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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended March 31, 1995
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-10077
EVERGREEN RESOURCES, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-0834147
- - ---------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1000 WRITER SQUARE
1512 LARIMER STREET
DENVER, COLORADO 80202
- - ---------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 534-0400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class)
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.
Yes X No
------- -------
As of June 26, 1995, the aggregate market value of the common stock of Evergreen
Resources, Inc. held by nonaffiliates was approximately $22,000,000 and
5,672,159 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1995 Annual Meeting of
Stockholders to be held on August 10, 1995 are incorporated by reference into
Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[X]
TABLE OF CONTENTS
PART I Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . . 8
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 12
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . 12
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 12
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 14
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PART I
ITEM 1. BUSINESS
GENERAL
Evergreen Resources, Inc. ("Evergreen" or "the Company"), is a Colorado
corporation organized on January 14, 1981. Evergreen was formed to engage in
exploration for, and acquisition, development, production and sale of, oil and
gas. Evergreen maintains its principal executive offices at Suite 1000, 1512
Larimer Street, Denver, Colorado 80202, and its telephone number is
(303) 534-0400.
The authorized capitalization of the Company is 50,000,000 shares of no
par value common stock of which 5,672,159 shares were issued and outstanding at
June 26, 1995. Evergreen has an authorized capital of 25,000,000 shares of
$1.00 par value Preferred Stock, 3,750,000 of which were issued and outstanding
at June 26, 1995.
The Company's only industry segment is the exploration for, and the
acquisition, development, production and sale of, natural gas and crude oil.
The Company's activities are conducted principally in the Rocky Mountain and
Mid-Continent regions of the United States and the United Kingdom.
The Company has no material patents or franchises which it considers
significant to its oil and gas operations.
The nature of the Company's business is such that is does not maintain
or require a "backlog" of products, customer orders or inventory.
The Company's oil and gas operations are not subject to renegotiation of
profits or termination of contracts at the election of the federal government.
The Company has not been a party to any bankruptcy, receivership,
reorganization or similar proceeding.
MANAGEMENT CHANGES
In March 1995 the Company's Board of Directors was expanded to a total
of seven by the addition of Dennis R. Carlton, VP Exploration and Mark S.
Sexton, VP Operations. Both will serve until Evergreen's Annual Meeting in
August 1995 at which time they will be nominated for election to new three year
terms.
In June 1995, the Board elected Mr. Sexton as President, succeeding
James C. Ryan, Jr. who resigned as President and CEO. Mr. Ryan continues as a
Director. Concurrently, the Board elected J. Keither Martin as Corporate
Secretary succeeding Caryl L. Clover who resigned.
PREFERRED STOCK
On December 8, 1994, the Company received $3.75 million through the
private placement, with Institutional Investors, of 3,750,000 shares of ten year
term 8% Convertible Preferred Stock, $1.00 par value ("the Preferred"), with
proceeds to be used for additional development of the Company's substantial oil
and gas leases in the Raton Basin of Colorado.
An additional 3,750,000 shares are to be issued upon completion of
Evergreen's first ten wells in the Raton Basin, subject to an independent
engineer's report establishing gross reserves averaging 1.8 Bcf per well after
60 days production.
The Company intends to issue these shares in late July 1995. Proceeds
will be used for additional wells and related gathering facilities.
The Preferred is convertible into common stock at a conversion price of
$8.34 per share. Annual cash dividends of 8% are payable quarterly. Evergreen
may call the Preferred at any time in whole or in part prior to the mandatory
redemption (minimum call being 20% of original issue), at par value, plus
accrued dividends.
-3-
Evergreen can require the conversion of all of the Preferred into common
stock provided the common stock has traded at not less than $16 per share for 30
consecutive days.
A mandatory Sinking Fund of $1,250,000 is due annually commencing in
December 1999. All outstanding shares of Preferred must be redeemed by
Evergreen in ten years (2004) at par value, plus accrued dividends.
Evergreen has issued warrants which will be triggered and will become
exerciseable for 10 years at $8.34 per share if Evergreen qualifies for but does
not take the second $3.75 million (450,000 warrants) or if Evergreen exercises
all or part of its call option (up to 899,281 warrants).
The Preferred carries antidilution provisions, registration rights and,
under certain circumstances, voting rights.
CUSTOMERS AND MARKETS
Substantially all of the Company's oil and gas production is sold at the
well site on an "as produced" basis. The principal markets for oil and gas are
refineries and transmission companies which have facilities near the Company's
producing properties.
Evergreen's business is not seasonal in nature, except to the extent
that weather conditions at certain times of the year may affect Evergreen's
access to its oil and gas properties and its ability to drill oil and gas wells.
Evergreen had two major customers for the sale of oil and gas as of
March 31, 1995, who purchase approximately 34% and 10% of the Company's oil and
gas production respectively. The loss of these customers would not have a
material adverse effect on Evergreen's business.
COMPETITION
The Company encounters strong competition from major oil companies and
independent operators in acquiring properties and leases for the exploration
for, and the production of, crude oil and natural gas. The Company competes
with a number of other companies, including major oil companies and other
independent operations which are more experienced and which have greater
financial resources. The Company does not hold a significant competitive
position in the oil and gas industry.
EMPLOYEES
At June 26, 1995, the Company had 27 employees.
REGULATION
The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation and regulation affecting the industry are under
constant review for amendment or expansion, raising the possibility of changes
that may affect, among other things, the pricing or marketing of oil and gas
production. Substantial penalties may be assessed for noncompliance with
various applicable statutes and regulations, and the overall regulatory burden
on the industry increases its cost of doing business and, in turn, its
profitability.
State and local authorities regulate various aspects of oil and gas
drilling and production activities, including the drilling of wells (through
permit and bonding requirements), the spacing of wells, the unitization or
pooling of oil and gas properties, environmental matters, safety standards, the
sharing of markets, production limitations, plugging and abandonment, and
restoration.
ENVIRONMENTAL CONSIDERATIONS
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the operations and costs of the
Company. It is not anticipated that the Company will be required in the near
future to expend amounts that are material in relation to its total capital
expenditure program by reason of environmental
-4-
laws and regulations. However, inasmuch as such laws and regulations are
frequently changed, the Company is unable to predict the ultimate cost of
compliance.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Company. Prior to the commencement of
drilling operations, a thorough title examination of the drill site tract is
conducted. The Company believes that the title to its leasehold properties is
good and defensible in accordance with standards generally acceptable in the oil
and gas industry.
INSURANCE COVERAGE
Evergreen is subject to all the risks inherent in the exploration for,
and development of, oil and gas, including blowouts, fires and other casualties.
The Company maintains insurance coverage as is customary for entities of a
similar size engaged in operations similar to that of Evergreen, but losses can
occur from uninsurable risks or in amounts in excess of existing insurance
coverage.
ITEM 2. PROPERTIES
PROPERTY CONSOLIDATION
In August 1994, Management decided to focus the Company's domestic efforts
and resources in development of the Raton Basin of Colorado.
Evergreen continues to sell non-strategic properties and reduce corporate
overhead, with the ultimate goal being to own, operate and develop key
properties in just two states - Colorado and New Mexico. Evergreen expects to
generate $2 - 3 million from the sale of non-strategic properties, with proceeds
earmarked for drilling new wells in the Raton Basin.
To date, the number of states in which Evergreen owns or operates oil and
gas properties has been reduced from twelve to four states, with no material
impact on the Company's reserves or financial condition.
Annualized overhead reductions implemented to date exceed $600,000.
OIL AND GAS RESERVES
The table below sets forth the Company's estimated quantities of proved
reserves, all of which were located in the continental U.S., and the present
value of estimated future net revenues from these reserves on a non-escalated
basis discounted by 10 percent per year as of the end of each of the last three
fiscal years.
1995 1994 1993
---- ---- ----
Estimated Proved Gas Reserves (MMcf) 57,882,080 51,588,125 36,663,110
Estimated Proved Oil Reserves (Bbls) 842,868 1,643,073 2,457,851
Present Value of Future Net Revenues
(before future income tax expense) $23,312,330 $32,443,800 $35,103,360
Reference should be made to Supplemental Oil and Gas Information on page
F-15 of this report for additional information pertaining to the Company's
proved oil and gas reserves. During fiscal 1995 the Company did not file any
reports that include estimates of total proved net oil or gas reserves with any
federal agency other than the Securities and Exchange Commission.
-5-
PRODUCTION
The following table sets forth the Company's net oil and gas production for
the last three fiscal years.
YEAR ENDED MARCH 31
-------------------------------------
1995 1994 1993
Natural Gas (Mcf) 782,000 637,900 291,200
Crude Oil & Condensate (Bbls) 36,600 57,500 63,400
- - -----------------------------------------
"Bbls" means barrels
"Mcf" means one thousand cubic feet
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the
average production cost per unit of oil and of gas produced, including
production taxes, for the last three fiscal years. For purposes of calculating
production cost per equivalent barrel of oil, Mcfs of gas have been converted to
barrels of oil at a ratio of six Mcf of gas for each barrel of oil:
YEAR ENDED MARCH 31
1995 1994 1993
----------------------------------------------------
Average Sales Price
Oil (per Bbl) $15.96 $14.50 $18.05
Gas (per Mcf) 1.67 2.15 1.55
Average Production Cost $ 1.10 $ 1.21 $ 1.91
Per Equivalent Mcf
PRODUCING WELLS AND DEVELOPED ACREAGE
The following table sets forth, as of June 26, 1995, the approximate number
of gross and net producing oil and gas wells and their related developed acres
owned by the Company. Productive wells are producing wells and wells capable of
production, including shut-in wells. Developed acreage consists of acres spaced
or assignable to productive wells.
"Gross" refers to the total acres or wells in which the Company has a
working interest, and "Net" refers to gross acres or wells multiplied by the
percentage of working interest owned by the Company.
PRODUCING WELLS DEVELOPED ACRES
- - ------------------------------------ -----------------------
OIL GAS GROSS NET
- - ----------------- ----------------- --------- ----------
GROSS NET GROSS NET
53 19.98 71 35.07 22,917 13,109
UNDEVELOPED ACREAGE
At June 26, 1995, Evergreen held undeveloped acreage as set forth below:
UNDEVELOPED ACRES
-----------------------
LOCATION GROSS NET
-------- ------- -------
Colorado 121,925 73,537
New Mexico 1,413 1,283
------- -------
TOTAL 123,338 74,820
United Kingdom 630,480 630,480
PRINCIPAL PROPERTIES
The following are brief descriptions of Evergreen's principal properties:
-6-
RATON BASIN
Since December 1991, Evergreen has acquired oil and gas leases covering
over 120,000 gross acres in the Raton Basin, Las Animas County in Southeastern
Colorado. This acreage position will support over 300 wells on 320 acre
spacing. Optimum spacing may be 160 acres, which would double the number of
drilling locations. Independent engineering estimates indicate reserve
potential of approximately 2 billion cubic feet of gas per well.
In August 1993 Evergreen formed a joint venture with PBI Fuels LP
("PBI"). PBI will participate with a 25 - 50% working interest in development
of the Project. Evergreen has retained the remaining 50 - 75% working interest
and serves as Operator.
In early 1994, Evergreen completed and production tested four evaluation
wells in the Vermejo coal intervals at depths ranging from 1,200 to 1,800 feet.
In addition to the Vermejo coals, the shallower Raton coals were present in
thicknesses believed to be commercial. Commencing in October 1994, an
additional six wells were drilled and completed and placed on production,
together with three of the original four wells - the fourth to be placed in
production when gathering facilities are available.
In January 1995, Evergreen and PBI completed a $4 million gathering
system designed to accommodate production from approximately 60 wells. The
system is tied in to a new 24 mile pipeline which was completed in December
1994.
Evergreen's first gas sales began in January, 1995. Combined gross
production from the first nine producing wells is now approximately 2 million
cubic feet per day.
In March 1995, the Bureau of Land Management designated approximately
67,000 acres of Evergreen's Raton Basin oil and gas leases as a Federal Unit
called the Spanish Peaks Unit. Evergreen has been named Unit Operator.
Formation of the Unit allows Evergreen to base development decisions within the
Unit on technical, geologic and geophysical data rather than the fulfillment of
term lease obligations.
Evergreen's Unit obligation is to establish commercial production
through the drilling of three new unit wells and the re-completion of an
existing well, with the work program to be conducted during the next 2 years.
On March 28, 1995, drilling commenced on seven additional wells
targeting the Vermejo coal intervals at projected total depths of 1,000 to 2,100
feet. Evergreen has a 50% working interest in these wells, which are located
within the newly formed Spanish Peaks Unit in close proximity to Evergreen's
producing wells and present gas gathering facilities. The new wells are
expected to be placed into production by July 10, 1995.
Evergreen also has a 75% working interest in the recompletion of an
existing well bore in the Raton coals. The well bore was recently acquired by
Evergreen from an unaffiliated third party.
The Raton recompletion and one of the new Vermejo wells will fulfill
Evergreen's 1995 work obligation to the Spanish Peaks Unit.
Evergreen plans a phased development of the Raton Basin acreage,
including new drilling and expansion of gathering and compression systems.
UNITED KINGDOM
In 1991 and 1992, the Company's wholly owned subsidiary, Evergreen
Resources (U.K.) Ltd., was awarded seven onshore U.K. hydrocarbon exploration
licenses totaling 2,570 square kilometers for the development of coalbed methane
gas and conventional hydrocarbons (the "Licenses"). The Licenses were
originally for six years and carried varying work commitments.
The Government has finalized revised onshore licensing arrangements and
the Company expects that by year-end new licenses will be awarded with an
extended term and that the majority of the acreage within the Company's existing
licenses will be retained.
-7-
During the period 1992 to 1994, Evergreen conducted seismic work and
drilled three wells on two of the licenses. The wells encountered 30' to 80' of
gross coal.
Two of the wells were hydraulically fracture stimulated and one was
tested for permeability. Following extensive production testing, none of the
three wells produced gas in economic quantities. The three wells are presently
shut-in.
The Company believes that substantial additional evaluation of the U.K.
licenses is warranted and intends to proceed once the new licensing arrangements
are finalized.
NET EXPLORATORY AND DEVELOPMENT WELLS
During the fiscal year ended March 31, 1995, the Company completed 6 gross
(3 net) development wells in the Raton Basin.
ITEM 3. LEGAL PROCEEDINGS
The Company is not engaged in any material pending legal proceedings to
which the Company or its subsidiaries are a party or to which any of its
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR EVERGREEN'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
PRINCIPAL MARKET OR MARKETS
The Company's common stock is traded on the NASDAQ National Market System
under the symbol "EVER". The range of high and low prices for each quarterly
period during the three most recent fiscal years ended March 31, 1995, as
reported by NASDAQ is as follows :
HIGH LOW
---- ---
Fiscal 1993
First Quarter $ 11.50 $ 8.25
Second Quarter 10.75 7.75
Third Quarter 10.25 7.50
Fourth Quarter 12.25 9.25
Fiscal 1994
First Quarter $ 11.50 $ 9.25
Second Quarter 11.50 9.25
Third Quarter 9.75 6.50
Fourth Quarter 10.75 7.00
Fiscal 1995
First Quarter $ 8.75 $ 6.50
Second Quarter 8.25 6.50
Third Quarter 8.25 5.25
Fourth Quarter 6.00 4.00
On June 26, 1995, the closing price for the common stock as reported by the
NASDAQ National Market System was $5.62 per share.
-8-
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of Evergreen's no par value common stock
at June 26, 1995, was approximately 4,000.
DIVIDENDS
Holders of common stock are entitled to receive such dividends as may be
declared by Evergreen's Board of Directors. No dividends have been paid with
respect to Evergreen's common or preferred stock and no dividends are
anticipated to be paid in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the last five fiscal years ended March 31. This information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's discussion and analysis of Financial Condition and Results of
Operations. Certain reclassifications have been made to prior financial
statements to conform with current presentation.
YEAR ENDED MARCH 31
--------------------------------------------------
1995 1994 1993 1992 1991
(in $ thousands except per share amounts)
Revenues $ 3,351 $ 4,342 $ 4,947 $ 3,646 $ 3,833
Net Income (Loss) (705) 44 726 (272) 281
Net Income (Loss)
per common share (0.13) 0.01 0.15 (.08) 0.13
Total Assets 38,284 32,880 31,125 30,690 20,430
Long Term Bank Debt - - - - -
Other Long-term Obligations 1,094 449 290 265 1,759
Redeemable Preferred Stock 3,750 - - - -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $7.5 million revolving line of credit with
Hibernia National Bank of New Orleans with interest at the Bank's prime rate.
Advances pursuant to this line of credit are limited to the borrowing base,
presently $5.5 million. There are no restrictions associated with advances
under the line. An annual fee of one half of one percent is paid quarterly for
any unused portion of the credit line. The borrowing base is redetermined semi-
annually by the bank based upon reserve evaluations of the Company's oil and gas
properties.
Management anticipates that its cash and cash flow from operating
activities and funds available will be sufficient to meet the Company's capital
requirements for the remainder of the current fiscal year, estimated to be $4.5
million.
Cash flows provided by operating activities were $407,600 for the year
ended March 31, 1995 versus $485,200 in the prior year. The decrease is due to
reduced revenues from continuing oil and gas operations which were $284,800
lower in the current year. These reduced revenues were principally offset by
changes in operating assets and liabilities of $258,800. Operating activities
for the year ended March 31, 1993 were $169,700 as compared to $485,200 in 1994.
The difference was caused primarily by losses and fees on asset sales in 1993
partially offset by lower net income in 1994.
Cash flows used by investing activities totaled $2,958,300 during the
year ended March 31, 1995, as compared to $306,900 in the prior year. In the
current year, the Company received $2,014,700 from the sale of marketable
securities and $1,324,400 from the sale of oil and gas assets. These and other
funds were invested in the development of existing properties. In total, the
Company invested
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$6,844,200 in property and equipment in the current year, compared to
$6,278,400 in the prior year. Investing activities used $562,800 in 1993
compared to $306,800 in 1994. This $250,000 net reduction was primarily a
result of changes in marketable securities and property, equipment and other
assets.
Cash flows provided by financing activities were $3,635,400 in the
current year compared to $241,500 in the prior year. The increase was primarily
due to the issuance of preferred stock. The $148,300 reduction in cash provided
by financing activities from 1993 to 1994 was primarily as a result of proceeds
from issuance of common stock being lower.
Under the terms of certain gas gathering and tie-in agreements, EOC is
committed to meeting certain minimum volume levels during the term of the
agreements. Through March 31, 1995, volume levels have been below the required
minimums and EOC has accrued approximately $856,000 for this shortfall, which is
included in with long-term liabilities. Such amount is refundable if future
volumes exceed the minimums and EOC is currently having discussions with the
owner of the system concerning obtaining additional volumes or other possible
alternatives.
RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO THE FISCAL
YEAR ENDED MARCH 31, 1994
The Company reported a net loss of $704,700 attributable to common
stock (which includes $94,200 of preferred stock dividends) or $0.13 per share
of common stock for the year ended March 31, 1995, compared to net income of
$43,500 or $0.01 per share of common stock in 1994.
Principal factors in the year to year earnings decline were lower gas
prices, reduced oil production and service revenues, lower interest and other
income and preferred stock dividends in the current year.
Oil prices averaged $15.96 per barrel during the year ended March 31,
1995 versus $14.50 per barrel during the same period in 1994. Gas prices
averaged $1.67 per Mcf in the current year versus $2.15 per Mcf in the prior
year.
Natural gas production increased 23% during the current year to 782,000
million cubic feet.
Oil production declined 36% during the year ended March 31, 1995 versus
the prior year, principally due to the sale of non-strategic properties.
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary Evergreen Operating
Corporation (EOC), which is primarily responsible for drilling, evaluation and
production activities associated with various properties and for negotiating the
sales of oil and gas production from the properties. As of March 31, 1995, EOC
was serving as operator for approximately 160 producing wells owned by the
Company and also by other unaffiliated third parties.
Oil and gas service revenues were $244,300 lower in the current year
than the previous year due primarily to non-recurring special service fees
received in the prior year.
Interest and dividend income declined from $238,000 in 1994 to $116,300
in the current year because of less cash available for investment.
Other income totaled $459,900 in the fiscal year ended March 31, 1995,
principally from a gain on the sale of oil and gas assets of $330,900.
Oil and gas production costs and taxes for the year ended March 31, 1995
were 6% lower than in the prior fiscal year. On a production equivalent unit
basis, costs and taxes declined to $1.10 per MCF equivalent in the current year
from $1.21 in the prior year.
Cost of oil and gas services in the current year declined by 15% from
the prior year primarily because of reduced staffing.
General and Administrative expenses for the year ended March 31, 1995
were 37% lower than the prior year primarily because of non-recurring legal fees
in the prior year and an ongoing overhead reduction program.
-10-
Depreciation, depletion and amortization expenses for the current year
were approximately 7% higher than in the prior year due to increased production.
Other expenses increased to $351,200 in the fiscal year ended March 31,
1995 from $34,500 in the fiscal year ended March 31, 1994, due primarily to a
loss on the sale of marketable securities ($122,100) and a write-down on the
valuation of certain non-oil and gas assets ($217,000).
RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 1994 COMPARED TO THE FISCAL
YEAR ENDED MARCH 31, 1993
The Company reported net income of $43,500 or $0.01 per share, for the
year ended March 31, 1994, compared to net income of $725,000 or $0.15 per share
which included $1,708,000 of other income in 1993.
A significant increase in natural gas revenues, which rose 204% over the
previous year, was offset by lower oil revenues, which declined by 27%, and also
by lower interest and other income received in the current year than was
received last year.
Oil prices averaged $14.50 per barrel during the year ended March 31,
1994 versus $18.05 per barrel during the same period in 1993. Gas prices
averaged $2.15 per Mcf in the current year versus $1.55 per Mcf in the prior
year.
Natural gas production more than doubled during the current year to 638
million cubic feet, a result of San Juan Basin production commencing in July
1993.
Oil production declined 9% during the year ended March 31, 1994 versus
the prior year, principally due to normal production declines. Normal
production declines refer to the expected decline in well performance and
producing rates over time, as forecast by the independent engineer reviewing
Evergreen's reserves.
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary Evergreen Operating
Corporation (EOC), which is primarily responsible for drilling, evaluation and
production activities associated with various properties and for negotiating the
sales of oil and gas production from the properties. As of March 31, 1994, EOC
was serving as operator for approximately 193 producing wells owned by the
Company and also by unaffiliated third parties.
Oil and gas service revenues were $190,000 higher in the current year
versus the previous year due primarily to non-recurring special service fees.
Interest and dividend income declined from $729,000 in 1993 to $238,000
in the current year because of less cash available for investment.
The Company reported revenues of $151,800 from gas gathering for the
first time in the current fiscal year due to the acquisition of an interest in
the Bonny Gathering Company effective April 1, 1992. Due to litigation, no
distributions were made, and no income was reported, for the prior fiscal year.
Other income totaled $642,600 in the fiscal year ended March 31, 1994,
which includes $561,100 from the favorable settlement of the Bonny Gathering
Company litigation noted above. Other income from the fiscal year ended March
31, 1993 totaled $1,708,000, which included $911,700 on the sale of intangible
assets for the San Juan Basin pipeline, and $787,000 on the sale of marketable
securities.
Oil and gas production costs and taxes for the year ended March 31, 1994
were only 1% higher than in the prior fiscal year, despite substantially
increased gas production. On a production equivalent unit basis, costs and
taxes declined to $1.21 per Mcf equivalent in the current year from $1.91 in the
prior year, or a reduction of approximately 37%.
Cost of oil and gas services in the current year declined by 10% from
the prior year primarily because of re-allocation of certain overhead to General
and Administrative expense.
-11-
General and Administrative expenses for the year ended March 31, 1994
were 33% higher than the prior year primarily because of non-recurring legal
fees and re-allocation of EOC overhead.
Depreciation, depletion and amortization expenses for the current year
were approximately 47% higher than in the prior year due to increased
production.
Other expenses declined to $34,500 in the fiscal year ended March 31,
1994 from $479,700 in the fiscal year ended March 31, 1993 due primarily to a
writedown in the value of investment in a mine of $386,000 which did not recur
in the current fiscal year.
INCOME TAXES AND NET OPERATING LOSSES
As discussed in Note 3 in the accompanying consolidated financial
statements, the Company has net operating loss carry forwards for income tax
purposes of approximately $9,950,000, certain of which are limited due to stock
issuances in 1988 and 1990. A valuation allowance has been recorded for the net
deferred tax asset arising from the loss carry forward in excess of the deferred
tax liability resulting from depreciation and amortization differences. The
valuation allowance was recorded as it was unable to be determined if such tax
benefits would be more likely than not be realized.
INFLATION AND CHANGING PRICES
The Company is unable to predict whether oil and gas prices will
continue to remain at their present levels. The impact of inflation on the
Company's activities is minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants . . . . . . . . F-1
Consolidated Balance Sheets, March 31, 1995 and 1994 . . . . . . . F-2 and F-3
Consolidated Statements of Operations for the Years Ended
March 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended March 31, 1995, 1994 and 1993. . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1995, 1994, and 1993F-6. . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-7 to F-22
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III of Form 10-K is incorporated herein by
reference to Registrant's definitive Proxy Statement previously filed in
connection with the Annual Meeting of Shareholders to be held on August 10,
1995.
-12-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) See Index to Consolidated Financial Statements at Item 8.
(a)(2) All other schedules have been omitted because the required information
is inapplicable or is shown in the notes to the financial statements.
(a)(3) EXHIBITS:
22 Reserve Report prepared by Resource Services International,
Inc.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the
last quarter of the fiscal year ended March 31, 1995.
-13-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 26, 1995 By: /s/Mark S. Sexton
--------------------------------
Mark S. Sexton, President
Date: June 26, 1995 By: /s/ Timothy G. Corey
--------------------------------
Timothy G. Corey, Vice President,
Treasurer and Principal Financial
Officer
Principal Accounting Officer
SIGNATURES
Date: June 26, 1995 By: /s/ Mark S. Sexton
--------------------------------
Mark S. Sexton, Director
Date: June 26, 1995 By: /s/ James C. Ryan, Jr.
--------------------------------
James C. Ryan, Jr., Director
Date: June 26, 1995 By: /s/ James S. Williams
--------------------------------
James S. Williams, Director
Date: June 26, 1995 By: /s/ Larry D. Estridge
--------------------------------
Larry D. Estridge, Director
-14-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Evergreen Resources, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Evergreen
Resources, Inc. and subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Evergreen Resources, Inc. and
subsidiaries as of March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995, in conformity with generally accepted accounting principles.
BDO SEIDMAN
Denver, Colorado
June 15, 1995
F-1
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
MARCH 31, 1995 1994
- - -----------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 2,038,157 $ 930,273
Marketable securities at cost, which
approximates market - 2,127,782
Accounts receivable:
Joint interest billings and other 945,557 1,634,192
Oil and gas sales, net of allowance of $10,500 297,602 373,442
Other current assets 76,341 158,586
- - -----------------------------------------------------------------------------------------------------
Total current assets 3,357,657 5,224,275
- - -----------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (Note 12):
Proved oil and gas properties, based on full-cost accounting 33,442,534 30,222,093
Unevaluated properties not subject to amortization 8,136,519 5,877,776
Gas gathering equipment 3,417,086 -
Support equipment 676,051 579,854
- - -----------------------------------------------------------------------------------------------------
45,672,190 36,679,723
Less accumulated depreciation, depletion and amortization 11,140,276 10,491,299
- - -----------------------------------------------------------------------------------------------------
Net property and equipment 34,531,914 26,188,424
RESTRICTED CASH 593,024 448,717
OTHER ASSETS (Note 1) 657,573 1,018,586
- - -----------------------------------------------------------------------------------------------------
$ 39,140,168 $32,880,002
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
F-2
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
MARCH 31, 1995 1994
- - -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 843,852 $ 1,426,423
Accrued expenses and other 89,646 48,031
Production and ad valorem taxes payable 567,656 543,692
- - -----------------------------------------------------------------------------------------------------
Total current liabilities 1,501,154 2,018,146
PRODUCTION, REVENUE, AND AD VALOREM TAX
ESCROW 593,024 448,717
LONG-TERM LIABILITIES (Note 9) 1,094,128 -
- - -----------------------------------------------------------------------------------------------------
Total liabilities 3,188,306 2,466,863
- - -----------------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK (Note 4) 3,750,000 -
- - -----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 AND 9)
STOCKHOLDERS' EQUITY (Notes 5 And 6):
Common stock, $.01 stated value; shares authorized, 50,000,000;
shares issued and outstanding, 5,672,159 and 5,058,501 56,721 50,585
Additional paid-in capital 41,419,179 39,434,048
Accumulated deficit (9,266,898) (8,562,171)
Foreign currency translation adjustment (7,140) (509,323)
- - -----------------------------------------------------------------------------------------------------
Total stockholders' equity 32,201,862 30,413,139
- - -----------------------------------------------------------------------------------------------------
$39,140,168 $32,880,002
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
REVENUES (Note 7):
Oil and gas production $ 1,891,579 $ 2,207,102 $ 1,596,279
Oil and gas services (Note 12) 858,298 1,102,572 913,622
Gas gathering 24,683 151,750 -
Interest and dividends 116,320 238,135 729,492
Other (Note 10) 459,948 642,628 1,707,675
- - ---------------------------------------------------------------------------------------------------------------
Total revenues 3,350,828 4,342,187 4,947,068
- - ---------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of production and operations 1,187,097 1,259,478 1,243,853
Cost of oil and gas services 789,778 928,890 1,031,678
Gas gathering expenses 44,572 66,166 -
Depreciation, depletion and amortization 709,008 659,820 449,358
General and administrative expenses 850,088 1,349,768 1,016,694
Interest expense 29,688 - -
Other 351,158 34,516 479,746
- - ----------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,961,389 4,298,638 4,221,329
- - ----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (610,561) 43,549 725,739
Preferred stock dividends 94,167 - -
- - ----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK $ (704,728) $ 43,549 $ 725,739
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ (.13) $ .01 $ .15
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,446,741 5,234,636 5,111,138
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
Series A Common Stock
------------------
Preferred Stock $.01 Stated Value
-------------------------- -------------------------------
Shares Amount Shares Amount
- - --------------------------------------------------------------------------------------------------------------------------
Balance, April 1, 1992 6,250 $ 6,250 4,814,567 $ 48,145
Exercise of stock purchase warrants - - 60,200 602
Common stock issued to ESOP - - 10,000 100
Other common stock issued - - 7,463 75
Conversion of Series A Preferred Stock
for common stock (6,250) (6,250) 6,250 63
Issuance of common stock for acquisition
of 100% of J.C. deGraffenried, Inc. - - 59,640 596
Foreign currency translation adjustment - - - -
Net income - - - -
- - -------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1993 - - 4,958,120 49,581
Exercise of stock purchase warrants - - 18,750 188
Common stock issued to ESOP - - 30,000 300
Issuance of common stock as employee bonus - - 51,500 515
Other increases - - 131 1
Foreign currency translation - - - -
Net income - - - -
- - -------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 - - 5,058,501 50,585
Issuance of common stock for well interests (Note 5) - - 501,040
Issuance of common stock (Note 5) - - 81,368 813
Exercise of stock options (Note 5) - - 31,250 313
Foreign currency translation - - - -
Preferred stock dividends - - - -
Net loss - - - -
- - -------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1995 - $ - 5,672,159 $ 56,721
- - -------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------
Foreign
Additional Currency Total
Paid-In Accumulated Translation Stockholders'
Capital Deficit Adjustment Equity
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, April 1, 1992 $ 38,444,054 $ (9,331,459) $ (21,477) $ 29,145,513
Exercise of stock purchase warrants 225,529 - - 226,131
Common stock issued to ESOP 46,150 - - 46,250
Other common stock issued 22,558 - - 22,633
Conversion of Series A Preferred Stock
for common stock 6,187 - - -
Issuance of common stock for acquisition
of 100% of J.C. deGraffenried, Inc. 342,334 - - 342,930
Foreign currency translation adjustment - - (482,636) (482,636)
Net income - 725,739 - 725,739
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1993 39,086,812 (8,605,720) (504,113) 30,026,560
Exercise of stock purchase warrants 46,688 - - 46,876
Common stock issued to ESOP 125,325 - - 125,625
Issuance of common stock as employee bonus 175,798 - - 176,313
Other increases (575) - - (574)
Foreign currency translation - - (5,210) (5,210)
Net income - 43,549 - 43,549
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 39,434,048 (8,562,171) (509,323) 30,413,139
Issuance of common stock for well interests 5,010 1,748,630 - - 1,753,640
Issuance of common stock (Note 5) 158,688 - - 159,501
Exercise of stock options (Note 5) 77,813 - - 78,126
Foreign currency translation - - 502,183 502,183
Preferred stock dividends - (94,167) - (94,167)
Net loss - (610,560) - (610,560)
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1995 $ 41,419,179 $ (9,266,898) $ (7,140) $ 32,201,862
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEAR ENDED MARCH 31, 1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income (loss) $ (610,561) $ 43,549 $ 725,739
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation, depletion and amortization 708,933 659,820 437,676
Gain on sale of subsidiary (330,856) - -
Writedown of investments 217,438 - 385,966
Net fee on sale of intangible assets - - (911,700)
(Gain) loss on sale of marketable securities 113,074 (24,996) (786,975)
Stock issued for services 50,837 131,871 -
Changes in operating assets and liabilities:
Accounts receivable 770,058 (1,153,551) 681,587
Other current assets 82,881 (140,437) 190,515
Accounts payable (633,403) 1,021,449 (507,304)
Accrued expenses 39,228 (52,521) (45,796)
- - --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 407,629 485,184 169,708
- - --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities - (5,281,930) (9,056,848)
Sale of marketable securities 2,014,708 10,204,140 12,683,363
Purchase of property and equipment (6,844,206) (6,278,393) (5,864,553)
Proceeds from sale of oil and gas assets
and support equipment 1,324,390 1,125,875 549,861
Proceeds from sale of intangible assets - - 1,300,000
Restricted cash (144,307) (165,405) (23,633)
Change in production revenue escrow 144,307 158,655 24,963
Change in other assets 546,843 (69,821) (175,997)
- - --------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,958,265) (306,879) (562,844)
- - --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable
preferred stock 3,685,532 - -
Dividends paid on preferred stock (94,167) - -
Proceeds from issuance of common stock - net 77,584 47,117 295,014
Net proceeds from long-term debt 750,000 - 2,000,000
Principal payments on long-term debt (750,000) - (2,000,000)
Debt issue costs (57,541) (33,689) (17,477)
Change in cash held from operating oil and gas properties 23,964 228,071 110,297
- - --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,635,372 241,499 387,834
- - --------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 23,148 (1,081) (241,647)
- - --------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,107,884 418,723 (246,949)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 930,273 511,550 758,499
- - --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 2,038,157 $ 930,273 $511,550
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-6
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING POLICIES
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
CONSOLIDATION The financial statements include the accounts of Evergreen
Resources, Inc. (ERI) and its wholly-owned subsidiaries;
Evergreen Operating Corporation (EOC), Evergreen Resources
(UK) Ltd, and Evergreen Operating Limited (EOL). Primero
Gas Gathering, Co. (Primero), a 50% owned subsidiary, is
recorded on a pro-rata consolidation basis. Primero, prior
to December 31, 1994, was a developmental stage enterprise.
The companies are engaged in the operation, acquisition,
exploration and development of oil and gas properties. All
significant intercompany balances and transactions have been
eliminated in consolidation.
CONCENTRATIONS OF The Company's financial instruments that are exposed
CREDIT RISK to concentrations of credit risk consist primarily of cash
equivalents and marketable equity securities.
The Company's cash and cash equivalents and marketable
equity securities are placed with major financial
institutions. Marketable equity securities consisted of
preferred stocks. The investment policy limits the
Company's exposure to concentrations of credit risk.
OIL AND GAS The Company follows the full-cost method of accounting
PROPERTIES 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. If the net investment in oil
and gas properties exceeds an amount equal to the sum of (1)
the standardized measure of discounted future net cash flows
from proved reserves (see Note 12), and (2) the lower of
cost or fair market value of properties in process of
development and unexplored acreage, the excess is charged to
expense as additional depletion. 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 their
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.
F-7
EVERGREEN RESOURCES, INC
SUMMARY OF ACCOUNTING POLICIES
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Restricted cash and production and ad valorem tax payable
represent amounts withheld from revenue for subsequent
distribution to county taxation authorities.
SUPPORT EQUIPMENT Depreciation of support equipment and other property is
computed using accelerated methods over periods ranging from
five to twenty-two years.
INCOME TAXES The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting forIncome Taxes" which requires the use of the
"liability method". Accordingly, deferred tax liabilities
and assets are determined based on the temporary differences
between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse.
NET INCOME (LOSS) Net income (loss) per common share has been computed
PER SHARE by dividing net income (loss), after reduction for preferred
stock dividends, by the weighted average number of common
shares and common share equivalents outstanding during each
of the periods presented. Options to purchase stock are
included as common stock equivalents when dilutive. In
1994, common stock equivalents of 221,029 shares related to
options are included in the weighted average number of
common shares outstanding. Common stock equivalents and
fully diluted per share amounts are not presented in 1995
and 1993 as their affect is antidilutive.
CASH EQUIVALENTS The Company considers all highly liquid investments with an
original maturity of three months or less to be cash
equivalents.
FOREIGN CURRENCY The functional currency for the Company's foreign
TRANSLATION operations is the applicable local currency. The
translation of the applicable foreign currency into U.S.
dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date
and for revenue and expense accounts using a weighted
average exchange rate during the period. The gains or
losses resulting from such translation are included in
stockholders' equity.
RECLASSIFICATIONS Certain items included in prior years financial statements
have been reclassified to conform to current year
presentation.
F-8
EVERGREEN RESOURCES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OTHER ASSETS Other assets consisted of the following:
March 31, 1995 1994
-----------------------------------------------------------
Organization costs - net $ 162,845 $ 111,272
Officers life insurance,
cash surrender value 146,069 114,077
Property held for sale 119,101 338,105
Debt issue costs - net 72,256 59,129
Deposits and other 157,302 29,831
Investment in joint venture - 366,172
-----------------------------------------------------------
$ 657,573 $1,018,586
-----------------------------------------------------------
-----------------------------------------------------------
The property held for sale represents a non-producing
feldspar mine carried at the lower of cost or estimated
realizable value.
2. FINANCING The Company has a $7,500,000 revolving line of credit
AGREEMENTS with a bank. The available borrowing base at March 31, 1995
of $5,000,000 is derived from oil and gas reserves.
Interest on any borrowings outstanding is at 1% over the
bank's prime rate and is paid monthly. The line of credit
matures in August 1997. There are no restrictions
associated with advances under the line. An annual facility
fee of one-half of one percent 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.
During the year ended March 31, 1995, the average amount
outstanding under the line of credit was $187,671, and the
weighted average interest rate was 9.6%. The interest rate
was calculated by dividing the applicable interest expense
by the average outstanding balance. The maximum amount
borrowed during the year ended March 31, 1995 was $750,000.
No amounts were outstanding under the line of credit at any
time during the year ended March 31, 1994.
F-9
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
3. INCOME TAXES Due primarily to the availability of net operating
loss carryovers, the Company had no significant
taxable income during the years ended March 31, 1995,
1994 and 1993.
A reconciliation of the effective tax rates and the
statutory U.S. federal income tax rates is as follows:
1995 1994 1993
-------------------------------------------------------------------------------------
Percent of pre-tax income
tax at U.S. federal
statutory rates (34.0%) 34.0% 34.0%
State income taxes, net
of federal tax benefit (3.3) 3.3 3.3
Expenses not deductible
for taxes 2.2 1.8 -
Increase in deferred
tax asset valuation
allowance 35.1 (39.1) -
Utilization of net operating
loss carryforward - - (37.3)
---------------------------------------------------------------------------------------
Effective tax rate -% -% -%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
The components of the net deferred income tax in the
accompanying balance sheets are as follows:
1995 1994
-------------------------------------------------------------------------------------
Deferred tax assets $1,224,000 $ 370,000
Valuation allowance (1,224,000) (370,000)
-------------------------------------------------------------------------------------
Net deferred tax asset $ - $ -
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
The Company recorded a valuation allowance at March
31, 1995 and 1994 equal to the excess of deferred tax
assets over deferred tax liabilities as they are
unable to determine that these tax benefits are more
likely than not to be realized.
F-10
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax assets and
liabilities are shown below:
1995 1994
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Net operating loss
carryforward $ 3,680,000 $ 2,767,000
Revenues and other 9,000 433,000
- - -------------------------------------------------------------------------------
Total gross deferred tax assets 3,689,000 3,200,000
Valuation allowance (1,224,000) (370,000)
- - -------------------------------------------------------------------------------
Net deferred tax asset 2,465,000 2,830,000
Deferred tax liability - depreciation,
depletion and amortization (2,465,000) (2,830,000)
- - -------------------------------------------------------------------------------
Net deferred taxes $ - $ -
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
As of March 31, 1995, the Company has net operating loss
carryforwards for tax purposes of approximately $9,950,000.
Issuances of common stock and common stock equivalents
during 1988 and 1990 limits a portion of this amount to
approximately $330,000 per year (additional amounts would be
available to offset gains on the sale of assets) through
2003. In addition, unused investment tax credits of $89,000
are available to offset income taxes payable through 2001.
4. REDEEMABLE In December 1994, the Company issued $3,750,000 in
PREFERRED STOCK redeemable preferred stock. Terms of another $3.75 million
have been agreed to and if not consummated by the Company,
the holders may exercise 450,000 stock purchase warrants.
All outstanding shares of the preferred stock must be
redeemed by Evergreen on the tenth anniversary of the
original issuance at par value, plus accrued dividends.
Commencing at the end of year five, the Company is required
to fund an annual mandatory sinking fund of $1,250,000. The
preferred stock is also callable at the Company's option at
a call price equal to par value, plus accrued dividends.
Cumulative annual cash dividends of 8% are payable
quarterly. During the year ended March 31, 1995, the Company
paid $94,167 in dividends. The preferred stock is
convertible at a price of $8.34 per share into 899,281
shares of the Company's common stock.
F-11
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCKHOLDERS' In August 1994, the Company issued 501,040 shares of common
EQUITY stock valued at 1,753,640 in exchange for certain working
interest in wells in the San Juan Basin in a non-cash
transaction.
During the year ended March 31, 1995, 31,250 shares of
common stock were issued under terms of options previously
granted, yielding proceeds to the Company of $78,125.
Additionally, the Company issued common stock valued at
$168,000 as a bonus to employees and $50,000 as payment in
lieu of salary.
In 1994, the Company issued common stock valued at $125,625
to the Employee Stock Ownership Plan and issued common stock
as a bonus valued at $176,313 to employees.
On March 30, 1993, the Company acquired all of the
outstanding common stock of JCI for 59,640 shares of the
Company's common stock, valued at $343,000, plus the
assumption of liabilities and other acquisition costs
totalling $57,721. The business combination was accounted
for under the purchase method of accounting.
6. STOCK OPTIONS Under the terms of its Key Employee Equity Plan, options are
granted to key employees at not less than the market price
of the Company's common stock on the date of grant. The
options expire in 1995 to 1998.
Exercise
Price
Options Per Share
-------------------------------------------------------
-------------------------------------------------------
March 31, 1992 376,0000 $2.50-4.35
Granted 152,500 8.75
Exercised (60,200) 2.50-4.35
-------------------------------------------------------
March 31, 1993 468,300 2.50-8.75
Granted 79,000 9.50
Exercised (18,750) 2.50
-------------------------------------------------------
March 31, 1994 528,550 2.50-9.50
Exercised (31,250) 2.50
-------------------------------------------------------
March 31, 1995 497,300 $2.50-9.50
-------------------------------------------------------
-------------------------------------------------------
F-12
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. MAJOR During the years ended March 31, 1995, 1994 and 1993, the
CUSTOMERS Company made sales to unrelated entities which individually
comprised greater than 10% of total oil and gas sales. Sales
to these entities were 34% and 10% in 1995; 14%, 16% and 18%
in 1994; 16%, 16% and 20% in 1993.
8. SUPPLEMENTAL Cash paid during the years ended March 31, 1995, 1994 and
DISCLOSURES OF 1993, for interest were Cash Flow approximately $22,000,
CASH FLOW $4,000 and $18,000. Information During the year ended March
INFORMATION 31, 1995, approximately $1,978,000 of common stock was
issued for services and acquisition of well interests. The
Company assumed approximately $267,000 in liabilities for
the acquisition of certain equipment. See Note 5 for
additional noncash transactions in 1995 and 1994.
9. Commitments The Company leases additional office space from an
affiliated entity under a month-to-month operating lease.
Rent expense was approximately $28,000 and $29,000 for
this facility in 1995 and 1994.
The Company leases its primary office space for
approximately $2,800 a month under a lease expiring in March
1995. Future minimum lease payments for this facility are
approximately $154,000 and $73,000 for the years ending
March 31, 1996 and 1997. Rental expense for all facilities
was approximately $177,000, $178,000 and $163,000 for the
years ended March 31, 1995, 1994 and 1993.
The Company has an Employee Stock Ownership Plan (ESOP),
with contributions to the ESOP determined at the discretion
of the Company. For the years ended March 31, 1995, 1994 and
1993, the Company contributed $0, $125,625 and $46,250 to
the plan.
Under the terms of certain gas gathering and tie-in
agreements, EOC is committed to meeting certain minimum
volume levels during the term of the agreement. Through
March 31, 1995, volume levels have been below the required
minimums and EOC has accrued approximately $856,000 for this
shortfall, which is included with long-term liabilities.
Such amount is refundable if future volumes exceed the
minimums and EOC is currently having discussions with the
owner of the system concerning obtaining additional volumes
or other possible alternatives.
F-13
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. OTHER INCOME Other income consisted of the following:
Year Ended March 31, 1995 1994 1993
------------------------------------------------------------------------
Net fee on sale of pipeline
rights-of-way $ - $ - $ 911,700
Gain on sale of marketable
securities 8,990 24,999 786,975
Gain on sales of subsidiary/assets 330,856 - -
Lawsuit settlement - 561,050 -
Other 120,102 56,579 9,000
$ 459,948 $ 642,628 $1,707,675
------------------------------------------------------------------------
------------------------------------------------------------------------
The income related to a lawsuit settlement for the year
ended March 31, 1994, represented the allocation of a
settlement to be received by JCI as a result of a dispute
with the purchaser regarding gathering fees.
Effective March 31, 1993, the Company received a fee for the
sale of intangible assets, specifically permits and rights-
of-way for the pipeline and assigned its remaining interest
in the pipeline and gathering systems to Associated Natural
Gas Corporation ("ANG"), of $911,700.
In December 1994, the Company sold certain assets and its
100% interest in JCI which had been acquired in March 1993.
Prior to the consummation of the sale, oil and gas
properties with a cost of approximately $300,000 were
transferred into JCI. The sales price was $1,000,000 cash
and a gain of approximately $331,000 was recognized from the
transaction. Included in the group acquiring these
properties and JCI, was an affiliate of the Company, which
represented approximately 39% of the group.
11.RELATED PARTIES EOC provides well services to an affiliated entity for which
it receives fees pursuant to written operating agreements.
For the year ended March 31, 1995, such fees totalled
approximately $316,000. Additionally, EOC provides non-
operating services to two affiliates, as requested by them
for engineering, evaluation, acquisition and similar
services for which EOC was compensated approximately
$229,000 during the year ended March 31, 1995. As of
March 31, 1995, approximately $103,000 was payable but not
yet due to EOC from the affiliates for fees and other
services.
F-14
12. SUPPLEMENTAL The Company's oil and gas activities are conducted in the
INFORMATION OF United States and the United Kingdom. The following costs
OIL AND GAS were incurred in oil and gas acquisition, exploration,
PRODUCING development and producing activities at March 31:
ACTIVITIES
United United
States Kingdom Total
------------------------------------------------------------
1995
----
Acquisition costs:
Proved $1,753,640 $ - $ 1,753,640
Unproved - - -
Exploration 317,890 - 317,890
Development 1,565,690 1,841,964 3,407,654
1994
----
Acquisition costs:
Proved $ - $ - $ -
Unproved - - -
Exploration 4,176,809 - 4,176,809
Development 233,145 1,770,908 2,004,053
1993
----
Acquisition costs:
Proved $ 322,080 $ - $ 322,080
Unproved 427,410 - 427,410
Exploration - 561,763 561,763
Development 2,718,783 1,547,106 4,265,889
F-15
Aggregate capitalized costs and related accumulated
depreciation, depletion and amortization relating to oil and
gas producing activities at March 31 are as follows:
United United
States Kingdom Total
- - ----------------------------------------------------------------------------
1995
- - ----
Proved properties $ 33,442,534 $ - $ 33,442,534
Unproved properties 1,127,475 7,009,044 8,136,519
- - ---------------------------------------------------------------------------
34,570,009 7,009,044 41,579,053
Accumulated depletion,
depreciation and
amortization (10,776,960) - (10,776,960)
- - -----------------------------------------------------------------------------
Net capitalized costs $ 23,793,049 $ 7,009,044 $ 30,802,093
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
1994
- - ----
Proved properties $ 30,222,093 $ - $ 30,222,093
Unproved properties 710,696 5,167,080 5,877,776
- - -----------------------------------------------------------------------------
30,932,789 5,167,080 36,099,869
Accumulated depletion,
depreciation and
amortization (10,266,422) - (10,266,422)
- - -------------------------------------------------------------------------------
Net capitalized costs $ 20,666,367 $ 5,167,080 $ 25,833,447
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
F-16
Costs of oil and gas properties excluded from the
amortization base, at March 31, are as follows:
United United
States Kingdom Total
- - --------------------------------------------------------------------------
1995
- - ----
Leasehold costs $ 1,127,475 $ 2,225,064 $ 3,352,539
Development costs - 4,783,980 4,783,980
- - --------------------------------------------------------------------------
$ 1,127,475 $ 7,009,044 $ 8,136,519
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
1994
- - ----
Leasehold costs $ 710,696 $ 1,761,677 $ 2,472,373
Development costs - 3,405,403 3,405,403
- - --------------------------------------------------------------------------
$ 710,696 $ 5,167,080 $ 5,877,776
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
Depreciation and depletion per equivalent MCF amounted to
$.51 for each of the years ended March 31, 1995, 1994 and
1993.
Results of operations from United States production
activities for 1995, 1994 and 1993 are presented below in
accordance with Financial Accounting Standards No. 69,
"Disclosures About Oil and Gas Activities," which excludes
consideration of general and administrative, and interest
expense. There was no production activity in the United
Kingdom.
F-17
Year Ended March 31, 1995 1994 1993
- - ---------------------------------------------------------------------
Oil and gas sales $ 1,891,579 $ 2,207,102 $ 1,596,279
- - ---------------------------------------------------------------------
Production costs and
expenses 1,187,097 1,259,478 1,243,853
Depreciation and depletion 510,538 503,222 343,775
- - ---------------------------------------------------------------------
1,697,635 1,762,700 1,587,628
- - --------------------------------------------------------------------
Results of operations
from producing
activities (excluding
corporate overhead
and interest costs) $ 193,944 $ 444,402 $ 8,651
- - ---------------------------------------------------------------------
- - ---------------------------------------------------------------------
OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The estimates of the Company's proved reserves and related
future net cash flows that are presented in the following
tables are based upon estimates made by independent
petroleum engineering consultants for the United States
only. The Company is in the process of developing
properties in the United Kingdom and is unable to prepare
reserve information in this area. The Company's reserve
information was prepared as of March 31, 1995, 1994 and
1993. The Company cautions that there are many inherent
uncertainties in estimating proved reserve quantities,
projecting future production rates, and timing of
development expenditures. Accordingly, these estimates are
likely to change as future information becomes available.
Proved oil and gas reserves are the estimated quantities of
crude oil, condensate, natural gas and natural gas liquids
which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions.
F-18
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
Proved developed reserves are those reserves expected to be
recovered through existing wells, with existing equipment
and operating methods.
Estimated quantities of proved reserves and proved developed
reserves of crude oil and natural gas (all of which are
located within the United States), as well as the changes in
proved reserves, are as follows:
Oil and
Natural Gas Natural
Liquids Gas
Proved Reserves (bbls) (mcf)
- - -----------------------------------------------------------------------------
At March 31, 1992 2,524,300 23,192,900
Revisions of previous estimates (400) (4,419,700)
Extensions and discoveries - 3,500,200
Sales of reserves (2,600) (85,100)
Acquired reserves - 14,766,000
Production (63,400) (291,200)
- - ------------------------------------------------------------------------------
At March 31, 1993 2,457,900 36,663,100
Revisions of previous estimates (746,300) (9,275,000)
Extensions and discoveries - 24,903,900
Sales of reserves (11,000) (66,000)
Production (57,500) (637,900)
- - ------------------------------------------------------------------------------
At March 31, 1994 1,643,100 51,588,100
Revisions of previous estimates (609,333) (12,474,551)
Extensions and discoveries - 18,441,331
Sales of reserves (154,275) (3,891,051)
Purchases of reserves - 5,000,000
Production (36,624) (781,749)
- - ------------------------------------------------------------------------------
At March 31, 1995 842,868 57,882,080
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
F-19
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
Oil and
Natural Gas Natural
Liquids Gas
Proved Developed Reserves (bbls) (mcf)
---------------------------------------------------
March 31, 1993 488,400 27,880,200
March 31, 1994 349,600 23,721,000
March 31, 1995 289,814 18,007,267
The following table sets forth a standardized measure of the
estimated discounted future net cash flows attributable to
the Company's proved oil and gas reserves. Estimated future
cash inflows were computed by applying year-end prices of
oil and gas to the estimated future production of proved oil
and gas reserves at March 31, 1995, 1994 and 1993. The
future production and development cost represents the
estimated future expenditures to be incurred in developing
and producing the proved reserves, assuming continuation of
existing economic conditions. Future income tax expense was
computed by applying statutory income tax rates to the
difference between pretax net cash flows relating to the
Company's proved oil and gas reserves and the tax basis of
proved oil and gas properties and available operating loss
and excess statutory depletion carryovers, reduced by
investment tax and Section 29 credits.
In 1995, the Company determined that the likelihood of
paying income tax in the future was minimal due to net
operating losses and future drilling plans. As such, the
effects of income tax have been excluded from this
calculation.
F-20
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
Year Ended March 31, 1995 1994 1993
- - -------------------------------------------------------------------------------
Future cash inflows $ 86,666,340 $ 113,077,100 $ 113,504,200
Future cash outflows:
Production costs (20,671,010) (23,959,500) (29,145,000)
Development costs (9,460,563) (11,479,300) (10,632,800)
- - -------------------------------------------------------------------------------
Future net cash flows before
future income taxes 56,534,767 77,638,300 73,726,400
Future income taxes - (16,117,900) (11,973,100)
- - -------------------------------------------------------------------------------
Future net cash flows 56,534,767 61,520,400 61,753,300
Effect of discounting future
annual net cash flows at
10% (33,222,437) (35,811,500) (32,350,000)
- - -------------------------------------------------------------------------------
Standardized measure of
discounted future net cash
flows $23,312,330 $ 25,708,900 $29,403,300
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
F-21
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
The following summarizes the principal factors comprising
the changes in the standardized measure of discounted
future net cash flows for the years ended March 31, 1995,
1994 and 1993:
Year Ended March 31, 1995 1994 1993
- - -----------------------------------------------------------------------------
Standardized measure,
beginning of period $ 25,708,900 $ 29,403,300 $15,647,600
Sales of oil and gas, net
of production costs (704,482) (947,600) (352,400)
Extensions and discoveries 6,110,521 11,419,300 2,076,400
Net change in sales prices,
net of production costs (9,124,599) (2,921,300) 2,879,200
Purchase of reserves 2,073,694 - 11,292,300
Sale of reserves (2,901,095) (75,900) (49,500)
Revisions of quantity
estimates (9,536,000) (12,854,000) (2,525,000)
Accretion of discount 3,244,380 3,510,300 1,896,900
Net change in income taxes 6,735,546 (1,034,800) (2,378,800)
Changes in future
development costs 3,628,111 - -
Changes in rates of
production and other (1,922,652) (790,400) 916,600
Standardized measure,
end of period $ 23,312,324 $25,708,900 $29,403,300
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
F-22