<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED DECEMBER 31, 1995
Commission File Number 0-10077
EVERGREEN RESOURCES, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-0834147
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
1000 WRITER SQUARE
1512 LARIMER STREET
DENVER, COLORADO 80202
(Address of Principal Executive (Zip Code)
Offices)
(303) 534-0400
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.
X Yes No
--- ----
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest date.
CLASS OUTSTANDING AT FEBRUARY 14, 1996
Common Stock, No Par Value 5,674,098
<PAGE>
EVERGREEN RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of December 31, 1995
and March 31, 1995.......................................... 3
Consolidated Statements of Operations for the Nine and Three
Months Ended December 31, 1995 and December 31, 1994........ 4 - 5
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1995 and December 31, 1994............... 6
Notes to Consolidated Financial Statements.................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8 - 11
PART II. OTHER INFORMATION................................... 12
</TABLE>
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DEC. 31, 1995 MARCH 31 1995
------ ------------- -------------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 3,646,492 $ 2,038,157
Accounts receivable:
Oil and gas sales, net of allowance 205,268 297,602
Joint interest billings and other 947,434 945,557
Other current assets 31,016 76,341
------------ ------------
TOTAL CURRENT ASSETS 4,830,210 3,357,657
------------ ------------
PROPERTY AND EQUIPMENT:
Proved oil and gas properties, based on
full-cost accounting 35,073,410 33,442,534
Unevaluated properties not subject to amortization 8,441,670 8,136,519
Gas gathering equipment 4,156,788 3,417,086
Support equipment 701,762 676,051
Less accumulated depreciation, depletion
and amortization (11,505,704) (11,140,276)
------------ ------------
NET PROPERTY AND EQUIPMENT 36,867,926 34,531,914
------------ ------------
RESTRICTED CASH 894,755 593,024
OTHER ASSETS 755,740 657,573
------------ ------------
$ 43,348,631 $ 39,140,168
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,279,685 $ 843,852
Accrued expenses and other 168,955 89,646
Royalties and production taxes payable 451,814 567,656
------------ ------------
TOTAL CURRENT LIABILITIES 1,900,454 1,501,154
PRODUCTION TAX ESCROW 894,755 593,024
LONG TERM LIABILITIES 1,652,916 1,094,128
------------ ------------
TOTAL LIABILITIES 4,448,125 3,188,306
------------ ------------
REDEEMABLE PREFERRED STOCK 7,500,000 3,750,000
------------ ------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, shares issued and outstanding,
5,674,098 and 5,672,159 56,741 56,721
Additional paid-in capital 41,389,669 41,419,179
Accumulated deficit (9,744,086) (9,266,898)
Foreign currency translation adjustment (301,818) (7,140)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 31,400,506 32,201,862
------------ ------------
$ 43,348,631 $ 39,140,168
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31
-----------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUE:
Oil and gas production $ 908,419 $1,533,847
Oil and gas services 573,208 642,890
Interest and dividend income 143,021 75,768
Other income 548,182 416,067
---------- ----------
TOTAL REVENUES 2,172,830 2,668,572
---------- ----------
COSTS AND EXPENSES:
Cost of production and operations 701,359 945,363
Cost of oil and gas services 544,552 628,572
Depreciation, depletion and amortization 417,903 474,660
General and administrative expenses 604,844 623,503
Interest expense 34,619 20,507
Other expense (7,879) 349,745
---------- ----------
TOTAL COSTS AND EXPENSES 2,295,398 3,042,350
---------- ----------
NET LOSS (122,568) (373,778)
PREFERRED STOCK DIVIDENDS 354,620 19,167
---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (477,188) $ (392,945)
---------- ----------
---------- ----------
NET LOSS PER SHARE OF COMMON STOCK $ (.08) $ (0.07)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,674,098 5,373,673
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31
------------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUE:
Oil and gas production $ 383,908 $341,604
Oil and gas services 202,755 237,609
Interest income 76,152 20,282
Other income 12,756 361,248
--------- --------
TOTAL REVENUES 675,571 960,743
--------- --------
COSTS AND EXPENSES:
Cost of production and operations 195,197 289,615
Cost of oil and gas services 168,626 195,191
Depreciation, depletion and amortization 95,701 131,853
General and administrative expenses 206,395 144,741
Interest expense 15,661 15,103
Other expense 100 221,529
--------- --------
TOTAL COSTS AND EXPENSES 681,680 998,032
--------- --------
NET LOSS $ (6,109) $(37,289)
PREFERRED STOCK DIVIDENDS 150,000 19,167
--------- --------
NET LOSS ATTRIBUTABLE
TO COMMON STOCK $(156,109) $(56,456)
--------- --------
--------- --------
NET LOSS PER SHARE OF COMMON STOCK $ (.03) $ (0.01)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,674,098 5,608,144
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31
-----------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (122,568) $ (373,778)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation, depletion and amortization 417,903 474,604
Loss on sale of marketable securities -- 113,074
Gain on sale of subsidiary and Other (525,287) 245,883
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable 222,164 584,157
Increase in other current assets (88,603) 57,805
Increase in accounts payable 438,649 486,631
Increase (decrease) in accrued expenses 82,116 (88,390)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 424,374 1,499,986
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities -- 2,014,708
Exploration and development and gas gathering costs (2,734,385) (5,708,286)
Proceeds from the sale of subsidiary 580,000 --
Proceeds from sale of oil and gas assets 122,180 1,194,039
Restricted cash (301,731) (65,211)
Change in production tax escrow 301,731 65,211
Decrease (increase) in other assets 11,951 329,215
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,020,254) (2,170,324)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock 3,750,000 3,750,000
Proceeds from sale of common stock -- 77,835
Preferred stock offering costs (29,334) (64,240)
Debt issue costs (23,546) --
Principal payments on capital lease obligations (41,369) --
Payment of preferred stock dividends (354,620) (19,167)
Increase in cash held from operating oil
and gas properties (115,842) 171,116
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,185,289 3,915,544
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 18,926 83,971
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,608,335 3,329,177
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD 2,038,157 930,273
----------- -----------
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD $ 3,646,492 $ 4,259,450
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
1. In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
Company's financial position as of December 31, 1995 and the results of its
operations and changes in financial position for the three months and nine
months then ended. All such adjustments are of a normal recurring nature.
2. Certain information at March 31, 1995 has been condensed from the audited
financial statements included in the Company's most recent filing on Form
10-K.
3. The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Evergreen Operating Corporation ("EOC")
and Evergreen Resources (UK) Limited ("ERUK"). Primero Gas Gathering, Co.
(Primero), a 50% owned subsidiary, is recorded on a pro-rata consolidation
basis. All significant intercompany balances and transactions have been
eliminated.
4. The Company follows the full-cost method of accounting for oil and gas
properties. Under this method, all productive and nonproductive costs
incurred in connection with the exploration for and development of oil and
gas reserves are capitalized. Such capitalized costs include lease
acquisition, geological and geophysical work, delay rentals, drilling,
completing and equipping oil and gas wells and other related costs. Normal
dispositions of oil and gas properties are accounted for as adjustments of
capitalized costs, with no gain or loss recognized.
5. Depreciation and depletion of proved oil and gas properties is computed on
the units-of-production method based upon estimates of proved reserves with
oil and gas being converted to a common unit of measure based on the
relative energy content. Unproved oil and gas properties, including any
related capitalized interest expense, are not amortized, but are assessed
for impairment either individually or on an aggregated basis.
6. Restricted cash and production and ad valorem tax payable represent amounts
withheld from revenue for subsequent distribution to county taxation
authorities.
7. The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign
currency into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during the
period. The gains or losses resulting from such translation are included
in stockholders' equity.
7
<PAGE>
EVERGREEN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
RATON BASIN
Evergreen has acquired oil and gas leases covering over 120,000 gross acres in
the Raton Basin, Las Animas County in Southeastern Colorado. Over 500 drilling
locations are available on the Company's acreage.
In August 1993 Evergreen formed a joint venture with PBI Fuels LP ("PBI"). PBI
will participate with a 25-50% working interest in development of the Project.
Evergreen has retained the remaining 50-75% working interest and serves as
Operator.
Since early 1994 Evergreen has drilled and completed twenty-two coalbed methane
gas wells in the Vermejo coals at depths of 1,000 to 2,100 feet. Evergreen has
a 50%-75% interest in these wells, twenty-one of which are in production - one
to be placed in production when gathering facilities are available.
Combined gross production from these wells is presently approximately 4.2
million cubic feet per day.
In March 1995, the Bureau of Land Management designated approximately 67,000
acres of Evergreen's Raton Basin oil and gas leases as a Federal Unit called the
Spanish Peaks Unit. Evergreen has been named Unit Operator. Formation of the
Unit allows Evergreen to base development decisions within the Unit on
technical, geologic and geophysical data rather than the fulfillment of term
lease obligations.
Evergreen's Unit obligation is to establish commercial production through the
drilling of three new unit wells and the re-completion of an existing well, with
the work program to be conducted during the next 2 years.
In early October 1995 drilling commenced on eight new wells. Five wells were
drilled and completed in the Vermejo coal intervals at depths ranging from 1,420
to 1,660 feet. Evergreen has a 75% working interest in four of these wells and
50% in the fifth well. Evergreen has a 50% working interest in three additional
wells drilled to the Raton coal intervals at depths of approximately 700 feet
and now being tested. All of these wells are located within the Spanish Peaks
Unit in close proximity to Evergreen's producing wells and present gas gathering
facilities.
Evergreen plans continual development of the Raton Basin acreage, including new
drilling and expansion of gathering and compression systems.
Drilling will commence February 18, 1996 on ten new Vermejo wells.
UNITED KINGDOM - LICENSES
Under a new onshore licensing regime, to be implemented in the next few months
by the UK Department of Trade and Industry, Evergreen may convert its existing
onshore Exploration Licenses to new onshore licenses, called Petroleum
Exploration and Development Licenses.
8
<PAGE>
The new licenses would provide a 30 year term with a future relinquishment of up
to 50% of the acreage subject to development plans.
Evergreen will continue to control the largest onshore acreage position in the
UK, in excess of 600,000 acres, covering substantially all of six distinct
onshore UK basins.
Work commitments on the licenses have been fulfilled as a result of Evergreen's
prior UK activity through 1997 with extensions which are currently being
negotiated.
There are no royalties or burdens encumbering the licenses.
Evergreen is continuing to hold discussions with various funding sources,
including potential industry partners, for the purpose of resuming evaluation
and development of the licenses.
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $7.5 million revolving line of credit with Hibernia
National Bank of New Orleans with interest at the Bank's prime rate. Advances
pursuant to this line of credit are limited to the borrowing base, presently
$5.2 million. There are no restrictions associated with advances under the
line. An annual fee of one half of one percent is paid quarterly for any unused
portion of the credit line. The borrowing base is redetermined semi-annually by
the bank based upon reserve evaluations of the Company's oil and gas properties.
Cash and funds available from the line-of-credit will be more than sufficient to
meet the Company's capital requirements for the remainder of the current fiscal
year, estimated to be $2 million. Capital requirements for the new fiscal year
beginning April 1, 1996, are estimated to be $5-6 million and are principally
related to Raton Basin development. The Company is reviewing various financing
options.
Leases expiring in 1995 and 1996 are not material and do not require significant
drilling expenditures. The Company's properties outside of the Raton Basin are
held by production, and thus there is no requirement to drill and expend
capital.
Cash flows provided by operating activities were approximately $424,000 for the
nine months ended December 31, 1995. The cash provided by operating activities
was due to depreciation, depletion and amortization of $418,000, a decrease in
accounts receivable of $222,000 and an increase in accounts payable of $439,000.
These items were partially offset by a net loss of $123,000 for the nine months
ended December 31, 1995 and a gain on the sale of ANGI, Ltd. of $525,000.
Cash flows used by investing activities were $2,020,000 for the nine months
ended December 31, 1995, which consisted primarily of $2,734,000 in exploration
and development costs and gathering costs. The exploration, development and gas
gathering costs were partially offset by proceeds from the sale of ANGI, Ltd. of
$580,000.
Cash flows provided by financing activities were $3,185,000 during the nine
months ended December 31, 1995. The preferred stock issuance of $3,750,000 was
partially offset by preferred stock dividends of $355,000.
Under the terms of certain gas gathering and tie-in agreements, EOC is committed
to meeting certain minimum volume levels during the term of the agreements.
Through December 31, 1995, volume levels have been below the required minimums
and EOC has accrued approximately $1,456,000 for this shortfall, which is
included with long-term liabilities. Such amount is refundable if future
volumes exceed the minimums and EOC is currently having
9
<PAGE>
discussions with the owner of the system concerning obtaining additional
volumes or other possible alternatives.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1995
The Company reported a net loss of $477,200 (after preferred stock dividends
of $354,600) or $.08 per common share for the nine months ended December 31,
1995, compared to a net loss of $373,800 or $.07 per share (after preferred
stock dividends of $19,200) for the same period in 1994.
For the three months ended December 31, 1995, the Company reported a net loss
of $156,100 (after preferred stock dividends of $150,000) or $.03 per common
share compared to a net loss of $56,500 or $.01 per share (after preferred
stock dividends of $19,200) for the same period in 1994.
Sharply lower gas prices, disposition of the majority of Evergreen's oil
production and payment of preferred stock dividends more than offset a gain
recorded on an asset sale in the current year.
Oil and gas revenues were $908,400 during the nine months ended December 31,
1995 compared to $1,533,800 for the nine months ended December 31, 1994.
During the three months ended December 31, 1995, oil and gas revenues were
$383,900 versus $341,600 in the prior year.
Gas revenues during the first nine months of the current year were $292,000
lower than the prior year due to sharply lower gas prices.
Oil revenues during the first nine months of the current year were $333,000
lower than prior year levels due to property dispositions.
<TABLE>
<CAPTION>
9 MONTHS 3 MONTHS
---------------------- --------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
GAS
Revenues $783,322 $1,075,818 $327,368 $235,701
Production (Mcf) 638,619 597,916 224,125 132,905
Avg. Price per Mcf $1.22 $1.80 $1.46 $1.77
OIL
Revenues $125,130 $458,029 $56,285 $105,903
Production (Barrels) 7,316 28,611 2,853 6,837
Avg. Price per barrel $17.10 $16.01 $19.73 $15.49
</TABLE>
Oil and gas production costs and taxes for the nine months ended December 31,
1995, were $701,400 compared to $945,400 for the nine months ended December
31, 1994, a decrease of $244,000 or 26%. The decrease was primarily due to
property sales in fiscal 1995. The decrease in oil and gas production costs
were partially offset by higher operating costs associated with new wells in
the Raton Basin.
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary Evergreen Operating
Corporation (EOC), which is primarily responsible for drilling, evaluation
and production activities associated with various properties and for
negotiating the sales of oil and gas production from the properties. As of
February 14,
10
<PAGE>
1995, EOC was serving as Operator for approximately 150 producing wells owned
by the Company and also by other unaffiliated third parties.
During the nine months ended December 31, 1995, oil and gas service revenues
were $573,200, versus $642,900 for the nine months ended December 31, 1994, a
decrease of 10%. The decrease is primarily due to the reduction of special
services provided and billed to outside parties. Costs of oil and gas
services during the nine months ended December 31, 1995 were $544,500 vs.
$628,600 for the prior year, a decrease of $84,100 or 13% due to reduced
personnel and related salaries.
General and administrative expenses for the nine months ended December 31,
1995 were $604,800 versus $623,500 for the nine months ended December 31,
1994, a 4% overhead reduction.
The Company reported $548,200 of other income during the nine months ended
December 31, 1995, $525,000 of which resulted from the sale of Evergreen's
interest in ANGI Limited.
Depreciation, depletion and amortization expenses for the nine months ended
December 31, 1995 decreased 12% from the prior year.
Interest and dividend income for the nine months ended December 31, 1995 was
$143,000 as compared to $75,700 in 1994.
Other (income) expense for the nine months ended December 31, 1994 was
($8,000) as compared to $350,000 in 1994, a decrease of $358,000. The
Company recorded a non-recurring loss of $122,100 during the nine months
ended December 31, 1994, in connection with the sale of bank preferred
stocks, and wrote off $221,000 in connection with a non-oil and gas asset.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not engaged in any material pending legal proceedings to which
the Company or its subsidiary is a party or to which any of its property is
subject.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not applicable.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
EVERGREEN RESOURCES, INC.
(Registrant)
DATE: February 14, 1996 By: /s/ JAMES S. WILLIAMS
------------------------------
James S. Williams
Chairman of the Board
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,646,492
<SECURITIES> 0
<RECEIVABLES> 1,019,075
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,830,210
<PP&E> 48,373,630
<DEPRECIATION> (11,505,704)
<TOTAL-ASSETS> 43,348,630
<CURRENT-LIABILITIES> 1,900,454
<BONDS> 0
7,500,000
0
<COMMON> 56,741
<OTHER-SE> 31,343,765
<TOTAL-LIABILITY-AND-EQUITY> 43,348,631
<SALES> 1,481,627
<TOTAL-REVENUES> 2,172,830
<CGS> 1,245,911
<TOTAL-COSTS> 2,268,658
<OTHER-EXPENSES> (7,879)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,619
<INCOME-PRETAX> (122,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (122,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122,568)
<EPS-PRIMARY> (0.8)
<EPS-DILUTED> 0
</TABLE>
