EX-99.1 10 usac-20181231ex9913c0ee0.htm EX-99.1

Exhibit 99.1

Unaudited Pro Forma Condensed Consolidated Financial Statements

Introduction

The Unaudited Pro Forma Condensed Consolidated Financial Statements (the “pro forma financial statements”) combine the historical consolidated financial statements of CDM Resource Management LLC and CDM Environmental & Technical Services LLC (collectively, “CDM”), the accounting acquirer of USA Compression Partners, LP (the “Partnership”), and the historical consolidated financial statements of the Partnership, the acquired entity, to illustrate the effect of the Transactions described below.

The following pro forma financial statements were based on, and should be read in conjunction with, (i) the accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements, (ii) the audited historical consolidated financial statements and related notes thereto of the Partnership, included in its Annual Report on Form 10-K for the year ended December 31, 2018 and (iii) the unaudited historical condensed consolidated financial statements and related notes thereto of the Partnership, included in its quarterly report on Form 10-Q for the three months ended March 31, 2018.

The historical consolidated financial statements have been adjusted in the pro forma financial statements to give effect to pro forma events that are (a) directly attributable to the transactions described below, (b) factually supportable and (c) expected to have a continuing impact on the combined results. The Unaudited Pro Forma Condensed Consolidated Statement of Operations (the “pro forma statement of operations”) for the year ended December 31, 2018, gives effect to the transactions described below as if they occurred on January 1, 2018. The pro forma statement of operations for the year ended December 31, 2018 includes (i) the audited historical consolidated statement of operations of the Partnership for the year ended December 31, 2018, which includes the results of operations for CDM for the three months ended March 31, 2018 and the results of the combined businesses for the nine months ended December 31, 2018, (ii) the historical unaudited condensed consolidated statement of operations for USA Compression Partners, LP for the three months ended March 31, 2018, which reflects the results of operations prior to the Transactions described below, and (iii) the pro forma adjustments described in Note 1. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2018 is not presented since the transactions are reflected in the Partnership’s historical balance sheet as of December 31, 2018 and no pro forma adjustments for the Transactions are required.

The pro forma financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission. The pro forma financial statements have been presented for informational purposes only and are based upon available information and certain assumptions that the Partnership’s management believes are reasonable under the circumstances. These pro forma financial statements are not necessarily indicative of what the combined entity’s results of operations would have been had the Transactions been completed on the date indicated. We have incurred and expect to incur additional costs to integrate CDM and the Partnership’s businesses. The pro forma financial statements do not reflect the cost of any integration activities or benefits that may result from synergies related to the Transactions that may be derived from any integration activities. In addition, the pro forma financial statements do not purport to project the future results of operations of the combined entity.

Description of the Transactions

General Partner Purchase Agreement

On April 2, 2018 (the “Transactions Date”), and in connection with the closing of the CDM Acquisition discussed below, the transactions contemplated by the Purchase Agreement dated January 15, 2018, by and among Energy Transfer Equity, L.P. (“ETE”), Energy Transfer Partners, L.L.C., USA Compression Holdings, LLC (“USA Compression Holdings”) and, solely for certain purposes therein, R/C IV USACP Holdings, L.P. and Energy Transfer Partners, L.P. (“ETP”) were consummated, pursuant to which, among other things, ETE acquired from USA Compression Holdings (i) all of the outstanding limited liability company interests in the Partnership’s general partner and (ii) 12,466,912 common units representing limited partner interests in the Partnership (the “common units”) for cash consideration paid by ETE to USA Compression Holdings equal to $250.0 million (the “GP Purchase”).

In October 2018, ETE and ETP completed the merger of ETP with a wholly owned subsidiary of ETE in a unit-for-unit exchange (the “ETE Merger”). Following the closing of the ETE Merger, ETE changed its name to “Energy Transfer LP” and ETP changed its name to “Energy Transfer Operating, L.P.” Upon the closing of the ETE Merger, ETE contributed to ETP 100% of the limited liability company interests in the General Partner.

Equity Restructuring Agreement

On the Transactions Date, and in connection with the closing of the CDM Acquisition discussed below, we consummated the transactions contemplated by the Equity Restructuring Agreement dated January 15, 2018, pursuant to which, among other things, the Partnership, USA Compression GP, LLC (the “General Partner”) and ETE agreed to cancel the Partnership’s Incentive Distribution Rights (“IDRs”) and convert the General Partner Interest (as defined in the Equity Restructuring Agreement) into a non-economic general partner interest, in exchange for the Partnership’s issuance of 8,000,000 common units to the General Partner (the “Equity Restructuring”).

CDM Acquisition

On the Transactions Date, the Partnership consummated the transactions contemplated by the Contribution Agreement dated January 15, 2018, pursuant to which, among other things, the Partnership acquired all of the issued and outstanding membership interests of CDM from ETP (the “CDM Acquisition”), in exchange for aggregate consideration of approximately $1.7 billion, consisting of (i) 19,191,351 common units, (ii) 6,397,965 Class B units representing limited partner interests in us (“Class B Units”) and (iii) $1.2 billion in cash (including customary closing adjustments).

The GP Purchase, Equity Restructuring and CDM Acquisition are collectively referred to as the “Transactions.”

Senior Notes

On March 23, 2018, to finance a portion of the cash purchase price for the CDM Acquisition, the Partnership and USA Compression Finance Corp. co-issued $725.0 million aggregate principal amount of senior notes that mature on April 1, 2026. The notes accrue interest from March 23, 2018 at the rate of 6.875% per year. Interest on the notes is payable semi-annually in arrears on April 1 and October 1, with the first such payment having occurred on October 1, 2018.

Preferred Units and Warrants

On the Transactions Date, to finance a portion of the cash purchase price for the CDM Acquisition, the Partnership consummated the transactions contemplated by the Series A Preferred Unit and Warrant Purchase Agreement (the “Purchase Agreement”), dated January 15, 2018, between the Partnership and certain investment funds managed or sub-advised by EIG Global Energy Partners (“EIG”) and FS Energy and Power Fund (collectively, the “Purchasers”), whereby the Partnership issued and sold in a private placement (i) $500.0 million in the aggregate of newly authorized and established Series A Preferred Units representing limited partner interests in

the Partnership (the “Preferred Units”) and (ii) two tranches of warrants to purchase our common units (collectively, the “Warrants”). Pursuant to the terms of the Purchase Agreement, on the Transactions Date, the Partnership issued (i) 500,000 Preferred Units to the Purchasers at a price of $1,000 per Preferred Unit, (ii) Warrants to purchase 5,000,000 common units with a strike price of $17.03 per unit and (iii) Warrants to purchase 10,000,000 common units with a strike price of $19.59 per unit. The Warrants may be exercised by the holders thereof at any time beginning on the one year anniversary of the Transactions Date and before the tenth anniversary of the Transactions Date. Upon exercise of the Warrants, we may, at our option, elect to settle the Warrants in common units on a net basis.

Revolving Credit Facility

On the Transactions Date, the Partnership entered into the Sixth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement, among other things, (a) increased the borrowing capacity under the Credit Agreement from $1.1 billion to $1.6 billion, (b) extended the termination date (and the maturity date of the obligations thereunder) from January 6, 2020 to April 2, 2023, (c) subject to the terms in the Credit Agreement, permits up to $400.0 million of future increases in borrowing capacity and (d) made certain changes to the covenants under the Credit Agreement.

Accounting Acquirer

CDM is deemed to be the accounting acquirer of the Partnership in the business combination because its ultimate parent company obtained control of the Partnership through its acquisition of the limited liability company interests in the General Partner. Consequently, CDM is the predecessor of the Partnership for financial reporting purposes and the historical consolidated financial statements of the Partnership relating to periods prior to the Transactions Date, but filed subsequently reflect those of CDM, as the accounting acquirer. CDM’s assets and liabilities retained their historical carrying values. The Partnership’s assets acquired and liabilities assumed by CDM have been recorded at their fair values measured as of the Transactions Date. The excess of the assumed purchase price of the Partnership over the estimated fair values of the Partnership’s net assets acquired has been recorded as goodwill. The assumed purchase price and fair value of the Partnership was determined using a combination of an income and cost valuation methodology, the fair value of the Partnership’s common units as of the Transactions Date and the consideration paid by ETE for the limited liability company interests in the General Partner and IDRs. The valuation and purchase price allocation is considered final.

USA Compression Partners, LP

Pro Forma Condensed Consolidated Statement of Operations

Year ended December 31, 2018

(unaudited, in thousands)

|  | USA Compression |  | USA Compression |  |  |  |  |  |  |
|  | Partners, LP |  | Partners, LP |  |  |  |  |  | Pro Forma
|  | Historical |  | Historical Three |  |  |  |  |  | Combined
|  | Year Ended |  |  | Months Ended |  | Pro Forma |  |  |  | Year Ended
|  | December 31, 2018 |  | March 31, 2018 |  | Adjustments |  |  |  | December 31, 2018
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contract operations |  | $ | 546,896 |  | $ | 76,716 |  | $ | — |  |  |  | $ | 623,612
Parts and service |  |  | 20,402 |  |  | 1,023 |  |  | — |  |  |  |  | 21,425
Related party revenues |  |  | 17,054 |  |  | — |  |  | — |  |  |  |  | 17,054
Total revenues |  |  | 584,352 |  |  | 77,739 |  |  | — |  |  |  |  | 662,091
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of operations, exclusive of depreciation and amortization |  |  | 214,724 |  |  | 25,543 |  |  | (310) | (a) |  |  |  | 239,957
Selling, general and administrative |  |  | 68,995 |  |  | 33,495 |  |  | (36,626) | (b) |  |  |  | 65,864
Depreciation and amortization |  |  | 213,692 |  |  | 25,112 |  |  | 2,664 | (c) |  |  |  | 241,468
Loss (gain) on sale of assets |  |  | 12,964 |  |  | (324) |  |  | — |  |  |  |  | 12,640
Impairment of compression equipment |  |  | 8,666 |  |  | — |  |  | — |  |  |  |  | 8,666
Total costs and expenses |  |  | 519,041 |  |  | 83,826 |  |  | (34,272) |  |  |  |  | 568,595
Operating income (loss) |  |  | 65,311 |  |  | (6,087) |  |  | 34,272 |  |  |  |  | 93,496
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (78,377) |  |  | (9,219) |  |  | (15,069) | (d) |  |  |  | (102,665)
Other |  |  | 41 |  |  | 6 |  |  | — |  |  |  |  | 47
Total other expense |  |  | (78,336) |  |  | (9,213) |  |  | (15,069) |  |  |  |  | (102,618)
Net income (loss) before income tax expense (benefit) |  |  | (13,025) |  |  | (15,300) |  |  | 19,203 |  |  |  |  | (9,122)
Income tax expense (benefit) |  |  | (2,474) |  |  | 70 |  |  | — |  |  |  |  | (2,404)
Net income (loss) |  |  | (10,551) |  |  | (15,370) |  |  | 19,203 |  |  |  |  | (6,718)
Less: Preferred unit distributions |  |  | (36,430) |  |  | — |  |  | (12,320) | (e) |  |  |  | (48,750)
Net income (loss) attributable to Common and Class B unitholders' interests |  | $ | (46,981) |  | $ | (15,370) |  | $ | 6,883 |  |  |  | $ | (55,468)
Net income (loss) allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |
General partner’s interest in net income |  | $ | — |  | $ | (773) |  | $ | 773 | (f) |  |  | $ | —
Limited partners’ interest in net income (loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common units |  | $ | (32,053) |  | $ | (14,597) |  | $ | 10,781 | (g) |  |  | $ | (35,869)
Class B Units |  | $ | (14,928) |  | $ | — |  | $ | (4,671) | (g) |  |  | $ | (19,599)
Weighted average common units outstanding - basic and diluted |  |  | 74,481 |  |  | 62,264 |  |  | — |  |  |  |  | 74,481
Weighted average Class B Units outstanding - basic and diluted |  |  | 6,398 |  |  | — |  |  | — |  |  |  |  | 6,398
Basic and diluted net loss per common unit |  | $ | (0.43) |  | $ | (0.23) |  |  |  |  |  |  | $ | (0.48)
Basic and diluted net loss per Class B Unit |  | $ | (2.33) |  | $ | — |  |  |  |  |  |  | $ | (3.06)
Distributions declared per common unit |  | $ | 1.575 |  | $ | 0.525 |  |  |  |  |  |  | $ | 2.100

USA Compression Partners, LP

Notes to Pro Forma Condensed Consolidated Financial Statements

(unaudited)

Note 1:Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Operations

| a. |  | Reflects adjustment to remove $0.3 million of severance charges representing operating expenses that are historical direct and incremental transaction expenses related to the CDM Acquisition.

| b. |  | Reflects adjustment to remove historical direct and incremental transaction expenses related to the CDM Acquisition. These transaction expenses include: (i) $3.9 million of severance charges, (ii) $6.8 million for non-cash unit-based compensation expenses for the change in control of the General Partner which resulted in immediate vesting of outstanding time and performance based phantom units granted to certain employees and (iii) $25.9 million of legal, accounting and other fees.

| c. |  | Adjustments to depreciation and amortization resulting from the adjustment of the Partnership's assets and liabilities to their estimated fair values. Under the acquisition method of accounting, the tangible and intangible assets acquired and liabilities assumed are recorded at their estimated fair values.

| d. |  | Reflects the estimated interest expense associated with the debt incurred to fund the CDM Acquisition and the fees and expenses related to the Transactions. Debt incurred to finance the CDM Acquisition consists of (i) $707.8 million aggregate principal amount of senior notes, net of related debt issuance costs, and (ii) $83.3 million of borrowings under the Credit Agreement. To the extent the actual interest rates are higher than estimated, additional interest expense will be incurred and such expense could be material. A 0.125% increase in the interest rate associated with the Credit Agreement would increase interest expense $0.3 million for the year ended December 31, 2018.

|  | Incremental Interest Expense
(in thousands) |  | Year Ended December 31, 2018
Cash interest (i) |  | $ | 13,225
Amortization of debt issuance costs |  |  | 1,844
Total incremental interest expense |  | $ | 15,069

| (i) |  | Cash interest expense was calculated using a 3.67% annual average interest rate on the Credit Agreement and 6.875% annual interest rate on the senior notes.

| e. |  | Reflects the pro forma distribution associated with the 500,000 Preferred Units. The Preferred Units have a face value of $1,000 per Preferred Unit and accrue distributions at a rate of 9.75% per annum, or $48.8 million per year. The distributions are payable quarterly.

| f. |  | Reflects the conversion of the general partner interest into a non-economic general partner interest in connection with the Equity Restructuring.

| g. |  | Reflects allocation of USA Compression Partners, LP net loss for the three months ended March 31, 2018 and the pro forma adjustments to the common units and Class B Units discussed above.