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, 1996 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) 5005 LBJ Freeway, Suite 1000, Dallas, Texas 75244 (Address of principal executive offices) Telephone No.: (972) 701-2000 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 Registrant's common stock, par value $.50, as of October 25, 1996 was 17,595,042.
COMSTOCK RESOURCES, INC. QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 1996 INDEX PART I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1996 and December 31, 1995...............................4 Consolidated Statements of Operations - Three Months and Nine Months ended September 30, 1996 and 1995.........5 Consolidated Statement of Stockholders' Equity - Nine Months ended September 30, 1996...................................6 Consolidated Statements of Cash Flows - Nine Months ended September 30, 1996 and 1995..........................7 Notes to Consolidated Financial Statements...............................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................11 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K...............................16 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3
<TABLE> COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, -------------- -------------- 1996 1995 -------------- -------------- (Unaudited) <S> <C> <C> Cash and Cash Equivalents $ 11,119,104 $ 1,916,648 Accounts Receivable: Oil and gas sales 12,532,600 5,385,000 Gas marketing sales 7,863,824 8,450,794 Joint interest operations 1,684,671 1,230,403 Other Current Assets 322,336 264,232 -------------- -------------- Total current assets 33,522,535 17,247,077 -------------- -------------- Property and Equipment: Oil and gas properties, successful efforts method 248,718,281 154,843,663 Other 2,777,174 2,717,625 Accumulated depreciation, depletion and amortization (63,262,750) (55,445,097) ------------- ------------- Net property and equipment 188,232,705 102,116,191 ------------- ------------- Other Assets 627,940 735,398 ------------- ------------- $222,383,180 $120,098,666 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Portion of Long-term Debt $ 171,505 $ 18,677,181 Accounts Payable and Accrued Expenses 15,445,201 10,977,435 Accrued Natural Gas Purchases 6,603,534 5,533,784 ------------- ------------- Total current liabilities 22,220,240 35,188,400 ------------- ------------- Long-term Debt, less current portion 150,009,376 53,133,751 Deferred Revenue 107,503 430,000 Other Noncurrent Liabilities 1,096,272 1,218,742 Stockholders' Equity: Preferred stock - $10.00 par, 5,000,000 shares authorized, 1,500,000 and 3,100,000 shares outstanding at September 30, 1996 and December 31, 1995, respectively 15,000,000 31,000,000 Common stock - $.50 par, 30,000,000 shares authorized, 17,340,742 and 12,926,672 shares outstanding at September 30, 1996 and December 31, 1995, respectively 8,670,371 6,463,336 Additional paid-in capital 55,154,286 38,182,398 Retained deficit (29,831,899) (45,444,055) Less: Deferred compensation - restricted stock grants (42,969) (73,906) ------------- ------------- Total stockholders' equity 48,949,789 30,127,773 ------------- ------------- $222,383,180 $120,098,666 ============= ============= The accompanying notes are an integral part of these statements. </TABLE> 4
<TABLE> COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, ------------------------ -------------------------- 1996 1995 1996 1995 ------------ ----------- ------------ ------------ <S> <C> <C> <C> <C> Revenues: Oil and gas sales $19,739,754 $ 5,881,131 $ 45,516,903 $14,253,556 Gas marketing sales 22,905,193 11,530,438 67,574,302 34,785,894 Gas gathering and processing 176,648 117,912 540,015 454,438 Gain (loss) on sales of property (21,472) 2,590,053 1,506,103 2,608,088 Other income 223,105 91,049 455,376 206,329 ------------ ------------ ------------ ------------ Total revenues 43,023,228 20,210,583 115,592,699 52,308,305 ------------ ------------ ------------ ------------ Expenses: Oil and gas operating 3,832,175 2,036,153 9,673,214 4,803,504 Exploration - - 285,364 - Natural gas purchases 22,408,489 11,296,432 66,104,332 33,973,759 Gas gathering and processing 66,240 49,317 196,469 135,356 Depreciation, depletion and amortization 5,704,251 2,251,183 12,809,391 6,113,970 General and administrative, net 661,238 465,962 1,545,604 1,447,541 Interest 3,026,826 1,654,647 7,619,093 3,573,844 ------------ ------------ ------------ ------------ Total expenses 35,699,219 17,753,694 98,233,467 50,047,974 ------------ ------------ ------------ ------------ Income before income taxes 7,324,009 2,456,889 17,359,232 2,260,331 Provision for income taxes - - - - ------------ ------------ ------------ ------------ Net income 7,324,009 2,456,889 17,359,232 2,260,331 Preferred stock dividends (480,784) (640,535) (1,747,076) (1,266,966) ------------ ------------ ------------ ------------ Net income attributable to common stock $ 6,843,225 $ 1,816,354 $ 15,612,156 $ 993,365 ============ ============ ============ ============ Net income attributable to common stock per share - Primary $ 0.41 $ 0.14 $ 1.04 $ 0.08 ============ ============ ============ ============ Fully diluted $ 0.34 $ N/A $ 0.82 $ N/A ============ ============ ============ ============ Weighted average number of common shares and common stock equivalent shares outstanding - Primary 16,794,115 13,025,046 15,013,714 12,842,609 ============ ============ ============ ============ Fully diluted 21,233,749 N/A 21,246,384 N/A ============ ============ ============ ============ The accompanying notes are an integral part of these statements. </TABLE> 5
<TABLE> COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Nine Months Ended September 30, 1996 (Unaudited) Deferred Additional Retained Compensation- Preferred Common Paid-In Earnings Restricted Stock Stock Capital (Deficit) Stock Grants Total ------------- ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 1995 $ 31,000,000 $ 6,463,336 $ 38,182,398 $(45,444,055) $ (73,906) $ 30,127,773 Conversion of preferred stock (16,000,000) 1,750,000 14,250,000 - - - Issuance of common stock - 457,035 2,721,888 - - 3,178,923 Restricted stock grants - - - - 30,937 30,937 Net income attributable to common stock - - - 15,612,156 - 15,612,156 ------------- ------------- ------------- ------------- ------------- ------------- Balance at September 30, 1996 $ 15,000,000 $ 8,670,371 $ 55,154,286 $(29,831,899) $ (42,969) $ 48,949,789 ============= ============= ============= ============= ============= ============= The accompanying notes are an integral part of these statements. </TABLE> 6
<TABLE> COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, (Unaudited) 1996 1995 -------------- -------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,359,232 $ 2,260,331 Adjustments to reconcile net income to net cash provided by operating activities: Compensation paid in common stock 185,187 143,937 Depreciation, depletion and amortization 12,809,391 6,113,970 Deferred revenue (322,497) 430,000 Exploration 285,364 - Gain on sales of property (1,506,103) (2,608,088) -------------- -------------- Working capital provided by operations 28,810,574 6,340,150 Increase in accounts receivable (7,014,898) (1,783,083) Decrease (increase) in other current assets (58,103) 29,414 Increase (decrease) in accounts payable and accrued expenses 5,537,516 (1,590,246) -------------- -------------- Net cash provided by operating activities 27,275,089 2,996,235 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and acquisitions (106,667,736) (59,707,427) Proceeds from sales of properties 8,947,557 2,994,603 -------------- -------------- Net cash used for investing activities (97,720,179) (56,712,824) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from preferred stock issuance - 15,000,000 Dividends paid on preferred stock (427,679) - Proceeds from common stock issuances 1,720,313 25,000 Stock issuance costs (15,037) (90,031) Borrowings 172,149,671 58,403,139 Principal payments on debt (93,779,722) (22,077,475) -------------- -------------- Net cash provided by financing activities 79,647,546 51,260,633 -------------- -------------- Net increase (decrease) in cash and cash equivalents 9,202,456 (2,455,956) Cash and cash equivalents, beginning of period 1,916,648 3,425,248 -------------- -------------- Cash and cash equivalents, end of period $ 11,119,104 $ 969,292 ============= ============= The accompanying notes are an integral part of these statements. </TABLE> 7
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 and 1995 (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, 1996 and the related results of operations for the three months and nine months ended September 30, 1996 and 1995 and cash flows for the nine months ended September 30, 1996 and 1995. 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, 1995. The results of operations for the nine months ended September 30, 1996 and 1995, are not necessarily an indication of the results expected for the full year. Supplementary Information with Respect to the Statements of Cash Flows - The Company paid cash for interest of $7,349,000 and $3,574,000 during the nine months ended September 30, 1996 and 1995, respectively. No cash for income taxes was paid in the nine months ended September 30, 1996 and 1995. The following is a summary of the significant noncash investing and financing activities: For the Nine Months Ended September 30, -------------------------------- 1996 1995 -------------- -------------- Common stock issued for director compensation $ 154,250 $ 113,000 Common stock issued for preferred stock dividends $ 1,319,397 $ 1,266,966 8
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Earnings Per Share - Net income attributable to common stock represents net income less preferred stock dividend requirements of $480,784 and $640,535 for the three months ended September 30, 1996 and 1995, respectively and $1,747,076 and $1,266,966 for the nine months ended September 30, 1996 and 1995, respectively. Net income attributable to common stock per share is computed by dividing net income attributable to common stock by the weighted average number of common shares and common stock equivalents outstanding during each period. Common stock equivalents include, when applicable, dilutive stock options and warrants using the treasury stock method. Fully diluted net income attributable to common stock per share includes the dilutive effect of the Company's convertible preferred stock using the "if converted" method and dilutive stock options and warrants using the treasury stock method. (2) OIL & GAS PROPERTY ACQUISITION - On May 1 and May 2, 1996, the Company completed a $104 million purchase of working interests in the Double A Wells field in Polk County, Texas. The Company acquired 100% of the capital stock of Black Stone Oil Company, the operator of the field, together with additional interests held by other working interest owners in nineteen producing oil and gas properties as well as interests in adjacent undeveloped oil and gas leases. The interests were acquired effective January 1, 1996. Accordingly, revenues from the properties net of operating and development costs attributable to the period January 1, 1996 to April 30, 1996 were recorded as a reduction of the purchase price paid for the properties. The net proved oil and natural gas reserves attributable to the interests acquired are estimated at 5.3 million barrels of oil and 98.5 billion cubic feet of natural gas as of January 1, 1996. (3) LONG-TERM DEBT - In connection with the $104 million oil and gas property acquisition closed in May 1996, the Company entered into a $176 million credit facility with two banks, consisting of a $166 million revolving credit commitment and a $10 million short-term bridge loan. The new revolving credit facility converts to a two year term loan on May 1, 1999. The Company financed the $104 million acquisition and refinanced $68.7 million outstanding under its existing bank credit facility with borrowings under the new bank credit facility. On May 15, 1996, the Company repaid the $10 million bridge loan primarily from proceeds from certain asset sales. On August 13, 1996, the Company refinanced the $166 million credit facility with a syndication of eleven banks in which The First National Bank of Chicago serves as agent. The new revolving credit facility will convert to a term loan on August 13, 1999. The term loan is to be repaid in consecutive quarterly installments of 5% of the original outstanding principal balance with the final balance due in full on August 13, 2001. As of September 30, 1996, the Company had $150 million outstanding under the new bank revolving credit facility. Borrowings under the new bank credit facility cannot exceed a borrowing base determined 9
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) semiannually by the banks. The borrowing base at September 30, 1996 was $166 million. Amounts outstanding under the new bank credit facility bear interest at a floating rate based on The First National Bank of Chicago's base rate (as defined) plus 1/2% or, at the Company's option, at a fixed rate for up to six months based on the London Interbank Offered Rate ("LIBOR") plus 1.25% to 2% depending upon the utilization of the available borrowing base. As of September 30, 1996, the Company had placed the outstanding advances under the revolving credit facility under fixed rate loans based on LIBOR at an average rate of approximately 7.56% per annum. (4) SALE OF OIL AND GAS PROPERTIES - In May 1996, the Company sold certain oil and gas properties for approximately $8.9 million. The properties sold include interests in 145 producing wells located in Oklahoma, Arkansas, Nebraska and Kansas as well as the Company's interests in the Chapman Ranch field in South Texas. The properties sold were non-strategic assets to the Company and were located out of the Company's primary operating areas. A gain from the sales of $1.5 million is included in the accompanying statement of operations. (5) CONVERSION OF PREFERRED STOCK TO COMMON STOCK - On July 11, 1996, the Company redeemed the 1,000,000 shares of the 1994 Series B Convertible Preferred Stock, $10 par value, by issuing 2,000,000 shares of common stock of the Company. The conversion of the 1994 Series B Convertible Preferred Stock into common stock will reduce the dividends paid on the preferred stock in the future by $625,000 per annum. On September 16, 1996, the holders of the Series 1994 Convertible Preferred Stock converted all of the shares of the Series 1994 Convertible Preferred Stock, $10 par value, into 1,500,000 shares of common stock of the Company. The conversion of the Series 1994 Convertible Preferred Stock into common stock will reduce the dividends paid on the preferred stock in the future by $540,000 per annum. 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues Oil and gas sales increased $13.9 million (236%) in the third quarter of 1996, to $19.7 million from $5.9 million in 1995's third quarter due primarily to a 103% increase in gas production and a 226% increase in oil production. The production increases are principally related to oil and gas property acquisitions that were completed in July 1995 and May 1996. The increase in oil and gas sales in the third quarter of 1996 is also partially attributable to a 47% increase in the Company's average gas price and a 36% increase in the Company's average oil price realized for the quarter. Oil and gas sales increased $31.3 million (219%), to $45.5 million for the first nine months of 1996 from $14.3 million in the first nine months of 1995 due primarily to a 120% increase in natural gas production and a 175% increase in oil production as well as higher oil and natural gas prices. The production increases related primarily to production from properties acquired in the 1995 Acquisitions and the Black Stone Acquisition, which closed May 1996. The Company's average gas price increased 42% and its average oil price increased 24% during the first nine months of 1996 compared to the same period in 1995. The following table below reflects the Company's oil and gas production and its average oil and gas prices for the three months and nine months ended September 30, 1996 and 1995: Three Months Nine Months Ended September 30, Ended September 30, ------------------------- --------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ----------- PRODUCTION: Oil (MBbls) 305 94 650 236 Gas (MMcf) 5,675 2,795 13,651 6,198 AVERAGE PRICES: Oil (per Bbl) $ 21.65 $ 15.88 $ 20.73 $ 16.78 Gas (per Mcf) $ 2.31 $ 1.57 $ 2.35 $ 1.66 Gas marketing net margins (revenues less expenses) increased $263,000 (112%) to $497,000 in the third quarter of 1996 from $234,000 in 1995's third quarter. For the nine months ended September 30, 1996 gas marketing net margins increased $658,000 (81%) to $1.5 million from $812,000 in the nine months ended September 30, 1995 due primarily to an increase in volumes marketed and higher natural gas prices realized. Gas gathering and processing net margins (revenues less expenses) increased $42,000 (61%) to $110,000 in the third quarter of 1996 from $69,000 in 1995's third quarter. For the nine months ended September 30, 1996, gas gathering and processing net margins increased $24,000 (8%) to $344,000 from $319,000 for the nine months ended September 30, 1995. The increases are primarily attributable to the acquisition of gathering and processing assets on July 31, 1996. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Other income increased $132,000 (145%) to $223,000 in the third quarter of 1996 from $91,000 in third quarter of 1995. Other income for the nine months ended September 30, 1996 increased $249,000 (121%) to $455,000 from $206,000 for the nine months ended September 30, 1995 due primarily to interest income earned on short-term cash deposits in 1996. Costs and Expenses Oil and gas operating expenses, including production taxes, increased $1.8 million (88%) to $3.8 million in the third quarter of 1996 from $2.0 million in the third quarter of 1995 due primarily to the 123% increase in oil and gas production (on an Mcfe basis) resulting from the 1995 and 1996 property acquisitions. Oil and gas operating expenses per Mcfe decreased 16% to 51 cents in the third quarter of 1996 from 61 cents in the third quarter of 1995. Oil and gas operating costs for the nine months ended September 30, 1996 increased $4.9 million (101%) to $9.7 million from $4.8 million for the nine months ended September 30, 1995 due primarily to the 130% increase in oil and gas production (on an Mcfe basis) resulting primarily from the 1995 Acquisitions and the Black Stone Acquisition. Oil and gas operating expenses per Mcfe decreased 13% to 55 cents for nine months ended September 30, 1996 from 63 cents in 1995 due to the lower lifting costs associated with the properties acquired in 1995 and 1996. General and administrative expenses increased $195,000 (42%) to $661,000 in the third quarter of 1996 from $466,000 in 1995's third quarter. For the first nine months of 1996, general and administrative expenses increased $98,000 (7%) to $1.5 million from $1.4 million in the nine months ended September 30, 1995 due primarily to an increase in the number of employees of the Company. Depreciation, depletion and amortization ("DD&A") increased $3.5 million (153%) to $5.7 million in the third quarter of 1996 from $2.3 million in the third quarter of 1995 due primarily to the 123% increase in oil and gas production (on an Mcfe basis). Oil and gas property DD&A per Mcfe produced increased by 15% to 74 cents for the three months ended September 30, 1996 from 64 cents for the three months ended September 30, 1995. The increases are attributable to the May 1996 acquisition of the Black Stone properties. For the nine months ended September 30, 1996, depreciation, depletion and amortization increased $6.7 million (110%) to $12.8 million from $6.1 million for the nine months ended September 30, 1995 due primarily to the increase in oil and natural gas production. Oil and gas property DD&A per Mcfe decreased by 8% to 71 cents for the nine months ended September 30, 1996 from 77 cents for the nine months ended September 30, 1995 due to the lower acquisition costs associated with the properties acquired in 1995. Interest expense increased $1.4 million (83%) to $3.0 million for three months ended September 30, 1996 from $1.7 million for the three months ended September 30, 1995. Interest expense for the nine months ended September 30, 1996 increased $4.0 million (113%) to $7.6 million in 1996 from $3.6 million for the nine months ended September 30, 1995 due primarily to an increase in the average outstanding advances under the Company's bank credit facility. The average annual interest rate paid under the bank credit facility decreased to 8.3% in 1996's first nine months as compared to 10.5% in the first nine months of 1995. 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Net Income For the third quarter of 1996, the Company reported net income of $7.3 million before preferred stock dividends of $481,000 as compared to net income of $2.5 million before preferred stock dividends of $641,000 for three months ended September 30, 1995. Net income per share for the third quarter of 1996 was 41 cents (34 cents on a fully diluted basis) on weighted average shares outstanding of 16.8 million (21.2 million on a fully diluted basis) as compared to a net gain of 14 cents per share for the third quarter of 1995 on weighted average shares outstanding of 13 million. Net income for the nine months ended September 30, 1996 was $17.4 million before preferred stock dividends of $1.7 million as compared to net income of $2.3 million before preferred stock dividends of $1.3 million for the nine months ended September 30, 1995. Net income per share for the nine months ended September 30, 1996 was $1.04 (82 cents on a fully diluted basis) on weighted average shares outstanding of 15.0 million (21.2 million on a fully diluted basis) as compared to net income of 8 cents per share for the nine months ended September 30, 1995 on weighted average shares outstanding of 12.8 million. Capital Expenditures On May 1 and May 2, 1996, the Company completed its largest acquisition to date with the $104 million purchase of working interests in the Double A Wells field in Polk County, Texas. The Company acquired 100% of the capital stock of Black Stone Oil Company, the operator of the field, together with additional interests held by other working interest owners in nineteen producing oil and gas properties as well as interests in adjacent undeveloped oil and gas leases. The interests were acquired effective January 1, 1996. Accordingly, revenues from the properties net of operating and development costs attributable to the period January 1, 1996 to April 30, 1996 were recorded as a reduction of the purchase price paid for the properties. The net proved oil and natural gas reserves attributable to the interests acquired are estimated at 5.3 million barrels of oil and 98.5 billion cubic feet of natural gas as of January 1, 1996. The following table summaries the Company's capital expenditure activity for the nine months ended September 30, 1996 and 1995 (in thousands): Nine Months Ended September 30, ------------------------------- 1996 1995 ------------ ----------- Acquisition of oil and gas reserves $ 100,075 $ 55,659 Other leasehold costs 71 - Workovers and recompletions 2,357 1,283 Exploratory drilling 285 - Development drilling 3,677 852 Acquisition of gas marketing, processing and gathering assets 128 1,875 Other 75 38 ------------ ----------- Total $ 106,668 $ 59,707 ============ =========== 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Capital Resources and Liquidity During the nine months ended September 30, 1996, the primary sources of funds for the Company were borrowings under the Company's new bank credit facility of $172.1 million, cash generated from operations of $27.3 million and proceeds from sales of properties of $8.9 million. Primary uses of funds for the nine months ended September 30, 1996 were capital expenditures and acquisitions of $106.7 million and principal payments on debt including the retirement of the short-term bridge note and the existing credit facility totalling $93.8 million. The May 1996 acquisition was financed under a new $176 million bank credit facility provided by two banks consisting of a $166 million revolving credit facility and a $10 million bridge loan. The Company financed the $104 million acquisition and refinanced $58.7 million outstanding under its existing revolving credit facility and an existing $10 million bridge loan which was to mature on July 31, 1996 with borrowings under the new bank credit facility. On May 15, 1996, the Company repaid the $10 million bridge note primarily from the proceeds from the sale of certain oil and gas properties. On August 13, 1996, the revolving credit facility was replaced with a new bank credit facility with a syndication of eleven banks in which The First National Bank of Chicago serves as agent. The new revolving credit facility will convert to a term loan on August 13, 1999. The term loan is to be repaid in consecutive quarterly installments of 5% of the original outstanding principal with the final balance due in full on August 13, 2001. The Bank Credit facility provides a $166 million revolving credit commitment. The Bank Credit Facility is with a syndication of eleven banks in which The First National Bank of Chicago serves as agent. All indebtedness under the Bank Credit Facility is secured by substantially all the assets of the Company. The Bank Credit Facility is subject to borrowing base availability as determined from time to time by the lenders, in the exercise of their sole discretion. As of September 30, 1996, the borrowing base was $166.0 million. Such borrowing base may be affected from time to time by the performance of the Company's oil and natural gas properties and changes in oil and natural gas prices. The revolving credit line bears interest at the option of the Company at either (i) LIBOR plus 1.25% to 2.00% or (ii) the higher of the "corporate base rate" plus 0% to 0.5% over the federal funds rate plus 0% to 0.5%. The average annual interest rate as of September 30, 1996, of all outstanding indebtedness under the Bank Credit Facility was approximately 7.6%. The Company incurs a commitment fee of up to 1/2% per annum on the unused portion of the borrowing base. The revolving credit line will convert to a term loan (the "Term Loan") on August 13, 1999 or such earlier date as the Company may elect. The Term Loan is to be repaid in consecutive quarterly installments of 5% of the original outstanding principal amount of the Term Loan; the balance of the Term Loan will be due and payable in full on August 13, 2001. The Bank Credit Facility contains covenants which among other things, restrict the payment of cash dividends, limit the amount of consolidated debt, and limit the Company's ability to make certain loans and investments. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) At the end of 1996's third quarter, the Company's working capital had improved to $11.3 million as compared to a working capital deficit of $17.9 million at December 31, 1995. The improvement primarily relates to the repayment of the short-term $10 million bridge note and the new bank credit facility. 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. During 1995 and the first nine months of 1996, the Company spent $3.7 million and $6.3 million, respectively, on development and exploration activities. As part of its increased emphasis on such activities, the Company currently anticipates spending in excess of $20.0 million on identified development and exploration projects on its existing properties in the fourth quarter of 1996 and in 1997. The increase in capital expenditures for 1996 over prior year levels is primarily attributable to the increased opportunities available to the Company after recent acquisitions. The Company does not have a specific acquisition budget as a result of the unpredictability of the timing and size of forthcoming acquisition activities. 15
PART II - OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Credit Agreement, dated as of August 13, 1996, between the Company, the Banks Party thereto and the First National Bank of Chicago as agent. 10.2 Employment Agreement, dated July 1, 1996 by and between the Company and M. Jay Allison. 10.3 Employment Agreement, dated July 1, 1996 by and between the Company and Roland O. Burns. 10.4 Amendment No. 1 to the Comstock Resources, Inc. 1991 Long-term Incentive Plan. 27 Financial Data Schedule for the Nine Months ended September 30, 1996. (b) Reports on Form 8-K There were no current reports on Form 8-K filed during the third quarter of 1996 and to the date of this filing. 16
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 October 25, 1996 /s/M. JAY ALLISON ----------------- ----------------- M. Jay Allison, President and Chief Executive Officer (Principal Executive Officer) Date October 25, 1996 /s/ROLAND O. BURNS ------------------ ------------------ Roland O. Burns, Senior Vice President, Chief Financial Officer, Secretary, and Treasurer (Principal Financial and Acounting Officer) 17