<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 _______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at March 31, 1995
--------------------- -----------------------------
$.10 par value 15,533,629
<PAGE> 2
TOM BROWN, INC. AND SUBSIDIARIES
QUARTERLY REPORT FORM 10-Q
INDEX
Page No.
<TABLE>
<S> <C> <C>
Part I. Financial Information (Unaudited):
Consolidated Balance Sheets,
March 31, 1995 and December 31, 1994 4
Consolidated Statements of Operations,
Three Months ended March 31, 1995 and 1994 6
Consolidated Statements of Cash Flows,
Three Months ended March 31, 1995 and 1994 7
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Part II. Other Information:
Item 6(b). Report on Form 8-K 15
Signature 16
</TABLE>
2
<PAGE> 3
TOM BROWN, INC.
P. O. Box 2608
500 Empire Plaza Bldg.
Midland, Texas 79701
______________________
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FORM 10-Q
_______________________
PART I OF TWO PARTS
FINANCIAL INFORMATION
3
<PAGE> 4
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1995 1994
------ --------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,463,000 $ 19,147,000
Accounts receivable, net of allowance
for doubtful accounts of $428,000 at
March 31, 1995 and December 31, 1994 7,468,000 7,293,000
Accounts receivable -
Wind River-Pavillion, Ltd. 145,000 1,038,000
Inventories 607,000 1,132,000
Other 418,000 178,000
------------ ------------
Total current assets 23,101,000 28,788,000
------------ ------------
Property and equipment, at cost:
Gas and oil properties, based on the
successful efforts method of accounting 180,724,000 214,451,000
Other equipment 11,438,000 10,954,000
------------ ------------
192,162,000 225,405,000
Less: Accumulated depreciation,
depletion and amortization 111,110,000 139,217,000
------------ ------------
Net property and equipment 81,052,000 86,188,000
------------ ------------
Deferred income taxes, net 13,967,000 -
Other assets, net 115,000 116,000
------------ ------------
$118,235,000 $115,092,000
============ ============
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 8,325,000 $ 9,161,000
Accrued expenses 2,424,000 3,062,000
------------ ------------
Total current liabilities 10,749,000 12,223,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value.
Authorized 30,000,000 shares;
15,533,629 shares issued and
outstanding. 1,553,000 1,552,000
Additional paid-in capital 177,436,000 177,350,000
Accumulated deficit (71,503,000) (76,033,000)
------------ ------------
Total stockholders' equity 107,486,000 102,869,000
------------ ------------
$118,235,000 $115,092,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Three Months ended
March 31,
--------------------------------
1995 1994
----------- -------------
(Unaudited)
<S> <C> <C>
Revenues:
Gas and oil sales $ 4,934,000 $ 4,818,000
Marketing, gathering and processing 4,272,000 4,443,000
Other 222,000 275,000
------------ -----------
Total revenues 9,428,000 9,536,000
------------ -----------
Costs and expenses:
Gas and oil production 1,091,000 1,034,000
Taxes on gas and oil production 572,000 660,000
Cost of gas sold 3,729,000 3,763,000
Exploration costs 1,568,000 228,000
Impairments of leasehold costs 146,000 411,000
General and administrative 969,000 961,000
Option plan compensation 39,000 77,000
Depreciation, depletion and amortization 2,320,000 1,752,000
Writedown of properties 8,368,000 -
------------ -----------
Total costs and expenses 18,802,000 8,886,000
------------ -----------
Income (loss) before income taxes (9,374,000) 650,000
Income tax provision:
Recognition of deferred tax asset 13,967,000 -
Income tax expense (63,000) (76,000)
------------ -----------
Net income $ 4,530,000 $ 574,000
============ ===========
Weighted average number of common shares
and common stock equivalents outstanding 16,157,576 15,444,029
============ ===========
Net income per common share $ .28 $ .04
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Three Months ended
March 31,
--------------------------------
1995 1994
----------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,530,000 $ 574,000
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, depletion and amortization 2,320,000 1,752,000
Loss (gain) on sales of assets 34,000 (55,000)
Option plan compensation 39,000 77,000
Exploration costs 1,568,000 228,000
Impairments of leasehold costs 146,000 411,000
Writedown of properties 8,368,000 -
Deferred tax asset recognition (13,967,000) -
Changes in operating assets
and liabilities:
Decrease (increase) in accounts
receivable 752,000 (246,000)
Decrease in inventories 525,000 454,000
Increase in other current assets (240,000) (24,000)
Increase (decrease) in accounts payable (836,000) 1,059,000
Increase (decrease) in accrued expenses (399,000) 76,000
Decrease in other non-current assets 1,000 -
------------ -----------
Net cash provided by operating activities $ 2,841,000 $ 4,306,000
------------ -----------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
TOM BROWN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Three Months ended
March 31,
--------------------------------
1995 1994
----------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sales of assets $ 313,000 $ 121,000
Capital and exploration expenditures (7,925,000) (5,086,000)
------------ -----------
Net cash used in investing activities (7,612,000) (4,965,000)
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 87,000 -
------------ -----------
Net cash provided by financing activities 87,000 -
------------ -----------
Net decrease in cash and cash equivalents (4,684,000) (659,000)
------------ -----------
Cash and cash equivalents at beginning of
period 19,147,000 28,503,000
------------ -----------
Cash and cash equivalents at end of period $ 14,463,000 $ 27,844,000
============ ============
Cash paid during the period for:
Interest $ - $ -
Income taxes 19,000 -
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
TOM BROWN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months ended March 31, 1995 and 1994 (Unaudited)
Year ended December 31, 1994
(1) During interim periods, Tom Brown, Inc. follows the accounting policies set
forth in its Annual Report to Stockholders and its Report on Form 10-K filed
with the Securities and Exchange Commission. Users of financial information
produced for interim periods are encouraged to refer to the footnotes contained
in the Annual Report to Stockholders when reviewing interim financial results.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. Certain reclassifications have
been made to amounts reported in previous periods to conform to the 1995
presentation.
(2) Writedown of Properties
The Company recorded a charge against earnings in the amount of $8,368,000
due to the early adoption of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets...", which generally
requires a separate assessment for potential impairment of each of the
Company's producing property cost centers, in contrast to the Company's prior
policy of evaluating the producing property accounts for impairment in total.
The $8.4 million charge reduced the carrying value of a portion of the
Company's non-core properties to their estimated fair values, which management
has determined to be the discounted future net cash flows of the properties.
(3) Income Taxes
In 1992, the Financial Accounting Standard 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 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.
Based on recent additions to the Company's oil and gas reserves and the
resulting increases in anticipated future income and the absence of significant
option plan compensation charges to future income, the Company now expects to
realize a major portion of the future benefit of its net operating loss
carryforwards prior to their expiration. Accordingly, that portion of the
valuation allowance was reversed in the first quarter. A valuation allowance
of approximately $10.0 million will be retained against the Company's deferred
tax assets, primarily because the Company's investment tax credit carryforwards
are still not expected to be realized in future periods.
9
<PAGE> 10
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>
March 31, December 31,
1995 1994
------------ -------------
<S> <C> <C>
Net operating loss carryforwards....................... $ 24,397,000 $ 24,397,000
Gas and oil acquisition, exploration and development
costs deducted for tax purposes in excess of book.... (9,889,000) (12,734,000)
Investment tax credit carryforwards.................... 6,183,000 6,183,000
Option plan compensation............................... 1,487,000 1,474,000
Other.................................................. 1,649,000 1,649,000
------------ ------------
Net deferred tax asset............................... 23,827,000 20,969,000
Valuation allowance.................................... (9,860,000) (20,969,000)
------------ ------------
Recognized net deferred tax asset.................... $ 13,967,000 $ -
============ ============
</TABLE>
At March 31, 1995, the Company had investment tax credit carryforwards of
approximately $6.2 million and net operating loss carryforwards of
approximately $71.8 million. 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.
10
<PAGE> 11
TOM BROWN, INC. AND SUBSIDIARIES
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.
Selected Operating Data
<TABLE>
<CAPTION>
Three Months
ended
March 31,
---------------------
1995 1994
------- -------
<S> <C> <C>
Revenues (in thousands):
Natural gas sales.......................... $ 3,413 $ 3,878
Crude oil sales............................ 1,521 940
Marketing, gathering and processing........ 4,272 4,443
Other...................................... 222 275
------- -------
Total revenues....................... $ 9,428 $ 9,536
======= =======
Net income (in thousands)..................... $ 4,530 $ 574
Natural gas production (MMcf)................. 2,549 2,048
Crude oil production (MBbl)................... 94 72
Average natural gas sales price ($/Mcf)....... $ 1.34 $ 1.89
Average crude oil sales price ($/Bbl)......... $ 16.18 $ 13.06
</TABLE>
Revenues
During the three month period ended March 31, 1995, revenues from natural gas
and oil production increased $.1 million to $4.9 million compared to the same
period in 1994. An increase in natural gas sales volumes of 24% increased
revenues by approximately $.7 million. A decrease in average natural gas prices
received by the Company from $1.89 per Mcf to $1.34 per Mcf decreased revenues
by approximately $1.1 million. An increase in oil sales volumes of 31%
increased revenues by approximately $.3 million and an increase in the average
crude oil sales price from $13.06 per Bbl to $16.18 per Bbl increased revenues
by approximately $.2 million for the three months ended March 31, 1995.
The increase in gas sales volumes for the three months ended March 31, 1995
compared to the same period in 1994 is due primarily to increased production in
the Company's Val Verde Basin of west Texas. The Company continued to
voluntarily curtail its gas production in the Wind River Basin of Wyoming and
curtailed 40% of such production in the first quarter. The increase in crude
oil production for the three months ended March 31, 1995 compared to the same
period in 1994 is also due to additional wells in the Val Verde Basin.
Marketing, gathering and processing and other revenues remained relatively
unchanged from the three month period one year ago.
11
<PAGE> 12
TOM BROWN, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Costs and Expenses
Costs and expenses for the three months ended March 31, 1995 increased to
$18.8 million from $8.9 million for the same period in 1994, primarily as a
result of an $8.4 million writedown of non-strategic properties due to the
early adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets...", which generally
requires a separate assessment for potential impairment of each of the
Company's producing property cost centers, in contrast to the Company's prior
policy of evaluating the producing property accounts for impairment in total.
The $8.4 million charge reduced the carrying value of a portion of the
Company's non-core properties to their estimated fair values. Gas and oil
production expenses increased 6% due to additional wells in the Val Verde
Basin. Taxes on gas and oil production decreased 13% as increased gas and oil
sales in Texas, where the Company incurs a relatively low production tax rate,
represented a greater percentage of the Company's gas and oil revenues during
the first quarter of 1995 as compared to 1994. Exploration costs increased
from $.2 million to $1.6 million due to the cost of an exploratory dry hole
expensed in the first quarter of 1995. Impairments of leasehold costs
decreased $.3 million due to a lessor amount of expirations in 1995 of
non-producing leases than in 1994. Option plan compensation expense decreased
as all options with cash payment rights were exchanged for nonqualified stock
options by March 31, 1994. An additional $.1 million in total will be
recognized in 1995 and 1996.
The Company recognized in the first quarter of 1995 a net deferred tax asset
in the amount of $13,967,000 and corresponding credit to deferred income tax
expense. Deferred tax assets (related primarily to the Company's net operating
loss and investment tax credit carryforwards) were initially recorded in 1993,
but these tax assets had been reserved entirely by a valuation allowance up
until 1995. Based on recent additions to the Company's oil and gas reserves,
the resulting increases in anticipated future income and the absence of
significant option plan compensation charges to future income, the Company now
expects to realize a major portion of the future benefit of its net operating
loss carryforwards prior to their expiration. Accordingly, that portion of the
valuation allowance was reversed in the first quarter. A valuation allowance
of approximately $10.0 million will be retained against the Company's deferred
tax assets, primarily because the Company's investment tax credit carryforwards
are still not expected to be realized in future periods. The deferred tax
assets and related valuation allowance will be monitored for potential
adjustments as future events so indicate, although management does not expect
such adjustments to be significant in the near term.
Capital Resources and Liquidity
The Company's capital expenditures for the three months ended March 31, 1995
and 1994 were approximately $7.0 million and $5.0 million, respectively. The
majority of the first quarter 1995 expenditures were for the continued
development of the Val Verde Basin as seven wells were in various stages of
drilling and completion at quarter end. The Company will continue the
development of its reserves in the Wind River Basin throughout the year with
the drilling of thirteen wells.
12
<PAGE> 13
TOM BROWN, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company has historically funded capital expenditures and working capital
requirements with internally generated cash and borrowings. During the three
months ended March 31, 1995, net cash provided by operating activities was $2.8
million as compared to $4.3 million in the same period of 1994.
13
<PAGE> 14
TOM BROWN, INC.
P. O. Box 2608
500 Empire Plaza Bldg.
Midland, Texas 79701
__________________________
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FORM 10-Q
__________________________
PART II OF TWO PARTS
OTHER INFORMATION
14
<PAGE> 15
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 6(b). Reports on Form 8-K
None.
15
<PAGE> 16
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOM BROWN, INC.
----------------------------------------------
(Registrant)
May 12, 1995 /s/ Kim Harris
- ------------ ----------------------------------------------
Date Kim Harris
Controller
(Mr. Harris is the Chief Financial Officer
and has duly authorized to sign on
behalf of the Registrant)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 14,463
<SECURITIES> 0
<RECEIVABLES> 8,041
<ALLOWANCES> 428
<INVENTORY> 607
<CURRENT-ASSETS> 23,101
<PP&E> 192,162
<DEPRECIATION> 111,110
<TOTAL-ASSETS> 118,235
<CURRENT-LIABILITIES> 10,749
<BONDS> 0
<COMMON> 1,553
0
0
<OTHER-SE> 105,933
<TOTAL-LIABILITY-AND-EQUITY> 118,235
<SALES> 4,934
<TOTAL-REVENUES> 9,428
<CGS> 5,392
<TOTAL-COSTS> 18,802
<OTHER-EXPENSES> 1,008
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,374)
<INCOME-TAX> (13,904)
<INCOME-CONTINUING> 4,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,530
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
