<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, 1996
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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 .
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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.)
Twenty East Fifth Street, Suite 1500, 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, 1996 - 13,010,168
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, 1996 and December 31, 1995..................... 3
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995............... 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995............... 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....................... 11
Signatures...................................................... 12
2
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HAWKINS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
UNAUDITED
--------- ------------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 304 $ 177
Accounts receivable, less allowance for doubtful accounts
of $14 and $25 in 1996 and 1995, respectively............... 1,058 1,377
Accounts receivable -- related party.......................... -- 25
Notes receivable.............................................. 186 262
Income tax receivable......................................... -- 58
Compressors and compressor parts inventory.................... 1,857 1,458
Other......................................................... 143 121
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Total current assets........................................ 3,548 3,478
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Cash held for reinvestment in oil and gas properties............ 158 --
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Property and Equipment, net (Note 2)............................ 21,208 21,399
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Goodwill and other intangibles, net of amortization of
$1,705 in 1996 and $1,690 in 1995......................... 781 794
Notes receivable................................................ 270 315
Other assets.................................................... 49 55
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Total Assets.................................................... $26,014 $26,041
======= =======
Current Liabilities:
Current portion of long-term debt............................. $ 682 $ 682
Accounts payable and accrued liabilities...................... 1,895 1,778
Accounts payable affiliate.................................... 79 88
Income tax payable............................................ 33 --
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Total current liabilities................................... 2,689 2,548
Long-term debt.................................................. 8,899 9,000
Deferred income taxes........................................... 3,606 3,697
Other........................................................... 98 98
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Total Liabilities............................................... 15,292 15,343
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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 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)................................... (1,487) (1,448)
Treasury stock, at cost (39,067 and 87,267 shares in
1996 and 1995, respectively)................................ (35) (98)
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Total stockholders' equity...................................... 10,722 10,698
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Total Liabilities and Stockholders' Equity...................... $26,014 $26,041
======= =======
</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,
1996 1995
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(In thousands, except
for per share amounts)
<S> <C> <C>
Revenues:
Oil & gas sales............................... $ 409 $ 277
Compressor sales and remanufacturing.......... 173 452
Compressor rentals and service fees........... 1,609 1,893
Interest and other income..................... 12 48
Gain on sale of assets........................ 7 3
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Total revenues.............................. 2,210 2,673
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Expenses:
Operating costs - oil and gas................. 143 103
Cost of compressor sales and remanufacturing.. 111 358
Operating costs - compressors................. 769 1,005
Depreciation, depletion and amortization...... 533 539
General and administrative.................... 407 512
Interest...................................... 244 250
Other......................................... -- 7
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Total expenses......................... 2,207 2,774
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Income (loss) before income taxes............... 3 (101)
Income tax benefit (expense).................... (1) 35
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Net income (loss)............................... $ 2 $ (66)
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Income (loss) per common share.................. $ -- $ (.01)
======= ========
Weighted average number of shares outstanding... 12,991 12,887
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</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,
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 2 $ (66)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion, depreciation, and amortization........ 533 539
Deferred taxes................................... (91) 40
Gain (loss) on sale.............................. (7) (3)
Bad debt expense................................. 8 7
Changes in operating assets and liabilities:
Accounts receivable and other.................... 372 (116)
Notes receivable................................. 121 77
Compressor and compressor parts inventory........ (399) (63)
Accounts payable and accrued liabilities......... 141 (260)
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Net cash provided by operating activities....... 680 155
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Cash flows from investing activities:
Acquisitions of compressor and other equipment..... (569) (367)
Proceeds from disposition of compressor
and other equipment............................... 84 158
Additions to oil and gas properties................ (4) (13)
Proceeds of dispositions of oil and gas
properties........................................ 173 --
Cash held for reinvestment in oil and gas
properties........................................ (158) (31)
Increase in organization costs and other
intangibles....................................... -- (1)
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Net cash used in investing activities........... (474) (254)
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Cash flows from financing activities:
Proceeds of long-term debt......................... 66 720
Payments on long-term debt......................... (167) (536)
Sale of treasury stock............................. 22 12
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Net cash provided by (used in) financing
activities...................................... (79) 196
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Net increase in cash and cash equivalents........... 127 97
Cash and cash equivalents,
beginning of period................................ 177 115
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Cash and cash equivalents,
end of period...................................... $ 304 $ 212
======= =======
</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,
1996 1995
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(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid..................................... $ 249 $ 250
======= =======
Income taxes paid................................. $ -- $ --
======= =======
</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, 1996, and the results of its operations and cash flows for the
periods ended March 31, 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>
MARCH 31, DECEMBER 31,
1996 1995
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(In thousands)
<S> <C> <C>
Land and building................................ $ 300 $ 299
Oil and gas properties, on the full cost method.. 34,375 34,544
Compressor equipment............................. 22,566 22,110
Other equipment.................................. 479 469
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57,720 57,422
Less accumulated depreciation, depletion and
amortization.................................... 36,512 36,023
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Net property and equipment....................... $21,208 $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 have been placed in trust and management
intends to utilize such proceeds 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.
As of May 2, 1996, the Company had used $32,500 of the sale proceeds in
purchasing replacement interests in oil and gas properties.
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: $28,000 in 1996 $24,000 in 1995.
Equity Compressors received compressor rental revenues from an affiliate
and a related party in the amount of $34,000 for the three months ended March
31, 1996. At March 31, 1996, Equity Compressor's receivable from the related
entity totalled $943.
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, 1996 are $353,000, $388,000, $388,000 and $65,000 in
1996, 1997, 1998, 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 $33,000 and $29,000 in first quarter of 1996 and 1995,
respectively.
The Company has certain other operating leases for office equipment and
automobiles. Future minimum rental payments under these leases total $178,000,
$159,000, $56,000, $7,000 and $2,000 for 1996, 1997, 1998, 1999 and 2000,
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
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FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
In the first quarter 1996, the Company had a net income of $2,000 compared
to a net loss of $66,000 for the first quarter 1995, due principally to
increased oil and gas sales and lower general and administrative costs.
Oil and gas sales increased 48% from 1995 to 1996. The average spot market
gas price received in the first quarter 1996 was $2.06 compared to $1.73
received in the first quarter 1995. Oil and gas operating costs for 1996 were
39% higher than for 1995, primarily due to the additional number of properties
acquired at the beginning of 1995.
Revenues from the sale of compressors and remanufacturing services
decreased 62% in 1996 compared to 1995. During 1996, compressor rental revenues
decreased 15% when compared to 1995 as the average compressor utilization rate
decreased in 1996 to 67% from 76% in 1995. The average number of units rented
during the first quarter 1996 decreased by 39 units when compared to the average
number of units rented during the first quarter 1995, generally as a result of
lagging demand resulting from the continuing effect on the industry from lower
prices in 1995.
8
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The cost of compressor and remanufacturing sales decreased 69% from 1995,
consistent with the decrease in sales. Compressor operating costs incurred on
rental units decreased 23% in 1996 from the first quarter 1995 reflecting the
lower number of leased units and the Company's focus on more efficient field
operations.
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. Total depreciation, depletion and amortization
decreased $6,000 due to lower depreciation of compressor equipment offset by
increased depreciation expense of oil and gas properties. The 1996 expense of
$84,000 is 20% higher than the 1995 expense of $71,000 due to higher production
volumes. Depreciation of the compressor fleet decreased 4% in 1996 to $449,000
from $468,000 in 1995, due to the write down of equipment in the fourth quarter
of 1995.
General and administrative expense decreased 21% in 1996 from 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 2% in 1996 compared to 1995.
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, plus interest. The outstanding
balance of the loan at May 3, 1996 is $946,000. 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 is $124,000 at May 3, 1996.
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 May 3, 1996, the Company had
utilized $8.2 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
1996 totalling $682,000.
Net cash provided by operating activities increased to $680,000 in the
first quarter of 1996 from $155,000 in the same period of 1995, primarily due to
a decrease in accounts receivable and an increase in compressor and compressor
parts inventory and accounts payable. A significant amount ($286,000) of the
increase in compressor inventory relates to sales expected to be completed in
the second quarter of 1996. Net cash used in investing activities increased to
$474,000 in 1996 from $254,000, due to additions to the compressor rental fleet.
Net cash used in financing activities was $79,000 in 1996 compared to cash
provided by financing activities of $196,000 in 1995 as a result of the pay down
on the revolving line of credit. At March 31, 1996, the Company had current
assets of $3.5 million and current liabilities of $2.7 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 sale have been placed in trust and management
intends to utilize such proceeds 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 of May 2, 1996, the Company had used $32,500 of the sale
proceeds in purchasing replacement interests in oil and gas properties.
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 second quarter.
9
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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.
10
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PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits: 27
EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule
(b) Reports on Form 8K: None
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: May 10, 1996 By: /s/ Thomas F. Ostrye
-------------------------------------------
THOMAS F. OSTRYE
Chairman, President and Treasurer
(Principal Financial and Accounting Officer)
12
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EXHIBIT INDEX
-------------
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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 304
<SECURITIES> 0
<RECEIVABLES> 1,528
<ALLOWANCES> 14
<INVENTORY> 1,857
<CURRENT-ASSETS> 3,548
<PP&E> 57,720
<DEPRECIATION> 36,512
<TOTAL-ASSETS> 26,014
<CURRENT-LIABILITIES> 2,689
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 10,592
<TOTAL-LIABILITY-AND-EQUITY> 26,014
<SALES> 582
<TOTAL-REVENUES> 2,210
<CGS> 254
<TOTAL-COSTS> 1,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 244
<INCOME-PRETAX> 3
<INCOME-TAX> (1)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
