Kodiak Gas Services, Inc. Acquisition of CSI Compressco LP FAQ
Based on discussions with former CCLP unitholders and other members of the investment community, the following represent their most frequently asked questions, together with responses by Kodiak Gas Services. Please note that the responses below do not address certain matters (including tax consequences) that may be relevant to any CCLP unitholders that properly elected to receive in the transaction units of Kodiak Gas Services, LLC in lieu of shares of KGS common stock, in exchange for their CCLP units. Please refer to the Legal Notice below.
About the CSI Compressco Acquisition
Q: Where can I find additional information about the transaction?
https://kodiakgas.com/csi-compressco-acquisition/
Q: When did the transaction close?
The transaction closed on April 1, 2024.
Q: What consideration did I receive for my CCLP units?
In general, holders of CCLP units received 0.086 shares of KGS common stock for each CCLP unit.
No fractional shares were issued in the transaction. CCLP unitholders were paid cash in lieu of fractional shares.
Q: Will Kodiak personnel be able to help with my tax-related questions?
If you have tax-related questions, please contact your own tax advisor familiar with partnership taxation and, specifically, the taxation of Master Limited Partnership unitholders. Kodiak’s investor relations department is not staffed by tax personnel, and Kodiak personnel are not permitted to provide tax advice.
Q: Can I access the Registration Statement, Proxy Statement/ Prospectus and other documents filed with the SEC?
Kodiak filed with the SEC a registration statement, with an accompanying consent statement/prospectus, on Form S-4, which is available online at www.sec.gov.
Q: What are the expected U.S. federal income tax consequences to the CCLP unitholders resulting from the transaction and how would the transaction affect their taxes?
The exchange of CCLP units for KGS common stock and cash in lieu of fractional shares, if any, by CCLP unitholders (other than those that properly elected to receive units of Kodiak Gas Services, LLC in lieu of KGS common stock) in the transaction is expected be treated as a taxable transaction for U.S. federal income tax purposes.
A U.S. holder of CCLP units that received KGS common stock in the transaction should recognize a taxable gain or loss resulting from the transaction in the same manner as if the unitholder had sold its units for cash equal to the fair market value of the KGS common stock and any cash in lieu of fractional shares that the unitholder received in exchange for its units. Such gain or loss generally should be capital gain or loss, except that a unitholder may recognize ordinary income to the extent of any “unrealized receivables” (including depreciation recapture) or “inventory items” of CCLP allocable to such units. This amount will be reported to unitholders in their final Schedule K-1 information. Passive losses that were suspended and not deductible by a unitholder in prior taxable periods may be available to offset all or a portion of any gain (including recapture) recognized by such unitholder.
In addition, CCLP unitholders will be allocated their share of CCLP’s items of income, gain, loss, and deduction for CCLP’s taxable period ending on the closing date, which will be reported to unitholders in their final Schedule K-1 information.
This response is only a summary and does not address all U.S. federal income or other tax matters that may be relevant to all CCLP unitholders, and in particular, does not address the consequences to any CCLP unitholders that properly elected to receive in the transaction units of Kodiak Gas Services, LLC in lieu of shares of KGS common stock, in exchange for their CCLP units. For additional information for U.S. holders, see the section titled "Material U.S. Federal Income Tax Considerations" of the consent statement/prospectus accompanying the registration statement filed by Kodiak on Form S-4. The tax consequences of the transaction to each CCLP unitholder will be unique and depend on the CCLP unitholder’s particular facts and circumstances. You should consult your own tax advisor to determine the specific consequence of the transaction to you, including under the law of any applicable state, local or foreign jurisdiction, and under any applicable U.S. federal laws other than those pertaining to income taxes.
Q: What are the expected state income tax consequences to the CCLP unitholders resulting from the transaction and how will the transaction affect their state taxes?
The taxable transaction will have state income tax consequences. Your 2024 Schedule K-1 will report state information to help estimate your state income tax impact. You should consult your own tax advisor to determine the specific consequences to you of the transaction.
Q: Where can I find information on the impact to my tax basis?
This event was a fully taxable transaction to CCLP unitholders that exchanged their CCLP units for KGS common stock, and as a result, the new basis in such holders’ KGS shares is equal to the fair market value of the shares received in exchange for CCLP units. For this purpose, the fair market value of the KGS common stock equals the closing price on March 28, 2024, the last trading day before the closing date (that is, $27.34 per share).
Q: Where can I find Form 8937: Report of Organizational Actions Affecting Basis of Securities?
Form 8937 is not applicable in this transaction as the event did not affect the basis of CCLP units.
Q: What tax documents should I expect to receive after the close of the transaction? When should I receive a K-1?
CCLP unitholders will receive a final Schedule K-1 and supporting materials no later than mid-March 2025. Included within this tax package is a final Schedule K-1, an Ownership Schedule, a Sales Worksheet, and a State Tax Schedule.
Q: Where can I find prior year CCLP K-1s?
CCLP unitholders are able to access up to three years of prior tax packages at: taxpackagesupport.com/Compressco.
Q: Will I receive Kodiak dividends after the transaction?
Declaration of dividends is subject to the discretion of the Kodiak Board of Directors.
Q: What type of dividend does KGS pay?
KGS is classified as a corporation for U.S. federal income tax purposes. A distribution of cash, if any, by KGS to a U.S. stockholder will generally be included in such U.S. stockholder’s income as ordinary dividend income to the extent of KGS’s current and accumulated ‘‘earnings and profits’’ as determined under U.S. federal income tax principles. Accordingly, you should expect to generally treat distributions made by Kodiak as ordinary dividend income. Any such dividends received by non-corporate holders are expected to constitute “qualified dividends” subject to U.S. federal income tax at the applicable long-term capital gains rate, provided certain holding period and other requirements are met. You should consult your own tax advisor regarding the treatment of any distributions you may receive from Kodiak.
Q: How will any Kodiak dividends be reported?
Kodiak shareholders will receive an annual IRS Form 1099-DIV reflecting their dividend income.
Q: Is Kodiak’s dividend subject to withholding taxes?
For U.S. stockholders that have provided the applicable withholding agent with a taxpayer identification number or otherwise properly certified that they are not subject to backup withholding, generally no.
Non-U.S. stockholders generally will be subject to U.S. federal withholding taxes, which may be reduced or eliminated in certain circumstances (e.g., pursuant to an applicable treaty) provided that the non-U.S. stockholder has provided the applicable withholding agent with a withholding certificate certifying the holder’s qualification for a reduced rate or exemption. Non-U.S. stockholders should consult their own tax advisor regarding withholding taxes and whether they may be eligible for a reduction or exemption from withholding taxes.
Q: As a CCLP unitholder, was there anything I needed to do or forms that I needed to complete in order to have my shares successfully exchanged in accordance with the offer terms?
Units held in book entry form converted automatically and no unitholder action was required.
Legal Notice
All information in this communication is made as of April 1, 2024. Readers are advised to contact their account administrator or broker, tax advisor and other agents, consultants or advisors for specific questions or advice applicable to their circumstances.
This communication is not all-inclusive and does not purport to contain all of the information that the reader may desire or require with respect to the transaction. None of Kodiak or its affiliates, or any of their respective directors, officers, employees, agents, shareholders or advisors (collectively, the “Representatives”) makes or will make any representation or warranty, express or implied, or shall have any responsibility or liability whatsoever as to, or in relation to, the accuracy, thoroughness or completeness of, or omissions from, any information contained in this communication or in respect of any opinions or other statements expressed herein or omitted here from. Each of Kodiak, its affiliates and their respective Representatives expressly disclaims any liability resulting from the use of the information contained herein or otherwise supplied or resulting from the failure to supply additional information. None of Kodiak or its affiliates, or any of their respective Representatives, undertakes to update or otherwise revise or correct any inaccuracies which become apparent in this communication or other information supplied. In furnishing this communication, Kodiak reserves the right to amend or replace this communication at any time and undertakes no obligation to provide the reader with access to any additional information.