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 [root] THE SECURITIES EXCHANGE ACT OF 1934 -------- For The Quarter Ended March 31, 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 May 10, 2000 was 25,375,198.
COMSTOCK RESOURCES, INC. QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2000 INDEX PART I. Financial Information Page Item 1. Financial Statements: Consolidated Balance Sheets - March 31, 2000 and December 31, 1999...............................4 Consolidated Statements of Operations - Three Months ended March 31, 2000 and 1999.........................5 Consolidated Statement of Stockholders' Equity - Three Months ended March 31, 2000..................................6 Consolidated Statements of Cash Flows - Three Months ended March 31, 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 6. Exhibits and Reports on Form 8-K...................................16 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> ASSETS March 31, December 31, 2000 1999 --------- --------- (Unaudited) (In thousands) <S> <C> <C> Cash and Cash Equivalents ................................ $ 669 $ 7,648 Accounts Receivable: Oil and gas sales ...................................... 22,245 18,200 Joint interest operations .............................. 3,381 5,415 Other Current Assets ..................................... 1,675 909 --------- --------- Total current assets ............................ 27,970 32,172 Property and Equipment: Unevaluated oil and gas properties ..................... 3,031 2,231 Oil and gas properties, successful efforts method ...... 610,243 581,247 Other .................................................. 2,197 2,163 Accumulated depreciation, depletion and amortization ... (201,189) (189,779) --------- --------- Net property and equipment ...................... 414,282 395,862 Other Assets ............................................. 6,669 6,939 --------- --------- $ 448,921 $ 434,973 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Portion of Long-Term Debt ........................ $ 33 $ 131 Accounts Payable and Accrued Expenses .................... 36,426 35,587 --------- --------- Total current liabilities ...................... 36,459 35,718 Long-Term Debt, less current portion ..................... 260,000 254,000 Deferred Taxes Payable ................................... 2,829 261 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, 25,375,198 and 25,375,197 shares outstanding at March 31, 2000 and December 31, 1999, respectively ... 12,688 12,688 Additional paid-in capital ............................. 115,353 114,855 Retained deficit ....................................... (15,518) (19,603) Deferred compensation-restricted stock grants .......... (710) (766) --------- --------- Total stockholders' equity ..................... 141,813 137,174 --------- --------- $ 448,921 $ 434,973 ========= ========= </TABLE> The accompanying notes are an integral part of these statements. 4
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2000 1999 ---------- --------- (In thousands, except per share amounts) Revenues: Oil and gas sales ................................... $ 33,071 $ 19,604 Other income ........................................ 72 30 -------- -------- Total revenues ............................. 33,143 19,634 -------- -------- Expenses: Oil and gas operating ............................... 7,386 5,894 Exploration ......................................... -- 664 Depreciation, depletion and amortization 11,712 13,441 General and administrative, net ..................... 495 434 Interest ............................................ 6,215 5,098 -------- -------- Total expenses ............................. 25,808 25,531 -------- -------- Income (loss) before income taxes ........................ 7,335 (5,897) Income tax benefit (expense) ............................. (2,567) 1,778 -------- -------- Net income (loss) ........................................ 4,768 (4,119) Preferred stock dividends ................................ (683) -- -------- -------- Net income (loss) attributable to common stock............ $ 4,085 $ (4,119) ======== ======== Net income (loss) per share: Basic ............................................... $ 0.16 $ (0.17) ======== ======== Diluted ............................................. $ 0.14 ======== Weighted average shares outstanding: Basic ............................................... 25,375 24,350 ======== ======== Diluted ............................................. 33,153 ======== The accompanying notes are an integral part of these statements. 5
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Three Months March 31, 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 ...... -- -- -- -- 56 56 Value of stock options issued for exploration prospect .. -- -- 498 -- -- 498 Net income attributable to common stock .............. -- -- -- 4,085 -- 4,085 -------- -------- -------- -------- -------- -------- Balance at March 31, 2000 ...... $ 30,000 $ 12,688 $115,353 $(15,518) $ (710) $141,813 ======== ======== ======== ======== ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 6
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2000 1999 -------- -------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ................................... $ 4,768 $ (4,119) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Compensation paid in common stock ................. 56 2 Exploration ....................................... -- 664 Depreciation, depletion and amortization .......... 11,712 13,441 Deferred income taxes ............................. 2,568 (1,778) -------- -------- Working capital provided by operations .......... 19,104 8,210 Decrease (increase) in accounts receivable .......... (2,011) 4,719 Increase in other current assets .................... (766) (870) Increase (decrease) in accounts payable and accrued expenses .................................. 839 (10,452) -------- -------- Net cash provided by operating activities ....... 17,166 1,607 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of properties ................... 13 638 Capital expenditures and acquisitions ............... (29,377) (3,433) -------- -------- Net cash used for operating activities .......... (29,364) (2,795) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings .......................................... 10,000 -- Principal payments on debt .......................... (4,098) (1,067) Dividends paid on preferred stock ................... (683) -- -------- -------- Net cash provided by (used for) financing activities 5,219 (1,067) -------- -------- Net decrease in cash and cash equivalents ....... (6,979) (2,255) Cash and cash equivalents, beginning of period .. 7,648 5,176 -------- -------- Cash and cash equivalents, end of period ........ $ 669 $ 2,921 ======== ======== The accompanying notes are an integral part of these statements. 7
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 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 March 31, 2000 and the related results of operations and cash flows for the three months ended March 31, 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 three months ended March 31, 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 Three Months Ended March 31, 2000 1999 ------ ------ (In thousands) Cash Payments - Interest payments .............................. $2,001 $5,191 Income tax payments ............................ -- -- Noncash Investing and Financing Activities - Value of vested stock options under exploration joint venture ................ $ 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
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 three months ended March 31, 2000 and 1999 were determined as follows: <TABLE> <CAPTION> For the Three Months Ended March 31, ---------------------------------------------------------------- 2000 1999 --------------------------- ------------------------------- Income Per Income Per (Loss) Shares Share (Loss) Shares Share -------- -------- ------- -------- -------- ------- <S> <C> <C> <C> <C> <C> <C> Basic Earnings Per Share: Income (Loss).......................... $ 4,768 25,375 $(4,119) 24,350 Less Preferred Stock Dividends.......................... (683) -- -- -- ------- ------- ------- ------- Net Income (Loss) Available to Common Stockholders............. 4,085 25,375 $ 0.16 $(4,119) 24,350 $ (0.17) ======= ======= ======= ======= Diluted Earning Per Share: Effect of Dilutive Securities: Stock Options...................... 278 Convertible Preferred Stock........ 683 7,500 ------- ------- Net Income Available to Common Stockholders and Assumed Conversions.............. $ 4,768 33,153 $ 0.14 ======== ======= ======= </TABLE> 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. 9
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (2) LONG-TERM DEBT - As of March 31, 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 ........................ 33 --------- 260,033 Less current portion ......... (33) --------- $ 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 March 31, 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
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 March 31, 2000, and the related consolidated statements of income for the three-month periods ended March 31, 2000 and 1999, and the consolidated statements of cash flows for the three-month periods ended March 31, 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 May 5, 2000 Dallas, Texas 11
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 March 31, 2000 1999 ------- ------- Net Production Data: Oil (Mbbls) ............................... 494 686 Natural gas (MMcf) ........................ 6,810 6,036 Natural gas equivalent (Mmcfe) ............ 9,774 10,155 Average Sales Price: Oil (per Bbl) ............................. $ 29.00 $ 11.90 Natural gas (per Mcf) ..................... 2.75 1.89 Average equivalent price (per Mcfe) ....... 3.38 1.93 Expenses ($ per Mcfe): Oil and gas operating(1) .................. $ 0.76 $ 0.58 General and administrative ................ 0.05 0.04 Depreciation, depletion and amortization(2) 1.16 1.31 Cash Margin ($ per Mcfe)(3) ................. $ 2.57 $ 1.31 - --------- (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. Revenues - The Company's oil and gas sales increased $13.5 million (69%) in the first quarter of 2000, to $33.1 million from $19.6 million in 1999's first quarter due to higher oil and gas prices realized by the Company in 2000. The Company's average first quarter oil price increased by 144% and its average first quarter gas price increased by 46% in 2000 as compared to 1999. The price increases in 2000 were partially offset by a 4% decrease in the Company's oil and natural gas production. Production in the first quarter of 2000 increased 11% over production in the fourth quarter of 1999 of 8.8 Bcfe. The Company hedged a portion of its natural gas production in the first quarter of 1999. Without the impact of the hedge, the Company would have realized $1.85 per Mcf in 1999. Other income increased to $72,000 in the first quarter of 2000 as compared to $30,000 in 1999's first quarter due to an increase in interest earned on a higher level of cash and cash equivalents. Costs and Expenses - Oil and gas operating expenses, including production taxes, increased $1.5 million (25%) to $7.4 million in the first quarter of 2000 from $5.9 million in the first quarter of 1999. Oil and gas operating expenses per equivalent Mcf produced increased $0.18 to $0.76 in the first quarter of 2000 from $0.58 in the first quarter of 1999 due to (i) higher production taxes as a result of the higher oil and gas prices, (ii) the 4% decrease in oil and natural gas production (on an equivalent Mcf basis) and the fixed nature of the Company's lifting costs and (iii) a higher level of remedial work on the Company's offshore properties. In the first quarter of 2000, the Company had no exploration expense as compared to $664,000 in 1999's first quarter. The Company did not drill any dry holes in the first quarter of 2000. 12
Depreciation, depletion and amortization ("DD&A") decreased $1.7 million (13%) to $11.7 million in the first quarter of 2000 from $13.4 million in the first quarter of 1999 partly due to the 4% decrease in oil and natural gas production. DD&A per equivalent Mcf produced decreased by $0.15 to $1.16 for the three months ended March 31, 2000 from $1.31 for the three months ended March 31, 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 first quarter of 2000. General and administrative expenses, which are reported net of overhead reimbursements, of $495,000 for the first quarter of 2000 were 14% higher than general and administrative expenses of $434,000 for the first quarter of 1999 due primarily to an increase in personnel costs in 2000. Interest expense increased $1.1 million (22%) to $6.2 million for the first quarter of 2000 from $5.1 million for the first quarter of 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 significantly higher than the 7.3% rate charged under the bank credit facility in the first quarter of 1999. The weighted average annual interest rate for the Company's remaining debt under the bank credit facility decreased to 6.6% for the first quarter of 2000 as compared to 7.3% for the same period in 1999. The Company reported net income of $4.1 million after preferred stock dividends of $683,000 for the three months ended March 31, 2000, as compared to a net loss of $4.1 million for the three months ended March 31, 1999. Net income per share for the first quarter was $0.14 on weighted average diluted shares outstanding of 33.2 million as compared to net loss per share of $0.17 for the first quarter of 1999 on 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 three months of 2000, the Company's net cash flow provided by operating activities totaled $19.1 million, before changes to other working capital accounts and the Company borrowed $10.0 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 three months of 2000, the Company incurred capital expenditures of $29.4 million primarily for acquisition, development and exploration activities and reduced amounts outstanding under its bank credit facility by $4.0 million. The following table summarizes the Company's capital expenditure activity for the three months ended March 31, 2000 and 1999: Three Months Ended March 31, 2000 1999 ------- ------- (In thousands) Acquisitions ................. $ 6,980 $ -- Other leasehold costs ........ 1,697 133 Development drilling ......... 12,403 565 Exploratory drilling ......... 4,419 2,416 Offshore production facilities 273 -- Workovers and recompletions .. 3,539 116 Other ........................ 66 203 ------- ------- $29,377 $ 3,433 ======= ======= 13
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 three months ended March 31, 2000 and 1999, the Company spent $22.3 million and $3.2 million, respectively, on development and exploration activities. The Company has substantially increased its drilling activity in 2000 and expects to spend an additional $38.0 million on development and exploration projects in the last three quarters of 2000. The Company intends to primarily use internally generated cash flow to fund capital expenditures other than significant acquisitions. The Company spent $7.0 million on acquisition activities in the first quarter 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 March 31, 2000 was 6.6%. 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. 14
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 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 quarter 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 $500,000 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 $600,000. 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 quarter 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 March 31, 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 portion of its floating rate debt. As of March 31, 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 $257,000 for the three months ended March 31, 2000. The fair value of the Company's open interest rate swap contracts as of March 31, 2000 was an asset of $755,000. 15
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 May 5, 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 Three Months ended March 31, 2000. - ------------- * Filed herewith. b. Reports on Form 8-K There were no current reports on Form 8-K filed during the first 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 May 10, 2000 /s/M. JAY ALLISON ------------ ----------------- M. Jay Allison, Chairman, President and Chief Executive Officer (Principal Executive Officer) Date May 10, 2000 /s/ROLAND O. BURNS ------------ ------------------ Roland O. Burns, Senior Vice President, Chief Financial Officer, Secretary, and Treasurer (Principal Financial and Accounting Officer) 16