EX-99.3 6 ex99_3.htm QUICKSILVER RESOURCES INC. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ex99_3.htm
Exhibit 99.3
 
QUICKSILVER RESOURCES INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The accompanying unaudited pro forma condensed consolidated financial statements of Quicksilver Resources Inc. (the “Company”) are presented to display the effects of the November 1, 2007 disposition of its Michigan, Indiana and Kentucky properties on its historical financial position and operating results.  Net cash proceeds received from the sale of these properties were approximately $740.0 million, reflecting $10.0 million of transaction costs.  These proceeds are expected to be used to repay outstanding borrowings on the Company’s revolving credit facility, pay taxes on the disposition, employee severance costs of approximately $5.4 million, and for other various working capital purposes.

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 has been prepared based on the historical condensed consolidated balance sheet of the Company assuming that the disposition closed on June 30, 2007.  The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2006 and the six months ended June 30, 2007 have been prepared based on the historical condensed consolidated statements of operations of the Company for such periods and assume that the transaction closed on January 1, 2006.

These unaudited pro forma financial statements are provided for illustrative purposes and do not purport to represent what the Company’s results of operations or financial position would have been if such disposition had occurred on the above mentioned dates.  The use of estimates is required and actual results could differ from the estimates used.  The Company believes the assumptions used provide a reasonable basis for presenting the significant effects directly attributable to the disposition.  These unaudited pro forma consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
 
QUICKSILVER RESOURCES INC.          
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET          
JUNE 30, 2007          
In thousands, except for share data – Unaudited          
                     
         
Pro Forma
          
   
Historical
    
Adjustments
      
Pro Forma
  
ASSETS
                    
Current assets
                    
Cash and cash equivalents
   $
3,258
     $
740,000
  
 (a)
   $
271,858
  
              (466,000 )
 (b)
        
              (5,400 )
 (c)
        
Accounts receivable, net of allowance for doubtful accounts
    
67,076
                
67,076
  
Current derivative assets
    
25,968
                
25,968
  
Other current assets
    
32,091
                
32,091
  
Total current assets
    
128,393
      
268,600
        
396,993
  
                           
Investments in and advances to equity affiliates
    
7,333
      
444,669
  
 (d)
    
452,002
  
                           
Property, plant and equipment – net (“full cost”)
    
2,099,055
       (599,754 )
 (e)
    
1,499,301
  
                           
Non-current derivative assets
    
-
                 -  
                           
Other assets
    
22,834
       (7,338 )
 (e)
    
15,496
  
    $
2,257,615
     $
106,177
       $
2,363,792
  
                           
LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
Current liabilities
                          
Current portion of long-term debt
   $
220
     $
-
       $
220
  
Accounts payable
    
137,888
                
137,888
  
Accrued liabilities
    
40,887
                
40,887
  
Derivative obligations
    
882
                
882
  
Current taxes payable
    
-
      
50,000
  
 (f)
    
50,000
  
Current deferred income taxes
    
7,923
                
7,923
  
Total current liabilities
    
187,800
      
50,000
        
237,800
  
                           
Long-term debt
    
1,217,472
       (466,000 )
 (b)
    
751,472
  
                           
Derivative obligations
    
6,018
                
6,018
  
                           
Asset retirement obligations
    
28,666
                
28,666
  
                           
Deferred income taxes
    
180,311
      
150,262
  
 (f)
    
330,573
  
                           
Minority interest
    
7,892
                
7,892
  
                           
Stockholders’ equity
                          
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding
     -                 -  
Common stock, $0.01 par value, 200,000,000 shares authorized and 81,207,935 shares issued
     812                 812  
Paid in capital in excess of par value
    
256,528
                
256,528
  
Treasury stock of 2,600,536 shares
     (11,558 )               (11,558 )
Accumulated other comprehensive income
    
41,998
                
41,998
  
Retained earnings
    
341,676
      
577,577
  
 (g)
    
713,591
  
              (5,400 )
 (c)
        
              (200,262 )
 (f)
        
Total stockholders’ equity
    
629,456
      
371,915
        
1,001,371
  
    $
2,257,615
     $
106,177
       $
2,363,792
  
                           
                           
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.          
 
 
QUICKSILVER RESOURCES INC.          
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME        
FOR THE SIX MONTHS ENDED JUNE 30, 2007          
In thousands, except for per share data – Unaudited          
                     
         
Pro Forma
          
   
Historical
    
Adjustments
      
Pro Forma
  
Revenues
                    
Oil, gas and related product sales
   $
247,251
     $ (75,416 )
(h)
   $
171,835
  
Other revenue
    
5,727
       (754 )
(h)
    
4,973
  
Total revenues
    
252,978
       (76,170 )      
176,808
  
                           
Expenses
                          
Oil and gas production costs
    
60,558
       (25,090 )
(h)
    
35,468
  
Production and ad valorem taxes
    
8,702
       (4,993 )
(h)
    
3,709
  
Other operating costs
    
1,085
       (105 )
(h)
    
980
  
Depletion, depreciation and accretion
    
52,499
       (14,790 ) (m)    
37,709
  
Provision for bad debts
     (264 )    
-
         (264 )
General and administrative
    
20,260
      
2,170
  
(i)
    
22,430
  
Total expenses
    
142,840
       (42,808 )      
100,032
  
                           
Income (loss) from equity affiliates
    
397
       (397 )
(j)
    
-
  
                           
Operating income
    
110,535
       (33,759 )      
76,776
  
Income from BreitBurn Energy Partners L.P. investment     -       2,719   (n)     2,719  
Other income-net
     (1,471 )    
97
  
(k)
     (1,374 )
Interest expense
    
33,168
       (11,207 )      
21,961
  
                           
Income before income taxes and minority interest
    
78,838
       (19,930 )      
58,908
  
Income tax expense
    
24,065
       (7,005 )
(l)
    
17,060
  
Minority interest
    
191
      
-
        
191
  
                           
Net income
   $
54,582
     $ (12,925 )     $
41,657
  
                           
                           
Basic net income per common share
   $
0.71
               $
0.54
  
Diluted net income per common share
   $
0.66
               $
0.51
  
                           
Weighted average common shares outstanding
                          
Basic
    
77,396
                
77,396
  
Diluted
    
84,029
                
84,029
  
                           
                           
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
  
 
 
QUICKSILVER RESOURCES INC.          
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME        
FOR THE YEAR ENDED DECEMBER 31, 2006          
In thousands, except for per share data – Unaudited          
                     
         
Pro Forma
          
   
Historical
    
Adjustments
  
Pro Forma
  
Revenues
                    
Oil, gas and related product sales
   $
386,540
     $ (164,060 )
(h)
   $
222,480
  
Other revenue
    
3,822
       (1,502 )
(h)
    
2,320
  
Total revenues
    
390,362
       (165,562 )      
224,800
  
                           
Expenses
                          
Oil and gas production costs
    
95,176
       (44,921 )
(h)
    
50,255
  
Production and ad valorem taxes
    
15,619
       (10,659 )
(h)
    
4,960
  
Other operating costs
    
1,461
       (1,081 )
(h)
    
380
  
Depletion, depreciation and accretion
    
78,800
       (27,708 )
(m)
    
51,092
  
Provision for bad debts
    
700
      
-
        
700
  
General and administrative
    
24,936
      
4,160
  
(i)
    
29,096
  
Total expenses
    
216,692
       (80,209 )      
136,483
  
                           
Income (loss) from equity affiliates
    
526
       (526 )
(j)
    
-
  
                           
Operating income
    
174,196
       (85,879 )      
88,317
  
Income from BreitBurn Energy Partners L.P. Investment     -       21,546   (n)     21,546  
Other income-net
     (1,825 )    
42
  
(k)
     (1,783 )
Interest expense
    
44,061
       (5,593 )      
38,468
  
                           
Income before income taxes and minority interest
    
131,960
       (58,782 )      
73,178
  
Income tax expense
    
38,150
       (20,662 )
(l)
    
17,488
  
Minority interest
    
91
      
-
        
91
  
                           
Net income
   $
93,719
     $ (38,120 )     $
55,599
  
                           
                           
Basic net income per common share
   $
1.22
               $
0.72
  
Diluted net income per common share
   $
1.15
               $
0.69
  
                           
Weighted average common shares outstanding
                          
Basic
    
76,707
                
76,707
  
Diluted
    
83,133
                
83,133
  
                           
                           
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
  
 
QUICKSILVER RESOURCES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The unaudited pro forma condensed consolidated balance sheet at June 30, 2007 reflects the following adjustments:

(a)  
Adjustments for the net cash proceeds of $740.0 million, which is the cash portion of the consideration received by Quicksilver less $10.0 million in transaction fees.
(b)  
Adjustments to reflect the repayment of the balance outstanding at June 30, 2007 under the U.S. revolving loan agreement which was anticipated in planning the divestment of the assets.
(c)  
Adjustment to reflect the payment of severance benefits to employees at closing of the transaction.
(d)  
Adjustment to reflect the receipt of 21,347,972 units of BreitBurn Energy Partners L.P. as the equity portion of the consideration received from the contribution of assets to BreitBurn Operating L.P. The value of the equity proceeds and the carrying value of the equity investment is reduced to reflect the deferral of gain of $279.5 million from the disposition proportionate to the equity ownership percentage which Quicksilver will have in BreitBurn Energy Partners L.P. of approximately 31.6 percent.
(e)  
Adjustments to reflect the basis of the net property and equipment and other assets contributed  to BreitBurn Operating L.P.
(f)  
Adjustments to reflect a current income tax liability of $50.0 million and a deferred tax liability of $150.3 million related to the gain on the disposition and the tax reduction from transaction fees and employee severance fees paid.
(g)  
Adjustment to record the estimated gain on sale of properties which has been calculated as follows:
 
(in millions)   
Proceeds (net of gain deferral of $279.5 million)
   $
1,194.7
  
Net basis of assets sold
    
607.1
  
Transaction fees
    
10.0
  
Pre-tax gain
   $
577.6
  
Income taxes at 35.0%
    
202.2
  
Pro forma gain on disposition, net of tax
   $
375.4
  
 
The unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2006 and the six months ended June 30, 2007 reflect the following adjustments:
 
(h)  
Adjustments to reverse the revenues and operating expenses of the properties contributed.
(i)  
Adjustment to reverse the COPAS overhead recoveries attributed to general and administrative expense.
(j)  
Adjustment to reverse income from equity affiliates.
(k)  
Adjustment to reverse other income.
(l)  
Adjustment for the income tax consequences of the pro forma adjustments at the estimated effective tax rate for the assets contributed.
(m)   Adjustment to depletion, depreciation and accretion for properties contributed.
(n)   Adjustment to reflect 31.6 percent of the pro forma net income of BreitBurn Energy Partners L.P.