<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________________
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12757
TMBR/SHARP DRILLING, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-1835108
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4607 WEST INDUSTRIAL BLVD.
MIDLAND, TEXAS 79703
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (area code) (915) 699-5050
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.10 Par Value Outstanding at August 4, 1995
---------------------------- -----------------------------
(Title of Class) 3,232,786
Page 1 of 19 Sequentially Numbered Pages
<PAGE> 2
TMBR/SHARP DRILLING, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
Page No.
Part I. Financial Information (Unaudited) . . . . . . . . . . . . 3
Item 1. Financial Statements
Balance Sheets, June 30, 1995 and
March 31, 1995 . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations, Three Months
Ended June 30, 1995 and 1994 . . . . . . . . . . . . . 6
Statements of Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . . . . 8
Statements of Cash Flows, Three Months
Ended June 30, 1995 and 1994 . . . . . . . . . . . . . 9
Notes to Financial Statements . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 12
Part II. Other Information . . . . . . . . . . . . . . . . . . . . 15
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 16
-2-
<PAGE> 3
TMBR/Sharp Drilling, Inc.
4607 West Industrial Blvd.
Midland, Texas 79703
______________________________
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 (UNAUDITED)
______________________________
-3-
<PAGE> 4
Item 1. FINANCIAL STATEMENTS
TMBR/SHARP DRILLING, INC.
BALANCE SHEETS
June 30, 1995 (Unaudited) and March 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30,
1995 March 31,
ASSETS (Unaudited) 1995
------ ------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 160 $ 1,590
Trade receivables,
net of allowance for doubtful
accounts of $1,225 at both June 30,
and March 31, 1995 5,491 2,568
Inventories 45 45
Deposits 513 513
Other 111 265
-------- --------
Total current assets 6,320 4,981
-------- --------
Property and equipment, at cost:
Drilling equipment 38,578 38,308
Oil and gas properties, based on
successful efforts accounting 6,220 5,790
Other property and equipment 3,210 3,206
-------- --------
48,008 47,304
Less accumulated depreciation,
depletion and amortization (42,775) (42,505)
-------- --------
Net property and equipment 5,233 4,799
-------- --------
Other assets 260 260
-------- --------
Total assets $ 11,813 $ 10,040
======== ========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 5
TMBR/SHARP DRILLING, INC.
BALANCE SHEETS
June 30, 1995 (Unaudited) and March 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30,
1995 March 31,
Liabilities and Stockholders' Equity (Unaudited) 1995
------------------------------------ ------------ -----------
<S> <C> <C>
Current liabilities:
Current portion of capital lease
obligations $ 72 $ 92
Trade payables 2,382 1,839
Accrued workers' compensation 1,297 1,220
Loans from bank 745 --
Leasehold purchase obligation 267 386
Other 711 728
-------- --------
Total current liabilities 5,474 4,265
-------- --------
Contingencies
Stockholders' equity:
Common stock, $0.10 par value
Authorized, 50,000,000 shares;
issued, 4,501,525 and 4,393,525
shares at June 30 and
March 31, 1995, respectively 450 439
Additional paid-in capital 60,582 60,540
Accumulated deficit (54,543) (55,054)
Treasury stock-common, 1,268,739
shares at June 30 and
March 31, 1995, at cost (150) (150)
-------- --------
Total stockholders' equity 6,339 5,775
-------- --------
Total liabilities and
stockholders' equity $ 11,813 $ 10,040
======== ========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 6
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Three months ended June 30, 1995 and 1994 (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
June 30,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Contract drilling $ 5,931 $ 3,319
Oil and gas 359 141
----------- -----------
Total revenues 6,290 3,460
----------- -----------
Operating costs and expenses:
Contract drilling 5,004 2,816
Oil and gas production 84 59
Dry holes and abandonments 16 215
Depreciation, depletion and
amortization 270 215
General and administrative 396 326
----------- -----------
Total operating costs
and expenses 5,770 3,631
----------- -----------
Operating income (loss) 520 (171)
----------- -----------
Other income (expense):
Interest (32) (39)
Gain on sales of assets -- 29
Other, net 35 33
----------- -----------
Total other income 3 23
----------- -----------
Net income (loss) before income
tax provision 523 (148)
Provision for income taxes (12) --
----------- -----------
Net income (loss) 511 (148)
----------- -----------
Net income (loss) attributable
to common stockholders $ 511 $ (148)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE> 7
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Three months ended June 30, 1995 and 1994 (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
June 30,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net income (loss) per share
of common stock $ .13 $ (.04)
=========== ===========
Weighted average number of
common shares outstanding 4,055,291 4,037,844
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 8
TMBR/SHARP DRILLING, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
Three Months Ended June 30,1995 (Unaudited) and
Year Ended March 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Treasury Stock
--------------
Common Stock Additional Common Stock Total
-------------- Paid-In Accumulated -------------- Stockholders'
Shares Amount Capital Deficit Shares Amount Equity
------ ------ ------- ----------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1995 4,394 $ 439 $ 60,540 $(55,054) 1,269 $(150) $ 5,775
Exercise of
stock options 108 11 42 -- -- -- 53
Net income -- -- -- 511 -- -- 511
----- ----- -------- -------- ------- ----- -------
Balance,
June 30,
1995 4,502 $ 450 $ 60,582 $(54,543) 1,269 $(150) $ 6,339
===== ===== ======== ======== ======= ===== =======
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 9
TMBR/SHARP DRILLING, INC.
STATEMENTS OF CASH FLOWS
For the three months ended June 30,1995 and 1994 (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
------------------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 511 $ (148)
Adjustments to reconcile net income (loss)
to net cash provided (required) by
operating activities:
Depreciation, depletion and
amortization 270 215
Dry holes and abandonments 16 215
Gain on sales of assets -- (29)
Changes in assets and liabilities:
Trade receivables (2,923) (51)
Deposits -- 116
Inventories and other assets 154 53
Trade payables 543 7
Accrued interest and other liabilities 60 (236)
-------- --------
Total adjustments (1,880) 290
-------- --------
Net cash provided (required) by
operating activities (1,369) 142
Cash flows from investing activities:
Additions to property and equipment (720) (655)
Proceeds from sales of property and
equipment -- 42
-------- --------
Net cash required by
investing activities (720) (613)
Cash flows from financing activities:
Repayments of capital lease (20) (26)
Issuance of common stock 53 96
Loans from bank 745 --
Repayments of leasehold borrowings (119) --
-------- --------
Net cash provided by
financing activities 659 70
-------- --------
Net decrease in cash
and cash equivalents (1,430) (401)
Cash and cash equivalents at beginning
of period 1,590 1,039
-------- --------
Cash and cash equivalents at end of
period $ 160 $ 638
======== ========
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE> 10
TMBR/SHARP DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
The amounts presented in the balance sheet as of March 31, 1995 were
derived from the Company's audited financial statements included in its
Form 10-K filed for the year then ended. The notes to such statements are
hereby incorporated by reference.
(1) Management's Representation
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are of a normal recurring
nature) necessary to present fairly the Company's financial position as of
June 30, 1995 and March 31, 1995, the results of operations for the three
months ended June 30, 1995 and 1994, and the cash flows for the three month
period ended June 30, 1995 and 1994.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the related notes in the Company's Annual Report for 1995 on
Form 10-K.
(2) Summary of Significant Accounting Policies
Inventories
Inventories consist primarily of casing and tubing. The Company
values its inventories at the lower of cost or estimated net recoverable
value using the specific identification method.
Property and Equipment
Drilling equipment is depreciated on a units-of-production method
based on the monthly utilization of the equipment. Drilling equipment
which is not utilized during a month is depreciated using a minimum
utilization rate of approximately twenty-five percent. Estimated useful
lives range from four to eight years.
Oil and gas properties are accounted for using the successful efforts
method. Accordingly, the costs incurred to acquire property (proved and
unproved), all development costs and successful exploratory costs are
capitalized, whereas the costs of unsuccessful exploratory wells are
expensed. Geological and geophysical costs, including seismic costs, are
charged to expense when incurred. In cases where the Company provides
contract drilling services related to oil and gas properties in which it
also has an ownership interest, the Company's proportionate share of costs
related to these properties is capitalized as stated above, net of its
working interest share of profits from the related drilling contracts.
Capitalized costs of undeveloped properties, which are not depleted until
-10-
<PAGE> 11
proved reserves can be associated with the properties, are periodically
reviewed for possible impairment.
Depletion of capitalized oil and gas property costs is provided using
the units-of-production method based on estimated proved or proved
developed oil and gas reserves, as applicable, of the respective property
units. Other property and equipment is depreciated using the straight-line
method of depreciation with estimated useful lives of three to seven years.
Major renewals and betterments are capitalized in the appropriate
property accounts while the cost of repairs and maintenance is charged to
operating expense in the period incurred. For assets sold or otherwise
retired, the cost and related accumulated depreciation amounts are removed
from the accounts and any resulting gain or loss is recognized.
Net Income (Loss) Per Common Share
Net income (loss) per share of common stock is based on the weighted
average number of common shares outstanding during each period. All common
stock equivalents are considered anti-dilutive for purposes of calculating
the net loss per share and dilutive for purposes of calculating the net
income per share.
(3) Debt
Line of Credit
The Company and its lender entered into an agreement which provides
for a $500,000 unsecured revolving line of credit ("LOC"). At June 30,
1995, $500,000 was outstanding under the LOC at 10% per annum. All
outstanding principal and accrued interest due on this LOC was paid prior
to its maturity on July 19, 1995.
On June 30, 1995 the Company borrowed an additional $245,000 from its
lender that was secured by accounts receivable. This note bears interest
at 10% per annum. This loan was also paid prior to its maturity on July 3,
1995.
Leasehold Purchase Obligation
On December 9, 1994, the Company entered into an agreement with
Paladin Exploration Co., Inc. ("Paladin") to acquire certain oil and gas
leases. The Company has agreed to reimburse Paladin an aggregate amount of
approximately $629,000 (including imputed interest at a rate of 9.5% per
annum) for leasehold acquisition, legal and seismic costs incurred by
Paladin associated with the acquisition of such leases. At June 30, 1995,
the balance outstanding to Paladin was approximately $267,000.
(4) Stockholders' Equity
1984 Stock Option Plan
-11-
<PAGE> 12
In August of 1984, the Company adopted the 1984 Stock Option Plan (the
"Plan") which authorized 375,000 shares of the Company's common stock to be
issued as either incentive stock options or nonqualified stock options.
This Plan was amended in August 1986 to increase the authorized shares to
475,000 shares of the Company's common stock. In January 1988, the Plan
was amended to reduce the option price on certain options issued prior to
March 31, 1986, to reflect the then current fair market value of the
Company's common stock. The Plan provides that options may be granted to
key employees or directors for various terms at a price not less than the
fair market value of the shares on the date of the grant. Options to
purchase 128,000 shares of common stock are currently outstanding with
80,500 of the options exercisable at June 30, 1995. No additional shares
are available for granting. The Plan expired by its own terms in August
1994. The options that were granted prior to the expiration of the Plan,
and which are outstanding, remain subject to the terms of the Plan.
1994 Stock Option Plan
In July 1994, the Company adopted the 1994 Stock Option Plan (the
"1994 Plan") which authorized the grant of options to purchase up to
750,000 shares of the Company's common stock. These options may be issued
as either incentive or nonqualified stock options. The 1994 Plan provides
that options may be granted to key employees or directors for various terms
at a price not less than the fair market value of the shares on the date of
the grant. The 1994 Plan was ratified and approved by the stockholders at
the Company's annual meeting of stockholders on August 30, 1994. The
Company has not granted any options under the 1994 Plan.
(5) Employee Benefits
Effective May 1, 1995, the Company established the TMBR/Sharp
Drilling, Inc. Employee Retirement Plan which is a 401(K) profit sharing
plan. Company contributions are discretionary and have been currently set
at 25% for each dollar contributed by each eligible employee limited to 5%
of the employee's compensation.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
At June 30, 1995, the Company had fully borrowed $500,000 against an
unsecured revolving line of credit with its lender. The LOC bears interest
at a rate of 10% per annum and matures on September 18, 1995. The LOC was
paid in full on July 19, 1995, prior to its maturity. The Company borrowed
an additional $245,000 from its lender on June 30, 1995. This note bears
interest at a rate of 10% per annum and is secured by accounts receivable.
The note was paid prior to its maturity on July 3, 1995. See Note (3).
Additionally, the Company has entered into an agreement to fund
approximately $629,000 including imputed interest at a rate of 9.5% per
annum for leasehold acquisition, legal and seismic costs incurred in
-12-
<PAGE> 13
acquiring certain oil and gas leases. At June 30, 1995, the remaining
obligation relating to this transaction was approximately $267,000. See
Note (3).
The Company intends to meet its capital resource requirements for
fiscal 1996 through available cash balances on hand and cash flow provided
through operations. If needed, the Company will consider borrowing the
remaining funds available through the Company's LOC with its lender or
selling equipment.
The Company believes it owns a sufficient number of drilling rigs to
remain competitive within its areas of operation. However, the cash flow
generated from operations will continue to be directly affected by the
level of drilling activity in the Company's areas of operations. By
focusing on drilling contracts which can provide operating cash flow and
maintaining its cost containment program, the Company believes its
operating cash flow will improve. Cash required by operating activities
was $1,369,000 for the three months ended June 30, 1995, compared with an
inflow of $142,000 for the three months ended June 30, 1994. This increase
in cash required by operating activities is primarily a result of an
approximate $2.9 million increase in accounts receivable which relates
primarily to one turnkey project.
Results of Operations
Total revenues were $6,290,000 for the three months ended June 30,
1995 which represents an 82% increase over the same period in 1994. This
increase is a result of an increase in the rig utilization rates.
Operating expenses as a percent of revenue were 92% for the three months
ended June 30, 1995 versus 105% for the same period of the prior year.
This decrease is also attributable to the increase in the rig utilization
rates. Depreciation and depletion expense increased due to the Company's
additional investment in oil and gas properties. General and
administrative expenses increased due to an increase in corporate insurance
expense.
The increase in receivables relates to one turnkey project which the
Company is currently drilling. This project is primarily the reason that
the Company has had to borrow against its LOC. The turnkey portion of this
project was completed in July, 1995. The Company estimates that the
daywork portion of this project will be completed in August of 1995.
Rig utilization rates were 53.5% for the three months ended June 30,
1995 compared to 33.6% in the same period in 1994. Rig utilization in the
Company's operating market is difficult to project because contract
drilling is a highly competitive industry. In addition, the number of
rigs, industry wide, actually available for work cannot be accurately
determined.
Oil and gas revenues increased by approximately 155% due to the
increase in the number of producing wells in which the Company has an
ownership interest. Accordingly, oil and gas production expenses also
increased.
-13-
<PAGE> 14
Net working capital was $846,000 for the period ended June 30, 1995 as
compared to $716,000 for the period ended March 31, 1995. This increase in
working capital is primarily a result of an increase in trade receivables.
Financial Condition
Recently, the Company has entered into several turnkey contracts which
bear substantially more economic risk than footage or daywork contracts.
Under a turnkey contract the Company contracts to drill a well to a
specified depth and bears the risk of loss to that depth. The Company
could experience substantial losses if drilling problems occur under a
turnkey contract.
The Company has experienced improved operating results which can be
attributable to several factors. The Company's oil and gas exploration
program has been successful and drilling rig utilization rates have
stabilized as have drilling prices. The Company has substantially improved
its safety record which has made a positive impact on worker's compensation
costs. All of these factors coupled with a successful cost containment
program have positively impacted the Company's operating margins. However,
the Company is still subject to considerable uncertainty due to the
instability of oil and gas prices, decreased demand for contract drilling
services and intense competition which is prevalent in the contract
drilling industry.
-14-
<PAGE> 15
TMBR/Sharp Drilling, Inc.
4607 West Industrial Blvd.
Midland, Texas 79703
______________________________
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
TMBR/SHARP DRILLING, INC.
Item 1. Legal Proceedings
On March 19, 1992, the Company was notified by the Texas Department of
Insurance that the Company's former workers' compensation insurance
carriers, Sir Lloyd's Insurance Company and its affiliate, Standard
Financial Indemnity Corporation ("SFIC"), had been placed in liquidation by
order of the 201st District Court of Travis County, Texas on March 12, 1992
in Cause No. 92-12765, The State of Texas vs. Sir Lloyd's Insurance Company
and Sir Insurance Agency, Inc., and in Cause No. 91-12766, The State of
Texas vs. Standard Financial Indemnity Corporation. Approximately two
months before being ordered into liquidation, SFIC requested that the
Company pay policy premiums in the amount of $646,476. On July 22, 1993
the special deputy receiver of SFIC billed the Company approximately
$1,061,000 for retrospective premiums, but adjusted the amount to $854,153
on January 12, 1994. Although the Company disputes the amount claimed by
SFIC, the Company is presently unable to determine whether and to what
extent such amount is, in fact, an accurate estimate of amounts owed to
SFIC, largely as a result of the difficulty of verifying the insurance
carrier's estimated claims and adjustments and the unavailability of SFIC
personnel. However, an accrual was made in the Company's financial
statements for the amount in question. In a related development, on June
5, 1995, the Company received a letter from the Texas Property and Casualty
Insurance Guaranty Association ("Guaranty Association") requesting payment
in the amount of $729,177 for claims that the Guaranty Association has paid
on behalf of SFIC. The Guaranty Association does not believe that the
policies written by SFIC involved a transfer of insurance risk as required
by the Texas Insurance Code and as a result is entitled to reimbursement
for all monies paid to claimants under these policies.
The Company disagrees with the claims made by the Guaranty Association
and intends to vigorously defend its position against the Receiver of SFIC
and the Texas Guaranty Association. The Company believes that if the
Guaranty Association's claim proves to be valid and enforceable then the
Receiver's claim against the Company is either without merit or that its
claim would be offset against the claims of the Guaranty Association. For
these reasons, the Company has not accrued the Guaranty Association's claim
in its financial statements.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June
30, 1995.
-16-
<PAGE> 17
SIGNATURES
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.
<TABLE>
<S> <C>
TMBR/SHARP DRILLING, INC.
(Registrant)
August 11, 1995 /s/ Patricia R. Elledge
Date Patricia R. Elledge
Controller/Treasurer
(Ms. Elledge is the Chief Financial
Officer and has been duly authorized
to sign on behalf of the Registrant)
</TABLE>
-17-
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule 19
</TABLE>
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 160
<SECURITIES> 0
<RECEIVABLES> 6716
<ALLOWANCES> 1225
<INVENTORY> 45
<CURRENT-ASSETS> 6320
<PP&E> 48008
<DEPRECIATION> 42775
<TOTAL-ASSETS> 11813
<CURRENT-LIABILITIES> 5474
<BONDS> 0
<COMMON> 450
0
0
<OTHER-SE> 5889
<TOTAL-LIABILITY-AND-EQUITY> 11813
<SALES> 0
<TOTAL-REVENUES> 6290
<CGS> 0
<TOTAL-COSTS> 5770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 523
<INCOME-TAX> 12
<INCOME-CONTINUING> 511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
