11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Note 18 to the consolidated financial statements in our 2010 Annual Report on Form 10-K contains a more complete description of our guarantor, non-guarantor, restricted and unrestricted subsidiaries. After completing the Crestwood Transaction during the fourth quarter of 2010, we no longer have any unrestricted subsidiaries except for four newly created subsidiaries that held no assets or liabilities as of September 30, 2011. During 2011, we have made immaterial corrections to our previously issued Condensed Consolidating Financial Information as of December 31, 2010. These adjustments had no impact on our previously reported consolidated balance sheet, statements of operations, cash flows or equity, and they have no impact on compliance with any of our debt covenants. The adjustments effect a presentation on a gross basis of Quicksilver's intercompany receivables and payables to reflect the appropriate classification of afforded by its wholly-owned, restricted guarantor subsidiaries as of December 31, 2010. An adjustment was also made within property and equipment and equity to reflect intercompany receivables between Quicksilver and its wholly-owned restricted non-guarantor subsidiary as of December 31, 2010.

The following tables present financial information about Quicksilver and our restricted subsidiaries for the three-and nine-month periods covered by the consolidated financial statements.

Condensed Consolidating Balance Sheets


	September 30, 2011
			Restricted		Restricted					Quicksilver
	Quicksilver		Guarantor		Non-Guarantor		Consolidating			Resources Inc.
	Resources Inc.		Subsidiaries		Subsidiaries		Eliminations			Consolidated
					(In thousands)
ASSETS
Current assets	$	280,905	$	87,401	$	46,836	$	(197,478	)	$	217,664
Property and equipment		2,677,287		97,863		601,655		-			3,376,805
Investment in subsidiaries (equity method)		273,362		-		-		(251,637	)		21,725
Other assets		358,876		-		32,024		(243,620	)		147,280

Total assets	$	3,590,430	$	185,264	$	680,515	$	(692,735	)	$	3,763,474


LIABILITIES AND EQUITY
Current liabilities	$	465,245	$	110,573	$	37,298	$	(197,478	)	$	415,638
Long-term liabilities		2,007,391		21,871		444,400		(243,620	)		2,230,042
Stockholders' equity		1,117,794		52,820		198,817		(251,637	)		1,117,794

Total liabilities and equity	$	3,590,430	$	185,264	$	680,515	$	(692,735	)	$	3,763,474


	December 31, 2010
			Restricted		Restricted					Quicksilver
	Quicksilver		Guarantor		Non-Guarantor		Consolidating			Resources Inc.
	Resources Inc.		Subsidiaries		Subsidiaries		Eliminations			Consolidated
					(In thousands)
ASSETS
Current assets	$	295,697	$	86,582	$	49,424	$	(193,531	)	$	238,172
Property and equipment		2,416,138		68,390		583,317		—			3,067,845
Assets of midstream operations		—		27,178		—		—			27,178
Investment in subsidiaries (equity method)		369,608		—		—		(286,267	)		83,341
Other assets		339,227		—		191		(243,620	)		95,798

Total assets	$	3,420,670	$	182,150	$	632,932	$	(723,418	)	$	3,512,334


LIABILITIES AND EQUITY
Current liabilities	$	496,852	$	106,627	$	53,152	$	(193,531	)	$	463,100
Long-term liabilities		1,864,410		20,346		347,259		(243,620	)		1,988,395
Liabilities of midstream operations		—		1,431		—		—			1,431
Stockholders' equity		1,059,408		53,746		232,521		(286,267	)		1,059,408

Total liabilities and equity	$	3,420,670	$	182,150	$	632,932	$	(723,418	)	$	3,512,334

Condensed Consolidating Statements of Income


	For the Three Months Ended September 30, 2011
				Restricted			Restricted						Quicksilver
	Quicksilver			Guarantor			Non-Guarantor			Consolidating			Resources Inc.
	Resources Inc.			Subsidiaries			Subsidiaries			Eliminations			Consolidated
							(In thousands)
Revenue	$	209,036		$	1,095		$	50,609		$	(847	)	$	259,893
Operating expenses		162,603			1,706			28,450			(847	)		191,912
Equity in net earnings of subsidiaries		14,728			-			-			(14,728	)		-

Operating income (loss)		61,161			(611	)		22,159			(14,728	)		67,981
Income from earnings of BBEP		14,370			-			-			-			14,370
Interest expense and other		(37,003	)		-			(248	)		-			(37,251	)
Income tax (expense) benefit		(9,842	)		213			(6,785	)		-			(16,414	)

Net income (loss)	$	28,686		$	(398	)	$	15,126		$	(14,728	)	$	28,686


	For the Three Months Ended September 30, 2010
				Restricted			Restricted			Restricted			Quicksilver			Unrestricted						Quicksilver
	Quicksilver			Guarantor			Non-Guarantor			Subsidiary			and Restricted			Non-Guarantor			Consolidating			Resources Inc.
	Resources Inc.			Subsidiaries			Subsidiaries			Eliminations			Subsidiaries			Subsidiaries			Eliminations			Consolidated
										(In thousands)
Revenue	$	204,389		$	1,802		$	28,609		$	(894	)	$	233,906		$	30,366		$	(26,572	)	$	237,700
Operating expenses		132,704			30,776			21,689			(894	)		184,275			14,905			(26,572	)		172,608
Equity in net earnings of subsidiaries		(10,600	)		7,465			-			10,600			7,465			-			(7,465	)		-

Operating income (loss)		61,085			(21,509	)		6,920			10,600			57,096			15,461			(7,465	)		65,092
Income from earnings of BBEP		17,024			-			-			-			17,024			-			-			17,024
Interest expense and other		(32,266	)		-			(1,828	)		-			(34,094	)		(3,185	)		-			(37,279	)
Income tax expense		(24,040	)		7,528			(1,711	)		-			(18,223	)		(45	)		-			(18,268	)

Net income (loss)	$	21,803		$	(13,981	)	$	3,381		$	10,600		$	21,803		$	12,231		$	(7,465	)	$	26,569
Net income attributable to noncontrolling interests		-			-			-			-			-			(4,766	)		-			(4,766	)

Net income (loss) attributable to Quicksilver	$	21,803		$	(13,981	)	$	3,381		$	10,600		$	21,803		$	7,465		$	(7,465	)	$	21,803


	For the Nine Months Ended September 30, 2011
				Restricted			Restricted						Quicksilver
	Quicksilver			Guarantor			Non-Guarantor			Consolidating			Resources Inc.
	Resources Inc.			Subsidiaries			Subsidiaries			Eliminations			Consolidated
							(In thousands)
Revenue	$	591,394		$	3,584		$	128,333		$	(2,785	)	$	720,526
Operating expenses		442,166			4,512			130,769			(2,785	)		574,662
Equity in net earnings of subsidiaries		(6,575	)		-			-			6,575			-

Operating income (loss)		142,653			(928	)		(2,436	)		6,575			145,864
Loss from earnings of BBEP		(32,721	)		-			-			-			(32,721	)
Interest expense and other		(3,182	)		-			(3,500	)		-			(6,682	)
Income tax (expense) benefit		(40,235	)		324			(35	)		-			(39,946	)

Net income (loss)	$	66,515		$	(604	)	$	(5,971	)	$	6,575		$	66,515


	For the Nine Months Ended September 30, 2010
				Restricted			Restricted			Restricted			Quicksilver			Unrestricted						Quicksilver
	Quicksilver			Guarantor			Non-Guarantor			Subsidiary			and Restricted			Non-Guarantor			Consolidating			Resources Inc.
	Resources Inc.			Subsidiaries			Subsidiaries			Eliminations			Subsidiaries			Subsidiaries			Eliminations			Consolidated
										(In thousands)
Revenue	$	582,283		$	5,013		$	93,158		$	(2,219	)	$	678,235		$	82,299		$	(72,106	)	$	688,428
Operating expenses		364,202			35,129			68,831			(2,219	)		465,943			44,787			(72,106	)		438,624
Equity in net earnings of subsidiaries		5,546			17,414			-			(5,546	)		17,414			-			(17,414	)		-

Operating income (loss)		223,627			(12,702	)		24,327			(5,546	)		229,706			37,512			(17,414	)		249,804
Income from earnings of BBEP		24,203			-			-			-			24,203			-			-			24,203
Interest expense and other		(60,667	)		-			(5,050	)		-			(65,717	)		(8,808	)		-			(74,525	)
Income tax (expense) benefit		(70,369	)		4,446			(5,475	)		-			(71,398	)		(171	)		-			(71,569	)

Net income (loss)	$	116,794		$	(8,256	)	$	13,802		$	(5,546	)	$	116,794		$	28,533		$	(17,414	)	$	127,913
Net income attributable to noncontrolling interests		-			-			-			-			-			(11,119	)		-			(11,119	)

Net income (loss) attributable to Quicksilver	$	116,794		$	(8,256	)	$	13,802		$	(5,546	)	$	116,794		$	17,414		$	(17,414	)	$	116,794

Condensed Consolidating Statements of Cash Flows


	For the Nine Months Ended September 30, 2011
				Restricted			Restricted			Quicksilver
	Quicksilver			Guarantor			Non-Guarantor			Resources Inc.
	Resources Inc.			Subsidiaries			Subsidiaries			Consolidated
				(In thousands)
Net cash flow provided by operations	$	126,921		$	2,224		$	45,521		$	174,666
Capital expenditures		(402,286	)		(2,224	)		(146,444	)		(550,954	)
Proceeds from sale of BBEP units		145,799			-			-			145,799
Proceeds from sale of properties and equipment		2,515			-			1,204			3,719

Net cash flow used by investing activities		(253,972	)		(2,224	)		(145,240	)		(401,436	)
Issuance of debt		402,500			-			246,319			648,819
Repayments of debt		(313,880	)		-			(142,006	)		(455,886	)
Debt issuance costs		(7,467	)		-			(2,809	)		(10,276	)
Proceeds from exercise of stock options		733			-			-			733
Purchase of treasury stock		(4,841	)		-			-			(4,841	)

Net cash flow provided by financing activities		77,045			-			101,504			178,549
Effect of exchange rates on cash		-			-			(114	)		(114	)

Net increase (decrease) in cash and equivalents		(50,006	)		-			1,671			(48,335	)
Cash and equivalents at beginning of period		54,937			-			-			54,937

Cash and equivalents at end of period	$	4,931		$	-		$	1,671		$	6,602


	For the Nine Months Ended September 30, 2010
				Restricted			Restricted			Quicksilver			Unrestricted						Quicksilver
	Quicksilver			Guarantor			Non-Guarantor			and Restricted			Non-Guarantor			Consolidating			Resources Inc.
	Resources Inc.			Subsidiaries			Subsidiaries			Subsidiaries			Subsidiaries			Eliminations			Consolidated
										(In thousands)
Net cash flow provided by operating activities	$	257,090		$	593		$	59,704		$	317,387		$	44,873		$	(14,870	)	$	347,390
Capital expenditures		(380,507	)		(593	)		(53,362	)		(434,462	)		(52,470	)		(7,406	)		(494,338	)
Distribution to parent		80,276			-			-			80,276			(80,276	)		-			-
Proceeds from sale of BBEP units		22,498									22,498			-			-			22,498
Proceeds from sale of properties and equipment		1,030			-			-			1,030			-			-			1,030

Net cash flow used by investing activities		(276,703	)		(593	)		(53,362	)		(330,658	)		(132,746	)		(7,406	)		(470,810	)
Issuance of debt		478,500			-			39,532			518,032			143,200			-			661,232
Repayments of debt		(414,500	)		-			(46,443	)		(460,943	)		(30,100	)		-			(491,043	)
Debt issuance costs		(109	)		-			-			(109	)		-			-			(109	)
Gas Purchase Commitment — net		(25,900	)		-			-			(25,900	)		-			-			(25,900	)
Issuance of KGS common units		-			-			-			-			11,054			-			11,054
Distributions to parent		-			-						-			(22,276	)		22,276			-
Distributions to noncontrolling interests		-			-			-			-			(13,550	)		-			(13,550	)
Proceeds from exercise of stock options		1,388			-			-			1,388			-			-			1,388
Treasury transactions — equity		(4,851	)		-			-			(4,851	)		(1,144	)		-			(5,995	)

Net cash flow provided (used) by financing activities		34,528			-			(6,911	)		27,617			87,184			22,276			137,077
Effect of exchange rates on cash		-			-			(306	)		(306	)		-			-			(306	)

Net increase (decrease) in cash and equivalents		14,915			-			(875	)		14,040			(689	)		-			13,351
Cash and equivalents at beginning of period		5			-			1,034			1,039			746			-			1,785

Cash and equivalents at end of period	$	14,920		$	-		$	159		$	15,079		$	57		$	-		$	15,136