<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
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)
1401 17TH STREET SUITE 1200
DENVER, COLORADO 80202
--------------------------------- -------------------------------
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code (303) 298-8100
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
--- ---
As of May 12, 1999, 11,252,009 shares of the Registrant's Common Stock, no par
value, were outstanding.
<PAGE>
EVERGREEN RESOURCES, INC.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998......................................... 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998.......................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998................................. 5
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1999 and 1998.................... 6
Notes to Consolidated Financial Statements....................... 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9-13
Quantitative and Qualitative Disclosure about Market Risk........ 13
PART II. OTHER INFORMATION........................................... 14
2
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EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 2,138,923 $ 1,333,733
Accounts receivable 5,838,455 4,728,722
Other current assets 530,653 295,011
------------ ------------
TOTAL CURRENT ASSETS 8,508,031 6,357,466
------------ ------------
PROPERTY AND EQUIPMENT, AT COST, BASED ON FULL-COST
ACCOUNTING FOR OIL AND GAS PROPERTIES: 160,145,080 147,176,068
Less accumulated depreciation, depletion and amortization 20,644,437 19,400,469
------------ ------------
NET PROPERTY AND EQUIPMENT 139,500,643 127,775,599
------------ ------------
DESIGNATED CASH 1,918,780 2,781,716
OTHER ASSETS 1,894,727 2,711,536
------------ ------------
$151,822,181 $139,626,317
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 693,818 $ 1,240,110
Amounts payable to oil and gas property owners 1,382,601 2,947,345
Accrued expenses and other 924,644 1,515,427
Current portion - capital leases 1,097,785 1,122,499
------------ ------------
TOTAL CURRENT LIABILITIES 4,098,848 6,825,381
Production taxes payable 1,918,780 2,781,716
Notes payable 57,755,769 44,138,700
Obligations under capital leases 2,556,945 2,906,374
Deferred income tax liability 3,925,930 3,295,000
------------ ------------
TOTAL LIABILITIES 70,256,272 59,947,171
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 stated value; shares authorized,
50,000,000; shares issued and outstanding 11,238,646
and 11,142,613 112,386 111,426
Additional paid-in capital 79,567,179 78,379,816
Retained earnings 2,064,421 1,077,582
Foreign currency translation adjustment (178,077) 110,322
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 81,565,909 79,679,146
------------ ------------
$151,822,181 $139,626,317
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
3
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EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Natural gas revenues $4,572,196 $4,312,415
Interest 51,022 44,900
---------- ----------
TOTAL REVENUES 4,623,218 4,357,315
---------- ----------
EXPENSES:
Lease operating expenses 1,200,546 554,357
Depreciation, depletion and amortization 1,160,864 842,835
General and administrative expenses 595,558 401,578
Interest expense 789,722 343,873
Other expense -- 38,150
---------- ----------
TOTAL EXPENSES 3,746,690 2,180,793
---------- ----------
NET INCOME BEFORE INCOME TAXES 876,528 2,176,522
Income tax provision - deferred 341,846 838,350
---------- ----------
INCOME FROM CONTINUING OPERATIONS 534,682 1,338,172
DISCONTINUED OPERATIONS
Gain from disposal of discontinued operations, net 452,157 --
Equity in earnings of discontinued operations, net -- 61,740
---------- ----------
NET INCOME $ 986,839 $1,399,912
---------- ----------
---------- ----------
BASIC INCOME PER COMMON SHARE:
From continuing operations $ 0.05 $ 0.13
From discontinued operations $ 0.04 $ --
---------- ----------
Basic income per common share $ 0.09 $ 0.13
---------- ----------
DILUTED INCOME PER COMMON SHARE:
From continuing operations $ 0.04 $ 0.12
From discontinued operations $ 0.04 $ --
---------- ----------
Diluted income per common share $ 0.08 $ 0.12
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 986,839 $ 1,399,912
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation, depletion and amortization 1,229,704 891,018
Deferred income taxes 341,846 838,350
Gain on disposal of discontinued operations, net (452,157) --
Equity in earnings of discontinued operations, net -- (61,740)
Other 128,028 88,638
Changes in operating assets and liabilities:
Accounts receivable 1,124,855 (400,734)
Other current assets (167,068) (91,912)
Accounts payable (541,604) 450,466
Accrued expenses (474,895) 235,791
------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,175,548 3,349,789
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (12,849,175) (7,146,861)
Designated cash 862,936 (283,436)
Change in production taxes payable (862,936) 283,436
Increase in other assets (555,758) (11,061)
------------ ----------
NET CASH USED BY INVESTING ACTIVITIES (13,404,933) (7,157,922)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable and long-term debt 13,617,069 4,437,000
Proceeds from sale of common stock, net 341,473 374,784
Principal payments on capital lease obligations (374,142) (256,909)
Decrease in cash held from operating oil and gas
properties (1,564,744) (365,397)
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,019,656 4,189,478
------------ ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 14,919 9,378
------------ ----------
INCREASE IN CASH AND CASH EQUIVALENTS 805,190 390,723
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 1,333,733 2,103,168
------------ ----------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $2,138,923 $2,493,891
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 986,839 $1,399,912
Foreign currency translation adjustments (288,399) 62,282
--------- ----------
Comprehensive income $ 698,440 $1,462,194
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999
(UNAUDITED)
1. Basis of Presentation
Evergreen Resources, Inc. ("Evergreen" or the "Company") is an independent
energy company engaged in the exploration, development, production,
operation and acquisition of oil and gas properties. Evergreen's primary
focus is on developing and expanding its coal bed methane properties
located on approximately 200,000 gross acres in the Raton Basin in
southern Colorado. The Company also holds exploration licenses on
approximately 513,000 acres onshore in the United Kingdom, and an oil
and gas exploration contract on approximately 2.4 million acres in
northern Chile. Evergreen operates all of its own producing properties.
The financial statements include the accounts of Evergreen Resources,
Inc. and its wholly-owned subsidiaries: Evergreen Operating Corporation
("EOC"), Evergreen Resources (UK) Ltd., Powerbridge, Inc., Evergreen
Well Service Company ("EWS") and Primero Gas Marketing Company
("Primero"). All significant intercompany balances and transactions
have been eliminated in consolidation.
The Company has a 40% ownership in Argos Evergreen Limited ("AEL"), a
Falkland Islands Company which holds a 5% interest in Tranche A in the
Falkland Islands Basin. This investment is accounted for by the equity
method of accounting.
The accompanying financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the
year ended December 31, 1998. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments
necessary to present fairly the Company's financial position as of
March 31, 1999 and the results of its operations and cash flows for the
three months then ended. Management believes all such adjustments are
of a normal recurring nature. The results of operations for interim
periods are not necessarily indicative of results to be expected for a
full year.
2. Oil and Gas Properties
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.
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.
7
<PAGE>
3. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income from continuing operations $ 534,682 $ 1,338,172
Gain from disposal of discontinued
operations, net 452,157 --
Equity in earnings of discontinued
operations, net -- 61,740
----------- -----------
Net income $986,839 $ 1,399,912
----------- -----------
Denominator:
Denominator for basic earnings per share -
weighted average shares 11,203,424 10,425,881
Effect of dilutive securities:
Stock warrants 571,823 688,713
----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 11,775,247 11,114,594
----------- -----------
----------- -----------
Basic income per common share
From continuing operations $ .05 $ .13
From discontinued operations $ .04 $ --
----------- -----------
Basic income per common share $ .09 $ .13
----------- -----------
Diluted income per common share
From continuing operations $ .04 $ .12
From discontinued operations $ .04 $ --
----------- -----------
Diluted income per common share $ .08 $ .12
----------- -----------
</TABLE>
4. Financing Agreement
Effective March 1, 1999, the company increased its line of credit from
$50 million to $75 million. The line is available through June 2001. At
the Company's election, it may use either the London interbank offered
rate plus a margin of 1.38% to 1.75% or the prime rate plus a margin of
0% to 0.25%, with margins on both rates determined on the average
outstanding borrowings under the credit facility. Advances pursuant to
this line of credit are limited to a borrowing base, which is presently
$75 million.
5. Shelf Registration Statement
On May 11, 1999, the Company filed a shelf registration statement with
the Securities and Exchange Commission providing for the offering to
the public from time to time of debt securities, common or preferred
stock or other securities with an aggregate offering amount of up to
$150 million. The company plans to use the proceeds from possible sales
of securities for general corporate purposes, which could include debt
repayment, working capital, capital expenditures or acquisitions.
6. Discontinued Operations
Effective February 18, 1999, Evergreen sold its 49% interest in
Maverick Stimulation Company, LLC ("Maverick") to the managing members
of Maverick for $2.26 million. The cash was received in April 1999.
The sale resulted in a gain net of tax of approximately $452,200 or
$0.04 per diluted share. This transaction has been accounted for as a
discontinued operation and the results of operations have been excluded
from continuing operations in the consolidated statements of income for
all periods presented.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including statements regarding,
among other items, (i) the Company's growth strategies, (ii) anticipated
trends in the Company's business and its future results of operations, and
(iii) market conditions in the oil and gas industry. These forward-looking
statements are based largely on the Company's expectations and are subject to
a number of risks and uncertainties, many of which are beyond the Company's
control, including those described below. Actual results could differ
materially from those implied by these forward-looking statements as a result
of, among other things, a decline in natural gas production, a decline in
natural gas prices, incorrect estimations of required capital expenditures,
increases in the cost of drilling, completion and gas gathering, an increase
in the cost of production and operations, an inability to meet growth
projections, and/or changes in general economic conditions. In light of these
risks and uncertainties, there can be no assurance that actual results will
be as projected in the forward-looking statements.
RECENT DEVELOPMENTS
GENERAL
Evergreen is an independent energy company engaged in the exploration,
development, production, operation and acquisition of oil and gas properties.
Evergreen's primary focus is on developing and expanding its coalbed methane
properties located on approximately 200,000 gross acres in the Raton Basin in
southern Colorado. The Company also holds exploration licenses on approximately
513,000 acres onshore in the United Kingdom, a net 2% interest in a consortium
exploring offshore in the Falkland Islands, and an oil and gas exploration
contract on approximately 2.4 million acres in northern Chile. Evergreen
operates all of its producing properties.
RATON BASIN
As of May 6, 1999, Evergreen was producing from 178 gas wells. An
additional 23 wells have been drilled and are scheduled to be completed and
placed in production during the summer of 1999. Gas production has continued to
improve since sales began in January 1995 to a current level of over 45.5
million cubic feet ("MMcf") per day gross.
The Company enters into contractual obligations that require future
physical delivery to attempt to manage price risk with regard to a portion of
its natural gas production. As of May 1, 1999, the Company had entered into
contracts to sell amounts equal to substantially all of its current sales of
37 MMcf at $1.57 per thousand cubic feet ("Mcf") for the period May 1, 1999
through October 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company has a $75 million revolving line
of credit with a bank group consisting of Hibernia National Bank, as agent,
Chase Bank of Texas and Paribas ("the Banks"). The line is available through
June 2001. Advances pursuant to this line of credit are limited to a
borrowing base, which is presently $75 million. At the Company's election, it
may use either the London interbank offered rate plus a margin of 1.38% to
1.75% or the prime rate plus a margin of 0% to 0.25%, with margins on both
rates determined on the average outstanding borrowings under the credit
facility. The borrowing base is redetermined semi-annually by the Banks based
upon reserve evaluations of the
9
<PAGE>
Company's oil and gas properties. An average annual facility fee of 0.375% is
charged quarterly for any unused portion of the credit line. The agreement is
collateralized by oil and gas properties and also contains certain net worth
and ratio requirements. At March 31, 1999, $57,755,800 was outstanding under
the line of credit.
The Company has a capital equipment lease with a lender with
interest at 8.5% as of March 31, 1999 for a term of five years ending April
2002, with an option to purchase the equipment at nominal amounts at the end
of the lease term. The Company primarily leases compressors for the Raton
Basin gas gathering system and other related production equipment.
During 1999, the Company anticipates that it will drill
approximately 80 wells in the Raton Basin and will spend approximately $45
million on its total exploration and development program. For the first
quarter ended March 31, 1999, the Company drilled 14 Vermejo coal wells and 7
Raton coal wells. Drilling and gathering facilities will comprise
approximately $35 million for 1999. The Company spent approximately $9
million in drilling and gathering facilities during the first quarter of
1999. Approximately 25% of the drilling and gathering costs for 1999 will be
used for the completion of a second compressor station in the northern
portion of the Spanish Peaks Unit along with the related infrastructure, a
24-inch trunk gathering line and a 12-inch high pressure sales line that
connects to Colorado Interstate Gas's ("CIG") Picketwire Lateral. These items
are required due to pressure constraints in the existing gathering system
caused by increasing pressures and additional gas volumes from newer wells.
The compressor station and the infrastructure are needed to optimize
production in the Spanish Peaks and Cottontail Pass Units. The construction
of the compressor station has been substantially completed and became
operational on April 18, 1999.
In addition, the Company plans to spend approximately $5 million in
1999 on new well service equipment. During the quarter ended March 31, 1999,
the Company spent $2.9 million on equipment. During 1999, the Company formed
a new well service company, EWS. The well service company will provide
fracture stimulation services, cement work, drilling and workovers. Evergreen
anticipates an increase in quality control and cost savings from the services
performed by EWS.
The remaining 1999 budget is for international exploration, including
$3 million for drilling gob gas wells in the UK and other miscellaneous items.
Evergreen is holding discussions with potential industry partners for the
purpose of evaluating and developing its current UK licenses and does not
anticipate the start of the multi-well program until an investment in the
project by a partner has been secured.
The capital budget for 1999 is subject to review and adjustment
depending on gas prices and the corresponding cash flow. The Company believes
that cash flow from operations and available borrowings under its line of
credit will be sufficient to fund 1999 capital expenditures for the Raton
Basin and the drilling of gob gas wells in the UK. Future development of the
Raton Basin and other projects will require additional capital. However, as
the Company continues to grow and expand, the Management believes that
additional equity capital may be required to fund development of its
projects. Accordingly, on May 11, 1999, the Company filed a shelf
registration statement with the Securities and Exchange Commission providing
for the offering to the public from time to time of debt securities, common
or preferred stock or other securities with an aggregate offering amount of
up to $150 million. The Company plans to use the proceeds from possible sales
of securities for general corporate purposes, which could include debt
repayment, working capital, capital expenditures or acquisitions.
10
<PAGE>
Cash flows provided by operating activities were $2,175,500 for the
three months ended March 31, 1999 as compared to cash flows provided by
operating activities of $3,349,800 in the prior year. The decrease in cash
flows in 1999 as compared to 1998 is primarily due to the decrease in net
income as a result of lower gas prices, increased lease operating expenses
and increased interest costs associated with increased financing levels
outstanding in 1999.
Cash flows used by investing activities were $13,404,900 during the
three months ended March 31, 1999 versus $7,157,900 during the same period in
1998. The increase was due to the continued development of the Raton Basin,
including an upgrade of the gas collection system.
Cash flows provided by financing activities were $12,019,700 during the
three months ended March 31, 1999 as compared to cash flows provided by
financing activities of $4,189,500 in the prior period. The increase was due
primarily to increased borrowings to fund the development of the drilling and
gas collection system in the Raton Basin.
PRODUCTION DATA
The following table sets forth certain operating data of the Company
for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Natural gas production (Mcf) 3,044,392 2,089,949
Average realized sales price per Mcf $1.50 $2.06
Cost per Mcfe:
Lease operating expense $ .39 $ .27
Depreciation, depletion and amortization .38 .40
General and administrative .20 .19
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999
The Company reported net income of $986,800 or $0.08 per diluted share
for the three months ended March 31, 1999, compared to net income of $1,399,900
or $0.12 per diluted share for the same period in 1998. The Company had net
income from continuing operations of $534,700 or $.04 per diluted share as
compared to $1,338,200 or $.12 per diluted share in 1998. The first quarter
earnings included a one-time, after tax gain of $452,200, or $.04 per diluted
share, resulting from the sale of Evergreen's 49% interest in Maverick
Stimulation Company. The decrease in net income during the three months ended
March 31, 1999 as compared to the prior year was attributable to a decrease in
gas prices, an increase in lease operating expense and an increase in interest
expense.
Natural gas revenues increased to $4,572,200 during the three months
ended March 31, 1999, from $4,312,400 for the same period in the prior year.
The increase in natural gas revenues for the three month period was due to a
46% increase in sales volumes, which was significantly offset by a 27%
decrease in natural gas prices. At March 31, 1999 the number of producing
Raton Basin wells increased to 178 from 96 producing wells at March 31, 1998,
which was the primary factor for the increase in production volumes. The
average gas price decreased to $1.50 for the three month period in 1999 as
compared to $2.06 in the corresponding 1998 period.
11
<PAGE>
Lease operating expenses (LOE) for the three months ended March 31,
1999, were $1,200,500 compared to $554,400 for the same period in 1998. On an
equivalent Mcf basis (Mcfe), LOE increased to $.39 per Mcfe in the three
months ended March 31, 1999, as compared to $.27 per Mcfe in the prior
period. The increase in lease operating expenses was due primarily to an
increase in water management costs and maintenance costs. The Company
anticipates that water management costs will start to decline in the second
quarter of 1999 and will continue to decline through the year due to the
approval of discharge permits and the drilling of additional disposal wells
in 1999.
Depreciation, depletion and amortization expense for the three months
ended March 31, 1999, was $1,160,900 compared to $842,800 for the same period in
1998. The increase of $318,100 for the three months in 1999 as compared to 1998
was due to the increase in gas production in the Raton Basin. In 1999 the cost
per Mcfe was $0.38 as compared to $.40 in 1998. The decrease in cost per Mcfe in
1999 is due to amortizing capital costs over an increased number of proved
reserves.
General and administrative expenses were $595,600 during the three
months ended March 31, 1999 as compared to $401,600 during the same period in
1998. The increase in general and administrative expenses of $194,000 in 1999
as compared to 1998 was due to the expected increase in overall corporate
activity and an increase in personnel and related salaries, and reduced
overhead charges received from third party working interest owners and other
operating expenses.
Interest expense for the three months ended March 31, 1999 was
$789,700 versus $343,900 during the same period in 1998. The $445,800
increase for the three months over the same period in the prior year was due
to increased borrowings under the Company's line of credit to $58 million at
March 31, 1999 from $15.3 million at March 31, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management believes the adoption of this
statement will not have a material impact on the Company's financial
statements.
YEAR 2000
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using `00' as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations.
The Company believes that the Year 2000 problem will not pose material
operational problems for the Company and that it is adequately prepared for the
Year 2000. The Company's computer software provider has assured the Company that
all of the Company's software is Year 2000 compliant (i.e. will function
properly in the year 2000 and beyond). The Company's software provider provides
written assurance that its products are Year 2000 compliant on its web site. To
the Company's knowledge, after investigation, no "imbedded technology" (such as
microchips in an electronic control system) of the Company poses a material Year
2000 problem.
12
<PAGE>
Because the Company believes that it has no material internal Year 2000
problems, the Company has not expended and does not expect to expend a
significant amount of funds to address Year 2000 issues. It is Company policy to
continue to review its suppliers' Year 2000 compliance and require assurance of
Year 2000 compliance from new suppliers; however, such monitoring does not
involve a significant cost to the Company.
In addition to the foregoing, the Company has contacted its major
vendors and received either oral or written assurances from its major vendors or
viewed assurances contained on vendors' web sites that they have no material
Year 2000 problems. The Company believes that its vendors are largely fungible;
therefore, in the event a vendor's representations regarding its Year 2000
compliance were untrue for any reason, the Company believes that it could find
adequate Year 2000 compliant vendors as substitutes.
The Company is materially dependent on CIG for the delivery of the
Company's gas. CIG has provided the Company with written assurances that a CIG
internal task force has examined CIG's Year 2000 compliance and that CIG has no
material Year 2000 problem.
In the event that one or more of the Company's vendors were to have a
material Year 2000 problem, the Company believes that the foreseeable
consequences would be a temporary delay in revenue collection caused by an
interruption in computerized billing (and not an interruption in the actual flow
of the Company's coal bed methane), which would not have a substantial long-term
impact on the Company's ability to conduct operations. The Company does not
believe that any contingency planning is necessary to address this possibility.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company measures its exposure to market risk at any point in
time by comparing the open positions to a market risk of fair value. The
market prices the Company uses to determine fair value are based on
management's best estimates, which consider various factors including:
Closing exchange prices, volatility factors and the time value of money. At
March 31, 1999, the Company's exposure to market risk was not material.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Except as provided below, the Company is not engaged in any material
pending legal proceedings to which the Company or its subsidiaries is a party or
to which any of its property is subject.
On July 13, 1998, Southern Colorado C.U.R.E. filed a lawsuit under the
citizen suit provision of the Clean Water Act in the U.S. District Court for the
District of Colorado against EOC, related to its coal bed methane drilling
operations in the Raton Basin near Trinidad, Colorado. The Company's gas
production produces naturally occurring groundwater as a by-product of its coal
bed methane gas production operations. The storage, use and disposal of the
produced groundwater in evaporative ponds and natural collection features
located on the surface at or near the wellsite, and the legal and regulatory
treatment of this practice, underlie the lawsuit. EOC is also subject to
federal, state and local environmental laws and regulations, and is currently
participating with the EPA and the State of Colorado in the investigation of
certain practices in connection with these operations. An evaluation of costs of
potential liabilities associated with this investigation cannot be reasonably
determined at this time. The Company does not expect that the lawsuit or the
investigation, or the environmental costs or contingent liabilities of either,
if any, will have a material adverse effect on its consolidated financial
position or its results of operations.
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.
The following summarizes the votes at the Company's annual meeting of
shareholders held on May 11, 1999:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
ELECTION OF DIRECTORS - With terms expiring at the Annual Shareholders Meeting
in 2001:
Larry D. Estridge 9,204,601 1,106 6,415
John J. Ryan, III 9,205,601 106 6,415
</TABLE>
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
14
<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: May 12, 1999 By: /s/ Kevin R. Collins
------------------------------
Kevin R. Collins
VP - Finance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,138,923
<SECURITIES> 0
<RECEIVABLES> 5,838,455
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,508,031
<PP&E> 160,145,080
<DEPRECIATION> 20,644,437
<TOTAL-ASSETS> 151,822,181
<CURRENT-LIABILITIES> 4,098,848
<BONDS> 60,312,714
0
0
<COMMON> 112,386
<OTHER-SE> 81,453,523
<TOTAL-LIABILITY-AND-EQUITY> 151,822,181
<SALES> 4,572,196
<TOTAL-REVENUES> 4,623,218
<CGS> 2,361,410
<TOTAL-COSTS> 2,956,968
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 789,722
<INCOME-PRETAX> 876,528
<INCOME-TAX> 341,846
<INCOME-CONTINUING> 534,682
<DISCONTINUED> 452,157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 986,839
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
