<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 JUNE 30, 1997
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 August 1, 1997.
CLASS OF COMMON STOCK OUTSTANDING AT AUGUST 1, 1997
--------------------- -----------------------------
$.10 PAR VALUE 24,136,214
<PAGE> 2
TOM BROWN, INC. AND SUBSIDIARIES
QUARTERLY REPORT FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Consolidated Balance Sheets,
June 30, 1997 (Unaudited) and December 31, 1996 4
Consolidated Statements of Operations (Unaudited),
Three and Six Months ended
June 30, 1997 and 1996 6
Consolidated Statements of Cash Flows (Unaudited),
Six Months ended June 30, 1997 and 1996 7
Notes to Consolidated Financial Statements
Three and Six Months ended
June 30, 1997 and 1996 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
</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
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
Assets June 30, December 31,
1997 1996
---------- ----------
(Unaudited)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,658 $ 20,504
Accounts receivable 24,366 33,080
Inventories 1,487 1,374
Other 682 889
---------- ----------
Total current assets 37,193 55,847
---------- ----------
Property and equipment, at cost:
Oil and gas properties, based on the
successful efforts accounting method 440,910 436,879
Other equipment 38,035 35,216
---------- ----------
478,945 472,095
Less: Accumulated depreciation
and depletion 141,633 124,834
---------- ----------
Net property and equipment 337,312 347,261
---------- ----------
Deferred income taxes, net 69 2,865
Other assets, net 464 401
---------- ----------
$ 375,038 $ 406,374
========== ==========
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities and Stockholders' Equity 1997 1996
- ----------------------------------------- ------------ ------------
(Unaudited)
(in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable $ 18,328 $ 25,033
Accrued expenses 6,635 10,562
------------ ------------
Total current liabilities 24,963 35,595
------------ ------------
Commitments and contingencies
Bank debt 90,000 119,000
------------ ------------
Other non-current liabilities 5,890 5,643
------------ ------------
Stockholders' equity:
Common stock, at $.10 par value
Authorized 40,000,000 shares;
Outstanding 24,135,714 and
23,898,431 shares, respectively 2,414 2,390
Convertible preferred stock,
at $.10 par value. Authorized
2,500,000 shares; 1,000,000 shares
outstanding 100 100
Additional paid-in capital 309,389 307,631
Accumulated deficit (57,718) (63,985)
------------ ------------
Total stockholders' equity 254,185 246,136
------------ ------------
$ 375,038 $ 406,374
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Gas and oil sales $ 19,281 $ 8,324 $ 47,827 $ 16,757
Marketing, gathering
and processing 7,186 5,635 14,504 10,289
Interest income and other 421 112 907 230
---------- ---------- ---------- ----------
Total revenues 26,888 14,071 63,238 27,276
---------- ---------- ---------- ----------
Costs and expenses:
Gas and oil production 3,969 1,648 8,196 3,087
Taxes on gas and oil
production 1,599 477 3,689 1,174
Cost of gas sold 5,688 3,835 11,884 7,486
Exploration costs 1,527 515 2,648 926
Impairments of
leasehold costs 180 2 360 67
General and
administrative 2,664 1,403 5,061 2,757
Depreciation, depletion
and amortization 8,655 3,980 17,351 7,697
Interest expense 1,705 10 3,667 17
---------- ---------- ---------- ----------
Total costs
and expenses 25,987 11,870 52,856 23,211
---------- ---------- ---------- ----------
Income before income taxes 901 2,201 10,382 4,065
Income tax expense (212) (752) (3,240) (1,386)
---------- ---------- ---------- ----------
Net income 689 1,449 7,142 2,679
---------- ---------- ---------- ----------
Preferred stock dividend (437) (437) (875) (797)
---------- ---------- ---------- ----------
Net income available to
common shareholders $ 252 $ 1,012 $ 6,267 $ 1,882
========== ========== ========== ==========
Weighted average number of
common shares outstanding 25,169 21,121 25,110 21,117
========== ========== ========== ==========
Net income per common share $ .01 $ .05 $ .25 $ .09
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Six Months ended
June 30,
--------------------------
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,267 $ 1,882
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 17,351 7,697
Gain on sales of assets (10) (11)
Option plan compensation -- 20
Exploration costs 2,648 926
Impairments of leasehold costs 360 67
Deferred income taxes 2,796 1,208
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 8,714 (4,535)
Increase in inventories (113) (194)
Decrease (increase) in other current assets 207 (46)
(Decrease) increase in accounts payable (9,113) 4,801
Decrease (increase) in other non-current accounts 184 (551)
---------- ----------
Net cash provided by operating activities $ 29,291 $ 11,264
---------- ----------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Six Months ended
June 30,
--------------------------
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sales of assets $ 12,613 $ 109
Capital and exploration expenditures (23,013) (9,658)
Changes in accounts payable and
accrued expenses for oil and gas
expenditures (972) --
---------- ----------
Net cash used in investing activities (11,372) (9,549)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,235 140
Repayments of long-term debt (29,000) --
---------- ----------
Net cash provided by financing activities (27,765) 140
---------- ----------
Net increase (decrease) in cash and cash
equivalents (9,846) 1,855
---------- ----------
Cash and cash equivalents at beginning
of period 20,504 4,982
---------- ----------
Cash and cash equivalents at end of period $ 10,658 $ 6,837
========== ==========
Cash paid during the period for:
Interest $ 2,941 $ --
Taxes 397 85
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
(2) ACQUISITION
Acquisition of Presidio Oil Company
On December 23, 1996, the Company completed the acquisition of Presidio
Oil Company and its subsidiaries (collectively, "Presidio"), following the
issuance by the U.S. Bankruptcy Court, District of Delaware, on December 10,
1996, of an Order confirming Presidio's reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The purchase price was approximately $206.6 million
consisting of approximately $105 million in cash, 2.71 million shares of the
Company's Common Stock valued at $17.125 per share and the assumption of
certain liabilities. Such amount does not include 2.64 million shares of the
Company's Common Stock which were not issued due to the Company's ownership of
$56.15 million principal amount of Presidio's Senior Gas Indexed Notes. The
Presidio acquisition has been accounted for using the purchase method. The cash
portion of the Presidio acquisition was funded by borrowings under the
Company's loan agreement with its bank lender. The assets acquired consisted
primarily of proved oil and gas properties and undeveloped acreage located in
Wyoming, North Dakota, Oklahoma and Louisiana. The Wyoming properties are
concentrated in the Green River and Powder River Basins of Wyoming.
Pro Forma Information
The following table presents the unaudited revenues, net income and net
income per share of the Company for the six months ended June 30, 1997 and 1996
assuming that the Presidio acquisition occurred on January 1, 1996.
<TABLE>
<CAPTION>
Six Months ended June 30,
-------------------------
1997 1996
------------ -----------
(Historical) (Pro forma)
(in thousands, except for per share amounts)
<S> <C> <C>
Revenues $ 63,238 $ 44,955
============ ============
Net income 7,142 3,956
============ ============
Net income available to common
shareholders 6,267 3,159
============ ============
Net income per common share $ .25 $ .13
============ ============
</TABLE>
9
<PAGE> 10
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(3) BANK DEBT
In September 1995, the Company entered into a bank credit agreement.
The credit agreement provided for a $65 million revolving credit facility (the
"credit facility") maturing in September 1998. Borrowings under the credit
facility are unsecured and bear interest, at the election of the Company, at a
rate equal to (i) the greater of the agent bank's prime rate or the federal
funds effective rate plus 1/2 of 1% or (ii) the agent bank's Eurodollar rate
plus a margin ranging from .75% to 1.00%. Interest on amounts outstanding under
the credit facility is due on the last day of each month in the case of loans
bearing interest at the prime rate or federal funds rate and, in the case of
loans bearing interest at the Eurodollar rate, interest payments are due on the
last day of each applicable interest period of one, two, three or six months,
as selected by the Company at the time of borrowing.
In connection with the Presidio acquisition, on December 23, 1996, the
Company and its lenders entered into a credit agreement providing for a $125
million revolving credit facility, maturing December 1999. Pursuant to this
agreement, the Company repaid the existing indebtedness under the prior
facility with borrowings under the new credit agreement. The terms and
conditions of the new credit facility are substantially the same as the credit
facility. At June 30, 1997 the outstanding balance was $90 million at an
interest rate of approximately 6.7%.
Financial covenants of the credit facility require the Company to
maintain a minimum consolidated tangible net worth of not less than $226
million as of June 30, 1997. The Company is also required to maintain a ratio
of (i) earnings before interest expense, state and federal taxes and
depreciation, depletion and amortization to (ii) consolidated fixed charges, as
defined in the credit agreement, of not less than 2.5:1. Additionally, the
Company is required to maintain a ratio of consolidated debt to consolidated
total capitalization of less than 0.45:1 and a current ratio of not less than
1.1:1. The Company was in compliance with all financial covenants at June 30,
1997.
(4) INCOME TAXES
The Company has not paid Federal income taxes since March 31, 1982, due
to its net operating loss carryforward, but is required to pay alternative
minimum tax ("AMT"). This tax can be partially offset by an AMT net operating
loss carryforward.
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards ........................... $ 15,715 $ 18,689
Gas and oil acquisition, exploration and development
costs deducted for tax purposes in excess of book ........ (14,414) (14,520)
Investment tax credit carryforwards ........................ 2,463 2,463
Option plan compensation ................................... 1,559 1,559
Other ...................................................... 2,591 2,309
------------ ------------
Net deferred tax asset ................................... 7,914 10,500
Valuation allowance ........................................ 7,845) (7,635)
------------ ------------
Recognized net deferred tax asset ........................ $ 69 $ 2,865
============ ============
</TABLE>
10
<PAGE> 11
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A valuation allowance of approximately $7.8 million and $7.6 million at
June 30, 1997 and December 31, 1996, respectively, has been provided against
the Company's net deferred tax assets based on management's estimate of the
recoverability of future tax benefits. The valuation allowance relates
primarily to the ability to use net operating loss and investment tax credit
carryforwards. The Company evaluated all appropriate factors to determine the
proper valuation allowance for these carryforwards, including any limitations
concerning their use, and the levels of taxable income necessary for
utilization. In this regard, full valuation allowances were provided for
investment tax credit carryforwards. Based on its recent operating results and
its expected levels of future earnings, the Company believes it will, more
likely than not, generate sufficient taxable income to realize the benefit
attributable to the net operating loss carryforwards for which valuation
allowances were not provided. The deferred tax assets and related valuation
allowance will be adjusted as future events so warrant.
At June 30, 1997, the Company had investment tax credit carryforwards
of approximately $2.5 million and net operating loss carryforwards of
approximately $44.9 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 1997 and 2004. Additionally, the Company has
approximately $4.5 million of statutory depletion carryforwards and $0.9
million of AMT credit carryforwards that may be carried forward until utilized.
11
<PAGE> 12
TOM BROWN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations have been materially affected by
the substantial increase in the Company's size as a result of the Presidio
acquisition, making comparisons of individual line items between 1997 and 1996
difficult.
Selected Operating Data
<TABLE>
<CAPTION>
Three Months Six Months
ended ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues (in thousands):
Natural gas sales ....................... $ 13,624 $ 5,753 $ 35,698 $ 11,906
Crude oil sales ......................... 5,657 2,571 12,129 4,851
Marketing, gathering and processing ..... 7,186 5,635 14,504 10,289
Other ................................... 421 112 907 230
---------- ---------- ---------- ----------
Total revenues .................... $ 26,888 $ 14,071 $ 63,238 $ 27,276
========== ========== ========== ==========
Net income (in thousands) .................... $ 252 $ 1,012 $ 6,267 $ 1,882
========== ========== ========== ==========
Natural gas production (MMcf) ................ 7,845 4,347 15,554 8,221
Crude oil production (MBbls) ................. 320 123 639 258
Average natural gas sales price ($/Mcf) ...... $ 1.74 $ 1.32 $ 2.30 $ 1.45
Average crude oil sales price ($/Bbl) ........ $ 17.68 $ 20.90 $ 18.98 $ 18.80
</TABLE>
Revenues
During the three month period ended June 30, 1997, revenues from natural
gas and oil production increased $11.0 million to $19.3 million compared to the
same period in 1996. Such increase in gas and oil revenues was the result of an
increase in (i) natural gas sales volumes of 80% which increased revenues by
approximately $6.1 million, (ii) average natural gas sales prices received by
the Company from $1.32 per Mcf to $1.74 per Mcf which increased revenues by
approximately $1.8 million, (iii) oil sales volumes of 160% which increased
revenues by approximately $3.5 million. Average crude oil sales prices
decreased from $20.90 to $17.68 per barrel which decreased revenues $.4
million. The increase in gas and oil production levels was primarily due to the
Presidio Acquisition and to a lesser extent, successful drilling results
primarily in the Val Verde Basin of west Texas.
During the six month period ended June 30, 1997, revenues from natural
gas and oil production increased $31.1 million to $47.8 million compared to the
same period in 1996. Such increase in gas and oil revenues was the result of an
increase in (i) natural gas sales volumes of 89% increased revenues by
approximately $16.9 million, (ii) average natural gas prices received by the
Company from $1.45 per Mcf to $2.30 per Mcf increased revenues by approximately
$7.0 million, (iii) oil sales volumes of 148% increased revenues by
approximately $7.2 million for the six month period ended June 30, 1997. An
increase in the average crude oil sales price from $18.80 per Bbl. to $18.98
per Bbl. increased revenues for the six months ended June 30, 1997.
12
<PAGE> 13
TOM BROWN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Marketing, gathering and processing revenues increased $1.6 million and
$4.2 million, respectively, for the three and six month periods ended June 30,
1997 as a result of increased activity in the Company's natural gas marketing
operations through Wildhorse, a joint venture with KN Energy, Inc., and due to
gathering revenues from a November 1996 purchase of gathering facilities, also
through Wildhorse.
Costs and Expenses
Costs and expenses for the three months ended June 30, 1997 increased
approximately 119% to $26.0 million as compared to the same period in 1996.
Natural gas and oil production expense increased $2.3 million as a result of
the addition of the KNPC and Presidio properties. The Presidio properties
historically have had a higher operating cost than those properties operated by
the Company. Taxes on gas and oil production increased $1.1 million due to
increased sales volumes in the Val Verde Basin and from the KNPC and Presidio
properties. Exploration costs increased $1.0 million due to exploratory dry
hole costs in the second quarter of 1997. General and administrative expenses
increased $1.3 million due to additional costs incurred with the addition of
KNPC and Presidio. Depreciation, depletion and amortization increased $4.7
million due to the addition of the KNPC and Presidio properties and additional
Val Verde Basin wells. Interest expense increased by $1.7 million as a result
from interest associated with the debt outstanding due to the purchase of
Presidio.
Costs and expenses for the six months ended June 30, 1997 increased
approximately 128% to $52.9 million as compared to the same period in 1996.
Natural gas and oil production expense increased $5.1 million. Taxes on gas and
oil production increased 2.5 million. Exploration costs increased $1.7 million.
General and administrative expenses increased $2.3 million. Depreciation,
depletion and amortization increased $9.7 million. Interest expense increased
by $3.7 million.
A valuation allowance of approximately $7.8 million and $7.6 million at
June 30, 1997 and December 31, 1996, respectively, has been provided against
the Company's net deferred tax assets based on management's estimate of the
recoverability of future tax benefits. The valuation allowance relates
primarily to the ability to use net operating loss and investment tax credit
carryforwards. The Company evaluated all appropriate factors to determine the
proper valuation allowance for these carryforwards, including any limitations
concerning their use, and the levels of taxable income necessary for
utilization. In this regard, full valuation allowances were provided for
investment tax credit carryforwards. Based on its recent operating results and
its expected levels of future earnings, the Company believes it will, more
likely than not, generate sufficient taxable income to realize the benefit
attributable to the net operating loss carryforwards for which valuation
allowances were not provided. The deferred tax assets and related valuation
allowance will be adjusted as future events so warrant.
CAPITAL RESOURCES AND LIQUIDITY
Growth and Acquisitions
In 1996 the Company substantially increased in size primarily due to the
KNPC and Presidio acquisitions. 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 the production of natural gas. As the Company continues to evaluate
potential acquisitions and property development opportunities, it will benefit
from its financial flexibility and the leverage potential of the Company's
overall capital structure.
Capital Expenditures
The Company's capital expenditures for the three and six month periods
ended June 30, 1997 were approximately $12.4 million and $23.0 million as
compared to $3.3 and $7.9 million in the same period in 1996.
13
<PAGE> 14
The Company has significantly increased its drilling activity in 1997. The
closing of the acquisitions of KNPC and Presidio have given the Company
additional opportunities to develop new reserves. In 1997, the Company plans to
drill in excess of 100 wells. In the first six months of 1997, the Company had
27 wells in various stages of drilling, completion and production. The Company
anticipates approximately $30 million of capital expenditures for the remainder
of 1997.
The Company has historically funded capital expenditures and working
capital requirements with internally generated cash and borrowings. During the
six months ended June 30, 1997, net cash provided by operating activities was
$29.3 million as compared to $11.3 million for the same period of 1996.
Recent Accounting Pronouncements
In October 1996 the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 96-1 ("SOP 96-1") which provides
authoritative guidance intended to improve and narrow the manner in which
existing accounting literature is applied to the recognition, measurement,
display, and disclosure of environmental remediation liabilities arising
pursuant to existing federal, state and local laws and regulations. SOP 96-1
addresses the nature of items that are to be included in the measurement of a
company's liability related to any environmental remediation efforts it is
currently undertaking or required to complete in the future. In this regard,
SOP 96-1 requires that all incremental direct third party costs, as well as any
internal compensation costs (including benefits) for employees expected to
devote a significant amount of time directly to remediation efforts, should be
included in the determination of the estimated liability. The term "remediation
effort" is defined in SOP 96-1 to include such things as remedial risk
assessment, feasibility studies and operations and maintenance associated with
corrective actions. SOP 96-1 must be adopted in the first quarter of 1997. The
adoption of SOP 96-1 had no impact on the Company's financial position, results
of operations or liquidity for the first quarter of 1997, and is not expected
to have a material impact on the Company's financial position, results of
operations or liquidity in the future.
In March 1997, the Financial Accounting Standards Board ("FASB") issued
FASB Statement 128, Earnings per Share, which is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
This Statement requires all entities who have issued common stock or potential
common stock (eg. options, convertible securities, etc.) to calculate basic EPS
which replaces primary EPS, and diluted EPS which replaces fully diluted EPS.
Basic EPS for the six month period ended June 30, 1997 was $.26. Diluted EPS
for the six month period ended June 30, 1997 was $.25.
14
<PAGE> 15
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
15
<PAGE> 16
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 21, 1997. At
the meeting, the following persons were elected to serve as Directors of the
Company until the 1998 annual meeting of stockholders and until their
respective successors are duly qualified and elected: (1) Thomas C. Brown, (2)
Donald L. Evans, (3) William R. Granberry, (4) Henry Groppe, (5) Edward W.
LeBaron, Jr. (6) James B. Wallace, (7) Robert H. Whilden, Jr., (8) David M.
Carmichael and (9) George M. Simmons.
Set forth below is a tabulation of votes with respect to each nominee for
Director:
<TABLE>
<CAPTION>
Votes Votes Broker
Cast For Withheld Non-votes
---------- -------- ---------
<S> <C> <C> <C>
Thomas C. Brown 22,588,695 41,906 -0-
Donald L. Evans 22,588,895 41,706 -0-
William R. Granberry 22,588,870 41,731 -0-
Henry Groppe 22,589,340 41,261 -0-
Edward W. LeBaron, Jr. 22,618,495 12,106 -0-
James B. Wallace 22,617,995 12,606 -0-
Robert H. Whilden, Jr. 22,588,895 41,706 -0-
</TABLE>
In addition to the above directors elected by the holders of the Common
Stock, the sole holder of the Company's 1,000,000 shares of outstanding
Preferred Stock also designated David M. Carmichael and George M. Simmons as
directors.
An amendment to the 1989 Stock Option Plan to increase the number of
authorized shares by an additional 600,000 shares of Common Stock was adopted
at the annual meeting of stockholders on May 21, 1997.
Set forth below is a tabulation of votes with respect to this amendment:
<TABLE>
<CAPTION>
Votes Votes
Cast for Cast Against Abstentions Non-votes
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Common Stock 18,290,475 3,982,111 385,015 -0-
Preferred Stock 1,000,000 -0- -0- -0-
</TABLE>
16
<PAGE> 17
TOM BROWN, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K and Form 8-K/A
(a) Exhibits Description
-------- -----------
Exhibit No. 11 Computation of Per Share Earnings
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K
In its Form 8-K Report dated June 26, 1997, the Company reported
the registration of 600,000 additional shares of Common Stock
authorized for issuance under the Company's 1989 Stock Option
Plan. Under Item 5., Interests of Named Experts and Counsel, the
validity of the issuance of the Common Stock issuable upon
exercise of the options passed upon for the Company by Lunch,
Chappell and Alsup, a Professional Corporation, Midland, Texas.
James M. Alsup, a shareholder in the firm of Lynch Chappell and
Alsup, is the Assistant Secretary of the Company and the
beneficial owner of 10,000 shares of Common Stock of the
Company.
17
<PAGE> 18
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)
August 1, 1997 /s/ Kim Harris
- -------------- -------------------------------
Date Kim Harris
Controller
(Mr. Harris is the Chief Financial Officer
and is duly authorized to sign on behalf
of the Registrant)
18
<PAGE> 1
EXHIBIT NO. 11
TOM BROWN, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Primary
Weighted average common
shares outstanding 24,029 21,122 23,970 21,117
Net effect of dilutive
stock options,
treasury stock method 1,140 683 1,140 612
---------- ---------- ---------- ----------
Total common shares 25,169 21,805 25,110 21,729
========== ========== ========== ==========
Net income to common
shareholders $ 252 $ 1,012 $ 6,267 $ 1,882
========== ========== ========== ==========
Primary earnings per
common share $ .01 $ .05 $ .25 $ .09
========== ========== ========== ==========
Fully Diluted
Weighted average common
shares outstanding 24,029 21,122 23,970 21,117
Net effect of dilutive
stock options,
treasury stock method 1,140 724 1,140 727
Effect of convertible
preferred stock 1,666 1,666 1,666 1,666
---------- ---------- ---------- ----------
Total common shares 26,835 23,512 26,776 23,510
========== ========== ========== ==========
Net income to common
shareholders $ 689 $ 1,449 $ 7,142 $ 2,679
========== ========== ========== ==========
Fully diluted earnings
per common share $ .03 $ .06 $ .27 $ .11
========== ========== ========== ==========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,658
<SECURITIES> 0
<RECEIVABLES> 24,366
<ALLOWANCES> 00
<INVENTORY> 1,487
<CURRENT-ASSETS> 37,193
<PP&E> 478,945
<DEPRECIATION> 141,633
<TOTAL-ASSETS> 375,038
<CURRENT-LIABILITIES> 24,964
<BONDS> 0
0
100
<COMMON> 2,414
<OTHER-SE> 251,670
<TOTAL-LIABILITY-AND-EQUITY> 375,038
<SALES> 47,827
<TOTAL-REVENUES> 63,238
<CGS> 23,769
<TOTAL-COSTS> 52,856
<OTHER-EXPENSES> 5,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,667
<INCOME-PRETAX> 10,382
<INCOME-TAX> (3,240)
<INCOME-CONTINUING> 6,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,267
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
