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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-3880
TOM BROWN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-1949781
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 2608
500 EMPIRE PLAZA BLDG.
MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip Code)
915-682-9715
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE, AND PREFERRED SHARE PURCHASE RIGHTS
(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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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/
The aggregate market value of the Registrant's Common Stock held by
non-affiliates (based upon the closing price of $14.75 per share as quoted on
the NASDAQ National Market System) on March 20, 1995 was approximately
$229,054,000.
As of March 20, 1995, there were 15,529,079 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for the 1995 Annual
Meeting of Stockholders to be held on May 17, 1995 are incorporated by reference
into Part III.
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TOM BROWN, INC.
FORM 10-K
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I
------
Item 1. Business.............................................. 3
Item 2. Properties............................................ 8
Item 3. Legal Proceedings..................................... 11
Item 4. Submission of Matters to a Vote of
Security Holders............................... 12
Part II
-------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................ 13
Item 6. Selected Financial Data............................... 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations.................................. 15
Item 8. Financial Statements and Supplementary Data........... 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 43
Part III
--------
Item 10. Directors and Executive Officers of the
Registrant..................................... 43
Item 11. Executive Compensation................................ 43
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................... 43
Item 13. Certain Relationships and Related Transactions........ 43
Part IV
-------
Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K........................ 44
Signatures............................................................. 51
</TABLE>
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PART I
Item 1. BUSINESS
GENERAL
Tom Brown, Inc. (the "Company") was organized as a Nevada corporation in
1931 under the name Gold Metals Consolidated Mining Company. The name of the
Company was changed to Tom Brown Drilling Company, Inc. in 1968 and to Tom
Brown, Inc. in 1971. In April 1987, the Company changed its state of
incorporation from Nevada to Delaware. The executive offices of the Company are
located at 500 Empire Plaza, Midland, Texas 79701 and its telephone number at
that address is (915) 682-9715. Unless the context otherwise requires, all
references to the "Company" include Tom Brown, Inc. and its subsidiaries.
The Company is engaged primarily in the domestic exploration for, and the
acquisition, development, production and sale of, natural gas and crude oil.
The Company's activities are conducted principally in the Wind River Basin of
Wyoming, the Permian Basin of west Texas and the Arkoma Basin of western
Arkansas. The Company also, to a lesser extent, conducts exploration and
development activities in other areas of the continental United States.
The Company's only industry segment is the exploration for, and the
acquisition, development, production, marketing and sale of, natural gas and
crude oil.
Except for its gas and oil leases with domestic governmental entities and
other third parties who enter into gas and oil leases or assignments with the
Company in the regular course of its business, the Company has no material
patents, licenses, franchises or concessions which it considers significant to
its gas and oil operations.
The nature of the Company's business is such that it does not maintain or
require a "backlog" of products, customer orders or inventory.
The Company's gas and oil 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.
CUSTOMERS AND MARKETS
Substantially all of the Company's gas and oil production is sold at the
well site on an "as produced" basis.
During the year ended December 31, 1994, two purchasers, Montana-Dakota
Utilities Co. and KN Gas Marketing, Inc., accounted for 13% and 12%,
respectively, of the Company's total gas and oil sales and marketing, gathering
and processing revenues for such period. Because there are numerous other
companies available to purchase the Company's production, the Company believes
the loss of these purchasers would not materially affect its ability to sell
natural gas or crude oil.
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Prior to 1993, the Company's natural gas production from the Wind River
Basin was restricted as a result of only one pipeline being situated within the
immediate vicinity of the Company's wells. In November 1992, Retex Gathering
Company, Inc., a wholly- owned subsidiary of the Company, entered into a joint
venture with a wholly-owned subsidiary of KN Energy, Inc. to acquire
approximately 110 miles of natural gas pipeline, gathering system and related
field facilities from Williston Basin Interstate Pipeline ("WBI") (the
"Williston Pipeline Acquisition"). The Company and KN Energy, Inc. have 45%
and 55% interests in the joint venture, respectively. The Williston Pipeline
Acquisition was completed on June 2, 1993, and the Company's share of the total
acquisition cost and related expenditures was approximately $2.2 million. Under
the terms of the joint venture agreement, the parties have agreed on the
charges to be paid by the Company for utilization of the pipeline as well as
access for gas deliverability. The Company believes that the Williston
Pipeline Acquisition and the resulting interconnection with other major
interstate pipelines have greatly enhanced the marketability of the Company's
natural gas production.
In 1992, its wholly-owned subsidiary, Retex Gathering Company, Inc., was
established for the expressed purpose of marketing, gathering and processing
the Company's and third parties' produced natural gas.
VOLUMES AND PRICES
The following table sets forth certain information regarding the Company's
volumes and average prices received associated with its sales of natural gas
and crude oil for the years ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net Production
Natural Gas (MMcf) 7,087 7,041 4,393
Crude Oil (MBbls) 276 317 377
Net Average Daily
Production Volumes
Natural Gas (Mcf) 19,416 19,290 12,002
Crude Oil (Bbls) 756 868 1,030
Sales Prices
Natural Gas ($/Mcf) $ 1.62 1.76 1.81
Crude Oil ($/Bbl) $ 15.73 16.91 19.19
</TABLE>
________________
"MMcf" means one million cubic feet.
"MBbls" means one thousand barrels.
"Mcf" means one thousand cubic feet.
"Bbls" means barrels.
COMPETITION
The Company encounters strong competition from major oil companies and
independent operators in acquiring properties and leases for the exploration
for, and production of, natural gas and crude oil. Competition is particularly
intense with respect to the acquisition of desirable undeveloped gas and oil
leases. The principal
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competitive factors in the acquisition of such undeveloped gas and oil leases
include the availability and quality of staff and data necessary to identify,
investigate and purchase such leases, and the financial resources necessary to
acquire and develop such leases. Many of the Company's competitors have
financial resources, staffs and facilities substantially greater than those of
the Company. In addition, the producing, processing and marketing of natural
gas and crude oil is affected by a number of factors which are beyond the
control of the Company, the effect of which cannot be accurately predicted.
The principal raw materials and resources necessary for the exploration and
development of natural gas and crude oil are leasehold prospects under which
gas and oil reserves may be discovered, drilling rigs and related equipment to
drill for and produce such reserves and knowledgeable personnel to conduct all
phases of gas and oil operations. The Company must compete for such raw
materials and resources with both major oil companies and independent
operators.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Executive Officer
Name Age Position with Company Since
---- --- --------------------- -----------------
<S> <C> <C> <C>
Donald L. Evans 48 Chairman of the Board, President
and Chief Executive Officer 1976
Peter R. Scherer 38 Executive Vice President 1986
Clifford C. Drescher 42 Vice President - Operations 1991
Clark A. Mueller 64 Vice President - Exploration 1986
R. Kim Harris 38 Controller 1986
B. Jack Reed 45 Treasurer 1990
James M. Alsup 58 Secretary 1973
</TABLE>
Each executive officer is elected annually by the Company's Board of
Directors to serve at the Board's discretion and until their respective
successors in office are elected and qualified.
EMPLOYEES
At December 31, 1994, the Company had 62 employees.
REGULATION
Regulation of Gas and Oil Production. Gas and oil production operations
are subject to various types of regulation by state and federal agencies.
Legislation affecting the gas and oil industry is under constant review for
amendment or expansion. Also, numerous departments and agencies, both federal
and state, are authorized by statute to issue rules and regulations binding on
the gas and oil
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industry and its individual members, some of which carry substantial penalties
for failure to comply. The regulatory burden on the gas and oil industry
increases the Company's cost of doing business and, consequently, affects its
profitability.
Gas Price Controls. Prior to January 1993, certain natural gas sold by
the Company was subject to regulation by the Federal Energy Regulatory
Commission ("FERC") under the Natural Gas Act of 1938 and the Natural Gas
Policy Act of 1978 ("NGPA"). The NGPA prescribed maximum lawful prices for
natural gas sales effective December 1, 1978. None of the maximum lawful
prices for natural gas set forth in the NGPA could have been collected absent
contractual authority to do so and only after necessary approvals from the
appropriate governmental agencies were obtained. The NGPA also established
phased-in deregulation of natural gas prices which has been further affected by
the Natural Gas Wellhead Decontrol Act of 1989. Effective January 1, 1993,
natural gas prices were completely deregulated and sales of the Company's
natural gas may be made at market prices. The majority of the Company's gas
sales contracts either contain decontrolled price provisions or already provide
for market prices.
In April 1992, FERC issued Order 636, a rule designed to restructure the
interstate natural gas transportation and marketing system to remove various
barriers and practices that have historically limited non-pipeline gas sellers,
including producers, from effectively competing with pipelines. The
restructuring process was implemented on a pipeline-by-pipeline basis through
negotiations in individual pipeline proceedings. Since the issuance of Order
636, FERC has issued several orders making minor modifications to Order 636.
Several parties have already filed for judicial review of the Order. Because
the restructuring requirements that emerge from the lengthy administrative and
judicial review process may be significantly different from those currently in
effect, and because implementation of the restructuring may vary by pipeline,
it is not possible to predict what, if any, effect the restructuring resulting
from Order 636 will have on the Company.
When it issued Order 636, FERC recognized that in an effort to enable
non-pipeline gas sellers to compete more effectively with pipelines, it should
not allow pipelines to be penalized by their existing contracts which require
the pipelines to pay above-market prices for natural gas. FERC recognized that
it did not have authority to nullify these contracts, and instead encouraged
pipelines and producers to negotiate in good faith to terminate or amend these
contracts to conform them with market conditions. Under Order 636, a pipeline
company is permitted to pass through to certain of its customers the costs
incurred by the pipeline in terminating or amending these agreements as
"transition costs". Order 636 allows customers to challenge these costs, in
which case the pipeline will be permitted to pass through costs only to the
extent the pipeline establishes at a FERC hearing, among other things, that the
contract was prudent at the time it was entered into, that the costs incurred
in the settlement were prudent and that the costs were incurred solely in
response to Order 636.
Oil Price Controls. Sales of crude oil, condensate and gas liquids by the
Company are not regulated and are made at market prices.
State Regulation of Gas and Oil Production. States in which the Company
conducts its gas and oil activities regulate the production and sale of natural
gas and crude oil, including requirements for obtaining drilling permits, the
method of
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developing new fields, the spacing and operation of wells and the prevention of
waste of gas and oil resources. In addition, most states regulate the rate of
production and may establish maximum daily production allowables for wells on a
market demand or conservation basis.
Environmental Regulation. The Company's activities are subject to federal
and state laws and regulations governing environmental quality and pollution
control. The existence of such regulations has had no material effect on the
Company's operations and the cost of such compliance has not been material to
date. However, the Company believes that the gas and oil industry may
experience increasing liabilities and risks under the Comprehensive
Environmental Response, Compensation and Liability Act, as well as other
federal, state and local environmental laws, as a result of increased
enforcement of environmental laws by various regulatory agencies. As an
"owner" or "operator" of property where hazardous materials may exist or be
present, the Company, like all others in the petroleum industry, could be
liable for fines and/or "clean-up" costs, regardless of whether the Company was
responsible for the release of any hazardous substances.
Rocno Corporation, a wholly-owned subsidiary of the Company, was named as a
defendant in a Complaint filed by the United States on behalf of the
Environmental Protection Agency ("EPA") and has, along with approximately 117
other defendants, entered into a Consent Decree with the United States,
pursuant to which the defendant companies will carry out a clean-up plan. See
Item 3, Legal Proceedings.
In September 1992, the Company received notification that it, as parent
company of Specialty Research and Sales, Inc. ("SRS"), had been named by the
EPA as a potentially responsible party ("PRP") in the Odessa Drum Company, Inc.
Superfund Site. The assets of SRS were sold in 1984 to a company which was also
named as a PRP. The Company was released from its liability in November, 1994
under a de minimis settlement that required payment from the Company of
approximately $800.
Indian Lands. The Company's Muddy Ridge and Pavillion fields are located
on the Wind River Indian Reservation. The Shoshone and Arapaho Tribes regulate
certain aspects of the production and sale of natural gas and crude oil,
drilling operations, and the operation of wells and levy taxes on the
production of hydrocarbons. The Bureau of Indian Affairs and the Minerals
Management Service of the United States Department of the Interior perform
certain regulatory functions relating to operation of Indian gas and oil
leases. The Company owns interests in three leases in the Pavillion Field
which were issued pursuant to the provisions of the Act of August 21, 1916, for
initial terms of 20 years each, with a preferential right by the lessee to
renew the leases for subsequent ten-year terms. The leases were renewed for
ten-year terms in 1992, effective as of June 1, 1993.
In November 1993 and December 1994, the Company and the Shoshone and
Northern Arapaho Tribes finalized the negotiations of five gas and oil option
agreements, which in addition to one acquired earlier in 1993, encompass
approximately 500,000 gross acres (300,000 net acres) in Fremont County,
located in the Wind River Basin of Wyoming. The agreements, which were
approved by the Bureau of Indian Affairs, grant the Company the right to
explore for and develop gas and oil reserves on the option acreage over a ten
year period of time once the options are exercised.
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Item 2. PROPERTIES
GAS AND OIL PROPERTIES
The principal properties of the Company consist of developed and
undeveloped gas and oil leases. Generally, the terms of developed gas and oil
leaseholds are continuing and such leases remain in force by virtue of, and so
long as, production from lands under lease is maintained. Undeveloped gas and
oil leaseholds are generally for a primary term, such as five or ten years,
subject to maintenance with the payment of specified minimum delay rentals or
extension by production.
TITLE TO PROPERTIES
As is customary in the gas and oil industry, the Company makes only a
cursory review of title to undeveloped gas and oil leases at the time they are
acquired by the Company. However, before drilling commences, the Company
causes a thorough title search to be conducted, and any material defects in
title are remedied prior to the time actual drilling of a well on the lease
begins. The Company believes that it has good title to its gas and oil
properties, some of which are subject to immaterial encumbrances, easements and
restrictions. The gas and oil properties owned by the Company are also
typically subject to royalty and other similar non-cost bearing interests
customary in the industry. The Company does not believe that any of these
encumbrances or burdens materially affect the Company's ownership or use of its
properties.
ACREAGE
The following table sets forth the gross and net acres of developed and
undeveloped gas and oil leases held by the Company at December 31, 1994. The
Company's option acreage is excluded from this table.
<TABLE>
<CAPTION>
Developed Undeveloped
------------------------ -----------------------
Gross Net Gross Net
------ ------ ----- ------
<S> <C> <C> <C> <C>
Arkansas 29,614 13,165 8,812 3,675
Colorado 480 58 18,568 6,342
Kansas 3,583 2,312 160 40
Louisiana 2,535 190 - -
Michigan 333 129 - -
Montana 4,166 627 - -
New Mexico 12,106 2,228 3,560 2,188
North Dakota - - 40 40
Oklahoma 7,456 1,451 10,561 3,737
Texas 148,301 36,453 117,662 21,815
Wyoming 51,107 18,762 48,995 41,639
------- ------ ------- ------
Total 259,681 75,375 208,358 79,476
======= ====== ======= ======
</TABLE>
"Gross" acres refer to the number of acres in which the Company owns a
working interest. "Net" acres refer to the sum of the fractional working
interests owned by the Company in gross acres.
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GAS AND OIL RESERVES
Estimates of the Company's gas and oil reserves at December 31, 1994, 1993
and 1992, including future net revenues and the present value of future net
cash flows, were made by Williamson Petroleum Consultants, Inc., independent
petroleum consultants, in accordance with guidelines established by the
Securities and Exchange Commission ("SEC"). Estimates of gas and oil reserves
and their estimated values require numerous engineering assumptions as to the
productive capacity and production rates of existing geological formations and
require the use of certain SEC guidelines as to assumptions regarding costs to
be incurred in developing and producing reserves and prices to be realized from
the sale of future production. Accordingly, estimates of reserves and their
value are inherently imprecise and are subject to constant revision and change
and should not be construed as representing the actual quantities of future
production or cash flows to be realized from the Company's gas and oil
properties or the fair market value of such properties.
Certain additional unaudited information regarding the Company's reserves,
including the present value of future net cash flows, is set forth in note 10
of notes to consolidated financial statements included herein.
No major discovery or other favorable or adverse event has occurred since
December 31, 1994 which is believed to have caused a significant change in the
estimated proved gas and oil reserves of the Company.
The Company has no gas and oil reserves or production subject to long-term
supply or similar agreements with foreign governments or authorities.
Estimates of the Company's total proved gas and oil reserves have not been
filed with or included in reports to any federal authority or agency other than
the SEC.
PRODUCTION
The following table summarizes, for the periods indicated, the average
sales price per thousand cubic feet of natural gas and per barrel of oil and
the average production (lifting) cost per equivalent Mcf of production sold.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
Sales Price Sales Price Sales Price
----------- Lifting ----------- Lifting ----------- Lifting
Gas Oil Cost Gas Oil Cost Gas Oil Cost
--- --- ------- --- --- ------- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1.62 $15.73 $.69 $1.76 $16.91 $.78 $1.81 $19.19 $1.06
</TABLE>
Oil production is converted to equivalent Mcf at a rate of six Mcf of gas
per barrel of oil.
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PRODUCTIVE WELLS
The following table sets forth the gross and net productive gas and oil
wells in which the Company owned an interest at December 31, 1994.
<TABLE>
<CAPTION>
Productive Wells
--------------------------------------------
Gross Net
--------------- --------------------
Gas Oil Gas Oil
--- --- --- ---
<S> <C> <C> <C> <C>
Arkansas 83 - 23.97 -
Colorado 2 7 .08 1.06
Kansas 9 1 4.32 .25
Louisiana 10 2 .49 .10
Michigan - 4 - -
Montana - 7 - .94
New Mexico 8 42 1.19 4.48
North Dakota - 9 - .09
Oklahoma 43 13 3.66 .52
Texas 37 442 9.47 140.76
Wyoming 71 16 29.50 3.35
--- --- ----- ------
263 543 72.68 151.55
=== === ===== ======
</TABLE>
A "gross" well is a well in which the Company owns a working interest.
"Net" wells refer to the sum of the fractional working interests owned by the
Company in gross wells.
GAS AND OIL DRILLING ACTIVITY
The following table sets forth the Company's gross and net interests in
exploratory and development wells drilled during the periods indicated.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
Type of well Gross Net Gross Net Gross Net
------------ ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Gas 1 .3 1 .5 - -
Oil - - - - - -
Dry 1 .5 2 .6 - -
-- ---- -- --- -- ---
2 .8 3 1.1 - -
== ==== == === == ===
Development
Gas 19 8.2 14 2.8 13 2.5
Oil 2 1.0 6 1.6 3 .2
Dry 2 1.0 4 2.3 4 .5
-- ---- -- --- -- ---
23 10.2 24 6.7 20 3.2
== ==== == === == ===
</TABLE>
At December 31, 1994, 9 gross (4.0 net) development wells and 1 gross (.1
net) exploratory well were in various stages of drilling and completion in
Wyoming and Texas.
All of the Company's drilling activities are conducted on a contract basis
with independent drilling contractors. The Company owns no drilling equipment.
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OTHER PROPERTIES
The Company leases its home office facilities in Midland, Texas. The lease
covers approximately 24,000 square feet for a term of five years and expires
December 31, 1997.
The Company owns a 3,200 square foot office building located on a 2.94 acre
tract in Midland, Texas. The Company leased this building until December 31,
1993 at a rate of $750 per month and purchased it in December 1993 for $30,000.
The facility is used primarily for storage of pipe and oilfield equipment.
The Company also maintains smaller office facilities in Fort Smith,
Arkansas and Denver, Colorado, at monthly rates of $1,084 and $2,432,
respectively.
Item 3. LEGAL PROCEEDINGS
The Company is a defendant in several ordinary routine legal proceedings
incidental to its business which the Company believes will not have a
significant effect on its consolidated financial position or results of
operations.
In addition to ordinary routine legal proceedings incidental to the
Company's business, Rocno Corporation ("Rocno"), a wholly-owned subsidiary of
the Company, has been named as a defendant in a Complaint filed by the United
States of America which, among other things, alleges that Rocno, by contract,
agreement or otherwise, arranged for the disposal of "hazardous materials"
(within the meaning of the Comprehensive Environmental Response, Compensation
and Liability Act) in Waller County, Texas (the "Sheridan Superfund Site"). In
addition to Rocno, approximately 117 other companies were also named as
defendants in the same matter with similar allegations by the Government of the
release by them of hazardous materials at the Sheridan Superfund Site.
Effective August 31, 1989, Rocno and thirty-six of the parties executed the
Sheridan Site Trust Agreement (the "Trust") for the purpose of creating a trust
to perform agreed upon remedial action at the Sheridan Superfund Site. In
connection with the establishment of the Trust, the parties to the Trust have
agreed to the terms of a Consent Decree entered December 3, 1991 in the United
States District Court, Southern District of Texas, Houston Division, Civil
Action No. H-91-3529, pursuant to which the companies joining the Consent
Decree will carry out the clean-up plan prescribed by the Consent Decree. The
Consent Decree has not yet been approved by the court. The estimate of the
total clean-up cost is approximately $30 million. Under terms of the Trust,
each party is allocated a percentage of costs necessary to fund the Trust for
clean- up costs. Rocno's proportionate share of the estimated clean-up costs
is 0.33% or $99,000, of which $16,000 has been paid, and the remainder has been
accrued in the Company's consolidated financial statements at December 31,
1994. If the clean-up costs exceed the projected amount, Rocno will be
required to pay its pro rata share of the excess clean-up costs.
In September 1992, the Company received notification from the Environmental
Protection Agency that it, as parent company for Specialty Research and Sales,
Inc. ("SRS"), was one of 276 companies named as a potentially responsible party
in the Odessa Drum Company, Inc. Superfund Site. The assets of SRS were sold
in 1984 to a non-affiliated company who was also named as a potentially
responsible party. The Company was released from its liability in November
1994 under a de minimis settlement that required payment from the Company of
approximately $800.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
appears on the NASDAQ National Market System under the symbol "TMBR". The
following table sets forth the range of high and low closing quotations for
each quarterly period during the past two fiscal years as reported by NASDAQ
National Market System. The quotations are inter-dealer prices without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Closing Sale Price
------------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1994 12 7/8 11
June 30, 1994 16 3/8 11 1/8
September 30, 1994 16 11 1/8
December 31, 1994 13 3/4 9 3/8
March 31, 1993 14 1/4 6 3/4
June 30, 1993 14 1/4 11 7/8
September 30, 1993 17 1/2 13 1/2
December 31, 1993 16 1/2 10 1/2
</TABLE>
On March 20, 1995, the closing price of the Company's Common Stock, as
reported by the NASDAQ National Market System, was $14.75 per share.
The transfer agent for the Company's Common Stock is First National Bank of
Boston, Boston, Massachusetts, effective February 20, 1995.
On December 31, 1994, the outstanding shares of the Company's Common Stock
(15,522,129 shares) were held by approximately 3,300 holders of record.
The Company has never declared or paid any cash dividends and has no
present intention to pay cash dividends in the future.
In June 1993, the Company completed a Common Stock offering. The total
number of shares offered was 5,200,000 shares of Common Stock of which the
Company offered 3,000,000 shares and The Prudential Insurance Company of
America ("Prudential") offered 2,200,000 shares. The shares were sold at
$12.00 per share and the Company's proceeds, net of an underwriting discount of
$1,890,000, were $34,110,000. A portion of these proceeds was used to repay
all of the Company's bank debt outstanding under its credit agreement. On July
8, 1993, a portion of the underwriters' over-allotment option was exercised
which allowed for the issuance of an additional 394,500 shares of Common Stock
by the Company. Net proceeds to the Company from the over-allotment were
$4,485,000. In connection with this offering, all of the outstanding
Non-voting Convertible 6% Cumulative Series A Preferred Stock ("Preferred
Stock") of the Company was converted to 4,400,000 shares of Common Stock of
which 2,200,000 were sold by Prudential.
On March 1, 1991, the Board of Directors adopted a Rights Plan designed to
help assure that all stockholders receive fair and equal treatment in the event
of a
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<PAGE> 14
hostile attempt to take over the Company, and to help guard against abusive
takeover tactics. The Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock.
The dividend was distributed on March 15, 1991 to the shareholders of record on
that date. Each Right entitles the registered holder to purchase, for the $20
per share exercise price, shares of Common Stock or other securities of the
Company (or, under certain circumstances, of the acquiring person) worth twice
the per share exercise price of the Right.
The Rights become exercisable on the date (the "Distribution Date") a
person or group acquires 20% or more of the Company's Common Stock or announces
a tender offer which would result in ownership by a person or group of 20% or
more of the Common Stock. The Rights will expire on March 15, 2001, unless
extended or redeemed earlier by the Company.
Item 6. SELECTED FINANCIAL DATA
The following tables set forth certain selected financial and statistical
information for the Company's continuing operations for the years ended
December 31, 1994, 1993, 1992 and 1991 and the nine months ended December 31,
1990 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Year ended Nine Months ended
December 31, December 31, 1990
---------------------------------- -----------------
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 29,071 28,708 18,597 18,928 15,317
======== ======= ====== ====== ======
Net loss $ (160) (2,318) (2,987) (6,536) (2,058)
======== ======= ====== ====== ======
Weighted average
number of common
shares outstanding 15,464 11,898 7,515 7,503 7,510
======== ======= ====== ====== ======
Net loss per
common share $ (.01) (.19) (.40) (.87) (.27)
======== ======= ====== ====== ======
Total assets $115,092 108,084 76,866 82,078 94,998
======== ======= ====== ====== ======
Long-term debt,
net of current
maturities $ - - 9,650 12,500 11,500
======== ======= ====== ====== ======
</TABLE>
___________________
(1) Certain reclassifications have been made to amounts reported in
previous years to conform to 1994 presentation. See notes
to consolidated financial statements.
-14-
<PAGE> 15
The following tables set forth certain information concerning the Company's
gas and oil sales volumes and proved reserves.
<TABLE>
<CAPTION>
Year ended Nine Months ended
December 31, December 31, 1990
---------------------------------- -----------------
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales:
------
Gas (MMcf) 7,087 7,041 4,393 3,016 2,395
Oil (MBbls) 276 317 377 559 431
Proved reserves
at period end:
---------------
Gas (MMcf) 180,306 130,995 104,955 74,317 81,334
Oil (MBbls) 4,522 3,300 3,803 5,558 7,079
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The factors which most significantly affect the Company's results of
operations are (1) the sales prices of natural gas and crude oil, (2) the level
of total sales volumes and (3) the level and success of exploration and
development activity.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
Selected Operating Data 1994 1993 1992
----------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues (in thousands):
Natural gas sales . . . . . . . . . . $ 11,451 12,399 7,948
Crude oil sales . . . . . . . . . . . 4,341 5,360 7,234
Gain (loss) on sales of gas and oil
properties . . . . . . . . . . . . 13 (21) (96)
Marketing, gathering and processing . 11,876 10,387 3,352
Interest income and other . . . . . . 1,390 583 159
-------- ------- ------
Total revenues . . . . . . . . . $ 29,071 28,708 18,597
======== ======= ======
Net loss (in thousands) . . . . . . . . $ (160) (2,318) (2,987)
Natural gas production (MMcf) . . . . . 7,347 7,157 4,393
Crude oil production (MBbls) . . . . . 276 317 377
Average natural gas sales price ($/Mcf) $1.62 1.76 1.81
Average crude oil sales price ($/Bbl) . $ 15.73 16.91 19.19
</TABLE>
Revenues. During 1994, revenues from gas and oil production decreased $2.0
million to $15.8 million as compared to the same period in 1993. A decrease in
average gas prices received by the Company from $1.76 per Mcf to $1.62 per Mcf
decreased revenues by approximately $1.0 million. A decrease in average oil
prices from $16.91 per Bbl to $15.73 per Bbl decreased revenue approximately
$.4 million. The decrease in oil sales volumes of 13% reduced revenues by
approximately $.6 million for 1994. Gas sales volumes remained constant.
-15-
<PAGE> 16
The decrease in oil sales volumes for the year ended December 31, 1994 as
compared to the same period in 1993 is due primarily to property sales
completed throughout 1993 and 1994. Natural gas sales volumes remained
constant as the Company increased its deliverability through its development
drilling in 1994 but curtailed portions of its production due to low natural
gas prices.
Marketing, gathering and processing revenues increased 14% in 1994 compared
to 1993 due to a full year of revenue in 1994 from the Company's interest in
the Williston pipeline which was acquired in June 1993.
Interest income and other revenues increased approximately $.8 million due
to interest income from excess cash retained from the Company's June 1993
Common Stock offering.
During 1993, revenues from gas and oil production increased $2.6 million to
$17.8 million as compared to the same period in 1992. A decrease in average
gas prices received by the Company from $1.81 per Mcf to $1.76 per Mcf
decreased revenues by approximately $.2 million. A decrease in the average oil
price from $19.19 per Bbl to $16.91 per Bbl decreased revenues by approximately
$.9 million. An increase in natural gas sales volumes of 63% increased
revenues by approximately $4.7 million. The decrease in oil sales volumes of
16% reduced revenues by approximately $1.0 million for 1993.
The decrease in oil sales volumes for the year ended December 31, 1993 as
compared to the same period in 1992 is due primarily to property sales
completed during the first quarter of 1992. The increase in natural gas sales
volumes for 1993 as compared to 1992 was attributable to the Company's decision
to increase production from the Wind River Basin of Wyoming, which, until late
1992, had been under a self-imposed curtailment. Contributing to the decision
to increase production were reduced transportation tariffs in certain key
market areas and a general increase in demand for natural gas.
Marketing, gathering and processing revenues increased 210% in 1993
compared to 1992 due to the start up in October 1992 of the marketing
subsidiary, Retex Gathering Company, Inc. ("Retex").
Costs and Expenses. Costs and expenses for 1994 decreased 6% to $29.0
million as compared to 1993. Gas and oil production expenses decreased $.8
million which reflects the Company's disposition of certain high-cost oil
producing properties in 1994. Taxes on gas and oil production decreased $.2
million as a result of decreased oil production levels. Cost of gas sold
increased 21% in 1994 compared to 1993 reflecting a higher level of gas
purchased in 1993 by Retex. Exploration costs increased $.7 million as a
result of exploratory 3-D seismic costs in 1994. Impairments of leasehold costs
decreased $.6 million as a result of the write down of an uneconomic oil
producing property in 1993 due to low year end oil prices. General and
administrative expenses increased $.3 million primarily as a result of
increases in insurance and salaries. Interest expense decreased $.3 million as
a result of the Company's debt repayment in June 1993.
Costs and expenses for 1993 increased 44% to $30.7 million as compared to
1992. Depreciation, depletion and amortization expense increased primarily as a
result of increased natural gas production and lower year-end reserve estimates
for certain oil
-16-
<PAGE> 17
producing properties caused in part by low year-end oil prices. Gas and oil
production expenses decreased $.8 million which reflect the Company's
disposition of certain high-cost oil producing properties in 1992. Taxes on
gas and oil production increased $.7 million as a result of increased natural
gas production levels. Cost of gas sold increased 192% in 1993 compared to
1992 due to the start up in October 1992 of Retex. Exploration costs increased
$.3 million as a result of increased exploratory activity in 1993. Impairments
of leasehold costs increased $1.2 million as a result of the write off of
certain non-strategic leases and the write down of an uneconomic oil producing
property due to low year end oil prices. General and administrative expenses
increased $.4 million as a result of increases in professional fees, insurance
and salaries.
The Company recorded non-cash option plan compensation expense of $.2
million, $2.9 million and $1.3 million in 1994, 1993 and 1992, respectively,
under certain stock option and phantom stock option plans due to an increase in
the market value of the Common Stock over the exercise prices of such options.
Compensation expense related to the option plans is based on the ratably vested
portion of the difference between the exercise prices and the market value of
the Common Stock. Certain changes to the option plans during 1993 eliminated
the need to recognize option plan compensation expense, except for some minor
vesting of previously incurred expense. The Company expects future non-cash
option plan compensation expense to total approximately $.1 million, which will
be recognized over the remaining vesting period of the options (approximately
two years).
The Company incurred a tax liability in the amount of $24,000, $129,000 and
$134,000 in 1994, 1993 and 1992, respectively, as a result of the application
of the alternate minimum tax rules as provided under the Internal Revenue Code.
The Company had not paid, prior to the year ended December 31, 1990, Federal
income taxes for the past six years due to its net operating loss carryforward.
At December 31, 1994, such carryforward for tax purposes was approximately
$71.8 million.
CAPITAL RESOURCES AND LIQUIDITY
The Company continues to operate under the strategy of maintaining a strong
balance sheet, adding value by increasing the Company's reserve base and
presence in significant natural gas areas and further developing the ability to
control and market the Company's production.
In June 1993, the Company completed a Common Stock offering. The total
number of shares offered was 5,200,000 shares of Common Stock of which the
Company offered 3,000,000 shares and Prudential offered 2,200,000 shares. The
shares were sold at $12.00 per share and the Company's proceeds, net of an
underwriting discount of $1,890,000, were $34,110,000. A portion of these
proceeds was used to repay all of the Company's debt outstanding under its debt
agreement. On July 8, 1993, a portion of the over-allotment option was
exercised which allowed for the issuance of an additional 394,500 shares of
Common Stock by the Company. Net proceeds from the over-allotment were
$4,485,000. In connection with this offering, all of the outstanding Preferred
Stock of the Company was converted to Common Stock.
Also in June 1993, a joint venture between a wholly-owned subsidiary of the
Company and a subsidiary of KN Energy, Inc., acquired approximately 110 miles
of natural gas pipeline and related field facilities from a third party. The
Company
-17-
<PAGE> 18
paid approximately $2.0 million for its 45% interest. The pipeline and related
facilities have further complemented the Company's ability to market its
natural gas production from the Wind River Basin of Wyoming.
In September 1993, the Company acquired a 50% working interest in
approximately 58,000 net acres in the Val Verde Basin of Texas for
approximately $1.6 million. The acreage purchase was in connection with the
Company's successful exploratory well completed in September 1993. The total
net acreage position held in this basin is approximately 65,000 acres, of which
the Company owns a 50% interest. The Company has drilled or participated in
the drilling of 20 wells in this area and results warrant additional spending
in 1995.
The Company's capital expenditures in 1994, 1993 and 1992 were $23.0
million, $12.3 million and $7.4 million, respectively. The increase during
1993 as compared to 1992 was primarily the result of additional drilling in
certain of the Company's principal natural gas areas and the acquisition of an
interest in a pipeline and related facilities. The increase during 1994 as
compared to 1993 was due primarily to the developmental drilling program in the
Val Verde Basin where approximately $11.0 million was incurred.
The level of capital expenditures by the Company will vary in future
periods depending on energy market conditions and other related economic
factors. The Company has no material long-term commitments. Consequently, the
Company is able to adjust the level of its expenditures as circumstances
warrant.
Historically, the Company has funded capital expenditures and working
capital requirements with both internally generated cash and borrowings. Net
cash provided by operating activities was $7.6 million for 1994, $9.7 million
for 1993 and $3.1 million for 1992. Net cash and cash equivalents decreased
$9.4 million for 1994, increased $27.4 million for 1993 and increased $.1
million for 1992.
The Company repaid all of its outstanding bank debt in June 1993 and
terminated its credit agreement effective December 31, 1993.
The Company continues to pursue opportunities which will add value by
increasing its reserve base and presence in significant natural gas areas and
further developing the Company's ability to control and market production of
natural gas. The Common Stock offering in June 1993 and the elimination of all
debt served to strengthen the Company's balance sheet. As the Company
continues to evaluate potential acquisitions and property development
opportunities, it will benefit from its cash position, financing flexibility
and the leverage potential of the Company's overall capital structure.
-18-
<PAGE> 19
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets,
December 31, 1994 and 1993
Consolidated Statements of Operations,
Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity,
Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows,
Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1994, 1993 and 1992
-19-
<PAGE> 20
Report of Independent Public Accountants
To the Stockholders and Board of Directors
of Tom Brown, Inc.:
We have audited the accompanying consolidated balance sheets of Tom Brown, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tom Brown, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 24, 1995
-20-
<PAGE> 21
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,147,000 $ 28,503,000
Accounts receivable, net of allowance
for doubtful accounts of $428,000
and $430,000, respectively 7,293,000 6,617,000
Accounts receivable - Wind River-Pavillion, Ltd. 1,038,000 56,000
Inventories 1,132,000 722,000
Other 178,000 182,000
------------ ------------
Total current assets 28,788,000 36,080,000
------------ ------------
Property and equipment, at cost:
Gas and oil properties, successful
efforts method of accounting 214,451,000 193,984,000
Other 10,954,000 9,901,000
------------ ------------
225,405,000 203,885,000
Less: Accumulated depreciation,
depletion and amortization 139,217,000 131,999,000
------------ ------------
Net property and equipment 86,188,000 71,886,000
------------ ------------
Other assets 116,000 118,000
------------ ------------
$115,092,000 $108,084,000
============ ============
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
-21-
<PAGE> 22
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1994 1993
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,161,000 $ 4,813,000
Accrued expenses 3,062,000 895,000
------------ ------------
Total current liabilities 12,223,000 5,708,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common Stock, $.10 par value.
Authorized 30,000,000 shares;
Outstanding 15,522,129 shares and
15,444,029 shares, respectively 1,552,000 1,544,000
Additional paid-in capital 177,350,000 176,705,000
Accumulated deficit (76,033,000) (75,873,000)
------------ ------------
Total stockholders' equity 102,869,000 102,376,000
------------ ------------
$115,092,000 $108,084,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE> 23
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gas and oil sales $15,792,000 $17,759,000 $15,182,000
Gain (loss) on sales of gas
and oil properties 13,000 (21,000) (96,000)
Marketing, gathering and
processing 11,876,000 10,387,000 3,352,000
Interest income and other 1,390,000 583,000 159,000
----------- ----------- -----------
Total revenues 29,071,000 28,708,000 18,597,000
----------- ----------- -----------
Costs and expenses:
Gas and oil production 4,130,000 4,899,000 5,676,000
Taxes on gas and oil production 1,869,000 2,074,000 1,389,000
Cost of gas sold 10,022,000 8,287,000 2,838,000
Exploration costs 1,184,000 440,000 190,000
Impairments of leasehold costs 910,000 1,462,000 267,000
General and administrative 3,339,000 3,047,000 2,599,000
Option plan compensation 207,000 2,879,000 1,250,000
Depreciation, depletion and
amortization 7,288,000 7,280,000 6,626,000
Interest expense 20,000 319,000 465,000
----------- ----------- -----------
Total costs and expenses 28,969,000 30,687,000 21,300,000
----------- ----------- -----------
Income (loss) before income
taxes 102,000 (1,979,000) (2,703,000)
Income tax expense 262,000 339,000 284,000
----------- ----------- -----------
Net loss $ (160,000) $(2,318,000) $(2,987,000)
=========== =========== ===========
Weighted average number of common
shares outstanding 15,463,678 11,897,601 7,515,061
=========== =========== ===========
Net loss per common share $ (.01) $ (.19) $ (.40)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 24
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in Accumulated Treasury Stockholders'
Stock Stock Capital Deficit Stock Equity
--------- ---------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1991 $ 110,000 $ 751,000 $134,563,000 $(70,568,000) $(38,000) $ 64,818,000
Stock options
exercised - 6,000 224,000 - - 230,000
Treasury stock
cancelled - (1,000) (37,000) - 38,000 -
Option plan
compensation - - 479,000 - - 479,000
Net loss - - - (2,987,000) - (2,987,000)
--------- ---------- ------------ ------------ -------- ------------
Balance at
December 31, 1992 110,000 756,000 135,229,000 (73,555,000) - 62,540,000
Preferred stock
conversion (110,000) 440,000 (330,000) - - -
Common stock
issuance - 339,000 38,256,000 - - 38,595,000
Stock issuance
costs - - (443,000) - - (443,000)
Stock options
exercised - 9,000 343,000 - - 352,000
Option plan
compensation - - 3,650,000 - - 3,650,000
Net loss - - - (2,318,000) - (2,318,000)
--------- ---------- ------------ ------------ -------- ------------
Balance at
December 31, 1993 - 1,544,000 176,705,000 (75,873,000) - 102,376,000
Stock options
exercised - 7,000 304,000 - - 311,000
Property
acquisition - 1,000 134,000 - - 135,000
Option plan
compensation - - 207,000 - - 207,000
Net loss - - - (160,000) - (160,000)
--------- ---------- ------------ ------------ -------- ------------
Balance at
December 31, 1994 $ - $1,552,000 $177,350,000 $(76,033,000) $ - $102,869,000
========= ========== ============ ============ ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE> 25
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (160,000) $(2,318,000) $(2,987,000)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation, depletion and
amortization 7,288,000 7,280,000 6,626,000
Loss (gain) on sales of assets (53,000) 21,000 49,000
Recoupment of deferred gas revenues - - (713,000)
Option plan compensation 207,000 2,879,000 1,250,000
Exploration costs 1,184,000 440,000 190,000
Impairments of leasehold costs 910,000 1,462,000 267,000
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable (1,682,000) (1,039,000) (1,354,000)
Decrease (increase) in
inventories (410,000) (487,000) 44,000
Decrease (increase) in
other current assets 4,000 (48,000) 31,000
Increase (decrease) in
accounts payable (21,000) 1,663,000 1,000
Increase (decrease) in accrued
expenses 327,000 (119,000) (260,000)
Decrease (increase) in other
assets 2,000 (10,000) 3,000
----------- ----------- ------------
Net cash provided by operating
activities $ 7,596,000 $ 9,724,000 $ 3,147,000
----------- ----------- ------------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
-25-
<PAGE> 26
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sales of assets $ 295,000 $ 405,000 $ 7,194,000
Capital and exploration expenditures (17,558,000) (11,575,000) (7,588,000)
------------ ------------ ------------
Net cash used in investing activities (17,263,000) (11,170,000) (394,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 38,595,000 -
Proceeds from issuance of long-term
debt - 4,650,000
Repayments of long-term debt - (12,250,000) (7,500,000)
Proceeds from exercise of stock
options 311,000 352,000 230,000
Stock issuance costs - (443,000) -
------------ ------------ ------------
Net cash provided by (used in)
financing activities 311,000 28,854,000 (2,620,000)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (9,356,000) 27,408,000 133,000
Cash and cash equivalents at
beginning of year 28,503,000 1,095,000 962,000
------------ ------------ ------------
Cash and cash equivalents at end
of year $ 19,147,000 $ 28,503,000 $ 1,095,000
============ ============ ============
Cash paid during the year for:
Interest $ 20,000 $ 377,000 $ 535,000
Income taxes 141,000 372,000 243,000
</TABLE>
See accompanying notes to consolidated financial statements.
-26-
<PAGE> 27
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts of
Tom Brown, Inc. and its wholly-owned subsidiaries (the Company). The Company
is engaged primarily in the acquisition, development, production, exploration
for and sale of natural gas and crude oil. The Company's proportionate share
of assets, liabilities, revenues and expenses associated with certain interests
in gas and oil partnerships is consolidated within the accompanying financial
statements. All significant intercompany accounts and transactions have been
eliminated. As a result of the increasing significance of the Company's gas
marketing, gathering and processing operations in Wyoming, prior year
marketing, gathering and processing revenues and costs have been reclassified
to conform to the current year separate segment presentation.
Cash Equivalents
The Company records as cash equivalents all highly liquid investments with
a maturity when purchased of three months or less.
Inventories
Inventories consist primarily of the cost of natural gas in storage and, to
a lesser extent, pipe and other production equipment. Inventories are stated
at the lower of cost (principally first-in, first-out) or estimated net
realizable value.
Property and Equipment
The Company accounts for its natural gas and crude oil exploration and
production activities under the successful efforts method of accounting. Costs
of productive wells, development dry holes and productive leases are
capitalized and amortized over the life of remaining proved reserves on a
field-by-field basis using the unit-of-production method. Estimated future
dismantlement, restoration and abandonment costs, net of salvage values, are
taken into account. Gas and oil lease acquisition costs are capitalized when
incurred. Unproved properties with significant acquisition costs are assessed
quarterly on a property-by-property basis and any impairment in value is
charged to expense. Unproved properties whose acquisition costs are not
individually significant are aggregated, and the portion of such costs
estimated to be nonproductive, based on historical experience, is amortized
over the average holding period. If the unproved properties are determined to
be productive, the appropriate related costs are transferred to proved gas and
oil properties.
Exploration costs, including geological and geophysical expenses and delay
rentals for gas and oil leases, are charged to expense as incurred.
Exploratory
-27-
<PAGE> 28
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
drilling costs are initially capitalized, but charged to expense if and when
the well is determined not to have found proved reserves. The Company has one
exploratory well in progress at December 31, 1994 and such costs of
approximately $1.0 million are classified as work- in-progress.
Other property and equipment is recorded at cost. Depreciation is computed
using the straight-line method based on estimated useful lives.
Maintenance and repairs are charged to expense; renewals and betterments
are charged to the appropriate property and equipment accounts. Upon
retirement or disposition of assets, the cost and related accumulated
depreciation are removed from the accounts with the resulting gains or losses,
if any, reflected in results of operations.
Natural Gas Revenues
The Company utilizes the accrual method of accounting for natural gas
revenues whereby revenues are recognized as the Company's entitlement share of
gas is produced based on its working interests in the properties.
Income Taxes
Effective January 1, 1993, the Company provides for income taxes using the
asset and liability method under which deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax laws or tax rates
is recognized in income in the period such changes are enacted.
Net Loss Per Common Share
Net loss per common share is based on the weighted average number of common
shares outstanding during each period. All common stock equivalents are
antidilutive for purposes of calculating the net loss per common share.
(2) Debt
The Company and a bank ("Bank") entered into an agreement, as amended,
("Agreement") which provided for a $20 million revolving line of credit
converting into a three-year term loan on December 31, 1993. Until December
31, 1993, amounts outstanding under the Agreement bore interest at a rate per
annum equal to three-fourths of one percent plus the greater of (a) the Bank's
prime lending rate or (b) one- half of one percent above the federal funds rate
or, at the Company's option, the Bank's eurodollar loan rate plus one and
one-half percent. The Company repaid all of its outstanding debt in June 1993
and cancelled the Agreement effective December 31, 1993.
-28-
<PAGE> 29
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes
The Company does not pay Federal income taxes due to its net operating loss
carryforward, but is required to pay taxes under the alternative minimum tax
("AMT"). This tax can be partially offset by an AMT net operating loss
carryforward.
A reconciliation of the Company's income tax expense calculated at the U.S.
Federal statutory rate of 34% of income (loss) before income taxes follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal income tax provision (benefit)
at statutory rate $ 35,000 $ (673,000) $ (919,000)
Deferred compensation 70,000 979,000 425,000
Utilization of net operating loss
carryforward (105,000) (306,000) 494,000
AMT at statutory rate 725,000 1,207,000 1,347,000
Utilization of AMT net operating loss
carryforward (657,000) (1,090,000) (1,207,000)
Overpayments (refunds) of AMT paid (44,000) 12,000 (6,000)
----------- ----------- -----------
AMT provision 24,000 129,000 134,000
State income and franchise taxes 238,000 210,000 150,000
----------- ----------- -----------
Income tax expense $ 262,000 $ 339,000 $ 284,000
=========== =========== ===========
</TABLE>
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (the
"Statement"). The Statement was adopted by the Company effective as of January
1, 1993. The Statement requires a balance sheet approach to the calculation of
deferred income taxes. The Company adopted the Statement cumulatively which
had no material impact on the Company's financial statements. The Statement
provides for, among other things, the recognition of deferred tax assets under
certain circumstances. The Company has significant net operating loss
carryforwards and, therefore, calculated a net deferred tax asset upon adoption
of the Statement. However, due to the Company's history of net operating
losses, a valuation allowance was recorded equal to the amount of the net
deferred tax asset.
-29-
<PAGE> 30
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
------------ -----------
<S> <C> <C>
Net operating loss carryforwards..................... $ 24,397,000 $ 24,598,000
Gas and oil acquisition, exploration and development
costs deducted for tax purposes in excess of book.. (12,734,000) (12,212,000)
Investment tax credit carryforwards.................. 6,183,000 6,853,000
Option plan compensation............................. 1,474,000 1,404,000
Other................................................ 1,649,000 1,547,000
------------ ------------
Net deferred tax asset............................. 20,969,000 22,190,000
Valuation allowance.................................. (20,969,000) (22,190,000)
------------ ------------
Recognized net deferred tax asset.................. $ - $ -
============ ============
</TABLE>
At December 31, 1994, the Company had investment tax credit carryforwards
of approximately $6.2 million and net operating loss carryforwards of
approximately $71.8 million. The Company currently has no liability for
deferred Federal income taxes because of these net operating loss and
investment tax credit carryforwards. Realization of the benefits of these
carryforwards is dependent upon the Company's ability to generate taxable
earnings in future periods. In addition, the availability of these
carryforwards is subject to various limitations. The remainder of the
carryforwards will expire between 1995 and 2004. Additionally, the Company has
approximately $3.7 million of statutory depletion carryforwards and $.25
million of AMT credit carryforwards that may be carried forward indefinitely.
(4) Stockholders' Equity
(a) Common Stock
In June 1993, the Company completed a Common Stock offering. The total
number of shares offered was 5,200,000 shares of Common Stock of which the
Company offered 3,000,000 shares and The Prudential Insurance Company of
America (a former preferred stockholder) offered 2,200,000 shares. The shares
were sold at $12.00 per share and the Company's proceeds, net of an
underwriting discount of $1,890,000, were $34,110,000. A portion of these
proceeds was used to repay all of the Company's debt outstanding under the
Agreement. On July 8, 1993, a portion of the underwriters' over-allotment
option was exercised which allowed for the issuance of an additional 394,500
shares of Common Stock by the Company. Net proceeds to the Company from the
over-allotment were $4,485,000. In connection with this offering, all of the
outstanding Preferred Stock of the Company was converted to Common Stock.
(b) Options and Stock Appreciation Rights
1986 Grant
The Company granted nonqualified stock options to certain key officers and
employees for various terms and at prices not less than the market value of the
shares
-30-
<PAGE> 31
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
at the date of the grant. The exercise prices of the options granted, which
originally were set at prices ranging from $5.682 per share to $7.50 per share,
were reduced effective September 4, 1991 to $4.00 per share, the market value
at that date. The options expire ten years from the date of grant. At December
31, 1994, 198,750 of such options are exercisable.
The following sets forth certain information concerning the options:
<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
--------- ------------
<S> <C> <C>
Outstanding December 31, 1991 303,500 $4.00
Exercised (54,250) 4.00
------- -----
Outstanding December 31, 1992 249,250 4.00
Exercised (38,250) 4.00
------- -----
Outstanding December 31, 1993 211,000 4.00
Exercised (1,750) 4.00
------- -----
Outstanding December 31, 1994 209,250 $4.00
======= =====
</TABLE>
1989 Plan
On September 28, 1990, shareholders approved the Company's 1989 Stock
Option Plan ("1989 Plan"). The aggregate number of shares of Common Stock that
may be issued under the 1989 Plan is 1,000,000 shares. The exercise price of
the options granted to employees and employee directors prior to 1991, which
was originally set at $5.25 per share, was reduced effective September 4, 1991
to $4.00 per share, the market value at that date. The options expire ten
years from the date of grant. At December 31, 1994, 348,950 of such options
are exercisable.
At December 31, 1992, certain of the options contained stock appreciation
rights ("SAR") which allowed for cash or Common Stock (or any combination
thereof) to be distributed in an amount equal to the difference between the
exercise price and the market value of the Common Stock on the exercise date in
lieu of purchasing shares of Common Stock. Effective December 31, 1992, the
Board of Directors amended the 1989 Plan to remove the SAR feature of these
options. Non-cash compensation expense related to the SAR feature in the
amount of $18,000, $40,000 and $479,000 was recorded for the years ended
December 31, 1994, 1993 and 1992, respectively, based on the ratably vested
portion of the difference between the exercise prices of the options and the
market value of the Common Stock at December 31, 1992. Non-cash compensation
expense totaling approximately $12,000 will be recognized ratably over the
remaining vesting period of outstanding options (approximately two years),
based on the difference between the exercise prices and the market value of the
Common Stock at December 31, 1992. At December 31, 1994, 476,750 options were
available for future grants. Of that amount, 465,000 options have been granted
since year end.
-31-
<PAGE> 32
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following sets forth certain information concerning the 1989 Plan
options:
<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
--------- ------------
<S> <C> <C>
Outstanding December 31, 1991 320,750 $ 3.625 - 5.25
Forfeited (25,000) 5.25
Exercised (3,200) 4.00
------- -----------------
Outstanding December 31, 1992 292,550 3.625 - 5.25
Granted 200,000 14.6875
Exercised (43,200) 3.625 - 4.00
------- -----------------
Outstanding December 31, 1993 449,350 3.625 - 14.6875
Granted 27,500 11.125 - 11.875
Exercised (33,600) 3.875 - 5.25
------- -----------------
Outstanding December 31, 1994 443,250 $ 3.625 - 14.6875
======= =================
</TABLE>
Phantom Stock Option Plans
In May 1990 and March 1992, the Board of Directors adopted the 1990 Phantom
Stock Option Plan and the 1992 Phantom Stock Option Plan for Non-employee
Directors (the "Phantom Plans"). A total of 447,000 units was outstanding
under the Phantom Plans at December 31, 1992. During 1993, these units were
surrendered in exchange for a like number of options under the Tom Brown, Inc.
1993 Stock Option Plan (the "1993 Plan") at the surrendered units' exercise
prices (see below). Non-cash compensation expense related to the units in the
amount of $189,000, $2,839,000 and $771,000 was recorded for the years ended
December 31, 1994, 1993 and 1992, respectively, based on the ratably vested
portion of the difference between the exercise prices and the market value of
the Common Stock at the surrender date. The cash distribution election
previously available to participants in the Phantom Plans has been cancelled.
Accordingly, all of the option plan compensation liability accrued at December
31, 1992 was reversed and credited to additional paid-in capital during 1993.
Non-cash compensation expense totaling approximately $.1 million will be
recognized ratably over the remaining vesting period of options granted
(approximately two years) in exchange for surrendered units, based on the
difference between the exercise price of the surrendered units and the market
value of the Common Stock on the date surrendered.
1993 Plan
In February 1993, the Board of Directors adopted the 1993 Plan. The 1993
Plan provides for issuance of options to certain employees and directors to
purchase shares of Common Stock. The aggregate number of shares of Common
Stock that may be issued under the 1993 Plan is 525,000 shares. The exercise
price, vesting and duration of the options may vary and will be determined at
the time of issuance. All employees and directors who were granted units
pursuant to the Phantom Plans surrendered those units for a like number of
options under the 1993 Plan at the surrendered units' exercise prices. At
December 31, 1994, 345,750 of such options are exercisable, and 18,000 options
were available for future grants.
-32-
<PAGE> 33
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following sets forth certain information concerning the 1993 Plan:
<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
--------- ------------
<S> <C> <C>
Outstanding December 31, 1992 - $ -
Granted 447,000 3.81 - 7.62
Exercised (8,000) 3.81
------- --------------
Outstanding December 31, 1993 439,000 3.81 - 7.62
Granted 60,000 11.875
Exercised (31,750) 3.81 - 7.62
------- --------------
Outstanding December 31, 1994 467,250 $3.81 - 11.875
======= ==============
</TABLE>
(c) ESOP and Profit Sharing Plan
Effective April 1, 1986, the Company adopted an employee stock ownership
plan (the "ESOP") for the benefit of all employees. Under the ESOP, the
Company may contribute cash or Common Stock of the Company to a trust in such
amounts as the Company deems advisable. The Company contributed $60,000,
$30,000 and $30,000 to the trust for 1994, 1993 and 1992, respectively, for the
purchase of 4,750, 2,530 and 3,200 shares of Common Stock.
Effective April 1, 1985, the Company adopted a profit sharing plan (the
"Profit Sharing Plan") for the benefit of all employees. Under the Profit
Sharing Plan, the Company may contribute to a trust either stock or cash in
such amounts as it may, from time to time, deem advisable. The Company did not
make a contribution to the Profit Sharing Plan for year 1994. The Company
contributed $30,000 for each of 1993 and 1992 to the Profit Sharing Plan.
Effective April 1, 1990, the Profit Sharing Plan was amended to provide for
voluntary employee contributions under Section 401(k) of the Internal Revenue
Code of 1986, as amended. Although contributions made by the Company are
deductible, employees will not include such contributions as income until such
time as they receive distributions. The Profit Sharing Plan was further
amended to provide employees with the ability to direct the Profit Sharing
Trustee to separate all or a portion of such employee's vested interest so that
each employee may give direct investment instructions to the Profit Sharing
Trustee.
(d) Common Shareholder Rights Plan
On March 1, 1991, the Board of Directors adopted a Rights Plan designed to
help assure that all stockholders receive fair and equal treatment in the event
of a hostile attempt to take over the Company, and to help guard against
abusive takeover tactics. The Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of Common
Stock. The dividend was distributed on March 15, 1991 to the shareholders of
record on that date. Each Right entitles the registered holder to purchase,
for the $20 per share exercise price, shares of Common Stock or other
securities of the Company (or, under certain
-33-
<PAGE> 34
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
circumstances, of the acquiring person) worth twice the per share exercise
price of the Right.
The Rights will be exercisable only if a person or group acquires 20% or
more of the Company's Common Stock or announces a tender offer which would
result in ownership by a person or group of 20% or more of the Common Stock.
The date on which the above occurs is to be known as the "Distribution Date".
The Rights are not exercisable until the Distribution Date. The Rights
will expire on March 15, 2001, unless extended or redeemed earlier by the
Company.
(5) Related Parties and Significant Customers
Certain of the Company's officers and directors participate (either
individually or indirectly through various entities) with the Company and other
unrelated investors in the drilling, development and operation of gas and oil
properties. Related party transactions are non-interest bearing and are
settled in the normal course of business with terms which, in management's
opinion, are similar to those with other joint owners.
The Company has engaged from time to time two law firms, one of whose
partner serves as a director and one of whose partner serves as an officer.
The amounts paid to each of these firms for the years ended December 31, 1994,
1993 and 1992 were $37,000 and $70,000, $215,000 and $53,000, and $131,000 and
$38,000, respectively. The Company also paid $35,000, $32,000 and $36,000
during the years ended December 31, 1994, 1993 and 1992, respectively, to a
consulting firm which has a partner who serves as a director of the Company.
The Company participates in exploration activity with a partnership, one of
whose partner is a director of the Company. During the year ended December 31,
1994, the Company paid $6,000 to such partnership for the Company's share of
certain leasehold costs.
In addition, certain officers and directors of the Company are directors of
a former subsidiary. The Company and the former subsidiary make available to
each other certain personnel, office services and records with each party being
reimbursed for costs and expenses incurred in connection therewith. During the
years ended December 31, 1994, 1993 and 1992, the Company charged the former
subsidiary approximately $64,000, $65,000 and $32,000, respectively, for such
services. The former subsidiary performs drilling services on certain wells
operated by the Company and charged approximately $1,322,000, $964,000 and
$29,000 for such services during the years ended December 31, 1994, 1993 and
1992, respectively. In management's opinion, the above described transactions
and services were provided on the same terms as could be obtained from
non-related sources.
Gas and oil sales to two purchasers, Montana-Dakota Utilities Co. and KN
Gas Marketing, Inc., accounted for 13% and 12%, respectively, of gas and oil
sales and
-34-
<PAGE> 35
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
marketing, gathering and processing revenues for the year ended December 31,
1994. For the year ended December 31, 1993, Western Gas Marketing, Inc. and
Scurlock Permian Corporation accounted for 12% and 10%, respectively, of gas
and oil sales and marketing, gathering and processing revenues. Because there
are numerous other parties available to purchase the Company's production, the
Company believes the loss of these purchasers would not materially affect its
ability to sell natural gas or crude oil.
Wind River-Pavillion, Ltd., a partnership wherein the Company has a 20%
interest, owns interests in the Company-operated Pavillion field in Wyoming.
At December 31, 1994, the partnership owed the Company $1,038,000 for drilling
costs and lease operating expenses.
(6) Property Acquisitions/Dispositions
In September 1993, the Company acquired a 50% working interest in
approximately 58,000 net acres in the Val Verde Basin of Texas for
approximately $1.6 million. The acreage purchase was in connection with the
Company's successful exploratory well completed in September. The total net
acreage position held in this basin is approximately 65,000 acres.
In June 1993, a joint venture between a wholly-owned subsidiary of the
Company and a subsidiary of KN Energy, Inc. acquired approximately 110 miles of
natural gas pipeline and related field facilities from a third party. The
Company paid approximately $2.0 million for its 45% interest. The pipeline and
related facilities will further complement the Company's ability to market its
natural gas production from the Wind River Basin of Wyoming.
In October 1992, the Company increased its interest in the Pavillion Field
with the acquisition of an additional 35% working interest for $3.4 million in
cash.
In March 1992, the Company completed the acquisition of natural gas
properties located in the Arkoma Basin for $1.2 million in cash and the
assumption of $.4 million in liabilities. The Company previously owned
interests in the properties purchased and operates twenty- nine of the wells
included in the acquisition.
In February 1992, the Company sold certain non-strategic oil and gas
properties in the Williston Basin of North Dakota and Montana for approximately
$7.0 million.
-35-
<PAGE> 36
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Segment Information
The Company operates in two reportable segments: oil and gas exploration
and development and marketing, gathering and processing. The segment results
are presented in the following schedule (in thousands):
<TABLE>
<CAPTION>
Oil & Gas Marketing,
Exploration Gathering
& & Intercompany
Development Processing Sales & Other Total
----------- ---------- ------------- -----
<S> <C> <C> <C> <C>
Year ended
December 31, 1994
-----------------
Assets $ 106,144 $ 8,948 $ - $ 115,092
Revenues 15,792 16,554 (3,275) 29,071
Income (loss) before taxes (1,414) 1,516 - 102
Capital expenditures 22,359 651 - 23,010
Depreciation and amortization 7,119 169 - 7,288
Year ended
December 31, 1993
-----------------
Assets $ 100,344 $ 7,740 $ - $ 108,084
Revenues 17,759 15,527 (4,578) 28,708
Income (loss) before taxes (3,719) 1,740 - (1,979)
Capital expenditures 10,107 2,234 - 12,341
Depreciation and amortization 7,172 108 - 7,280
Year ended
December 31, 1992
-----------------
Assets $ 74,693 $ 2,173 $ - $ 76,866
Revenues 15,182 4,155 (740) 18,597
Income (loss) before taxes (3,064) 361 - (2,703)
Capital expenditures 7,322 56 - 7,378
Depreciation and amortization 6,581 45 - 6,626
</TABLE>
(8) Commitments and Contingencies
The Company's operations are subject to numerous Federal and state
government regulations which may give rise to claims against the Company. In
addition, the Company is a defendant in various lawsuits generally incidental
to its business. The Company does not believe that the ultimate resolution of
such litigation will have a material adverse effect on the Company's financial
position or results of operations.
In November 1993, the Company and the Shoshone and Northern Arapaho Tribes
finalized the negotiations of four gas and oil option agreements, which in
addition
-36-
<PAGE> 37
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
to one acquired earlier in 1993, encompass approximately 431,000 gross acres
(259,000 net acres) in Fremont County, located in the Wind River Basin of
Wyoming. The agreements, which were approved by the Bureau of Indian Affairs,
grant the Company the right to explore for and develop gas and oil reserves on
the option acreage over a ten year period of time. The Company paid
approximately $.6 million for its share of this option.
Lease Commitments
At December 31, 1994, the Company had long-term leases covering certain of
its facilities and equipment. The minimum rental commitments under
non-cancelable operating leases with lease terms in excess of one year are
approximately $230,000, $183,000, $141,000, $8,000 and $600 for 1995, 1996,
1997, 1998 and 1999, respectively. Total rental expense incurred for the years
ended December 31, 1994, 1993 and 1992 was approximately $245,000, $239,000 and
$287,000, respectively, all of which represented minimum rentals under non-
cancelable operating leases.
Environmental Matters
A wholly-owned subsidiary of the Company is a party to an environmental
cleanup proceeding. The subsidiary's share of the estimated cleanup costs have
been accrued in the consolidated financial statements at December 31, 1994.
Based on the amount of remediation costs estimated for this site and the
Company's de minimis contribution, if any, the Company believes that the
outcome of this proceeding will not have a material adverse effect on its
financial position or results of operations.
In September 1992, the Company received notification that it, as parent
company for a former subsidiary, was one of 276 companies named as a
potentially responsible party in the Odessa Drum Company, Inc. Superfund Site.
The Company was released from its liability in November 1994 under a de minimis
settlement that required payment from the Company of approximately $800.
Concentration of Credit Risk
The Company's revenues are derived principally from uncollateralized sales
to customers in the gas and oil industry. The concentration of credit risk in
a single industry affects the Company's overall exposure to credit risk because
customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on such
receivables.
-37-
<PAGE> 38
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share amounts)
----------------------------------------------------
Year ended December 31, 1994
----------------------------------------------------
1st 2nd 3rd 4th Total
--- --- --- --- -----
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 9,536 7,741 5,034 6,760 $29,071
Gross profit (2) $ 3,804 3,143 2,097 2,602 $11,646
Net income (loss)(3) $ 574 731 (257) (1,208) $ (160)
Net income (loss)
per common share $ .04 .05 (.02) (.08) $ (.01)
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1993
---------------------------------------------------
1st 2nd 3rd 4th Total
--- --- --- --- -----
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 6,932 7,139 6,090 8,547 $28,708
Gross profit (2) $ 3,050 3,419 3,051 3,366 $12,886
Net income (loss)(3) $(2,095) 241 115 (579) $(2,318)
Net income (loss)
per common share $ (.28) .03 .01 (.04) $ (.19)
</TABLE>
__________________
(1) Certain reclassifications have been made to amounts reported in
previous periods to conform to the 1994 presentation.
(2) Gross Profit is computed as the excess of gas and oil revenues over
operating expenses. Operating expenses are those associated directly
with gas and oil revenues and include lease operations, gas and oil
related taxes and other expenses.
(3) The Company recognized compensation expense under certain stock option
and phantom stock option plans due to an increase in the market value
of the Company's Common Stock over the exercise prices of such
options. Such amounts were less than $.1 million for each quarter of
1994 for a total of $.2 million for the year. Such amounts were $2.3
million, $.4 million and $.2 million for the first, third and fourth
quarters of 1993, respectively. See Note 4 of Notes to Consolidated
Financial Statements.
-38-
<PAGE> 39
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Supplemental Information Related to Gas and Oil Activities (Unaudited)
Capitalized Costs and Costs Incurred
The following tables set forth certain historical costs and operating
information related to the Company's gas and oil producing activities:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
----------- -----------
<S> <C> <C>
Capitalized costs
-----------------
Proved gas and oil properties $ 212,218,000 $ 190,056,000
Unproved gas and oil properties 2,233,000 3,928,000
------------- -------------
Total gas and oil properties 214,451,000 193,984,000
Less: Accumulated depreciation,
depletion and amortization (132,512,000) (125,723,000)
------------- -------------
Net capitalized costs $ 81,939,000 $ 68,261,000
============= =============
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Costs incurred
--------------
Proved property
acquisition costs $ 256,000 $ 25,000 $5,060,000
Unproved property
acquisition costs 1,498,000 2,347,000 149,000
Exploration costs 3,177,000 1,825,000 190,000
Development costs 17,797,000 5,818,000 1,866,000
----------- ----------- ----------
Total $22,728,000 $10,015,000 $7,265,000
=========== =========== ==========
</TABLE>
Gas and Oil Reserve Information (Unaudited)
The following summarizes the policies used by the Company in preparing the
accompanying gas and oil reserve disclosures, Standardized Measure of
Discounted Future Net Cash Flows Relating to Proved Gas and Oil Reserves and
reconciliation of such standardized measure between years.
Estimates of proved and proved developed reserves at December 31, 1994,
December 31, 1993 and December 31, 1992 were principally prepared by
independent petroleum consultants. Proved reserves are estimated quantities of
natural gas and crude oil which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserves that can be recovered through existing wells with
existing equipment and operating methods. All of the Company's gas and oil
reserves are located in the United States.
-39-
<PAGE> 40
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The standardized measure of discounted future net cash flows from
production of proved reserves was developed as follows:
1. Estimates are made of quantities of proved reserves and the future
periods during which they are expected to be produced based on year end
economic conditions.
2. The estimated future cash flows from proved reserves were determined
based on year end prices, except in those instances where fixed and
determinable price escalations are included in existing contracts.
3. The future cash flows are reduced by estimated production costs and
costs to develop and produce the proved reserves, all based on year end
economic conditions and by the estimated effect of future income taxes based on
the then-enacted tax law, the Company's tax basis in its proved gas and oil
properties and the effect of net operating loss, investment tax credit and
other carryforwards.
The standardized measure of discounted future net cash flows does not
purport to present, nor should it be interpreted to present, the fair value of
the Company's gas and oil reserves. An estimate of fair value would also take
into account, among other things, the recovery of reserves not presently
classified as proved, anticipated future changes in prices and costs and a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.
-40-
<PAGE> 41
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Quantities of Gas and Oil Reserves (Unaudited)
The following table presents estimates of the Company's net proved and
proved developed natural gas and oil reserves (including natural gas liquids).
<TABLE>
<CAPTION>
Reserve Quantities
-----------------------------------
Gas Oil
Proved reserves: (Mcf) (Bbls)
----------- ----------
<S> <C> <C>
Estimated reserves at December 31, 1991 74,317,000 5,558,000
Revisions of previous estimates 8,859,000 (449,000)
Purchase of minerals in place 12,880,000 27,000
Extensions and discoveries 14,820,000 221,000
Sales of minerals in place (1,528,000) (1,177,000)
Production (4,393,000) (377,000)
----------- ---------
Estimated reserves at December 31, 1992 104,955,000 3,803,000
Revisions of previous estimates (6,283,000) (734,000)
Purchase of minerals in place 150,000 21,000
Extensions and discoveries 39,874,000 563,000
Sales of minerals in place (544,000) (36,000)
Production (7,157,000) (317,000)
----------- ---------
Estimated reserves at December 31, 1993 130,995,000 3,300,000
Revisions of previous estimates (4,582,000) (288,000)
Purchase of minerals in place 659,000 19,000
Extensions and discoveries 60,593,000 1,775,000
Sales of minerals in place (128,000) (8,000)
Production (7,231,000) (276,000)
----------- ---------
Estimated reserves at December 31, 1994 180,306,000 4,522,000
=========== =========
Proved developed reserves:
December 31, 1991 54,150,000 4,505,000
December 31, 1992 75,161,000 2,565,000
December 31, 1993 86,153,000 2,357,000
December 31, 1994 114,061,000 2,877,000
</TABLE>
-41-
<PAGE> 42
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Gas and Oil Reserves (Unaudited)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Future cash flows $348,652,000 $324,813,000 $252,166,000
Future production costs (90,228,000) (81,655,000) (86,428,000)
Future development costs (17,596,000) (12,665,000) (8,746,000)
------------ ------------ ------------
Future net cash flows
before tax 240,828,000 230,493,000 156,992,000
Future income taxes (38,950,000) (34,443,000) (9,968,000)
------------ ------------ ------------
Future net cash flows
after tax 201,878,000 196,050,000 147,024,000
Annual discount at 10% (90,048,000) (99,703,000) (75,977,000)
------------ ------------ ------------
Standardized measure of
discounted future
net cash flows $111,830,000 $ 96,347,000 $ 71,047,000
============ ============ ============
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gas and oil sales, net of
production costs $ (9,793,000) $(10,786,000) $(8,117,000)
Net changes in anticipated
prices and production costs (29,733,000) 12,028,000 2,065,000
Extensions and discoveries,
less related costs 51,231,000 37,343,000 12,773,000
Changes in estimated future
development costs 1,237,000 (438,000) 729,000
Previously estimated
development costs incurred 667,000 1,564,000 -
Net change in income taxes (3,706,000) (6,787,000) (1,384,000)
Purchase of minerals in place 485,000 126,000 10,052,000
Sales of minerals in place (157,000) (590,000) (5,921,000)
Accretion of discount 10,575,000 7,367,000 5,696,000
Revision of quantity estimates (3,515,000) (7,736,000) 3,591,000
Changes in production rates
and other (1,808,000) (6,791,000) (4,158,000)
------------ ------------ -----------
Change in Standardized
Measure $ 15,483,000 $ 25,300,000 $15,326,000
============ ============ ===========
</TABLE>
-42-
<PAGE> 43
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding Directors of the Company will be included in
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year covered by this Form 10-K and such information is incorporated by
reference to the Company's definitive proxy statement. Information concerning
the Executive Officers of the Company appears under Item I on page five of this
Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Certain information regarding compensation of executive officers of the
Company will be included in the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year covered by this Form 10-K and such
information is incorporated by reference to the Company's definitive proxy
statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information regarding security ownership of certain beneficial
owners and management will be included in the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year covered by this Form
10-K and such information is incorporated by reference to the Company's
definitive proxy statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information regarding transactions with management and other
related parties will be included in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year covered by this Form 10-K and such
information is incorporated by reference to the Company's definitive proxy
statement.
-43-
<PAGE> 44
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C>
(a)1. See Index to Consolidated Financial Statements at Item 8 19
(a)2. Consolidated Financial Statement Schedules,
Years ended December 31, 1994, 1993 and 1992
Schedule II - Valuation and Qualifying Accounts 50
All other schedules are omitted as the required information is inapplicable or the information is
presented in the Consolidated Financial Statements or related notes.
(a)3. Exhibits:
( 3.1) Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit No. 3.1 in
the Registrant's Form 8-B Registration Statement dated July 15, 1987 and filed with the Securities
and Exchange Commission on July 17, 1987.)
( 3.2) Certificate of Amendment to the Certificate of Incorporation of Registrant, as amended September 7,
1988. (Incorporated by reference to Exhibit No. 3.1 in the Registrant's Form 10-K Report dated
June 27, 1989 and filed with the Securities and Exchange Commission on June 29, 1989.)
( 3.3) Certificate of Amendment to the Certificate of Incorporation of Registrant, as amended June 5,
1990. (Incorporated by reference to Exhibit 3.3 in the Registrant's Form 10-K Report dated March
26, 1993 and filed with the Securities and Exchange Commission on March 31, 1993.)
( 3.4) Bylaws of the Registrant. (Incorporated by reference to Exhibit No. 3.2 in the Registrant's Form
8-B Registration Statement dated July 15, 1987 and filed with the Securities and Exchange
Commission on July 17, 1987.)
</TABLE>
-44-
<PAGE> 45
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C> <C>
( 4.1) Specimen Series A Non-Voting Convertible 6% Cumulative Preferred Stock Certificate. (Incorporated
by reference to Exhibit No. 4.1 in the Registrant's Form 8-B Registration Statement dated July 15,
1987 and filed with the Securities and Exchange Commission on July 17, 1987.)
( 4.2) Specimen Common Stock Certificate. (Incorporated by reference to Exhibit No. 4.2 in the
Registrant's Form 8-B Registration Statement dated July 15, 1987 and filed with the Securities and
Exchange Commission on July 17, 1987.)
( 4.3) Certificate of Designations, Preferences and Rights of Serial Preferred Stock - Series A Non-Voting
Convertible 6% Cumulative Preferred Stock. (Incorporated by reference to Exhibit No. 4.3 in the
Registrant's Form 8-B Registration Statement dated July 15, 1987 and filed with the Securities and
Exchange Commission on July 17, 1987.)
( 4.4) Rights Agreement dated as of March 5, 1991 between Tom Brown, Inc. and The First National Bank of
Boston, successor in interest to American Stock Transfer & Trust Company. (Incorporated by
reference to Exhibit No. 4(a) in the Registrant's Form 8-K Report dated March 12, 1991 and filed
March 15, 1991.)
(10.1) Trust Agreement dated as of December 24, 1986 by and among Tom Brown, Inc., General Resources, Inc.
and RepublicBank Dallas, National Association. (Incorporated by reference to Exhibit No. 10.7 in
the Registrant's Form 8-K Report dated December 24, 1986 and filed with the Securities and Exchange
Commission on December 29, 1986.)
(10.2) Stock Purchase Agreement between Tom Brown, Inc. and The Prudential Insurance Company of America
and State Farm Mutual Automobile Insurance Company dated as of December 24, 1986. (Incorporated by
reference to Exhibit No. 10.8 in the Registrant's Form 8-K Report dated December 24, 1986 and filed
with the Securities and Exchange Commission on December 29, 1986.)
</TABLE>
-45-
<PAGE> 46
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C> <C>
(10.3) Letter Agreement dated April 9, 1987 between the Company, The Prudential Insurance Company of
America and State Farm Mutual Automobile Insurance Company. (Incorporated by reference to Exhibit
No. 10.10 in the Registrant's Form 8-K Report dated April 15, 1987 and filed with the Securities
and Exchange Commission on April 16, 1987.)
(10.4) Assumption Agreement dated as of April 15, 1987 between the Company, The Prudential Insurance
Company of America and State Farm Mutual Automobile Insurance Company. (Incorporated by reference
to Exhibit No. 10.11 in the Registrant's Form 8-K Report dated April 15, 1987 and filed with the
Securities and Exchange Commission on April 16, 1987.)
(10.5) Wind River Gathering Company Joint Venture Agreement between Retex Gathering Company, Inc. and KN
Gas Gathering, Inc. dated March 18, 1991. (Incorporated by reference to Exhibit No. 10.5 in the
Registrant's Form S-1 Registration Statement dated May 3, 1993 and filed with the Securities and
Exchange Commission on May 4, 1993.)
(10.6) Asset Purchase Agreement dated November 2, 1992, between Williston Basin Interstate Pipeline
Company as Seller and Wind River Gathering Company as Buyer. (Incorporated by reference to Exhibit
No. 10.6 in the Registrant's Form S-1 Registration Statement dated May 3, 1993 and filed with the
Securities and Exchange Commission on May 4, 1993.)
(10.7) Agreement between Tom Brown, Inc. and Manufacturers Hanover Trust Company, dated as of February 12,
1990. (Incorporated by reference to Exhibit No. 10.16 in the Registrant's Form 10-K Report dated
July 12, 1990 and filed with the Securities and Exchange Commission on July 16, 1990.)
(10.8) Second Amendment dated December 31, 1990 to Agreement between Tom Brown, Inc. and Manufacturers
Hanover Trust Company, dated as of February 12, 1990. (Incorporated by reference to Exhibit No.
10.18 in the Registrant's Form 10-K Report dated March 26, 1991 and filed with the Securities and
Exchange Commission on March 29, 1991.)
</TABLE>
-46-
<PAGE> 47
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C> <C>
(10.9) Third Amendment dated January 1, 1991 to Agreement between Tom Brown, Inc. and Manufacturers
Hanover Trust Company, dated as of February 12, 1990. (Incorporated by reference to Exhibit No.
10.19 in the Registrant's Form 10-K Report dated March 26, 1991 and filed with the Securities and
Exchange Commission on March 29, 1991.)
(10.10) Fourth Amendment dated March 5, 1991 to Agreement between Tom Brown, Inc. and Manufacturers Hanover
Trust Company, dated as of February 12, 1990. (Incorporated by reference to Exhibit No. 10.20 in
the Registrant's Form 10-K Report dated March 26, 1991 and filed with the Securities and Exchange
Commission on March 29, 1991.)
(10.11) Fifth Amendment dated May 14, 1992 to Agreement between Tom Brown, Inc. and Manufacturers Hanover
Trust Company, dated as of February 12, 1990.
(10.12) Sixth Amendment dated March 31, 1993 to Agreement between Tom Brown, Inc. and Chemical Bank
(successor by merger to Manufacturers Hanover Trust Company), dated as of February 12, 1990.
(Incorporated by reference to Exhibit No. 10.12 in the Registrant's Form S-1 Registration Statement
dated May 3, 1993 and filed with the Securities and Exchange Commission on May 4, 1993.)
Executive Compensation Plans and Arrangements
(Exhibits 10.13 through 10.24):
(10.13) Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Pete
Scherer. (Incorporated by reference to Exhibit No. 10.12 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17,
1987.)
(10.14) Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Clark
Mueller. (Incorporated by reference to Exhibit No. 10.13 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17,
1987.)
</TABLE>
-47-
<PAGE> 48
<TABLE>
<CAPTION>
Sequentially
Numbered
--------
<S> <C> <C>
(10.15) Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Kim Harris.
(Incorporated by reference to Exhibit No. 10.15 in the Registrant's Form 8-B Registration Statement
dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17, 1987.)
(10.16) Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Donald L.
Evans. (Incorporated by reference to Exhibit No. 10.16 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17,
1987.)
(10.17) 1989 Stock Option Plan. (Incorporated by reference to Exhibit No. 10.17 in the Registrant's Form
S-1 Registration Statement dated February 14, 1990 and filed with the Securities and Exchange
Commission on February 13, 1990.)
(10.18) 1990 Phantom Stock Option Plan. (Incorporated by reference to Exhibit No. 10.17 in the
Registrant's Form 10-K Report dated July 12, 1990 and filed with the Securities and Exchange
Commission on July 16, 1990.)
(10.19) Employee Stock Ownership Plan and Trust Agreement. (Incorporated by reference to Exhibit 10.20 in
the Registrant's Form 10-K Report dated March 26, 1993 and filed with the Securities and Exchange
Commission on March 31, 1993.)
(10.20) Tom Brown, Inc. Profit Sharing 401(k) Plan. (Incorporated by reference to Exhibit 10.21 in the
Registrant's Form 10-K Report dated March 26, 1993 and filed with the Securities and Exchange
Commission on March 31, 1993.)
(10.21) First Amended and Restated Employment Agreement dated May 21, 1992 between the Registrant and
Donald L. Evans. (Incorporated by reference to Exhibit 10.22 in the Registrant's Form 10-K Report
dated March 26, 1993 and filed with the Securities and Exchange Commission on March 31, 1993.)
</TABLE>
-48-
<PAGE> 49
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C> <C>
(10.22) 1992 Phantom Stock Option Plan for Non-employee Directors. (Incorporated by reference to
Exhibit 10.23 in the Registrant's Form 10-K Report dated March 26, 1993 and filed with the
Securities and Exchange Commission on March 31, 1993.)
(10.23) Amendments to 1992 Phantom Stock Option Plan for Non-employee Directors. (Incorporated by
reference to Exhibit 10.24 in the Registrant's Form 10-K Report dated March 26, 1993 and filed with
the Securities and Exchange Commission on March 31, 1993.)
(10.24) 1993 Stock Option Plan. (Incorporated by reference to Exhibit 10.25 in the Registrant's Form 10-K
Report dated March 26, 1993 and filed with the Securities and Exchange Commission on March 31,
1993.)
(21) * Subsidiaries of the Registrant.
(23) * Consent of Independent Public Accountants.
(27) * Financial Data Schedule
</TABLE>
________________
* Filed herewith
(b). Reports on Form 8-K:
None.
-49-
<PAGE> 50
SCHEDULE II
TOM BROWN, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Balance at Additions
Valuation and beginning of charged to Balance at
qualifying accounts period costs and expenses Deductions end of period
------------------- ------------ ------------------ ---------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
December 31, 1994 $ 430,000 $ 24,000 $ (26,000) $ 428,000
December 31, 1993 432,000 18,000 (20,000) 430,000
December 31, 1992 585,000 47,000 (200,000) 432,000
</TABLE>
-50-
<PAGE> 51
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.
TOM BROWN, INC.
By /s/ DONALD L. EVANS March 27, 1995
Donald L. Evans, Chairman of the
Board of Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ DONALD L. EVANS March 27, 1995
Donald L. Evans, Chairman of the
Board of Directors, President and
Chief Executive Officer
/s/ R. KIM HARRIS March 27, 1995
R. Kim Harris, Controller and Principal
Financial Officer
-51-
<PAGE> 52
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.
/s/ THOMAS C. BROWN March 27, 1995
Thomas C. Brown, Director
-52-
<PAGE> 53
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.
/s/ EDWARD W. LEBARON, JR. March 27, 1995
Edward W. LeBaron, Jr., Director
-53-
<PAGE> 54
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.
/s/ WILLIAM R. GRANBERRY March 27, 1995
William R. Granberry, Director
-54-
<PAGE> 55
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.
/s/ HENRY GROPPE March 27, 1995
Henry Groppe, Director
-55-
<PAGE> 56
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.
/s/ ROBERT H. WHILDEN, JR. March 27, 1995
Robert H. Whilden, Jr., Director
-56-
<PAGE> 57
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.
/s/ JAMES B. WALLACE March 27, 1995
James B. Wallace, Director
-57-
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C>
3.1 Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit No. 3.1 in the
Registrant's Form 8-B Registration Statement dated July 15, 1987 and filed with the Securities and
Exchange Commission on July 17, 1987.)
3.2 Certificate of Amendment to the Certificate of Incorporation of Registrant, as amended September 7,
1988. (Incorporated by reference to Exhibit No. 3.1 in the Registrant's Form 10-K Report dated June
27, 1989 and filed with the Securities and Exchange Commission on June 29, 1989.)
3.3 Certificate of Amendment to the Certificate of Incorporation of Registrant, as amended June 5, 1990.
(Incorporated by reference to Exhibit No. 3.3 in the Registrant's Form 10-K Report dated March 26,
1993 and filed with the Securities and Exchange Commission on March 31, 1993.)
3.4 Bylaws of the Registrant. (Incorporated by reference to Exhibit No. 3.2 in the Registrant's Form 8-B
Registration Statement dated July 15, 1987 and filed with the Securities and Exchange Commission on
July 17, 1987.)
4.1 Specimen Series A Non-Voting Convertible 6% Cumulative Preferred Stock Certificate. (Incorporated by
reference to Exhibit No. 4.1 in the Registrant's Form 8-B Registration Statement dated July 15, 1987
and filed with the Securities and Exchange Commission on July 17, 1987.)
4.2 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit No. 4.2 in the Registrant's
Form 8-B Registration Statement dated July 15, 1987 and filed with the Securities and Exchange
Commission on July 17, 1987.)
4.3 Certificate of Designations, Preferences and Rights of Serial Preferred Stock - Series A Non-Voting
Convertible 6% Cumulative Preferred Stock. (Incorporated by reference to Exhibit No. 4.3 in the
Registrant's Form 8-B Registration Statement dated July 15, 1987 and filed with the Securities and
Exchange Commission on July 17, 1987.)
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C>
4.4 Rights Agreement dated as of March 5, 1991 between Tom Brown, Inc. and The First National Bank of
Boston, successor in interest to American Stock Transfer & Trust Company. (Incorporated by reference
to Exhibit No. 4(a) in the Registrant's Form 8-K Report dated March 12, 1991 and filed March 15,
1991.)
10.1 Trust Agreement dated as of December 24, 1986 by and among Tom Brown, Inc., General Resources, Inc.
and RepublicBank Dallas, National Association. (Incorporated by reference to Exhibit No. 10.7 in the
Registrant's Form 8-K Report dated December 24, 1986 and filed with the Securities and Exchange
Commission on December 29, 1986.)
10.2 Stock Purchase Agreement between Tom Brown, Inc. and The Prudential Insurance Company of America and
State Farm Mutual Automobile Insurance Company dated as of December 24, 1986. (Incorporated by
reference to Exhibit No. 10.8 in the Registrant's Form 8-K Report dated December 24, 1986 and filed
with the Securities and Exchange Commission on December 29, 1986.)
10.3 Letter Agreement dated April 9, 1987 between the Company, The Prudential Insurance Company of America
and State Farm Mutual Automobile Insurance Company. (Incorporated by reference to Exhibit No. 10.10 in
the Registrant's Form 8-K Report dated April 15, 1987 and filed with the Securities and Exchange
Commission on April 16, 1987.)
10.4 Assumption Agreement dated as of April 15, 1987 between the Company, The Prudential Insurance Company
of America and State Farm Mutual Automobile Insurance Company. (Incorporated by reference to Exhibit
No. 10.11 in the Registrant's Form 8-K Report dated April 15, 1987 and filed with the Securities and
Exchange Commission on April 16, 1987.)
10.5 Wind River Gathering Company Joint Venture Agreement between Retex Gathering Company, Inc. and KN Gas
Gathering, Inc. dated March 18, 1991. (Incorporated by reference to Exhibit No. 10.5 in the
Registrant's Form S-1 Registration Statement dated May 3, 1993 and filed with the Securities and
Exchange Commission on May 4, 1993.)
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C>
10.6 Asset Purchase Agreement dated November 2, 1992 between Williston Basin Interstate Pipeline Company as
Seller and Wind River Gathering Company as Buyer. (Incorporated by reference to Exhibit No. 10.6 in
the Registrant's Form S-1 Registration Statement dated May 3, 1993 and filed with the Securities and
Exchange Commission on May 4, 1993.)
10.7 Agreement between Tom Brown, Inc. and Manufacturers Hanover Trust Company, dated as of February 12,
1990. (Incorporated by reference to Exhibit No. 10.16 in the Registrant's Form 10-K Report dated July
12, 1990 and filed with the Securities and Exchange Commission on July 16, 1990.)
10.8 Second Amendment dated December 31, 1990 to Agreement
between Tom Brown, Inc. and Manufacturers Hanover Trust Company, dated as of February 12, 1990.
(Incorporated by reference to Exhibit No. 10.18 in the Registrant's Form 10-K Report dated March 26,
1991 and filed with the Securities and Exchange Commission on March 29, 1991.)
10.9 Third Amendment dated January 1, 1991 to Agreement
between Tom Brown, Inc. and Manufacturers Hanover Trust Company, dated as of February 12, 1990.
(Incorporated by reference to Exhibit No. 10.19 in the Registrant's Form 10-K Report dated March 26,
1991 and filed with the Securities and Exchange Commission on March 29, 1991.)
10.10 Fourth Amendment dated March 5, 1991 to Agreement
between Tom Brown, Inc. and Manufacturers Hanover Trust Company, dated as of February 12, 1990.
(Incorporated by reference to Exhibit No. 10.20 in the Registrant's Form 10-K Report dated March 26,
1991 and filed with the Securities and Exchange Commission on March 29, 1991.)
10.11 Fifth Amendment dated May 14, 1992 to Agreement between Tom Brown, Inc. and Manufacturers
Hanover Trust Company dated as of February 12, 1990.
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C>
10.12 Sixth Amendment dated March 31, 1993 to Agreement between Tom Brown, Inc. and Chemical Bank (successor
by merger to Manufacturers Hanover Trust Company), dated as of February 12, 1990. (Incorporated by
reference to Exhibit No. 10.12 in the Registrant's Form S-1 dated May 3, 1993 and filed with the
Securities and Exchange Commission on May 4, 1993.)
Executive Compensation Plans and Arrangements
(Exhibits 10.13 through 10:24):
10.13 Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Pete Scherer.
(Incorporated by reference to Exhibit No. 10.12 in the Registrant's Form 8-B Registration Statement
dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17, 1987.)
10.14 Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Clark Mueller.
(Incorporated by reference to Exhibit No. 10.13 in the Registrant's Form 8-B Registration Statement
dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17, 1987.)
10.15 Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Kim Harris.
(Incorporated by reference to Exhibit No. 10.15 in the Registrant's Form 8-B Registration Statement
dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17, 1987.)
10.16 Non-qualified Stock Option Agreement dated December 24, 1986 between the Registrant and Donald L.
Evans. (Incorporated by reference to Exhibit No. 10.16 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987 and filed with the Securities and Exchange Commission on July 17, 1987.)
10.17 1989 Stock Option Plan. (Incorporated by reference to Exhibit No. 10.17 in the Registrant's Form S-1
Registration Statement dated February 14, 1990 and filed with the Securities and Exchange Commission
on February 13, 1990.)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------ -------
<S> <C>
10.18 1990 Phantom Stock Option Plan. (Incorporated by reference to Exhibit No. 10.17 in the Registrant's
Form 10-K Report dated July 12, 1990 and filed with the Securities and Exchange Commission on July 16,
1990.)
10.19 Employee Stock Ownership Plan and Trust Agreement. (Incorporated by reference to Exhibit No. 10.20 in
the Registrant's Form 10-K Report dated March 26, 1993 and filed with the Securities and Exchange
Commission on March 31, 1993.)
10.20 Tom Brown, Inc. Profit Sharing 401(k) Plan. (Incorporated by reference to Exhibit No. 10.21 in the
Registrant's Form 10-K Report dated March 26, 1993 and filed with the Securities and Exchange
Commission on March 31, 1993.)
10.21 First Amended and Restated Employment Agreement dated May 21, 1992 between the Registrant and Donald
L. Evans. (Incorporated by reference to Exhibit No. 10.22 in the Registrant's Form 10-K Report dated
March 26, 1993 and filed with the Securities and Exchange Commission on March 31, 1993.)
10.22 1992 Phantom Stock Option Plan for Non-employee Directors. (Incorporated by reference to Exhibit No.
10.23 in the Registrant's Form 10-K Report dated March 26, 1993 and filed with the Securities and
Exchange Commission on March 31, 1993.)
10.23 Amendments to 1992 Phantom Stock Option Plan for Non-employee Directors. (Incorporated by reference
to Exhibit No. 10.24 in the Registrant's Form 10-K Report dated March 26, 1993 and filed with the
Securities and Exchange Commission on March 31, 1993.)
10.24 1993 Stock Option Plan. (Incorporated by reference to Exhibit No. 10.25 in the Registrant's Form 10-K
Report dated March 26, 1993 and filed with the Securities and Exchange Commission on March 31, 1993.)
21 * Subsidiaries of the Registrant
23 * Consent of Independent Public Accountants.
27 * Financial Data Schedule
</TABLE>
________________
* Filed herewith
<PAGE> 1
EXHIBIT 21
TOM BROWN, INC.
Subsidiaries of Registrant
December 31, 1994
<TABLE>
<CAPTION>
Percent
Name of Subsidiary State of Incorporation of Ownership
------------------ ---------------------- ------------
<S> <C> <C>
Retex Gathering Company, Inc. Wyoming 100%
Rocno Corporation Texas 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225
and 33-60842.
ARTHUR ANDERSEN LLP
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 19,147
<SECURITIES> 0
<RECEIVABLES> 8,759
<ALLOWANCES> 428
<INVENTORY> 1,132
<CURRENT-ASSETS> 28,788
<PP&E> 225,405
<DEPRECIATION> 139,217
<TOTAL-ASSETS> 115,092
<CURRENT-LIABILITIES> 12,223
<BONDS> 0
<COMMON> 1,552
0
0
<OTHER-SE> 101,317
<TOTAL-LIABILITY-AND-EQUITY> 115,092
<SALES> 15,805
<TOTAL-REVENUES> 29,071
<CGS> 16,021
<TOTAL-COSTS> 28,969
<OTHER-EXPENSES> 3,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 102
<INCOME-TAX> 262
<INCOME-CONTINUING> (160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
