Exhibit 99.3
CSI Compressco LP
Unaudited Pro Forma Condensed Combined Financial Information
On November 10, 2021, CSI Compressco LP (the “Partnership”) entered into a Contribution Agreement (the “Contribution Agreement”) by and among the Partnership, CSI Compressco GP LLC, a Delaware limited liability company and the general partner of the Partnership (the “General Partner”), Spartan Energy Partners, LP, a Delaware limited partnership (“Contributor”), and CSI Compressco Sub Inc., a Delaware corporation (“Compressco Sub”). Pursuant to the terms of the Contribution Agreement, Contributor contributed to the Partnership 100% of the limited liability company interest in Treating Holdco, LLC, a Delaware limited liability company (“Treating Holdco”), 100% of the common stock in Spartan Terminals Operating, Inc., a Delaware corporation (“Spartan Terminals”), and 99% of the limited liability company interests in Spartan Operating Company LLC, a Delaware limited liability company (“Spartan Operating” and together with Treating Holdco and Spartan Terminals, “Spartan Treating”) (such interests in Spartan Treating, the “Contributed Interests”) in exchange for 48.4 million common units representing the limited partner interests in the Partnership (“Common Units”). We refer to the acquisition of the Contributed Interests as the “Acquisition.”
In December 2020, Spartan Energy Partners, LP purchased 15 large horsepower compressors from TETRA Technologies, Inc. (“TETRA”) and assumed the corresponding lease agreement (the “Backstop Lease”) with CSI Compressco LP. Upon the commencement of the Contribution Agreement with its General Partner, as discussed above, the Spartan entity that owns the Backstop Lease is now a subsidiary of Compressco Sub, thus the assets, revenues and expenses related to the Backstop Lease are eliminated for consolidation.
The following unaudited pro forma condensed combined financial information is derived from the historical consolidated financial statements of CSI Compressco LP and Spartan Treating and has been adjusted to reflect the following:
• | The Partnership’s acquisition of Spartan Treating for consideration of 48.4 million of the Partnership’s common units |
Certain of the Spartan Treating historical amounts have been reclassified to conform to the financial statement presentation of the Partnership. Additionally, the adjustments columns in the unaudited pro forma condensed combined financial statements below include adjustments and eliminations associated with intercompany transactions between the Partnership and Spartan Treating. The unaudited pro forma condensed combined balance sheet as of September 30, 2021 gives effect to the Acquisition as if they had occurred on September 30, 2021. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 and the nine months ended September 30, 2021 both give effect to the Acquisition as if it had occurred on January 1, 2020.
As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. We are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of our taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. For income tax purposes, Spartan Treating is reported on the Partnership’s U.S. corporate subsidiary return. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying unaudited pro forma condensed combined financial information.
The Partnership currently reflects a deferred tax asset related to net operating loss and credit carryforwards generated by our U.S. corporate subsidiaries that may be subject to a significant annual limitation according to Section 382 of the Internal Revenue Code of 1986, as amended. We believe that it is more likely than not we will not realize all the tax benefits of the deferred tax assets within the allowable carryforward period. Therefore, an appropriate valuation allowance has been provided.
The following unaudited pro forma condensed combined financial information should be read in conjunction with the Partnership’s consolidated financial statements and the related notes thereto, which are included in its Annual Report on Form 10-K for the year ended December 31, 2020 and its Quarterly Report on Form 10-Q for the nine months ended September 30, 2021, and Spartan Treating consolidated financial statements and the related notes thereto, which are included elsewhere in this filing.
CSI Compressco LP
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2021
(In thousands)
CSI Compressco LP As Reported (a) | Spartan Treating As Reported (b) | Pro Forma adjustments | Pro Forma combined | |||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 23,484 | $ | 174 | $ | — | $ | 23,658 | ||||||||||
Trade accounts receivable, net | 48,182 | 3,867 | — | 52,049 | ||||||||||||||
Inventories | 31,894 | 1,269 | — | 33,163 | ||||||||||||||
Prepaid expenses and other current assets | 6,266 | 904 | — | 7,170 | ||||||||||||||
Current assets associated with discontinued operations | 7 | — | — | 7 | ||||||||||||||
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Total current assets | 109,833 | 6,214 | — | 116,047 | ||||||||||||||
Property, plant, and equipment: | ||||||||||||||||||
Land and building | 13,266 | — | — | 13,266 | ||||||||||||||
Compressors and equipment | 989,386 | 60,234 | (14,675 | ) | (c) | 1,034,945 | ||||||||||||
Vehicles | 7,653 | — | — | 7,653 | ||||||||||||||
Construction in progress | 14,274 | — | — | 14,274 | ||||||||||||||
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Total property, plant, and equipment | 1,024,579 | 60,234 | (14,675 | ) | 1,070,138 | |||||||||||||
Less accumulated depreciation | (504,094 | ) | — | 801 | (c) | (503,293 | ) | |||||||||||
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Net property, plant, and equipment | 520,485 | 60,234 | (13,874 | ) | 566,845 | |||||||||||||
Other assets: | ||||||||||||||||||
Intangible assets, net of accumulated amortization | 22,836 | — | — | 22,836 | ||||||||||||||
Operating lease right-of-use assets | 27,136 | — | (7,845 | ) | (c) | 19,291 | ||||||||||||
Deferred tax asset | 10 | — | — | 10 | ||||||||||||||
Other assets | 3,423 | 882 | (248 | ) | (c) | 4,057 | ||||||||||||
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Total other assets | 53,405 | 882 | (8,093 | ) | 46,194 | |||||||||||||
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Total assets | $ | 683,723 | $ | 67,330 | $ | (21,967 | ) | $ | 729,086 | |||||||||
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LIABILITIES AND PARTNERS’ CAPITAL | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 23,923 | $ | 2,956 | $ | — | $ | 26,879 | ||||||||||
Accrued liabilities and other | 48,484 | 2,209 | (2,427 | ) | (c) | 48,266 | ||||||||||||
Amounts payable to affiliates | 2,907 | — | (3,015 | ) | (c) | (108 | ) | |||||||||||
Current portion of long-term debt | 80,331 | — | — | 80,331 | ||||||||||||||
Current liabilities associated with discontinued operations | 140 | — | — | 140 | ||||||||||||||
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Total current liabilities | 155,785 | 5,165 | (5,442 | ) | 155,508 | |||||||||||||
Other liabilities: | ||||||||||||||||||
Long-term debt, net | 560,874 | 29,500 | — | 590,374 | ||||||||||||||
Deferred tax liabilities | 2,624 | — | 11,620 | (g) | 14,244 | |||||||||||||
Long-term affiliate payable | 11,107 | — | (11,107 | ) | (c) | — | ||||||||||||
Operating lease liabilities | 19,187 | — | (5,401 | ) | (c) | 13,786 | ||||||||||||
Other long-term liabilities | 555 | 254 | — | 809 | ||||||||||||||
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Total other liabilities | 594,347 | 29,754 | (4,888 | ) | 619,213 | |||||||||||||
Commitments and contingencies | ||||||||||||||||||
Partners’ capital: | ||||||||||||||||||
General partner interest | (1,475 | ) | — | — | (1,475 | ) | ||||||||||||
Common units | (50,527 | ) | — | 20,774 | (e), (g) | (29,753 | ) | |||||||||||
Other partners’ capital | — | 32,411 | (32,411 | ) | (e) | — | ||||||||||||
Accumulated other comprehensive loss | (14,407 | ) | — | — | (14,407 | ) | ||||||||||||
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Total partners’ capital | (66,409 | ) | 32,411 | (11,637 | ) | (45,635 | ) | |||||||||||
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Total liabilities and partners’ capital | $ | 683,723 | $ | 67,330 | $ | (21,967 | ) | $ | 729,086 | |||||||||
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CSI Compressco LP
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2021
(In thousands, except share amounts)
CSI Compressco LP As Reported (a) | Spartan Treating As Reported (b) | Pro Forma adjustments | Pro forma combined | |||||||||||||||
Revenues: | ||||||||||||||||||
Contract services | $ | 165,956 | $ | 21,040 | $ | (2,261 | ) | (d) | $ | 184,735 | ||||||||
Aftermarket services | 39,242 | 719 | — | 39,961 | ||||||||||||||
Equipment sales | 1,564 | — | — | 1,564 | ||||||||||||||
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Total revenues | 206,762 | 21,759 | (2,261 | ) | 226,260 | |||||||||||||
Cost of revenues (excluding depreciation and amortization expense): | ||||||||||||||||||
Cost of contract services | 82,063 | 5,486 | — | 87,549 | ||||||||||||||
Cost of aftermarket services | 33,340 | 339 | — | 33,679 | ||||||||||||||
Cost of equipment sales | 1,838 | — | — | 1,838 | ||||||||||||||
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Total cost of revenues | 117,241 | 5,825 | — | 123,066 | ||||||||||||||
Depreciation and amortization | 56,222 | 3,337 | (562 | ) | (d) | 58,997 | ||||||||||||
Impairments and other charges | — | — | — | — | ||||||||||||||
Insurance recoveries | — | — | — | — | ||||||||||||||
Selling, general, and administrative expense | 28,143 | 3,437 | — | 31,580 | ||||||||||||||
Interest expense, net | 41,781 | 798 | (1,716 | ) | (d) | 40,863 | ||||||||||||
Other (income) expense, net | 622 | (242 | ) | — | 380 | |||||||||||||
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Net income (loss) before taxes and discontinued operations | (37,247 | ) | 8,604 | 17 | (28,626 | ) | ||||||||||||
Provision for income taxes | 3,042 | — | (138 | ) | (g) | 2,904 | ||||||||||||
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Net income (loss) from continuing operations | (40,289 | ) | 8,604 | 155 | (31,530 | ) | ||||||||||||
Loss from discontinued operations, net of tax | (623 | ) | — | — | (623 | ) | ||||||||||||
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Net income (loss) | $ | (40,912 | ) | $ | 8,604 | $ | 155 | $ | (32,153 | ) | ||||||||
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General partner interest in net loss | $ | (569 | ) | $ | — | $ | — | $ | (569 | ) | ||||||||
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Common units interest in net income (loss) | $ | (40,343 | ) | $ | 8,604 | $ | 155 | $ | (31,584 | ) | ||||||||
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Basic and diluted net loss per common unit: | ||||||||||||||||||
Loss from continuing operations per common unit | $ | (0.83 | ) | $ | — | $ | — | $ | (0.32 | ) | ||||||||
Loss from discontinued operations per common unit | (0.01 | ) | — | — | (0.01 | ) | ||||||||||||
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Net loss per common unit | $ | (0.84 | ) | $ | — | $ | — | $ | (0.33 | ) | ||||||||
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Weighted average common units outstanding: | ||||||||||||||||||
Basic | 47,889,691 | — | 48,400,000 | (e) | 96,289,691 | |||||||||||||
Diluted | 47,889,691 | — | 48,400,000 | (e) | 96,289,691 |
CSI Compressco LP
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
(In thousands, except share amounts)
CSI Compressco LP As Reported (a) | Spartan Treating As Reported (b) | Pro Forma adjustments | Pro forma combined | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Contract services | $ | 228,088 | $ | 31,184 | $ | (251 | ) | (f) | $ | 259,021 | ||||||||||
Aftermarket services | 60,290 | 1,382 | — | 61,672 | ||||||||||||||||
Equipment sales | 13,209 | — | — | 13,209 | ||||||||||||||||
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Total revenues | 301,587 | 32,566 | (251 | ) | 333,902 | |||||||||||||||
Cost of revenues (excluding depreciation and amortization expense): | ||||||||||||||||||||
Cost of contract services | 108,843 | 9,065 | — | 117,908 | ||||||||||||||||
Cost of aftermarket services | 52,444 | 931 | — | 53,375 | ||||||||||||||||
Cost of equipment sales | 12,946 | — | — | 12,946 | ||||||||||||||||
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Total cost of revenues | 174,233 | 9,996 | — | 184,229 | ||||||||||||||||
Depreciation and amortization | 80,007 | 4,398 | (62 | ) | (f) | 84,343 | ||||||||||||||
Impairments and other charges | 15,367 | — | — | 15,367 | ||||||||||||||||
Insurance recoveries | (517 | ) | — | — | (517 | ) | ||||||||||||||
Selling, general, and administrative expense | 34,295 | 5,783 | — | 40,078 | ||||||||||||||||
Interest expense, net | 54,468 | 773 | (191 | ) | (f) | 55,050 | ||||||||||||||
Other (income) expense, net | 3,544 | 918 | — | 4,462 | ||||||||||||||||
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Net income (loss) before taxes and discontinued operations | (59,810 | ) | 10,698 | 2 | (49,110 | ) | ||||||||||||||
Provision for income taxes | 3,144 | — | 2,625 | (g) | 5,769 | |||||||||||||||
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Net income (loss) from continuing operations | (62,954 | ) | 10,698 | (2,623 | ) | (54,879 | ) | |||||||||||||
Loss from discontinued operations, net of tax | (10,886 | ) | — | — | (10,886 | ) | ||||||||||||||
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Net income (loss) | $ | (73,840 | ) | $ | 10,698 | $ | (2,623 | ) | $ | (65,765 | ) | |||||||||
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General partner interest in net loss | $ | (1,037 | ) | $ | — | $ | — | $ | (1,037 | ) | ||||||||||
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Common units interest in net income (loss) | $ | (72,803 | ) | $ | 10,698 | $ | (2,623 | ) | $ | (64,728 | ) | |||||||||
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Basic and diluted net loss per common unit: | ||||||||||||||||||||
Loss from continuing operations per common unit | $ | (1.31 | ) | $ | — | $ | (0.05 | ) | $ | (0.56 | ) | |||||||||
Loss from discontinued operations per common unit | (0.23 | ) | — | — | (0.11 | ) | ||||||||||||||
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Net loss per common unit | $ | (1.54 | ) | $ | — | $ | (0.05 | ) | $ | (0.68 | ) | |||||||||
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Weighted average common units outstanding: | ||||||||||||||||||||
Basic | 47,301,804 | — | 48,400,000 | (e) | 95,701,804 | |||||||||||||||
Diluted | 47,301,804 | — | 48,400,000 | (e) | 95,701,804 |
Notes to the Unaudited Pro Forma Consolidated Financial Statements
Note 1 - Basis of Presentation
On November 10, 2021, the Partnership entered into the Contribution Agreement by and among the Partnership, CSI Compressco GP LLC, a Delaware limited liability company and the General Partner of the Partnership, Spartan Energy Partners, LP, for the contribution of Spartan Treating in exchange for 48.4 million common units representing the limited partner interests in the Partnership, subject to post-closing adjustments.
Historical revenue and cost balances for contract services and equipment rentals of Spartan Treating have been combined with historical Partnership revenue and cost balances for compression and related services as Contract services revenue in the combined statements of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020.
The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma adjustments that are directly attributable to the Acquisition. The preparation of the unaudited pro forma condensed combined financial statements is in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates that affect the reported amounts of revenues and expenses. Actual results could differ from those estimates. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only to reflect the Acquisition and do not purport to represent the Partnership’s financial position or what the actual results of operations would have been had the transaction occurred on the respective dates assumed, nor is it necessarily indicative of the Partnership’s future operating results. However, the pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements reflect estimates and assumptions that the Partnership’s management believes to be reasonable. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial statements have been made.
Note 2 - Pro Forma Adjustments and Assumptions
The pro forma adjustments are based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on the Partnership. The pro forma financial information reflects all adjustments that are, in the opinion of management, necessary to a fair statement of the pro forma financial information presented. The unaudited pro forma consolidated financial statements may not be indicative of the results that actually would have occurred if the Partnership had completed the transactions on the dates indicated or that could be achieved in the future.
a. | Represents historical balances for CSI Compressco LP. |
b. | Represents historical balances for Spartan Treating that were contributed. |
c. | Represents the elimination of the assets and liabilities related to the Backstop Lease between the entities at September 30, 2021. |
d. | Represents the elimination of the revenues and expenses related to the Backstop Lease between the entities for the nine months ended September 30, 2021. |
e. | Reflects 48.4 million units of Partnership common units issued as consideration for the Acquisition. |
f. | Represents the elimination of the revenues and expenses related to the Backstop Lease between the entities for the year ended December 31, 2020. |
g. | Reflects the income tax provision related to Spartan Treating as U.S. corporate subsidiaries. |