................. (1,251) (2,242)
--------- ---------
NET DECREASE IN CASH BALANCE.................................................... $ (3,237) $ (1,797)
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Net cash paid for:
Interest ....................................................................... $ 61 $ 2,031
========= =========
Income taxes.................................................................... $ 1,873 $ 9
========= =========
See accompanying Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Howell Corporation and Subsidiaries
March 31, 1997 and 1996
NOTE 1 - BASIS OF FINANCIAL STATEMENT PREPARATION
The consolidated financial statements included herein have been prepared by
Howell Corporation (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and in accordance with
generally accepted accounting principles. In the opinion of management, all
adjustments (all of which are normal and recurring) have been made which are
necessary for a fair statement of the results of operations for the three months
ended March 31, 1997 and 1996. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's latest Form 10-K.
NOTE 2 - INVENTORIES
The components of inventories at the balance sheet dates are as follows:
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
(In thousands)
Refined products........................... $1,806 $ 1,781
Crude oil.................................. 171 151
Chemicals.................................. 265 560
Other materials and supplies............... 53 38
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$2,295 $ 2,530
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NOTE 3 - FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In order to mitigate the effects of future price fluctuations, the Company uses
a limited program of hedging its crude oil inventories. Crude oil futures and
options contracts are used as the hedging tools. Changes in the market value of
the futures transactions are deferred until the gain or loss is recognized on
the hedged transactions.
In 1995, the Company purchased a put option and sold a call option covering
3,300 barrels per day of oil production for an 18 month period beginning March
1, 1995. The option strike prices were based on the average price of crude oil
on the organized exchange, with monthly settlement. The strike prices were $17
per barrel for the put option and $20 per barrel for the call option. The
premiums for the options were amortized over the option period. Upon expiration
of the 18-month option period, the Company purchased a put option and sold a
call option covering 100,000 barrels of oil per month for a six-month period
ended February 28, 1997. The strike prices are $16.50 per barrel for the put
option and $21.10 per barrel for the call option. There was no premium
associated with these options.
In the first quarter of 1997, the monthly average price of crude oil on the
organized exchange exceeded the strike for the call option during January and
February, the final two months of the options. The payments required in 1997
under the call option totaled $0.5 million and were recorded as a reduction of
revenue. During 1996, the monthly average price of crude oil on the organized
exchange exceeded the strike price for the call option in March. The payments
required for the first quarter 1996 under the call options and premiums
amortized totaled $0.2 million and were recorded as a reduction of revenue.
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NOTE 4 - EARNINGS PER SHARE
Earnings per common share has been computed by dividing net earnings, after
reduction for preferred stock dividends, by the weighted average number of
common shares outstanding. Shares issuable in connection with stock options are
not included in the per share computations since their dilutive effect is less
than 3%. Earnings per share assuming full dilution does not result in a
difference from earnings per share assuming no dilution. The common shares
issuable upon conversion of the convertible preferred stock are anti-dilutive,
and the common shares issuable in connection with stock options result in a
dilutive effect of less than 3%.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share". SFAS
128 establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS previously
found in Accounting Principles Board ("APB") Opinion No. 15, "Earnings per
Share", and makes them comparable to international EPS standards. This statement
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods; earlier application is not permitted. This
statement requires restatement of all prior-period EPS data presented.
Considering the guidelines as prescribed by SFAS 128; management believes that
the adoption of this statement will not have a material effect on EPS thus pro
forma EPS, as suggested for all interim and annual periods prior to required
adoption, have been omitted.
NOTE 5 - INCOME TAXES
The effective tax rate was 35% in the first quarter of 1997 and 1996.
NOTE 6 - LITIGATION AND CONTINGENT LIABILITIES
Information about the Company's commitments and contingent liabilities is
included in Notes 9 and 10 to the consolidated financial statements contained in
the Company's 1996 Annual Report on Form 10-K. There were no significant changes
no such information during the first quarter of 1997.
NOTE 7 - SUBSEQUENT EVENT
The Company owns an approximate 9% interest in Genesis Crude Oil, L.P., the
operating subsidiary of Genesis Energy, L.P. ("Genesis"), a master limited
partnership traded on the New York Stock Exchange. The Company also owns a
46% interest in Genesis Energy, L.P. ("General Partner") a limited liability
company which is the general partner of Genesis. The owner of the remaining
54% interest in the General Partner is Basis Petroleum, Inc. ("Basis"), which,
prior to May 1, 1997, was a wholly owned subsidiary of Salomon, Inc. Salomon,
Inc. recently reported that on May 1, 1997, it sold the stock of Basis
Petroleum, Inc. to Valero Energy Corporation. On May 1, 1997, Basis informed
the Company that Basis intends to transfer its interest in the General Partner
back to Salomon. Pursuant to the agreement forming the General Partner, the
Company has 30 days from the date of receipt of such notice to make an offer for
Basis's interest in the General Partner. The Company has not decided whether it
will make an offer to purchase Basis's interest in the General Partner. In
addition, even if the Company makes such an offer, Basis is under no obligation
to consider or accept the offer.
Basis is party to a number of agreements with Genesis, some of which may have
terminated in connection with the transfer to Valero and others which may be
terminated by Basis pursuant to their terms. Whether such contracts will be
terminated or revised by Basis and/or Genesis in the future and the ultimate
effect on Genesis of any such termination or revision cannot be determined at
this time, but may or may not have a material affect on Howell.
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PART I. FINANCIAL INFORMATION
(ITEM 2)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the Company's financial condition, results of
operations, capital resources and liquidity. This discussion and analysis should
be read in conjunction with the Consolidated Financial Statements of the Company
and the notes thereto. Management's review includes certain forward-looking
statements reflecting the Company's expectations in the near future; however,
many factors which may affect the actual results, especially commodity prices
and changing regulations, are difficult to predict. Accordingly, there is no
assurance that the Company's expectations will be realized.
RESULTS OF OPERATIONS
The Company's principal business segments are oil and gas exploration and
production, and technical fuels and chemical processing. Results of operations
by segment for the three months ended March 31, 1997 and 1996 are presented
below and discussed in the following sections. The "Other" segment includes
primarily depreciation and amortization of certain assets not directly related
to those segments identified above. Selling, general and administrative expenses
incurred by each business segment are included in the determination of the
operating to profit (loss) for that business segment. General corporate expenses
comprise the balance of selling, general and administrative expenses.
THREE MONTHS ENDED MARCH 31,
1997 1996
--------- ---------
(In thousands)
REVENUES
Oil and gas exploration and production........ $ 9,067 $ 8,567
Crude oil marketing and transportation........ - 153,832
Technical fuels and chemical processing....... 8,994 8,468
Intersegment Sales............................ (416) (4,610)
--------- ---------
$ 17,645 $ 166,257
========= =========
EARNINGS
Oil and gas exploration and production........ $ 2,483 $ 1,950
Crude oil marketing and transportation........ - 2,593
Technical fuels and chemical processing....... 764 108
Other......................................... - (32)
--------- ---------
Operating profit.............................. 3,247 4,619
General corporate expense..................... (950) (850)
Other income (expense)........................ (144) (1,928)
--------- ---------
Earnings before income taxes.................. 2,153 1,841
Provision for income taxes.................... 751 646
--------- ---------
Net earnings.................................. $ 1,402 $ 1,195
========= =========
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OIL & GAS EXPLORATION AND PRODUCTION
Revenues of the oil and gas exploration and production segment for the three
months ended March 31, 1997 and 1996 were as follows:
THREE MONTHS ENDED MARCH 31,
1997 1996
--------- ---------
(In thousands)
Sales of oil and natural gas.......... $ 7,518 $ 6,935
Sales of LaBarge other products....... 432 514
Gas marketing ........................ 1,011 967
Minerals leasing and other............ 106 151
--------- ---------
Total revenues..................... $ 9,067 $ 8,567
========= =========
Production and sales price per unit data for the three months ended March 31,
1997 and 1996 were as follows:
THREE MONTHS ENDED MARCH 31,
1997 1996
---- ----
(In thousands)
Production:
Crude oil (bbls per day)............... 2,888 3,171
Natural gas (Mcf per day).............. 8,515 9,483
Natural gas liquids (bbls per day)..... 223 195
Sales prices:
Crude oil (per bbl).................... $ 18.68 $ 17.16
Natural gas (per Mcf).................. $ 3.00 $ 2.02
Natural gas liquids (per bbl).......... $ 17.97 $ 11.71
Revenues from the sales of crude oil and natural gas increased due primarily to
9% and 49% increases in the average sales prices of the Company's crude oil and
natural gas production, respectively. The effect of these increases was
partially mitigated by a decrease in the volume of the Company's crude oil and
natural gas production.
The Company's average sales price of its crude oil production was reduced by the
effects of the put and call options the Company had in place. The strike price
of the call option was exceeded for two months of the quarterly period,
resulting in a reduction of revenues of $0.5 million. Without the effects of the
options, the average sales price of the Company's crude oil production would
have been $20.61 for the first quarter of 1997.
See Note 3 of Notes to Consolidated Financial Statements.
Operating profit of the oil and gas exploration and production segment in the
first quarter of 1997 was $2.5 million, an increase of $0.5 million from the
first quarter of 1996. This improvement can be attributed primarily to the
improved revenues discussed above. Increases in lease operating costs per barrel
from $5.49 in the 1996 quarter to $6.09 in the 1997 quarter and depreciation,
depletion and amortization per barrel from $5.36 in the 1996 period to $5.38 in
the 1997 period reduced the effect of the increased revenues on operating
profits.
TECHNICAL FUELS AND CHEMICAL PROCESSING
The technical fuels and chemical processing segment reported an operating profit
of $0.8 million for the first quarter of 1997, an increase of $0.7 million from
the 1996 quarter. An increase in tolling activities in the 1997 quarter from the
1996 period was primarily responsible for the increase in operating profit.
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OTHER INCOME (EXPENSE)
Interest expense decreased $1.5 million in the first quarter of 1997 when
compared to the first quarter of 1996. The majority of this decrease is
attributable to the repayment of the Term loan agreement that was collateralized
primarily by the Company's pipeline assets. The loan was repaid with the
proceeds from the sale and conveyance of its crude oil gathering and marketing
operations and pipeline operations of Howell Corporation to Genesis Crude Oil,
L.P. See Notes 5 and 6 of the Company's 1996 Annual Report on Form 10-K.
PROVISION FOR INCOME TAXES
The effective tax rate was 35% in the first quarter of 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operating activities in the first quarter of
1997 of $47,000. During this quarter, the Company utilized the cash flow
generated from operations and $3.2 million of the cash on hand at December 31,
1996 primarily to invest $1.6 million in additions to property, plant and
equipment, to pay $0.8 million of cash dividends to common and preferred
shareholders and to reduce debt by $1.2 million.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 Computation of Earnings per Share
27 Financial Data Schedule
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 15, 1997 /S/ J. RICHARD LISENBY
J. Richard Lisenby
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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