<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, 2000.
/ / 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: 001-13171
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 8, 2000, 14,943,106 shares of the Registrant's Common Stock, no par
value, were outstanding.
<PAGE>
EVERGREEN RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999.................................................. 3
Consolidated Statements of Income for the Three
Months Ended March 31, 2000 and 1999................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999.......................................... 5
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2000 and 1999............................. 6
Notes to Consolidated Financial Statements................................ 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 9
Quantitative and Qualitative Disclosure
About Market Risk...................................................... 13
PART II. OTHER INFORMATION.................................................... 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 1,614 $ 651
Accounts receivable 4,322 5,021
Other current assets 987 749
--------- ---------
TOTAL CURRENT ASSETS 6,923 6,421
--------- ---------
Property and equipment, at cost, based on full-cost accounting
for oil and gas properties 217,627 199,179
Less accumulated depreciation, depletion and amortization 26,350 24,845
--------- ---------
NET PROPERTY AND EQUIPMENT 191,277 174,334
--------- ---------
Designated cash 2,559 2,313
Other assets 1,591 1,301
--------- ---------
$ 202,350 $ 184,369
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,253 $ 3,659
Amounts payable to oil and gas property owners 1,608 1,424
Accrued expenses and other 1,583 1,400
--------- ---------
TOTAL CURRENT LIABILITIES 8,444 6,483
Production taxes payable and other 2,884 2,313
Notes payable 22,500 15,500
Deferred income tax liability 7,753 6,563
--------- ---------
TOTAL LIABILITIES 41,581 30,859
--------- ---------
Stockholders' equity:
Preferred stock, $1.00 par value; shares authorized, 25,000;
none outstanding -- --
Common stock, $.01 stated value; shares authorized,
50,000; shares issued and outstanding 14,943 and 14,621 149 146
Additional paid-in capital 152,891 147,326
Retained earnings 8,067 6,205
Accumulated other comprehensive loss (338) (167)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 160,769 153,510
--------- ---------
$ 202,350 $ 184,369
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues:
Natural gas revenues $7,395 $4,572
Interest and other 41 51
------ ------
Total revenues 7,436 4,623
------ ------
Expenses:
Lease operating expenses 1,535 1,012
Production taxes 285 189
Depreciation, depletion and amortization 1,224 1,161
General and administrative expenses 982 563
Interest expense 307 790
Other expense 51 32
------ ------
Total expenses 4,384 3,747
------ ------
Income from continuing operations before income taxes 3,052 876
Income tax provision - deferred 1,190 341
------ ------
Income from continuing operations 1,862 535
Discontinued operations:
Gain from disposal of discontinued operations, net -- 452
------ ------
Net income $1,862 $ 987
====== ======
Basic income per common share:
From continuing operations $ 0.13 $ 0.05
From discontinued operations -- 0.04
------ ------
Basic income per common share $ 0.13 $ 0.09
====== ======
Diluted income per common share:
From continuing operations $ 0.12 $ 0.05
From discontinued operations -- 0.03
------ ------
Diluted income per common share $ 0.12 $ 0.08
====== ======
</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,
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,862 $ 987
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization 1,224 1,161
Deferred income taxes 1,190 341
Gain on disposal of discontinued operations, net -- (452)
Other 120 197
Changes in operating assets and liabilities:
Accounts receivable 695 1,125
Other current assets (248) (167)
Accounts payable (1,160) (542)
Accrued expenses (111) (475)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,572 2,175
-------- --------
Cash flows from investing activities:
Investment in property and equipment (10,182) (12,849)
Designated cash 246 863
Change in production taxes payable (246) (863)
Increase in other assets (79) (556)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (10,261) (13,405)
-------- --------
Cash flows from financing activities:
Net proceeds from notes payable 7,000 13,617
Proceeds from sale of common stock, net 146 342
Principal payments on capital lease obligations -- (374)
Decrease in cash held from operating oil and gas
properties and other 508 (1,565)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,654 12,020
-------- --------
Effect of exchange rate changes on cash (2) 15
-------- --------
Increase in cash and cash equivalents 963 805
Cash and cash equivalents, beginning of the period 651 1,334
-------- --------
Cash and cash equivalents, end of the period $ 1,614 $ 2,139
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net income $ 1,862 $ 987
Foreign currency translation adjustments (171) (288)
------- -------
Comprehensive income $ 1,691 $ 699
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
(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 207,000 gross acres in the Raton Basin in southern
Colorado. The Company also holds exploration licenses on approximately
500,000 acres onshore in the United Kingdom, an interest in a consortium
exploring offshore in the Falkland Islands, an oil and gas exploration
contract on approximately 2.4 million acres in northern Chile and
exploratory acreage in northwestern Colorado. Evergreen operates all of its
own producing properties.
The financial statements include the accounts of Evergreen and its
wholly-owned subsidiaries: Evergreen Operating Corporation ("EOC"),
Evergreen Resources (UK) Ltd., Powerbridge, Inc., Evergreen Well Service
Company, Primero Gas Marketing Company, EnviroSeis, LLC, and XYZ Minerals,
Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
The Company has a 40% ownership in Argos Evergreen Limited, a Falkland
Islands company which owns offshore drilling rights in the North Falklands
basin. This investment is accounted for by the equity method of
accounting. Effective February 1999, the Company sold its 49% interest in
Maverick Stimulation Company, LLC ("Maverick") which had previously been
accounted for using 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, 1999. 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, 2000 and 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 including salaries, benefits and
other internal costs directly attributable to the activities. Costs
associated with production and general corporate activities are expensed in
the period incurred. Interest costs related to unproved properties and
properties under development are also capitalized to oil and gas
properties. Normal dispositions of oil and gas properties are accounted for
as adjustments of capitalized costs, with no gain or loss recognized.
7
<PAGE>
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.
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,
2000 1999
---------------------------------- ----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Per- Per-
Weighted Share Weighted Share
Income Shares Amt. Income Shares Amt.
------- -------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic income per common share:
Net income from
continuing operations $ 1,862 14,868 $ 0.13 535 11,203 $ 0.05
Discontinued operations, net -- -- -- 452 11,203 0.04
------- ====== ------- ------- ====== --------
$ 1,862 14,868 $ 0.13 $ 987 11,203 $ 0.09
======= ====== ======= ======= ====== ========
Diluted income per common share:
Net income from continuing operations $ 1,862 14,868 $ 987 11,203
Stock options -- 638 -- 572
------- ------ ------- -------
$ 1,862 15,506 $ 0.12 535 11,775 $ 0.05
====== ======
Discontinued operations, net -- -- -- 452 11,775 0.03
------- ====== ------- ------- ====== --------
$ 1,862 15,506 $ 0.12 $ 987 11,775 $ 0.08
======= ====== ======= ======= ====== ========
</TABLE>
4. Discontinued Operations
Effective February 18, 1999, Evergreen sold its 49% interest in Maverick to
the managing members of Maverick for $2.26 million. The sale resulted in a
gain net of tax of approximately $452,000 or $0.03 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.
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. Such
risks and uncertainties include, 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. These and other risks and uncertainties, which are described in
more detail in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission, could cause actual results and
developments to be materially different from those expressed or implied by
any of these forward-looking statements.
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 coal bed methane
properties located on approximately 207,000 gross acres in the Raton Basin in
southern Colorado. The Company also holds exploration licenses on
approximately 500,000 acres onshore in the United Kingdom, an interest in a
consortium exploring offshore in the Falkland Islands, an oil and gas
exploration contract on approximately 2.4 million acres in northern Chile and
exploratory acreage in northwestern Colorado. Evergreen operates all of its
producing properties.
DEVELOPMENTS
RATON BASIN
As of May 1, 2000, Evergreen had 276 net producing gas wells. Natural gas
production is currently at approximately 43.5 million cubic feet ("MMcf") per
day net.
The expanding production in the Raton Basin has led Colorado Interstate Gas
Co. ("CIG") to file with the Federal Energy Regulatory Commission ("FERC")
for approval to construct a 20-inch loop of its Picketwire Lateral pipeline.
The 20-inch loop will increase the pipeline's gas takeaway capacity by 34
MMcf per day. Subject to the regulatory approval, CIG anticipates having the
loop completed by December 1, 2000, with takeaway capacity increased to 134
MMcf per day by year end. Other projects are scheduled by CIG to further
increase takeaway capacity in 2001. In April 2000, Evergreen committed to an
additional 11 MMcf per day of firm transportation, bringing its total
commitment to 64 MMcf per day starting December 1, 2000. If the 20-inch loop
is not completed by December 1, 2000, the Company may be limited in the
amount of gas it can sell by pipeline capacity constraints.
During the quarter ended March 31, 2000, the Company drilled 25 wells which
included 17 Vermejo wells and 8 Raton wells.
The Company enters into contractual obligations that require future physical
delivery of its natural gas production to attempt to manage price risk with
regard to a portion of its natural gas production. As of April 1, 2000 the
Company had entered into contracts to sell approximately 45,000 million British
9
<PAGE>
thermal units ("MMBtu") per day from April 1, 2000 through October 31, 2000
at average net prices in excess of $2.00 per Mcf, and 10,000 MMBtu per day at
NYMEX less $0.20 and 10,000 MMBtu per day at a net price of $2.28 per Mcf for
the period of November 1, 2000 through October 1, 2001. The Company has also
extended a contract to sell 10,000 MMBtu per day from November 1, 2000
through March 31, 2003 for the lesser of NYMEX prices of $2.45 per Mcf or the
current market price. In consideration for this contract, the Company will
receive $1,762,000 through March 2003, which will be amortized as revenue
pro-rata over the contract term including the extended term.
UNITED KINGDOM
Evergreen has begun drilling operations on its coal bed methane gas properties
in the United Kingdom. The Sealand #2, the first well of a three-well pilot
project, has been drilled to a total depth of 2,213 feet to test the
Westphalian Coal Measures.
The well is being drilled approximately 20 miles south of Liverpool, England
with an Evergreen-owned, purpose-built rig. In addition to the three-well
project, Evergreen plans to drill two other conventional coal bed methane
wells and six to seven mine gas or "gob" gas wells, which are designed to
recover the methane gas trapped around underground abandoned coal mines.
Evergreen holds a 100% working interest and 100% net revenue interest in
approximately 500,000 acres on shore in the U.K.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had 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
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, 2000, $22.5 million was outstanding under the
line of credit. The Company is in the process of expanding its bank group and
anticipates increasing its credit facility to at least $125 million by June 30,
2000.
During 2000, the Company plans to spend approximately $80 million on its total
exploration and development program. The Company's drilling program is expected
to include approximately 100 wells in the Raton Basin. The total estimated 2000
cost for drilling and completion is approximately $17 million. In 2000, the
Company is also planning to upgrade the compressor stations in the Cottontail
Pass Unit and the Long Canyon area that were acquired in 1998. The gas
collection infrastructure costs incurred in 2000 are intended to reduce future
years' capital expenditures. The total costs for compression and collection
systems in 2000 are estimated to be approximately $34 million. It is expected
that other costs for recompletions, exploration, equipment and mineral
acquisitions will total approximately $17 million.
During 2000, the Company started the development of the United Kingdom
project comprised of the drilling of a 5-well coal bed methane test program.
The first well was spudded on April 27, 2000. The Company also anticipates
drilling six to seven gob gas and interaction wells and has received the
necessary approvals. The Company has also purchased fracture stimulation
equipment for use in the development of the U.K. project. The total estimated
capital expenditures for the U.K. in 2000 are approximately $12 million.
10
<PAGE>
During the quarter ended March 31, 2000, the Company spent a total of
approximately $18 million which includes: the drilling of 25 wells, the
acquisition of approximately 28,000 net mineral acres (for $5.6 million in
Evergreen common stock), the addition of the various gas collection projects
and the purchase of fracture stimulation equipment to be used in the U.K.
drilling program.
The Company believes that cash flow from operations and available borrowings
under its line of credit will be sufficient to fund 2000 capital
expenditures. Future development of the Company's projects will require
additional capital. The Company believes it will have sufficient capacity to
fund all of its projects for the foreseeable future through its anticipated
cash flows and its current line of credit.
Cash flows provided by operating activities were $3,570,000 for the three
months ended March 31, 2000, as compared to cash flows provided by operating
activities of $2,175,000 for the same period in 1999. The increase was
primarily due to the increase in natural gas production and natural gas
prices in 2000.
Cash flows used in investing activities were $10,261,000 during the three
months ended March 31, 2000, versus $13,405,000 in 1999. The decrease in 2000
was primarily due to the costs associated with a new compressor station in
1999.
Cash flows provided by financing activities were $7,654,000 during the three
months ended March 31, 2000, as compared to $12,020,000 in the same period
during 1999. The decrease was primarily due to the reduced borrowings on the
Company's line of credit as a result of increased cash flows from operating
activities in 2000 and lower capital expenditures in 2000 as compared to 1999.
RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1999
The following table sets forth certain operating data of the Company for the
periods presented ("Mcf" means thousand cubic feet and "Mcfe" means thousand
cubic feet equivalent):
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Natural gas production (MMcf) 3,685 3,044
Average realized sales price per Mcf $2.01 $1.50
Cost per Mcfe:
Lease operating expense $0.42 $0.33
Production taxes $0.08 $0.06
Depreciation, depletion and amortization $0.33 $0.38
General and administrative $0.27 $0.19
</TABLE>
The Company reported income from continuing operations of $1,862,000 or $0.12
per diluted share for the three months ended March 31, 2000, compared to income
from continuing operations of $535,000 or $0.05 per diluted share for the same
period in 1999. Net income was the same as income from continuing operations for
the three months ended March 31, 2000 versus net income of $987,000 or $0.08 per
diluted share for the same period in 1999. Net income for 1999 included a
one-time, after tax gain of $452,000 or $0.03 per diluted share, resulting from
the sale of Evergreen's 49% interest in Maverick.
11
<PAGE>
Natural gas revenues increased to $7,395,000 during the three months ended
March 31, 2000, from $4,572,000 for the same period was the prior year. The
increase in natural gas revenues for the three month period was due to a 21%
increase in sales volumes and a 34% increase in natural gas prices to $2.01
in 2000 from $1.50 in 1999. At March 31, 2000, the number of producing Raton
Basin wells increased to 269 net from 178 net producing wells at March 31,
1999.
Due to increasing production in the Raton Basin, it is anticipated that the
Picketwire Lateral will be at or near capacity of approximately 100 MMcf per
day by the fourth quarter of 2000. The expanding production in the Raton
Basin has led CIG to file with the FERC for approval to construct a 20-inch
loop of its Picketwire Lateral pipeline. The 20-inch loop will increase the
pipeline's gas takeaway capacity by 34 MMcf per day. Subject to the
regulatory approval, CIG anticipates having the loop completed by December 1,
2000, with takeaway capacity increased to 134 MMcf per day by year end. Other
projects are scheduled by CIG to further increase takeaway capacity in 2001.
In April 2000, Evergreen committed to an additional 11 MMcf per day of firm
transportation, bringing its total commitment to 64 MMcf per day starting
December 1, 2000. If the 20-inch loop is not completed by December 1, 2000,
the Company may be limited in the amount of gas that it can sell by pipeline
capacity constraints.
Lease operating expenses for the three months ended March 31, 2000, were
$1,535,000 or $0.42 per Mcf compared to $1,012,000 or $0.33 per Mcf for the same
period in 1999. The increase in lease operating expense for the three months in
2000 as compared to 1999 was due to the increase in the number of producing
wells and compressors, water handling costs, increase in field personnel,
work-over costs related to well repairs and maintenance costs for compressors.
Production taxes increased for the three months ended March 31, 2000 to $0.08
per Mcf as compared to $0.06 per Mcf for the same period in 1999, due to higher
natural gas prices.
Depreciation, depletion and amortization expense for the three months ended
March 31, 2000, was $1,224,000 compared to $1,161,000 for the same period in
1999. On an equivalent Mcf basis, depreciation, depletion and amortization
expense declined to $0.33 per Mcf in the three months ended March 31, 2000, as
compared to $0.38 per Mcf in the prior year.
General and administrative expenses were $982,000 during the three months
ended March 31, 2000, as compared to $563,000 during the same period in 1999.
The increase of $419,000 was due to the increase in administrative staff,
salaries, and related benefits and other corporate expenses as a result of
the significant growth of the Company. Also, through March 1999, EOC operated
properties for various third party working interest owners. In January 1999,
the working interest owners sold those properties. As such EOC did not
receive overhead payments for the operation of those properties in the three
months ended March 31, 2000; therefore, the Company's general and
administrative were greater by $179,000 as compared to the three months ended
March 31, 1999.
Interest expense for the three months ended March 31, 2000, was $307,000
compared to $790,000 for the same period in 1999. The decrease in interest
expense in 2000 was due to lower average debt balances in the first quarter
of 2000 compared to the same period in 1999. The decrease was due to the
pay-off of substantially all outstanding debt with proceeds received from the
public offering completed in June 1999.
12
<PAGE>
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,
superceeded by SFAS No. 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Management believes the adoption of this
statement will not have a material impact on the Company's financial statements.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company measures its exposure to market risk at any point in time by
comparing its 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, 2000, the Company
was exposed to some market risk on its long-term debt, foreign currency and
natural gas prices; however, management does not believe that such risk is
material.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Except as described below, there are no material pending legal proceedings to
which the Company or its subsidiaries is a party or to which any of their
property is subject.
On July 13, 1998, a localized group of citizens, 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. The
Company believes the lawsuit to be without merit and responded by filing a
Motion to Dismiss all of Southern Colorado C.U.R.E.'s alleged claims on
substantive grounds. A renewed Motion to Dismiss is currently pending before the
court, although a magistrate to whom the judge presiding over the matter
referred the original Motion to Dismiss has indicated that she would recommend
to the judge that the motion be denied with respect to certain of the
allegations. The Company believes that the resolution of these issues with the
Colorado Department of Public Health and Environment ("CDPHE") as described
below, however, should moot any of the claims that remain if the substantive
Motion to Dismiss is denied. 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.
EOC also participated with the EPA and the State of Colorado in the
investigation of certain practices in connection with these operations. On
January 7, 2000, EOC entered into a Consent Order with the CDPHE that
resolved the water discharge issues between the CDPHE and EOC. Under the
Consent Order, EOC will install a water supply system as a Supplemental
Environmental Project, in lieu of civil penalties, that will benefit rural
landowners in the areas in which the Company operates. Evergreen may process
a portion of its produced water to meet potability standards. The estimated
cost of the water supply system is $360,000. The Consent Order resolves all
outstanding issues between EOC and Colorado state regulatory agencies
governing the discharge of produced water from Evergreen's coal bed methane
operations in the Raton Basin.
14
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In January 2000, the Company issued 300,955 shares of Common Stock to a company
in connection with a net mineral interest acquisition. The Company issued these
shares of Common Stock in reliance on the exemption from registration provided
by Section 4 (2) of the Securities Act.
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.
The Company will hold its annual meeting of shareholders on June 16, 2000, at
10:00 a.m. Mountain Daylight Time at The Westin in the Tabor Auditorium, 1672
Lawrence Street, Denver, Colorado 80202-0210. Any proposal by a shareholder
intended to be included in the Company's proxy materials for the meeting must
be received at the offices of the company, P.O. Box 660, Denver, Colorado
80201-0660, a reasonable time before the Company begins to print its proxy
materials, scheduled to be May 16, 2000. Pursuant to the Company's bylaws,
shareholder proposals (other than director nominations) must have been
submitted to the Company no later than the close of business on the 60th day
before the first anniversary of the date of the preceding year's annual
meeting (May 11, 1999) and no earlier than the 90th day prior to such date.
Shareholder nominations for director must have been received by the Company
no later than the close of business on the 30th day before the annual meeting
of shareholders at which directors are to be elected and no earlier than the
60th day before the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
Not applicable.
15
<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, 2000 By: /s/ Kevin R. Collins
--------------------------------------
Kevin R. Collins
VP - Finance, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
16
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