<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QA
(Amendment No. 1)
____________________
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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 January 29, 1997
(Title of Class) 3,703,086
<PAGE> 2
PART ONE - FINANCIAL INFORMATION (UNAUDITED)
Item 1. FINANCIAL STATEMENTS
TMBR/SHARP DRILLING, INC.
BALANCE SHEETS
December 31, 1996 (Unaudited) and March 31, 1996
(In thousands, except per share data)
December 31,
1996 March 31,
ASSETS (Unaudited) 1996
------ ------------- -----------
Current assets:
Cash and cash equivalents $ 531 $ 339
Trade receivables,
net of allowance for doubtful
accounts of $1,225 at both
December 31, and March 31, 1996 3,537 2,942
Inventories 66 51
Deposits 73 423
Other 153 410
-------- --------
Total current assets 4,360 4,165
-------- --------
Property and equipment, at cost:
Drilling equipment 41,872 39,750
Oil and gas properties, based on
successful efforts accounting 11,932 10,398
Other property and equipment 3,273 3,195
-------- --------
57,077 53,343
Less accumulated depreciation,
depletion and amortization (46,967) (46,022)
-------- --------
Net property and equipment 10,110 7,321
-------- --------
Other assets 185 174
-------- --------
Total assets $ 14,655 $ 11,660
======== ========
See accompanying notes to financial statements.
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<PAGE> 3
TMBR/SHARP DRILLING, INC.
BALANCE SHEETS
December 31, 1996 (Unaudited) and March 31, 1996
(In thousands, except per share data)
December 31,
1996 March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1996
------------------------------------ ------------ -----------
Current liabilities:
Trade payables $ 2,436 $ 3,336
Accrued workers' compensation 1,427 1,279
Other 441 786
-------- --------
Total current liabilities 4,304 5,401
-------- --------
Long term liabilities:
Borrowings from bank 4,500 1,300
Contingencies
Stockholders' equity:
Common stock, $0.10 par value
Authorized, 50,000,000 shares;
issued, 4,946,725 and 4,615,525
shares at December 31 and
March 31, 1996, respectively 494 461
Additional paid-in capital 60,709 60,654
Accumulated deficit (55,202) (56,006)
Treasury stock-common, 1,268,739
shares at December 31, and
March 31, 1996, at cost (150) (150)
-------- --------
Total stockholders' equity 5,851 4,959
-------- --------
Total liabilities and
stockholders' equity $ 14,655 $ 11,660
======== ========
See accompanying notes to financial statements.
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<PAGE> 4
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Three months ended December 31, 1996 and 1995 (Unaudited)
(In thousands, except per share data)
Three months ended
December 31,
-----------------------------
1996 1995
----------- -----------
Revenues:
Contract drilling $ 5,051 $ 5,066
Oil and gas 494 305
----------- -----------
Total revenues 5,545 5,371
----------- -----------
Operating costs and expenses:
Contract drilling 3,792 4,411
Oil and gas production 136 168
Dry holes and abandonments 105 131
Depreciation, depletion and
amortization 463 373
General and administrative 382 403
----------- -----------
Total operating costs
and expenses 4,878 5,486
----------- -----------
Operating income (loss) 667 (115)
----------- -----------
Other income (expense):
Interest (95) (33)
Other, net 7 23
----------- -----------
Total other income (expense) (88) (10)
----------- -----------
Net income (loss) before income
tax provision 579 (125)
Provision for income taxes (16) --
----------- -----------
Net income (loss) $ 563 $ (125)
=========== ===========
See accompanying notes to financial statements.
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TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Three months ended December 31, 1996 and 1995 (Unaudited)
(In thousands, except per share data)
Three months ended
December 31,
-----------------------------
1996 1995
----------- -----------
Net income (loss) per share
of common stock $ .13 $ (.03)
=========== ===========
Weighted average number of
common shares outstanding 4,264,311 4,095,906
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 6
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Nine months ended December 31, 1996 and 1995 (Unaudited)
(In thousands, except per share data)
Nine months ended
December 31,
-----------------------------
1996 1995
----------- -----------
Revenues:
Contract drilling $ 11,820 $ 16,194
Oil and gas 1,439 1,096
----------- -----------
Total revenues 13,259 17,290
----------- -----------
Operating costs and expenses:
Contract drilling 9,052 13,372
Oil and gas production 589 374
Dry holes and abandonments 442 422
Depreciation, depletion and
amortization 1,071 898
General and administrative 1,143 1,174
----------- -----------
Total operating costs
and expenses 12,297 16,240
----------- -----------
Operating income 962 1,050
----------- -----------
Other income (expense):
Interest (236) (99)
Gain on sales of assets 65 24
Other, net 29 71
----------- -----------
Total other income (expense) (142) (4)
----------- -----------
Net income before income
tax provision 820 1,046
Provision for income taxes (16) (30)
----------- -----------
Net income $ 804 $ 1,016
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 7
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Nine months ended December 31, 1996 and 1995 (Unaudited)
(In thousands, except per share data)
Nine months ended
December 31,
-----------------------------
1996 1995
----------- -----------
Net income per share
of common stock $ .19 $ .25
=========== ===========
Weighted average number of
common shares outstanding 4,181,834 4,083,980
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 8
TMBR/SHARP DRILLING, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
Nine Months Ended December 31, 1996 (Unaudited) and
Year Ended March 31, 1996
(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, 1996 4,616 $ 461 $ 60,654 $(56,006) 1,269 $(150) $ 4,959
Exercise of
stock options 331 33 55 -- -- -- 88
Net income -- -- -- 804 -- -- 804
----- ----- -------- -------- ------- ----- -------
Balance,
December 31,
1996 4,947 $ 494 $ 60,709 $(55,202) 1,269 $(150) $ 5,851
===== ===== ======== ======== ======= ===== =======
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 9
TMBR/SHARP DRILLING, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1996 and 1995 (Unaudited)
(In thousands)
Nine months ended December 31,
------------------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income $ 804 $ 1,016
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion and
amortization 1,071 898
Dry holes and abandonments 442 422
Gain on sales of assets (65) (24)
Changes in assets and liabilities:
Trade receivables (595) (1,007)
Deposits 350 91
Inventories and other assets 231 64
Trade payables (900) 1,597
Accrued interest and other liabilities (197) (56)
-------- --------
Total adjustments 337 1,985
-------- --------
Net cash provided by
operating activities 1,141 3,001
Cash flows from investing activities:
Additions to property and equipment (4,339) (4,695)
Proceeds from sales of property and
equipment 102 26
-------- --------
Net cash required by
investing activities (4,237) (4,669)
Cash flows from financing activities:
Repayments of capital lease -- (92)
Issuance of common stock 88 130
Loans from bank 3,200 500
Repayments of leasehold borrowings -- (386)
-------- --------
Net cash provided by
financing activities 3,288 152
-------- --------
Net increase (decrease) in cash
and cash equivalents 192 (1,516)
Cash and cash equivalents at beginning
of period 339 1,590
-------- --------
Cash and cash equivalents at end of period $ 531 $ 74
======== ========
See accompanying notes to financial statements.
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<PAGE> 10
TMBR/SHARP DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
The amounts presented in the balance sheet as of March 31, 1996 were
derived from the Company's audited financial statements included in its
Form 10-K Report filed for the year then ended. The notes to such
statements are incorporated herein 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
December 31, 1996 and March 31, 1996, the results of operations for the
three and nine months ended December 31, 1996 and 1995, and the cash flows
for the nine month period ended December 31, 1996 and 1995.
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 on Form 10-K for the
fiscal year ended March 31, 1996.
(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. 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. 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
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<PAGE> 11
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.
Depletion, depreciation and amortization 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.
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 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
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 December 31, 1996, the
Company had borrowed $3,000,000 under the facility. Prior to November 13,
1996, the Company was in violation of certain financial covenants of the
loan agreement. On November 13, 1996, Norwest agreed to amend the loan
agreement and, as a result, the Company is in compliance with all the debt
covenants.
On August 15, 1996, the Company and Norwest entered into another loan
agreement which provides for a $2,000,000 revolving line of credit secured
by the Company's oil and gas producing properties. At December 31, 1996,
the Company had borrowed $1,500,000 under this line of credit. The line of
credit bears interest at the Norwest Bank Minnesota, National Association
base rate and the interest is payable monthly. The line of credit matures
on February 15, 1998.
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<PAGE> 12
(4) Stockholders' Equity
1984 Stock Option Plan
In August of 1984, the Company adopted the 1984 Stock Option Plan (the
"Plan") which initially 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 106,000 shares of common stock are currently outstanding under the
Plan, with 84,250 of the options being exercisable at December 31, 1996.
No additional shares are available for grant as 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 its 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
grant. The 1994 Plan was ratified and approved by the stockholders at the
Company's annual meeting of stockholders held on August 30, 1994.
On September 3, 1996, the Company granted 465,000 shares of nonqualified
stock options to key employees under the 1994 Plan. The following sets
forth certain information concerning these nonqualified options.
Number Option Price
of -------------------
Shares Per Share Total
------ -------------------
Outstanding March 31, 1996 -- -- --
Granted 465,000 $7.75 $3,603,750
------- ---- ---------
Outstanding December 31,
1996 465,000 $7.75 $3,603,750
======= ==== =========
All of the nonqualified stock options granted on September 3, 1996 will
be earned and exercisable on May 1, 1997.
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<PAGE> 13
(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, however, to
a maximum of 5% of the employee's compensation.
(6) Contingencies
In March, 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 approximate amount of $646,000. On July
22, 1993 the special deputy receiver of SFIC billed the Company
approximately $1,061,000 for retrospective premiums, but adjusted the
amount of $854,153 on January 12, 1994. Although the Company disputes the
amount claimed by the receiver for 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. 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 approximate amount of $729,000 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 is asserting that it is entitled to reimbursement for all monies
paid to claimants under these policies. In November, 1995, the Guaranty
Association filed a lawsuit against the Company in Travis County, Texas,
styled Texas Property and Casualty Insurance Guaranty Association vs.
TMBR/Sharp Drilling, Inc., Cause No. 95-12318. The Guaranty Association is
seeking to recover past workers' compensation claims in the amount of
approximately $803,000, which have been advanced by the Guaranty
Association under the Company's workers compensation insurance program with
SFIC. In May, 1996, and pursuant to an order of the Travis County District
Court, the claims of the receiver for SFIC were assigned to and became a
part of the Guaranty Association's claims against the Company. The Company
has rejected a settlement offer made by the Guaranty Association for an
amount less than the amount accrued by the Company and the Company intends
to vigorously defend its position against the Guaranty Association.
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<PAGE> 14
PART TWO - OTHER INFORMATION
Item 1. Legal Proceedings
In March, 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 approximate amount of $646,000. On July
22, 1993 the special deputy receiver of SFIC billed the Company
approximately $1,061,000 for retrospective premiums, but adjusted the
amount of $854,153 on January 12, 1994. Although the Company disputes the
amount claimed by the receiver for 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. 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 approximate amount of $729,000 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 is asserting that it is entitled to reimbursement for all monies
paid to claimants under these policies. In November, 1995, the Guaranty
Association filed a lawsuit against the Company in Travis County, Texas,
styled Texas Property and Casualty Insurance Guaranty Association vs.
TMBR/Sharp Drilling, Inc., Cause No. 95-12318. The Guaranty Association is
seeking to recover past workers' compensation claims in the amount of
approximately $803,000, which have been advanced by the Guaranty
Association under the Company's workers compensation insurance program with
SFIC. In May, 1996, and pursuant to an order of the Travis County District
Court, the claims of the receiver for SFIC were assigned to and became a
part of the Guaranty Association's claims against the Company. The Company
has rejected a settlement offer made by the Guaranty Association for an
amount less than the amount accrued by the Company and the Company intends
to vigorously defend its position against the Guaranty Association.
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<PAGE> 15
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.
TMBR/SHARP DRILLING, INC.
May 1, 1997 By: /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)
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