UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
x THE SECURITIES EXCHANGE ACT OF 1934
--- For The Quarter Ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-16741
COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 94-1667468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034
(Address of principal executive offices)
Telephone No.: (972) 668-8800
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
filing requirements for the past 90 days.
Yes x No
----- -----
The number of shares outstanding of the registrant's common stock, par
value $.50, as of August 9, 2000 was 25,598,198.
<PAGE>
COMSTOCK RESOURCES, INC.
QUARTERLY REPORT
For the Quarter Ended June 30, 2000
INDEX
PART I. Financial Information Page
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999...............................4
Consolidated Statements of Operations -
Three Months and Six Months ended June 30, 2000 and 1999..........5
Consolidated Statement of Stockholders' Equity -
Six Months ended June 30, 2000....................................6
Consolidated Statements of Cash Flows -
Six Months ended June 30, 2000 and 1999...........................7
Notes to Consolidated Financial Statements.............................8
Report of Independent Public Accountants..............................11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................12
Item 3. Quantitative and Qualitative Disclosure About Market Risks........15
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders...............17
Item 6. Exhibits and Reports on Form 8-K..................................18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ----------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash and Cash Equivalents ............................... $ 1,293 $ 7,648
Accounts Receivable:
Oil and gas sales .................................... 27,090 18,200
Joint interest operations ............................ 2,672 5,415
Other Current Assets .................................... 1,634 909
--------- ---------
Total current assets ........................... 32,689 32,172
Property and Equipment:
Unevaluated oil and gas properties ................... 5,290 2,231
Oil and gas properties, successful efforts method .... 623,733 581,247
Other ................................................ 2,222 2,163
Accumulated depreciation, depletion and
amortization ................................. (211,341) (189,779)
--------- ---------
Net property and equipment ..................... 419,904 395,862
Other Assets ............................................ 6,399 6,939
--------- ---------
$ 458,992 $ 434,973
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of Long-Term Debt ....................... $ 331 $ 131
Accounts Payable and Accrued Expenses ................... 32,469 35,587
--------- ---------
Total current liabilities ..................... 32,800 35,718
Long-Term Debt, less current portion .................... 260,000 254,000
Deferred Taxes Payable .................................. 7,469 261
Reserve for Future Abandonment Costs .................... 7,820 7,820
Stockholders' Equity:
Preferred stock--$10.00 par, 5,000,000 shares
authorized, 3,000,000 shares outstanding ........... 30,000 30,000
Common stock--$0.50 par, 50,000,000 shares authorized,
25,598,198 and 25,375,197 shares outstanding at
June 30, 2000 and December 31, 1999, respectively .. 12,799 12,688
Additional paid-in capital ........................... 116,342 114,855
Retained deficit ..................................... (7,584) (19,603)
Deferred compensation-restricted stock grants ........ (654) (766)
--------- ---------
Total stockholders' equity .................... 150,903 137,174
--------- ---------
$ 458,992 $ 434,973
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales .......................... $ 38,569 $ 20,783 $ 71,640 $ 40,387
Other income ............................... 65 1,763 137 1,793
Gain on sale of properties ................. -- 130 -- 130
-------- -------- -------- --------
Total revenues ...................... 38,634 22,676 71,777 42,310
-------- -------- -------- --------
Expenses:
Oil and gas operating ...................... 7,218 5,907 14,604 11,801
Exploration ................................ 787 -- 787 664
Depreciation, depletion and amortization ... 10,454 11,322 22,166 24,763
General and administrative, net ............ 700 476 1,195 910
Interest ................................... 6,218 5,882 12,433 10,980
-------- -------- -------- --------
Total expenses ...................... 25,377 23,587 51,185 49,118
-------- -------- -------- --------
Income (loss) before income taxes .............. 13,257 (911) 20,592 (6,808)
Income tax benefit (expense) ................... (4,641) -- (7,208) 1,778
-------- -------- -------- --------
Net income (loss) .............................. 8,616 (911) 13,384 (5,030)
Preferred stock dividends ...................... (682) (473) (1,365) (473)
-------- -------- -------- --------
Net income (loss) attributable to common stock . $ 7,934 $ (1,384) $ 12,019 $ (5,503)
======== ======== ======== ========
Net income (loss) per share:
Basic...................................... $ 0.31 $ (0.06) $ 0.47 $ (0.23)
======== ======== ======== ========
Diluted................................... $ 0.25 $ 0.40
======== ========
Weighted average shares outstanding:
Basic...................................... 25,459 24,391 25,417 24,371
======== ======== ======== ========
Diluted.................................... 33,967 33,636
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Deferred
Additional Retained Compensation-
Preferred Common Paid-In Earning Restricted
Stock Stock Capital (Deficit) Stock Grants Total
-------- -------- -------- -------- ------------ --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 .. $ 30,000 $ 12,688 $114,855 $(19,603) $ (766) $137,174
Restricted stock grants ..... -- -- -- -- 112 112
Value of stock options issued
for exploration prospects -- -- 997 -- -- 997
Exercise of stock options ... -- 111 490 -- -- 601
Net income attributable to
common stock ............. -- -- -- 12,019 -- 12,019
-------- -------- -------- -------- -------- --------
Balance at June 30, 2000 ...... $ 30,000 $ 12,799 $116,342 $ (7,584) $ (654) $150,903
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................. $ 13,384 $ (5,030)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Compensation paid in common stock ................ 112 3
Exploration ...................................... 787 664
Depreciation, depletion and amortization ......... 22,166 24,763
Deferred income taxes ............................ 7,208 (1,778)
Gain on sale of properties ....................... -- (130)
--------- ---------
Working capital provided by operations ......... 43,657 18,492
Decrease (increase) in accounts receivable ......... (6,147) 2,032
Increase in other current assets ................... (725) (1,448)
Decrease in accounts payable and
accrued expenses ................................. (3,118) (16,142)
--------- ---------
Net cash provided by operating activities ...... 33,667 2,934
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties .................. 13 768
Capital expenditures and acquisitions .............. (45,471) (10,212)
--------- ---------
Net cash used for operating activities ......... (45,458) (9,444)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ......................................... 14,408 10,361
Proceeds from senior notes issuance ................ -- 149,221
Debt issuance costs ................................ -- (5,448)
Principal payments on debt ......................... (8,208) (178,155)
Proceeds from preferred stock issuance ............. -- 30,000
Preferred stock dividends paid ..................... (1,365) --
Proceeds from common stock issuance ................ 601 150
Stock issuance costs ............................... -- (691)
--------- ---------
Net cash provided by financing activities .......... 5,436 5,438
--------- ---------
Net decrease in cash and cash equivalents ...... (6,355) (1,072)
Cash and cash equivalents, beginning of period . 7,648 5,176
--------- ---------
Cash and cash equivalents, end of period ....... $ 1,293 $ 4,104
========= =========
The accompanying notes are an integral part of these statements.
7
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES -
Basis of Presentation -
In management's opinion, the accompanying consolidated financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of Comstock Resources, Inc.
and subsidiaries (the "Company") as of June 30, 2000 and the related results of
operations for the three months and six months ended June 30, 2000 and 1999 and
cash flows for the six months ended June 30, 2000 and 1999.
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
The results of operations for the six months ended June 30, 2000 are not
necessarily an indication of the results expected for the full year.
Supplementary Information with Respect to the Statements of Cash Flows -
For the Six Months
Ended June 30,
2000 1999
------- -------
(In thousands)
Cash Payments -
Interest payments ..................................... $12,491 $ 8,465
Income tax payments ................................... -- --
Noncash Investing and Financing Activities -
Common stock issued for preferred stock dividends ..... $ -- $ 473
Value of vested stock options
under exploration joint venture .................. 997 498
Income Taxes-
Deferred income taxes are provided to reflect the future tax consequences
of differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements using enacted tax rates.
8
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Earnings Per Share -
Basic earnings per share is determined without the effect of any
outstanding potentially dilutive stock options or other convertible securities
and diluted earnings per share is determined with the effect of outstanding
stock options and other convertible securities that are potentially dilutive.
Basic and diluted earnings per share for the six months ended June 30, 2000 and
1999 were determined as follows:
<TABLE>
<CAPTION> For the Three Months Ended June 30,
----------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Income Per Income Per
(Loss) Shares Share (Loss) Shares Share
------- -------- -------- -------- -------- --------
(Amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income (Loss) ................. $ 8,616 25,459 $ (911) 24,391
Less Preferred Stock
Dividends .................. (682) -- (473) --
------- ------- ------- -------
Net Income (Loss) Available
to Common Stockholders ..... 7,934 25,459 $ 0.31 $(1,384) 24,391 $ (0.06)
======= ======= ======= =======
Diluted Earning Per Share:
Effect of Dilutive Securities:
Stock Options .............. -- 1,008
Convertible Preferred Stock 682 7,500
------- -------
Net Income Available to
Common Stockholders and
Assumed Conversions ...... $ 8,616 33,967 $ 0.25
======= ======= =======
</TABLE>
<TABLE>
<CAPTION> For the Six Months Ended June 30,
----------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Income Per Income Per
(Loss) Shares Share (Loss) Shares Share
------- -------- -------- -------- -------- --------
(Amounts in thousands except for per share data)
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income (Loss).................. $13,384 25,417 $(5,030) 24,371
Less Preferred Stock
Dividends.................. (1,365) -- (473) --
------- ------- ------- -------
Net Income (Loss) Available
to Common Stockholders...... 12,019 25,417 $ 0.47 $(5,503) 24,371 $ (0.23)
======= ======= ======= =======
Diluted Earning Per Share:
Effect of Dilutive Securities:
Stock Options............... -- 719
Convertible Preferred Stock. 1,365 7,500
------- -------
Net Income Available to
Common Stockholders and
Assumed Conversions...... $13,384 33,636 $ 0.40
======= ======= =======
</TABLE>
9
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
New Accounting Standard
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which has been amended by SFAS
137. The Statement establishes accounting and reporting standards that are
effective for fiscal years beginning after June 15, 2000 which require that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
The Company periodically uses derivatives to hedge floating interest rate
and oil and gas price risks. Such derivatives are reported at cost, if any, and
gains and losses on such derivatives are reported when the hedged transaction
occurs. Accordingly, the Company's adoption of SFAS 133 could have an impact on
the reported financial position of the Company, and although such impact has not
been determined, it is currently not believed to be material. Adoption of SFAS
133 should have no significant impact on reported earnings, but could materially
affect comprehensive income.
(2) LONG-TERM DEBT -
As of June 30, 2000 long-term debt is comprised of the following:
(In thousands)
Revolving Bank Credit Facility $ 110,000
11 1/4% Senior Notes due 2007 150,000
Other ........................ 331
---------
260,331
Less current portion ......... (331)
---------
$ 260,000
=========
The Company's bank credit facility consists of a $250.0 million revolving
credit commitment provided by a syndicate of banks for which Bank One, NA serves
as administrative agent. Advances under the bank credit facility cannot exceed
the borrowing base. The borrowing base under the bank credit facility is $190.0
million. Such borrowing base may be affected from time to time by the
performance of the Company's oil and gas properties and changes in oil and gas
prices. The determination of the Company's borrowing base is at the sole
discretion of the administrative agent and the bank group. The revolving credit
line under the bank credit facility bears interest at the option of the Company,
based on the utilization of the borrowing base, at either (i) LIBOR plus 1.25%
to 2.0%, or (ii) the "corporate base rate" plus 0.25% to 1.0%. The Company
incurs a commitment fee, based on the utilization of the borrowing base, of
0.25% to 0.5% per annum on the unused portion of the borrowing base. The
revolving credit line matures on December 9, 2002 or such earlier date as the
Company may elect. The Company's bank credit facility is secured by the
Company's oil and gas properties.
The Company has $150.0 million in aggregate principal amount of 11 1/4%
Senior Notes due in 2007 (the "Notes") outstanding as of June 30, 2000. Interest
on the Notes is payable semiannually on May 1 and November 1. The Notes are
unsecured obligations of the Company and are guaranteed by all of the Company's
principal operating subsidiaries. The Company can redeem the Notes beginning on
May 1, 2004.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Comstock Resources, Inc.:
We have reviewed the accompanying consolidated balance sheet of Comstock
Resources, Inc. ( a Nevada corporation) as of June 30, 2000, and the related
consolidated statements of income for the three month and six month periods
ended June 30, 2000 and 1999, and the consolidated statements of cash flows for
the six months ended June 30, 2000 and 1999. These financial statements are the
responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet of Comstock Resources, Inc. as
of December 31, 1999, and, in our report dated February 18, 2000, we expressed
an unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying balance sheet as of December 31, 1999, is fairly
stated, in all material respects, in relation to the balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
August 8, 2000
Dallas, Texas
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table reflects certain summary operating data for the periods
presented:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------- ------- ------- --------
Net Production Data:
Oil (Mbbls).......................... 443 564 937 1,250
Natural gas (Mmcf)................... 6,869 5,644 13,679 11,680
Natural gas equivalent (Mmcfe)....... 9,527 9,026 19,300 19,180
Average Sales Price:
Oil (per Bbl)........................ $28.55 $16.23 $28.79 $13.86
Natural gas (per Mcf)................ 3.77 2.06 3.27 1.97
Average equivalent price (per Mcfe).. 4.05 2.30 3.71 2.11
Expenses ($ per Mcfe):
Oil and gas operating(1)............. $ 0.76 $ 0.65 $ 0.76 $ 0.62
General and administrative........... 0.07 0.05 0.06 0.05
Depreciation, depletion and
amortization(2).................. 1.06 1.23 1.11 1.27
Cash Margin ($ per Mcfe)(3)............ $ 3.22 $ 1.60 $ 2.89 $ 1.44
---------
(1) Includes lease operating costs and production and ad valorem taxes.
(2) Represents depreciation, depletion and amortization of oil and gas
properties only.
(3) Represents average equivalent price per Mcfe less oil and gas operating
expenses per Mcfe and general and administrative expenses per Mcfe.
The Company's oil and gas sales increased $17.8 million (86%) in the second
quarter of 2000 to $38.6 million, the highest level in the Company's history,
from $20.8 million in 1999's second quarter. The substantial growth in sales is
due to a significant increases to the Company's realized oil and gas prices
combined with a 6% increase in oil and gas production. The Company's average
second quarter oil price increased by 76% and its average second quarter gas
price increased by 83% in 2000. For the first half of 2000, oil and gas sales
increased $31.3 million (77%) to $71.6 million from $40.4 million for the six
months ended June 30, 1999. The increase is attributable to 108% higher realized
oil prices and 66% higher realized natural gas prices in 2000 as compared to
1999. The Company had hedged a significant amount of its 1999 natural gas
production. Without the impact of the hedge, the Company would have realized
$2.28 and $2.00 per Mcf for its natural gas production for the three months and
six months ended June 30, 1999, respectively.
Other income decreased from $1.8 million from the second quarter of 1999 to
$65,000 in the second quarter of 2000. Other income for the six months ended
June 30, 2000 also decreased from $1.8 million in 1999 to $137,000. Included in
other income in the second quarter of 1999 was a $1.7 million insurance recovery
received by the Company.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Costs and Expenses -
Oil and gas operating expenses, including production taxes, increased $1.3
million (22%) to $7.2 million in the second quarter of 2000 from $5.9 million in
the second quarter of 1999. Oil and gas operating expenses per equivalent Mcf
produced increased $0.11 to $0.76 in the second quarter of 2000 from $0.65 in
the second quarter of 1999 as a result of higher production taxes relating to
the higher oil and gas prices combined with an increase to the fixed operating
costs of the Company's offshore properties.
Oil and gas operating costs for the six months ended June 30, 2000
increased $2.8 million (24%) to $14.6 million from $11.8 million for the six
months ended June 30, 1999 due to the higher production taxes and higher fixed
operating costs from the Company's offshore properties. Oil and gas operating
expenses per equivalent Mcf produced increased $0.14 to $0.76 for six months
ended June 30, 2000 from $0.62 for the same period in 1999.
Exploration expense for the three months and six months ended June 30, 2000
was $787,000 which relates to the write off of a dry hole drilled during the
second quarter of 2000.
Depreciation, depletion and amortization ("DD&A") decreased $0.9 million
(8%) to $10.5 million in the second quarter of 2000 from $11.3 million in the
second quarter of 1999 due to a reduction to the Company' average amoritization
rate. DD&A per equivalent Mcf produced decreased by $0.17 to $1.06 for the three
months ended June 30, 2000 from $1.23 for the quarter ended June 30, 1999 as a
result of the Company's higher cost Gulf of Mexico properties comprising a lower
percentage of the Company's total production in the second quarter of 2000. For
the six months ended June 30, 2000, DD&A decreased $2.6 million (10%) to $22.2
million from $24.8 million for the six months ended June 30, 1999. The decrease
is also due to the lower average amortization rate. DD&A per equivalent Mcf
decreased by $0.16 to $1.11 for the six months ended June 30, 2000 from $1.27
for the six months ended June 30, 1999.
General and administrative expenses, which are reported net of overhead
reimbursements, of $700,000 for the second quarter of 2000 were 47% higher than
general and administrative expenses of $476,000 for the second quarter of 1999
due primarily to an increase in the Company's personnel costs in 2000. For the
first six months of 2000, general and administrative expenses increased to $1.2
million from $910,000 for the six months ended June 30, 1999.
Interest expense increased $336,000 (6%) to $6.2 million for the second
quarter of 2000 from $5.9 million in the second quarter of 1999. Interest
expense for the six months ended June 30, 2000 increased $1.5 million (13%) to
$12.4 million from $11.0 million in the six months ended June 30, 1999. The
increase is related to a higher average interest rate on the Company's debt. The
interest rate on the Company's senior notes issued to refinance $150.0 million
of amounts outstanding under the bank credit facility on April 29, 1999 of
11.25% is higher than the rate charged under the bank credit facility prior to
April 29th. The weighted average annual interest rate for the Company's
remaining debt under the bank credit facility decreased to 6.7% for the second
quarter of 2000 as compared to 7.4% for the same period in 1999. For the six
months ended June 30, 2000, the average interest rate under the bank credit
facility decreased to 6.6% from 7.3% for the same period in 1999.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company reported net income of $7.9 million after preferred stock
dividends of $682,000 for the three months ended June 30, 2000, as compared to a
net loss of $1.4 million after preferred stock dividends of $473,000 for the
three months ended June 30, 1999. Net income per share for the second quarter
was $0.25 on weighted average diluted shares outstanding of 34.0 million as
compared to net loss per share of $0.06 for the second quarter of 1999 on basic
weighted average shares outstanding of 24.4 million.
Net income for the six months ended June 30, 2000 was $12.0 million after
preferred stock dividends of $1.4 million, as compared to a net loss of $5.5
million after preferred stock dividends of $473,000 for the six months ended
June 30, 1999. Net income per share of the six months ended June 30, 2000 was
$0.40 on diluted weighted average shares outstanding of 33.6 million as compared
to a net loss per share of $0.23 for the six months ended June 30, 1999 on basic
weighted average shares outstanding of 24.4 million.
Liquidity and Capital Resources
Funding for the Company's activities has historically been provided by
operating cash flow, debt and equity financings and asset dispositions. In the
first six months of 2000, the Company's net cash flow provided by operating
activities totaled $43.7 million, before changes to other working capital
accounts. In addition to operating cash flow, the Company borrowed $14.0 million
under its revolving bank credit facility. The Company's primary needs for
capital, in addition to funding of ongoing operations, relate to the
acquisition, development and exploration of oil and gas properties and the
repayment of debt. In the first six months of 2000, the Company incurred capital
expenditures of $45.5 million primarily for its acquisition, development and
exploration activities and repaid $8.0 million owed under its bank credit
facility.
The following table summarizes the Company's capital expenditure activity
for the six months ended June 30, 2000 and 1999:
Six Months Ended
June 30,
2000 1999
------- -------
(In thousands)
Acquisitions ................. $ 9,454 $ --
Other leasehold costs ........ 3,977 2,172
Development drilling ......... 17,036 611
Exploratory drilling ......... 8,590 4,413
Offshore production facilities 480 1,564
Workovers and recompletions .. 5,811 1,251
Other ........................ 123 201
------- -------
$45,471 $10,212
======= =======
The timing of most of the Company's capital expenditures is discretionary
with no material long-term capital expenditure commitments. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. For the six months ended June 30, 2000
and 1999, the Company spent $35.9 million and $10.0 million, respectively, on
development and exploration activities. The Company has substantially increased
its drilling activity in 2000 from 1999 and expects to spend an additional $35.0
million on development and exploration projects in the last half of 2000. The
Company intends to primarily use internally generated cash flow to fund capital
expenditures other than significant acquisitions.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company spent $9.5 million on acquisition activities in the first half
of 2000. The Company does not have a specific acquisition budget as a result of
the unpredictability of the timing and size of potential acquisition activities.
The Company intends to use borrowings under its bank credit facility, or other
debt or equity financings to the extent available, to finance significant
acquisitions. The availability and attractiveness of these sources of financing
will depend upon a number of factors, some of which will relate to the financial
condition and performance of the Company, and some of which will be beyond the
Company's control, such as prevailing interest rates, oil and gas prices and
other market conditions.
The Company has a bank credit facility consisting of a $250.0 million
revolving credit commitment provided by a syndicate of banks for which Bank One,
NA serves as administrative agent. Indebtedness under the bank credit facility
is secured by substantially all of the Company's assets and is subject to
borrowing base availability which is generally redetermined semiannually based
on the banks' estimates of the future net cash flows of the Company's oil and
gas properties. The borrowing base under the bank credit facility is $190.0
million. Such borrowing base may be affected from time to time by the
performance of the Company's oil and gas properties and changes in oil and gas
prices. The determination of the Company's borrowing base is at the sole
discretion of the administrative agent and the bank group. The revolving credit
line under the bank credit facility bears interest at the option of the Company,
based on the utilization of the borrowing base, at either (i) LIBOR plus 1.25%
to 2.0% or (ii) the "corporate base rate" plus 0.25% to 1.0%. The Company's
average rate under the bank credit facility as of June 30, 2000 was 6.7%. The
Company incurs a commitment fee, based on the utilization of the borrowing base,
of 0.25% to 0.5% per annum on the unused portion of the borrowing base. The
revolving credit line matures on December 9, 2002 or such earlier date as the
Company may elect.
The Company believes that cash flow from operations and available
borrowings under the Company's bank credit facility will be sufficient to fund
its operations and future growth as contemplated under its current business
plan. However, if the Company's plans or assumptions change or if its
assumptions prove to be inaccurate, the Company may be required to seek
additional capital. Management cannot be assured that the Company will be able
to obtain such capital or, if such capital is available, that the Company will
be able to obtain it on acceptable terms.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company's business is impacted by fluctuations in crude oil and natural
gas commodity prices and interest rates. The following discussion is intended to
identify the nature of these market risks, describe the Company's strategy for
managing such risks, and to quantify the potential affect of market volatility
on the Company's financial condition and results of operations.
Oil and Natural Gas Prices
The Company's financial condition, results of operations, and capital
resources are highly dependent upon the prevailing market prices of, and demand
for, oil and natural gas. These commodity prices are subject to wide
fluctuations and market uncertainties due to a variety of factors that are
beyond the control of the Company. These factors include the level of global
demand for petroleum, foreign supply of oil and gas, the establishment of and
compliance with production quotas by oil-exporting countries, weather
conditions, the price and availability of alternative fuels, and overall
economic conditions, both foreign and domestic. It is impossible to predict
future oil and gas prices with any degree of certainty. Sustained weakness in
oil and gas prices may adversely affect the Company's financial condition and
15
<PAGE>
results of operations, and may also reduce the amount of net oil and gas
reserves that the Company can produce economically. Any reduction in oil and gas
reserves, including reductions due to price fluctuations, can have an adverse
affect on the Company's ability to obtain capital for its exploration and
development activities. Similarly, any improvements in oil and gas prices can
have a favorable impact on the Company's financial condition, results of
operations and capital resources. Based on the Company's volume of oil and gas
production in the first six months of 2000, a $1.00 change in the price per
barrel of oil would result in a change in the Company's cash flow for such
period of approximately $900,000 and a $0.10 change in the price per Mcf of
natural gas would result in a change in the Company's cash flow of approximately
$1.2 million.
The Company periodically has utilized hedging transactions with respect to
a portion of its oil and gas production to mitigate its exposure to price
fluctuations. While the use of these hedging arrangements limits the downside
risk of price declines, such use may also limit any benefits which may be
derived from price increases. The Company has primarily used price swaps,
whereby monthly settlements are based on differences between the prices
specified in the instruments and the settlement prices of certain futures
contracts quoted on the NYMEX or certain other indices. Generally, when the
applicable settlement price is less than the price specified in the contract,
the Company receives a settlement from the counterparty based on the difference.
Similarly, when the applicable settlement price is higher than the specified
price, the Company pays the counterparty based on the difference. The Company
did not hedge any of its oil or gas production in the first six months of 2000
and currently has no open positions relating to its oil and natural gas
production.
Interest Rates
The Company's outstanding long-term debt under its bank credit facility of
$110.0 million at June 30, 2000 is subject to floating market rates of interest.
Borrowings under the credit facility bear interest at a fluctuating rate that is
linked to LIBOR. Any increases in these interest rates can have an adverse
impact on the Company's results of operations and cash flow. The Company has
entered into interest rate swap agreements to hedge the impact of interest rate
changes on a substantial portion of its floating rate debt. As of June 30, 2000,
the Company has interest rate swaps with a notional amount of $100.0 million
which fixed the LIBOR rate at an average rate of 5.0% through September 2000. As
a result of the interest rate swaps in place, the Company realized a gain of
$586,000 for the six months ended June 30, 2000. The fair value of the Company's
open interest rate swap contracts as of June 30, 2000 was an asset of $415,000.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of stockholders was held in Frisco, Texas
at 10:00 a.m., local time, on May 16, 2000.
(b) Proxies for the meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934, as amended. There was no
solicitation in opposition to the nominees for election as director as
listed in the proxy statement and such nominees were elected.
(c) Out of a total 32,872,385 shares of the Company's common stock and
preferred stock outstanding and entitled to vote, 31,444,035 shares
were present at the meeting in person or by proxy, representing
approximately 96%. Matters voted upon at the meeting were as follows:
(i) The election of two Class C Directors to serve on the Company's
board of directors until the 2004 annual meeting of stockholders.
The vote tabulation with respect to each nominee was as follows:
Nominee For Against
------- --- -------
Roland O. Burns 31,130,649 313,386
Richard S. Hickok 31,130,649 313,386
Other Directors of the Company whose term of office as a Director
continued after the meeting are as follows:
Class A Directors Class B Directors
----------------- -----------------
Franklin B. Leonard M. Jay Allison
Cecil E. Martin, Jr. David W. Sledge
(ii) The appointment of Arthur Andersen LLP as the Company's certified
public accountants for 2000 was approved by a vote of 31,380,297
shares for, 32,792 shares against and 30,946 shares abstaining.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.4*# Employment Agreement dated May 16, 2000 by and between the Company
and M. Jay Allison.
10.5*# Employment Agreement dated May 16, 2000 by and between the Company
and Roland O. Burns.
27* Financial Data Schedule for the Six Months ended June 30, 2000.
-------------
# Compensatory plan document.
* Filed herewith.
17
<PAGE>
b. Reports on Form 8-K
There were no current reports on Form 8-K filed during the second quarter
of 2000 and to the date of this filing.
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.
COMSTOCK RESOURCES, INC.
Date August 9, 2000 /s/M. JAY ALLISON
-------------- -----------------
M. Jay Allison, Chairman, President and
Chief Executive Officer (Principal
Executive Officer)
Date August 9, 2000 /s/ROLAND O. BURNS
-------------- ------------------
Roland O. Burns, Senior Vice President,
Chief Financial Officer, Secretary, and
Treasurer (Principal Financial and
Accounting Officer)
18
