EX-99.2 5 v016734_ex99-2.htm
 
EXHIBIT 99.2 
 
 
PRO FORMA FINANCIAL INFORMATION 
 
 
SPIDLE SALES & SERVIES, INC.
 
Unaudited Pro Forma Combined Balance Sheet as of December 31, 2004
Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 2004
Notes to Audited Pro Forma Combined Financial Statements
 

 
 
FLOTEK INDUSTRIES, INC.
 
 
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 
 
 
The following unaudited pro forma combined financial statements give effect to the Spidle acquisition as described in Flotek’s Form 8-K filed on April 22, 2005. The unaudited pro forma combined balance sheet as of December 31, 2004 is presented as if the Spidle acquisition had occurred on that date. The unaudited pro forma combined statement of income for the year ended December 31, 2004 assumes that the Spidle acquisition occurred on January 1, 2004. The purchase price for the Spidle acquisition has been allocated to the assets acquired and liabilities assumed based on estimated fair values, following the completion of an independent appraisal and other evaluations. Statement No. 141, “Accounting for Business Combinations,” was applied to the purchase and the book value of the assets purchased was reduced on a prorate basis by the amount the fair value of the net assets acquired exceeded the total purchase price of the acquisition.
 
 
The unaudited pro forma combined financial statements should be read in conjunction with (i) the historical consolidated financial statements of Flotek included in its Annual Report on Form 10-K for the year ended December 31, 2004 and (ii) the historical combined financial statements of Spidle included in this Form 8-K. The unaudited pro forma combined financial statements are not necessarily indicative of the financial position that would have been obtained or the financial results that would have occurred if the Spidle acquisition had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or financial results in the future. The pro forma adjustments, as described in the Notes to Pro Forma Combined Financial Statements, are based upon available information and certain assumptions that Flotek’s management believes are reasonable.
 
 
 
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FLOTEK INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 2004
(Unaudited) 
 
           
 
    
 
  
   
Flotek
  
Spidle
  
Pro Forma
Adjustments
    
Pro Forma
Combined
  
ASSETS
                    
Current assets:
                    
Cash and cash equivalents
 
$
321,839
  
$
133,673
  
$
(133,673
)
  (a)
$
455,512
  
                 
133,673
   (b)      
Receivables, net
    
3,372,236
   
2,495,877
   
(2,495,877
)
  (a)  
5,868,113
 
                 
2,495,877
   (b)      
Inventories, net
   
2,447,390
   
1,621,735
   
(1,621,735
)
  (a)  
6,364,476
 
                 
6,528,476
   (b)      
                 
(2,611,390
)
  (b)      
Other current assets
   
39,721
   
32,325
   
(32,325
)
  (a)  
72,046
 
      
   
    
 
   
32,325
   (b)   
 
 
Total current assets
   
6,181,186
   
4,283,610
   
2,295,351
      
12,760,147
 
Property, plant and equipment, at cost
    
4,059,630
   
8,068,414
   
(8,068,414
)
  (a)  
12,128,044
 
                 
8,068,414
   (b)      
Accumulated depreciation
    
(1,942,834
)
  
(6,353,422
)
  
6,353,422
   (a)  
(7,333,358
)
                 
(3,708,421
)
  (b)      
                 
(1,709,153
)
  (b)      
                 
27,050
    (c)      
Property, plant and equipment, net
   
2,116,796
   
1,714,992
   
962,898
    (c)  
4,794,686
 
Goodwill, net
   
7,465,725
   
—
   
—
     
7,465,725
 
Patents and other intangible assets, net
   
193,380
   
—
   
—
     
193,380
 
Deferred income tax asset
    
—
   
41,675
   
(41,675
)
  (a)  
41,675
 
                 
41,675
   (b)      
Total assets
 
$
15,957,087
  
$
6,040,277
  
$
3,258,249
    
$
25,255,613
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                            
Current liabilities:
                            
Accounts payable
 
$
2,641,577
  
$
927,436
  
$
(927,436
)
  (a)
$
3,569,013
  
                 
927,436
   (b)      
Accrued liabilities
   
1,617,762
   
269,040
   
(269,040
)
  (a)  
1,886,802
 
                 
269,040
   (b)      
Current portion of long-term debt
   
1,136,467
   
—
   
—
     
2,356,467
 
                 
1,220,000
   (b)      
Amounts due to related parties
   
466,401
   
—
   
—
     
891,401
 
                 
425,000
   (b)      
Total current liabilities
   
5,862,207
   
1,196,476
   
1,645,000
     
8,703,683
 
                             
Long-term debt
   
5,271,987
   
—
   
—
     
10,151,987
 
                 
4,880,000
   (b)      
Long-term debt due to related parties
    
—
   
—
   
850,000
   (b)  
850,000
 
Stockholders’ equity:
                            
Common stock, $.0001 par value
    
667
   
—
   
13
   (b)  
680
 
Additional paid-in capital
    
17,082,141
   
—
           
17,782,128
 
                 
699,987
   (b)      
Retained earnings (accumulated deficit)
    
(12,259,915
)
  
—
   
6,822
    (c)  
(12,232,865
)
                 
20,228
    (c)      
Owner's net investment
    
—
   
4,843,801
   
(4,843,801
)
  (a)  
—
 
Total stockholders’ equity
   
4,822,893
   
4,843,801
   
(4,116,751
)
    
5,549,943
 
Total liabilities and stockholders’ equity
 
$
15,957,087
  
$
6,040,277
  
$
3,258,249
    
$
25,255,613
  
 
 
See Notes to Pro Forma Combined Financial Statements.

2
 
FLOTEK INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004
(Unaudited) 

   
Flotek
  
Spidle
  
Pro Forma
Adjustments
  
Pro Forma
Combined
  
                   
Revenues 
  
$
21,881,289
  
$
16,201,202
  
$
—
  
$
38,082,491
  
                           
Cost of sales 
    
12,529,631
   
10,091,454
   
—
   
22,621,085
 
Gross margin
   
9,351,658
   
6,109,748
   
—
   
15,461,406
 
                           
Expenses:
                          
Selling, general and administrative
   
5,349,594
   
4,608,680
   
—
   
9,958,274
 
Depreciation and amortization
   
689,901
   
—
   
(6,822
)(c)
  
683,079
 
Research and development
   
300,074
   
—
   
—
   
300,074
 
Total expenses
   
6,339,569
   
4,608,680
   
(6,822
)
  
10,941,427
 
Income (loss) from operations
   
3,012,089
   
1,501,068
   
6,822
   
4,519,979
 
                           
Other income (expense):
                          
Interest expense
   
(691,568
)
  
(14,832
)
  
—
   
(706,400
)
Other income (expense)
   
46,264
   
241,672
   
—
   
287,936
 
Taxes
    
   
     
   
     
—
   
—
 
Total other income (expense)
   
(645,304
)
  
226,840
   
—
   
(418,464
)
Income before income taxes
    
2,366,785
   
1,727,908
   
6,822
   
4,101,515
 
                           
Provision for income taxes
    
(213,096
)
  
(589,359
)
  
—
   
(802,455
)
                           
Net income applicable to common stock
  
$
2,153,689
  
$
1,138,549
  
$
6,822
  
$
3,299,060
  
           
             
Basic and diluted earnings (loss) per common
                          
share from:
                          
Continuing operations
 
$
0.32
        
$
—
  
$
0.49
  
Discontinued operations
   
—
         
—
   
—
 
Disposal of discontinued operations
   
—
   
 
   
—
   
—
 
Basic earnings (loss) per common share
 
$
0.32
    
 
 
$
—
  
$
0.49
  
 
                      
$
—
  
Diluted earnings (loss) per common share
 
$
0.31
    
 
 
$
—
  
$
0.46
  
                             
                             
Weighted average common shares used in
                            
computing earnings (loss) per common share
    
6,659,395
           
129,271
 (b)
  
6,788,666
 
Incremental common shares from stock options
   
353,742
   
 
   
—
   
353,742
 
Diluted
    
7,013,137
   
 
   
129,271
   
7,142,408
  
 
 
See Notes to Pro Forma Combined Financial Statements.


3
 
FLOTEK INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited) 



(a)
To reverse the historical cost of the individual assets and liabilities of Spidle Sales & Service, Inc., and the offsetting owner’s net investment.

(b) To reflect the allocation of the purchase price to the assets acquired and liabilities assumed. All Spidle assets and liabilities, including long-term debt, were purchased in this agreement.
 
Flotek Industries applied Statement No. 141, “Accounting for Business Combinations,” to the acquisition of Spidle Sales & Service. Statement No. 141 requires that the reported book value of the assets of the purchased company be reduced on a prorata basis by the amount the fair value of the net assets acquired over the total purchase price for the acquisition. Any excess is recognized in income as an extraordinary gain. The appraised investment shown below is based on an independent appraisal, so no adjustments are expected. In applying Statement No. 141 to the transaction, the net value of inventories was pushed down by $2.6 million and the net value of property, plant and equipment was pushed down by $1.7 million to eliminate the excess of appraised investment over purchase price. There was no remaining excess in fair value of net assets acquired over purchase price, so it was not necessary to recognize an extraordinary gain on acquisition.
 
   
Appraised
Investment
  
Application
of FAS 141
  
Recorded
Investment
  
Cash
  
$
133,673
        
$
133,673
  
Receivables
    
2,495,877
         
2,495,877
 
Inventories
    
6,528,476
   
(2,611,390
)
  
3,917,086
 
Other current assets and prepaids
    
32,325
         
32,325
 
Property, plant and equipment
    
4,359,993
   
(1,709,153
)
  
2,650,840
 
Deferred income tax asset
    
41,675
         
41,675
 
Accounts payable
    
(927,436
)
        
(927,436
)
Accrued liabilities
    
(112,828
)
        
(112,828
)
Federal income taxes payable
    
(156,212
)
        
(156,212
)
Total purchase price
    
8,075,000
    
          
   
8,075,000
 
Excess of investment over purchase price
  
$
(4,320,543
)
$
(4,320,543
)
$
—
  
 
The total purchase price consisted of: (1) $6.1 million in cash (2) a $1.275 million note payable to the seller over three years, and (3) 129,271 shares of Flotek common stock valued at the ten day weighted average closing price, $5.42.
 
(c)
Property and equipment is stated at appraised fair value reduced by its pro rata portion of the excess fair value of net assets acquired over the total purchase price for the acquisition. Spidle used an accelerated depreciation method and Flotek uses the straight-line method. Spidle’s useful life of transportation equipment was 5 years and Flotek’s is 3 years. Spidle’s useful life of buildings and leasehold improvements was 10-20 years and Flotek’s is 20 years. All other useful lives are the same. We reduced Spidle’s accumulated depreciation and depreciation expense by $27,050, $6,822 in the current year and $20,228 as a cumulative adjustment for prior years. Effective in 2005, Spidle’s assets will be depreciated on a straight-line basis using the following estimated useful lives, which is consistent with Flotek's accounting policies:

Buildings and leasehold improvements
20 years
Machinery and equipment
5-8 years
Furniture and fixtures
5 years
Rental tools
3 years
Transportation equipment
3 years
Computer equipment
3 years

 
 
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