Tom Brown Inc.: surviving in the oil and gas industry.

Jackson, William T. ; Jackson, Mary Jo ; Johnson, Larry A. 等

CASE DESCRIPTION

This case was developed through the use of secondary research material. The case has a difficulty level of five and is appropriate to be analyzed and discussed by advanced undergraduate and graduate students in a strategic management class.

The case allows the instructor the flexibility of concentrating on one strategic issue, or as a means of examining the entire strategic management process. The major focus within the strategic analysis as well as excellent stand alone modules is in the area of legal/political influence, economic, and as a means of discussing owner succession.

The instructor should allow approximately one class period for each element addressed. Using a cooperative learning method, student groups should require about two hours of outside research on each element researched. The case also provides an impetus to explore a critical industry in our world economy, yet one that has received minimal attention in most course coverage.

CASE SYNOPSIS

This case is a library, popular press and internet case which examines Tom Brown Inc. The review of annual reports, trade journals, government documents and proposed and enacted regulations must be accomplished carefully. While most students have a general understanding of the oil and gas industry, few have the current knowledge to compare this industry against more traditional production operations. A review of these resources should lead students in determining the future of the company and the current CEO, Tom Brown.

INSTRUCTOR'S NOTES

Company Mission

"Tom Brown, Inc. is an independent energy company engaged in the exploration for, and the development, acquisition, production, and marketing of natural gas, natural gas liquids, and crude oil primarily in the gas-prone basins of the North American Rocky Mountains and Texas."

The corporate mission of TBI should be located by the students on the corporation's website. A review of the mission clearly demonstrates that the company has a well focused mission statement. Further investigation of TBI's direction within that document allows the identification of several internal goals and directions. Each of the below goals reinforces the company's desire to build value per share:

* Exploring undiscovered reserves

* Acquiring and exploiting oil and gas properties

* Enhancing value by optimizing production, actively marketing and processing natural gas and focusing on cost containment

* Aggressively managing and holding a dominant land position in its core areas

* Maintaining a strong balance sheet

Review of these goals should provide discussion on consistency with the mission. Knowledge of the actual results indicates, for the most part, that TBI has created a well developed direction for the company. Some discussion may arise regarding whether the above goals are truly goals or are they strategies the company is pursuing.

INDUSTRY ANALYSIS

Threats to Entry

The natural gas production industry sells a relatively undifferentiated commodity. There is no proprietary product difference or brand identity associated with natural gas. Many projects have fairly low capital requirements for domestic natural gas production. In addition, there are no switching costs for purchasers of natural gas.

One barrier that a new start-up would encounter could be access to distribution channels in certain gas rich areas--the Rocky Mountains for example. Not only is there a lack of pipeline capacity existing in the region, but individual gathering systems within that region also lack abundance. Individual operators can build gathering systems, but these systems make project economics much less attractive.

Perhaps the biggest deterrent for potential competitors within the natural gas industry is the fact that existing firms have absolute cost advantages with respect to the exploration and development of new reserves. Because the domestic natural gas market must now develop low quality reserves, competitors often lack the knowledge base to know which properties may have reserves and how exactly to go about developing those reserves.

Another component influencing the treat of new entrants is the expected retaliation of existing firms within the industry. Expected retaliation in the natural gas production industry only exists with respect to employment wars between companies. With the departure of many of the major oil companies from the U.S. exploration and development market, most firms are on a relatively equal platform in this regard.

Threats of Substitute Products

There are many other energy sources across the country that could be substituted for natural gas. These substitute forms of energy include coal, nuclear, hydro, heating oil, solar, and wind-generated. Considering that a firm's greatest concern with substitute products is their potential to set the price ceiling for your product. This consideration excludes solar, heating oil and wind-generated power as major concerns.

On the other hand, hydroelectricity is a very cheap form of energy that is definitely substituted for natural gas where possible. However, the total amount of power generated by this means is already at maximum capacity and accounts for only a small percentage of the nation's needs. The cleanest and cheapest form of energy generation in the world is that of nuclear power. Per megawatt of electricity produced, no other form of energy generation compares with respect to cost or amount of pollution generated. Due to the public's reaction to "nuclear" power plants, the nations move to this supply has been extremely limited in recent years with no new plants coming on line for several years.

Power of Buyers

Unlike many commodities, natural gas purchases are typically not at the discretion of the final end user. The price, as discussed in the case, is driven primarily on the basis of supply versus demand.

An element in the channel of distribution for this product does have a considerable influence on price in certain regions--the owners of the pipelines. When there is limited capacity with respect to the movement of the gas, the pipeline owners have considerable leverage and can charge a premium for its movement.

Power of Suppliers

In the oilfield, products and services are highly differentiated. There are such a large number of applications that must be catered to that a myriad of sub-sectors have arisen in the industry. Because each sub-sector contains only a handful of firms that are also differentiated within their peer groups, competition is low and these firms are able to charge a premium. Furthermore, limited knowledge with respect to the specialty products and services reduces the power of the exploration companies. To illustrate this point, below are a few of the specialty sub-sectors:

Drilling--drilling rigs that powers the drilling operations

Bits--bits that can cut and drill away rock

Mud--drilling fluids that provide pressure control

MWD--equipment that measures bottom-hole characteristics

Directional Drilling--hole guidance and directional drilling heads

Logging--measurement instruments of rock characteristics

Communication--relay information from remote rig locations

Casing and Liners--liners for the hole to ensure wellbore integrity

Cementing--cementing for pressure isolation and corrosion control

Down-hole tools--tools to correct remote problems

Wellheads--surface control equipment

Safety--various safety equipment items

These are only a few of the sub-sectors--there are numerous others.

There is one other supplier that may exert even more power over independent exploration and production companies. That supplier is land owners. Gas rich land masses are in short supply.

Rivalry of Existing Firms

In terms of the competitiveness of the industry, most experts would classify the industry as only relatively competitive. There is exceptional growth, few large players, fixed cost as a percentage of value added is low and exit barriers are generally low.

For students it will be difficult to accumulate a great deal of information relating to each of TBI's direct competitors. This is not a major concern for the analysis. A few of these firms include: Apache, EOG, Evergreen, Forest, Newfield and Pogo,

After analyzing the above five forces, students should come to the general conclusion that the industry is potentially very attractive. There are some protective barriers to entry, buyers are not powerful, there are limited substitute products, and the industry is relatively mild in terms of competition.

GENERAL ENVIRONMENT

The case provides numerous opportunities for the students to explore the influence of the general environment on firms. While good discussions can be generated regarding the influence of the social, global and technological forces, the areas that need the most attention from the students are natural, economic and legal and political issues.

Legal/Political:

Students should be prepared to recognize not only existing regulations, but also the potential for future re-regulation of the industry. Students should also be cognizant of the political climate relating to foreign producers. At a minimum, students should address the issues in the following paragraphs.

While forthcoming legislation and changes in governmental regulations are difficult to predict, firms operating in the natural gas industry need to be aware of proposed changes and steer their strategic plans to capitalize on legislative activity and minimize the negative impact of regulatory actions. Both the President and Congress see the need for a change in U.S. energy policy. The U.S.'s dependence on foreign oil has adverse economic and geopolitical consequences. Both government and industry view natural gas as an economic alternative to fuel oil and a clean fuel source for the generation of electricity.

A growing use of natural gas is in the generation of electricity. Coal, while being the most plentiful energy source in the U.S. and the primary fuel source for electric generation, has a number of environmental issues as it relates to air quality. Air quality regulatory activity has become more stringent and costly every year. Emissions from coal plants have been regulated since the Clean Air Act of 1992. The President has proposed an update of the Clean Air Act that would call for even more stringent requirements on the emissions of Nitrogen Oxide (NOx) and Sulfur Dioxide (SO2). Even without legislative reform, the EPA and the various states through the Clean Air Interstate Rule are likely to require lower emissions of NOx and SO2. Regulatory proposals are also in place for control of mercury emissions and well as fine particulate matter.

Pending legislation targets an increase in both domestic production as well as natural gas imports. A revision of the Energy Policy Act of 1992 is currently under consideration at the federal level. Legislative provisions being discussed include opening up the Alaskan North Slope to oil and natural gas exploration and the construction of a natural gas pipeline from Alaska to the lower forty-eight states. Proposed incentives include low interest loans and loan guarantees as well as accelerated depreciation for the pipeline owners. Proposed activities to promote additional exploration include royalty relief for oil and gas production in the deep waters of the Gulf of Mexico and the opening up of additional areas in the deep Gulf and off the Florida coast. Other areas for exploration are also being discussed including the Outer Continental Shelf and additional Federal Lands in the Rock Mountains. While these legislative activities will eventually put some downward pressure on natural gas prices, they also offer new opportunities for TBI.

Both the President and Congress view Liquefied Natural Gas (LNG) as a solution to the U.S. dwindling natural gas supply. However, the U.S. has limited importing and re-gasification facilities for LNG. A number of companies have attempted to build LNG import stations but have not been successful due to environmental and safety concerns; especially, after the September 11 terrorist attacks. Currently, the approval and permitting of importing facilities are up to the individual states. Current provisions would move this approval and monitoring authority to the federal level. Approval of import facilities are proposed to fall under the jurisdiction of the Federal Energy Regulatory Commission (FERC) with safety issues to be addressed by the Department of Homeland Security.

The California energy crisis and a general shortage of electricity in the U.S. have prompted a number of provisions to expand the use of nuclear and coal. No nuclear reactors have been constructed in the U.S. since the mid 1970's. Current provisions include cost off-sets and tax credits for new nuclear plants. Coal, while environmentally unfriendly, is plentiful. Many see coal gasification as an environmentally friendly method of producing electricity. The Department of Energy is encouraged to foster the development of this technology and provide cost-offsets and tax credits to support its development.

Natural gas production from the Rocky Mountain States has been hampered by a lack of pipelines and storage facilities. Tariffs for natural gas transportation and storage fall under the jurisdiction of FERC. These tariffs fail to provide the economic incentives for new pipelines and storage facilities in the West. FERC is currently reviewing provisions to permit natural gas companies to provide storage facilities at market-based rates if FERC believes the company can not exert excessive market power.

Threats

* Increased environmental and safety regulations

* Increased social concern driving further pocketed legal roadblocks such as in Colorado

* Regulation restricting expansion due to potential environmental damages

Opportunities

* Increased regulation forcing larger companies out

* Legal restrictions being lifted in certain international markets

Economic

The case clearly demonstrates the influence of two major economic issues on the natural gas industry. Supply and demand is probably no more apparent in any other industry. Also the relationship of Economic Growth as measured by GDP is made very clear in this case.

Threats

* Unpredictable patterns of supply and demand

* Downturn in the economy

Opportunities

* Economic upturns

* Price increases bring new exploration

Natural

The very nature of the commodity presents both challenges and opportunities for the industry. While natural gas is a limited resource, there is still potentially a very large market to explore. The greatest concern students should identify is the diverse and isolated locations of many of the gas rich locations. In addition, gas consumption is increasing at a faster pace in the U.S. than in other areas rich in natural gas.

INTERNAL

Firms in the oil and gas industry have had very little written about there day-to-day operations in the popular press. This is also true regarding the leaders within those firms. While studying Tom Brown would be a case in itself, access to large amounts of information about him is limited. The same is true about the individual functional areas within the firm. Students will be limited primarily to looking at the raw numbers and drawing conclusions based upon these financial statements.

Financial Analysis

The analysis begins with the comparison of the firm's key performance ratios to those of its competitors. For this analysis, a random selection of independent natural gas producers with domestic operations was chosen as an industry peer group. Among those were Apache, EOG, Evergreen, Forest, Newfield, and Pogo.

Return on Revenue (ROR)--this performance ratio indicates the company's profit margin on every dollar of revenue. Lower ROR percentages indicate that the company is spending more money in the acquisition, development, or production of its reserves, or that current operations carry a high level of fixed costs compared to existing production rates. In either case, companies with lower ROR live with cost disadvantages compared to their peers. TBI was in the middle of the pact compared to its peers in this category.

Return on Assets (ROA)--this performance ratio indicates the company's ability to utilize its asset base to generate net income. Some companies may be extremely efficient at generating income from revenue (high ROR), but not utilize their full asset base to maximize those revenues (low ROA). Companies with the highest ROA are growing at the fastest rates as a direct result of differentiating their operations and establishing cost advantages with respect to "finding costs." TBI was a leader in this area within its peer group. The increase natural gas prices realized between 1999 and 2001 enabled the firm to benefit from its strategic plays and large production base existing within the Rockies.

Return on Equity (ROE)--this performance ratio indicates the company's ability to deliver earnings to its stockholders. This ratio is directly dependent on the firm's ROA in combination with its capital structure and cost of debt. Given a ROA higher than the cost of debt, an increased capitalization ratio results in a higher ROE. Likewise, given a ROA less than the cost of debt, increased capitalization ratio results in lower ROE. ROE for TBI is at the bottom of its peer group. This is true for each of the years under study. This is especially alarming given that TBI increased its ROA performance. The obvious reason for the difference between ROA and ROE is the amount of leverage assumed by TBI versus its peers. This should have become obvious to the students as they studied Table 1 within the case.

Capitalization Ratio--this ratio is a measure of the firm's long-term debt compared to its total capital base. The capitalization ratio is a simple measurement of financial leverage. TBI carried a debt percentage significantly below that of its peers--10-15% versus 35-40%. While the impetus to do this is admirable (Tom Brown's individual aversion to the risk associated with debt), it is obvious that it places TBI at risk as a target for a takeover.

CRITICAL ISSUES

While numerous issues are facing the company, a few of these are explored below.

Critical Issue # 1

THREAT--the cyclical nature of the natural gas industry adds a large component of market risk into the equation, which can lead to decreased cash flows and the mistiming of projects.

WEAKNESSES--the company has historically assumed market risk in its business operations--opting not to hedge gas production. The combination of assuming the risk associated with developing unconventional gas sources (operational risk) as well as market risk has been detrimental to the company's prior financial performances.

Within TBI's operations, there is a major inconsistency between the business unit level strategy and functional level strategies. The business unit level strategy dictates that the company will achieve superior financial results by employing its technical staff and its land position to find and develop a production/reserve base at a cost significantly lower than its competitors. While the company has been successful in its attempts to realize this objective, the company's financial results have been sub-par in some areas. While mitigating risk and outperforming the market in terms of operational excellence, TBI has given back many of these gains by assuming a large degree of market risk in its operations. This was evident in 2002, as TBI production and reserves increased at acceptable levels, while net income plummeted to a negative $8.2 million. As can be inferred, TBI did not hedge any of its production prior to the start of the year.

Critical Issue # 2

OPPORTUNITY--Major oil producers and some large independents are exiting the high-cost environment in North America in search of low-cost reserves found abroad. Therefore, existing domestic properties will continue to be sold to independents.

STRENGTH--TBI has a proven track record of successfully evaluating and subsequently negotiating the purchase of those properties. The company's current capital structure would allow for easy financing of such deals.

Over the past decade, TBI has been able to acquire properties at prices significantly lower than its finding costs. Many of the acquired properties have also led to very successful, low-cost development projects. Therefore, the availability of additional sales-block properties can only be beneficial.

Critical Issue # 3

THREAT--With its large composition of gas reserves and strategic positioning, larger competitors may make hostile-takeover bids to acquire the TBI's reserves for a fraction of their real value.

WEAKNESS--TBI's capital structure, with its low levels of debt, invites an action. The company's historically low Return on Equity (due primarily to unfavorable leverage positions) might have the shares undervalued--further enticing potential acquirers.

Although short-term shareholder value may increase as a result of such a transaction, it probably would not be beneficial to stockholders in the long term. Because of the low capitalization ratio historically employed by the company, the Return of Equity has been artificially reduced. This reduction in ROE negatively impacts the price of the stock. Therefore, a hostile acquirer, instead of the previous shareholders, would benefit form this "hidden value". In addition, there is a very real possibility that the value of natural gas (and thus TBI shares) will significantly increase in the near future. A hostile takeover would strip existing shareholders of this future value.

REFERENCES

Department of Energy, Annual Energy Forecast 2002.

Department of Energy, http://www.netl.doe.gov/scng/explore/low-perm/detect.html.

Department of Energy, http://www.netl.doe.gov/scng/explore/low-perm.html.

EIA Data, http:www.eia.doe.gov/emeu/international/LNGimp2001.html.

Energy Information Administration/International Energy Outlook 2002, 2003.

Halliburton, http:www.halliburton.com/news/archive/2001/esgnws_043001.jsp.

NaturalGas.org, http://www.naturalgas.org/overview/history.asp

Newfield Exploration, Inc. 10K (2002).

Office of Management and Budget, http://www.whitehouse.gov/omb/budget/fy2002/msr04.html

Tom Brown, Inc. 2002 Annual Report.

Tom Brown, Inc. 10K (1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002).

"Worldwide Natural Gas Supply and Demand and the Outlook for Global LNG Trade." Energy Information Administration, Natural Gas Monthly, August 1997.

William T. Jackson, University of South Florida at St. Petersburg

Mary Jo Jackson, University of South Florida at St. Petersburg

Larry A. Johnson, Dalton State College

Table 1: Tom Brown Inc. Activity: 1992-2002

Year Investment Divestment Source of Funds Amount

1992 Willingston ($7.0 M)
 Arkoma Basin (ND, $1.6 M
 Basin (AR) Montana)
 Wyoming's Wind $3.4 M
 River
 Pavilion
 Field
1993 Wind River $2.2 M
 Pipeline
 Stock Issuance ($38.6 M)
 Val Verde $1.6 M
 Basin of
 South West
 Texas
1995 Presidio Oil & Bank Loan $56.0 M
 Gas Index ($56.0 M)
 notes
 Renegotiated ($65.0 M)
 bank loan $56.0 M
 Arkoma ($9.0 M)
 Stock Issuance ($47.0 M)
 and paid loan $65.0 M
1996 K. N. $36.25 M
 Production
 Co.
 Stock Issuance ($25.0 M)
 Preferred
 Stock Issuance ($11.25 M)
 Common
 Finalized $206.6 M
 remaining
 purchase of
 Presidio
1997 ND Properties ($11 M)
 Stock Issuance ($121 M)
 Genesis Gas $35 M
 & Oil
 Interenergy $23.4 M
 Corp
1998 Sauer Drilling $8.1 M
 Co.
1999 Relocation $2.1 M
 to CO
 Unocal Rocky $60.9 M
 Mountain
 assets
 Stock Issuance ($55.9 M)
 Greater Green $7.7 M
 River Basin
 of WY
 DJ Basin of ($2.3 M)
 NE
 Colorado
2000 Wind River $15.2 M
 Pavilion
 field
2001 Stellarton $94.8 M
 Energy Inc.
 Canadian Loan ($94.8 M)
 Don Evans (CEO) $1.5 M
 resigned to
 become Sec.
 of Commerce
 and receives
 bonus and
 non-cash
 stock option
 charge of
 $3.8 M
 Oklahoma ($24.5 M)
 Assets
 Wildhorse ($24 M)
 Deep Valley $8 M
 Project

2002 Wyoming ($7.2 M)
 Power
 River
 Basin
 Louisiana ($2.0 M)
 Holdings
 Colorado ($1.6 M)
 Holdings
 Green River $14.9 M
 Basin

Table 2: TOM BROWN, INC. BALANCE SHEET
($ thousand)

 2002 2001
Current Assets
Cash & Equivalents 13,555 15,196
Accounts Receivable 47,414 63,745
Inventories 1,808 1,689
Other 3,988 2,332
 Total Current Assets 66,765 82,962
Property & Equipment, at cost
Gas and Oil Properties 959,807 849,628
Gather & Process & Plant 101,054 89,343
Other 35,930 33,689
 Depreciation -320,306 -234,134
 Net P&E 776,485 738,526
Other Assets
Deferred Income Taxes, net 0 0
Goodwill, net 0 18,125
Other Assets 7,702 5,362
 Net Other Assets 7,702 23,487
Total Assets 850,952 844,975
Current Liabilities
Accounts Payable 42,773 59,172
Accrued Expenses 21,993 12,512
Fair Value of Derivative 10,886 0
 Instruments
 Total Current Liabilities 75,652 71,684
Bank Debt 133,172 120,570
Deferred Income Tax 73,967 75,194
Other Non-Current Liabilities 4,543 2,299
Total Liabilities 287,334 269,747
Stockholder's Equity
Convertible Perferred Stock 0 0
Common Stock, ($0.10 par value) 3,926 3,913
Additional Paid-in Capital 537,449 534,790
Retained Earnings 29,678 37,855
Accumulated Other Comp. Loss -7,435 -1,330
Total Stockholder's Equity 563,618 575,228
Equity & Liabilities 850,952 844,975

 200 1999
Current Assets
Cash & Equivalents 17,534 12,510
Accounts Receivable 95,878 53,646
Inventories 521 829
Other 2,307 1,625
 Total Current Assets 116,240 68,609
Property & Equipment, at cost
Gas and Oil Properties 575,991 470,461
Gather & Process & Plant 81,873 71,657
Other 28,746 23,027
 Depreciation -176,848 -133,342
 Net P&E 509,762 431,803
Other Assets
Deferred Income Taxes, net 0 28,625
Goodwill, net 0 0
Other Assets 3,533 35,887
 Net Other Assets 3,533 64,512
Total Assets 629,535 564,924
Current Liabilities
Accounts Payable 55,982 39,489
Accrued Expenses 22,119 9,763
Fair Value of Derivative 0 0
 Instruments
 Total Current Liabilities 78,101 49,252
Bank Debt 54,000 81,000
Deferred Income Tax 5,475 0
Other Non-Current Liabilities 3,066 3,950
Total Liabilities 140,642 134,202
Stockholder's Equity
Convertible Perferred Stock 0 100
Common Stock, ($0.10 par value) 3,835 3,531
Additional Paid-in Capital 516,911 495,817
Retained Earnings -31,648 -97,351
Accumulated Other Comp. Loss -205 0
Total Stockholder's Equity 488,893 402,097
Equity & Liabilities 629,535 536,299

Table 3: TOM BROWN, INC. INCOME STATEMENT ($ thousands)

 2002 2001
Revenues
Oil, Gas & Liquid Sales 194,276 274,031
Gathering & Processing 20,467 23,245
Marketing & Trading 5,276 1,891
Drilling 14,347 14,828
Gain on Sale of Property 4,114 10,078
Change in Derivative Fair Value -2,406 897
Loss on Marketable Securities -600 0
Interest Income & Other 171 1,345
 Total Revenues 235,645 326,324
Costs and Expenses
Gas and Oil Production 32,151 32,060
Taxes on gas & oil 16,621 21,020
Gathering & Processing Costs 6,918 10,855
Drilling 13,763 11,851
Exploration Costs 22,824 34,195
Impairment of Leasehold Costs 5,564 5,236
General & Administrative 18,413 22,742
Depreciation, Depletion, & Amor. 91,307 74,371
Bad Debts 5,222 1,043
Interest Expense & Other 9,726 7,347
 Total costs and expenses 222,509 220,720
Income Before Taxes & Cumm.
Effect of Change in Acct. Principle 13,136 105,604
Income Tax Provision:
Current 229 1,200
Deferred 2,981 36,927
Cumm. Effect of Change in Acct. -18,103 2,026
Net Income -8,177 69,503
Preferred Stock Dividends 0 0
N.I. Attributable to Common Stock -8,177 69,503
Weighted Average # of Shares out.
Basic 39,217 38,943
Diluted 40,327 40,227
Net Income/Share (Basic) -0.21 1.78
Net Income/Share (Diluted) -0.2 1.73
Earnings/Share (Basic) 0.25 1.73
Earnings/Share (Diluted) 0.25 1.68

 2000 1999
Revenues
Oil, Gas & Liquid Sales 216,968 104,431
Gathering & Processing 18,283 11,968
Marketing & Trading 5,841 -786
Drilling 11,472 5,645
Gain on Sale of Property 0 1,265
Change in Derivative Fair Value 0 0
Loss on Marketable Securities 0 0
Interest Income & Other 1,346 888
 Total Revenues 253,910 123,411
Costs and Expenses
Gas and Oil Production 25,488 18,446
Taxes on gas & oil 22,105 9,934
Gathering & Processing Costs 7,212 5,853
Drilling 9,715 5,237
Exploration Costs 11,001 10,013
Impairment of Leasehold Costs 3,900 3,600
General & Administrative 11,614 9,203
Depreciation, Depletion, & Amor. 50,417 44,215
Bad Debts 133 n/a
Interest Expense & Other 5,967 5,860
 Total costs and expenses 147,552 112,361
Income Before Taxes & Cumm.
Effect of Change in Acct. Principle 106,358 11,050
Income Tax Provision:
Current 1,968 903
Deferred 37,812 3,390
Cumm. Effect of Change in Acct. 0 0
Net Income 66,578 6,757
Preferred Stock Dividends 875 1,750
N.I. Attributable to Common Stock 65,703 5,007
Weighted Average # of Shares out.
Basic 36,664 32,228
Diluted 37,897 32,466
Net Income/Share (Basic) 1.79 0.16
Net Income/Share (Diluted) 1.73 0.15
Earnings/Share (Basic) 1.82 0.21
Earnings/Share (Diluted) 1.76 0.21

** Note: Earnings/Share strips out the cumulative effect
of accounting change.