<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, 1996
--------------------
[ ] 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
- --------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
OKLAHOMA 73-1345732
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TWENTY EAST FIFTH STREET, SUITE 1500,
TULSA, OKLAHOMA 74103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
918-587-5815
- --------------------------------------------------------------------------------
(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 6, 1996 - 13,010,168
TRANSITIONAL SMALL BUSINESS ISSUER FORMAT (CHECK ONE): YES NO X
----- -----
<PAGE>
HAWKINS ENERGY CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
FINANCIAL INFORMATION:
Item 1 -- Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 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 11
Signatures 12
</TABLE>
2
<PAGE>
HAWKINS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
UNAUDITED 1995
--------- -----------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $ 16 $ 177
Accounts receivable, less allowance for doubtful accounts
of $32 and $25 in 1996 and 1995, respectively............... 1,300 1,377
Accounts receivable -- related party......................... -- 25
Notes receivable............................................. 419 262
Income tax receivable........................................ -- 58
Compressors and compressor parts inventory................... 1,606 1,458
Other........................................................ 65 121
------- -------
Total current assets........................................ 3,406 3,478
------- -------
Cash held for reinvestment in oil and gas properties.......... 95 --
------- -------
Property and Equipment, net (Note 2).......................... 21,193 21,399
------- -------
Goodwill and other intangibles, net of amortization of
$1,725 in 1996 and $1,690 in 1995.......................... 759 794
Notes receivable.............................................. -- 315
Other assets, net of amortization of $42 in 1996 and
$39 in 1995.................................................. 53 55
------- -------
Total Assets.................................................. $25,506 $26,041
======= =======
Current Liabilities:
Current portion of long-term debt............................ $ 708 $ 682
Accounts payable and accrued liabilities..................... 1,710 1,778
Accounts payable affiliate................................... -- 88
Income tax payable........................................... 138 --
------- -------
Total current liabilities................................... 2,556 2,548
Long-term debt................................................ 8,522 9,000
Deferred income taxes......................................... 3,541 3,697
Other......................................................... 98 98
------- -------
Total Liabilities............................................. 14,717 15,343
------- -------
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 13,010,168 and
12,961,968 outstanding in 1996 and 1995, respectively....... 130 130
Additional paid-in capital................................... 12,114 12,114
Retained earnings (deficit).................................. (1,419) (1,448)
Treasury stock, at cost (39,067 and 87,267 shares in
1996 and 1995, respectively)................................ (36) (98)
------- -------
Total stockholders' equity.................................... 10,789 10,698
------- -------
Total Liabilities and Stockholders' Equity.................... $25,506 $26,041
======= =======
</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,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except for per
share amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil & gas sales.............................. $ 441 $ 451 $ 850 $ 728
Compressor sales............................. 656 687 829 1,139
Compressor rentals........................... 1,613 1,669 3,222 3,555
Interest and other income.................... 11 23 23 71
Gain (loss) on sale of assets................ 54 4 61 7
------- ------- ------- --------
Total revenues............................. 2,775 2,834 4,985 5,500
------- ------- ------- --------
Expenses:
Operating costs - oil and gas................ 112 168 255 271
Cost of sales - compressors.................. 507 572 618 930
Operating costs - compressors................ 813 765 1,582 1,770
Depreciation, depletion and amortization..... 538 623 1,071 1,162
General and administrative................... 487 428 894 940
Interest..................................... 236 272 480 522
------- ------- ------- -------
Total expenses.......................... 2,693 2,828 4,900 5,595
------- ------- ------- -------
Income (loss) before income taxes.............. 82 6 85 (95)
Income tax benefit (expense)................... (40) (2) (41) 33
------- ------- ------- -------
Net income (loss).............................. $ 42 $ 4 $ 44 $ (62)
======= ======= ======= =======
Income (loss) per common share:................ $ -- $ -- $ -- $ --
======= ======= ======= =======
Weighted average number of shares outstanding.. 13,010 12,928 13,000 12,907
======= ======= ======= =======
</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,
--------------------------
1996 1995
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 44 $ (62)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion, depreciation, and amortization........... 1,071 1,162
Gain on sale of equipment........................... (61) (7)
Deferred taxes...................................... (156) 55
Changes in operating assets and liabilities:
Accounts receivable and other....................... 216 (294)
Notes receivable.................................... 158 34
Compressor and compressor parts inventory........... (148) (48)
Accounts payable and accrued liabilities............ (18) (121)
------- -------
Net cash provided by operating activities......... 1,106 719
------- -------
Cash flows from investing activities:
Acquisitions of compressor and other equipment.......... (1,337) (635)
Proceeds from dispositions of compressor and
other equipment....................................... 498 293
Additions to oil and gas properties..................... (75) (2,505)
Proceeds of disposition of oil and gas properties....... 174 --
Cash held for reinvestment in oil and gas properties.... (95) 2,513
(Increase) decrease in organization costs and
other intangibles..................................... (1) 3
------- -------
Net cash used in investing activities............. (836) (331)
------- -------
Cash flows from financing activities:
Proceeds of long-term debt.............................. 130 826
Payments on long-term debt.............................. (582) (911)
Sale of treasury stock.................................. 21 37
------- -------
Net cash used in financing activities............... (431) (48)
------- -------
Net increase (decrease) in cash
and cash equivalents.................................... (161) 340
Cash and cash equivalents,
beginning of period..................................... 177 115
------- -------
Cash and cash equivalents,
end of period........................................... $ 16 $ 455
======= =======
</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,
-------------------------
1996 1995
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(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid.................................... $ 490 $ 438
===== =====
Income taxes paid................................ $ -- $ --
===== =====
</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, 1996, and the results of its operations and cash flows for the
periods ended June 30, 1996 and 1995.
The financial statements should be read in conjunction with the
Company's Form 10-KSB for the year ended December 31, 1995. 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,
1996 1995
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(In thousands)
<S> <C> <C>
Land and building................................ $ 304 $ 299
Oil and gas properties, on the full cost method.. 34,445 34,544
Compressor equipment............................. 22,117 21,446
Other equipment.................................. 489 469
------- -------
57,355 56,758
Less accumulated depreciation, depletion and
amortization.................................... 36,162 35,359
------- -------
Net property and equipment....................... $21,193 $21,399
======= =======
</TABLE>
On January 1, 1996, the Company sold interests in certain wells. The
Company received $157,300 for the well interests and related production
equipment. The proceeds from the sale were placed in trust and utilized by
management to purchase oil and gas properties in 1996 resulting in a "like kind
exchange" for tax purposes, with the tax gain on sale being deferred.
NOTE 3 TRANSACTIONS WITH RELATED PARTIES
Amounts paid in the six months ended June 30 by the Company to an affiliate
for production and drilling overhead is as follows: $53,000 in 1996 and $56,000
in 1995.
Equity Compressors received compressor rental revenues from an affiliate
and a related party in the amount of $57,000 for the six months ended June 30,
1996. At June 30, 1996, Equity Compressor's receivable from the related entity
totalled $2,000.
7
<PAGE>
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, 1996 are $339,000, $388,000, $388,000 and $65,000 in 1996,
1997, 1998 and 1999, respectively.
The Company leases facilities for its corporate and field offices with
lease terms ranging from month to month to two years. The Company's rental
expense amounted to $65,000 in both the six months ended June 30, 1996 and 1995,
respectively.
The Company has certain other operating leases for office equipment and
automobiles. Future minimum rental payments under these leases total $109,000,
$159,000, $56,000, $7,000 and $2,000 for 1996, 1997, 1998 and 1999,
respectively.
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
- ---------------------
1996 VERSUS 1995
In the three months ended June 30, 1996, the Company had net income of
$42,000 compared to net income of $4,000 in the three months ended June 30,
1995. For the six months ended June 30, 1996, the Company reported net income
of $44,000 compared to net loss of $62,000 for the same period ended June 30,
1995, due principally to an increase in oil and gas sales, gain on the sale of
assets, and reduced interest expense.
Revenues from oil and gas sales declined by $10,000 in the three months
ended June 30, 1996 from the same period in 1995 as a result of the natural
production decline of the Company's oil and gas reserves. Higher prices for both
gas and oil nearly offset the lesser volumes sold during the 1996 three month
period. Oil and gas revenues increased 17% in the six months ended June 30, 1996
from the same period in 1995 from the combined effect of higher product prices
in 1996 and the timing of the acquisition of properties during the 1995 period.
For product sold by the Company the average price per Mcf of gas increased 33%
to $2.11 in 1996 compared to 1995 while the average price per Bbl of oil
increased 11% to $19.02.
Revenues from the sale of compressors and remanufacturing services
decreased 5% and 27% in the three and six months ended June 30, 1996, when
compared to the same periods in 1995. Compressor rental revenues decreased 3%
and 9% in the three and six months ended June 30, 1996 when compared to 1995, as
the average overall compressor utilization rate decreased to 69% for the six
months ended June 30, 1996 compared to 73% in the same period 1995. The average
number of units rented during the six months ended June 30, 1996 decreased by 25
units when compared to the average number of units rented during the first six
months of 1995, generally the result of lagging demand and increased
competition.
The cost of compressor and remanufacturing sales decreased 11% and 33% in
the three and six months ended June 30, 1996 from the same periods in 1995,
consistent with the decrease in related sales. The margins from sales, however,
increased 30% for the three months ended June 30, 1996 from the same period 1995
reflecting higher profits recognized from sales of remanufactured equipment.
Compressor operating costs incurred on rental units increased 6% in the three
months ended June 30, 1996 from the same period in 1995, compressor operating
costs decreased 11% in the six months ended June 30, 1996 from the same periods
in 1995 as a result of the Company's efficiencies created from the consolidation
of operating divisions.
8
<PAGE>
Total depreciation, depletion and amortization decreased 14% and 8% in the
three and six months ended June 30, 1996 when compared to the same periods in
1995. 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. Such expense for the three and six months
ended June 30, 1996 is 29% and 11% lower than the same periods in 1995,
respectively, due to lower production volumes and an upward revision of reserve
estimates at year end 1995. Depreciation of the compressor fleet decreased 10%
and 7% in the three and six months ended June 30, 1996 from the same periods in
1995 due to a write down of equipment in the fourth quarter of 1995.
General and administrative expense increased 14% and decreased 5% in the
three and six months ended June 30, 1996 compared to the same periods in 1995,
due to a reduction in corporate expenses related to the Company's ongoing
efforts to control such costs, as well as certain administrative efficiencies
resulting from the merger of the Company's three wholly owned gas compressor
subsidiaries.
Interest expense decreased by 13% and 8% in the three and six months ended
June 30, 1996 compared to the same periods in 1995 as a result of lower debt
balances in 1996.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
In September 1995, the Company refinanced its existing debt in order to
increase the amounts available for new investment and working capital. The debt
is structured as three separate notes and is collateralized by substantially all
of the assets of the Company. One note has an initial loan balance of $1.2
million and is being amortized at $35,000 per month, plus interest. The
outstanding balance of the loan at August 6, 1996 is $841,000. Another note,
with an initial principal amount of $425,000 is amortized at $8,854 per month,
over 48 months, plus interest. The outstanding balance of this loan was $97,000
on July 31, 1996 on which date the note was repaid. A third note, an 18 month
revolving line of credit with a $12 million cap to allow for financing of asset
acquisitions, has an initial borrowing base of $8.5 million available for
general business purposes. This borrowing base was increased to $9 million on
May 1, 1996. At August 6, 1996, the Company had utilized $7.4 million of the
credit line. Under the terms of the credit line, the outstanding balance at
March 31, 1997 will be converted to a term note payable over 36 months. The
Company's debt agreement includes amounts due in the next twelve months
totalling $708,000.
Net cash provided by operating activities increased to $1,106 in the second
quarter of 1996 from $719 in the same period of 1995, primarily due to improved
net income and a decrease in accounts receivable and other current assets. Net
cash used in investing activities increased to $836 in 1996 from $331, due to
additions to the compressor rental fleet. Net cash used in financing activities
is $431 in 1996 compared to $48 in 1995 as a result of the pay down on the
revolving line of credit. At June 30, 1996, the Company had current assets of
$3.4 million and current liabilities of $2.6 million. The Company anticipates
that 1996 cash flow from operations, together with credit line borrowings, will
be sufficient to fund the Company's working capital and capital expenditure
needs, as well as debt repayment.
On January 1, 1996, the Company sold interests in certain wells. The
Company received $157,300 for the well interests and related production
equipment. The proceeds from the sales were placed in trust and utilized by
management to purchase oil and gas properties in 1996 resulting in a "like kind
exchange" for tax purposes, with the gain on sale being deferred.
As disclosed in the Company's Form 10-KSB, the Company intends to dispose
of certain compressor equipment which sale is currently expected to be completed
in the third quarter. Accordingly, the book value of the equipment was reduced
in the fourth quarter of 1995 to its estimated fair value resulting in a
provision to reduce the carrying value of the equipment. The Company
anticipates that the proceeds of this sale of equipment will be used to acquire
other compression equipment more suited to the current marketplace.
9
<PAGE>
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 29, 1996, in
Tulsa, Oklahoma. At the Annual Meeting, the stockholders of the Company elected
Charles M. Butler, III, and David J. Parsons, as Class I Directors of the
Company for three-year terms. Thomas F. Ostrye, John B. Hawkins, 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 approved the Director
Stock Option Plan, and approved the Amended Employee Stock Option Plan and
ratified the selection of Coopers and Lybrand as the independent auditors of the
Company for the fiscal year ending December 31, 1996.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 7,235,233 shares of Common stock of the Company, or 56% 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
Charles M. Butler, III 7,051,685 183,548 0 0
David J. Parsons 7,051,685 183,548 0 0
2. Approval of the Hawkins Energy
Corporation Director Stock
Plan 6,713,919 440,535 0 0
3. Approval of the Amended and
Restated Hawkins Energy
Corporation Employee Stock
Option Plan 6,481,946 671,581 0 0
4. Ratification of
Independent Auditors 7,026,229 209,633 0 0
</TABLE>
10
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule
11
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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: August 14, 1996 By: /s/ Thomas F. Ostrye
-------------------------------------
THOMAS F. OSTRYE
Chairman, President and Treasurer
(Principal Financial and Accounting
Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 1,751
<ALLOWANCES> 32
<INVENTORY> 1,606
<CURRENT-ASSETS> 3,406
<PP&E> 57,355
<DEPRECIATION> 36,162
<TOTAL-ASSETS> 25,506
<CURRENT-LIABILITIES> 2,556
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 10,659
<TOTAL-LIABILITY-AND-EQUITY> 10,789
<SALES> 1,679
<TOTAL-REVENUES> 4,985
<CGS> 873
<TOTAL-COSTS> 4,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 480
<INCOME-PRETAX> 85
<INCOME-TAX> (41)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
