Exhibit 99.1
QUICKSILVER GAS SERVICES LP
PRO FORMA CONDENSED FINANCIAL INFORMATION AND NOTES
UNAUDITED
Quicksilver Gas Services LP (“KGS”) is a master limited partnership engaged in the business of gathering and processing natural gas and NGLs. We own assets in the Fort Worth Basin located in North Texas which consist of a pipeline system, referred to as the Cowtown Pipeline, and two natural gas processing facilities in Hood County, Texas, referred to as the Cowtown Plant and the Corvette Plant. KGS also owns a gathering system and a gas compression facility in eastern Tarrant County, Texas, referred to as the Lake Arlington Dry System. We provide gathering and processing services to Quicksilver Resources Inc. (“Quicksilver”), the owner of our general partner, as well as other natural gas producers in this area. We provide all of these services under fee-based contracts, whereby we receive fees for performing the gathering and processing services. We do not take title to the natural gas or associated NGLs that we gather and process and thus avoid direct commodity price exposure. Our financial statements have also historically included the operations of a gathering system in Hill County, Texas (“Hill County Dry System”) that gathers production from the Fort Worth Basin and delivers it to unaffiliated pipelines for transport and sale downstream. We sold the Hill County Dry System to Quicksilver on June 5, 2007 and we were obligated to repurchase it from Quicksilver at its fair market value within two years after its completion and its commencement of commercial service. However, based upon our continuing interest in the Hill County Dry System by virtue of the repurchase obligation, we continued including its financial position and results of operations in our consolidated financial statements.
In November 2009, Quicksilver and we mutually agreed to waive both parties’ rights and obligations to transfer ownership of the Hill Country Dry System from Quicksilver to us, which we refer to as the Repurchase Obligation Waiver. The Repurchase Obligation Waiver impacts our consolidated balance sheet by causing derecognition of the assets and liabilities directly attributable to the Hill County Dry System, most significantly the property, plant and equipment and repurchase obligation. In addition, the Repurchase Obligation Waiver causes the elimination of the Hill Country Dry System’s revenues and expenses from our consolidated results of operations. The assets, liabilities, revenues and expenses directly attributable to the Hill County Dry System will be retrospectively reported as discontinued operations in our financial statements beginning with our 2009 Annual Report on Form 10-K.
Unaudited pro forma financial information
The unaudited pro forma condensed financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually occurred had the Repurchase Obligation Waiver been executed in earlier periods or that may be achieved in the future. However, management believes that the assumptions provide a reasonable basis for presenting the significant effect of the Repurchase Obligation Waiver. The unaudited pro forma condensed financial statements should be read in conjunction with our management’s discussion and analysis of financial condition and results of operations and consolidated financial statements and notes thereto included in our 2008 Annual Report on Form 10-K and our September 30, 2009 Quarterly Report on Form 10-Q.
QUICKSILVER GAS SERVICES LP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for unit data - Unaudited
As of September 30, 2009 | ||||||||||||
Historical KGS | Hill County Dry System | Pro Forma KGS | ||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 548 | $ | - | $ | 548 | ||||||
Accounts receivable | 528 | 183 | 345 | |||||||||
Accounts receivable from Quicksilver | 5,066 | 1,938 | 3,128 | |||||||||
Prepaid expenses and other current assets | 348 | - | 348 | |||||||||
Total current assets | 6,490 | 2,121 | 4,369 | |||||||||
Property, plant and equipment, net | 455,661 | 59,286 | 396,375 | |||||||||
- | ||||||||||||
Other assets | 1,635 | - | 1,635 | |||||||||
$ | 463,786 | $ | 61,407 | $ | 402,379 | |||||||
LIABILITIES AND PARTNERS' CAPITAL | ||||||||||||
Current liabilities | ||||||||||||
Current maturities of debt | $ | 2,200 | $ | - | $ | 2,200 | ||||||
Accrued additions to property, plant and equipment | 3,335 | 1,181 | 2,154 | |||||||||
Accounts payable and other | 4,706 | 274 | 4,432 | |||||||||
Total current liabilities | 10,241 | 1,455 | 8,786 | |||||||||
Long-term debt | 206,900 | - | 206,900 | |||||||||
Note payable to Quicksilver | 52,966 | - | 52,966 | |||||||||
Repurchase obligations to Quicksilver | 67,236 | 67,236 | - | |||||||||
Asset retirement obligations | 8,639 | 666 | 7,973 | |||||||||
Deferred income tax liability | 815 | - | 815 | |||||||||
Commitments and contingent liabilities | ||||||||||||
Partners' capital | ||||||||||||
Common unitholders (12,313,451 units issued and outstanding at September 30, 2009) | 114,256 | (4,000 | ) | 118,256 | ||||||||
Subordinated unitholders (11,513,625 units issued and outstanding at September 30, 2009) | 2,351 | (3,747 | ) | 6,098 | ||||||||
General partner | 382 | (203 | ) | 585 | ||||||||
Total partners' capital | 116,989 | (7,950 | ) | 124,939 | ||||||||
$ | 463,786 | $ | 61,407 | $ | 402,379 |
The accompanying notes are an integral part of these statements.
QUICKSILVER GAS SERVICES LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In thousands, except for per unit data - Unaudited
Nine Months Ended September 30, 2009 | ||||||||||||
Historical KGS | Hill County Dry System | Pro Forma KGS | ||||||||||
Revenue | ||||||||||||
Gathering and transportation - Quicksilver | $ | 42,708 | $ | 2,141 | $ | 40,567 | ||||||
Gathering and transportation | 2,259 | 816 | 1,443 | |||||||||
Gas processing - Quicksilver | 25,541 | - | 25,541 | |||||||||
Gas processing | 1,344 | - | 1,344 | |||||||||
Other revenue - Quicksilver | 1,141 | - | 1,141 | |||||||||
Total revenue | 72,993 | 2,957 | 70,036 | |||||||||
Expenses | ||||||||||||
Operations and maintenance | 17,108 | 940 | 16,168 | |||||||||
General and administrative | 5,463 | - | 5,463 | |||||||||
Depreciation and accretion | 16,554 | 2,111 | 14,443 | |||||||||
Total expenses | 39,125 | 3,051 | 36,074 | |||||||||
Operating income | 33,868 | (94 | ) | 33,962 | ||||||||
Other income | 1 | - | 1 | |||||||||
Interest expense | 7,924 | - | 7,924 | |||||||||
Income before income taxes | 25,945 | (94 | ) | 26,039 | ||||||||
Income tax provision | 446 | - | 446 | |||||||||
Income (loss) from continuing operations | $ | 25,499 | $ | (94 | ) | $ | 25,593 | |||||
General partner interest in income (loss) from continuing operations | $ | 886 | $ | (2 | ) | $ | 888 | |||||
Common and subordinated unitholders’ interest in income (loss) from continuing operations | $ | 24,613 | $ | (92 | ) | $ | 24,705 | |||||
Income (loss) from continuing operations per common and subordinated unit: | ||||||||||||
Basic | $ | 1.03 | $ | 1.04 | ||||||||
Diluted | $ | 0.92 | $ | 0.92 |
The accompanying notes are an integral part of these statements.
QUICKSILVER GAS SERVICES LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In thousands, except for per unit data - Unaudited
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | ||||||||||||||||||||||||||||||||||
Historical KGS | Hill County Dry System | Pro Forma KGS | Historical KGS | Hill County Dry System | Pro Forma KGS | Historical KGS | Hill County Dry System | Pro Forma KGS | ||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
Gathering and transportation - Quicksilver | $ | 36,061 | $ | 1,593 | $ | 34,468 | $ | 15,089 | $ | 157 | $ | 14,932 | $ | 6,460 | $ | - | $ | 6,460 | ||||||||||||||||||
Gathering and transportation | 5,612 | 381 | 5,231 | 1,773 | 89 | 1,684 | 53 | - | 53 | |||||||||||||||||||||||||||
Gas processing - Quicksilver | 30,127 | - | 30,127 | 16,564 | - | 16,564 | 7,342 | - | 7,342 | |||||||||||||||||||||||||||
Gas processing | 5,358 | - | 5,358 | 1,990 | - | 1,990 | 63 | - | 63 | |||||||||||||||||||||||||||
Other revenue - Quicksilver | 900 | - | 900 | 525 | - | 525 | - | - | - | |||||||||||||||||||||||||||
Total revenue | 78,058 | 1,974 | 76,084 | 35,941 | 246 | 35,695 | 13,918 | - | 13,918 | |||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||
Operations and maintenance | 20,250 | 966 | 19,284 | 11,512 | 80 | 11,432 | 7,475 | - | 7,475 | |||||||||||||||||||||||||||
General and administrative | 6,407 | - | 6,407 | 3,379 | - | 3,379 | 937 | - | 937 | |||||||||||||||||||||||||||
Depreciation and accretion | 14,566 | 1,598 | 12,968 | 8,070 | 368 | 7,702 | 2,963 | 35 | 2,928 | |||||||||||||||||||||||||||
Total expenses | 41,223 | 2,564 | 38,659 | 22,961 | 448 | 22,513 | 11,375 | 35 | 11,340 | |||||||||||||||||||||||||||
Operating income | 36,835 | (590 | ) | 37,425 | 12,980 | (202 | ) | 13,182 | 2,543 | (35 | ) | 2,578 | ||||||||||||||||||||||||
Other income | 11 | - | 11 | 236 | - | 236 | 13 | - | 13 | |||||||||||||||||||||||||||
Interest expense | 10,177 | - | 10,177 | 4,647 | - | 4,647 | - | - | - | |||||||||||||||||||||||||||
Income before income taxes | 26,669 | (590 | ) | 27,259 | 8,569 | (202 | ) | 8,771 | 2,556 | (35 | ) | 2,591 | ||||||||||||||||||||||||
Income tax provision | 253 | - | 253 | 313 | - | 313 | 135 | - | 135 | |||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 26,416 | $ | (590 | ) | $ | 27,006 | $ | 8,256 | $ | (202 | ) | $ | 8,458 | $ | 2,421 | $ | (35 | ) | $ | 2,456 | |||||||||||||||
Attributable to the period from beginning of period to August 9, 2007 | $ | 3,444 | $ | (102 | ) | $ | 3,546 | |||||||||||||||||||||||||||||
Attributable to the period from August 10, 2007 to December 31, 2007 | 4,812 | (100 | ) | 4,912 | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 8,256 | $ | (202 | ) | $ | 8,458 | |||||||||||||||||||||||||||||
General partner interest in income (loss) from continuing operations (1) | $ | 652 | $ | (11 | ) | $ | 663 | $ | 93 | $ | (2 | ) | $ | 95 | ||||||||||||||||||||||
Common and subordinated unitholders’ interest in income (loss) from continuing operations (1) | $ | 25,764 | $ | (579 | ) | $ | 26,343 | $ | 4,719 | $ | (98 | ) | $ | 4,817 | ||||||||||||||||||||||
Income (loss) from continuing operations per common and subordinated unit: (1) | ||||||||||||||||||||||||||||||||||||
Basic | $ | 1.08 | $ | 1.11 | $ | 0.20 | $ | 0.20 | ||||||||||||||||||||||||||||
Diluted | $ | 0.96 | $ | 0.98 | $ | 0.20 | $ | 0.20 |
(1) Amounts for 2007 represent the post-IPO period from August 10, 2007 to December 31, 2007.
The accompanying notes are an integral part of these statements.
QUICKSILVER GAS SERVICES LP
PRO FORMA CONDENSED FINANCIAL INFORMATION AND NOTES
UNAUDITED
Pro forma consolidated balance sheet
The unaudited pro forma condensed consolidated balance sheet is based on our historical unaudited condensed consolidated balance sheet as of September 30, 2009 and gives effect to the Repurchase Obligation Waiver as if it were executed on September 30, 2009.
Pro forma statements of income
The unaudited pro forma condensed consolidated statement of income for the nine months ended September 30, 2009 is based on our historical unaudited condensed consolidated statement of income for the nine months ended September 30, 2009. It gives effect to the execution of the Repurchase Obligation Waiver as if it had occurred on January 1, 2009.
The unaudited pro forma condensed consolidated statements of income for the years ended December 31, 2008, 2007 and 2006 are based on our historical audited consolidated statements of income for the years ended December 31, 2008, 2007 and 2006, respectively. They give effect to the execution of the Repurchase Obligation Waiver as if it had occurred on January 1 of each year.
Earnings per common and subordinated unit
The following is a reconciliation of the weighted average common and subordinated units used in the unaudited pro forma basic and diluted earnings per unit, giving effect to the execution of the Repurchase Obligation Waiver as if it had occurred on January 1 of each year:
Nine Months Ended September 30, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 (1) | ||||||||||||||||||||||
Historical KGS | Pro Forma KGS | Historical KGS | Pro Forma KGS | Historical KGS | Pro Forma KGS | |||||||||||||||||||
In thousands, except for per unit data - Unaudited | ||||||||||||||||||||||||
Common and subordinated unitholders’ interest in income from continuing operations | $ | 24,613 | $ | 24,705 | $ | 25,764 | $ | 26,343 | $ | 4,719 | $ | 4,817 | ||||||||||||
Impact of interest on subordinated note to Quicksilver | 1,490 | 1,490 | 2,748 | 2,748 | - | - | ||||||||||||||||||
Income from continuing operations available assuming conversion of convertible debt | $ | 26,103 | $ | 26,195 | $ | 28,512 | $ | 29,091 | $ | 4,719 | $ | 4,817 | ||||||||||||
Weighted-average common and subordinated units - basic | 23,827 | 23,827 | 23,783 | 23,783 | 23,777 | 23,777 | ||||||||||||||||||
Effect of restricted phantom units | 486 | 486 | 141 | 141 | 10 | 10 | ||||||||||||||||||
Effect of subordinated note to Quicksilver (2) | 4,006 | 4,006 | 5,659 | 5,659 | - | - | ||||||||||||||||||
Weighted-average common and subordinated units - diluted | 28,319 | 28,319 | 29,583 | 29,583 | 23,787 | 23,787 | ||||||||||||||||||
Earnings per common and subordinated unit: | ||||||||||||||||||||||||
Basic | $ | 1.03 | $ | 1.04 | $ | 1.08 | $ | 1.11 | $ | 0.20 | $ | 0.20 | ||||||||||||
Diluted | $ | 0.92 | $ | 0.92 | $ | 0.96 | $ | 0.98 | $ | 0.20 | $ | 0.20 | ||||||||||||
Assumed conversion price of subordinated note to Quicksilver (2) | $ | 13.77 | $ | 13.77 | $ | 9.48 | $ | 9.48 |
(1) Amounts for 2007 represent the post-IPO period from August 10, 2007 to December 31, 2007.
(2) Assumes that convertible debt is converted using the average closing price per unit.