-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O/0HiXaZjTZP5ghxn31Kjfu5JNCZFWTzlpZNrhptaUyj5/1fCdAEjfTOJfmUg2nw 95YfLiPVJW22NPNe9fMbFg== 0000751288-97-000002.txt : 19970203 0000751288-97-000002.hdr.sgml : 19970203 ACCESSION NUMBER: 0000751288-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970131 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TMBR SHARP DRILLING INC CENTRAL INDEX KEY: 0000751288 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 751835108 STATE OF INCORPORATION: TX FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12757 FILM NUMBER: 97515117 BUSINESS ADDRESS: STREET 1: 4607 W INDUSTRIAL CITY: MIDLAND STATE: TX ZIP: 79703 BUSINESS PHONE: 9156995050 MAIL ADDRESS: STREET 1: DRAWER 10970 STREET 2: DRAWER 10970 CITY: MIDLAND STATE: TX ZIP: 79702-7970 FORMER COMPANY: FORMER CONFORMED NAME: TMBR DRILLING INC DATE OF NAME CHANGE: 19861114 10-Q 1 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, 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 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, 1996 and March 31, 1996 . . . . . . . . . . . . . . . . . . . . 3 Statements of Operations, Three Months Ended December 31, 1996 and 1995 . . . . . . . . . . . 5 Statements of Operations, Nine Months Ended December 31, 1996 and 1995 . . . . . . . . . . . 7 Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 9 Statements of Cash Flows, Nine Months Ended December 31, 1996 and 1995 . . . . . . . . . . . 10 Notes to Financial Statements . . . . . . . . . . . . . 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 15 Part II. Other Information Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18 -2- 3 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. -3- 4 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. -4- 5 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. -5- 6 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. -6- 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 ----------- ----------- 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. -7- 8 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. -8- 9 TMBR/SHARP DRILLING, INC. STATEMENTS OF STOCKHOLDERS EQUITY Nine Months Ended December 31, 1996 (Unaudited) and Year Ended March 31, 1996 (In thousands)
Treasury Stock -------------- Common Stock Additional Common Stock Total -------------- Paid-In Accumulated -------------- Stockholders' Shares Amount Capital Deficit Shares Amount Equity ------ ------ ------- ----------- ------ ------ ------------ 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 ===== ===== ======== ======== ======= ===== =======
See accompanying notes to financial statements. -9- 10 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. -10- 11 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 -11- 12 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. -12- 13 (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. -13- 14 (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 On March 19, 1992, the Company was notified by the Texas Department of Insurance that the Company's former workers' compensation insurance carriers, Sir Lloyd's Insurance Company and its affiliate, Standard Financial Indemnity Corporation ("SFIC"), had been placed in liquidation by order of the 201st District Court of Travis County, Texas on March 12, 1992 in Cause No. 92-12765, The State of Texas vs. Sir Lloyd's Insurance Company and Sir Insurance Agency, Inc., and in Cause No. 91-12766, The State of Texas vs. Standard Financial Indemnity Corporation. Approximately two months before being ordered into liquidation, SFIC requested that the Company pay policy premiums in the amount of $646,476. On July 22, 1993 the special deputy receiver of SFIC billed the Company approximately $1,061,000 for retrospective premiums, but adjusted the amount to $854,153 on January 12, 1994. Although the Company disputes the amount claimed by SFIC and its receiver, 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. 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 is ultimately determined 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. -14- 15 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, 1996. Actual results could differ materially from those forward-looking statements. Results of Operations Contract drilling revenues were approximately $5,051,000 and $11,820,000 for the three and nine months ended December 31, 1996. When compared to the same periods in the prior year, contract drilling revenues were relatively flat for the three month period ended December 31, 1996 and decreased 27% for the nine months ended December 31, 1996. Rig utilization rates were 58% and 45% for the three and nine months ended December 31, 1996 compared to 42% and 45% in the same periods in 1995. Rig utilization rates and contract drilling revenues for the nine months ended December 31, 1996 were adversely affected by extremely low utilization in the first three months of the fiscal year. The utilization rate for the first quarter was 34% compared to 58% for the third quarter of this fiscal year. During the first quarter of the period, drilling prices were depressed and the Company chose to underutilize its drilling equipment rather than subjecting such equipment to additional wear and tear at unacceptable operating margins. From July 1996 through December 1996, the Company experienced, and is continuing to experience, a substantial increase in demand for its contract drilling services. Rig utilization in the Company's operating market is difficult to project because contract drilling is a highly com- petitive industry. In addition, the number of rigs, industry wide, actually available for work cannot be accurately determined. Contract drilling expenses as percent of contract drilling revenues was 75% for the three months ended December 31, 1996 compared to 87% for the same period in the prior year. This decrease can be attributed to a substantial increase in rates the Company charges for contract drilling services. Oil and gas revenues increased by approximately 62% and 31% for the three and nine months ended December 31, 1996 compared to the same periods in 1995. Accordingly, oil and gas production expenses increased 57% for the nine months ended December 31, 1996 when compared to the nine months ended December 31, 1995. Depreciation, depletion and amortization expense has also increased due to the addition of drill pipe and an increase in the number of producing wells in which the Company has an ownership interest. Interest expense has increased by 138% for the nine months ended December -15- 16 31, 1996 due to the borrowings under the Company's loan agreements with its bank lender. Net working capital was $56,000 at December 31, 1996 compared to a neg- ative $1,236,000 at March 31, 1996. This increase can be attributed to an increase in accounts receivable and a decrease in trade payables. Liquidity and Capital Resources 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 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. The Company intends to meet its cash flow requirements for fiscal 1997 through cash flow provided from operations and if needed, additional borrowings. The contract drilling industry remains highly competitive. Recently, however, the demand for drilling rigs has improved from previous years. The Company believes it owns a sufficient number of drilling rigs to remain competitive within its areas of operation. In addition, the Company believes it competes favorably with respect to the depth capacity of its rigs, the availability of drilling equipment, the experience level of its personnel, the reputation of the Company and its relationship with existing customers. However, cash flow generated from operations and the Company's operating results will continue to be directly affected by the level of drilling activity in the Company's operating areas. Cash flow provided by operating activities was approximately $1,141,000 for the nine months ended December 31, 1996 compared to $3,001,000 for the same period in 1995. PART TWO - OTHER INFORMATION Item 1. Legal Proceedings On March 19, 1992, the Company was notified by the Texas Department of -16- 17 Insurance that the Company's former workers' compensation insurance carriers, Sir Lloyd's Insurance Company and its affiliate, Standard Financial Indemnity Corporation ("SFIC"), had been placed in liquidation by order of the 201st District Court of Travis County, Texas on March 12, 1992 in Cause No. 92-12765, The State of Texas vs. Sir Lloyd's Insurance Company and Sir Insurance Agency, Inc., and in Cause No. 91-12766, The State of Texas vs. Standard Financial Indemnity Corporation. Approximately two months before being ordered into liquidation, SFIC requested that the Company pay policy premiums in the amount of $646,476. On July 22, 1993 the special deputy receiver of SFIC billed the Company approximately $1,061,000 for retrospective premiums, but adjusted the amount to $854,153 on January 12, 1994. Although the Company disputes the amount claimed by SFIC and its receiver, 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. 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 is ultimately determined 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. -17- 18 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, 1996. -18- 19 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. January 31, 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) -19- 20 Exhibit Index Exhibit Number Description ------- ----------- 27 Financial Data Schedule -20- EX-27 2
5 1000 3-MOS MAR-31-1997 DEC-31-1996 531 0 4762 1225 66 4360 57077 46967 14655 4304 0 0 0 494 5357 14655 0 5545 0 4878 88 0 95 579 16 563 0 0 0 563 .13 .13
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