MAGNUM HUNTER RESOURCES CORP - FORM 8-K/A - EX-99.2 - UNAUDITED COMBINED PRO FORMA FINANCIAL INFORMATION - April 30, 2010

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8-K/A - MAGNUM HUNTER RESOURCES CORPORATION - MAGNUM HUNTER RESOURCES CORPmagnum_8ka-021210.htm
EX-99.1 - TRIAD AUDITED COMBINED FINANCIAL STATEMENTS - MAGNUM HUNTER RESOURCES CORPmagnum_8ka-ex9901.htm
EX-23.1 - CONSENT OF APPALACHIAN BASIN CPAS, INC. - MAGNUM HUNTER RESOURCES CORPmagnum_8ka-ex2301.htm
EXHIBIT 99.2
 
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined financial data are derived from the consolidated financial statements of the Company and certain historical financial data in respect of various assets acquired by the Company.  The Unaudited Pro Forma Balance Sheet of the Company as of December 31, 2009 has been prepared assuming the Triad acquisition and all necessary ancillary transactions had been consummated on December 31, 2009.  The Unaudited Pro Forma Income Statement for the year ended December 31, 2009 has been prepared assuming the Triad acquisition and all necessary ancillary transactions had been consummated as of January 1, 2009. The pro forma adjustments set forth on the attached Unaudited Pro Forma Balance Sheet and Unaudited Pro Forma Income Statement reflect the following as if they occurred on the dates hereinabove set forth:
 
 
(1)
Triad Acquisition.  The Triad acquisition as described in the Asset Purchase Agreement dated October 28, 2009 (including the issuance of the Redeemable Convertible Preferred Stock as part of the acquisition price of Triad).
 
(2)
Incurrence of indebtedness under the Amended and Restated Revolving Credit Facility.
 
(3)
Issuance of common stock which occurred between January 1, 2010 and February 12, 2010.  This is included because it was a required condition to close the acquisition.
 
(4)
Issuance of preferred stock as described elsewhere in this document.  This was  included because it is a required condition to close the acquisition.
 
The Unaudited Pro Forma Balance Sheet reflects the preliminary allocations of the purchase price for the acquisition of Triad to the assets and liabilities of the Company. The final allocation of the purchase price, and the resulting effect on the Unaudited Pro Forma Combined Balance Sheet as well as depreciation and depletion expense in the accompanying Unaudited Pro Forma Combined Income Statement, may differ based on the actual final allocation of the purchase price.

The unaudited pro forma combined financial data should be read in conjunction with the notes thereto and with the consolidated financial statements of the Company and the notes thereto as filed in the Company's Form 10-K as of December 31, 2009.  Dollar amounts in the Unaudited Pro Forma Combined Balance Sheet and the Unaudited Pro Forma Combined Income Statement are in thousands.  Dollar amounts in the Notes to the Unaudited Pro Forma Combined Financial Data are not in thousands, except where indicated in the tables thereto.

The unaudited pro forma combined financial data are not indicative of the financial position or results of operations of the Company which would actually have occurred if the transactions described above had occurred at the dates presented or which may be obtained in the future.  In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, changes in prices paid for oil and natural gas, future acquisitions, drilling activity and other factors.

 
1
 

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2009
(dollars in thousands)
 
   
Magnum Hunter
    
Pro Forma
    
Note
        
   
Historical
    
Adjustments
    
Ref
    
Pro Forma
  
ASSETS:
                        
Current Assets
                        
Cash & Equivalents
  
$
2,282
    
$
(368)
      
(6)
    
$
1,914
  
Accounts Receivables
    
3,236
      
2,393
      
(1)
      
5,629
  
Derivative Assets
    
1,261
      
-
              
1,261
  
Other Current Assets
    
94
      
1,134
      
(1)
      
1,228
  
Total Current Assets
    
6,873
      
3,159
              
10,032
  
                                 
Property and Equipment
                                
Oil and natural gas properties, successful efforts accounting
                                
Unproved
    
11,888
      
21,019
      
(1)
      
32,907
  
Proved Properties, Net
    
45,470
      
48,999
      
(1)
      
94,469
  
Machinery, Equipment and Other, net
    
181
      
9,257
      
(1)
      
9,438
  
Total Property and Equipment, net
    
57,539
      
79,275
              
136,814
  
                                 
Other Assets
                                
Derivative Assets
    
1,092
      
-
              
1,092
  
Deferred financing costs, net of amortization
    
1,013
      
2,601
      
(2)
      
3,614
  
Other Assets
    
67
      
529
      
(1)
      
596
  
                                 
TOTAL ASSETS
  
$
66,584
    
$
85,564
            
$
152,148
  
                                 
LIABILITIES & EQUITY:
                                
Current Liabilities
                                
Accounts Payable
  
$
4,852
    
$
1,724
      
(1)
    
$
6,576
  
Accrued Liabilities
    
886
      
690
      
(1)
      
1,576
  
Distribution Payable
    
342
      
1,767
      
(1)
      
2,109
  
Other Current Liabilities
    
95
      
99
      
(1)
      
194
  
Current Portion of  Notes Payable
    
44
      
867
      
(1)
      
911
  
Total Current Liabilities
    
6,219
      
5,147
              
11,366
  
                                 
Notes Payable, Revolving Credit Agreement
    
13,000
      
52,000
      
(3)
      
65,000
  
                                 
Notes Payable for Equipment, less current portion
    
-
      
2,522
      
(1)
      
2,522
  
Asset Retirement Obligation
    
2,032
      
2,098
      
(1)
      
4,130
  
Payable on Sale of Partnership
    
641
      
- 
              
641
  
TOTAL LIABILITIES
    
21,892
      
61,767
              
83,659
  
                                 
Redeemable Convertible Preferred Stock, Series B
    
-
      
14,186
      
(1)
      
14,186
  
Redeemable Perpetual Preferred Stock, Series C
    
5,374
      
1,453
      
(10)
      
6,827
  
                                 
Shareholders Equity
                                
Common stock, $0.01 par value
    
506
      
44
      
(4)
      
550
  
Additional Paid-In-Capital
    
71,936
      
9,253
      
(4)
      
81,189
  
Deposit on Triad Acquisition
    
      (1,310
)
    
-
      
(4)
      
(1,310 
)
Accumulated Deficit
    
(33,136
)
    
(1,139
)
    
(5)
      
(34,275
)
Total MHR Shareholders' Equity
    
37,996
      
8,158
              
46,154
  
Non-Controlling Interest
    
1,322
      
-
              
1,322
  
Total Equity
    
39,318
      
8,158
              
47,476
  
                                 
TOTAL LIABILITIES & EQUITY:
  
$
66,584
    
$
85,564
            
$
152,148
  
 
 See accompanying notes to Unaudited Pro Forma Combined Financial Data
 
 
2
 

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Year Ended December 31, 2009
(dollars and shares in thousands, except per share data)

   
Magnum Hunter
    
Triad
    
Pro Forma
  
Note
      
   
Historical
    
Historical
    
Adjustments
  
Ref
  
Pro Forma
  
Revenue:
        
(Note 1)
                
Oil and Gas Sales
  
$
10,035
    
$
17,095
    
$
-
      
$
27,130
  
Field Operations
    
-
      
6,280
      
-
        
6,280
  
Other Income
    
223
      
(40
) 
    
-
        
183
  
Gain(Loss) on Sale
    
14
      
526
      
-
        
540
  
Total Revenue
    
10,272
      
23,861
      
-
        
34,133
  
                                   
Expenses:
                                  
Lease Operating Expenses
    
5,278
      
6,257
      
-
        
11,535
  
Field Operations
    
-
      
6,649
      
-
        
6,649
  
Exploration
    
896
      
446
      
-
        
1,342
  
Depreciation, Depletion and Accretion
    
5,134
      
7,467
      
(2,607
) 
(7)
    
9,994
  
General and Administrative
    
8,491
      
2,363
      
-
        
10,854
  
Total Expenses
    
19,799
      
23,182
      
(2,607
) 
      
40,374
  
                                   
Income (Loss) From Operations
    
(9,527
)
    
679
      
2,607
        
(6,241
)
                                   
Other Income and (Expense)
                                  
Interest Income
    
1
      
26
      
-
        
27
  
Interest Expense
    
(3,336
)
    
(1,641
)
    
971
  
(8)
    
(4,006
)
Bankruptcy Professional Fees
    
-
      
(4,279
)
    
-
        
(4,279
)
Gain (Loss) on Derivative Contracts
    
(2,325
)
    
600
      
-
        
(1,725
)
                                   
Net Loss
    
(15,187
)
    
(4,615
)
    
3,578
        
(16,224
)
                                   
Less: Net Loss Attributable to Noncontrolling Interest
    
63
      
-
      
-
        
63
  
                                   
Net Loss Attributable to Magnum Hunter Resources Corporation
    
(15,124
)
    
(4,615
)
    
3,578
        
(16,161
)
                                   
Dividend on Preferred Stock
    
(26
) 
    
-
      
(1,127
)
(9),(10)
    
(1,153
)
                                   
Net Loss Attributable to Common Stockholders
  
$
(15,150
)
  
$
(4,615
)
  
$
2,451
      
$
(17,314
)
                                   
Earnings Per Common Share
                                  
Basic and Diluted
  
$
(0.39
)
                    
$
(0.34
)
                                   
Weighted Average Number of Common Shares Outstanding
                                  
Basic and Diluted
    
38,954
      
-
      
12,038
  
(4)
    
50,992
  
  
See accompanying notes to Unaudited Pro Forma Combined Financial Data
  
 
3
 
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
 

 
(1)
To record the acquisition of Triad’s assets for an estimated purchase price of $87.2 million.  The estimated purchase price includes payment in cash on loans under Triad’s existing revolving and term credit agreement, the payoff in cash of existing debtor in possession financing, the payoff in cash of certain other Triad liabilities and costs at closing, the assumption of certain notes payable related to equipment included in the transaction, the assumption of certain other current liabilities of Triad, and the issuance to Triad’s designees of Redeemable Convertible Preferred Stock of the Company. The acquisition is accounted for under the purchase method of accounting.  All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment.  The Company incurred additional legal and professional fees connected with this transaction of $1.1 million subsequent to December 31, 2009, which were expensed. The following table summarizes the assets acquired and purchase price paid:
 
ASSETS ACQUIRED (at fair market value):
    (dollars in thousands)  
Unproved oil and gas properties
  
$
21,019
  
Proved oil and gas properties
    
48,999
  
Equipment and other fixed assets
    
9,257
  
Other non current assets
    
529
  
Cash and cash equivalents
    
3,832
  
Accounts receivable
    
2,393
  
Other current assets
    
1,134
  
Total assets acquired
  
$
87,163
  
         
PURCHASE PRICE (at fair market value)
     (dollars in thousands)   
Cash payments at closing:
        
Payment of Triad liabilities at closing
  
$
63,211
  
         
Liabilities assumed:
        
Notes payable for equipment
    
3,389
  
ARO assumed
    
2,098
  
Accounts payable
    
1,724
  
Accrued liabilities
    
690
  
Distribution payable
    
1,767
  
Other current liabilities
    
98
  
Total liabilities assumed
    
9,766
  
         
Redeemable Convertible Preferred Stock
        
Stated value $15 million, reflected at estimated current fair market value
    
14,186
  
Total purchase price paid
  
$
87,163
  
         
Decrease in cash from the acquisition:
        
Cash payment portion of purchase price
  
$
63,211
  
Estimated legal and professional transaction fees
    
1,139
  
Less cash and equivalents acquired from Triad
    
(3,832
)
Net decrease in cash from the acquisition
  
$
60,518
  
 
The combined historical financial statements of Triad and certain of its affiliates attached as Exhibit 99.1 to this Current Report on Form 8-K/A (i) include TriTex Energy, L.L.C. and TriTex Resources L.L.C., affiliates of Triad, the assets of which were not acquired by the Company pursuant to the Acquisition, and (ii) do not include Alpha Drilling Ltd., an affiliate of Triad, the assets of which were acquired by the Company pursuant to the Acquisition.  The Triad historical information included in the Unaudited Pro Forma Combined Balance Sheet and Income Statement has been adjusted to exclude TriTex Energy, L.L.C. and TriTex Resources L.L.C. and to include Alpha Drilling, Ltd.
  
 
4
 
 
 
(2)
To record the estimated deferred financing fees associated with the Company’s Amended and Restated Revolving Credit Facility, of $2.6 million. 
  
 
(3)
To record new borrowings and refinancing associated with the Triad acquisition as follows:

      (dollars in thousands)   
Borrowings under revolving credit facility
    
52,000
  
         
Fees paid on new credit facility
    
(2,601
)
Net proceeds from New Credit Facility
  
$
49,399
  
  
 
(4)
To record the issuance of common stock for the purpose of securing cash necessary for the acquisition of Triad.  The issuance occurred at various times between January 1, 2010 and February 12, 2010.  We issued approximately 4.4 million common shares for net proceeds of approximately $9.4 million during this period. The Company’s common stock has a par value of one cent per share.  The Company incurred fees of $59 thousand to register the common stock under a Universal Shelf Registration Statement.  During the fourth quarter of 2009, the Company issued approximately 8.9 million shares of common stock for the purpose of securing cash necessary for completing the acquisition of Triad.  These shares, along with those issued between January 1, 2010 and February 12, 2010, were recorded as if they had been issued on January 1, 2009 for purposes of calculating the weighted average common shares outstanding shown on the Unaudited Pro Forma Combined Income Statement and for purposes of calculating net loss per share.  The Company also issued 762 thousand shares of its common stock as a deposit on the Triad Acquisition during the fourth quarter of 2009, which was recorded as a negative adjustment to stockholders equity.  Those shares were subsequently returned to the Company upon completion of the Triad acquisition and are currently held as treasury stock.

 
(5)
To record the Company's charge against earnings of $1.1 million resulting from the estimated legal and professional fees incurred in the Triad acquisition.

  
(6)
To record the  change in cash as a result of the Triad acquisition, the borrowing and repayment under the new and old revolving credit facilities, respectively, and the net proceeds from the issuance of common stock. The following table summarizes the changes in cash and equivalents as reflected on the pro forma balance sheet:

      (dollars in thousands)  
Net proceeds from New Credit Facility (see Note 3)
  
$
49,399
  
Net proceeds from the issuance of common stock (see Note 4)
    
9,400
  
Net proceeds from the issuance of preferred stock (see Note 10)
    
1,410
  
Fees paid for the registration of common and preferred stocks (see Note 4)
    
(59
) 
Net change in cash from the acquisition of Triad (see Note 1)
    
(60,518
)
Net change to cash and cash equivalents
  
$
(368
) 
  
 
(7)
To record the pro forma adjustment to depletion and depreciation expense as the result of treating the acquisition of Triad as if it had occurred January 1, 2009. Depletion was calculated using the units of production method.  Depreciation was computed using the straight-line method based on the following useful lives:

Gas gathering system
 20 years
  
Disposal well
 20 years
  
Machinery and equipment
  5 years
  
     
 
(8)
To record the pro forma adjustment to interest expense as the result of treating the acquisition of Triad, the borrowing and repayment under the new and old revolving credit agreements, and the proceeds from the issuance of common stock and preferred stock  as if they occurred January 1, 2009.
     
 
(9)
To record the effect of the issuance of the Series B Redeemable Convertible Preferred Stock as if it had been issued at January 1, 2009. The Series B Redeemable Convertible Preferred Stock had a stated value of $15 million and was recorded at its estimated fair value of $14.2 million at February 12, 2010. The difference between the fair value and stated value will be accreted as a dividend over the life of the issue. The Series B Preferred Stock pays a cash dividend of 2.75% of stated value annually.  The total dividend on the Series B Preferred Stock was $453 thousand, including accretion.
     
 
(10)
To record the effect of the issuance of the Series C Preferred Stock for the purpose of securing cash necessary for the acquisition of Triad as if it had been issued at January 1, 2009.  The Series C Preferred Stock had a stated value of approximately $1.5 million and pays a 10.25% cash dividend on stated value.  Net proceeds after selling expenses of $43 thousand were approximately $1.4 million.  The dividend on the Series C Preferred Stock that was issued in the fourth quarter of 2009 was also calculated as if the stock had been issued at January 1, 2009.  The total dividends on Series C Preferred Stock reflected on the Unaudited Pro Forma Combined Income Statement were $700 thousand.
 
 
5
 

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