SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number: 001-14837
Quicksilver Resources Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 75-2756163 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
777 West Rosedale, Suite 300, Fort Worth, Texas 76104
(Address of principal executive offices) (Zip Code)
(817) 665-5000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of July 31, 2004, the registrant had 49,718,544 outstanding shares of its common stock, $0.01 par value.
INDEX TO FORM 10-Q
For the Period Ending June 30, 2004
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. Financial Statements (Unaudited) |
||
| 3 | ||
| Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2003 |
4 | |
| 5 | ||
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 |
6 | |
| Notes to Condensed Consolidated Interim Financial Statements |
7 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
21 | |
| 23 | ||
| PART II. OTHER INFORMATION | ||
| 24 | ||
| 25 | ||
| 26 | ||
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Quicksilver Resources Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed consolidated balance sheet of Quicksilver Resources Inc. (the Company) as of June 30, 2004, and the related condensed consolidated statements of income and comprehensive income for the three and six month periods ended June 30, 2004 and 2003 and of cash flows for the six-month periods ended June 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2003, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 15, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
As discussed in Note 2 to the condensed consolidated interim financial statements, on January 1, 2003, the Company adopted Statement of Financial Accounting Standard No. 143, Accounting for Asset Retirement Obligations.
/s/ DELOITTE & TOUCHE LLP
Fort Worth, Texas
August 5, 2004
3
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for share data – Unaudited
| June 30, 2004 (a) |
December 31, 2003 (a) |
|||||||
| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 5,946 | $ | 4,116 | ||||
| Accounts receivable |
20,939 | 26,247 | ||||||
| Current deferred income taxes |
12,575 | 11,760 | ||||||
| Inventories and other current assets |
7,152 | 7,588 | ||||||
| Total current assets |
46,612 | 49,711 | ||||||
| Investments in and advances to equity affiliates |
8,982 | 9,173 | ||||||
| Properties, plant and equipment – net (“full cost”) |
672,057 | 604,576 | ||||||
| Other assets |
2,357 | 3,474 | ||||||
| $ | 730,008 | $ | 666,934 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities |
||||||||
| Current portion of long-term debt |
$ | 319 | $ | 339 | ||||
| Accounts payable |
18,791 | 17,954 | ||||||
| Accrued derivative obligations |
36,649 | 34,577 | ||||||
| Accrued liabilities |
24,948 | 27,644 | ||||||
| Total current liabilities |
80,707 | 80,514 | ||||||
| Long-term debt |
296,190 | 249,097 | ||||||
| Derivative obligations |
— | 9,662 | ||||||
| Asset retirement obligations |
18,712 | 15,135 | ||||||
| Deferred income taxes |
77,910 | 70,710 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $0.01 par value, 10,000,000 shares authorized, 1 share issued and outstanding |
— | |||||||
| Common stock, $0.01 par value, 100,000,000 and 80,000,000 shares authorized, and 52,277,859 and 52,045,726 shares issued, respectively |
523 | 520 | ||||||
| Paid in capital in excess of par value |
195,498 | 194,246 | ||||||
| Treasury stock of 2,568,611 and 2,578,904 shares, respectively |
(10,258 | ) | (10,299 | ) | ||||
| Accumulated other comprehensive loss |
(17,743 | ) | (17,683 | ) | ||||
| Retained earnings |
88,469 | 75,032 | ||||||
| Total stockholders’ equity |
256,489 | 241,816 | ||||||
| $ | 730,008 | $ | 666,934 | |||||
a) Share and per share amounts have been adjusted to reflect a two-for-one stock split during June 2004. Treasury shares were not affected by this split.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
In thousands, except for per share data – Unaudited
| For the Three Months Ended June 30, (a) |
For the Six Months Ended June 30, (a) |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues |
||||||||||||||||
| Oil, gas and related product sales |
$ | 41,600 | $ | 32,457 | $ | 80,724 | $ | 69,544 | ||||||||
| Other revenue |
380 | 638 | 1,033 | 1,067 | ||||||||||||
| Total revenues |
41,980 | 33,095 | 81,757 | 70,611 | ||||||||||||
| Expenses |
||||||||||||||||
| Oil and gas production costs |
15,658 | 13,444 | 31,663 | 26,077 | ||||||||||||
| Other operating costs |
372 | 343 | 662 | 781 | ||||||||||||
| Depletion, depreciation and accretion |
9,714 | 7,381 | 18,819 | 15,182 | ||||||||||||
| General and administrative |
3,353 | 2,172 | 6,009 | 4,206 | ||||||||||||
| Total expenses |
29,097 | 23,340 | 57,153 | 46,246 | ||||||||||||
| Income from equity affiliates |
289 | 347 | 580 | 653 | ||||||||||||
| Operating income |
13,172 | 10,102 | 25,184 | 25,018 | ||||||||||||
| Other (income) expense-net |
(23 | ) | (59 | ) | (93 | ) | (34 | ) | ||||||||
| Interest expense |
3,630 | 8,235 | 7,042 | 13,127 | ||||||||||||
| Income before income taxes and cumulative effect of change in accounting principle |
9,565 | 1,926 | 18,235 | 11,925 | ||||||||||||
| Income tax expense |
2,065 | 817 | 4,798 | 4,404 | ||||||||||||
| Net income before cumulative effect of change in accounting principle |
7,500 | 1,109 | 13,437 | 7,521 | ||||||||||||
| Cumulative effect of change in accounting principle, net of tax |
— | — | — | 2,297 | ||||||||||||
| Net income |
$ | 7,500 | $ | 1,109 | $ | 13,437 | $ | 5,224 | ||||||||
| Other comprehensive income – net of taxes |
||||||||||||||||
| Reclassification adjustments – hedge settlements |
7,536 | 6,387 | 14,148 | 16,503 | ||||||||||||
| Change in derivative fair value |
(2,627 | ) | (8,299 | ) | (10,107 | ) | (22,176 | ) | ||||||||
| Change in foreign currency translation adjustment |
(3,064 | ) | 4,187 | (4,101 | ) | 6,610 | ||||||||||
| Comprehensive income |
$ | 9,345 | $ | 3,384 | $ | 13,377 | $ | 6,161 | ||||||||
| Basic net income per common share: |
||||||||||||||||
| Net income before cumulative effect of accounting change |
$ | 0.15 | $ | 0.03 | $ | 0.27 | $ | 0.18 | ||||||||
| Cumulative effect of accounting change, net of tax |
— | — | — | (0.06 | ) | |||||||||||
| Net income |
$ | 0.15 | $ | 0.03 | $ | 0.27 | $ | 0.12 | ||||||||
| Diluted net income per common share: |
||||||||||||||||
| Net income before cumulative effect of accounting change |
$ | 0.15 | $ | 0.03 | $ | 0.27 | $ | 0.17 | ||||||||
| Cumulative effect of accounting change, net of tax |
— | — | — | (0.05 | ) | |||||||||||
| Net income |
$ | 0.15 | $ | 0.03 | $ | 0.27 | $ | 0.12 | ||||||||
| Weighted average common shares outstanding |
||||||||||||||||
| Basic |
49,700 | 42,327 | 49,650 | 42,267 | ||||||||||||
| Diluted |
50,737 | 43,243 | 50,635 | 43,210 | ||||||||||||
a) Share and per share amounts have been adjusted to reflect a two-for-one stock split during June 2004. Treasury shares were not affected by this split.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands – Unaudited
| For the Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 13,437 | $ | 5,224 | ||||
| Charges and credits to net income not affecting cash |
||||||||
| Cumulative effect of accounting change, net of tax |
— | 2,297 | ||||||
| Depletion, depreciation and accretion |
18,819 | 15,182 | ||||||
| Deferred income taxes |
4,608 | 4,294 | ||||||
| Recognition of unearned revenues |
— | 507 | ||||||
| Income from equity affiliates |
(580 | ) | (653 | ) | ||||
| Non-cash gain from hedging activities |
(355 | ) | (1,189 | ) | ||||
| Amortization of deferred loan costs |
616 | 2,022 | ||||||
| Other |
(2 | ) | (38 | ) | ||||
| Changes in assets and liabilities, net of acquisition |
||||||||
| Accounts receivable |
||||||||