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 MARCH 31, 2005
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 April 29, 2005, the registrant had 50,537,907 outstanding shares of its common stock, $0.01 par value.
INDEX TO FORM 10-Q
For the Period Ending March 31, 2005
2
Item 1. Financial Statements (Unaudited)
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 March 31, 2005, and the related condensed consolidated statements of income and comprehensive income and of cash flows for the three month periods ended March 31, 2005 and 2004. 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, 2004, and the related consolidated statements of income and comprehensive income, stockholders’ equity and of cash flows for the year then ended (not presented herein); and in our report dated March 16, 2005, 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, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Fort Worth, Texas
May 10, 2005
3
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for share data – Unaudited
| March 31, 2005 |
December 31, 2004 |
|||||||
| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 7,359 | $ | 15,947 | ||||
| Accounts receivable |
41,481 | 38,037 | ||||||
| Current deferred income taxes |
5,253 | 3,523 | ||||||
| Inventories and other current assets |
7,785 | 8,689 | ||||||
| Total current assets |
61,878 | 66,196 | ||||||
| Investments in and advances to equity affiliates |
8,290 | 8,254 | ||||||
| Properties, plant and equipment – net (“full cost”) |
844,527 | 802,610 | ||||||
| Other assets |
9,323 | 11,274 | ||||||
| $ | 924,018 | $ | 888,334 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities |
||||||||
| Current portion of long-term debt |
$ | 356 | $ | 356 | ||||
| Accounts payable |
25,901 | 28,407 | ||||||
| Accrued derivative obligations |
14,491 | 12,784 | ||||||
| Accrued liabilities |
40,498 | 41,904 | ||||||
| Total current liabilities |
81,246 | 83,451 | ||||||
| Long-term debt |
425,052 | 399,134 | ||||||
| Derivative obligations |
737 | — | ||||||
| Asset retirement obligations |
18,391 | 17,967 | ||||||
| Deferred income taxes |
82,229 | 83,506 | ||||||
| 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 shares authorized 53,091,604 and 52,690,971 shares issued, respectively |
531 | 527 | ||||||
| Paid in capital in excess of par value |
208,675 | 200,941 | ||||||
| Deferred compensation |
(1,666 | ) | — | |||||
| Treasury stock of 2,568,611 shares |
(10,258 | ) | (10,258 | ) | ||||
| Accumulated other comprehensive income |
2,023 | 6,762 | ||||||
| Retained earnings |
117,058 | 106,304 | ||||||
| Total stockholders’ equity |
316,363 | 304,276 | ||||||
| $ | 924,018 | $ | 888,334 | |||||
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 March 31, |
||||||||
| 2005 |
2004(1) |
|||||||
| Revenues |
||||||||
| Oil, gas and related product sales |
$ | 54,840 | $ | 39,124 | ||||
| Other revenue |
409 | 653 | ||||||
| Total revenues |
55,249 | 39,777 | ||||||
| Expenses |
||||||||
| Oil and gas production costs |
19,654 | 16,005 | ||||||
| Other operating costs |
391 | 290 | ||||||
| Depletion, depreciation and accretion |
12,372 | 9,105 | ||||||
| General and administrative |
3,113 | 2,656 | ||||||
| Total expenses |
35,530 | 28,056 | ||||||
| Income from equity affiliates |
224 | 291 | ||||||
| Operating income |
19,943 | 12,012 | ||||||
| Other income – net |
(86 | ) | (70 | ) | ||||
| Interest expense |
4,657 | 3,412 | ||||||
| Income before income taxes |
15,372 | 8,670 | ||||||
| Income tax expense |
4,618 | 2,733 | ||||||
| Net income |
$ | 10,754 | $ | 5,937 | ||||
| Other comprehensive income – net of taxes |
||||||||
| Reclassification adjustments – hedge settlements |
6,233 | 6,612 | ||||||
| Change in derivative fair value |
(10,292 | ) | (7,480 | ) | ||||
| Change in foreign currency translation adjustment |
(680 | ) | (1,037 | ) | ||||
| Comprehensive income |
$ | 6,015 | $ | 4,032 | ||||
| Basic net income per common share |
$ | 0.21 | $ | 0.12 | ||||
| Diluted net income per common share |
$ | 0.20 | $ | 0.12 | ||||
| Basic weighted average shares outstanding |
50,346 | 49,601 | ||||||
| Diluted weighted average shares outstanding |
54,694 | 50,508 | ||||||
| (1) | Share and per share amounts have been adjusted to reflect a two-for-one stock split effected in the form of a stock dividend in June 2004. The split did not affect treasury shares. |
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 Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 10,754 | $ | 5,937 | ||||
| Charges and credits to net income not affecting cash |
||||||||
| Depletion, depreciation and accretion |
12,372 | 9,105 | ||||||
| Deferred income taxes |
4,482 | 2,686 | ||||||
| Income from equity affiliates |
(224 | ) | (291 | ) | ||||
| Non-cash gain from hedging activities |
(212 | ) | (155 | ) | ||||
| Non-cash compensation |
80 | — | ||||||
| Amortization of deferred loan costs |
344 | 308 | ||||||
| Other |
(13 | ) | — | |||||
| Changes in assets and liabilities, net of acquisition |
||||||||
| Accounts receivable |
(3,444 | ) | 7,658 | |||||
| Inventory, prepaid expenses and other |
(1,434 | ) | 716 | |||||
| Accounts payable |
(2,506 | ) | 757 | |||||
| Accrued liabilities and other |
(1,419 | ) | (11,588 | ) | ||||
| Net cash from operating activities |
18,780 | 15,133 | ||||||
| Investing activities: |
||||||||
| Purchase of properties and equipment |
(57,108 | ) | (39,917 | ) | ||||
| Distributions and advances from equity affiliates – net |
188 | 205 | ||||||
| Proceeds from sales of properties |
1,107 | — | ||||||
| Net cash used for investing activities |
(55,813 | ) | (39,712 | ) | ||||
| Financing activities: |
||||||||
| Issuance of debt |
27,761 | 25,000 | ||||||
| Repayments of debt |
(78 | ) | (75 | ) | ||||
| Deferred financing costs |
(18 | ) | — | |||||
| Proceeds from exercise of stock options |
1,132 | 471 | ||||||
| Net cash from financing activities |
28,797 | 25,396 | ||||||
| Effect of exchange rates on cash |
(352 | ) | 42 | |||||
| Net increase (decrease) in cash and cash equivalents |
(8,588 | ) | 859 | |||||
| Cash and cash equivalents at beginning of period |
15,947 | 4,116 | ||||||
| Cash and cash equivalents at end of period |
$ | 7,359 | $ | 4,975 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Interest paid |
$ | 4,234 | $ | 3,240 | ||||
| Income taxes paid |
$ | 815 | $ | — | ||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
6
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DISCLOSURES
The accompanying condensed consolidated interim financial statements of Quicksilver Resources Inc. (“Quicksilver” or the “Company”) have not been audited by independent public accountants. In the opinion of Company management, the accompanying condensed consolidated interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2005 and its income, comprehensive income and cash flows for the three month periods ended March 31, 2005 and 2004. All such adjustments are of a normal recurring nature. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each reporting period. Management believes its estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties, which may cause actual results to differ materially from the Company’s estimates.
Certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2004.
Stock Split
On June 1, 2004, Quicksilver announced that its Board of Directors declared a two-for-one stock split of Quicksilver’s outstanding common stock effected in the form of a stock dividend. The stock dividend was payable on June 30, 2004, to holders of record at the close of business on June 15, 2004. The split did not affect treasury shares.
The share and earnings per share data included in these notes and the accompanying condensed consolidated financial statements for all periods presented have been adjusted to retroactively reflect the stock split.
Net Income per Common Share
Basic net income or loss per common share is computed by dividing the net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income or loss per common share is computed using the treasury stock method, which considers the impact to net income and common shares from the potential issuance of common shares underlying stock options, stock warrants and outstanding convertible securities. The following is a reconciliation of the weighted average common shares used in the basic and diluted net income per common share calculations for the three-month periods ended March 31, 2005 and 2004. Outstanding options to purchase 1,637 shares were excluded from the diluted net income per share calculation for the period ended March 31, 2005 as those options were out of the money and, therefore, considered to be antidilutive.
7
| Three Months Ended March 31, | ||||||
| 2005 |
2004 | |||||
| (in thousands) | ||||||
| Net income |
$ | 10,754 | $ | 5,937 | ||
| Impact of assumed conversions – interest on 1.875% contingently convertible debentures, net of income taxes |
475 | — | ||||
| Income available to stockholders assuming conversion of contingently convertible debentures |
$ | 11,229 | $ | 5,937 | ||
| Weighted average common shares-basic |
50,346 | 49,601 | ||||
| Effect of dilutive securities: |
||||||
| Stock options outstanding |
1,076 | 907 | ||||
| Contingently convertible debentures |
3,272 | — | ||||
| Weighted average common shares-diluted |
54,694 | 50,508 | ||||
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