<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
____________________
(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, 1998
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 February 10, 1999
(Title of Class) 4,710,886
<PAGE> 2
TMBR/SHARP DRILLING, INC.
FORM 10-Q REPORT
INDEX
Page No.
Part I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets, December 31, 1998 and
March 31, 1998 . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations, Three Months
Ended December 31, 1998 and 1997 . . . . . . . . . . . 5
Statements of Operations, Nine Months
Ended December 31, 1998 and 1997 . . . . . . . . . . . 7
Statements of Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . . . . 9
Statements of Cash Flows, Nine Months
Ended December 31, 1998 and 1997 . . . . . . . . . . . 10
Notes to Financial Statements . . . . . . . . . . . . . 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 16
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19
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PART ONE - FINANCIAL INFORMATION (UNAUDITED)
Item 1. FINANCIAL STATEMENTS
TMBR/SHARP DRILLING, INC.
BALANCE SHEETS
December 31, 1998 (Unaudited) and March 31, 1998
(In thousands, except per share data)
December 31,
1998 March 31,
ASSETS (Unaudited) 1998
------ ------------- -----------
Current assets:
Cash and cash equivalents $ 1,056 $ 1,623
Marketable securities 87 87
Trade receivables,
net of allowance for doubtful
accounts of $1,135 at both
December 31, and March 31, 1998 4,937 8,149
Inventories 119 82
Deposits 104 73
Other 595 664
-------- --------
Total current assets 6,898 10,678
-------- --------
Property and equipment, at cost:
Drilling equipment 48,919 48,691
Oil and gas properties, based on
successful efforts accounting 18,027 15,452
Other property and equipment 3,733 3,786
-------- --------
70,679 67,929
Less accumulated depreciation,
depletion and amortization (56,015) (54,132)
-------- --------
Net property and equipment 14,664 13,797
-------- --------
Other assets 174 173
-------- --------
Total assets $ 21,736 $ 24,648
======== ========
See accompanying notes to financial statements.
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<PAGE> 4
TMBR/SHARP DRILLING, INC.
BALANCE SHEETS
December 31, 1998 (Unaudited) and March 31, 1998
(In thousands, except per share data)
December 31,
1998 March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1998
------------------------------------ ------------ -----------
Current liabilities:
Trade payables $ 1,662 $ 2,622
Accrued workers' compensation 53 411
Other 629 1,655
-------- --------
Total current liabilities 2,344 4,688
-------- --------
Contingencies
Stockholders' equity:
Common stock, $0.10 par value
Authorized, 50,000,000 shares;
issued 5,979,625 shares at
December 31, and March 31, 1998 598 598
Additional paid-in capital 69,429 69,429
Accumulated deficit (50,485) (49,917)
Treasury stock-common, 1,268,739
shares at December 31, and
March 31, 1998, at cost (150) (150)
-------- --------
Total stockholders' equity 19,392 19,960
-------- --------
Total liabilities and
stockholders' equity $ 21,736 $ 24,648
======== ========
See accompanying notes to financial statements.
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TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Three months ended December 31, 1998 and 1997 (Unaudited)
(In thousands, except per share data)
Three months ended
December 31,
-----------------------------
1998 1997
----------- -----------
Revenues:
Contract drilling $ 1,821 $ 8,914
Oil and gas 393 566
----------- -----------
Total revenues 2,214 9,480
----------- -----------
Operating costs and expenses:
Contract drilling 1,700 5,907
Oil and gas production 227 274
Dry holes and abandonments 186 282
Depreciation, depletion and
amortization 531 1,033
General and administrative 457 482
----------- -----------
Total operating costs
and expenses 3,101 7,978
----------- -----------
Operating (loss) income (887) 1,502
----------- -----------
Other income:
Interest 36 43
Gain on sales of assets 11 95
Other, net 15 39
----------- -----------
Total other income 62 177
----------- -----------
Net (loss) income before income
tax benefit (provision) (825) 1,679
Benefit (provision) for
income taxes 5 (30)
----------- -----------
Net (loss) income $ (820) $ 1,649
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 6
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Three months ended December 31, 1998 and 1997 (Unaudited)
(In thousands, except per share data)
Three months ended
December 31,
-----------------------------
1998 1997
----------- -----------
Net (loss) income per common share:
Basic $ (.17) $ .35
Diluted (.17) .32
=========== ===========
Weighted average number of
common shares outstanding:
Basic 4,710,886 4,704,065
Diluted 4,710,886 5,229,999
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 7
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Nine months ended December 31, 1998 and 1997 (Unaudited)
(In thousands, except per share data)
Nine months ended
December 31,
-----------------------------
1998 1997
----------- -----------
Revenues:
Contract drilling $ 11,384 $ 27,368
Oil and gas 1,397 1,519
----------- -----------
Total revenues 12,781 28,887
----------- -----------
Operating costs and expenses:
Contract drilling 8,802 17,930
Oil and gas production 546 689
Dry holes and abandonments 773 415
Depreciation, depletion and
amortization 1,936 2,744
General and administrative 1,468 1,428
----------- -----------
Total operating costs
and expenses 13,525 23,206
----------- -----------
Operating (loss) income (744) 5,681
----------- -----------
Other income:
Interest 130 110
Gain on sales of assets 31 179
Other, net 15 987
----------- -----------
Total other income 176 1,276
----------- -----------
Net (loss) income before income
tax provision (568) 6,957
Provision for income taxes -- (140)
----------- -----------
Net (loss) income $ (568) $ 6,817
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 8
TMBR/SHARP DRILLING, INC.
STATEMENTS OF OPERATIONS
Nine months ended December 31, 1998 and 1997 (Unaudited)
(In thousands, except per share data)
Nine months ended
December 31,
-----------------------------
1998 1997
----------- -----------
Net (loss) income per common share:
Basic $ (.12) $ 1.49
Diluted (.12) 1.35
=========== ===========
Weighted average number of
common shares outstanding:
Basic 4,710,886 4,584,125
Diluted 4,710,886 5,042,417
=========== ===========
See accompanying notes to financial statements.
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<PAGE> 9
TMBR/SHARP DRILLING, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
Nine Months Ended December 31, 1998 (Unaudited) and
Year Ended March 31, 1998 (Audited)
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Total
-------------- Paid-In Accumulated -------------- Stockholders'
Shares Amount Capital Deficit Shares Amount Equity
------ ------ ------- ----------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1998 5,980 $ 598 $ 69,429 $(49,917) 1,270 $(150) $19,960
Net loss -- -- -- (568) -- -- (568)
----- ----- -------- -------- ------- ----- -------
Balance,
December 31,
1998 5,980 $ 598 $ 69,429 $(50,485) 1,270 $(150) $19,392
===== ===== ======== ======== ======= ===== =======
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 10
TMBR/SHARP DRILLING, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1998 and 1997 (Unaudited)
(In thousands)
Nine months ended December 31,
------------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net (loss) income $ (568) $ 6,817
Adjustments to reconcile net (loss) income
to net cash provided by
operating activities:
Depreciation, depletion and
amortization 1,936 2,744
Dry holes and abandonments 773 415
Gain on sales of assets (31) (179)
Changes in assets and liabilities:
Trade receivables 3,212 (3,515)
Deposits (31) (31)
Inventories and other assets 31 350
Trade payables (960) 1,701
Accrued interest and other liabilities (1,384) (1,116)
-------- --------
Total adjustments 3,546 369
-------- --------
Net cash provided by
operating activities 2,978 7,186
Cash flows from investing activities:
Additions to property and equipment (3,687) (7,826)
Proceeds from sales of property and
equipment 142 262
-------- --------
Net cash required by
investing activities (3,545) (7,564)
Cash flows from financing activities:
Issuance of common stock -- 1,027
-------- --------
Net cash provided by
financing activities -- 1,027
-------- --------
Net (decrease) increase in
cash and cash equivalents (567) 649
Cash and cash equivalents at beginning
of period 1,623 1,048
-------- --------
Cash and cash equivalents at end of
period $ 1,056 $ 1,697
======== ========
See accompanying notes to financial statements.
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<PAGE> 11
TMBR/SHARP DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
The amounts presented in the balance sheet as of March 31, 1998 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, 1998 and March 31, 1998, the results of operations for the
three and nine months ended December 31, 1998 and 1997, and the cash flows
for the nine month periods ended December 31, 1998 and 1997.
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, 1998.
(2) Summary of Significant Accounting Policies
Marketable Securities
Under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", marketable securities, such as those owned by the
Company, are classified as available-for-sale securities and are to be
reported at market value, with unrealized gains and losses, net of income
taxes, excluded from earnings and reported as a separate component of
stockholders' equity. The market value of these securities at December 31,
1998 was not materially different from the historical cost, and therefore,
no unrealized gains or losses have been recorded.
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
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<PAGE> 12
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
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 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.
Major renewals and betterments are capitalized in the appropriate
property accounts while the cost of repairs and maintenance is charged to
operating expense in the period incurred. For assets sold or otherwise
retired, the cost and related accumulated depreciation amounts are removed
from the accounts and any resulting gain or loss is recognized.
Net Income (Loss) Per Common Share
On April 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share" which
superseded Accounting Principles Board Opinion No. 15 ("APB 15") "Earnings
Per Share". SFAS 128 simplifies earnings per share ("EPS") calculations by
replacing previously reported primary EPS with basic EPS which is
calculated by dividing reported earnings available to common shareholders
by the weighted average shares outstanding. No dilution for potentially
dilutive securities is included in basic EPS. Previously reported fully
diluted EPS is called diluted EPS which includes all potentially dilutive
securities.
(3) Debt
Line of Credit
On January 16, 1996, the Company entered into a loan agreement with
Norwest Bank Texas, N.A. ("Norwest") that provided 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 bore interest at the Norwest Bank Minnesota, National Association
base rate and the interest was payable monthly. The loan agreement had an
extended maturity date of April 15, 1998, at which time, the outstanding
principal and all of the accrued and unpaid interest were due and payable.
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<PAGE> 13
In August, 1996, the Company entered into a second loan agreement with
Norwest. The second loan agreement provided for a $2,000,000 revolving
line of credit secured by substantially all of the Company's producing oil
and gas properties. Borrowings under the line of credit bore interest at
the Norwest base rate and the interest was payable monthly. The line of
credit had an extended maturity date of April 15, 1998, at which time, the
principal amount outstanding was due and payable, plus any accrued and
unpaid interest. The borrowings under both loan agreements were paid in
full in February, 1997.
On May 26, 1998, the Company renewed and extended the prior loan
agreements with Norwest. The amended and restated loan agreement provides
for a revolving line of credit equal to the lesser of $5,000,000 or one-
third of the "borrowing base amount". The borrowing base is redetermined
by Norwest within 45 days after the end of each fiscal quarter of the
Company. At December 31, 1998, the borrowing base was $19,253,695.
Borrowings under the line of credit are secured by the Company's drilling
rigs and related equipment, accounts receivable and inventory. Borrowings
bear interest at Norwest's base rate and interest is payable monthly. The
Company did not have any borrowings outstanding at December 31, 1998. All
amounts outstanding under the loan agreement mature on May 26, 2000.
(4) Stockholders' Equity
1984 Stock Option Plan
In August 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 100,000 shares of common stock are currently outstanding under the
Plan. All of these options are earned and exercisable at December 31,
1998. 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 (including officers and
directors who are also key employees) 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
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<PAGE> 14
meeting of stockholders held on August 30, 1994. In September 1998,
options outstanding under the plan were amended to reduce the option price
to $4.125 per share.
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, 1998 337,500 $ 7.75 $ 2,615,625
Forfeited (5,000) $ 7.75 $ (38,750)
Reduction in option price -- $(3.625) $(1,205,312)
------- ----- ---------
Outstanding December 31,
1998 332,500 $4.125 $1,371,563
======= ===== =========
All of the nonqualified stock options granted on September 3, 1996 are
earned and exercisable as of May 1, 1997.
On September 1, 1998, the Company granted 240,000 shares of incentive
stock options at a price of $4.125 to key employees under the 1994 Plan.
On March 9, 1999, 140,000 shares will be earned and exercisable. The
remaining
100,000 shares will become earned and exercisable over a three year period.
1998 Stock Option Plan
In September 1998, the Company adopted, subject to shareholder
approval, its 1998 Stock Option Plan (the "1998 Plan") which authorizes 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 1998 Plan provides that options may be granted to key
employees or directors from various terms at a price not less than the fair
market value of the shares on the date of grant. The Company granted
options to purchase 50,000 shares of common stock to two outside directors
under the 1998 Plan. These nonqualified options were granted at $4.125 per
share and are exercisable on the date on which the shareholders of the
Company approve and adopt the 1998 Plan.
In connection with a private placement completed in February 1997, the
Company issued and currently has outstanding a warrant to purchase 36,250
common shares with an exercise price of $13.20 per share. This warrant
became exercisable on February 17, 1998 and expires on February 17, 2002.
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<PAGE> 15
(6) 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.
(7) Contingencies
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.
(8) Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes
standards for the way public enterprises are to report information about
operating segments in annual financial statements and requires the
reporting of selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS No. 131 is effective for periods
beginning after December 15, 1997, at which time the Company will adopt the
provision. This statement is not anticipated to have a material impact on
the Company's financial disclosures.
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<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information, this discussion contains
certain forward-looking statements that involve risks and uncertainties
about the business, long-term strategy, financial condition and future of
the Company. Factors that may affect future results are included in the
discussion below and in Part I, Items 1 and 2 of the Company's Form 10-K
for the year ended March 31, 1998. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectations will prove to have been
correct, and actual results could differ materially from those forward-
looking statements.
Results of Operations
Total revenues were $2,214,000 and $12,781,000 for the three and nine
months ended December 31, 1998 which represents a 77% and 56% decrease from
the same periods in 1997. Operating expenses as a percent of revenues were
140% and 106% for the three and nine months ended December 31, 1998 versus
84% and 80% for the same periods of the prior year. The operating results
were negatively affected by a decrease in demand for the Company's contract
drilling services which resulted in a decrease in rig utilization rates.
The Company has also experienced a decrease in the average price received
for its contract drilling services. Rig utilization rates were 17% and
31% for the three and nine months ended December 31, 1998 compared to 81%
and 79% in the same periods in 1997.
Oil and gas revenues decreased by approximately 31% and 8% for the
three and nine months ended December 31, 1998, respectively. In fiscal
1998, the Company sold a group of fourteen wells in Ector County, Texas.
These wells had high lifting costs on an equivalent barrel of oil ("EBO")
basis. As a result of this sale, oil and gas production expenses for the
three and nine months ended December 31, 1998 decreased by 17% and 21%,
respectively, when compared to the same periods in the prior year.
In fiscal 1998, the Company recognized a non-cash charge of
approximately $3.1 million due to a writedown of the carrying value of its
oil and gas properties. As a result of this writedown, depreciation,
depletion and amortization expense decreased by approximately 49% and 29%
respectively when compared to the three and nine months ended December 31,
1997.
In September 1997, the Company recognized approximately $659,000 as
miscellaneous income relating to the settlement of a lawsuit. In addition,
the Company recorded approximately $236,000 of miscellaneous income from
the sale of junk drill bits in the same quarter.
Net working capital was $4.6 million at December 31, 1998 compared to
$6.0 million at March 31, 1998.
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<PAGE> 17
Liquidity and Capital Resources
In January 1996, the Company entered into a loan agreement with
Norwest providing for a revolving credit facility (the "Credit Facility")
originally maturing on January 15, 1998. The aggregate principal amount of
the Company's borrowings outstanding at any one time under the revolving
facility was limited to the lesser of $3.0 million or one-third of the
borrowing base amount then in effect. The borrowing base amount was
redetermined by Norwest monthly. The Credit Facility was established to
finance the Company's purchases of drill pipe and oil and gas exploration
activities. Interest only was payable monthly and the entire principal
amount was due and payable on January 15, 1998, which was extended to April
15, 1998. The Credit Facility bore interest at Norwest's base rate and was
secured by substantially all of the Company's accounts receivable, drilling
rigs and related equipment.
In August 1996, the Company entered into a second loan agreement with
Norwest. This second loan agreement provided for a $2.0 million revolving
line of credit (the "Line of Credit") secured by substantially all of the
Company's producing oil and gas properties. The Line of Credit was
established to finance the Company's oil and gas exploration activities and
for general corporate purposes. The Line of Credit bore interest at
Norwest's base rate, with interest only to be paid monthly. The original
maturity date of February 15, 1998, was extended to April 15, 1998. At
that time the principal amount then outstanding was due and payable, plus
any accrued and unpaid interest.
On May 26, 1998, the Company renewed, extended and consolidated the
prior loan facilities with Norwest. The amended and restated loan
agreement provides for a revolving line of credit equal to the lesser of
$5.0 million or one-third of the "borrowing base amount". The borrowing
base is redetermined by Norwest within 45 days after the end of each fiscal
quarter of the Company. At December 31, 1998, the borrowing base was $19.3
million. Borrowings under the line of credit are secured by the Company's
drilling rigs and related equipment, accounts receivable and inventory.
Borrowings bear interest at Norwest's base rate and interest is payable
monthly. The Company did not have any borrowings outstanding at December
31, 1998. All amounts outstanding under the loan facility mature on May
26, 2000.
The Company anticipates that funds for its capital expenditures in
fiscal 1999 will be available from a combination of sources, including (i)
borrowings under the line of credit, (ii) funds raised through issuances of
equity or debt securities in public or private transactions, and (iii)
internally generated funds.
Trends and Prices
Although the Company achieved record growth, profitability and rig
utilization in fiscal 1998, the contract drilling industry is currently
experiencing decreased demand and declining prices for contract drilling
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<PAGE> 18
services due to the declines in oil and gas prices. The Company has and
will continue to be affected by oil and gas industry conditions but cannot
predict either the future level of demand for its contract drilling
services or future conditions in the contract drilling industry.
In recent years, oil and gas prices have been extremely volatile.
Prices are affected by market supply and demand factors as well as by
actions of state and local agencies, the U.S. and foreign governments and
international cartels. The Company has no way of accurately predicting the
supply of and demand for oil and gas, domestic or international political
events or the effects of any such factors on the prices received by the
Company for its oil and gas.
Year 2000 Issues
The Company has reviewed the effect of the year 2000 issues relating
to its information systems. At September 30, 1998, the Company had
completed updating and testing its information systems for year 2000
compliance and has determined that the year 2000 issues directly related
to its information systems will not have a material impact on its business,
operations nor its financial position. The cost of planning, implementing
and testing the Company's information systems was minimal and immaterial to
its operations as a whole.
The Company believes that its greatest risk for year 2000 issues that
may adversely effect the Company's operations is in the area of third party
computer systems that are not year 2000 compliant and which, as a result,
may cause interruptions in the Company's normal business operations. The
Company does not currently have any information concerning the year 2000
compliance status of its vendors, customers and local, state, federal and
other U.S. government entities. In the event that any of the Company's
significant vendors, customers and local, state, federal and other U.S.
government entities do not successfully and timely achieve year 2000
compliance, the Company's business, operations or financial position could
be adversely affected. With respect to the uncertainty of the impact on the
Company of third party vendors, suppliers and customers not being year 2000
compliant, the Company intends to send inquiries to third parties having
significant relationships with the Company. Depending upon the responses
to the inquiries and the outcome of the Company's assessment of such third
parties' state of readiness for the year 2000, the Company will then
address remediation alternatives. The Board of Directors has formed a
committee to assist the Company in its year 2000 efforts.
PART TWO - OTHER INFORMATION
Item 1. Legal Proceedings
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.
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<PAGE> 19
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
-19-
<PAGE> 20
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.
February 12, 1999 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)
-20-
<PAGE> 21
Exhibit Index
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 1056
<SECURITIES> 87
<RECEIVABLES> 4937
<ALLOWANCES> 1135
<INVENTORY> 119
<CURRENT-ASSETS> 6898
<PP&E> 70679
<DEPRECIATION> 56015
<TOTAL-ASSETS> 21736
<CURRENT-LIABILITIES> 2344
<BONDS> 0
0
0
<COMMON> 598
<OTHER-SE> 18794
<TOTAL-LIABILITY-AND-EQUITY> 21736
<SALES> 0
<TOTAL-REVENUES> 2214
<CGS> 0
<TOTAL-COSTS> 3101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (825)
<INCOME-TAX> 5
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (820)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
