<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, 1999
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM_______________ TO ________________.
COMMISSION FILE NUMBER 0-18205
------------------
OEC COMPRESSION CORPORATION
---------------------------------------
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1345732
--------------------------------- --------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2501 Cedar Springs Road, Suite 600, Dallas, Texas 75201
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
214-953-9560
------------------------------------------------------------------------
(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 23, 1999 - 28,986,711
Transitional Small Business Format (Check one): Yes ; No X
--- ---
1
<PAGE>
OEC COMPRESSION CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
FINANCIAL INFORMATION:
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998................................3
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1999 and 1998..................4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998............................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 - (a) Exhibits ..............................................12
Signatures .........................................................13
</TABLE>
2
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
UNAUDITED
(in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................ $ 7 $ 7
Accounts receivable, less allowances for doubtful accounts
of $82 and $109 in 1999 and 1998, respectively ......... 2,477 3,309
Interest receivable - related party ...................... 41 30
Compressors and compressor parts inventory ............... 6,381 6,293
Other .................................................... 176 300
--------- ---------
Total current assets .................................. 9,082 9,939
Property and equipment, net (Note 2) ....................... 97,917 94,592
Note receivable - related party ............................ 332 332
Goodwill and other intangibles, net of amortization of
$681 in 1999 and $409 in 1998 ............................ 1,808 2,057
Other assets, net .......................................... 1 1
--------- ---------
Total assets .......................................... $ 109,140 $ 106,921
========= =========
Current Liabilities:
Current portion of capital lease obligations ............. $ 225 $ 319
Accounts payable and accrued liabilities ................. 6,055 5,290
--------- ---------
Total current liabilities ............................. 6,280 5,609
Long-term debt ............................................. 60,870 58,829
Capital lease obligations .................................. 1,264 1,354
Deferred income taxes ...................................... 10,141 10,216
Other ...................................................... 89 89
--------- ---------
Total Liabilities ..................................... 78,644 76,097
Minority interest .......................................... 2,120 2,032
Stockholders' Equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued .......................... - -
Common stock, $.01 par value, 60,000,000 shares
authorized, 29,171,211 shares issued and
28,986,711 and 29,162,044 shares outstanding in 1999
and 1998, respectively ............................. 291 291
Additional paid-in capital ............................... 31,841 31,841
Accumulated deficit ...................................... (3,488) (3,331)
Treasury stock, at cost, 184,500 and 9,167 shares in 1999
and 1998, respectively ................................. (268) (9)
--------- ---------
Total stockholders' equity .............................. 28,376 28,792
--------- ---------
Total Liabilities and Stockholders' Equity ............ $ 109,140 $ 106,921
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Compressor rentals and service fees $ 5,603 $ 5,850 $ 11,630 $ 11,093
Compressor sales and re-manufacturing 127 187 204 407
Oil & gas sales 699 523 1,399 1,193
----- ----- ------ ------
Total revenues 6,429 6,560 13,233 12,693
----- ----- ------ ------
Expenses:
Operating costs - compressors 2,318 2,310 4,877 4,350
Cost of compressor sales and re-manufacturing 100 172 128 405
Operating costs - oil and gas 248 172 475 396
Depreciation, depletion and amortization 1,668 1,311 3,325 2,712
General and administrative 1,048 1,008 2,074 1,802
----- ----- ----- -----
Total expenses 5,382 4,973 10,879 9,665
----- ----- ------ -----
Income from operations 1,047 1,587 2,354 3,028
----- ----- ----- -----
Other income (expense):
Gain on sale of assets 9 5 22 5
Interest income and other 38 70 72 100
Interest expense (1,322) (1,053) (2,592) (2,042)
Minority interest in results of oil and gas operations (44) (34) (88) (70)
------- ------- ------- -------
(1,319) (1,012) (2,586) (2,007)
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item (272) 575 (232) 1,021
Income tax benefit (expense) 97 (224) 75 (401)
------- ------- ------- -------
Net income (loss) before extraordinary item (175) 351 (157) 620
------- ------- ------- -------
Extraordinary item:
Write-off of unamortized debt issue costs
on debt retirement (net of $28 tax) - - - (42)
------- ------- ------- -------
Net income (loss) $ (175) $ 351 $ (157) $ 578
======= ======= ======= =======
Basic and dilutive net income (loss) before
extraordinary item per common share $ (.01) $ .01 $ (.01) $ .02
======= ======= ======= =======
Extraordinary item $ .00 $ .00 $ .00 $ .00
======= ======= ======= =======
Basic and dilutive net income (loss) per common share $ (.01) $ .01 $ (.01) $ .02
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $ (157) $ 578
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization ............... 3,325 2,712
Deferred income taxes .................................. (75) 401
Minority interest in results of oil and gas operations . 88 70
Other .................................................. 6 61
Changes in operating assets and liabilities:
Accounts and notes receivable .......................... 821 25
Compressor and compressor parts inventory .............. (48) (1,534)
Accounts payable and accrued liabilities ............... 765 (1,950)
Other .................................................. 124 (174)
------ -------
Net cash provided by operating activities ............ 4,849 189
------ -------
Cash flows from investing activities:
Acquisitions of compressor and other equipment ......... (6,674) (11,652)
Proceeds from disposition of compressor, other equipment
and oil and gas properties ........................... 127 678
Additions to oil and gas properties .................... (108) (265)
Increase in goodwill and other assets .................. (23) (686)
------ -------
Net cash used in investing activities ............... (6,678) (11,925)
------ -------
Cash flows from financing activities:
Proceeds of long-term debt ............................. 2,479 36,042
Payments on long-term debt ............................. (466) (24,215)
Payments on capital lease obligations .................. (184) (231)
Proceeds of stock issuance ............................. -- 45
Minority interest capital contributions ................ -- 100
------ -------
Net cash provided by financing activities ........... 1,829 11,741
------ -------
Net increase in cash and cash equivalents ................ -- 5
Cash and cash equivalents, beginning of period ........... 7 1
------ -------
Cash and cash equivalents, end of period ................. $ 7 $ 6
====== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid .......................................... $2,430 $ 1,526
====== =======
Income taxes paid ...................................... $ - $ -
====== =======
Non-Cash investing and financing activities:
Capital leases of compressor equipment ................. $ -- $ 1,629
Contribution of oil and gas properties by minority
interest owner ....................................... $ -- $ 362
Sale of aircraft in exchange for common stock ......... $ 259 $ --
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
OEC COMPRESSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
OEC Compression Corporation, formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged in
the leasing, contract management, outsourcing, re-manufacturing and direct sale
of gas compression equipment to operators of producing natural gas wells and gas
gathering systems and in the production of natural gas and oil. Its principal
geographical operating areas lie within the states of Alabama, Mississippi,
Louisiana, Oklahoma, Arkansas, Kansas and Texas.
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries Ouachita Energy Corporation ("Ouachita"),
Equity Leasing Corporation, Sunterra Energy Corporation ("Sunterra") and its oil
and gas venture Sunterra Petroleum Company, L.L.C., ("Sunterra L.L.C."), which
was 73% owned at June 30, 1999. All intercompany transactions have been
eliminated.
In the opinion of the Company, the accompanying financial statements
contain all adjustments necessary to present fairly the financial position of
OEC Compression Corporation and its wholly owned subsidiaries as of June 30,
1999, and the results of its operations and cash flows for the periods ended
June 30, 1999 and 1998. Certain prior year amounts have been reclassified to
conform with the current year presentation.
The financial statements should be read in conjunction with the
Company's Form 10-KSB for the year-ended December 31, 1998. 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,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Land and building ............................................ $ 1,938 $ 1,846
Compressor equipment ......................................... 101,721 95,763
Oil and gas properties, on the full cost method .............. 39,596 39,401
Other equipment .............................................. 3,993 3,871
-------- --------
147,248 140,881
Less accumulated depreciation, depletion and amortization..... 49,331 46,289
-------- --------
Net property and equipment ................................... $ 97,917 $ 94,592
======== ========
</TABLE>
NOTE 3 TRANSACTIONS WITH RELATED PARTIES
The Company transacts business with certain companies, which are
directly controlled by members of the Company's Board of Directors and
employees. The terms of these transactions are equivalent to the terms of
transactions conducted with non-related parties.
NOTE 4 COMMITMENTS
The Company leases compressor equipment under contracts with terms
ranging from a month to month basis to a five year commitment. The future
revenues to be received under contracts at June 30, 1999 are $3.6 million, $3.3
million, $1.4 million, $339,000, $234,000 and $8,000 in 1999, 2000, 2001, 2002,
2003 and 2004, respectively.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 EARNINGS PER SHARE
Earnings per share (EPS) is computed based on the weighted average
number of shares of common stock outstanding during the period.
The following is a reconciliation of basic and dilutive EPS computations:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Basic:
Net income (loss) $ (175) $ 351 $ (157) $ 578
Common stock 28,987 29,146 29,066 29,162
------- -------- --------- --------
Basic EPS $ (.01) $ .01 $ (.01) $ .02
======= ======== ========= ========
Effect of dilutive securities:
Warrants - 4,779 - 4,876
Common stock options - 526 - 542
------- -------- --------- --------
- 5,305 - 5,418
Dilutive:
Net income (loss) $ (175) $ 351 $ (157) $ 578
Common stock and dilutive securities 28,987 34,451 29,066 34,580
------- -------- --------- --------
Dilutive EPS $ (.01) $ .01 $ (.01) $ .02
======= ======== ========= ========
</TABLE>
NOTE 6 INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
(in thousands)
<S> <C> <C> <C> <C>
Compressor operations:
Net revenues $ 5,730 $ 6,037 $ 11,834 $11,500
Operating income 824 1,435 1,895 2,649
Identifiable assets 101,605 90,682 101,605 90,682
Capital expenditures 2,581 8.811 6,674 11,652
Depreciation and amortization $ 1,512 $ 1,196 $ 2,996 $ 2,460
Oil and gas:
Net revenues $ 699 $ 523 $ 1,399 $ 1,193
Operating income 223 152 459 379
Identifiable assets 7,535 6,509 7,535 6,509
Capital expenditures 60 191 108 265
Depreciation, depletion and amortization $ 156 $ 115 $ 329 $ 252
</TABLE>
NOTE 7 SUBSEQUENT EVENTS
Effective July 1, 1999, Sunterra assigned 100% of its interest in
Sunterra, L.L.C. to the minority interest partner Prize Petroleum, LLC in
exchange for a 100% ownership interest in a 300 GPM natural gas treating plant
in Val Verde County, Texas and cash. The total transaction was valued at $3.6
million. The Company expects to report a gain on this transaction in the third
quarter of fiscal year 1999.
In July 1999, the company sold approximately 5,000 horesepower of the
idle compression equipment (approximately 2% of total fleet horsepower) in a
single transaction for $2 million in cash. The Company does not expect to report
any material gain or loss on this transaction in the third quarter of fiscal
year 1999.
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.
Certain matters discussed in this Report on Form 10-Q are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", "estimates" or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those anticipated
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
as of the date of this report. The risks and uncertainties include (1) the loss
of market share through competition, (2) a prolonged substantial reduction in
natural gas prices which would cause a decline in the demand for the Company's
compression and oil and gas production equipment, (3) the introduction of
competing technologies by other companies, (4) new governmental safety, health
and environmental regulations which could require significant capital
expenditures by the Company and (5) changes in economics in the markets in which
the Company operates. The forward-looking statements included herein are only
made as of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.
RESULTS OF OPERATIONS
1999 VERSUS 1998
In the second quarter of 1999, the Company had a net loss of $175,000
compared to net income of $351,000 for the second quarter of 1998. For the six
months ended June 30, 1999, the Company reported a net loss of $157,000 compared
to net income of $578,000 for the same period in 1998. The Company's income from
operations decreased 34% and 22% for the three and six months ended June 30,
1999, respectively, when compared to the same periods in 1998.
The decrease in earnings can be attributed to a reduction in deployed
compression equipment at the beginning of the second quarter, ending June 30,
1999, and increased depreciation and interest expense. The loss of one large
client's rental services accounted for approximately 75% of the resulting 4%
reduction in revenues (compared to the 3 months period ending June 30, 1998).
The client elected to replace the rental equipment with owned equipment.
Compression industry statistics indicate a small reduction in compression fleet
utilization levels across most of the industry during the first six months of
1999. Restricted capital budgets of the compression industry's customer base due
to lower oil and natural gas prices in 1997 are believed to be the principal
cause of the decline. The Company has seen an increase in demand for compression
services in the recent months as oil and natural gas prices have rebounded.
Compressor rentals and contract revenues decreased 4% for the three
months ended June 30, 1999 when compared to the same period in 1998. This
reflects decreased levels of contracted units and horsepower. Compressor rentals
and contract revenues increased 5% for the six months ended June 30, 1999 as
compared to the same period in 1998. This improvement reflects comparative first
quarter increases, due to internal growth of the compressor fleet, outpacing
comparative second quarter decreases due to reduced contracted units and
horsepower on lease.
Compressor operating costs incurred on rental and contract units
remained relatively constant and increased 12%, respectively, for the three and
six months ended June 30, 1999 as compared to the same periods in 1998.
Compressor operating cost growth exceeds revenue growth as a result of the
incremental costs associated with the growth of the compressor fleet.
Compressor sales and re-manufacturing revenues decreased 32% and 50%
for the three and six months ended June 30, 1999, respectively, as compared to
the same period in 1998, due to the Company's focusing its field and shop
employees on maintaining and enhancing the rental/contract compressor fleet.
During the first six months of 1999, the Company's natural gas
production increased 132,000 Mcf or 28% and oil production decreased by 8,500
Bbls or 47% compared to the six months ended June 30, 1998. Oil and gas revenues
increased 34% for the three months ended June 30, 1999 and 17% for the six
months ended June 30, 1999, respectively, compared to the same periods ended
June 30, 1998 due to the net increase in volume production which is primarily
due to the acquisition of producing properties in December of 1998. The average
price of natural gas received by the Company increased 2% from $2.09 per Mcf at
June 30, 1998 to $2.13 at June 30, 1999. The average price per Bbl decreased
from $14.41 at June 30, 1998 to $13.44 at June 30, 1999. Oil and gas operating
costs increased 44% and 20%, respectively, for the three and six months ended
June 30, 1999 compared to the same periods in 1998 due to an increase in the
number of wells operated by the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Total depreciation, depletion and amortization expense increased 27%
and 23%, respectively, for the three and six months ended June 30, 1999, when
compared to the same periods in 1998. Depreciation for the compressor operations
increased 19% and 15% for the three and six months ended June 30, 1999,
respectively, as compared with the same period in 1998 due to expenses related
to deployed compressor units and additions of other assets. Amortization expense
for the compressor operations increased 222% and 225% for the three and six
months ended June 30, 1999, respectively, when compared to the same periods in
1998. This increase is attributable to debt issue costs related to the Company's
senior bank credit facility established in March, 1998 and a Settlement
Agreement between the Company, a current Director of the Company and certain
other parties. 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 three and six months ended June 30, 1999
depletion, depreciation and amortization expense related to oil and gas
properties is 34% and 30% higher, respectively, when compared to the same
periods in 1998 due to higher volumes produced and the increased asset basis
resulting from the December 1998 producing properties acquisition.
General and administrative expense increased 4% and 15% for three and
six months ended June 30, 1999, respectively, when compared to the same periods
in 1998, due to expenses associated with the Company's increased level of
operations.
Interest expense increased 26% and 27% for the three and six months
ended June 30, 1999 when compared to the same period in 1998, respectively, due
to increased debt balances to finance the growth in the compressor fleet.
Unamortized debt issue cost of approximately $70,000 associated with a
prior credit facility was expensed in the first quarter of 1998 as an
extraordinary item.
YEAR 2000
The Company has prepared a Year 2000 Plan and has formed a committee
to implement this plan. The committee has reviewed all Company hardware,
software and embedded systems for Year 2000 compliance. As part of the review,
the Company tested all critical compressor equipment and systems to the extent
possible. The Company incurred no material costs in testing its internal
compressor equipment and systems. The Company will send letters to significant
vendors, customers and other third-party providers to ascertain compliance on
the part of those outside parties for which non-compliance would significantly
affect the Company's operations. In the event the Company determines a
third-party to be non-compliant and believes such non-compliance to be a
significant risk, the Company will develop a contingency plan for each such
third-party. At June 30, 1999 the committee was approximately 60% complete with
regard to implementing the Company's Year 2000 plan with regard to
third-parties. The Company anticipates that the plan will be completed by
September 30, 1999. The Company expects that implementation of its Year 2000
Plan as described herein will ensure that the Year 2000 issue will have no
material impact on the Company's operating efficiency.
FINANCIAL CONDITION AND LIQUIDITY
The Company maintains a $40 million senior bank credit facility. The
current maximum commitment is $40 million, which can be expanded to $60 million
with the future addition of other participating financial institutions. The
facility is a borrowing base revolver effective March, 2000 converting to a
three year term loan with a seven year principal amortization. The credit
facility is collateralized by substantially all of the assets of the Company
with the exception of the Company's oil and gas properties, which have been
pledged on Sunterra L.L.C.'s bank credit facility. The current borrowing base is
$47.7 million; however; borrowings are limited to the current $40 million
commitment until such time as additional banks participate in the credit
facility. At August 23, 1999, the Company had borrowed up to its current maximum
commitment of $40 million. The Company is in discussions with additional banks
on participating in the $60 million credit facility.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sunterra L.L.C. maintains a $10 million bank revolving credit facility
with borrowings limited to a borrowing base determined on the value of the
underlying oil and gas reserves. In December 1999, the revolver converts to a
four-year term loan. The credit facility is collateralized by Sunterra L.L.C.'s
oil and gas properties. This $10 million bank revolving credit facility was
assigned to the minority interest partner (See Note 6).
Covenants related to the debt agreements include the maintenance of
specified levels of working capital, tangible net worth and debt service
ratio, as defined by the agreements. Additionally, the agreements prohibit
the payment of dividends and place limitations on the repurchase of shares of
the Company's stock and the incurrence of new borrowings. During the second
quarter 1999, the Company was not in compliance with certain financial
covenants in two of its credit facilities. The non-compliance was waived by
the lending institutions.
The Company relies primarily on the collection of revenues
associated with rental-with-maintenance and contract compression contracts to
fund the Company's working capital and capital expenditure needs. Borrowings
from the Company's senior credit facility are used primarily to finance the
growth of the Company. The coordination of the cash flow from operations and
borrowings from the senior credit facility allows the Company to optimize its
cash flow. This cash management strategy creates a cash deficit for financial
reporting purposes resulting from outstanding checks. This cash deficit is
necessary to maximize the Company's cash flow efficiently and in no way
impairs the Company's ability to fund its daily operations. The cash deficit
is included in the Company's Consolidated Balance Sheet in the Current
Liabilities section under the caption accounts payable and accrued
liabilities. At June 30, 1999, the Company had outstanding checks in excess
of its cash balance of approximately $157,000.
Net cash provided by operating activities increased to $4.8 million in
1999 from net cash provided by operations of $189,000 in 1998 due to increased
depreciation costs, improved receivables turnover and reduced inventory growth
levels. Net cash used in investing activities decreased to $6.7 million in 1999
from $11.9 million in 1998 primarily due to decreases in additions to the
compressor fleet. Net cash provided by financing activities decreased to $1.8
million in 1999 from $11.7 million in 1998 due to decreased borrowings of
long-term debt. At June 30, 1999, the Company had current assets of $9.1 million
and current liabilities of $6.3 million. The Company is currently fully advanced
on its senior bank credit facility commitment and is, at present, reliant upon
its cash flow from operations to fund its working capital and capital
expenditure needs. The Company may be required to recruit an additional lender
to its senior bank credit facility to access the unused borrowing base above the
current $40 million commitment, raise additional equity or slow its future
growth.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits:
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
12
<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.
OEC COMPRESSION CORPORATION
DATE: August 23, 1999 By: /s/ Matthew S. Ramsey
------------------------------------------
MATTHEW S. RAMSEY
President and Chief Executive Officer
DATE: August 23, 1999 By: /s/ Jack D. Brannon
------------------------------------------
JACK D. BRANNON
Senior Vice President and Chief
Financial Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 2,559
<ALLOWANCES> 82
<INVENTORY> 6,381
<CURRENT-ASSETS> 9,082
<PP&E> 147,248
<DEPRECIATION> 49,331
<TOTAL-ASSETS> 109,140
<CURRENT-LIABILITIES> 6,280
<BONDS> 60,870
0
0
<COMMON> 291
<OTHER-SE> 28,085
<TOTAL-LIABILITY-AND-EQUITY> 109,140
<SALES> 2,354
<TOTAL-REVENUES> 13,233
<CGS> 10,879
<TOTAL-COSTS> 10,879
<OTHER-EXPENSES> 88
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 2,592
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