<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1995
-----------------------------------------------
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to_________________________
Commission file number 0-18205
-----------------
HAWKINS ENERGY CORPORATION
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(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1345732
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(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
400 South Boston, Suite 800 Tulsa, Oklahoma 74103
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(Address of principal executive offices) (Zip Code)
918-587-5815
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
Number of Shares of Common Stock Outstanding on August 2, 1995 - 12,941,868
Transitional Small Business Issuer Format (Check one): Yes No X
----- -----
1
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HAWKINS ENERGY CORPORATION
TABLE OF CONTENTS
Page
----
PART I
Financial Information:
Item 1 -- Financial Statements
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994........................... 3
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1995
and 1994...................................................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994....................... 5
Notes to Consolidated Financial Statements...................... 7
Item 2 -- Management's Discussion and Analysis
Management's Discussion and Analysis of the
Financial Condition and Results of
Operations.................................................... 8
PART II
Other Information:
Item 4 - Submission of Matters to a Vote of Security Holders.......... 10
Item 6 - Exhibits and Reports on Form 8-K............................. 10
Signatures............................................................ 11
2
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
UNAUDITED
--------- ---------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $ 455 $ 115
Accounts receivable, less allowance for doubtful accounts
of $160 and $158 in 1995 and 1994, respectively............. 1,051 760
Accounts receivable -- related party......................... -- 146
Notes receivable............................................. 231 172
Income tax receivable........................................ 106 42
Compressors and compressor parts inventory................... 1,309 1,261
Other........................................................ 85 59
------- -------
Total current assets........................................ 3,237 2,555
------- -------
Cash held for reinvestment in oil and gas properties.......... -- 2,513
------- -------
Property and Equipment, net (Note 2).......................... 23,153 21,430
------- -------
Goodwill and other intangibles, net of amortization of
$1,664 in 1995 and $1,633 in 1994......................... 821 850
Notes receivable.............................................. 469 503
Other assets.................................................. 58 63
------- -------
Total Assets.................................................. $27,738 $27,914
======= =======
Current Liabilities:
Current portion of long-term debt............................ $ 3,144 $ 2,263
Accounts payable and accrued liabilities..................... 1,714 1,828
------- -------
Total current liabilities................................... 4,858 4,091
Long-term debt................................................ 6,001 6,967
Deferred income taxes......................................... 4,710 4,655
Other......................................................... 104 111
------- -------
Total Liabilities............................................. 15,673 15,824
------- -------
Commitments (Note 4)
Stockholders' Equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued.............................. -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
13,259,235 and 13,049,235 shares issued and 12,941,868 and
12,862,568 outstanding in 1995 and 1994, respectively....... 132 130
Additional paid-in capital................................... 12,390 12,114
Retained earnings (deficit).................................. (54) 52
Treasury stock, at cost (317,367 and 186,667 shares in
1995 and 1994, respectively)................................ (403) (206)
------- -------
Total stockholders' equity.................................... 12,065 12,090
------- -------
Total Liabilities and Stockholders'
Equity....................................................... $27,738 $27,914
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
1995 1994 1995 1994
------- ------- ------- -------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil & gas sales.............................. $ 451 $ 499 $ 728 $ 1,010
Compressor sales............................. 687 732 1,139 1,234
Compressor rentals........................... 1,669 1,935 3,555 3,825
Interest and other income.................... 23 19 71 39
Gain (loss) on sale of assets................ 4 (1) 7 --
------- ------- ------- -------
Total revenues............................. 2,834 3,184 5,500 6,108
------- ------- ------- -------
Expenses:
Operating costs - oil and gas................ 168 164 271 302
Cost of sales - compressors.................. 572 593 930 964
Operating costs - compressors................ 765 969 1,770 1,870
Depreciation, depletion and amortization..... 623 614 1,162 1,207
General and administrative................... 428 601 940 1,166
Interest..................................... 272 198 522 382
------- ------- ------- -------
Total expenses.......................... 2,828 3,139 5,595 5,891
------- ------- ------- -------
Income (loss) before income taxes.............. 6 45 (95) 217
Income tax benefit (expense)................... (2) (21) 33 (91)
------- ------- ------- -------
Net income (loss).............................. $ 4 $ 24 $ (62) $ 126
======= ======= ======= =======
Income (loss) per common share:................ $ -- $ -- $ -- $ .01
======= ======= ======= =======
Weighted average number of shares outstanding.. 12,928 12,814 12,907 12,808
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (62) $ 126
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion, depreciation, and amortization............... 1,162 1,207
Gain on sale of equipment............................... (7) --
Deferred taxes.......................................... 55 (24)
Changes in operating assets and liabilities:
Accounts receivable and other........................... (294) (21)
Notes receivable........................................ 34 77
Compressor and compressor parts inventory............... (48) (34)
Accounts payable and accrued liabilities................ (121) 562
------- -------
Net cash provided by operating activities............. 719 1,893
------- -------
Cash flows from investing activities:
Acquisitions of compressor and other equipment.............. (635) (1,343)
Proceeds from dispositions of compressor and
other equipment........................................... 293 9
Additions to oil and gas properties......................... (2,505) (118)
Proceeds of disposition of oil and gas
properties................................................. -- 2
Cash held for reinvestment in oil and gas
properties................................................. 2,513 --
Increase in organization costs and other
intangibles................................................ 3 (26)
------- -------
Net cash used in investing activities................. (331) (1,476)
------- -------
Cash flows from financing activities:
Proceeds of long-term debt.................................. 826 1,514
Payments on long-term debt.................................. (911) (1,614)
Principal payments under lease obligation................... -- (212)
Sale of treasury stock...................................... 37 33
------- -------
Net cash used in financing activities................. (48) (279)
------- -------
Net increase in cash
and cash equivalents........................................ 340 138
Cash and cash equivalents,
beginning of period......................................... 115 20
------- -------
Cash and cash equivalents,
end of period............................................... $ 455 $ 158
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid.................................... $ 438 $ 382
======= =======
Income taxes paid................................ $ -- $ 239
======= =======
Supplemental disclosure of non-cash investing and
financing activities:
Compressor inventory and equipment acquired
through stock issuance......................... $ -- $ 263
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
HAWKINS ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Organization and Basis of Presentation
The accompanying consolidated financial statements present the financial
position and results of operations of Hawkins Energy Corporation (the "Company")
and its wholly owned subsidiary, Equity Compressors, Inc. ("Equity
Compressors").
The Company is engaged in the production of natural gas and oil, and in the
leasing, remanufacturing and direct sale of gas compression equipment to
operators of producing natural gas wells and gas gathering systems as well as to
other equipment leasing companies. Its principal geographical operating areas
lie within the states of Alabama, Arkansas, Kansas, Mississippi, Louisiana,
Oklahoma and Texas.
In the opinion of the Company, the accompanying financial statements
contain all adjustments necessary (all of which are of a normal recurring
nature) to present fairly the financial position of Hawkins Energy Corporation
as of June 30, 1995, and the results of its operations and cash flows for the
periods ended June 30, 1995 and 1994.
The financial statements should be read in conjunction with the Company's
Form 10-KSB for the year ended December 31, 1994. The year end Consolidated
Balance Sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
NOTE 2 Property and Equipment
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Land and building......................... $ 299 $ 299
Oil and gas properties, on the full cost
method................................... 35,820 32,010
Compressor equipment...................... 22,792 22,473
Other equipment........................... 454 451
------- -------
59,365 55,233
Less accumulated depreciation, depletion
and amortization......................... 36,212 33,803
------- -------
Net property and equipment................ $23,153 $21,430
======= =======
</TABLE>
During December 1994, the Company sold interests in fifty-seven (57) wells
with estimated proved reserves of 1,451,000 Mcf of gas in Arkansas for
$2,513,000. These sales proceeds were placed in trust until they were utilized
by the Company to fund the current year acquisitions in a like-kind exchange
that enabled the Company to defer all of the tax liability on the $1.88 million
pre-tax gain from the December 1994 sale.
The Company closed a series of production acquisitions during the second
quarter of 1995 involving interests in twelve gas and fourteen oil wells in
Arkansas, Oklahoma and Texas. The effective date of the purchases range from
January 1 to March 1, 1995, however, no revenues were recognized in the first
quarter because the closing dates of the purchases were during April and the
first week of May in the second quarter 1995. The Company estimates these
properties contain proved reserves of approximately 330,000 barrels of oil and
2,889,000 Mcf of gas which were added to the Company's year-end 1994 proved
reserve base of 18,000 barrels of oil and 2,501,000 Mcf of gas.
7
<PAGE>
NOTE 3 Transactions with Related Parties
Amounts paid in the six months ended June 30 by the Company to an affiliate
for general and administrative overhead including rent and production and
drilling overhead is as follows: $56,000 in 1995 $78,000 in 1994.
Equity Compressors received compressor rental revenues from an affiliate
and a related party in the amount of $140,000 for the six months ended June 30,
1995. In June 1995, the Company received a promissory note from the affiliated
company in the amount of $108,829. Principal payments and accrued interest at
the rate of 12% began July 15, 1995, and will continue until December 15, 1996,
at which time the remaining unpaid principal and interest shall be due in full.
NOTE 4 Commitments
The Company leases compressor equipment under contracts with terms ranging
from month to month to one year. The future revenues to be received under
contracts at June 30, 1995 are $295,000 through June 30, 1996.
The Company leases facilities for its corporate and field offices with
lease terms ranging from month to month to two years. A one-year lease for a
compressor remanufacturing facility contains renewal options through 1996. The
Company's rental expense amounted to $65,000 and $58,000 for the six months
ended June 30, 1995 and 1994, respectively.
The Company has certain other operating leases for office equipment and
automobiles. Future minimum rental payments under these leases total $96,000,
$142,000, $48,000 and $2,000 for 1995, 1996, 1997 and 1998, respectively.
NOTE 5 Earnings per Share
Earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's earnings and financial
condition during the periods included in the accompanying Consolidated Balance
Sheets, Statements of Operations and Cash Flows.
Results of Operations
---------------------
1995 versus 1994
In the three months ended June 30, 1995, the Company had net income of
$4,000 compared to net income of $24,000 in the three months ended June 30,
1994. For the six months ended June 30, 1995, the Company reported a net loss
of $62,000 compared to net income of $126,000 for the same period ended June 30,
1994, due principally to a decrease in compressor rentals and oil and gas
revenues. Interest expense increased by $140,000 during the six months ended
June 30, 1995 from the same period of 1994. The Company's cost cutting efforts
resulted in a $226,000 reduction in general and administrative expenses during
six months ended June 30, 1995 from the same period in 1994.
Compressor rental revenues decreased 14% and 7% in the three and six months
ended June 30, 1995 when compared to 1994, as the average overall compressor
utilization rate decreased to 73% for the six months ended June 30, 1995
compared to 80% in the same period 1994. The average number of units rented
during the six months ended June 30, 1995, decreased by 23 units when compared
to the average
8
<PAGE>
number of units rented during the first six months of 1994, generally as a
result of lagging demand related to the deterioration in gas prices and
aggressive marketing by competing rental companies. Compressor operating costs
incurred on rental units decreased 21% and 5% in the three and six months ended
June 30, 1995 from the same periods in 1994 consistant with fewer number of
units operating in 1995.
The average spot market gas prices received in the three and six months
ended June 30, 1995 were $1.38 and $1.50 compared to $1.89 and $2.03 received in
the same periods in 1994, which represents decreases of 27% and 26%,
respectively. This decline was offset somewhat through receipt of a $65,000
payment from the Company's financial hedge which provided a price floor of $2.00
per Mcf on approximately 50% of the Company's production since May 1994. This
price hedge expired in May 1995. Volumes produced in the second quarter 1995
and 1994, respectively, were 234,355 Mcf on an equivalent basis (Mcfe) and
244,153 Mcfe, a decrease of 4%. Volumes produced in the first quarter 1995 and
1994, respectively, were 120,958 Mcfe and 248,293 Mcfe, a decrease of 51%. The
increase in production from the first quarter to the second quarter of 1995
resulted from the acquisition of properties which occurred during the first and
second quarters. Management expects a further increase in oil and gas
production on these properties in the third quarter, which will be the first
full quarter of operation. Oil and gas operating costs for the three and six
months ended June 30, 1995 were 2% higher and 10% lower than for the same
periods in 1994, respectively, primarily due to the initial operating costs
related to the new acquired properties.
Revenues from the sale of compressors and remanufacturing services
decreased 6% and 8% in the three and six months ended June 30, 1995, when
compared to the same periods in 1994 generally due to the gas price decline
previously discussed. The cost of compressor and remanufacturing sales
decreased 4% in the three and six months ended June 30, 1995 from the same
periods in 1994.
Depletion, depreciation and amortization of the composite cost of evaluated
oil and gas properties is computed on the units-of-production method based on
estimated proved reserves. The expense for the three and six months ended June
30, 1995 was $120,000 and $191,000 which is 8% and 28% lower than $131,000 and
$265,000 during the same periods in 1994, respectively, due to lower production
volumes and an upward revision of reserve estimates at year end 1994.
Depreciation of the compressor fleet increased to $484,000 and $942,000 in the
three and six months ended June 30, 1995 from $469,000 and $914,000 in the same
periods in 1994 due to equipment additions made in 1994.
General and administrative expense decreased $173,000 and $226,000, or 29%
and 19% in the three and six months ended June 30, 1995 compared to the same
periods in 1994. This decrease resulted principally from merging the operations
of the Company's three wholly owned gas compression subsidiaries which resulted
in cost savings by centralizing certain administrative functions.
Interest expense increased by 37% in the three and six months ended June
30, 1995 compared to the same periods in 1994 as a result of higher interest
rates in 1995. The Company's average interest rate increased 23% and 29% in the
three and six months ended June 30, 1995 from the same periods in 1994 to 11.00%
and 10.92%, respectively.
Financial Condition and Liquidity
---------------------------------
In December 1994, the Company refinanced its existing debt in order to
increase the amounts available for new investment and working capital. The debt
is structured as four separate notes and is collateralized by substantially all
of the assets of the Company. One note had an initial loan balance of $1.4
million and is being amortized at $24,000 per month from January 31 to June 30,
1995 and at $35,417 per month for 32 months thereafter, plus interest. Another
note is for the principal amount of $7,450,000 and is being amortized over 50
months at $143,398 per month, plus interest. A third note, with an initial
principal amount of $425,000 is amortized at $8,854 per month, over 48 months,
plus interest. Finally, the Company has a $1,000,000 revolving credit line for
general business purposes which expired on June 30, 1995. The Company is
currently negotiating with the bank to extend the maturity of this revolving
line to 1996.
9
<PAGE>
The Company's new loan agreement includes amounts due during the next
twelve months totalling $3.1 million, including $795,000 under the revolving
credit line. All of the Company's credit line debt agreements have historically
been renewed on an annual basis.
Net cash provided by operating activities decreased to $719,000 in the
first six months of 1995 from $1.9 million in the same period of 1994, primarily
due to the loss in the first and second quarters, an increase in accounts and
notes receivable and a decrease in accounts payable. Net cash used in investing
activities decreased to $331,000 in 1995 from $1.5 million due to fewer
additions to and increased sales of compressor equipment. Net cash used in
financing activities decreased to $48,000 in 1995 compared to cash used in
financing activities of $279,000 in 1994 as a result of bank refinancing which
replaced a capital lease obligation. At June 30, 1995, the Company had current
assets of $3.2 million and current liabilities of $4.9 million. The Company
anticipates that 1995 cash flow from operations, together with the expected
credit line refinancing will be sufficient to fund the Company's working capital
and capital expenditure needs.
During December 1994, the Company sold of interests in fifty-seven (57)
wells with estimated proved reserves of 1,451,000 Mcf of gas in Arkansas for
$2,513,000. These sales proceeds were placed in trust until they were utilized
the Company to fund the current year acquisitions in a like-kind exchange that
enabled the Company to defer all of the tax liability on the $1.88 million pre-
tax gain from the December 1994 sale. The Company closed a series of production
acquisitions during the second quarter of 1995 involving interests in twelve gas
and fourteen oil wells in Arkansas, Oklahoma and Texas. The Company estimates
these properties contain proved reserves of approximately 330,000 barrels of oil
and 2,889,000 Mcf of gas which were added to the Company's year-end 1994 proved
reserve base of 18,000 barrels of oil and 2,501,000 Mcf of gas. At June 30,
1995, the Company estimates all properties to contain proved reserves of
approximately 333,000 barrels of oil and 5,022,000 Mcf of gas.
PART II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its Annual Meeting of Stockholders on May 24, 1995, in
Tulsa, Oklahoma. At the Annual Meeting, the stockholders of the Company elected
Clifford S. Lewis, Thomas F. Ostrye and Clyde Wyant, Jr., as Class III Directors
of the Company for three-year terms. Charles M. Butler, John B. Hawkins, James
F. Hawkins, Jr., Don E. Smith, David J. Parsons and Donald C. Nejedly continue
to serve as directors of the Company until the expiration of their respective
terms and their successors have been duly elected and qualified. The
stockholders also ratified the selection of Coopers and Lybrand as the
independent auditors of the Company for the fiscal year ending December 31,
1995.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 9,152,104 shares of Common stock of the Company, or 70% of
the total stock outstanding and entitled to vote at the Annual Meeting. The
table below describes the results of voting at the Annual Meeting:
<TABLE>
<CAPTION>
Voted Voted Against Broker
For or Withheld Abstention Non-Votes
----- ------------- ---------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors
---------------------
Clifford S. Lewis 8,821,693 330,411 0 0
Thomas F. Ostrye 8,821,693 330,411 0 0
Clyde Wyant, Jr. 8,821,693 330,411 0 0
2. Ratification of
---------------
Independent Auditors 8,330,849 314,094 7,161 0
--------------------
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibits: 27 - Financial Data Schedule
(b) Reports on Form 8-K: None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 of 15(d) 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.
HAWKINS ENERGY CORPORATION
DATE: August 10, 1995 By: /s/ Thomas F. Ostrye
-------------------------------
THOMAS F. OSTRYE, President
DATE: August 10, 1995 By:/s/ Clifford S. Lewis
--------------------------------
CLIFFORD S. LEWIS
Vice President, Secretary and Treasurer
11
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 2,017
<ALLOWANCES> 160
<INVENTORY> 1,309
<CURRENT-ASSETS> 3,237
<PP&E> 23,153
<DEPRECIATION> 36,212
<TOTAL-ASSETS> 27,738
<CURRENT-LIABILITIES> 4,858
<BONDS> 0
<COMMON> 132
0
0
<OTHER-SE> 11,933
<TOTAL-LIABILITY-AND-EQUITY> 27,738
<SALES> 1,867
<TOTAL-REVENUES> 5,500
<CGS> 1,201
<TOTAL-COSTS> 5,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 522
<INCOME-PRETAX> (95)
<INCOME-TAX> 33
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
