Harbinger Group Inc.
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SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 12/29/1994
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<PAGE>
 
gas compressor package rental is generally between one and 36 months and
thereafter continues on a month-to-month basis. It is typical for a customer to
continue to rent a package for a period substantially longer than the initial
term of the contract. Contract compression pricing, which is based on
prevailing market conditions, generally contains provisions for periodic rate
adjustments to reflect market changes.
 
  Natural gas compressor package rental utilization is affected primarily by
the number and age of producing oil and gas wells, the volume of natural gas
consumed and natural gas prices. Rental rates for natural gas compressor
packages are determined primarily by the demand for packages and secondarily by
the size and horsepower of a natural gas compressor package. The following
table compares utilizations and rental rates (on a horsepower basis) and fleet
size for the Energy Industries fleet of natural gas compressor packages as of
the end of each of the past three years.
 

<TABLE>
<CAPTION>
                                                        AS OF SEPTEMBER 30,
                                                       ------------------------
                                                        1994     1993     1992
                                                       -------  -------  ------
      <S>                                              <C>      <C>      <C>
      FLEET UTILIZATION:
        Horsepower....................................    82.6%    74.4%   69.5%
      MONTHLY RENTAL RATE, BASED ON:
        Horsepower....................................  $16.61   $17.25  $17.71
      FLEET SIZE:
        Number of units...............................     706      681     653
        Horsepower.................................... 113,786  106,175  91,069
</TABLE>

 
  Utilization of compressor packages increased from 1992 to 1994 in response to
generally strengthening natural gas markets, a return of producer confidence
and greater emphasis being placed on the rental operations. Changes in rental
rates are primarily caused by the changes in the mix between smaller and higher
horsepower natural gas compressor packages in the fleet. Growth in the fleet
between 1992 and 1994 resulted from the 1994 acquisition of 41 additional
compressors and the construction of new compressor packages each year, net of
retirements and sales of older equipment from the rental fleet.
 
  Natural Gas Compressor Package Sales. In addition to operating a fleet of
natural gas compressor packages for rental purposes, Energy Industries designs,
fabricates and sells natural gas compressor packages designed to customer
specifications. Energy Industries sells compressor packages to natural gas
producers, gatherers and transmission companies which expect the long life of
their associated reserves or pipeline to justify the capital cost of acquiring,
rather than renting, a natural gas compressor package. Most of Energy
Industries' natural gas compressor package sales are for larger, high-
horsepower packages.
 
  Because of the relatively high capital costs associated with these units,
Energy Industries provides a capital lease financing option to its customers.
Under the terms of a typical capital lease, a purchaser will lease the natural
gas compressor package from Energy Industries for a period of between three and
four years at monthly lease rates. At the termination of the lease, the lessee
has the option to purchase the natural gas compressor package for a nominal
amount or return the natural gas compressor package to Energy Industries.
 
  The following table compares natural gas compressor package sales and cost of
sales for fiscal years 1992 through 1994.
 

<TABLE>
<CAPTION>
                                                       1994     1993     1992
                                                      -------  -------  -------
                                                       (IN THOUSANDS, EXCEPT
                                                        PERCENTAGE AMOUNTS)
      <S>                                             <C>      <C>      <C>
      Compressor package sales....................... $29,842  $22,020  $21,943
      Cost of sales..................................  24,596   16,867   18,910
                                                      -------  -------  -------
      Gross margin................................... $ 5,246  $ 5,153  $ 3,033
                                                      =======  =======  =======
      Gross margin/percentage........................    17.6%    23.4%    13.8%
</TABLE>

 
  The gross margin percentage in 1993 increased due to certain sales that
generated high gross margins.
 
                                       4

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