EX-99.2 3 exh99_2.htm UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION exh99_2.htm
Exhibit 99.2
 
QUICKSILVER RESOURCES INC.
INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
On October 1, 2010 we disposed of our interests in Quicksilver Gas Services LP ("KGS") to Crestwood Holdings LLC, formerly known as First Reserve Crestwood Holdings LLC, including of 100% of the general partner units, with incentive distribution rights, all of our common and subordinated units in KGS and the subordinated note due from KGS.  In exchange, we received $701 million in cash at closing and expect to receive up to $72 million in future earn-out payments.  The transaction, which we call the “Crestwood Transaction,” resulted in the elimination of approximately $227 million of consolidated debt associated with KGS from our balance sheet as of June 30, 2010.  The proceeds are expected to be used to repay outstanding borrowings on our Senior Secured Credit Facility and to pay federal income taxes associated with the disposition.
 
The following unaudited pro forma condensed consolidated financial statements and explanatory notes present how our financial statements may have appeared had the Crestwood Transaction occurred on June 30, 2010 (with respect to the balance sheet information) or on January 1, 2007 (with respect to the statements of operations information).

The unaudited pro forma condensed consolidated financial statements have been derived and should be read together with our historical consolidated financial statements and related notes included in our 2009 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to represent what our results of operations or financial position would actually have been had the Crestwood Transaction occurred on the dates noted above, or to project our results of operations or financial position for any future periods.  The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable.  The pro forma adjustments are directly attributable to the Crestwood Transaction and are expected to have a continuing impact on our results of operations.  We believe we have made all adjustments necessary to fairly present the unaudited pro forma financial information.
 
 
 
 
 
QUICKSILVER RESOURCES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2010
 
 
 
   
As Historically
    
Crestwood
Transaction
          
   
Presented
    
Adjustments
      
Pro Forma
  
    (In thousands, except for share data)  
ASSETS
                    
Current assets
                    
Cash and cash equivalents
   $ 3,308     $ 200,708  
 (a)
   $ 204,016  
Accounts receivable - net of allowance for doubtful accounts
     42,595       (2,417 )
 (b)
     40,178  
Derivative assets at fair value
     138,871       -         138,871  
Other current assets
     63,137       (1,138 )
 (b)
     61,999  
Total current assets
     247,911       197,153         445,064  
Investment in BBEP
     92,956       -         92,956  
Property, plant and equipment
                          
Oil and gas properties, full cost method (including unevaluated costs of $375,100 and $458,037, respectively)
     2,613,688       -         2,613,688  
Other property and equipment
     769,214       (510,500 )
 (b)
     258,714  
Property, plant and equipment - net
     3,382,902       (510,500 )       2,872,402  
Derivative assets at fair value
     67,763       -         67,763  
Deferred income taxes
     73,083       (6,208 )
 (b)
     66,875  
Other assets
     42,084       (2,417 )
 (b)
     39,667  
    $ 3,906,699     $ (321,972 )     $ 3,584,727  
LIABILITIES AND EQUITY
                          
Current liabilities
                          
Accounts payable
   $ 122,400     $ (7,681 )
 (b)
   $ 114,719  
Accrued liabilities
     156,639       (4,649 )
 (b)
     151,990  
Income taxes payable
     -       138,000  
 (c)
     138,000  
Deferred income taxes
     54,888       -         54,888  
Total current liabilities
     333,927       125,670         459,597  
Long-term debt
     2,586,923       (720,034 )
 (d)
     1,866,889  
Asset retirement obligations
     61,634       (9,425 )
 (b)
     52,209  
Other liabilities
     30,396       -         30,396  
Deferred income taxes
     49,037       (895 )
 (b)
     48,142  
Commitments and contingencies
                          
Equity
                          
Preferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding
     -       -         -  
Common stock, $0.01 par value, 400,000,000 shares authorized; 175,496,888 and 174,469,836 shares issued, respectively
     1,755       -         1,755  
Paid in capital in excess of par value
     748,405       -         748,405  
Treasury stock of 5,025,337 and 4,704,448 shares, respectively
     (41,167 )     -         (41,167 )
Accumulated other comprehensive income
     158,916       -         158,916  
Retained (deficit) earnings
     (85,994 )     345,579  
 (e)
     259,585  
Quicksilver stockholders' equity
     781,915       345,579         1,127,494  
Noncontrolling interests
     62,867       (62,867 )
 (f)
     -  
Total equity
     844,782       282,712         1,127,494  
    $ 3,906,699     $ (321,972 )     $ 3,584,727  
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
 
 
 
 

QUICKSILVER RESOURCES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
 
   
As Historically
    
Crestwood
Transaction
          
   
Presented
    
Adjustments
      
Pro Forma
  
   
(In thousands, except per share amounts)
  
Revenue
                    
Natural gas, NGL and crude oil
   $ 413,250     $ -       $ 413,250  
Sales of purchased natural gas
     33,045       (3,457 )
 (g)
     29,588  
Other
     4,433       (4,100 )
 (g)
     333  
Total revenue
     450,728       (7,557 )       443,171  
                           
Operating expense
                          
Oil and gas production expense
     74,191       34,338  
 (g)
     108,529  
Production and ad valorem taxes
     17,372       (2,565 )
 (g)
     14,807  
Costs of purchased natural gas
     37,063       (55 )
 (g)
     37,008  
Other operating expense
     2,224       (1,943 )
 (g)
     281  
Depletion, depreciation and accretion
     97,426       (11,049 )
 (h)
     86,377  
General and administrative expense
     37,740       (1,745 )
 (g)
     35,995  
Total expense
     266,016       16,981         282,997  
Operating income
     184,712       (24,538 )       160,174  
Income from earnings of BBEP - net
     7,179       -         7,179  
Other income - net
     53,393       -         53,393  
Interest expense
     (90,639 )     9,362  
 (i)
     (81,277 )
Income from continuing operations before income taxes
     154,645       (15,176 )       139,469  
Income tax - continuing operations
     (53,301 )     5,463  
 (j)
     (47,838 )
Income from continuing operations
     101,344       (9,713 )       91,631  
Income from continuing operations attributable to noncontrolling interests
     (6,353 )     6,353  
 (k)
     -  
Income from continuing operations attributable to Quicksilver
   $ 94,991     $ (3,360 )     $ 91,631  
                           
                           
Earnings per common share from continuing operations attributable to Quicksilver  - basic
   $ 0.56               $ 0.54  
                           
Earnings per common share from continuing operations attributable to Quicksilver - diluted
   $ 0.54               $ 0.51  
                           
Basic weighted average shares outstanding
     170,225                 170,225  
                           
Diluted weighted average shares outstanding
     180,855                 180,855  
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
 
 
 
 

QUICKSILVER RESOURCES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
 
   
As Historically
    
Crestwood
Transaction
          
   
Presented
    
Adjustments
      
Pro Forma
  
   
(In thousands, except per share amounts)
  
Revenue
                    
Natural gas, NGL and crude oil
   $ 796,698     $ -       $ 796,698  
Sales of purchased natural gas
     23,654       (352 )
 (g)
     23,302  
Other
     12,383       (7,881 )
 (g)
     4,502  
Total revenue
     832,735       (8,233 )       824,502  
                           
Operating expense
                          
Oil and gas production expense
     127,715       71,221  
 (g)
     198,936  
Production and ad valorem taxes
     23,881       (3,596 )
 (g)
     20,285  
Costs of purchased natural gas
     30,158       (103 )
 (g)
     30,055  
Other operating expense
     6,684       (3,910 )
 (g)
     2,774  
Depletion, depreciation and accretion
     201,387       (20,913 )
 (h)
     180,474  
General and administrative expense
     77,243       (3,229 )
 (g)
     74,014  
Total expense
     467,068       39,470         506,538  
Impairment related to oil and gas properties
     (979,540 )     -         (979,540 )
Operating loss
     (613,873 )     (47,703 )       (661,576 )
Income from earnings of BBEP
     75,444       -         75,444  
Impairment of investment in BBEP
     (102,084 )     -         (102,084 )
Other expense - net
     (1,242 )     -         (1,242 )
Interest expense
     (195,101 )     24,760  
 (i)
     (170,341 )
Loss from continuing operations before income taxes
     (836,856 )     (22,943 )       (859,799 )
Income tax - continuing operations
     291,617       8,260  
 (j)
     299,877  
Loss from continuing operations
     (545,239 )     (14,683 )       (559,922 )
Income from continuing operations attributable to noncontrolling interests
     (12,234 )     12,234  
 (k)
     -  
Loss from continuing operations attributable to Quicksilver
   $ (557,473 )   $ (2,449 )     $ (559,922 )
                           
                           
Earnings per common share from continuing operations attributable to Quicksilver  - basic
   $ (3.30 )             $ (3.31 )
                           
Earnings per common share from continuing operations attributable to Quicksilver - diluted
   $ (3.30 )             $ (3.31 )
                           
Basic weighted average shares outstanding
     169,004                 169,004  
                           
Diluted weighted average shares outstanding
     169,004                 169,004  
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
 
 
 
 

QUICKSILVER RESOURCES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
 
   
As Historically
    
Crestwood
Transaction
          
   
Presented
    
Adjustments
      
Pro Forma
  
   
(In thousands, except per share amounts)
  
Revenue
                    
Natural gas, NGL and crude oil
   $ 780,788     $ -       $ 780,788  
Other
     19,853       (12,140 )
 (g)
     7,713  
Total revenue
     800,641       (12,140 )       788,501  
                           
Operating expense
                          
Oil and gas production expense
     134,302       46,088  
 (g)
     180,390  
Production and ad valorem taxes
     18,734       (1,779 )
 (g)
     16,955  
Other operating expense
     3,337       224  
 (g)
     3,561  
Depletion, depreciation and accretion
     188,196       (13,051 )
 (h)
     175,145  
General and administrative expense
     72,254       (2,984 )
 (g)
     69,270  
Total expense
     416,823       28,498         445,321  
Impairment related to oil and gas properties
     (633,515 )     -         (633,515 )
Operating loss
     (249,697 )     (40,638 )       (290,335 )
Income from earnings of BBEP
     93,298       -         93,298  
Impairment of investment in BBEP
     (320,387 )     -         (320,387 )
Other income - net
     807       (11 )
 (g)
     796  
Interest expense
     (109,098 )     30,173  
 (i)
     (78,925 )
Loss from continuing operations before income taxes
     (585,077 )     (10,476 )       (595,553 )
Income tax - continuing operations
     211,455       3,771  
 (j)
     215,226  
Loss from continuing operations
     (373,622 )     (6,705 )       (380,327 )
Income from continuing operations attributable to noncontrolling interests
     (4,654 )     4,654  
 (k)
     -  
Loss from continuing operations attributable to Quicksilver
   $ (378,276 )   $ (2,051 )     $ (380,327 )
                           
                           
Earnings per common share from continuing operations attributable to Quicksilver  - basic
   $ (2.33 )             $ (2.35 )
                           
Earnings per common share from continuing operations attributable to Quicksilver - diluted
   $ (2.33 )             $ (2.35 )
                           
Basic weighted average shares outstanding
     162,004                 162,004  
                           
Diluted weighted average shares outstanding
     162,004                 162,004  
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
 
 
 
 

QUICKSILVER RESOURCES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
 
   
As Historically
    
Crestwood
Transaction
          
   
Presented
      Adjustments      
Pro Forma
  
   
(In thousands, except per share amounts)
  
Revenue
                    
Natural gas, NGL and crude oil
   $ 545,089     $ -       $ 545,089  
Other
     16,169       (6,280 )
 (g)
     9,889  
Total revenue
     561,258       (6,280 )       554,978  
                           
Operating expense
                          
Oil and gas production expense
     136,103       19,877  
 (g)
     155,980  
Production and ad valorem taxes
     17,048       -  
 (g)
     17,048  
Other operating expense
     2,614       (1,895 )
 (g)
     719  
Depletion, depreciation and accretion
     120,697       (7,778 )
 (h)
     112,919  
General and administrative expense
     47,060       (1,317 )
 (g)
     45,743  
Total expense
     323,522       8,887         332,409  
Income from equity affiliates
     661       -         661  
Gain on sale of oil and gas properties
     628,709       -         628,709  
Loss on natural gas sales contract
     (63,525 )     -         (63,525 )
Operating income
     803,581       (15,167 )       788,414  
Other income - net
     3,887       (236 )
 (g)
     3,651  
Interest expense
     (76,662 )     38,454  
 (i)
     (38,208 )
Income from continuing operations before income taxes
     730,806       23,051         753,857  
Income tax - continuing operations
     (254,361 )     (8,299 )
 (j)
     (262,660 )
Income from continuing operations
     476,445       14,752         491,197  
Income from continuing operations attributable to noncontrolling interests
     (1,055 )     1,055  
 (k)
     -  
Income from continuing operations attributable to Quicksilver
   $ 475,390     $ 15,807       $ 491,197  
                           
                           
Earnings per common share from continuing operations attributable to Quicksilver  - basic
   $ 3.04               $ 3.14  
                           
Earnings per common share from continuing operations attributable to Quicksilver - diluted
   $ 2.87               $ 2.96  
                           
Basic weighted average shares outstanding
     156,517                 156,517  
                           
Diluted weighted average shares outstanding
     168,029                 168,029  
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
 
 
 
 
 
QUICKSILVER RESOURCES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2010 AND FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 and 2007


Note 1
Basis of Presentation
 
The accompanying unaudited pro forma condensed consolidated financial statements and explanatory notes present how our financial statements may have appeared had the sale of our interests in KGS to Crestwood Holdings LLC (the “Crestwood Transaction”), occurred on June 30, 2010 (with respect to the balance sheet information) or on January 1, 2007 (with respect to statements of operations).  The Crestwood Transaction is explained in more detail in the introductory paragraph to the accompanying unaudited pro forma financials.

Following are descriptions of certain columns included in the accompanying unaudited pro forma condensed consolidated financial statements:
 
As Historically Presented – Represents our historical condensed consolidated balance sheet as of June 30, 2010 and our historical condensed consolidated statements of operations for the six months ended June 30, 2010 and the years ended December 31, 2009, 2008 and 2007.

Crestwood Transaction Adjustments – Represents the adjustments to our historical condensed consolidated financial statements necessary to arrive at our pro forma financial position as of June 30, 2010, as if the Crestwood Transaction occurred on June 30, 2010, and the pro forma results of our operations for the six months ended June 30, 2010 and the years ended December 31, 2009, 2008 and 2007, as if the disposition occurred as of January 1, 2007.
 
Note 2
Pro Forma Adjustments
 
Condensed Consolidated Balance Sheet

(a)
To record excess cash of $200.7 million remaining after using a portion of the Crestwood Transaction proceeds, net of $6.5 million of transaction costs, to repay our indebtedness under our Senior Secured Credit Facility.
 
(b)
Represents the deconsolidation of assets and liabilities directly attributable to KGS, except for its debt described in (d) below.

(c)
To record the income taxes arising from the Crestwood Transaction, of which we believe $130.0 million is due to the Internal Revenue Service in December 2010 and $8.0 million is due to the State of Texas in May 2011.

(d)
To reflect repayment of all amounts due under our Senior Secured Credit Facility ($493.2 million) and the deconsolidation of KGS’ Credit Agreement ($226.8 million).

(e)
To record the estimated gain from the Crestwood Transaction of $540.0 million before taxes ($345.6 million after taxes and after tax impact of transaction costs).

(f)
To record the elimination of noncontrolling interest attributable to KGS as a result of the Crestwood Transaction.
 
Condensed Consolidated Statements of Operations
 
(g)
To eliminate the revenues and operating expenses directly attributable to KGS.
 
(h)
To eliminate depreciation associated with assets disposed in the Crestwood Transaction.
 
(i)
To adjust interest expense to give effect to the absence of outstanding borrowings under our Senior Secured Credit Facility and borrowings outstanding under the KGS credit agreement.

(j)
To record income tax expense for the effects of the pro forma adjustments at statutory rates.

(k)
To record the elimination of net income attributable to noncontrolling interests as a result of the Crestwood Transaction.