Securities and Exchange Commission
Washington, DC 20549
----------------------------------
FORM 10-Q/A
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
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 of 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 NOVEMBER 3, 1997
Common Stock, No Par Value 9,490,295
EVERGREEN RESOURCES, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996............................................. 3
Consolidated Statements of Operations for the Nine and Three
Months Ended September 30, 1997 and 1996.......................... 4 - 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996................................. 6
Notes to Consolidated Financial Statements.......................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8 - 13
PART II. OTHER INFORMATION.......................................... 14
2
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS September 30, 1997 December 31, 1996
------ ------------------ -----------------
CURRENT:
Cash and cash equivalents $ 2,099,333 $ 2,640,300
Accounts receivable:
Oil and gas sales 1,675,433 1,182,635
Joint interest billings and other 609,209 727,283
Other current assets 207,497 113,964
---------------- ---------------
TOTAL CURRENT ASSETS 4,591,472 4,664,182
---------------- ---------------
PROPERTY AND EQUIPMENT:
Proved oil and gas properties, based on full-cost accounting 55,958,826 49,323,572
Unevaluated properties not subject to amortization 9,260,850 8,579,220
Gas gathering equipment 20,777,033 13,952,381
Support equipment 2,208,955 1,422,955
---------------- ---------------
88,205,664 73,278,128
Less accumulated depreciation, depletion and amortization (14,498,709) (12,578,205)
---------------- ---------------
NET PROPERTY AND EQUIPMENT 73,706,955 60,699,923
---------------- ---------------
DESIGNATED CASH 1,789,088 1,493,114
OTHER ASSETS 1,824,681 1,386,376
---------------- ---------------
$ 81,912,196 $ 68,243,595
---------------- ---------------
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 683,790 $ 3,223,047
Amounts payable to oil and gas property owners 2,676,578 1,068,532
Accrued expenses and other 490,751 415,748
Current portion - capital leases 710,256 275,348
---------------- ---------------
TOTAL CURRENT LIABILITIES 4,561,375 4,982,675
Production taxes payable 1,789,088 1,493,114
Obligations under capital leases 2,976,086 1,173,500
Notes payable 8,400,000 --
Other long term liabilities 2,430,878 2,230,798
---------------- ---------------
TOTAL LIABILITIES 20,157,427 9,880,087
---------------- ---------------
REDEEMABLE PREFERRED STOCK 6,000,000 6,000,000
---------------- ---------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, shares issued and outstanding,
9,469,544 and 9,336,320 94,695 93,636
Additional paid-in capital 61,887,511 61,369,368
Accumulated deficit (6,221,497) (9,198,780)
Foreign currency translation adjustment (5,940) 99,284
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 55,754,769 52,363,508
---------------- ---------------
$ 81,912,196 $ 68,243,595
---------------- ---------------
---------------- ---------------
See accompanying notes to consolidated financial statements
3
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
REVENUE:
Natural gas revenues $8,194,717 $2,139,689
Oil and gas services 576,913 571,800
Interest 100,965 146,694
Other income 228,459 43,855
---------- ----------
TOTAL REVENUES 9,101,054 2,902,038
---------- ----------
COSTS AND EXPENSES:
Cost of production and operations 1,443,849 489,236
Gas gathering costs 112,358 124,561
Cost of oil and gas services 621,383 584,536
Depreciation, depletion and amortization 2,042,508 670,712
General and administrative expenses 886,019 530,610
Interest expense 511,359 110,456
Other expense 146,298 5,515
---------- ----------
TOTAL COSTS AND EXPENSES 5,763,774 2,515,626
---------- ----------
NET INCOME 3,337,280 386,412
PREFERRED STOCK DIVIDENDS 360,000 450,000
---------- ----------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK $2,977,280 $ (63,588)
---------- ----------
---------- ----------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $0.32 (0.01)
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,403,543 6,172,916
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
4
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
--------------------------------
1997 1996
---------- ----------
REVENUE:
Natural gas revenues $3,236,216 $1,129,069
Oil and gas services 202,446 174,953
Equity in earnings of investment 226,179 --
Interest 37,248 31,347
Other income -- 25,788
---------- ----------
TOTAL REVENUES 3,702,089 1,361,157
---------- ----------
COSTS AND EXPENSES:
Cost of production and operations 555,118 232,663
Gas gathering costs 34,683 31,099
Cost of oil and gas services 228,957 217,126
Depreciation, depletion and amortization 751,003 296,839
General and administrative expenses 309,690 167,379
Interest expense 239,769 99,070
Other expense 145,769 10,970
---------- ----------
TOTAL COSTS AND EXPENSES 2,264,989 1,055,146
---------- ----------
NET INCOME 1,437,100 306,011
PREFERRED STOCK DIVIDENDS 120,000 150,000
---------- ----------
NET INCOME ATTRIBUTABLE
TO COMMON STOCK $1,317,100 $ 156,011
---------- ----------
---------- ----------
NET INCOME PER SHARE OF COMMON STOCK $ 0.14 $ 0.02
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,424,837 6,710,369
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
5
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,337,280 $ 386,412
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization 2,042,508 670,712
Equity in earnings of investment (226,159) --
Other 89,895 82,123
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (374,768) 88,380
(Increase) in other current assets (93,549) (280,537)
Increase (decrease) in accounts payable (714,271) 529,476
Increase (decrease) in accrued expenses 75,002 (52,911)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,135,938 1,423,655
------------ -----------
Cash flows from investing activities:
Investment in property and equipment (14,338,817) (6,109,205)
Proceeds from sale of oil and gas assets -- 821,279
Designated cash (295,974) (415,879)
Change in production taxes payable 295,974 415,879
Increase in other assets (193,722) (397,662)
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (14,532,539) (5,685,588)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable and long-term debt 8,777,120 2,493,000
Proceeds from sale of common stock 279,076 303,904
Debt issue costs -- (23,259)
Principal payments on capital lease obligations (448,608) (75,435)
Payment of preferred stock dividends (360,000) (450,000)
Increase (decrease) in cash held from operating
oil and gas properties 1,608,046 (445,581)
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,855,634 1,802,629
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (55,560)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (540,967) (2,514,864)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 2,640,300 3,646,492
------------ -----------
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD $ 2,099,333 $ 1,131,628
------------ -----------
------------ -----------
See accompanying notes to consolidated financial statements.
6
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997
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 September 30, 1997 and the results of
its operations and changes in financial position for the three and nine
months then ended. All such adjustments are of a normal recurring nature.
2. Certain information at December 31, 1996 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"), Evergreen Resources (UK) Limited ("ERUK"), Primero Gas Marketing
Co. ("Primero") and Powerbridge, Inc. ("PBI"). All significant
intercompany balances and transactions have been eliminated.
The consolidated financial statements also include the Company's 49%
ownership in Maverick Stimulation Company, LLC ("Maverick") and 40%
ownership in Argos Evergreen Limited ("AEL") and, accordingly, accounts
for these investments by the equity method of accounting. 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. Designated cash represents the cash withheld from revenue payments to the
Company and third party revenue interest owners for subsequent
distribution of production taxes 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 calculated 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.
8. Effective with the period ended December 31, 1996, the Company elected to
begin utilizing a December 31 year-end. As a result of the change in
fiscal years the Statement of Operations for the nine months ended
September 30, 1996 has been restated to include the results of operations
for the three months ended March 31, 1996 and the six months ended
September 30, 1996.
7
EVERGREEN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Evergreen Resources, Inc. ("Company or Evergreen") is an independent
energy company engaged in the operation, acquisition, exploration and
development of oil and gas properties and also the marketing of natural gas.
The Company's current operations are principally focused on developing and
expanding its coalbed methane project located on over 120,000 acres in the
Raton Basin in southern Colorado.
RECENT DEVELOPMENTS
RATON BASIN
As of October 31, 1997, Evergreen was producing from 77 gas wells.
An additional 19 wells have been drilled and six more are scheduled for
drilling beginning November 15, 1997. All of these 25 wells are scheduled to
be completed and placed in production by year-end. Gas production has
continued to improve since sales began in January 1995 to a current level of
over 25 million cubic feet ("MMcf") per day gross.
The expanding production in the Raton Basin has led Colorado
Interstate Gas Co. (CIG) to file with the Federal Energy Regulatory
Commission for approval to construct the Campo Lateral , a new 115-mile line
connecting CIG's Picketwire Lateral near Trinidad, Colorado with its mainline
compressor station at Campo, in Baca County, Colorado. The pipeline will
initially provide transportation capacity of 100 MMcf of gas per day out of
the Raton Basin and is expected to be in service in August, 1998.
Evergreen has entered into an agreement with CIG which entitles it
to firm transportation of its Raton Basin gas on the Campo Lateral for
fifteen years. The Company has committed to transport at least 41 MMcf per
day through CIG's pipelines commencing on or about August 1998 and may
increase its volume to over 100 MMcf per day. Evergreen believes that the new
pipeline will provide transport capacity for gas production from several
hundred wells, provide attractive delivery pressures, reduce the Company's
transportation rate below maximum tariff rates, and expand the range of
customers to which it can market its gas, thereby potentially increasing the
prices Evergreen receives for its gas.
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 October 31, 1997, the Company had entered
into contracts to sell amounts equal to substantially all of its current
sales at $2.05 per Mcf for the period November 1997 through March 1998 and
half of its current sales at $2.05 per Mcf for the period April 1998 through
October 1998.
REDEEMABLE PREFERRED STOCK
Effective November 1, 1997, all of the Company's outstanding
6,000,000 shares of Evergreen Convertible Preferred stock will be converted
into 905,660 shares of Evergreen common stock.
8
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $30.0 million revolving line of credit
with Hibernia National Bank of New Orleans, Louisiana ("Hibernia"), which is
available through May 1999. Advances pursuant to this line of credit are
limited to the borrowing base, which is presently $30.0 million. Interest
accrues at prime (8.5% at September 30, 1997) plus or minus a margin of .25%,
with margins determined on the average outstanding borrowings under the line
of credit. The borrowing base is redetermined semi-annually by Hibernia based
upon reserve evaluations of the Company's oil and gas properties. As of
November 3, 1997, the Company had $ 8.5 million of borrowings under the line.
The Company has a $6.0 million equipment lease line with Hibernia
with interest at prime (8.5% at September 30, 1997) for a term of five years
ending through 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. At November 3, 1997, the Company had utilized
approximately $4.0 million under the lease line.
The Company is a guarantor of a line of credit and a capital lease
for Maverick for an aggregate amount of $2.5 million. The guaranteed
obligations amounted to $1.3 million at September 30, 1997.
The Company anticipates drilling 40-60 new wells and expanding and
upgrading gas gathering facilities in the Raton Basin and also is proceeding
with international exploration activities through the end of 1998. Budgeted
capital expenditures for this drilling program is approximately $20 million.
The Company believes that cash flow from operations and available borrowings
under its line of credit will be sufficient to fund budgeted 1998 capital
expenditures. Oil and gas leases expiring in fiscal 1997 and 1998 are not
material and do not require significant drilling expenditures.
Cash flows provided by operating activities were $4,135,900 for the
nine months ended September 30, 1997 as compared to cash flows provided by
operating activities of $1,423,700 in the prior year. The significant
increase in the cash flows provided by operating activities is due primarily
to improved operating results as a result of higher gas production and higher
gas prices.
Cash flows used by investing activities were $14,532,500 during the
nine months ended September 30, 1997 versus $5,685,600 during the same period
in 1996. The increase was due to the continued development of the Raton Basin
including an upgrade of the gas gathering system.
Cash flows provided by financing activities were $9,855,600 during
the nine months ended September 30, 1997 as compared to cash flows provided
by financing activities of $1,802,600 in the prior period. The increase was
due primarily to increased borrowings to fund the development of the drilling
and gathering system in the Raton Basin.
The Company's production from its San Juan basin properties has not
met the minimum volume requirements under its transportation agreements with
El Paso Field Services ("El Paso"). As of September 30, 1997, the cumulative
obligation of the Company to El Paso resulting from this shortfall was
calculated by the Company to be $2,431,000. At current rates of production,
this liability would increase to over $3 million by the end of the contract
term in July 1998. The Company is currently in discussions with El Paso
concerning alternative resolutions to the shortfall, including the purchase
by the Company of a portion of El Paso's pipeline system. However, there is
no assurance that an alternative agreement will be reached.
Some of the information contained herein is forward-looking. Actual
results could materially differ and could be adversely affected by, among
other things, a decline in natural gas production, a
9
decline in natural gas prices, increases in the cost of the drilling,
completion and gas gathering, an increase in the cost of production and
operations, and/or changes in general economic conditions.
RESULTS OF OPERATIONS - NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997
The Company reported net income of $2,977,300 or $0.32 per common
share for the nine months ended September 30, 1997, compared to a net loss of
$63,600 or $0.01 per common share for the same period in 1996. For the three
months ended September 30, 1997, the Company reported net income of
$1,317,100 or $0.14 per common share compared to net income of $156,011 or
$0.02 per common share for the same period in 1996. The significant increase
in net income during the nine and three months ended September 30, 1997 as
compared to the prior year is attributable to sharply higher Raton Basin
production volumes and improved natural gas prices.
EBITDA (earnings before interest, taxes, depreciation, depletion and
amortization) improved to $5,531,100 or $0.59 per common share for the nine
months ended September 30, 1997 vs. $717,600 or $0.12 per common share for
the same period in 1996. For the three months ended September 30, 1997 EBITDA
was $2,307,900 or $0.24 per common share as compared to $551,900 or $0.08 per
common share in the prior period.
EBITDA is not an alternative to GAAP operating income as an
indicator of operating performance or a measure of liquidity under GAAP. The
Company includes EBITDA because it believes that EBITDA is a useful measure
of the free pre-tax cash flow generated by the Company. The pre-tax cash
flows are not necessarily available for debt or other discretionary uses by
management due to legal or functional requirements to conserve funds for
other commitments and uncertainties in the operation of the Company's
business. The company anticipates that EBITDA will continue to increase as
production increases and therefore increase its ability to service future
debt requirements. EBITDA is not intended to represent cash flows for the
period; nor has it been presented as an indicator of the Company's financial
or operating performance prepared in accordance with generally accepted
accounting principles. This EBITDA calculation may not be comparable to
similarly titled measures presented by other companies and, accordingly,
could be misleading unless other EBITDA calculations are calculated in the
same fashion. Reference is hereby made to the GAAP cash flows discussion on
page 9.
Natural gas revenues increased to $8,194,700 during the nine months
ended September 30, 1997, from $2,139,700 ( included in revenues for 1996 was
$59,300 in oil sales) for the same period in the prior year. During the three
months ended September 30, 1997, natural gas revenues increased to $3,236,200
from $1,129,100 in the prior year. The significant increase in natural gas
revenues for both the nine and three month periods is due to a combination of
the increase in gas production volumes and gas prices as noted in the table
below for all periods presented. At September 30, 1997 the number of
producing Raton Basin wells increased to 73 from 31 producing wells at
September 30, 1996 and is the primary factor for the increase in production
volumes, even though the average production rate per well has actually
increased from period to period. The average gas prices increased for both
the nine and three months periods for 1997 as compared to 1996 due to an
improvement in the overall market for natural gas. In addition, during the
nine and three month periods ended September 30, 1997, the Company was able
to access improved gas markets in the Mid-Continent through firm
transportation agreements with CIG.
Cost of production and operations (lifting costs) for the nine
months ended September 30, 1997, were $1,443,800 compared to $489,200 for the
same period in 1996. On an equivalent Mcf basis (Mcfe), lifting costs
declined moderately to $0.31 per Mcfe in the nine months ended September 30,
1997, as compared to $0.34 per Mcfe in the prior year. The decrease in
lifting costs on an Mcfe basis is due to the economies of scale as a result
of the increase in producing wells in the Ration Basin. Production and
lifting costs were $0.31 per Mcfe for the three months ended September 30,
1997 as compared to $0.32 for the same period in 1996.
10
The following table sets forth certain operating information of the Company
for the periods presented:
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Gas Production (Mcf) 4,564,300 1,421,200 1,807,300 724,400
Gas Revenues $8,194,700 $2,080,400 $3,236,200 $1,129,100
Avg. Price per Mcf $1.80 $1.46 $1.79 $1.56
Lifting Cost per Mcfe $0.31 $0.34 $0.31 $0.32
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary 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 September 1997, EOC was serving as
operator for approximately 180 producing gas wells owned by the Company and
by other unaffiliated third parties.
During the nine months ended September 30, 1997, oil and gas service
revenues were $576,900, versus $571,800 for the nine months ended September
30, 1996. For the three months ended September 30, 1997 oil and gas service
revenues were $202,400 as compared to $174,900 in 1996. The modest increase
in oil and gas service revenue for the three and nine month period is due to
the relatively constant number of wells the Company operates for third
parties. Costs of oil and gas services during the nine months ended September
30, 1997 were $621,400 vs. $584,500 for the prior year. For the three months
ended September 30, 1997 costs of oil and gas services was $228,900 as
compared to $217,100 in 1996.
Other income increased to $228,500 for the nine months ended
September 30, 1997, from $43,900 in the prior year and increased to $234,300
for the three months ended September 30, 1997 versus $25,800 in 1996. The
increase of $184,600 for the nine months ended September 30, 1997 and the
increase of $208,000 for the three months ended September 30, 1997 over the
prior periods is primarily due to the Company's 49% ownership in Maverick, an
oil and gas well servicing company. The Company accounts for the investment
in Maverick under the equity method of accounting. Prior to the current
reporting period, the Company's share of Maverick profits after intercompany
eliminations were not material. For the nine and three months ended September
30, 1997, the Company's share of profits from Maverick was $226,000 and is
included in other income. The increase in Maverick net income is due to the
increase in its oil and gas stimulation services for third party entities.
Depreciation, depletion and amortization expense for the nine months
ended September 30, 1997, was $2,042,500 compared to $670,700 for the same
period in 1996 and for the three months ended September 30, 1997 was $751,000
as compared to $296,800 for the same period in 1996. The increase for the
nine and three months periods in 1997 as compared to 1996 is due to the
significant increase in gas production in the Raton Basin and the increase in
capital costs for drilling and the gas gathering system.
General and administrative expenses were $886,000 during the nine
months ended September 30, 1997 as compared to $530,600 during the same
period in 1996 and for the three months ended September 30, 1997 were
$309,700 as compared to $167,400 for the same period in 1996. The increase in
general and administrative expenses of $355,400 for the nine months ended
September 30,
11
1997 as compared to 1996 and the increase of $142,300 for the three month
period ended September 30, 1997 as compared to 1996 is due to the expected
increase in overall corporate activity, including salaries and professional
services. Although the overall expense increased for the nine months ended
September 30, 1997, the cost per Mcf decreased to $0.19 from the prior year
cost per Mcf of $0.37 and the cost per Mcf decreased to $0.17 per Mcf for the
three months ended September 30, 1997 from the same period in the prior year
$0.23 per Mcf.
Interest income for the nine months ended September 30, 1997 was
$101,000 compared to $146,700 during the same period in 1996 and for the
three months ended September 30, 1997 was $29,100 as compared to $31,300
during the same period in the prior year. The $45,700 decrease for the nine
month period over the same period in the prior year is due to less cash to
invest as a result of the continued Raton Basin development.
Interest expense for the nine months ended September 30, 1997 was
$511,300 versus $110,400 during the same period in 1996 and for the three
months ended September 30, 1997 was $239,800 as compared to $99,100 during
the same period in the prior year. The $400,900 increase for the nine months
over the same period in the prior year and $140,700 increase for the three
months over the same period in the prior year is due to increased borrowings
under the Company's line of credit to $8.4 million at September 30, 1997 from
$6.0 million at September 30, 1996 and an increase in the equipment lease
line to $3.7 million at September 30, 1997 from $1.5 million at September 30,
1996 to fund the Raton Basin development.
Other expense was $146,300 for the nine months ended September 30,
1997 versus $5,500 for the same period in 1996 and for the three months ended
September 30, 1997 was $145,800 as compared to $11,000 during the same period
in the prior year. The increase in other expense is due primarily to the
write off of a receivable that has been deemed uncollectible.
ACCOUNTING PRONOUNCEMENTS
On March 3, 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" (SFAS No. 128). This pronouncement provides a different method of
calculating earnings per share than is currently used in accordance with
Accounting Principles Board Opinion (APB) No. 15, "Earnings Per Share". SFAS
No. 128 provides for the calculation of "Basic" and "Diluted" earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. The
Company will adopt SFAS No. 128 in 1997 and its implementation is not
expected to have a material effect on the consolidated financial statements.
12
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
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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 June 25, 1997, Evergreen Resources, Inc. filed in the Las Animas
County District Court for a declaratory judgment against Amoco Production
Company ( "Amoco" ) regarding the sale by Amoco of certain property located
in Las Animas County, Colorado. Amoco entered into a Purchase and Sale
Agreement with another entity to sell, oil and gas properties which were
subject to a preferential purchase right under a Unit Operating Agreement.
Evergreen, as a working interest owner in the Unit, tendered its notice to
Amoco of its intent to exercise its preferential right to purchase certain
properties covered by the Purchase and Sale Agreement. Amoco contends that it
did not receive a valid election of the preferential purchase rights from
Evergreen. Evergreen is seeking a declaratory judgment against Amoco
declaring that it properly exercised its preferential right of purchase, and
that Amoco is obligated to sell the properties covered by that preferential
right of purchase to Evergreen.
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 held on
May 28, 1997:
ELECTION OF DIRECTORS
THREE YEAR TERMS FOR AGAINST ABSTAIN
---------------- --- -------- -------
Alain Blanchard 8,499,410 1,233 5,285
Scott D. Sheffield 8,499,410 1,233 5,285
TWO YEAR TERM
-------------
Larry D. Estridge 8,499,410 1,233 5,285
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A report on Form 8-K describing the Shareholder Rights Plan was filed on
July 7, 1997.
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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: November 4, 1997 By: /S/ KEVIN R. COLLINS
-----------------------------
Kevin R. Collins
VP - Finance
Chief Financial Officer
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