ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
Basis of Presentation
These unaudited consolidated financial statements include the accounts of Comstock and its wholly-owned subsidiaries (collectively, "Comstock" or the "Company").
In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of June 30, 2019, and the related results of operations and cash flows for the Predecessor and Successor periods being presented. Net income (loss) and comprehensive income (loss) are the same in all periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed.
The accompanying unaudited consolidated 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 accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, although Comstock believes that the disclosures made are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock's Annual Report on Form 10-K for the year ended December 31, 2018.
The results of operations for the period through June 30, 2019 are not necessarily an indication of the results expected for the full year.
On August 14, 2018, Arkoma Drilling, L.P. and Williston Drilling, L.P. (collectively, the "Jones Partnerships") contributed certain oil and gas properties in North Dakota and Montana (the "Bakken Shale Properties") in exchange for 88,571,429 newly issued shares of common stock representing 84% of the Company's outstanding common stock (the "Jones Contribution"). The Jones Partnerships are wholly owned and controlled by Dallas businessman Jerry Jones and his children (collectively, the "Jones Group").
The Company assessed the Bakken Shale Properties to determine whether they met the definition of a business under US generally accepted accounting principles, determining that they did not meet the definition of a business. As a result, the Jones Contribution was not accounted for as a business combination. Upon the issuance of the shares of Comstock common stock, the Jones Group obtained control over Comstock through their ownership of the Jones Partnerships. Through the Jones Partnerships, the Jones Group owns a majority of the voting common stock as well as the ability to control the composition of the majority of the board of directors of Comstock. As a result of the change of control that occurred upon the issuance of the common stock, the Jones Group controls Comstock and, thereby, continues to control the Bakken Shale Properties.
Accordingly, the basis of the Bakken Shale Properties recognized by Comstock is the historical basis of the Jones Group. The historical cost basis of the Bakken Shale Properties contributed was $397.6 million, which was comprised of $554.3 million of capitalized costs less $156.7 million of accumulated depletion, depreciation and amortization. The change in control of Comstock results in a new basis for Comstock as the Company has elected to apply pushdown accounting pursuant to ASC 805, Business Combinations. The new basis is pushed down to Comstock for financial reporting purposes, resulting in Comstock's assets, liabilities and equity accounts being recognized at fair value upon the closing of the Jones Contribution.
References to "Successor" or "Successor Company" relate to the financial position and results of operations of the Company subsequent to August 13, 2018. Reference to "Predecessor" or "Predecessor Company" relate to the financial position and results of operations of the Company on or prior to August 13, 2018. The Company's consolidated financial statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented after August 13, 2018 and dates prior thereto.
8
The
estim
ated
fair value of Comstock
'
s assets and liabilities and the resulting goodwill
at the date of the
Jones Contribution
were
as follows:
|
|
(In thousands)
|
|
Fair Value of Comstock's common stock
|
|
$
|
149,357
|
|
|
|
|
|
|
Fair Value of Liabilities Assumed —
|
|
|
|
|
Current Liabilities
|
|
|
180,452
|
|
Long-Term Debt
|
|
|
2,059,560
|
|
Deferred Income Taxes
|
|
|
63,708
|
|
Reserve for Future Abandonment Costs
|
|
|
4,440
|
|
Net Liabilities Assumed
|
|
|
2,308,160
|
|
|
|
|
|
|
Fair Value of Assets Acquired —
|
|
|
|
|
Current Assets
|
|
|
936,026
|
|
Oil and Gas Properties
|
|
|
1,147,749
|
|
Other Property & Equipment
|
|
|
4,440
|
|
Income Taxes Receivable
|
|
|
19,086
|
|
Other Assets
|
|
|
2
|
|
Total Assets
|
|
|
2,107,303
|
|
Goodwill
|
|
$
|
350,214
|
|
The
table above represents the preliminary allocation of fair value related to the assets acquired and the liabilities assumed based on the fair value of Comstock. Certain data necessary to complete the fair value allocation is not yet available or is in the process of being finalized, and includes, but is not limited to, final income tax returns. We expect to complete the purchase price allocation during the twelve month period following the date of the Jones Contribution, during which time the value of the assets and liabilities, including goodwill, may be revised as appropriate.
The goodwill that was recognized was primarily attributable to the excess of the fair value of Comstock's common stock over the identifiable assets acquired net of liabilities assumed, measured in accordance with generally accepted accounting principles in the United States. The fair value of oil and gas properties, a Level 3 measurement, was determined using discounted cash flow valuation methodology. Key inputs to the valuation included average oil prices of $79.72 per barrel, average natural gas prices of $3.87 per thousand cubic feet and discount factors of 10% - 25%.
The combination of the Bakken Shale Properties with Comstock's Haynesville shale properties results in a Company with adequate resources and liquidity to fully exploit its Haynesville/Bossier shale asset base and to continue to expand its opportunity set with future acquisitions and leasing activity in the basin.
The following pro forma condensed combined financial information was derived from the historical financial statements of Comstock and the Bakken Shale Properties and gives effect to the Jones Contribution as if it had occurred on January 1, 2018. The below information reflects pro forma adjustments for the issuance of Comstock common stock in exchange for the Bakken Shale Properties. The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable, including (i) the depletion, depreciation and amortization expense for the Bakken shale properties, (ii) the income taxes for the combined operations of Comstock and the Bakken Shale Properties, and (iii) the effect on basic and diluted shares of the share issuance pursuant to the Jones Contribution. The pro forma results of operations do not include any cost savings or other synergies or any costs that have been or will be incurred to integrate the Bakken Shale Properties. The pro forma condensed combined financial information is not necessarily indicative of the results that might have actually occurred had the Jones Contribution taken place on January 1, 2018. In addition, the pro forma financial information below is not intended to be a projection of future results.
|
|
Pro Forma
Three Months
Ended
June 30, 2018
|
|
|
Pro Forma
Six Months
Ended
June 30, 2018
|
|
|
|
(In thousands, except per share amount)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
124,236
|
|
|
$
|
256,789
|
|
Net income
|
|
$
|
13,820
|
|
|
$
|
7,589
|
|
|
|
|
|
|
|
|
|
|
Net income per share – basic and diluted
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
9
Property and Equipment
The Company follows the successful efforts method of accounting for its oil and gas properties. Costs incurred to acquire oil and gas leasehold are capitalized.
In April 2018, Comstock completed the sale of its producing Eagle Ford shale oil and gas properties in McMullen, LaSalle, Frio, Atascosa, Wilson, and Karnes counties, Texas for $106.4 million and retained the undeveloped acreage. Key inputs to the valuation included average oil prices of $72.03 per barrel, average natural gas prices of $4.31 per thousand cubic feet and discount factors of 20% - 25%. During the three months and six months ended June 30, 2018, the Company recognized a loss on sale of oil and gas properties of $6.8 million and $35.4 million, respectively, to reduce the carrying value of these assets held for sale to their fair value less costs to sell, to adjust the carrying value of the undeveloped acreage retained to their then fair value and to recognize an adjustment for the final settlement of a property sale completed in 2012.
Results of operations for properties that were sold were as follows:
|
|
Predecessor
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Total oil and gas sales
|
|
$
|
4,704
|
|
|
$
|
18,074
|
|
Total operating expenses
(1)
|
|
|
(1,853
|
)
|
|
|
(6,314
|
)
|
Operating income
|
|
$
|
2,851
|
|
|
$
|
11,760
|
|
|
(1)
|
Includes direct operating expenses, depreciation, depletion and amortization and exploration expense and excludes interest and general and administrative expense. No depreciation, depletion and amortization expense has been provided for subsequent to the date the assets were designated as held for sale.
|
|
The Company assesses the need for an impairment of the capitalized costs for its proved oil and gas properties on a property basis. No impairments were recognized to adjust the carrying value of the Company's proved oil and gas properties during any of the periods presented. Unproved oil and gas properties are also periodically assessed and any impairment in value is charged to expense. The costs of unproved properties are transferred to oil and gas properties and amortized on an equivalent unit-of-production basis as wells are drilled on these properties.
The Company determines the fair values of its oil and gas properties using a discounted cash flow model and proved and risk-adjusted probable oil and natural gas reserves. Undrilled acreage can also be valued based on sales transactions in comparable areas. Significant Level 3 assumptions associated with the calculation of discounted future cash flows included in the cash flow model include management's outlook for oil and natural gas prices, production costs, capital expenditures, and future production as well as estimated proved oil and gas reserves and risk-adjusted probable oil and natural gas reserves. Management's oil and natural gas price outlook is developed based on third-party longer-term price forecasts as of each measurement date. The expected future net cash flows are discounted using an appropriate discount rate in determining a property's fair value.
It is reasonably possible that the Company's estimates of undiscounted future net cash flows attributable to its oil and gas properties may change in the future. The primary factors that may affect estimates of future cash flows include future adjustments, both positive and negative, to proved and appropriate risk-adjusted probable oil and gas reserves, results of future drilling activities, future prices for oil and natural gas, and increases or decreases in production and capital costs. As a result of these changes, there may be future impairments in the carrying values of these or other properties.
Goodwill
The Company had goodwill of $350.2 million as of June 30, 2019 that was recorded in connection with the Jones Contribution. Goodwill represents the excess of purchase price over fair value of net tangible and identifiable intangible assets. The Company is not required to amortize goodwill as a charge to earnings; however, the Company is required to conduct a review of goodwill annually and whenever indications of impairment exist.
Leases
On January 1, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Codification 842, Leases
("ASC 842").
Comstock adopted this standard using the modified retrospective method of adoption, and it applied ASC 842 only to contracts that were not completed as of January 1, 2019. Upon adoption, there were no adjustments to the opening balance of stockholders' equity.
In adopting ASC 842, the Company utilized certain practical expedients available under ASC 842, including election to not apply the recognition requirements to short term leases (defined as leases with an initial lease term of twelve months or less which do not contain a purchase option), election to not separate lease and non-lease components, and election to not reassess certain land easements in existence prior to January 1, 2019.
10
Upon adoption of ASC 842, the Company recognized
r
ight-
o
f-
u
se lease assets of $5.2 million related to its corporate office lease, certain office equipment and leased vehicles
used in oil and gas operations with corresponding short-term and long-term liabilities of $
2.0
million and $
3.2
million, respectively. The beginning value of the lease assets and liabilities was determined based upon discounted future minimum cash flows c
ontained within each of the respective contracts. The Company utilized a discount rate of
5.0
% in computing these discounted net future cash flows. Recognition of these assets and liabilities
was
not material to the Company's consolidated balance sheet
.
A
doption of ASC 842 did not impact our consolidated statements of operations, cash flows or stockholders
'
equity.
The Company determines if contracts contain a lease at inception of the contract. To the extent that contract terms representing a lease are identified, leases are identified as being either an operating lease or a finance-type lease. Comstock currently has no finance-type leases. Right-of-use lease assets representing the Company's right to use an underlying asset for the lease term and the related lease liabilities represent our obligation to make lease payments under the terms of the contracts. Short-term leases that have an initial term of one year or less are not capitalized; however, amounts paid for those leases are included as part of its lease cost disclosures. Short-term lease costs exclude expenses related to leases with a lease term of one month or less.
Leases applicable to our oil or natural gas operations that include the right to explore for and develop oil and natural gas reserves and the related rights to use the land associated with those leases, are not within the scope of ASC 842.
Comstock contracts for a variety of equipment used in its oil and natural gas exploration and development operations. Contract terms for this equipment vary broadly, including the contract duration, pricing, scope of services included along with the equipment, cancellation terms, and rights of substitution, among others. In applying the accounting guidance within ASC 842, the Company has determined that its corporate office lease, certain office equipment, its vehicles leased for use in operations, and its drilling rigs meet the criteria of an operating lease which require recognition upon adoption of ASC 842.
The Company's drilling operations routinely change due to changes in commodity prices, demand for oil and natural gas, and the overall operating and economic environment. Comstock accordingly manages the terms of its contracts for drilling rigs so as to allow for maximum flexibility in responding to these changing conditions. The Company's rig contracts are presently either for periods of less than one year, or they are on terms that provide for cancellation with thirty days advance notice without a specified expiration date. The Company has elected to apply the practical expedient available under ASC 842 for short-term leases and not recognize right-of-use lease assets for these rig contracts. The costs associated with drilling rig operations are accounted for under the successful efforts method, which generally require that these costs be capitalized as part of our proved oil and natural gas properties on our balance sheet unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense.
Lease costs recognized during the three months and six months ended June 30, 2019 were as follows:
|
|
Successor
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
|
(In thousands)
|
|
Operating lease cost included in general and administrative expense
|
|
$
|
412
|
|
|
$
|
823
|
|
Operating lease cost included in lease operating expense
|
|
|
101
|
|
|
|
192
|
|
Short-term lease cost (drilling rig costs included in proved oil and gas properties)
|
|
|
11,543
|
|
|
|
20,183
|
|
|
|
$
|
12,056
|
|
|
$
|
21,198
|
|
Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $513,000 and $1,015,000 for the three months and six months ended June 30, 2019, respectively.
As of June 30, 2019, Comstock had the following liabilities under contracts that contain operating leases:
|
|
(In thousands)
|
|
July 1 to December 31, 2019
|
|
$
|
2,033
|
|
2020
|
|
|
1,836
|
|
2021
|
|
|
782
|
|
Total lease payments
|
|
|
4,651
|
|
Imputed interest
|
|
|
(270
|
)
|
Total lease liability
|
|
$
|
4,381
|
|
The weighted average term of these operating leases was 2.4 years and the weighted average rate used in lease computations was 5.0%. As of June 30, 2019, the Company also had expected future payments for contracted drilling services through April 2020 of $21.9 million.
11
Accrued
Expenses
Accrued expenses at June 30, 2019 and December 31, 2018 consisted of the following:
|
|
Successor
|
|
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(In thousands)
|
|
Accrued drilling costs
|
|
$
|
22,129
|
|
|
$
|
17,920
|
|
Accrued interest payable
|
|
|
32,253
|
|
|
|
35,461
|
|
Accrued transportation costs
|
|
|
6,793
|
|
|
|
4,632
|
|
Accrued employee compensation
|
|
|
5,803
|
|
|
|
6,045
|
|
Accrued lease operating expenses
|
|
|
3,310
|
|
|
|
2,130
|
|
Other
|
|
|
2,182
|
|
|
|
1,898
|
|
|
|
$
|
72,470
|
|
|
$
|
68,086
|
|
Reserve for Future Abandonment Costs
Comstock’s asset retirement obligations relate to future plugging and abandonment expenses on its oil and gas properties and related facilities disposal. The following table summarizes the changes in Comstock’s total estimated liability for such obligations during the periods presented:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
Future abandonment costs — beginning of period
|
|
$
|
5,136
|
|
|
$
|
10,407
|
|
|
Accretion expense
|
|
|
193
|
|
|
|
280
|
|
|
New wells placed on production
|
|
|
156
|
|
|
|
4
|
|
|
Liabilities settled and assets disposed of
|
|
|
(29
|
)
|
|
|
(69
|
)
|
|
Future abandonment costs — end of period
|
|
$
|
5,456
|
|
|
$
|
10,622
|
|
|
Derivative Financial Instruments and Hedging Activities
All of the Company’s derivative financial instruments are used for risk management purposes and, by policy, none are held for trading or speculative purposes. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company’s derivative financial instruments involve payment or receipt of premiums. The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity and counterparty.
All of Comstock’s natural gas derivative financial instruments are tied to the Henry Hub-NYMEX price index and all of its crude oil derivative financial instruments are tied to the WTI-NYMEX index price. The Company had the following outstanding derivative financial instruments for natural gas price risk management at June 30, 2019:
|
|
Future Production Period
|
|
|
|
|
|
|
Six Months
Ending
December 31,
2019
|
|
|
Year Ending
December 31,
2020
|
|
|
Total
|
|
Natural Gas Swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMbtu)
|
|
|
10,800,000
|
|
|
|
5,400,000
|
|
|
|
16,200,000
|
|
Average Price per Mmbtu
|
|
|
$3.00
|
|
|
|
$3.00
|
|
|
|
$3.00
|
|
Natural Gas Collar contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Mmbtu)
|
|
|
20,604,500
|
|
|
|
16,350,000
|
|
|
|
36,954,500
|
|
Price per Mmbtu
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Ceiling
|
|
|
$3.48
|
|
|
|
$3.46
|
|
|
|
$3.47
|
|
Average Floor
|
|
|
$2.40
|
|
|
|
$2.47
|
|
|
|
$2.43
|
|
Crude Oil Collar contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Barrels)
|
|
|
598,200
|
|
|
|
1,045,000
|
|
|
|
1,643,200
|
|
Price per Barrel
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Ceiling
|
|
|
$70.42
|
|
|
|
$65.61
|
|
|
|
$67.36
|
|
Average Floor
|
|
|
$48.76
|
|
|
|
$48.75
|
|
|
|
$48.75
|
|
12
None of the Company
’
s derivative contracts were designated as cash flow hedges.
The aggregate fair value of the Company
’
s derivative instruments reported in the
accompanying consolidated balance sheets by type, including the classification between assets and liabilities, consists of the following:
Type
|
|
Consolidated
Balance Sheet
Location
|
|
|
Fair
Value
|
|
|
Gross Amounts
Offset in the
Consolidated
Balance Sheet
|
|
|
Net Fair Value
Presented in the
Consolidated
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Successor Fair Value of Derivative Instruments as of June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas price derivatives
|
|
Derivative Financial Instruments – current
|
|
|
$
|
13,959
|
|
|
$
|
—
|
|
|
$
|
13,959
|
|
Oil price derivatives
|
|
Derivative Financial Instruments – current
|
|
|
$
|
603
|
|
|
$
|
(278
|
)
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas price derivatives
|
|
Derivative Financial Instruments –
long-term
|
|
|
$
|
231
|
|
|
$
|
—
|
|
|
$
|
231
|
|
Oil price derivatives
|
|
Derivative Financial Instruments –
long-term
|
|
|
$
|
638
|
|
|
$
|
—
|
|
|
$
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
869
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil price derivatives
|
|
Derivative Financial Instruments – current
|
|
|
$
|
278
|
|
|
$
|
(278
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Fair Value of Derivative Instruments as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas price derivatives
|
|
Derivative Financial Instruments – current
|
|
|
$
|
7,264
|
|
|
$
|
(1,168
|
)
|
|
$
|
6,096
|
|
Oil price derivatives
|
|
Derivative Financial Instruments – current
|
|
|
$
|
9,305
|
|
|
$
|
—
|
|
|
$
|
9,305
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas price derivatives
|
|
Derivative Financial Instruments – current
|
|
|
$
|
1,168
|
|
|
$
|
(1,168
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses). Gains and losses
related to the change in the fair value recognized on the Company’s derivative contracts recognized in the consolidated statement of operations were as follows:
Gain/(Loss)
Recognized in Earnings on
Derivatives
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
7,302
|
|
|
$
|
(1,638
|
)
|
|
$
|
10,458
|
|
|
$
|
964
|
|
Collars
|
|
|
7,442
|
|
|
|
—
|
|
|
|
(3,371
|
)
|
|
|
—
|
|
|
|
$
|
14,744
|
|
|
$
|
(1,638
|
)
|
|
$
|
7,087
|
|
|
$
|
964
|
|
Stock-Based Compensation
Comstock accounts for employee stock-based compensation under the fair value method. Compensation cost is measured at the grant date based on the fair value of the award and is recognized over the award vesting period and included in
general and administrative expenses for awards of restricted stock and performance stock units ("PSUs") to the Company’s employees and directors. Stock-based compensation was $0.6 million and $1.5 million for the three months ended June 30, 2019 and 2018, respectively, and $1.3 million and $3.1 million for the six months ended June 30, 2019 and 2018, respectively.
13
During the three months and six months ended June 30, 2018 the Company granted 85,617 shares of restricted stock, with a grant date fair value of $0.4 million, to its
directors
. As of
June 30
, 2019, Comstock had 4
85
,
740
shares of unvested restricted stock outstanding at a weighted average grant date fair value of $
7.94
per share.
Total unrecognized compensation cost related to unvested restricted stock grants of $2.8 million as of
June 30,
2019 is expected to be reco
gnized over a period of 2.0 years.
As of June 30, 2019, Comstock had 324,123 PSUs outstanding at a weighted average grant date fair value of $12.93 per unit. The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price performance as compared to its peers which could result in the issuance of anywhere from zero to 648,246 shares of common stock. Total unrecognized compensation cost related to these grants of $3.0 million as of June 30, 2019 is expected to be recognized over a period of 2.1 years.
Revenue Recognition
Comstock produces oil and natural gas and reports revenues separately for each of these two primary products in its statements of operations. Revenues are recognized upon the transfer of produced volumes to the Company's customers, who take control of the volumes and receive all the benefits of ownership upon delivery at designated sales points. Payment is reasonably assured upon delivery of production. All sales are subject to contracts that have commercial substance, contain specific pricing terms, and define the enforceable rights and obligations of both parties. These contracts typically provide for cash settlement within 25 days following each production month and are cancellable upon 30 days' notice by either party. Prices for sales of oil and natural gas are generally based upon terms that are common in the oil and gas industry, including index or spot prices, location and quality differentials, as well as market supply and demand conditions. As a result, prices for oil and natural gas routinely fluctuate based on changes in these factors. Each unit of production (barrel of crude oil and thousand cubic feet of natural gas) represents a separate performance obligation under the Company's contracts since each unit has economic benefit on its own and each is priced separately according to the terms of the contracts.
Comstock has elected to exclude all taxes from the measurement of transaction prices, and its revenues are reported net of royalties and exclude revenue interests owned by others because the Company acts as an agent when selling crude oil and natural gas, on behalf of royalty owners and working interest owners. Revenue is recorded in the month of production based on an estimate of the Company's share of volumes produced and prices realized. The Company recognizes any differences between estimates and actual amounts received in the month when payment is received. Historically, differences between estimated revenues and actual revenue received have not been significant. The amount of oil or natural gas sold may differ from the amount to which the Company is entitled based on its revenue interests in the properties. The Company did not have any significant imbalance positions at June 30, 2019. Sales of oil and natural gas generally occur at or near the wellhead. When sales of oil and gas occur at locations other than the wellhead, the Company accounts for costs incurred to transport the production to the delivery point as gathering and transportation expenses. The Company recognized accounts receivable of $62.8 million as of June 30, 2019 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates.
In recording deferred income tax assets, the Company considers whether it is more likely than not that its deferred income tax assets will be realized in the future. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those deferred income tax assets would be deductible. The Company believes that after considering all the available objective evidence, historical and prospective, with greater weight given to historical evidence, management is not able to determine that it is more likely than not that all of its deferred tax assets will be realized. As a result, the Company established valuation allowances for its deferred tax assets and U.S. federal and state net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods. The Company will continue to assess the valuation allowances against deferred tax assets considering all available information obtained in future periods.
14
The following
is an analysis of
the
consolidated
income tax provision
:
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Current - State
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
(94
|
)
|
|
$
|
34
|
|
- Federal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred - State
|
|
|
244
|
|
|
|
(597
|
)
|
|
|
654
|
|
|
|
(1,051
|
)
|
- Federal
|
|
|
6,834
|
|
|
|
451
|
|
|
|
10,776
|
|
|
|
1,477
|
|
|
|
$
|
7,102
|
|
|
$
|
(122
|
)
|
|
$
|
11,336
|
|
|
$
|
460
|
|
The difference between the federal statutory rate of 21% and the effective tax rate is due to the following:
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Tax at statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
(0.2
|
)
|
|
|
3.9
|
|
|
|
0.5
|
|
|
|
3.5
|
|
Valuation allowance on deferred tax assets
|
|
|
2.4
|
|
|
|
(24.1
|
)
|
|
|
1.7
|
|
|
|
(24.3
|
)
|
Nondeductible stock-based compensation
|
|
|
1.2
|
|
|
|
(0.4
|
)
|
|
|
0.9
|
|
|
|
(0.7
|
)
|
Other
|
|
|
0.5
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
Effective tax rate
|
|
|
24.9
|
%
|
|
|
0.4
|
%
|
|
|
24.4
|
%
|
|
|
(0.5
|
)%
|
The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, reduced the corporate income tax rate effective January 1, 2018 from 35% to 21%. Among the other significant tax law changes that potentially affect the Company are the elimination of the corporate alternative minimum tax ("AMT"), changes that require operating losses incurred in 2018 and beyond be carried forward indefinitely with no carryback up to 80% of taxable income in a given year, and limitations on the deduction for interest expense incurred in 2018 or later for amounts in excess of 30% of its adjusted taxable income (defined as taxable income before interest and net operating losses) for the taxable year. The Company completed its accounting for the tax effects of enactment of the Tax Cuts and Jobs Act as of December 31, 2018. The Tax Cuts and Jobs Act repealed the AMT for tax years beginning on or after January 1, 2018 and provides that existing AMT credit carryforwards can be utilized to offset federal taxes for any taxable year. In addition, 50% of any unused AMT credit carryforwards can be refunded during tax years 2018 through 2020. The Company had $20.4 million of unused credit carryforwards at June 30, 2019.
The shares of common stock issued as a result of the Jones Contribution triggered an ownership change under Section 382 of the Internal Revenue Code. As a result, Comstock's ability to use net operating losses ("NOLs") to reduce taxable income is generally limited to an annual amount based on the fair market value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate. The Company's NOLs are estimated to be limited to $3.3 million a year as a result of this limitation. In addition to this limitation, IRC Section 382 provides that a corporation with a net unrealized built-in gain immediately before an ownership change may increase its limitation by the amount of recognized built-in gain recognized during a recognition period, which is generally the five-year period immediately following an ownership change. Based on the fair market value of the Company's common stock immediately prior to the ownership change, Comstock believes that it has a net unrealized built-in gain which will increase the Section 382 limitation during the five-year recognition period from 2018 to 2023.
NOLs that exceed the Section 382 limitation in any year continue to be allowed as carry forwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. NOLs incurred prior to 2018 generally have a 20-year life until they expire. NOLs generated in 2018 and after would be carried forward indefinitely. Comstock's use of new NOLs arising after the date of an ownership change would not be affected by the 382 limitation. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carry forward periods, then it will lose the ability to apply those NOLs as offsets to future taxable income.
The Company's federal income tax returns for the years subsequent to December 31, 2014 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2012. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.
15
Fair Value Measurements
The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value. These include cash and cash equivalents held in bank accounts and derivative financial instruments in the form of oil and natural gas price swap agreements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements:
Level 1 — Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.
Level 2 — Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.
Level 3 — Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.
The Company's cash and cash equivalents valuation is based on Level 1 measurements. The Company's oil and natural gas price swap agreements and its natural gas price collars were not traded on a public exchange, and their value is determined utilizing a discounted cash flow model based on inputs that are readily available in public markets and, accordingly, the valuation of these swap agreements, is categorized as a Level 2 measurement. There are no financial assets or liabilities accounted for at fair value as of June 30, 2019 that are a Level 3 measurement.
At June 30, 2019, the Company had assets of $15.2 million recorded for the fair value of its oil and natural gas swaps and collars, of which $14.3 million was classified as current assets and $0.9 million was classified as long-term assets. At December 31, 2018, the Company had assets recorded for the fair value of its natural gas price swap agreements of $15.4 million, all of which was classified as current assets. There were no offsetting swap positions in 2019 or 2018. The change in fair value of these natural gas swaps and collars was recognized as a gain or loss and included as a component of other income (expense).
As of June 30, 2019, the Company's fixed rate debt had a carrying value of $818.5 million and a fair value of $652.4 million. The fair value of the Company's fixed rate debt was based on quoted prices as of June 30, 2019, a Level 2 measurement. The fair value of the floating rate debt outstanding approximated its carrying value, a Level 2 measurement.
Earnings Per Share
Unvested share-based payment awards containing nonforfeitable rights to dividends are considered to be participating securities and included in the computation of basic and diluted earnings per share pursuant to the two-class method. PSUs represent the right to receive a number of shares of the Company's common stock that may range from zero to up to two times the number of PSUs granted on the award date based on the achievement of certain performance measures during a performance period. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective period, assuming that date was the end of the contingency period. The treasury stock method is used to measure the dilutive effect of PSUs. The shares that would have been issuable upon exercise of the conversion rights contains in the Predecessor Company's convertible debt are based on the if-converted method for computing potentially dilutive shares of common stock that could be issued upon conversion. None of the Company's participating securities participate in losses and as such are excluded from the computation of basic earnings per share during periods of net losses.
16
Basic and diluted
income (
loss
)
per share were determined as follows:
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(In thousands, except per share amounts)
|
|
Net income (loss) attributable to common stock
|
|
$
|
21,407
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(34,003
|
)
|
|
|
|
|
|
|
|
|
Income allocable to unvested restricted shares
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Basic income (loss) attributable to common stock
|
|
$
|
21,318
|
|
|
|
105,457
|
|
|
$
|
0.20
|
|
|
|
$
|
(34,003
|
)
|
|
|
15,340
|
|
|
$
|
(2.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) attributable to common stock
|
|
$
|
21,318
|
|
|
|
105,457
|
|
|
$
|
0.20
|
|
|
|
$
|
(34,003
|
)
|
|
|
15,340
|
|
|
$
|
(2.22
|
)
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(In thousands, except per share amounts)
|
|
Net income (loss) attributable to common stock
|
|
$
|
34,982
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(75,889
|
)
|
|
|
|
|
|
|
|
|
Income allocable to unvested restricted shares
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Basic income (loss) attributable to common stock
|
|
$
|
34,841
|
|
|
|
105,457
|
|
|
$
|
0.33
|
|
|
|
$
|
(75,889
|
)
|
|
|
15,212
|
|
|
$
|
(4.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) attributable to common stock
|
|
$
|
34,841
|
|
|
|
105,457
|
|
|
$
|
0.33
|
|
|
|
$
|
(75,889
|
)
|
|
|
15,212
|
|
|
$
|
(4.99
|
)
|
Basic and diluted per share amounts are the same for the three months and six months ended June 30, 2018 due to the net loss in that period.
At June 30, 2019 and December 31, 2018, 485,740 and 911,319 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a nonforfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.
Weighted average shares of unvested restricted stock outstanding were as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Unvested restricted stock
|
|
|
441
|
|
|
|
857
|
|
|
|
427
|
|
|
|
846
|
|
All unvested PSUs, warrants exercisable into common stock and contingently issuable shares related to the convertible debt that would be dilutive in the computation of earnings per share were as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands except per share/unit amounts)
|
|
Weighted average PSUs
|
|
$
|
335
|
|
|
$
|
514
|
|
|
$
|
335
|
|
|
$
|
466
|
|
Weighted average grant date fair value per unit
|
|
|
12.93
|
|
|
|
13.83
|
|
|
|
12.93
|
|
|
|
13.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average warrants for common stock
|
|
$
|
—
|
|
|
$
|
116
|
|
|
$
|
—
|
|
|
$
|
167
|
|
Weighted average exercise price per share
|
|
|
—
|
|
|
|
0.01
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average contingently convertible shares
|
|
$
|
—
|
|
|
$
|
40,017
|
|
|
$
|
—
|
|
|
$
|
39,617
|
|
Weighted average conversion price per share
|
|
|
—
|
|
|
|
12.32
|
|
|
|
—
|
|
|
|
12.32
|
|
17
All warrants, PSUs and potentially dilutive shares from conversion of senior notes in the
three months ended
June 30,
2018
were anti-dilutive and excluded from the computation of loss per share.
PSUs were also
anti
-
dilutive
in the
three months
and six mon
ths ended June 30
, 2019
.
Supplementary Information With Respect to the Consolidated Statements of Cash Flows
For the purpose of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Cash payments made for interest and income taxes for the six months ended June 30, 2019 and 2018, respectively, were as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Interest payments
|
|
$
|
56,430
|
|
|
$
|
36,122
|
|
Income tax payments
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest paid in-kind related to the Predecessor Company's convertible notes was $20.0 million during the six months ended June 30, 2018.
Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04) "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 and early adoption is permitted The Company will assess the impact of ASU 2017-04 on its financial statements when it performs impairment assessments following adoption of this standard. The Company has not yet made a determination as to whether it will early adopt ASU 2017-04.
(2) LONG-TERM DEBT –
At June 30, 2019, long-term debt was comprised of the following:
|
(In thousands)
|
|
|
|
|
|
9¾% Senior Notes due 2026:
|
|
|
|
Principal
|
$
|
850,000
|
|
Discount, net of amortization
|
|
(31,490
|
)
|
Bank Credit Facility:
|
|
|
|
Principal
|
|
470,000
|
|
Debt issuance costs, net of amortization
|
|
(21,120
|
)
|
|
$
|
1,267,390
|
|
|
|
In connection with the Jones Contribution, the Company completed a series of refinancing transactions to retire all of its then-outstanding senior secured and unsecured notes. On August 3, 2018, the Company issued $850.0 million of new senior notes for proceeds of $815.9 million. Interest on the notes is payable on February 15 and August 15 at an annual rate of 9¾% and the notes mature on August 15, 2026.
On August 14, 2018, the Company entered into a new bank credit facility with Bank of Montreal, as administrative agent, and the participating banks which matures on August 14, 2023. The bank credit facility is subject to a borrowing base of $700.0 million which is re-determined on a semi-annual basis and upon the occurrence of certain other events. As of June 30, 2019, there were $470.0 million of borrowings outstanding under the bank credit facility. Borrowings under the bank credit facility are secured by substantially all of the assets of the Company and its subsidiaries and bear interest at the Company's option, at either LIBOR plus 2.0% to 3.0% or a base rate plus 1.0% to 2.0%, in each case depending on the utilization of the borrowing base. The Company also pays a commitment fee of 0.375% to 0.5% on the unused borrowing base. The bank credit facility places certain restrictions upon the Company's and its restricted subsidiaries' ability to, among other things, incur additional indebtedness, pay cash dividends, repurchase common stock, make certain loans, investments and divestitures and redeem the senior notes. The only financial covenants are the maintenance of a leverage ratio of less than 4.0 to 1.0 and a current ratio of at least 1.0 to 1.0. The Company was in compliance with the covenants as of June 30, 2019.
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(3) STOCKHOLDERS' EQUITY –
Warrants for 363,638 shares of common stock were exercised during the six months ended June 30
, 2018
. All warrants for common stock were either exercised or expired unused during 2018.
(4) Commitments and Contingencies –
From time to time, Comstock is involved in certain litigation that arises in the normal course of its operations. The Company records a loss contingency for these matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not believe the resolution of any of these matters will have a material effect on the Company's financial position or results of operations.
(5) RELATED PARTY TRANSACTIONS –
In February 2019, Comstock sold certain leases covering 1,464 undeveloped net acres in Caddo Parish, Louisiana for $5.9 million to a partnership owned by the Company's majority stockholder. The Company is drilling nine wells on this acreage and is retaining a working interest in the wells being drilled. The proceeds from the sale were used to fund the purchase of a like number of net acres from a third party for $5.9 million. The acreage acquired was in part the acreage sold to the partnership or acreage in the same area. The purchase price paid per net acre was determined by the price paid by the Company to the third party. Comstock is also operating the drilling of six wells in South Texas that the Company does not have an interest in for another partnership owned by its majority stockholder. As operator, Comstock charges the partnerships for the costs incurred to drill and operate the wells as well as customary drilling and operating overhead fees that it charges other working interest owners. Comstock received $0.9 million and $1.6 million from the partnerships related to these wells for the three months and six months ended June 30, 2019, respectively and had a $6.7 million receivable from the partnerships at June 30, 2019.
(6) SUBSEQUENT EVENTS –
On July 16, 2019 the Company closed the acquisition of Covey Park Energy LLC ("Covey Park") in a cash and stock transaction structured as a merger (the "Merger") valued at approximately $2.2 billion. As part of this transaction, affiliates controlled by Jerry Jones, the Company's majority stockholder, invested $475.0 million in the Company in exchange for 50,000,000 newly issued shares of common stock valued at $6.00 per share and $175.0 million of newly issued shares of convertible preferred stock of Comstock. Comstock also assumed Covey Park's existing $625.0 million 7½% senior notes, retired $380.0 million outstanding under Covey Park's bank credit facility and redeemed all outstanding previously issued Covey Park preferred equity for $153.4 million. Covey Park's equity owners received $700.0 million in cash, $210.0 million of newly issued convertible preferred stock and 28,833,000 newly issued shares of common stock. Interest on the senior notes assumed from Covey Park is payable on May 15 and November 15 at an annual rate of 7½% and these notes mature on May 15, 2025.
In connection with the Merger, the Company amended its Second Amended and Restated Articles of Incorporation to increase its authorized capital stock to 405,000,000 shares, of which 400,000,000 shares are common stock, $0.50 par value per share, and 5,000,000 are preferred stock, ten dollars ($10.00) par value per share. This amendment was approved by a majority of the outstanding shares of the Company.
Concurrent with the closing of the Merger, the Company also entered into a new five year revolving credit facility that matures on July 16, 2024. The credit facility is subject to a borrowing base, which is initially $1,575.0 million and shall be re-determined on a semi-annual basis and upon the occurrence of certain other events. The Company elected to set the committed borrowing base at $1,500.0 million, of which $1,240.0 million was utilized at closing. Indebtedness under the credit facility is secured by substantially all of the assets of the Company and its subsidiaries. Borrowings under the credit facility bear interest at the Company’s option, at either LIBOR plus 1.75% to 2.75% or a base rate plus 0.75% to 1.75%, in each case depending on the utilization of the borrowing base. The Company will also pay a commitment fee of 0.375% to 0.5% on the unused borrowing base.
Holders of the newly issued convertible preferred stock are entitled to receive quarterly dividends at a rate of 10% per annum, which are paid in arrears. The conversion price of the preferred stock is $4.00 per share of common stock, subject to adjustment pursuant to customary anti-dilution provisions. At any time after July 16, 2020, each holder may convert any or all shares of preferred stock into shares of common stock at the then prevailing conversion rate. Holders may receive cash in lieu of fractional shares. The Company has the right to redeem the preferred stock at any time at face value plus accrued dividends.
19