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 borrowin gs 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 | | | | | | | | |
| | | 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 | | | | | | | | |
| | | 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 | | | | | | | | |
| | | 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 | | | | | | | | |
| | | 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 | | | | | | | | |
| | | 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. |
