<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 March 31, 1995
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[ ] 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
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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
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Number of Shares of Common Stock Outstanding on May 8, 1995 - 12,920,568
Transitional Small Business Format (Check one): Yes ; No X
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1
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HAWKINS ENERGY CORPORATION
TABLE OF CONTENTS
Page
----
PART I
Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994.......................... 3
Consolidated Statements of Operations
Three Months Ended March 31, 1995 and 1994.................... 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994.................... 5
Notes to Consolidated Financial Statements...................... 7
Item 2 - Management's Discussion and Analysis of the
Consolidated Financial Statements............................. 8
PART II
Other Information:
Item 6 - Exhibits and Reports on Form 8-K....................... 10
Signatures...................................................... 11
2
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HAWKINS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
UNAUDITED
--------- ----
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 212 $ 115
Accounts receivable, less allowance for doubtful accounts
of $165 and $158 in 1995 and 1994, respectively.......... 768 760
Accounts receivable -- related party...................... 169 146
Notes receivable.......................................... 174 172
Income tax receivable..................................... 118 42
Compressors and compressor parts inventory................ 1,324 1,261
Other..................................................... 63 59
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Total current assets.................................... 2,828 2,555
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Cash held for reinvestment in oil and gas properties........ 2,544 2,513
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Property and Equipment, net (Note 2)........................ 21,132 21,430
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Goodwill and other intangibles, net of amortization of
$1,649 in 1995 and $1,633 in 1994..................... 835 850
Notes receivable............................................ 424 503
Other assets................................................ 61 63
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Total Assets................................................ $27,824 $27,914
======= =======
Current Liabilities:
Current portion of long-term debt......................... $ 3,028 $ 2,263
Accounts payable and accrued liabilities.................. 1,575 1,828
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Total current liabilities............................... 4,603 4,091
Long-term debt.............................................. 6,386 6,967
Deferred income taxes....................................... 4,695 4,655
Other....................................................... 104 111
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Total Liabilities........................................... 15,788 15,824
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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, 13,049,235 and 13,049,235 shares
issued and 12,886,568 and 12,862,568 outstanding
in 1995 and 1994, respectively......................... 130 130
Additional paid-in capital................................ 12,114 12,114
Retained earnings (deficit)............................... (26) 52
Treasury stock, at cost (162,667 and 186,667 shares in
1995 and 1994, respectively)............................ (182) (206)
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Total stockholders' equity.................................. 12,036 12,090
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Total Liabilities and Stockholders' Equity.................. $27,824 $27,914
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
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(In thousands, except for per share amounts)
<S> <C> <C>
Revenues:
Oil & gas sales.............................. $ 277 $ 511
Compressor sales............................. 452 413
Compressor sales - remanufacturing........... -- 89
Compressor rentals and service fees.......... 1,893 1,890
Interest and other income.................... 48 20
Gain on sale of assets....................... 3 1
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Total revenues............................. 2,673 2,924
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Expenses:
Operating costs - oil and gas................ 103 138
Cost of sales - compressors.................. 358 304
Cost of sales-remanufacturing................ -- 67
Operating costs - compressors................ 1,005 901
Depreciation, depletion and amortization..... 539 593
General and administrative................... 512 565
Interest..................................... 250 184
Other........................................ 7 --
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Total expenses........................ 2,774 2,752
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Income (loss) before income taxes.............. (101) 172
Income tax benefit (expense)................... 35 (70)
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Net income (loss).............................. $ (66) $ 102
======= =======
Income (loss) per common share................. $ (.01) $ .01
======= =======
Weighted average number of shares outstanding.. 12,887 13,012
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
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HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (66) $ 102
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depletion, depreciation, and amortization....... 539 593
Deferred taxes.................................. 40 (12)
Gain on sale.................................... (3) 1
Changes in operating assets and liabilities:
Accounts receivable and other................... (109) 288
Notes receivable................................ 77 38
Compressor and compressor parts inventory....... (63) (51)
Accounts payable and accrued liabilities........ (260) 160
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Net cash provided by operating activities..... 155 1,119
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Cash flows from investing activities:
Acquisitions of compressor and other equipment...... (367) (621)
Proceeds from disposition of compressor
and other equipment............................... 158 1
Additions to oil and gas properties................. (13) (86)
Proceeds of dispositions of oil and gas properties.. -- 2
Cash held for reinvestment in oil and gas
properties......................................... (31) --
Increase in organization costs and other
intangibles........................................ (1) (15)
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Net cash used in investing activities......... (254) (719)
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Cash flows from financing activities:
Proceeds of long-term debt.......................... 720 70
Payments on long-term debt.......................... (536) (275)
Principal payments under capital lease obligation... -- (138)
Sale of treasury stock.............................. 12 7
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Net cash provided by (used in) financing
activities..................................... 196 (336)
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Net increase (decrease) in cash
and cash equivalents................................ 97 64
Cash and cash equivalents,
beginning of period................................. 115 20
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Cash and cash equivalents,
end of period....................................... $ 212 $ 84
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
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HAWKINS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
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(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid.................................... $ 250 $ 184
====== ======
Income taxes paid................................ $ -- $ 237
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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
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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 March 31, 1995, and the results of its operations and cash flows for the
periods ended March 31, 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>
March 31, December 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Land and building.................................. $ 299 $ 299
Oil and gas properties, on the full cost method.... 32,023 32,010
Compressor equipment............................... 22,678 22,473
Other equipment.................................... 450 451
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55,450 55,233
Less accumulated depreciation, depletion and
amortization..................................... 34,318 33,803
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Net property and equipment......................... $21,132 $21,430
======= =======
</TABLE>
On December 30, 1994, the Company sold interests in fifty-seven wells
located in the Arkoma Basin of northwest Arkansas. The natural gas reserves
attributable to the properties sold represented approximately one-third of the
total equivalent natural gas reserves owned by the Company. The Company
received $2,513,000 for the well interests and related production equipment and
recognized a gain of $1,880,000 on the sale. The proceeds from the sale have
been placed in trust and management intends to utilize such proceeds to purchase
oil and gas properties in 1995 resulting in a "like kind exchange" for tax
purposes, with the gain on sale being deferred.
As of May 2, 1995, the Company had used $2,150,000 of the sale proceeds in
purchasing replacement oil and gas properties. The effective dates of the
purchases range from January 1 to March 1, 1995, however, revenues from these
properties will not be recognized until the second quarter of 1995. The closing
dates of the purchases were during April and the first week in May 1995.
7
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NOTE 3 Transactions with Related Parties
Amounts paid in the three months ended March 31 by the Company to an
affiliate for general and administrative overhead including rent and production
and drilling overhead is as follows: $24,000 in 1995 $35,000 in 1994.
Equity Compressors received compressor rental revenues from an affiliate
and a related party in the amount of $91,000 for the three months ended March
31, 1995. At March 31, 1995, Equity Compressor's receivable from the related
entity totalled $169,000.
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 March 31, 1995 are $196,000 through March 31, 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 $29,000 and $31,000 in first quarter of
1995 and 1994, respectively.
The Company has certain other operating leases for office equipment and
automobiles. Future minimum rental payments under these leases total $147,000,
$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
- ---------------------
First Quarter 1995 versus First Quarter 1994
In the first quarter 1995, the Company had a net loss of $66,000 compared
to a net income of $102,000 for the first quarter 1994, due principally to the
reduction in oil and gas revenues of $234,000 as a result of the sale of
properties in December 1994. Also contributing were lower natural gas prices,
higher interest expense and higher compressor operating costs. The average spot
market gas price received in the first quarter 1995 was $1.73 compared to $2.15
received in the first quarter 1994. This decline was offset somewhat by $65,000
received by the Company from a 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 will continue through April 1995. Oil and gas operating costs
for 1995 were 25% lower than for 1994, primarily due to fewer producing wells
and a reduction in the amount of workover activity.
Revenues from the sale of compressors and remanufacturing services
decreased 10% in 1995 compared to 1994. During 1995, compressor rental revenues
remained constant when compared to 1994, even though the overall compressor
utilization rate decreased in 1995 to 76% from 81% in 1994. The average number
of units rented during the first quarter 1995 decreased by 9 units when compared
to the
8
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average number of units rented during the first quarter 1994, generally as a
result of lagging demand related to the deterioration in gas prices and
aggressive marketing by competing rental companies. Revenues were maintained by
leasing units with a 6% greater average horsepower at higher rental rates in the
first quarter 1995 compared to the same period 1994.
The cost of compressor and remanufacturing sales decreased 4% from 1994.
Compressor operating costs incurred on rental units increased 12% in 1995 from
the first quarter 1994 reflecting additional overhaul and maintenance work
required to maintain the compressor rental fleet.
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 1995 expense of $71,000 is 47% less than
$134,000 during 1994, due to lower production volumes and an upward revision of
reserve estimates at year end 1994. Depreciation of the compressor fleet
increased to $468,000 in 1995 from $453,000 in 1994.
General and administrative expense decreased 9% in 1995 from 1994 due to a
reduction in corporate personnel expenses.
Interest expense increased by 36% in 1995 compared to 1994 as a result of
additional bank borrowings and higher interest rates in 1995.
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 has 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 expires on June 30, 1995. At May 4, 1995, the
Company had utilized $972,000 of the credit line. The Company is currently
negotiating with the bank to extend the maturity of this revolving line to 1996.
The Company's new loan agreement includes amounts due during the next
twelve months totalling $3.03 million, including $972,000 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 $155,000 in the
first quarter of 1995 from $1.1 million in the same period of 1994, primarily
due to the first quarter net loss, an increase in accounts receivable and a
decrease in accounts payable. Net cash used in investing activities decreased
to $254,000 in 1995 from $719,000, due to fewer additions to the compressor
rental fleet. Net cash provided by financing activities was $196,000 in 1995
compared to cash used in financing activities of $336,000 in 1994 as a result of
the draw down on the revolving line of credit. At March 31, 1995, the Company
had current assets of $2.8 million and current liabilities of $4.6 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.
On December 30, 1994, the Company sold interests in fifty-seven wells
located in the Arkoma Basin of northwest Arkansas for $2,513,000. The proceeds
from the sale have been placed in trust and management intends to utilize such
proceeds to purchase oil and gas properties in 1995 resulting in a "like kind
exchange" for tax purposes, with the gain on sale being deferred. As of May 2,
1995, the Company had used $2.2 million of the $2.5 million received from the
sale of oil and gas properties in the purchase of replacement properties
estimated to have reserves of approximately 4.4 equivalent billion cubic feet
(Bcf).
9
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PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
Exhibit
No. Description
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27 Financial Data Schedule
(b) Reports on Form 8K: None
10
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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: May 18, 1995 By: /s/ Thomas F. Ostrye
---------------------------------
THOMAS F. OSTRYE, President
DATE: May 18, 1995 By: /s/ Clifford S. Lewis
----------------------------------
CLIFFORD S. LEWIS
Vice President, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
11
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EXHIBIT INDEX
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Exhibit
No. Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 212
<SECURITIES> 0
<RECEIVABLES> 1,818
<ALLOWANCES> 165
<INVENTORY> 1,324
<CURRENT-ASSETS> 2,828
<PP&E> 55,450
<DEPRECIATION> 34,318
<TOTAL-ASSETS> 27,824
<CURRENT-LIABILITIES> 4,603
<BONDS> 0
<COMMON> 130
0
0
<OTHER-SE> 11,906
<TOTAL-LIABILITY-AND-EQUITY> 27,824
<SALES> 729
<TOTAL-REVENUES> 2,673
<CGS> 461
<TOTAL-COSTS> 2,517
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> (101)
<INCOME-TAX> 35
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
