<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Fee Required)
For the fiscal year ended March 31, 1996 Commission File Number 0-12757
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(No Fee Required)
TMBR/SHARP DRILLING, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1835108
(State of Incorporation) (I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by nonaffiliates of
the registrant at June 3, 1996 was approximately $19,825,718.
At June 3, 1996, there were 3,382,586 outstanding shares of the
Registrant's Common Stock.
The information required by Items 11, 12 and 13 of Part III of this
Form are incorporated by reference from the registrant's Proxy Statement to
be filed pursuant to Regulation 14A with respect to the registrant's Annual
Meeting to be held on or about August 29, 1996.
<PAGE> 2
TMBR/SHARP DRILLING, INC.
FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . 13
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary Data . . 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . 38
Part III
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . 39
Item 11. Executive Compensation . . . . . . . . . . . . . 40
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . 40
Item 13. Certain Relationships and Related Transactions . 40
Part IV and signatures
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 45
-2-
<PAGE> 3
PART I
Item 1. BUSINESS
General
TMBR/Sharp Drilling, Inc. (the "Company") was incorporated under the
laws of Texas in October, 1982 under the name TMBR Drilling, Inc. In
August, 1986, the Company changed its name to TMBR/Sharp Drilling, Inc.
The principal executive offices of the Company are located at 4607
West Industrial Blvd., Midland, Texas, 79703 and its telephone number is
(915) 699-5050.
The Company's principal businesses are the domestic onshore contract
drilling of oil and gas wells for major and independent oil and gas
producers and, to a lesser extent, the exploration for, development and
production of oil and natural gas.
The Company's contract drilling activities are primarily conducted in
the Permian Basin of west Texas and eastern New Mexico. Such activities
are affected by the level of exploration and development activity conducted
by oil and gas operators in the Company's area of operations, and the level
of exploration and development activity is directly related to the prices
of oil and gas. The instability of world wide oil and gas markets has
continued to have a negative impact on the oil and gas industry. Until
greater economic stability is achieved in both the domestic and world oil
and gas markets, the Company does not expect a significant increase in its
drilling activity.
The Company presently owns 15 drilling rigs, of which 2 were operating
on behalf of the Company for its own account, 5 were operating for non-
affiliated oil producers, and 8 were "stacked" (non-operating) at March 31,
1996. The 7 operating rigs and 8 stacked rigs are located in the Permian
Basin area of west Texas and eastern New Mexico.
In addition to the drilling rigs, the Company provides the crews and
most of the ancillary equipment used in the operation of the rigs. An
onshore drilling rig consists of engines, drawworks, mast, pumps to
circulate drilling fluids, blowout preventers, the drillstring and related
equipment. The size and type of rig utilized for each drilling project
depends upon the location of the well, the well depth and equipment
requirements specified in the drilling contract, among other factors.
Major overhauls, repairs and general maintenance for the drilling rigs
are conducted primarily at the Company's principal support and storage
facilities in Midland, Texas. The Company emphasizes the maintenance and
periodic improvement of its drilling equipment and believes that its rigs
are generally in good condition. The Company is not experiencing any
significant shortages of materials, supplies, equipment or labor used in
drilling, and the Company does not foresee any such shortages in the near
future.
-3-
<PAGE> 4
The Company's oil and gas exploration, development and production
activities are conducted in Texas and New Mexico. At March 31, 1996, the
Company owned interests in approximately 17,817 gross (2,299 net) acres of
developed oil and gas properties, and approximately 7,690 gross (2,580 net)
acres of undeveloped properties. At April 1, 1996, based on estimates by
an independent petroleum engineer, the Company's total proved reserves were
approximately 368,600 barrels ("Bbls") of oil and 2,815,600 thousand cubic
feet ("Mcf") of natural gas.
The Company has no material patents, licenses, franchises, or
concessions which it considers significant to its operations.
The nature of the Company's business is such that it does not maintain
or require a "backlog" of products, customer orders, or inventory.
The Company's operations are not subject to renegotiation of profits
or termination of contracts at the election of the federal government.
The Company has not been a party to any bankruptcy, receivership,
reorganization, adjustment, or similar proceeding.
Generally, the Company's business activities are not seasonal in
nature. However, weather conditions can hinder drilling activities.
Contract Drilling Operations
Drilling Contracts. The Company's drilling contracts are usually
obtained through competitive bidding or as a result of direct negotiations
with customers. Such contracts typically obligate the Company to pay all
expenses associated with drilling an oil or gas well, including wages of
drilling personnel, maintenance expenses and incidental purchases of rig
supplies and equipment. The majority of the Company's contracts are
"footage" contracts with the remainder being "day-work" or "turnkey"
contracts. Under a footage contract, the Company charges an agreed price
per foot of hole drilled, whereas a day-work contract permits the Company
to charge a per diem fixed rate for each day the rig is in operation. A
turnkey contract specifies a total price for drilling a well plus providing
other services, materials or equipment which are typically the
responsibility of the operator. Prices for all contracts vary depending on
the location, depth, duration, complexity of the well to be drilled,
operating conditions and other factors peculiar to each proposed well.
Under footage and turnkey contracts, the Company manages the drilling
operation and the type of equipment to be used, subject to certain customer
specifications. The Company also bears the risk and expense of mechanical
malfunctions, equipment shortages, and other delays arising from problems
caused in drilling a well. Day-work contracts permit the operator of the
well to manage drilling operations and to specify the type of equipment to
be used. Under day-work contracts, the Company generally bears none of the
risk due to time delays caused by unforeseeable circumstances such as stuck
or broken drill pipe or blowouts. Of the 7 rigs working at March 31, 1996,
2 were subject to day-work contracts, 1 was subject to a turnkey contract,
and 4 were subject to footage contracts.
-4-
<PAGE> 5
The Company's operations are subject to many hazards, including well
blowouts and fires that could cause personal injury, suspension of drilling
operations, damage to or destruction of equipment and damage to producing
formations and surrounding areas. The Company believes it is adequately
insured for public liability and damage to the property of others resulting
from its operations. The Company is self-insured for physical damage to or
loss of its rigs.
Rig Utilization. The Company's contract drilling revenues depend upon
the utilization of and contract rates received for its drilling rigs.
These two factors are affected by a number of variables, including
competitive conditions in the drilling industry and the level of
exploration and development activity conducted by oil and gas producers at
any given time. The level of domestic drilling activity has historically
fluctuated and cannot be accurately predicted because of numerous factors
affecting the petroleum industry, including oil and gas prices and the
degree of government regulation of the industry. As a result of depressed
oil and gas prices, oil and gas operators in the Company's areas of
operations generally have not significantly increased their exploration
budgets and, consequently, the Company continues to experience low demand
for its contract drilling services, and expects continued low demand in the
foreseeable future. Contract drilling revenues and rig utilization rates
for the past five years are set forth below.
Contract Drilling
Year Ended Revenues Number of Percent of
March 31, (in thousands) Rigs Owned Utilization
---------- ----------------- ---------- -----------
1992 $ 12,203 51 11.1%
1993 17,996 15(a) 56.3%
1994 18,359 15 47.6%
1995 18,357 15 43.5%
1996 21,298 15 45.1%
____________________
(a) Of the total number of rigs owned, three were owned only for a
portion of the fiscal year ended March 31, 1993.
Customers. During the fiscal year ended March 31, 1996, the Company
drilled a total of 87 wells for approximately 27 customers. The following
table sets forth certain information with respect to the principal
customers for the Company's contract drilling services during such period.
Percent of Number of Wells
Name of Customer Total Revenues Drilled
---------------- -------------- ---------------
Mobil Exploration & Producing U.S. Inc. 18% 23
Titan Resources I, Inc. 18% 4
Arrington Oil and Gas, Inc. 13% 1
The loss of any one or more of the above customers could have a
material adverse effect on the Company, depending upon the demand for the
Company's drilling rigs at the time of such loss and the Company's ability
to attract new customers.
-5-
<PAGE> 6
Competition. The Company encounters substantial competition from
other drilling contractors in its contract drilling operations. The
Company's principal market areas of west Texas and eastern New Mexico are
highly fragmented and competitive. Companies compete primarily on the
basis of contract rates, suitability and availability of equipment and
crews, experience of drilling in certain areas, and reputation. The
Company believes it competes favorably with respect to all of these
factors. Competition is primarily on a well-by-well basis and may vary
significantly at any particular time. Drilling rigs can be moved from one
region to another in response to perceived long-term changes in levels of
activity. In recent years, competition within the industry has been
intense due to a sharp and sustained imbalance between supply and demand
for contract drilling services. The oversupply of rigs is a result of the
rig overbuilding during the peak drilling years of 1980 and 1981, and the
depressed demand is primarily a result of lower oil and gas prices and
excess deliverability of natural gas. Until oil prices increase and the
natural gas markets improve, contract drilling activity is expected to
remain at current levels and competition for available contracts will
continue to be intense.
Employees
At March 31, 1996, the Company had 32 salaried employees and
approximately 174 hourly paid employees. Employees of the Company are not
covered by any collective bargaining agreements and the Company has never
experienced a strike or work stoppage. The Company considers its employee
relations to be satisfactory.
Regulation
General. The Company's contract drilling operations, and its oil and
gas production and development operations, are subject to extensive rules
and regulations promulgated by federal, state and local agencies. Permits
are required for certain of the Company's operations, and these permits are
subject to revocation, modification and renewal by issuing authorities.
Failure to comply with such rules and regulations can result in substantial
penalties. The regulatory burden on the oil and gas industry increases the
Company's cost of doing business and affects its profitability. However,
although the Company believes it is in compliance in all material respects
with such laws, rules and regulations and that such compliance has not had
any material adverse effect on the Company's operations or financial
condition, the Company is unable to predict the future cost or financial
impact of complying with such laws because such rules and regulations are
frequently amended or reinterpreted.
Environmental. The Company's operations are subject to extensive
federal, state and local laws and regulations relating to the generation,
storage, handling, emission, transportation and discharge of materials into
the environment. Governmental authorities have the power to enforce
-6-
<PAGE> 7
compliance with their regulations, and violators are subject to fines,
injunctions or both. It is possible that increasingly strict requirements
will be imposed by environmental laws and enforcement policies thereunder.
The Company does not anticipate that it will be required in the near future
to expend amounts that are material in relation to its financial condition
by reason of environmental laws and regulations, but because such laws and
regulations are frequently changed, the Company is unable to predict the
ultimate cost of such compliance. Additionally, the Company believes that
the oil and gas industry may experience increasing liabilities and risks
under the Comprehensive Environmental Response, Compensation and Liability
Act, as well as other federal, state and local environmental laws, as a
result of increased enforcement of environmental laws by various regulatory
agencies. As an "owner" or "operator" of property where hazardous
materials may exist or be present, the Company, like all others engaged in
the oil and gas industry, could be liable for the release of any hazardous
substances. Although the Company has not been subject to the imposition of
"clean-up" orders by the government, the potential for sudden and
unpredictable liability for environmental problems is a consideration of
increasing importance to the Company and the oil and gas industry as a
whole.
Regulation of Natural Gas and Oil Production. All oil and gas
production operations are subject to various types of regulation by state
and federal agencies. Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. Also, numerous
departments and agencies, both federal and state, are authorized by statute
to issue rules and regulations binding on the oil and gas industry and its
individual members, some of which carry substantial penalties for failure
to comply. The regulatory burden on the oil and gas industry increases the
Company's cost of doing business and, consequently, affects its
profitability.
Oil Price Controls. Sales of crude oil, condensate and gas liquids by
the Company are not regulated and are made at market prices.
Gas Price Controls. Prior to January 1993, certain natural gas sold
by the Company was subject to regulation by the Federal Energy Regulatory
Commission ("FERC") under the Natural Gas Act of 1938 and the Natural Gas
Policy Act of 1978 ("NGPA"). The NGPA prescribed maximum lawful prices for
natural gas sales effective December 1, 1978. None of the maximum lawful
prices for natural gas set forth in the NGPA could have been collected
absent contractual authority to do so and only after necessary approvals
from the appropriate governmental agencies were obtained. The NGPA also
established phased-in deregulation of natural gas prices. Effective
January 1, 1993, natural gas prices were completely deregulated and sales
of the Company's natural gas may be made at market prices. However, the
price at which the Company's natural gas may be sold will continue to be
affected by a number of factors, including the price of alternate fuels and
competition among various natural gas producers and marketers.
Oil and Gas Operations
The Company's oil and gas operations involve the exploration for,
development and production of oil and natural gas. During the fiscal year
ended March 31, 1996, the Company's exploration efforts were conducted in
west Texas and eastern New Mexico.
-7-
<PAGE> 8
The Company is actively investing in oil and gas properties for the
purpose of exploration, development and production of oil and gas. The
Company acquires or participates in these arrangements as a working
interest owner and usually provides the contract drilling services for such
ventures.
Exploration for oil and natural gas requires substantial expenditures,
especially for exploration in more remote areas. As is customary in the
oil and gas industry, the drilling of oil and gas wells is accomplished
through participation with other individuals, partnerships or corporations.
One of the parties experienced with operations in the area is usually
designated as the operator of the property and is responsible for the
direct supervision, administration and accounting for wells drilled and
completed pursuant to an operating agreement between the parties. The
operator will normally receive revenues and pay expenses equal to more than
its ownership interest in the wells, and then must remit or collect all but
its share to or from the other respective participants in the well. At
March 31, 1996 the Company was operator of 9 wells.
Oil and Gas Reserves. Information concerning the Company's estimated
proved oil and gas reserves is included in Item 8 - Financial Statements
and Supplementary Data.
The reserve information is only an estimate. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the Company.
Reserve engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation
and judgment. The quantities of oil and gas that are ultimately recovered,
production and operating costs, the amount and timing of future development
expenditures and future oil and gas prices may all differ from those
assumed in such estimates.
The Company has no reserves outside the United States.
No major discovery or other favorable or adverse event has occurred
since March 31, 1996 which is believed to have caused a significant change
in the estimated proved oil and gas reserves of the Company.
The Company's oil and gas reserves and production are not subject to
any long-term supply or similar agreements with foreign governments or
authorities.
The Company's estimate of reserves has not been filed with or included
in reports to any federal agency other than the Securities and Exchange
Commission.
-8-
<PAGE> 9
Productive Wells and Acreage. The following tables set forth the
gross and net productive oil and gas wells and developed and undeveloped
acreage in which the Company owned a working interest as of March 31, 1996.
<TABLE>
<CAPTION>
Productive Wells
----------------------------------
Gross Net
----------- ------------
Oil Gas Oil Gas
--- --- --- ---
<S> <C> <C> <C> <C>
Texas................................... 66 7 9.256 .856
New Mexico.............................. 10 2 1.738 .144
--- --- ------ -----
Total......................... 76 9 10.994 1.000
=== === ====== =====
</TABLE>
<TABLE>
<CAPTION>
Acreage
---------------------------------------
Developed Undeveloped
--------------- -----------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
Texas............................ 15,808 2,004 7,051 1,941
New Mexico....................... 2,009 295 639 639
------ ----- ----- -----
Total.................. 17,817 2,299 7,690 2,580
====== ===== ===== =====
</TABLE>
In addition to the Company's developed and undeveloped acreage shown
above, on September 5, 1995, the Company entered into a 10 year License
Agreement with the Government of the Republic of Palau and the State of
Kayangel which will allow the Company to explore for oil and natural gas
offshore. The license covers approximately 1.1 million acres within the
waters of Palau. The Company plans to conduct exploration activities
jointly with other parties or enter into farmout arrangements with third
parties. The Company has agreed to commence drilling of an exploratory
well no later than the last day of the second year of the license
agreement. The Company has also agreed to commence drilling of an
additional well within six months of the initial well. The Company
estimates that it will cost approximately $6,000,000 to drill these two
wells. The Company intends to sell enough interest in the project to
retain a carried interest.
-9-
<PAGE> 10
Drilling Activity. The following table sets forth the Company's gross
and net working interests in exploratory and development wells drilled
during the periods indicated.
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Type of Well Gross Net Gross Net Gross Net
------------ ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Oil 7 1.3397 4 .4417 6 .6088
Gas 1 .2500 3 .2925 -- --
Dry 11 2.0663 9 1.1947 9 1.2528
Development
Oil 6 .4802 6 .8416 3 .2000
Gas -- -- -- -- 1 .1250
Dry 3 .5100 2 .2119 -- --
</TABLE>
Production, Prices and Costs. The following table sets forth certain
information regarding the Company's volumes and average prices received
associated with its sales of oil and gas, and the average production
(lifting) cost per equivalent barrel of oil ("EBO").
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Production
Oil (Bbls) 70,941 51,300 28,600
Gas (Mcf) 212,062 104,700 74,800
Sales Prices
Oil ($/Bbl) 17.67 17.13 16.13
Gas ($/Mcf) 1.52 1.55 1.92
Production (Lifting) Costs
per EBO (1) $ 5.20 $ 4.07 $ 8.50
</TABLE>
--------------------
(1) An EBO is one barrel of oil equivalent using the ratio of six Mcf
of gas to one barrel of oil.
Title to Properties. As is customary in the oil and gas industry, a
preliminary title examination is conducted at the time oil or gas
properties believed to be suitable for drilling are acquired by the
operator. Prior to the commencement of operations, curative work
determined to be appropriate as a result of a title search is performed
with respect to significant defects before the operator commences
development. Title examinations have been performed with respect to
-10-
<PAGE> 11
substantially all of the Company's interests in its producing properties.
The Company believes that title to its properties is good and defensible in
accordance with standards generally acceptable in the oil and gas industry,
subject to such exceptions which, in the Company's opinion, are not so
material as to detract substantially from the value of such properties.
The Company's properties are subject to royalty, overriding royalty, and
other outstanding interests customary in the industry, and are also subject
to burdens such as liens incident to operating agreements, current taxes
not yet due, development obligations under oil and gas leases, and other
encumbrances, easements and restrictions. The Company does not believe
that any of these burdens will materially interfere with the use of its
properties in the operation of the Company's business.
Markets and Customers. Substantially all of the Company's oil and gas
production is sold at the well site on an "as produced" basis. During the
year ended March 31, 1996, Amoco Production Company accounted for
approximately 38% of the Company's oil and gas revenues for such period.
The Company believes the loss of Amoco Production Company, as purchaser,
would not materially affect its ability to sell oil or natural gas, due to
the availability of other purchasers in the Company's areas of operations.
Competition. The Company encounters strong competition from major oil
companies and independent operators in acquiring properties and leases for
exploration for oil and gas. Competition is particularly intense with
respect to the acquisition of desirable undeveloped oil and gas leases.
The principal competitive factors in the acquisition of undeveloped oil and
gas leases include the staff and data necessary to acquire and develop such
leases. Many of the Company's competitors have financial resources, staffs
and facilities substantially greater than those of the Company. In
addition, the producing and marketing of natural gas and oil is affected by
a number of factors which are beyond the control of the Company, the effect
of which cannot be accurately predicted. Of significant importance
recently has been the domination and control of oil markets and prices by
foreign producers.
The principal raw materials and resources necessary for the
exploration and development of oil and gas are leasehold prospects under
which oil and gas reserves may be discovered, drilling rigs and related
equipment to explore for such reserves and knowledgeable personnel to
conduct all phases of oil and gas operations. The Company must compete for
such raw materials and resources with both major oil companies and
independent operators, and the continued availability, without periodic
interruption, of such materials and resources to the Company cannot be
assured.
Item 2. PROPERTIES
In addition to its drilling rigs and related equipment and its oil and
gas properties, the Company owns a 31 acre tract of land in Midland, Texas
on which the Company's executive offices are located and on which the
principal support and storage facilities for its contract drilling
operations are located. Such facilities include an office building and
fabrication and maintenance shop. The facility allows for open storage of
drilling equipment and drill pipe.
-11-
<PAGE> 12
The Company also owns a 78 acre tract of land in Odessa, Texas, which
is presently being utilized as a secondary storage location. From time to
time, the Company's rigs are stored and stacked in the field at the rig's
last location site.
The Company owns a warehouse and yard facility situated on
approximately 4 acres in Midland, Texas. This additional storage is being
used to complement the existing Midland yard facility. The Company
believes that the support and storage facilities for its drilling rigs and
related equipment are more than adequate.
Item 3. LEGAL PROCEEDINGS
The Company is a defendant in several legal proceedings incidental to
its business that the Company believes will not have a significant effect
on its consolidated financial position or results of operations.
In addition to the legal proceedings incidental to its business, 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 into 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, if any, 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 November 3, 1995, the Company was
notified that a lawsuit had been filed in Travis County, Texas styled Texas
Property and Casualty Insurance Guaranty Association vs. TMBR/Sharp
Drilling, Inc. (Cause No. 95-12318). The Texas Property and Casualty
Insurance Guaranty Association ("Guaranty Association") seeks a recovery of
past workers' compensation claims advanced by the Guaranty Association
related to the Company's workers compensation insurance program with SFIC.
The Guaranty Association is seeking to recover a total of $803,057.11.
-12-
<PAGE> 13
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.
Currently the Company is covered under a deductible workers'
compensation policy with Petrosurance Casualty Company, an approved Texas
workers' compensation carrier, and Clarendon National Insurance Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no meeting of security holders of the Company during the
fourth quarter of the fiscal year ended March 31, 1996, and no matters were
submitted to a vote of security holders during such period.
-13-
<PAGE> 14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
During the period from November 22, 1993 to December 14, 1994, the
Company's Common Stock was traded on the NASDAQ Small Cap Market and on
December 15, 1994 the Company's Common Stock began trading on the National
Market System. The following table sets forth, on a per share basis for
the periods indicated, the range of high and low closing bid quotations of
the Common Stock prior to December 15, 1994 and the high and low last
reported sales prices thereafter as reported by NASDAQ. The quotations are
inter-dealer prices without retail mark-ups, mark-downs or commissions and
may not represent actual transactions.
Price
--------------
High Low
---- ---
Fiscal 1995
First Quarter $ 4 3/4 $ 4 5/8
Second Quarter 5 7/8 4 3/4
Third Quarter 7 6 3/8
Fourth Quarter 7 1/8 6 5/16
Fiscal 1996
First Quarter 7 3/4 6 1/2
Second Quarter 10 1/2 9 1/4
Third Quarter 9 1/4 8
Fourth Quarter 8 1/4 6 3/4
The transfer agent for the Company's Common Stock is American Stock
Transfer & Trust Company, New York, New York.
On June 3, 1996, the outstanding shares of the Company's Common Stock
were held of record by approximately 3,593 stockholders.
The Company has never declared or paid any cash dividends on its
Common Stock and has no present intention to pay cash dividends in the
future. Under the terms of the Company's loan agreement with its bank
lender, the Company is prohibited from paying cash dividends to the holders
of Common Stock without the written consent of the bank. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
-14-
<PAGE> 15
Item 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information for the Company's operations for each of the five years ended
March 31, 1996. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the Company's Consolidated Financial Statements and related
notes included elsewhere herein.
Years ended March 31,
--------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
OPERATING DATA:
Operating revenues $ 22,981 $ 19,399 $ 18,980 $ 18,553 $ 12,690
Operating expenses 23,881 18,038 18,048 18,130 17,526
Operating income (loss) (900) 1,361 932 423 (4,836)
Net earnings (loss) before
extraordinary item (952) 1,536 1,039 4,968 (2,507)
Net earnings (loss) (a) (952) 1,536 1,039 8,576 (2,507)
Net earnings (loss)
before extraordinary
item per common share (.23) .38 .23 1.09 (1.72)
Net earnings (loss) per
common share (.23) .38 .23 1.88 (1.72)
BALANCE SHEET DATA:
Total assets 11,660 10,040 7,648 7,932 9,885
Long-term debt excluding
current portion 1,300 -- 74 16 --(b)
Stockholders' equity
(deficiency) 4,959 5,775 4,133 3,081 (5,494)
Book value (deficit)
per common share $1.48 $1.85 $1.38 $0.79 $(1.42)
____________________
(a) Net earnings (loss) includes significant gains on sales of assets
in the amounts of $5,057,000 and $2,944,000 during 1993 and 1992,
respectively, from the sale of drilling rigs and related equipment.
(b) As a result of the violation of certain financial covenants in the
Company's Note Agreement with its former lender, the long-term debt,
in the amount of $11,339,000, is classified as current.
-15-
<PAGE> 16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Since 1984, the principal line of business has been that of a domestic
onshore drilling contractor. In 1987, the Company began acquiring and
participating in the exploration for oil and gas reserves.
Contract Drilling Operations. The following table sets forth certain
information relating to the Company's contract drilling operations:
Years Ended March 31,
---------------------
1996 1995 1994
---- ---- ----
(In thousands, except %'s)
Contract drilling revenues $21,298 $18,357 $18,359
Contract drilling expenses 17,252 14,630 14,989
Operating costs as a percent
of revenues 81.0% 79.7% 81.6%
Rig utilization 45.1% 43.5% 47.6%
Contract drilling revenues increased for the year ended March 31, 1996
by approximately 16%. The Company has experienced an increased demand for
turnkey contracts. During fiscal year 1996, the Company drilled 12 turnkey
wells which represents 45% of total drilling revenues, compared to 8 in
fiscal year 1995, which represents 28% of total drilling revenues.
Operating costs as a percent of revenues have remained relatively constant
as has the Company's rig utilization rates.
Oil and Gas Operations. The following table sets forth certain
information relating to the Company's oil and gas operations:
Years Ended March 31,
---------------------
1996 1995 1994
---- ---- ----
(In thousands)
Oil and gas revenues $1,683 $1,042 $ 621
Production expenses 554 350 318
Dry holes and abandonments 945 629 656
Depreciation, Depletion and
Amortization 468 400 281
Writedown of properties 2,624 -- --
Oil and gas revenues have increased by approximately 62% and 68% for
the years ended March 31, 1996 and 1995, respectively. This increase is
primarily a result of an increase in the number of wells in which the
Company has an ownership interest. Accordingly, the related oil and gas
production expenses increased by 58% and 10%, respectively.
-16-
<PAGE> 17
The Company participated as a working interest owner in the drilling
of 28 wells during 1996, of which 14 were dry holes. The Company
participated in the drilling of 24 wells in 1995, of which 11 were dry
holes.
During 1996, the Company recognized a non-cash charge of approximately
$2.6 million due to a writedown of the carrying value of its oil and gas
properties. This charge was a result of the adoption of Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS 121 requires the Company to assess the need for an impairment
of capitalized costs of oil and gas properties on a property-by-property
basis in contrast to the Company's prior policy of evaluating the
undiscounted future net revenues of its oil and gas properties in total.
According to SFAS 121, if an impairment is indicated based on undiscounted
future cash flows, then it is recognized to the extent that net
capitalized costs exceed discounted future cash flows.
Income Taxes
At March 31, 1996, the Company had approximately $71,409,000 of net
operating loss carryforwards ("NOLs") for tax purposes. If these
carryforwards are not utilized, they will begin to expire in 1998.
The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The Company has a deferred tax
asset primarily due to net operating loss carryforwards. The Company has
provided a valuation allowance for the entire balance of deferred tax
assets as it is more likely than not that the deferred tax asset will not
be realized. See Note 4 to the financial statements.
Liquidity and Capital Resources
The Company's operating results are directly related to the level of
drilling activity conducted by oil and gas companies in the Company's areas
of operation. As a result of the present worldwide excess supply of crude
oil and natural gas and higher domestic finding costs on an equivalent unit
basis, producers have significantly reduced their domestic drilling
budgets. This decreased demand coupled with the extreme competitive
conditions prevalent in the contract drilling industry continue to
challenge the Company to maximize on available opportunities while
exercising caution.
On January 16, 1996, the Company entered into a loan agreement with
Norwest Bank Texas, Midland, N.A. (Norwest) that provides for a $3,000,000
revolving line of credit secured by the Company's drilling rigs and related
equipment, accounts receivable and inventory. Borrowings under the line of
credit bear interest at the Norwest Bank Minnesota, National Association
base rate. Interest only is payable monthly. The loans mature January 15,
1998, at which time, the then outstanding principal and accrued interest is
due and payable. At March 31, 1996, the Company had borrowed $1,300,000
under the facility. The Company intends to meet its cash flow requirements
for fiscal 1997 through cash flow provided from operations and additional
borrowings.
-17-
<PAGE> 18
Cash provided by operating activities was $4.8 million for the year
ended March 31, 1996 compared to $3.5 million for the year ended March 31,
1995. The Company expended approximately $7 million in cash during the
year ended March 31, 1996 for asset acquisitions, including $.7 million for
a 110 National drilling rig with a depth capacity of 22,000 feet, and an
additional $.7 million in related drilling equipment. The remaining $5.6
million was invested in oil and gas exploration projects. Net working
capital was a negative $1,236,000 for the year ended March 31, 1996
compared to $716,000 for the year ended March 31, 1995.
The Company has entered into "turnkey" drilling contracts which create
substantially more economic risk to the Company 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. Typically,
turnkey contracts are more profitable than footage or daywork contracts,
but, the Company could experience substantial losses if drilling problems
occur under its turnkey contracts.
The Company believes it owns a sufficient number of drilling rigs to
remain a viable drilling contractor in its location. However, the cash
flow generated from operations will continue to be directly affected by the
drilling activity in the Company's areas of operations. The Company is
still subject to considerable uncertainty due to the instability of oil and
gas prices, decreased demand for contract drilling services and the intense
competition prevalent in the contract drilling industry.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Public Accountants 19
Balance Sheets, March 31, 1996 and 1995 20
Statements of Operations, Years ended
March 31, 1996, 1995 and 1994 22
Statements of Stockholders' Equity (Deficit),
Years ended March 31, 1996, 1995 and 1994 23
Statements of Cash Flows,
Years ended March 31, 1996, 1995 and 1994 24
Notes to Financial Statements 25
-18-
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of TMBR/Sharp Drilling, Inc.:
We have audited the accompanying balance sheets of TMBR/Sharp
Drilling, Inc. (a Texas corporation) as of March 31, 1996 and 1995, and the
related statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended March 31, 1996.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TMBR/Sharp
Drilling, Inc. as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, effective January
1, 1996, the Company changed its method of accounting for impairment of
long-lived assets.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
index at Item 14(a)2 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements, and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 31, 1996
-19-
<PAGE> 20
TMBR/SHARP DRILLING, INC.
Balance Sheets
March 31, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 339 $ 1,590
Trade receivables,
net of allowance for doubtful
accounts of $1,225 in 1996
and 1995 2,942 2,568
Inventories 51 45
Deposits 423 513
Other 410 265
------ ------
Total current assets 4,165 4,981
------ ------
Property and equipment, at cost:
Drilling equipment 39,750 38,308
Oil and gas properties, based on
successful efforts accounting 10,398 5,790
Other property and equipment 3,195 3,206
------ ------
53,343 47,304
Less accumulated depreciation,
depletion and amortization (46,022) (42,505)
------ ------
Net property and equipment 7,321 4,799
------ ------
Other assets 174 260
------ ------
Total assets $ 11,660 $ 10,040
====== ======
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE> 21
TMBR/SHARP DRILLING, INC.
Balance Sheets
March 31, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995
---------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Current portion of capital lease
obligations $ -- $ 92
Trade payables 3,336 1,839
Accrued workers' compensation 1,279 1,220
Leasehold purchase obligation -- 386
Other 786 728
------ ------
Total current liabilities 5,401 4,265
------ ------
Long term liabilities:
Borrowings from bank 1,300 --
------ ------
Total liabilities 6,701 4,265
------ ------
Contingencies
Stockholders' equity:
Common stock, $0.10 par value.
Authorized, 50,000,000 shares;
issued, 4,615,525 shares at
March 31, 1996 and 4,393,525 at
March 31, 1995. 461 439
Additional paid-in capital 60,654 60,540
Accumulated deficit (56,006) (55,054)
Treasury stock-common, 1,268,739 shares
at March 31, 1996 and 1995, at cost. (150) (150)
------ ------
Total stockholders' equity 4,959 5,775
------ ------
Total liabilities and
stockholders' equity $ 11,660 $ 10,040
====== ======
</TABLE>
See accompanying notes to financial statements.
-21-
<PAGE> 22
TMBR/SHARP DRILLING, INC.
Statements of Operations
Years Ended March 31, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Contract drilling $ 21,298 $ 18,357 $ 18,359
Oil and gas 1,683 1,042 621
------ ------ ------
Total revenues 22,981 19,399 18,980
------ ------ ------
Operating costs and expenses:
Contract drilling 17,252 14,630 14,989
Oil and gas production 554 350 318
Dry holes and abandonments 945 629 656
Depreciation, depletion and
amortization 907 876 746
Writedown of oil and gas
properties 2,624 -- --
General and administrative 1,599 1,553 1,339
------ ------ ------
Total operating costs
and expenses 23,881 18,038 18,048
------ ------ ------
Operating income (loss) (900) 1,361 932
------ ------ ------
Other income (expense):
Interest (139) (154) (89)
Gain on sales of assets 26 100 103
Other, net 91 259 155
------ ------ ------
Total other income, net (22) 205 169
------ ------ ------
Net income (loss) before
income tax provision (922) 1,566 1,101
Provision for income taxes (30) (30) (62)
------ ------ ------
Net income (loss) $ (952) $ 1,536 $ 1,039
====== ====== ======
Net income (loss) per
common share $ (0.23) $ 0.38 $ 0.23
========= ========= =========
Weighted average number of
common shares outstanding 4,074,567 4,032,195 4,603,130
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
-22-
<PAGE> 23
TMBR/SHARP DRILLING, INC.
Statements of Stockholders' Equity (Deficit)
Years Ended March 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Treasury Stock
-------------------------- Total
Preferred Stock Common Stock Additional Common Preferred Stockholders'
--------------- ------------ Paid-In Accumulated --------------- --------------- Equity
Shares Amount Shares Amount Capital Deficit Shares Amount Shares Amount (Deficit)
------ ------ ------ ------ ---------- ----------- ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1993 4,170 $ 417 3,930 $ 393 $ 59,971 $(57,629) 47 $ (70) 4,170 $(1) $ 3,081
Retirement of
Preferred
Treasury Stock (4,170) (417) -- -- 416 -- -- -- (4,170) 1 --
Exercise of Stock
Options -- -- 296 30 63 -- -- -- -- -- 93
Contribution of
Common Stock
from
Shareholders -- -- -- -- -- -- 1,196 -- -- -- --
Purchase of
Treasury
Common Stock -- -- -- -- -- -- 27 (80) -- -- (80)
Net Income -- -- -- -- -- 1,039 -- -- -- -- 1,039
------- ----- ----- ----- -------- -------- ----- ----- ----- --- -------
Balance, March 31,
1994 -- $ -- 4,226 $ 423 $ 60,450 $(56,590) 1,270 $(150) -- $ -- $ 4,133
Exercise of Stock
Options -- -- 168 16 90 -- -- -- -- -- 106
Net Income -- -- -- -- -- 1,536 -- -- -- -- 1,536
------- ----- ----- ----- -------- -------- ----- ----- ----- --- -------
Balance, March 31,
1995 -- $ -- 4,394 $ 439 $ 60,540 $(55,054) 1,270 $(150) -- -- $ 5,775
Exercise of Stock
Options -- -- 222 22 114 -- -- -- -- -- 136
Net Income -- -- -- -- -- (952) -- -- -- -- (952)
------- ----- ----- ----- -------- -------- ----- ----- ----- --- -------
Balance, March 31,
1996 -- $ -- 4,616 $ 461 $ 60,654 $(56,006) 1,270 $(150) -- $ -- $ 4,959
======= ===== ===== ===== ======== ======== ===== ===== ===== === =======
</TABLE>
See accompanying notes to financial statements.
-23-
<PAGE> 24
TMBR/SHARP DRILLING, INC.
Statements of Cash Flows
Years Ended March 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (952) $ 1,536 $ 1,039
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization 907 876 746
Dry holes and abandonments 945 629 656
Gain on sales of assets (26) (100) (103)
Writedown of properties 2,624 -- --
Changes in assets and liabilities:
Trade receivables (374) 45 1,780
Deposits 90 273 (347)
Inventories and other current assets (65) (175) 19
Trade payables 1,497 555 (1,809)
Accrued interest and other current liabilities 117 (102) 333
-------- -------- --------
Total adjustments 5,715 2,001 1,275
-------- -------- --------
Net cash provided
by operating activities 4,763 3,537 2,314
Cash flows from investing activities:
Additions to property and equipment (7,016) (3,495) (1,970)
Proceeds from sales of property and equipment 44 106 117
-------- -------- --------
Net cash required by investing activities (6,972) (3,389) (1,853)
Cash flows from financing activities:
Proceeds from capital lease -- -- 186
Repayments of capital lease (92) (89) (45)
Proceeds from exercise of stock options 136 106 93
Purchase of treasury stock -- -- (80)
Proceeds from bank loan 1,300 -- --
Leasehold borrowings and repayments
of leasehold borrowings (386) 386 --
-------- -------- --------
Net cash provided by
financing activities 958 403 154
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents (1,251) 551 615
Cash and cash equivalents at beginning of year 1,590 1,039 424
-------- -------- --------
Cash and cash equivalents at end of year $ 339 $ 1,590 $ 1,039
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
-24-
<PAGE> 25
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
(1) Organization, Nature of Business and Summary of Significant Accounting
Policies
Nature of Operations
TMBR/Sharp Drilling, Inc. (the "Company") was incorporated under the
laws of Texas in October, 1982 under the name TMBR Drilling, Inc. In
August, 1986, the Company changed its name to TMBR/Sharp Drilling, Inc.
The Company's principal businesses are the domestic onshore contract
drilling of oil and gas wells for major and independent oil and gas
producers, and, to a lesser extent, the exploration for, development and
production of oil and natural gas. The Company's drilling activities are
primarily conducted in the Permian Basin of west Texas and eastern new
Mexico.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
highly liquid debt instruments which have an original maturity of three
months or less to be cash equivalents. Cash payments for interest expense
were approximately $139,000 in 1996, $154,000 in 1995, and $89,000 in 1994.
Cash payments for taxes due totaled $23,000, $13,000 and $131,000 during
1996, 1995 and 1994, respectively.
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. Other property and equipment is
depreciated using the straight-line method of depreciation with estimated
useful lives of three to seven years.
Oil and gas properties are accounted for using the successful efforts
method of accounting. 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
-25-
<PAGE> 26
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
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
has an ownership interest, the Company's proportionate share of costs
related to these properties is capitalized as stated above, net of the
Company's working interest share of profits from the related drilling
contracts. Capitalized costs of undeveloped properties, which are not
depleted until proved reserves can be associated with the properties, are
periodically reviewed for possible impairment. Such unevaluated costs
totaled approximately $1,100,000 and $973,000 as of March 31, 1996 and
1995, respectively.
During 1996 and 1995, depletion, depreciation and amortization of
capitalized oil and gas property costs was 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. During 1993,
depletion, depreciation and amortization of capitalized oil and gas
property costs was provided using the straight-line method over an
estimated life of five years since the company did not obtain the reserve
information necessary for the units-of-production method.
Prior to 1996, the Company provided impairments for significant proved
oil and gas properties to the extent that net capitalized costs exceeded
aggregated undiscounted future net cash flows. During 1996, the Company
adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS 121 requires the Company to assess the
need for an impairment of capitalized costs of oil and gas properties on a
property-by-property basis. According to SFAS 121, if an impairment is
indicated based on undiscounted expected future cash flows, then it is
recognized to the extent that net capitalized costs exceed discounted
future cash flows. The Company recognized a $2.6 million charge as a
result of the adoption of SFAS 121. Management's estimate of future cash
flows is based on their estimate of reserves and prices. It is reasonably
possible that a change in reserve or price estimates could occur in the
near term and adversely impact management's estimate of future cash flows
and consequently the carrying value of properties.
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.
-26-
<PAGE> 27
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
Drilling Revenues and Costs
Drilling revenues from footage and daywork contracts are recognized as
work is performed utilizing the percentage-of-completion method. Costs on
footage and daywork contracts are recognized in the period incurred. The
Company utilizes the completed contract method to recognize drilling
revenues and expenses relating to turnkey contracts. Expected losses on
all in-process contracts are recognized in the period the loss can
reasonably be determined.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the
reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve volumes and the related present
value of estimated future net revenues therefrom (see Note 8), and the
valuation allowance for deferred taxes (see Note 4).
Net Income (Loss) Per Share of Common Stock
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 dilutive for purposes of calculating the
net income per share and are considered antidilutive for purposes of
calculating the net loss per share.
-27-
<PAGE> 28
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
(2) Debt
Line of Credit
On January 16, 1996, the Company entered into a loan agreement with
Norwest Bank Texas, Midland, N.A. (Norwest) that provides for a $3,000,000
revolving line of credit secured by the Company's drilling rigs and related
equipment, accounts receivable and inventory. Borrowings under the line of
credit bear interest at the Norwest Bank Minnesota, National Association
base rate and the interest is payable monthly. The loan matures January
15, 1998 at which time the then outstanding principal and all of the
accrued and unpaid interest is due and payable. At March 31, 1996, the
Company had borrowed $1,300,000 under the facility. The Company is
required to maintain certain financial covenants, including a requirement
to maintain a minimum tangible net worth of $6.25 million. As of March 31,
1996, the Company was not in compliance with this requirement, and obtained
a waiver allowing their non-compliance. The Company is working with the
bank to modify the terms of the loan agreement in order to eliminate the
non-compliance with the debt covenant.
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 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 March 31, 1996,
the obligation outstanding to Paladin had been satisfied.
-28-
<PAGE> 29
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
(3) Stockholders' Equity (Deficit)
(a) Stock Option Plan
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. The
following sets forth certain information concerning these options:
Option Price
Number ------------
of Shares Per Share Total
--------- --------- -------
Outstanding March 31, 1994 334,000 $503,250
Exercised (158,000) $0.375 to 3.00 (67,125)
Forfeited (10,000) 0.375 to 3.00 (16,875)
------- -------
Outstanding March 31, 1995 166,000 $419,250
Exercised (58,000) $0.375 to 3.00 (95,250)
------- -------
Outstanding March 31, 1996 108,000 $324,000
======= =======
60,500 of the 108,000 option shares outstanding were exercisable at
March 31, 1996. The remaining 47,500 shares outstanding become exercisable
on June 1 of every year in 23,750 share increments becoming fully
exercisable on June 1, 1997.
In addition to the aforementioned options, in 1988, the Company issued
90,000 shares of nonqualified stock options to two directors at an exercise
price of $0.375 per share (estimated fair market value at date of grant).
During fiscal year 1989, an additional 500,000 shares of nonqualified stock
options were granted to another director who is also an officer. These
options were granted at an exercise price of $0.25 per share (estimated
fair market value at date of grant). On April 4, 1990, the Board of
Directors also approved an additional 500,000 shares of nonqualified stock
options granted to another director at an exercise price of $0.25 per share
(estimated fair market value at date of grant).
-29-
<PAGE> 30
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
The following sets forth certain information concerning these
nonqualified options:
Option Price
Number ------------
of Shares Per Share Total
--------- --------- -----
Outstanding March 31, 1994 862,000 $0.25 $215,500
--------- -------
Outstanding March 31, 1995 862,000 $0.25 $215,500
Exercised (164,000) 0.25 (41,000)
--------- -------
Outstanding March 31, 1996 698,000 $174,500
========= =======
All nonqualified options outstanding were earned and exercisable as of
March 31, 1996.
(b) Common stock
On December 31, 1993, the Company entered into an agreement cancelling
an option that would have allowed the Company to purchase approximately
1,595,000 shares of common stock at $0.375 per share. As consideration for
cancelling the option, State Farm contributed to the Company approximately
1,195,000 shares at no cost and retained 400,000 shares. The Company holds
the contributed shares as treasury stock at March 31, 1996.
(4) Income Taxes
At March 31, 1996, the Company had approximately $71,409,000 of net
operating loss carryforwards for tax purposes. Realization of the benefits
of these carryforwards is dependent upon the Company's ability to generate
taxable earnings in future periods. If these carryforwards are not
utilized, they will begin to expire in 1998. The Company's ability to
utilize its net operating loss carryforwards may be substantially limited
in the future under Section 382 of the Internal Revenue Code (IRC). If the
Company encounters a change of control as defined in IRC Section 382, the
carryforward would be limited to an annual amount calculated based on
market value. The Company does not believe a change of control, as
defined, has occurred to date.
-30-
<PAGE> 31
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The major components of
deferred tax assets and liabilities follows:
March 31, 1996 March 31, 1995
-------------- --------------
Deferred Tax Assets (Liabilities)
Federal NOL Carryforwards $ 24,279,040 $ 24,607,475
Asset Impairment -- 99,490
Allowance for Bad Debts 416,403 416,427
Book over tax depreciation
and amortization 815,254 47,543
Accrued Workers Compensation 434,884 414,836
Other accrued expenses (5,616) 10,361
---------- ----------
Total deferred tax assets 25,939,965 25,596,132
Valuation allowance (25,939,965) (25,596,132)
---------- ----------
Net deferred tax asset $ -- $ --
========== ==========
The Company has provided a valuation allowance for the entire balance
of deferred tax assets at March 31, 1996 and March 31, 1995, as it is more
likely than not that the deferred tax asset will not be realized.
The effective tax rates for the years ended March 31, 1996 and 1995
differ from the statutory tax rate of 34% primarily due to utilization of
net operating loss carryforwards. Tax expense is generally limited to
alternative minimum tax.
(5) Related Parties
During 1996, 1995 and 1994, the Company sold $791,000, $1,731,000 and
$847,000 and purchased $427,000, $357,000 and $411,000, of goods and
services from entities affiliated with individuals serving as officers
and/or directors of the Company. These purchases and sales are transacted
using market rates. These transactions are included in "contract drilling
revenue" and "contract drilling expense" or "other income or expense" in
the accompanying statements of operations.
The related party transactions discussed in the preceding paragraphs
are noninterest-bearing and are settled in the normal course of business.
-31-
<PAGE> 32
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
(6) Business Segments and Significant Customers
The Company is engaged in contract drilling of oil and gas wells and,
to a lesser extent, in oil and gas production. Information concerning the
Company's business segments follows:
Years Ended March 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands)
Revenues:
Contract drilling $ 21,298 $ 18,357 $ 18,359
Oil and gas 1,683 1,042 621
-------- -------- --------
$ 22,981 $ 19,399 $ 18,980
======== ======== ========
Net income (loss) (a):
Contract drilling $ 2,245 $ 2,182 $ 1,770
Oil and gas (3,058) (492) (674)
-------- -------- --------
(813) 1,690 1,096
Corporate expenses (b) (139) (154) (57)
-------- -------- --------
$ (952) $ 1,536 $ 1,039
======== ======== ========
Identifiable assets:
Contract drilling $ 6,415 $ 5,117 $ 4,661
Oil and gas 4,322 2,808 854
-------- -------- --------
10,737 7,925 5,515
Corporate assets (c) 923 2,115 2,133
-------- -------- --------
$ 11,660 $ 10,040 $ 7,648
======== ======== ========
Depreciation, depletion and
amortization:
Contract drilling $ 439 $ 476 $ 465
Oil and gas 468 400 281
-------- -------- --------
$ 907 $ 876 $ 746
======== ======== ========
Capital expenditures:
Contract drilling $ 1,463 $ 515 $ 951
Oil and gas 5,553 2,980 1,019
-------- -------- --------
$ 7,016 $ 3,495 $ 1,970
======== ======== ========
-32-
<PAGE> 33
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
(a) General and administrative costs and other income are allocated
between segments based on identifiable assets.
(b) Corporate expenses consist of interest expense.
(c) Corporate assets are those assets which are not specifically
identifiable with a segment and consist primarily of cash and
cash equivalents, short-term investments and prepaid expenses.
For the years ended March 31, 1996, 1995 and 1994, contract drilling
revenues earned from individual customers constituting 10% or more of total
contract drilling revenues were:
(a) three customers in 1996 individually represented approximately
19%, 18% and 14% of drilling revenues,
(b) three customers in 1995 individually represented approximately
24%, 17% and 14% of drilling revenues,
(c) two customers in 1994 individually represented approximately
40% and 15% of drilling revenues.
The loss of one or more of the above customers could have a material
adverse effect on the Company, depending upon the demand for drilling rigs
at the time of such loss and the Company's ability to find new customers.
(7) Contingencies
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 into 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, if any, 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.
-33-
<PAGE> 34
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
In a related development, on November 3, 1995, the Company was
notified that a lawsuit had been filed in Travis County, Texas styled Texas
Property and Casualty Insurance Guaranty Association vs. TMBR/Sharp
Drilling, Inc. (Cause No. 95-12318). The Texas Property and Casualty
Insurance Guaranty Association ("Guaranty Association") seeks a recovery of
past workers' compensation claims advanced by the Guaranty Association
related to the Company's workers compensation insurance program with SFIC.
The Guaranty Association is seeking to recover a total of $803,057.11.
The Company disagrees with the claims made by the Guaranty Association
and intends to vigorously to 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.
The Company provides for its workers' compensation claims based upon
the most recent information available from its insurance carrier concerning
claims and estimated costs. However, in future years the Company may
receive retroactive adjustments, both favorable and unfavorable, related to
estimates of claim costs for previous years, which may be material to the
Company's results of operations. No provision for retroactive adjustments
to claim costs is recorded until the Company receives notification from its
insurance carrier because this amount, if any, cannot be estimated. The
Company is generally responsible for the first $10,000 ($100,000 prior to
November 1993) in claim costs for each workers' compensation injury.
The Company is a defendant in various lawsuits generally incidental to
its business. The Company does not believe that the ultimate resolution of
such litigation will have a significant effect on the Company's financial
position or results of operations.
-34-
<PAGE> 35
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
(8) Supplemental Information Related to Oil and Gas Activities
The Company's capitalized cost of oil and gas properties is as
follows:
March 31,
---------
1996 1995
---- ----
(In thousands)
Oil and gas properties $10,398 $ 5,790
Accumulated depreciation,
depletion and amortization (6,076) (2,982)
------- -------
$ 4,322 $ 2,808
======= =======
The Company's costs incurred related to oil and gas property
acquisition, exploration and development activities are as follows:
Years Ended March 31,
---------------------
1996 1995 1994
---- ---- ----
(In thousands)
Property acquisition costs $ 970 $ 1,309 $ 170
Exploration costs 3,969 1,035 609
Development costs 614 636 240
------- ------- -------
$ 5,553 $ 2,980 $ 1,019
======= ======= =======
-35-
<PAGE> 36
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
The Company's results of operations from oil and gas producing
activities are as follows:
Years Ended March 31,
---------------------
1996 1995 1994
---- ---- ----
(In thousands)
Revenues $ 1,683 $ 1,042 $ 621
Production costs 554 350 318
Dry holes and abandonments 945 629 656
Depreciation, depletion and
amortization and valuation
provisions 3,092 400 281
Income tax provision -- -- --
------- ------- -------
Results of operations from
producing activities
(excluding corporate
overhead and interest costs $(2,908) $ (337) $ (634)
======= ======= =======
(9) Unaudited supplemental oil and gas reserve information
The reserve information presented below are only estimates. There are
numerous uncertainties inherent in estimating quantities of proved reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the Company.
Reserve engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation
and judgment. The quantities of oil and gas that are ultimately recovered,
production and operating costs, the amount and timing of future development
expenditures and future oil and gas prices may all differ from those
assumed in such estimates.
-36-
<PAGE> 37
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
Quantities of proved reserves:
Crude Oil Natural Gas
(MBbl) (MMcf)
--------- -----------
Balance, March 31, 1993 108.3 353.2
Discoveries and additions 40.7 35.1
Production (28.6) (74.8)
--------- -----------
Balance, March 31, 1994 120.4 313.5
Discoveries and additions 206.5 920.6
Production (51.3) (104.7)
--------- -----------
Balance, March 31, 1995 275.6 1,129.4
Discoveries and additions 163.9 1,898.3
Production (70.9) (212.1)
--------- -----------
Balance, March 31, 1996 368.6 2,815.6
========= ===========
Proved Developed reserves:
Crude Oil Natural Gas
(MBbl) (MMcf)
--------- -----------
March 31, 1993 108.3 353.2
========= ===========
March 31, 1994 120.4 313.5
========= ===========
March 31, 1995 275.6 1,129.4
========= ===========
March 31, 1996 368.6 2,815.6
========= ===========
-37-
<PAGE> 38
TMBR/SHARP DRILLING, INC.
Notes to Financial Statements
March 31,
-----------------------
1996 1995
---- ----
Standardized Measure
Future cash inflows production $10,369 $ 6,013
Future production and
development costs (3,089) (1,988)
------- -------
Future net cash flows 7,280 4,025
10% discount factor (2,326) (1,146)
------- -------
Discounted future net cash flows 4,954 2,879
Discounted income taxes -- --
------- -------
Standardized Measure $ 4,954 $ 2,879
======= =======
1996 1995 1994
---- ---- ----
Standardized measure,
beginning of year $ 2,879 $ 971 $ 1,139
Revisions
Prices and costs 235 676 (241)
Accretion of discount 288 97 114
------- ------- --------
Net revisions 523 773 (127)
Discoveries and additions 2,681 1,764 262
Production (1,129) (629) (303)
------- ------- -------
Standardized measure,
end of year $ 4,954 $ 2,879 $ 971
======= ======= =======
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-38-
<PAGE> 39
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Company are as follows:
Director
or Officer
Name Age Position with Company since
---- --- --------------------- ----------
Thomas C. Brown 69 Chairman of the Board of Directors
and Chief Executive Officer 1982
Joe G. Roper 67 Director and President 1982
Donald L. Evans (1) 49 Director 1982
David N. Fitzgerald (1) 73 Director 1984
Don H. Lawson 57 Vice President - Operations 1992
Patricia R. Elledge 38 Controller/Treasurer 1994
James M. Alsup 58 Secretary 1982
--------------------------
(1) Member of Compensation and Audit Committees
Directors of the Company serve until the annual meeting of
stockholders to be held in August, 1996, and until their successors in
office are elected and qualified. Each officer is appointed annually by
the Company's Board of Directors to serve at the Board's discretion and
until his successor in office is elected and qualified.
Mr. Brown has served as an executive officer and Director of the
Company and Tom Brown, Inc., the former parent of the Company, for more
than the past five years.
Mr. Roper has been employed by the Company for more than the past five
years.
Mr. Evans serves as Chairman of the Board of Directors and Chief
Executive Officer of Tom Brown, Inc. and has been employed by Tom Brown,
Inc. for more than the past five years.
Mr. Fitzgerald is the President and principal shareholder of Exit
Oilfield Equipment, Inc., a privately held oilfield sales company, and was
President of Oil Patch Sales and Rentals, Inc. from 1984 to 1991.
-39-
<PAGE> 40
Mr. Lawson has been employed by the Company for more than the past
five years.
Ms. Elledge was employed by the Company from September, 1989 to
December, 1993 when she resigned to relocate. Ms. Elledge returned to the
employ of the Company in September, 1994 in her current capacity as
Controller/Treasurer. Ms. Elledge is the daughter of Mr. Roper.
Mr. Alsup has been the Secretary of the Company since its inception.
He has been a partner in the law firm of Lynch, Chappell & Alsup for more
than the past five years.
Item 11. EXECUTIVE COMPENSATION
The discussion under "Executive Compensation" in the Company's
definitive proxy statement for the 1996 annual meeting of stockholders is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion under "Principal Shareholders" and the information
appearing under "Election of Directors" in the Company's definitive proxy
statement for the 1996 annual meeting of stockholders is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The discussion under "Executive Compensation - Certain Transactions"
in the Company's definitive proxy statement for the 1996 annual meeting of
stockholders is incorporated herein by reference.
-40-
<PAGE> 41
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a)1. See Index to Financial Statements at Item 8 18
(a)2. Financial Statement Schedules
Years ended March 31, 1996, 1995 and 1994
Schedule II - Valuation and Qualifying Accounts . . . . 44
All other schedules are omitted as the
required information is inapplicable or the
information is presented in the Financial
Statements or related notes.
(a)3. Exhibits:
Exhibit 3.1 - Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 in Registrant's Annual
Report on Form 10-K dated June 28, 1991)
Exhibit 3.2 - Bylaws of the Company, as amended. (Incorporated
by reference to Exhibit 3.2 in Registrant's Annual Report on Form
10-K dated June 27, 1994)
Executive Compensation Plans and Arrangements
(Exhibits 10.1 through and including Exhibit 10.11 constitute
executive compensation plans and arrangements of the Registrant)
Exhibit 10.1 - Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 in Registrant's Registration Statement
on Form 10 as amended, effective October 9, 1984)
Exhibit 10.2 - Nonqualified Stock Option Agreement dated August
29, 1990, between Thomas C. Brown and the Registrant.
(Incorporated by reference to Exhibit 10.15 in Registrant's Annual
Report on form 10-K dated June 25, 1993)
Exhibit 10.3 - Nonqualified Stock Option Agreement dated August
30, 1988, between Joe G. Roper and the Registrant. (Incorporated
by reference to Exhibit 10.17 in Registrant's Annual Report on
Form 10-K dated June 25, 1993)
-41-
<PAGE> 42
Exhibit 10.4 - Incentive Stock Option Agreement dated November 16,
1993 between Joe G. Roper and the Registrant. (Incorporated by
reference to Exhibit 10.5 in Registrant's Annual Report on Form
10-K dated June 27, 1994)
Exhibit 10.5 - Nonqualified Stock Option Agreement dated August 8,
1984, as amended January 15, 1988 and August 29, 1991, between
Donald L. Evans and the Registrant. (Incorporated by reference to
Exhibit 10.18 in Registrant's Annual Report on Form 10-K dated
June 25, 1993)
Exhibit 10.6 - Incentive Stock Option Agreement dated August 8,
1984, as amended, January 15, 1988 and August 29, 1991, between
Donald L. Evans and the Registrant. (Incorporated by reference to
Exhibit 10.19 in Registrant's Annual Report on Form 10-K dated
June 25, 1993)
Exhibit 10.7 - Incentive Stock Option Agreement dated December 4,
1992 between Patricia R. Elledge and the Registrant.
(Incorporated by reference to Exhibit 10.20 in Registrant's Annual
Report on Form 10-K dated June 25, 1993)
Exhibit 10.8 - Incentive Stock Option Agreement dated December 4,
1992 between Don H. Lawson and the Registrant. (Incorporated by
reference to Exhibit 10.21 in Registrant's Annual Report on Form
10-K dated June 25, 1993)
Exhibit 10.9 - Incentive Stock Option Agreement dated November 16,
1993 between Don H. Lawson and the Registrant. (Incorporated by
reference to Exhibit 10.10 in Registrant's Annual Report on Form
10-K dated June 27, 1994)
Exhibit 10.10 - 1994 Stock Option Plan. (Incorporated by reference
to Exhibit 10.10 in Registrant's Annual Report on Form 10-K dated
June 28, 1995)
Exhibit 10.11 - TMBR/Sharp Drilling, Inc. Employee Retirement Plan.
(Incorporated by reference to Exhibit 10.11 in Registrant's Annual
Report on Form 10-K dated June 28, 1995)
Exhibit 10.12 - Asset Purchase Agreement dated June 22, 1992 between
the Registrant and State Farm Mutual Automobile Insurance Company.
(Incorporated by reference to Exhibit 10.14 in Registrant's Annual
Report on Form 10-K dated June 22, 1992)
Exhibit 10.13 - Stock Option Cancellation Agreement dated December
31, 1993 between the Registrant and State Farm Mutual Automobile
Insurance Company. (Incorporated by reference to Exhibit 10.1 in
Registrant's Current Report on Form 8-K dated January 6, 1994)
-42-
<PAGE> 43
Exhibit 10.14 - Loan Agreement dated January 16, 1996, between
Norwest Bank Texas, Midland, N.A. and the Registrant.
(Incorporated by reference to Exhibit 10.1 in Registrant's
Quarterly Report on Form 10-Q dated February 12, 1996)
Exhibit 23 - Consent of Arthur Andersen LLP*
----------------------------------
*Filed herewith
(b) No reports on Form 8-K were filed during the last quarter of fiscal
1996.
-43-
<PAGE> 44
Schedule II
-----------
TMBR/SHARP DRILLING, INC.
Valuation and Qualifying Accounts
Years ended March 31, 1996, 1995 and 1994
(In thousands)
Balance at Additions Balance
beginning charged to at end
Description of year operations Recoveries of year
--------------------- ---------- ---------- ---------- -------
Allowance for
doubtful accounts:
1996 $ 1,225 $ -- $ -- $ 1,225
1995 $ 1,225 $ -- $ -- $ 1,225
1994 $ 1,265 $ -- $ 40 $ 1,225
-44-
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TMBR/SHARP DRILLING, INC.
June 19, 1996 By /s/ Thomas C. Brown
Thomas C. Brown, Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
June 19, 1996 /s/ Thomas C. Brown
Thomas C. Brown, Chairman
of the Board of Directors
(Principal Executive Officer)
June 19, 1996 /s/ Joe G. Roper
Joe G. Roper, President and
Director
June 19, 1996 /s/ Patricia R. Elledge
Patricia R. Elledge, Controller/
Treasurer (Principal Financial
Officer)
June 19, 1996 /s/ David N. Fitzgerald
David N. Fitzgerald, Director
June 19, 1996 /s/ Donald L. Evans
Donald L. Evans, Director
-45-
<PAGE> 46
INDEX TO EXHIBITS
Description
-----------
Exhibit 3.1 Articles of Incorporation of the Company, as
amended. (Incorporated by reference to
Exhibit 3.1 in Registrant's Annual Report on
Form 10-K dated June 28, 1991)
Exhibit 3.2 Bylaws of the Company, as amended. (Incor-
porated by reference to Exhibit 3.2 in
Registrant's Annual Report on Form 10-K dated
June 27, 1994)
Executive Compensation Plans and Arrangements
(Exhibits 10.1 through and including Exhibit
10.11 constitute executive compensation plans
and arrangements of the Registrant)
Exhibit 10.1 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10.3 in Registrant's
Registration Statement on Form 10, as
amended, effective October 9, 1984)
Exhibit 10.2 Nonqualified Stock Option Agreement dated
August 29, 1990, between Thomas C. Brown and
the Registrant. (Incorporated by reference
to Exhibit 10.15 in Registrant's Annual
Report on Form 10-K dated June 25, 1993)
Exhibit 10.3 Nonqualified Stock Option Agreement dated
August 30, 1988, between Joe G. Roper and the
Registrant. (Incorporated by reference to
Exhibit 10.17 in Registrant's Annual Report
on Form 10-K dated June 25, 1993)
Exhibit 10.4 Incentive Stock Option Agreement dated
November 16, 1993 between Joe G. Roper and
the Registrant. (Incorporated by reference
to Exhibit 10.5 in Registrant's Annual Report
on Form 10-K dated June 27, 1994)
Exhibit 10.5 Nonqualified Stock Option Agreement dated
August 8, 1984, as amended, January 15, 1988
and August 29, 1991, between Donald L. Evans
and the Registrant. (Incorporated by
reference to Exhibit 10.18 in Registrant's
Annual Report on Form 10-K dated June 25,
1993)
-46-
<PAGE> 47
Exhibit 10.6 Incentive Stock Option Agreement dated
August 8, 1984, as amended, January 15, 1988
and August 29, 1991, between Donald L. Evans
and the Registrant. (Incorporated by
reference to Exhibit 10.19 in Registrant's
Annual Report on Form 10-K dated June 25,
1993)
Exhibit 10.7 Incentive Stock Option Agreement dated
December 4, 1992 between Patricia R. Elledge
and the Registrant. (Incorporated by
reference to Exhibit 10.20 in Registrant's
Annual Report on Form 10-K dated June 25,
1993)
Exhibit 10.8 Incentive Stock Option Agreement dated
December 4, 1992 between Don H. Lawson and
the Registrant. (Incorporated by reference
to Exhibit 10.21 in Registrant's Annual
Report on Form 10-K dated June 25, 1993)
Exhibit 10.9 Incentive Stock Option Agreement dated
November 16, 1993 between Don H. Lawson and
the Registrant. (Incorporated by reference
to Exhibit 10.10 in Registrant's Annual
Report on Form 10-K dated June 27, 1994)
Exhibit 10.10 1994 Stock Option Plan. (Incorporated by
reference to Exhibit 10.10 in Registrant's
Annual Report on Form 10-K dated June 28,
1995)
Exhibit 10.11 TMBR/Sharp Drilling, Inc. Employee Retirement
Plan. (Incorporated by reference to Exhibit
10.11 in Registrant's Annual Report on Form
10-K dated June 28, 1995)
Exhibit 10.12 Asset Purchase Agreement dated June 22, 1992
between the Registrant and State Farm Mutual
Automobile Insurance Company. (Incorporated
by reference to Exhibit 10.14 in Registrant's
Annual Report on Form 10-K dated June 22,
1992)
Exhibit 10.13 Stock Option Cancellation Agreement dated
December 31, 1993 between the Registrant and
State Farm Mutual Automobile Insurance
Company. (Incorporated by reference to
Exhibit 10.1 in Registrant's Current Report
on Form 8-K dated January 6, 1994)
-47-
<PAGE> 48
Exhibit 10.14 Loan Agreement dated January 16, 1996, between
Norwest Bank Texas, Midland, N.A. and the
Registrant. (Incorporated by reference to
Exhibit 10.1 in Registrant's Quarterly Report
on Form 10-Q dated February 12, 1996)
Exhibit 23 Consent of Arthur Andersen LLP* 49
--------------------
*Filed herewith
-48-
<PAGE> 49
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 10-K into
the Company's previously filed Registration Statements on Form S-8
(registration no. 33-46699 and no. 33-89878).
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 31, 1996
-49-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 339
<SECURITIES> 0
<RECEIVABLES> 4167
<ALLOWANCES> 1225
<INVENTORY> 51
<CURRENT-ASSETS> 4165
<PP&E> 53343
<DEPRECIATION> 46022
<TOTAL-ASSETS> 11660
<CURRENT-LIABILITIES> 5401
<BONDS> 0
0
0
<COMMON> 461
<OTHER-SE> 4498
<TOTAL-LIABILITY-AND-EQUITY> 11660
<SALES> 0
<TOTAL-REVENUES> 22981
<CGS> 0
<TOTAL-COSTS> 23881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> (922)
<INCOME-TAX> 30
<INCOME-CONTINUING> (952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (952)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
