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 September 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 November 9, 2000 was 28,765,614.
<PAGE>
COMSTOCK RESOURCES, INC.
QUARTERLY REPORT
For the Quarter Ended September 30, 2000
INDEX
PART I. Financial Information Page
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999...............................4
Consolidated Statements of Operations -
Three Months and Nine Months ended September 30, 2000 and 1999.........5
Consolidated Statement of Stockholders' Equity -
Nine Months ended September 30, 2000...................................6
Consolidated Statements of Cash Flows -
Nine Months ended September 30, 2000 and 1999..........................7
Notes to Consolidated Financial Statements..................................8
Report of Independent Public Accountants...................................12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................13
Item 3. Quantitative and Qualitative Disclosure About Market Risks..........16
PART II. Other Information
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
<TABLE>
ASSETS
September 30, December 31,
2000 1999
--------- ---------
(Unaudited)
(In thousands)
--------- ---------
<S> <C> <C>
Cash and Cash Equivalents ..................................... $ 2,637 $ 7,648
Accounts Receivable:
Oil and gas sales ......................................... 29,915 18,200
Joint interest operations ................................. 3,835 5,415
Other Current Assets .......................................... 2,395 909
--------- ---------
Total current assets .............................. 38,782 32,172
Property and Equipment:
Unevaluated oil and gas properties ........................ 7,660 2,231
Oil and gas properties, successful efforts method ......... 639,943 581,247
Other ..................................................... 2,244 2,163
Accumulated depreciation, depletion and amortization ...... (221,382) (189,779)
--------- ---------
Net property and equipment ........................ 428,465 395,862
Other Assets .................................................. 6,129 6,939
--------- ---------
$ 473,376 $ 434,973
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of Long-Term Debt ............................. $ 216 $ 131
Accounts Payable and Accrued Expenses ......................... 47,266 35,587
--------- ---------
Total current liabilities ......................... 47,482 35,718
Long-Term Debt, less current portion .......................... 240,000 254,000
Deferred Taxes Payable ........................................ 14,372 261
Reserve for Future Abandonment Costs .......................... 7,820 7,820
Stockholders' Equity:
Preferred stock -- $10.00 par,5,000,000 shares authorized,
2,007,310 and 3,000,000 shares outstanding at
September 30, 2000 and December 31, 1999, respectively .. 20,073 30,000
Common stock--$0.50 par, 50,000,000 shares authorized,
28,132,923 and 25,375,197 shares outstanding at
September 30, 2000 and December 31, 1999, respectively .. 14,066 12,688
Additional paid-in capital ................................ 125,610 114,855
Retained earnings (deficit) ............................... 4,551 (19,603)
Deferred compensation-restricted stock grants ............. (598) (766)
--------- ---------
Total stockholders' equity ........................ 163,702 137,174
--------- ---------
$ 473,376 $ 434,973
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales ....................... $ 44,883 $ 22,922 $ 116,523 $ 63,309
Other income ............................ 104 52 241 1,845
Gain on sale of properties .............. -- -- -- 130
--------- --------- --------- ---------
Total revenues ................. 44,987 22,974 116,764 65,284
--------- --------- --------- ---------
Expenses:
Oil and gas operating ................... 7,049 6,028 21,653 17,829
Exploration ............................. 1,041 920 1,828 1,584
Depreciation, depletion and amortization. 10,342 10,016 32,508 34,779
General and administrative, net ......... 824 408 2,019 1,318
Interest ................................ 6,007 6,252 18,440 17,232
--------- --------- --------- ---------
Total expenses ................. 25,263 23,624 76,448 72,742
--------- --------- --------- ---------
Income (loss) before income taxes ............ 19,724 (650) 40,316 (7,458)
Income tax benefit (expense) ................. (6,903) -- (14,111) 1,778
--------- --------- --------- ---------
Net income (loss) ............................ 12,821 (650) 26,205 (5,680)
Preferred stock dividends .................... (686) (689) (2,051) (1,162)
--------- --------- --------- ---------
Net income (loss) attributable
to common stock...................... $ 12,135 $ (1,339) $ 24,154 $ (6,842)
========= ========= ========= =========
Net income (loss) per share:
Basic.................................... $ 0.47 $ (0.05) $ 0.95 $ (0.28)
========= ========= ========= =========
Diluted.................................. $ 0.37 $ 0.77
========= =========
Weighted average shares outstanding:
Basic.................................... 25,687 24,822 25,508 24,523
========= ========= ========= =========
Diluted.................................. 34,505 33,966
========= =========
</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 Nine Months September 30, 2000
(Unaudited)
<TABLE>
Deferred
Additional Retained Compensation-
Preferred Common Paid-In Earnings 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
Conversion of preferred stock.. (9,927) 1,241 8,686 -- -- --
Restricted stock grants ....... -- -- -- -- 168 168
Value of stock options issued
for exploration prospects -- -- 1,495 -- -- 1,495
Exercise of stock options ..... -- 137 574 -- -- 711
Net income attributable to
common stock ............... -- -- -- 24,154 -- 24,154
-------- -------- -------- -------- -------- --------
Balance at September 30, 2000.... $ 20,073 $ 14,066 $125,610 $ 4,551 $ (598) $163,702
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months
Ended September 30,
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................. $ 26,205 $ (5,680)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Compensation paid in common stock ........................... 168 60
Exploration ................................................. 1,828 1,584
Depreciation, depletion and amortization .................... 32,508 34,779
Deferred income taxes ....................................... 14,111 (1,778)
Gain on sale of properties .................................. -- (130)
--------- ---------
Working capital provided by operations .................. 74,820 28,835
Increase in accounts receivable ............................... (10,135) (1,379)
Increase in other current assets .............................. (1,486) (1,144)
Increase (decrease) in accounts payable
and accrued expenses ..................................... 11,679 (8,829)
--------- ---------
Net cash provided by operating activities ............... 74,878 17,483
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties ............................. 13 778
Capital expenditures and acquisitions ......................... (64,647) (16,619)
--------- ---------
Net cash used for operating activities .................. (64,634) (15,841)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings .................................................... 14,408 10,378
Proceeds from senior notes issuance ........................... -- 149,221
Debt issuance costs ........................................... -- (5,661)
Principal payments on debt .................................... (28,323) (184,253)
Proceeds from preferred stock issuance ........................ -- 30,000
Preferred stock dividends paid ................................ (2,051) --
Proceeds from common stock issuance ........................... 711 296
Stock issuance costs .......................................... -- (711)
--------- ---------
Net cash used for financing activities .................. (15,255) (730)
--------- ---------
Net increase (decrease) in cash and cash equivalents.. (5,011) 912
Cash and cash equivalents, beginning of period ....... 7,648 5,176
--------- ---------
Cash and cash equivalents, end of period.............. $ 2,637 $ 6,088
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 2000 and the related
results of operations for the three months and nine months ended September 30,
2000 and 1999 and cash flows for the nine months ended September 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 nine months ended September 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 Nine Months
Ended September 30,
2000 1999
-------- --------
(In thousands)
Cash Payments -
Interest payments ................................. $14,242 $10,523
Income tax payments ............................... -- --
Noncash Investing and Financing Activities -
Common stock issued for preferred stock dividends.. $ -- $ 1,162
Value of vested stock options
under exploration joint venture ............ 1,495 498
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 nine months ended September 30,
2000 and 1999 were determined as follows:
<TABLE>
For the Three Months Ended September 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>
Basic Earnings Per Share:
Income (Loss) ................. $ 12,821 25,687 $ (650) 24,822
Less Preferred Stock
Dividends ................. (686) -- (689) --
-------- -------- -------- --------
Net Income (Loss) Available
to Common Stockholders .... 12,135 25,687 $ 0.47 $ (1,339) 24,822 $ (.05)
======== ======== ======== ========
Diluted Earnings Per Share:
Effect of Dilutive Securities:
Stock Options ............. -- 1,386
Convertible Preferred Stock 686 7,432
-------- --------
Net Income Available to
Common Stockholders and
Assumed Conversions ..... $ 12,821 34,505 $ 0.37
======== ======== ========
</TABLE>
<TABLE>
For the Nine Months Ended September 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>
Basic Earnings Per Share:
Income (Loss) ................. $ 26,205 25,508 $ (5,680) 24,523
Less Preferred Stock
Dividends ................. (2,051) -- (1,162) --
-------- -------- -------- --------
Net Income (Loss) Available
to Common Stockholders .... 24,154 25,508 $ 0.95 $ (6,842) 24,523 $ (0.28)
======== ======== ======== ========
Diluted Earnings Per Share:
Effect of Dilutive Securities:
Stock Options ............. -- 981
Convertible Preferred Stock 2,051 7,477
-------- --------
Net Income Available to
Common Stockholders and
Assumed Conversions ..... $ 26,205 33,966 $ 0.77
======== ======== ========
</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 and SFAS 138. 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. The Company will adopt SFAS 133 on January 1, 2001.
(2) LONG-TERM DEBT -
As of September 30, 2000 long-term debt is comprised of the following:
(In thousands)
Revolving Bank Credit Facility $ 90,000
11 1/4% Senior Notes due 2007 150,000
Other ........................ 216
---------
240,216
Less current portion ......... (216)
---------
$ 240,000
=========
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 $205.0
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 September 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>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(3) PREFERRED STOCK -
On September 28, 2000 and September 30, 2000, holders of 992,690 shares of
the Company's convertible preferred stock with a $10 par value converted their
shares into 2,481,725 shares of common stock. The preferred stock accrues
dividends at an annual rate of 9% which are payable quarterly in cash or in
shares of the Company's common stock, at the election of the Company. Based on
the conversion price of $4.00 per share of common stock, each share of preferred
stock was converted into 2.5 shares of common stock. As a result of these
conversions, $9.9 million of preferred stockholders' equity was transferred to
common stockholders' equity as of September 30, 2000.
On October 25, 2000, an additional 250,000 shares of the Company's
convertible preferred stock were converted by the holder into 625,000 shares of
common stock. Subsequent to September 30, 2000, an additional $2.5 million in
preferred stockholders' equity was transferred to common stockholders' equity.
The conversions resulted in the retirement of 41% of the Company's convertible
preferred stock which reduces the Company's annual preferred stock dividend
requirement by $1.1 million.
11
<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 September 30, 2000, and the
related consolidated statements of operations for the three month and nine month
periods ended September 30, 2000 and 1999, and the consolidated statements of
cash flows for the nine months ended September 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
November 6, 2000
Dallas, Texas
12
<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:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Production Data:
Oil (Mbbls).................................. 449 439 1,386 1,689
Natural gas (Mmcf)........................... 6,560 6,032 20,239 17,712
Natural gas equivalent (Mmcfe)............... 9,254 8,668 28,554 27,848
Average Sales Price:
Oil (per Bbl)................................ $ 31.37 $ 20.82 $ 29.63 $ 15.67
Natural gas (per Mcf)........................ 4.69 2.28 3.73 2.08
Average equivalent price (per Mcfe).......... 4.85 2.64 4.08 2.27
Expenses ($ per Mcfe):
Oil and gas operating(1)..................... $ 0.76 $ 0.70 $ 0.76 $ 0.64
General and administrative................... 0.09 0.05 0.07 0.05
Depreciation, depletion and amortization(2).. 1.08 1.09 1.10 1.22
Cash Margin ($ per Mcfe)(3).................... $ 4.00 $ 1.90 $ 3.25 $ 1.59
---------
<FN>
(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 an gas operating
expenses per Mcfe and general and administrative expenses per Mcfe.
</FN>
</TABLE>
Revenues -
The Company's oil and gas sales increased $22.0 million in the third
quarter of 2000 to $44.9 million, the highest level in the Company's history, an
increase of 96% from $22.9 million in 1999's third quarter. The substantial
growth in sales is due to a significant increase to the Company's realized oil
and gas prices combined with a 7% increase in oil and gas production. The
Company's average third quarter oil price increased by 51% and its average third
quarter gas price increased by 106% in 2000. For the first nine months of 2000,
oil and gas sales increased $53.2 million (84%) to $116.5 million from $63.3
million for the nine months ended September 30, 1999. The increase is
attributable to a 3% increase in oil and gas production combined with 89% higher
realized oil prices and 79% higher realized natural gas prices in 2000 as
compared to 1999. The Company had hedged a significant amount of its 1999
natural gas production. The Company has had no price hedges in place in 2000.
Without the impact of the hedge, the Company would have realized $2.78 and $2.31
per Mcf for its natural gas production for the three months and nine months
ended September 30, 1999, respectively.
Other income increased from $52,000 from the third quarter of 1999 to
$104,000 in the third quarter of 2000 due to an increase in interest income from
short-term investments. Other income for the nine months ended September 30,
2000 decreased from $1.8 million in 1999 to $241,000. Included in other income
in the second quarter of 1999 was a $1.7 million insurance recovery received by
the Company.
13
<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 $1.0
million (17%) to $7.0 million in the third quarter of 2000 from $6.0 million in
the third quarter of 1999. Oil and gas operating expenses per equivalent Mcf
produced increased $0.06 to $0.76 in the third quarter of 2000 from $0.70 in the
third quarter of 1999 primarily as a result of higher production taxes relating
to the higher oil and gas prices.
Oil and gas operating costs for the nine months ended September 30, 2000
increased $3.8 million (21%) to $21.7 million from $17.8 million for the nine
months ended September 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 $0.12 to $0.76 for nine
months ended September 30, 2000 from $0.64 for the same period in 1999.
Exploration expense for the nine months ended September 30, 2000 was $1.8
million which relates to write offs of two dry holes drilled during the first
nine months of 2000.
Depreciation, depletion and amortization ("DD&A") increased $326,000 (3%)
to $10.3 million in the third quarter of 2000 from $10.0 million in the third
quarter of 1999 due to the 7% increase in production which was partially offset
by a reduction to the Company' average amortization rate. DD&A per equivalent
Mcf produced decreased by $0.01 to $1.08 for the three months ended September
30, 2000 from $1.09 for the quarter ended September 30, 1999. For the nine
months ended September 30, 2000, DD&A decreased $2.3 million (7%) to $32.5
million from $34.8 million for the nine months ended September 30, 1999. The
decrease is due to a lower average amortization rate. DD&A per equivalent Mcf
decreased by $0.12 to $1.10 for the nine months ended September 30, 2000 from
$1.22 for the nine months ended September 30, 1999. The decrease is as a result
of the Company's higher cost Gulf of Mexico properties comprising a lower
percentage of the Company's total production in 2000.
General and administrative expenses, which are reported net of overhead
reimbursements, of $824,000 for the third quarter of 2000 were102% higher than
general and administrative expenses of $408,000 for the third quarter of 1999
due primarily to an increase in the Company's personnel costs in 2000. For the
first nine months of 2000, general and administrative expenses increased to $2.0
million from $1.3 million for the nine months ended September 30, 1999.
Interest expense decreased $245,000 (4%) to $6.0 million for the third
quarter of 2000 from $6.3 million in the third quarter of 1999 due to a decrease
in the Company's average interest rate on its bank credit facility. The weighted
average annual interest rate under the bank credit facility decreased to 6.6%
for the third quarter of 2000 as compared to 7.3% for the same period in 1999.
Interest expense for the nine months ended September 30, 2000 increased $1.2
million (7%) to $18.4 million from $17.2 million in the nine months ended
September 30, 1999. The increase is related to a higher average interest rate on
the Company's total 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% was higher than the rate charged under the
bank credit facility prior to April 29th. The higher rate on the bonds was
partially offset by a lower rate on the Company's remaining debt under the bank
credit facility. For the nine months ended September 30, 2000, the average
interest rate under the bank credit facility decreased to 6.6% from 7.3% for the
same period in 1999.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company reported net income of $12.1 million after preferred stock
dividends of $686,000 for the three months ended September 30, 2000, as compared
to a net loss of $1.3 million after preferred stock dividends of $689,000 for
the three months ended September 30, 1999. Net income per share for the third
quarter was $0.37 on weighted average diluted shares outstanding of 34.5 million
as compared to net loss per share of $0.05 for the third quarter of 1999 on
basic weighted average shares outstanding of 24.8 million.
Net income for the nine months ended September 30, 2000 was $24.2 million
after preferred stock dividends of $2.1 million, as compared to a net loss of
$6.8 million after preferred stock dividends of $1.2 million for the nine months
ended September 30, 1999. Net income per share of the nine months ended
September 30, 2000 was $0.77 on diluted weighted average shares outstanding of
34.0 million as compared to a net loss per share of $0.28 for the nine months
ended September 30, 1999 on basic weighted average shares outstanding of 24.5
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 nine months of 2000, the Company's net cash flow provided by operating
activities totaled $74.9 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 nine months of 2000, the Company incurred
capital expenditures of $64.6 million primarily for its acquisition, development
and exploration activities and repaid $28.0 million owed under its bank credit
facility.
The following table summarizes the Company's capital expenditure activity
for the nine months ended September 30, 2000 and 1999:
Nine Months Ended
September 30,
2000 1999
------- -------
(In thousands)
Acquisitions ................... $ 9,625 $ --
Other leasehold costs .......... 6,385 1,859
Development drilling ........... 26,573 2,437
Exploratory drilling ........... 12,735 5,809
Offshore production facilities.. 1,098 3,500
Workovers and recompletions..... 8,055 2,419
Other .......................... 176 595
------- -------
$64,647 $16,619
======= =======
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 nine months ended September 30,
2000 and 1999, the Company spent $54.8 million and $16.0 million, respectively,
on development and exploration activities. The Company has substantially
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
increased its drilling activity in 2000 from 1999 and expects to spend an
additional $16.0 million on development and exploration projects in the last
quarter of 2000. The Company intends to primarily use internally generated cash
flow to fund capital expenditures other than significant acquisitions.
The Company spent $9.6 million on acquisition activities in the first nine
months 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 $205.0
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 September 30, 2000 was 7.9%.
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
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<PAGE>
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
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 nine 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 $1.5 million 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
$2.1 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 nine 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
$90.0 million at September 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
had interest rate swap agreements in place through September 2000 to hedge the
impact of interest rate changes on $100.0 million of its floating rate debt. As
a result of the interest rate swaps in place, the Company realized a gain of
$988,000 for the nine months ended September 30, 2000. As of September 30, 2000,
the Company had no open interest rate swap agreements in place.
17
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PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1*Amended and Restated Credit Agreement dated as of November 7,
2000, between the Company, the Banks Party thereto and Bank One,
NA, as Administrative Agent, Toronto Dominion (Texas), Inc., as
Syndication Agent, Paribas, as Documentation Agent and Banc One
Capital Markets, as Lead Arranger.
27* Financial Data Schedule for the Nine Months ended September 30,
2000.
-------------
* Filed herewith.
b. Reports on Form 8-K
There were no current reports on Form 8-K filed during the third 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 November 9, 2000 /s/M. JAY ALLISON
---------------- -----------------
M. Jay Allison, Chairman, President and Chief
Executive Officer (Principal Executive Officer)
Date November 9, 2000 /s/ROLAND O. BURNS
---------------- ------------------
Roland O. Burns, Senior Vice President,
Chief Financial Officer, Secretary, and Treasurer
(Principal Financial and Accounting Officer)
18
