Comstock Resources Inc. 8-K Summary
Business Context and Reporting Period
Comstock Resources, Inc. filed this Form 8-K on February 11, 2013, to announce financial results for the three months and year ended December 31, 2012. The filing primarily addresses a material restatement of previously issued financial statements for the first three quarters of 2012 due to accounting errors regarding derivative financial transactions.
Key Financial Metrics and Restatement Impact
The filing does not provide specific revenue, profit, or cash flow figures for the full year ended December 31, 2012, referring instead to an attached press release (Exhibit 99.1). However, it details significant adjustments to historical results for the first nine months of 2012 caused by the removal of cash flow hedge accounting treatment for crude oil hedging programs.
| Period | Net Income (Loss) As Reported | Net Income (Loss) As Restated | EPS (Basic) As Reported | EPS (Basic) As Restated |
|---|---|---|---|---|
| Three Months Ended March 31, 2012 | $6,859 | $1,375 | $0.14 | $0.03 |
| Three Months Ended June 30, 2012 | $(10,304) | $7,165 | $(0.22) | $0.15 |
| Three Months Ended Sept 30, 2012 | $(25,988) | $(30,449) | $(0.56) | $(0.66) |
| Nine Months Ended Sept 30, 2012 | $(29,433) | $(21,909) | $(0.63) | $(0.47) |
Note: All dollar amounts are in thousands. The restatement reclassified unrealized gains and losses from derivatives from accumulated other comprehensive income to earnings.
Material Changes and Accounting Adjustments
The Audit Committee determined that formal documentation for the Company's crude oil hedging program did not comply with Accounting Standards Codification Topic 815 (ASC 815) requirements for cash flow hedge accounting. Consequently:
- Hedge accounting treatment applied in 2012 was eliminated.
- Unrealized gains and losses on hedge contracts must be recorded in earnings as they occur, rather than in accumulated other comprehensive income.
- Realized gains and losses from derivatives are being reclassified from oil and gas sales to a separate component of non-operating income and expense.
Outlook, Risks, and Management Commentary
Management intends to restate the quarterly results for the first three quarters of 2012 within the Annual Report on Form 10-K for the year ended December 31, 2012. The Audit Committee has concluded that the previously issued financial statements for the quarters ended March 31, June 30, and September 30, 2012, should no longer be relied upon. The Company has discussed these matters with its independent auditor, Ernst & Young LLP.
Investor Verification Checklist
- Verify the full-year 2012 financial results in the attached press release (Exhibit 99.1) and the upcoming Form 10-K.
- Confirm the specific impact of the restatement on the fourth quarter of 2012 and the full-year 2012 net income.
- Review the reconciliation of non-GAAP measures (EBITDAX, Operating Cash Flow) provided in the earnings release.
- Assess the Company's current hedging strategy and documentation compliance post-restatement.