EX-99.2 4 d678736dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Flotek Industries, Inc.

Unaudited Pro Forma Condensed Consolidated Financial Statements

On January 11, 2019, Flotek Industries, Inc. (“Flotek” or the “Company”) announced the sale of its wholly owned subsidiary, Florida Chemical Company, LLC (“FCC”), to Archer Daniels Midland Company (“ADM”) for total cash consideration of $175 million. Effective February 28, 2019, the Company completed the sale. Flotek expects to utilize the proceeds in accordance with its stated capital allocation strategy, including paying off the balance of its revolving credit facility and the potential for a range of options including additional investments in its business, returning capital to shareholders and other additional alternatives.

The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2018, gives effect to the disposition of certain assets and liabilities of the Company as if it had occurred as of September 30, 2018. The accompanying unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2018, and the year ended December 31, 2017, give effect to the disposition of certain assets and liabilities of the FCC business as if the sale had occurred on January 1, 2018, and January 1, 2017, respectively.

The historical financial information on which the unaudited pro forma condensed consolidated financial statements are based is included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed with the Securities and Exchange Commission (the “SEC”) on November 6, 2018, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 8, 2018. The unaudited pro forma condensed consolidated financial statements and the notes thereto should be read in conjunction with these historical consolidated financial statements. The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are subject to a number of assumptions and adjustments that may not be indicative of the results of operations that would have occurred had the disposition been completed as of the dates indicated or what the financial position or results will be for any future periods.

The unaudited pro forma condensed consolidated statements of operations does not include any gain or loss that the Company may recognize on the sale, as this amount is not expected to have a continuing impact. The pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analysis is performed, and have been made solely for the purpose of providing unaudited pro forma condensed consolidated financial statements. Differences between these preliminary estimates and the final divestiture accounting may occur and these differences could have a material effect on the accompanying unaudited pro forma condensed consolidated financial statements and the Company’s future financial position and results of operations.

 

1


FLOTEK INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2018

(in thousands, except share data)

 

     As Reported     Pro Forma
Adjustments
    Notes     Pro Forma
as Adjusted
 
ASSETS                         

Current assets:

        

Cash and cash equivalents

   $ 1,829     $ 99,713       (1   $ 101,542  

Accounts receivable, net of allowance for doubtful accounts

     55,473       (10,418     (2     45,055  

Inventories, net

     93,161       (47,876     (3     45,285  

Income taxes receivable

     2,441       —           2,441  

Other current assets

     7,797       14,151       (4     21,948  
  

 

 

   

 

 

     

 

 

 

Total current assets

     160,701       55,570         216,271  

Property and equipment, net

     65,094       (15,752     (5     49,342  

Goodwill

     19,480       (19,480     (6     —    

Other intangible assets, net

     47,538       (21,731     (7     25,807  

Other long-term assets

     489       3,281       (8     3,770  
  

 

 

   

 

 

     

 

 

 

TOTAL ASSETS

   $ 293,302     $ 1,888       $ 295,190  
  

 

 

   

 

 

     

 

 

 
LIABILITIES AND EQUITY                         

Current liabilities:

        

Accounts payable

   $ 30,428     $ (14,155     (9   $ 16,273  

Accrued liabilities

     14,004       (504     (9     13,500  

Interest payable

     6       —           6  

Long-term debt, classified as current

     53,402       (53,402     (10     —    
  

 

 

   

 

 

     

 

 

 

Total current liabilities

     97,840       (68,061       29,779  

Deferred tax liabilities, net

     2,646       —           2,646  
  

 

 

   

 

 

     

 

 

 

Total liabilities

     100,486       (68,061       32,425  
  

 

 

   

 

 

     

 

 

 

Commitments and contingencies

        

Equity:

        

Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding

     —         —           —    

Common stock, $0.0001 par value, 80,000,000 shares authorized; 62,102,875 shares issued and 57,026,176 shares outstanding at September 30, 2018

     6       —           6  

Additional paid-in capital

     343,048       —           343,048  

Accumulated other comprehensive income (loss)

     (960     —           (960

Retained earnings (accumulated deficit)

     (116,124     69,949       (11     (46,175

Treasury stock, at cost; 3,584,300 shares at September 30, 2018

     (33,155     —           (33,155
  

 

 

   

 

 

     

 

 

 

Flotek Industries, Inc. stockholders’ equity

     192,815       69,949         262,764  

Noncontrolling interests

     1       —           1  
  

 

 

   

 

 

     

 

 

 

Total equity

     192,816       69,949         262,765  
  

 

 

   

 

 

     

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 293,302     $ 1,888       $ 295,190  
  

 

 

   

 

 

     

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 

2


FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the nine months ended September 30, 2018

(in thousands, except per share data)

 

     As Reported     Pro Forma
Adjustments
    Notes     Pro Forma
as Adjusted
 

Revenue

   $ 190,591     $ (56,220     (1   $ 134,371  

Costs and expenses:

        

Cost of revenue (excluding depreciation and amortization)

     146,522       (44,849     (2     101,673  

Corporate general and administrative

     24,634       —           24,634  

Segment selling and administrative

     21,123       (4,518     (3     16,605  

Depreciation and amortization

     8,984       (2,049     (3     6,935  

Research and development

     8,537       (483     (3     8,054  

Loss on disposal of long-lived assets

     119       —           119  

Impairment of goodwill

     37,180       —           37,180  
  

 

 

   

 

 

     

 

 

 

Total costs and expenses

     247,099       (51,899       195,200  
  

 

 

   

 

 

     

 

 

 

Loss from operations

     (56,508     (4,321       (60,829
  

 

 

   

 

 

     

 

 

 

Other (expense) income:

        

Interest expense

     (1,902     215       (4     (1,687

Loss on sale of business

     (360     —           (360

Loss on write-down of assets held for sale

     (2,580     —           (2,580

Other (expense) income, net

     (2,348     596       (5     (1,752
  

 

 

   

 

 

     

 

 

 

Total other (expense) income

     (7,190     811         (6,379
  

 

 

   

 

 

     

 

 

 

Loss before income taxes

     (63,698     (3,510       (67,208

Income tax expense

     (15,558     58       (6     (15,500
  

 

 

   

 

 

     

 

 

 

Net loss

     (79,256     (3,452     (7     (82,708

Net loss attributable to noncontrolling interests

     357       —           357  
  

 

 

   

 

 

     

 

 

 

Net loss attributable to Flotek Industries, Inc. (Flotek)

   $ (78,899   $ (3,452     $ (82,351
  

 

 

   

 

 

     

 

 

 

Earnings (loss) per common share:

        

Basic earnings (loss) per common share

   $ (1.36   $ (0.06     $ (1.42

Diluted earnings (loss) per common share

   $ (1.36   $ (0.06     $ (1.42

Weighted average common shares:

        

Weighted average common shares used in computing basic earnings (loss) per common share

     57,820       57,820         57,820  

Weighted average common shares used in computing diluted earnings (loss) per common share

     57,820       57,820         57,820  

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 

3


FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the year ended December 31, 2017

(in thousands, except per share data)

 

     As Reported     Pro Forma
Adjustments
    Notes     Pro Forma
as Adjusted
 

Revenue

   $ 317,098     $ (73,957     (1   $ 243,141  

Costs and expenses:

        

Cost of revenue (excluding depreciation and amortization)

     215,129       (54,140     (2     160,989  

Corporate general and administrative

     41,492               41,492  

Segment selling and administrative

     37,236       (5,978     (3     31,258  

Depreciation and amortization

     12,159       (2,391     (3     9,768  

Research and development

     13,645       (515     (3     13,130  

Loss on disposal of long-lived assets

     292               292  
  

 

 

   

 

 

     

 

 

 

Total costs and expenses

     319,953       (63,024       256,929  
  

 

 

   

 

 

     

 

 

 

Loss from operations

     (2,855     (10,933       (13,788
  

 

 

   

 

 

     

 

 

 

Other (expense) income:

        

Interest expense

     (2,168     587       (4     (1,581

Other (expense) income, net

     812       790       (5     1,602  
  

 

 

   

 

 

     

 

 

 

Total other (expense) income

     (1,356     1,377         21  
  

 

 

   

 

 

     

 

 

 

Loss before income taxes

     (4,211     (9,556       (13,767

Income tax expense

     (8,842     2,730       (6     (6,112
  

 

 

   

 

 

     

 

 

 

Loss from continuing operations

     (13,053     (6,826       (19,879

Income (loss) from discontinued operations, net of tax

     (14,342             (14,342
  

 

 

   

 

 

     

 

 

 

Net loss

     (27,395     (6,826     (7     (34,221
  

 

 

   

 

 

     

 

 

 

Basic earnings (loss) per common share:

        

Continuing Operations

   $ (0.23   $ (0.12     $ (0.35

Discontinued operations, net of tax

     (0.25     —           (0.25
  

 

 

   

 

 

     

 

 

 

Basic earnings (loss) per common share

   $ (0.48   $ (0.12     $ (0.60
  

 

 

   

 

 

     

 

 

 

Diluted earnings (loss) per common share:

        

Continuing Operations

   $ (0.23   $ (0.12     $ (0.35

Discontinued operations, net of tax

     (0.25     —           (0.25
  

 

 

   

 

 

     

 

 

 

Diluted earnings (loss) per common share

   $ (0.48   $ (0.12     $ (0.60
  

 

 

   

 

 

     

 

 

 

Weighted average common shares:

        

Weighted average common shares used in computing basic earnings (loss) per common share

     57,580       57,580         57,580  

Weighted average common shares used in computing diluted earnings (loss) per common share

     57,580       57,580         57,580  

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 

4


FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Basis of Presentation

The preparation of the unaudited pro forma condensed consolidated financial statements is based on financial statements prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The pro forma adjustments presented in the accompanying unaudited pro forma consolidated financial statements reflect estimates and assumptions that the Company’s management believes to be reasonable. Actual results may differ from these estimates. Pro forma adjustments assume the sale of certain assets and liabilities of the Company’s FCC business was completed on September 30, 2018, for the consolidated balance sheet and on January 1, 2018, and January 1, 2017, for the consolidated statements of operations. The unaudited pro forma condensed consolidated financial statements include adjustments which give effect to events that are directly attributable to the sale, factually supportable, and with respect to the unaudited pro forma condensed consolidated statement of operations, expected to have a continuing impact on the Company.

The historical financial information on which the unaudited pro forma condensed consolidated financial statements are based is included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed with the Securities and Exchange Commission (the “SEC”) on November 6, 2018, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 8, 2018. The unaudited pro forma condensed consolidated financial statements and the notes thereto should be read in conjunction with these historical consolidated financial statements.

Note 2 — Unaudited Pro Forma Condensed Consolidated Balance Sheets

The unaudited pro forma condensed consolidated balance sheet at September 30, 2018, reflects the following pro forma adjustments:

 

  (1)

Cash proceeds of approximately $175 million, less $17.5 million held in escrow, $4.4 million in transaction costs, and $53.4 million for the payoff of the revolving credit facility.

 

  (2)

The estimated net book value of accounts receivable to be sold to ADM.

 

  (3)

The estimated net book value of inventories to be sold to ADM.

 

  (4)

The estimated net book value of other current assets to be sold to ADM, adjusted for the current portion of the escrow receivable.

 

  (5)

The estimated net book value of property and equipment to be sold to ADM.

 

  (6)

The estimated net book value of goodwill allocated to the Consumer and Industrial Chemistry Technologies reporting segment being divested with FCC.

 

  (7)

The estimated net book value of acquired intangible assets sold to ADM, adjusted for removal of deferred financing costs associated with closing the revolving credit facility.

 

  (8)

The long-term portion of the escrow receivable.

 

  (9)

The estimated net book value of accounts payable and accrued liabilities to be assumed by ADM.

 

  (10)

The payoff of the revolving credit facility with the cash proceeds received from the sale.

 

  (11)

The estimated increase in net book value of stockholder’s equity as a result of the sale.

Note 3 — Unaudited Pro Forma Condensed Consolidated Statements of Operations

The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2018, and the year ended December 31, 2017, reflect the following pro forma adjustments:

 

  (1)

The elimination of revenue related to the FCC business, adjusted for the Citrus Burst Supply Agreement between Flotek and FCC.

 

  (2)

The elimination of cost of revenue (excluding depreciation and amortization), related to the FCC business, adjusted for the Terpene Supply Agreement between Flotek and FCC.

 

5


  (3)

The elimination of operating expenses related to the FCC business.

 

  (4)

The elimination of interest expense related to the revolving credit facility paid off at the beginning of the period and recognition of deferred financing costs upon closing of the revolving credit facility.

 

  (5)

The elimination of other income related to the FCC business, adjusted for interest income on excess cash proceeds.

 

  (6)

The elimination of income tax expense related to the FCC business.

 

  (7)

The elimination of net income related to the FCC business.

 

6