Exhibit 99.2
Flotek Industries, Inc.
Pro Forma Financial Information
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to the Triumph Drilling Tools, Inc. (“Triumph”) acquisition, CAVO Drilling Motors, Ltd. Co. (“CAVO”) acquisition and the Teledrift, Inc. (“Teledrift”) acquisition. The unaudited pro forma combined balance sheet as of September 30, 2007 is presented as if the CAVO and Teledrift acquisitions had occurred on that date. The unaudited pro forma combined statement of income for the year ended December 31, 2006 assumes that the Triumph and Teledrift acquisitions occurred on January 1, 2006. The unaudited pro forma combined statements of income for the nine months ended September 30, 2007 assumes that the Teledrift and CAVO acquisitions occurred on January 1, 2007.
The unaudited pro forma combined condensed 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, 2006 and the Quarterly Report on Form 10-Q for the nine months ended September 30, 2007; (ii) the historical combined financial statements of CAVO included in the Form 8-K filed on January 29, 2008; and (iii) the historical combined financial statements of Teledrift included herein. The unaudited pro forma combined condensed 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 CAVO and Teledrift acquisitions 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 Condensed Financial Statements, are based upon available information and certain assumptions that Flotek’s management believes are reasonable.
1
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2007
(Unaudited)
(a) Flotek | (b) CAVO | CAVO Pro Forma Adjustments | ( b) Teledrift | Teledrift Pro Forma Adjustments | Pro Forma for the Transaction | |||||||||||||||
(In thousands of dollars) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 1,167 | $ | 1,019 | $ | — | $ | 1,897 | $ | — | $ | 4,083 | ||||||||
Accounts receivable, net | 24,939 | 1,319 | (171 | )(c) | 4,276 | — | 30,363 | |||||||||||||
Inventories, net | 20,017 | 1,849 | — | 2,055 | — | 23,921 | ||||||||||||||
Deferred tax assets, current | 110 | 95 | — | — | — | 205 | ||||||||||||||
Other current assets | 1,057 | 75 | — | 34 | — | 1,166 | ||||||||||||||
Total current assets | 47,290 | 4,357 | (171 | ) | 8,262 | — | 59,738 | |||||||||||||
Investment in affiliate | 7,187 | — | (7,187 | )(d) | — | — | — | |||||||||||||
Property, plant and equipment, net | 36,747 | 2,472 | 500 | (e) | 9,055 | 4,956 | (e) | 53,730 | ||||||||||||
Goodwill | 45,648 | — | 12,936 | (f) | — | 63,976 | (f) | 122,560 | ||||||||||||
Intangible and other assets, net | 7,961 | — | 3,000 | (g) | — | 15,000 | (j)(k) | 25,961 | ||||||||||||
TOTAL ASSETS | $ | 144,833 | $ | 6,829 | $ | 9,078 | $ | 17,317 | $ | 83,932 | $ | 261,989 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 7,534 | $ | 65 | $ | (171 | )(c) | $ | 1,048 | $ | — | $ | 8,476 | |||||||
Accrued liabilities | 6,081 | 2,128 | — | 201 | — | 8,410 | ||||||||||||||
Current portion of long-term debt | 6,196 | 189 | — | — | — | 6,385 | ||||||||||||||
Total current liabilities | 19,811 | 2,382 | (171 | ) | 1,249 | — | 23,271 | |||||||||||||
Long-term debt, less current portion | 49,501 | 1,120 | 12,500 | (h) | — | 100,000 | (l) | 163,121 | ||||||||||||
Deferred tax liability, less current portion | 2,369 | 76 | — | — | — | 2,445 | ||||||||||||||
Total liabilities | 71,681 | 3,578 | 12,329 | 1,249 | 100,000 | 188,837 | ||||||||||||||
Stockholders’ equity | 73,152 | 3,251 | (3,251 | )(i) | 16,068 | (16,068 | )(i) | 73,152 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 144,833 | $ | 6,829 | $ | 9,078 | $ | 17,317 | $ | 83,932 | $ | 261,989 | ||||||||
2
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
(a) Flotek | (b) CAVO | CAVO Pro Forma Adjustments | (b) Teledrift | Teledrift Pro Forma Adjustments | Pro Forma for the Transactions | |||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||||||
Revenue | $ | 114,609 | $ | 8,649 | $ | (3,765 | )(m) | $ | 12,816 | $ | — | $ | 132,309 | |||||||||||
Operating expenses | 91,191 | 5,296 | (745 | )(n)(o)(p) | 6,577 | 2,102 | (o)(p) | 104,421 | ||||||||||||||||
Gain on equipment lost in hole | — | — | — | 1,972 | — | 1,972 | ||||||||||||||||||
Income from operations | 23,418 | 3,353 | (3,020 | ) | 8,211 | (2,102 | ) | 29,860 | ||||||||||||||||
Interest expense | (2,544 | ) | (74 | ) | (656 | )(q) | — | (4,545 | )(t) | (7,819 | ) | |||||||||||||
Other, net | 709 | 104 | (647 | )(r) | 112 | — | 278 | |||||||||||||||||
Provision for income taxes | (7,975 | ) | (1,246 | ) | 1,513 | (s) | (453 | ) | (134 | )(s) | (8,295 | ) | ||||||||||||
Net income | $ | 13,608 | $ | 2,137 | $ | (2,810 | ) | $ | 7,870 | $ | (6,781 | ) | $ | 14,024 | ||||||||||
Basic earnings per common share | $ | 0.75 | $ | 0.77 | ||||||||||||||||||||
Diluted earnings per common share | $ | 0.71 | $ | 0.73 | ||||||||||||||||||||
Weighted average common shares used in computing basic earnings per common share | 18,215 | 18,224 | (u) | |||||||||||||||||||||
Incremental common shares from stock options and warrants | 1,072 | 1,072 | ||||||||||||||||||||||
Weighted average common shares used in computing diluted earnings per common share | 19,287 | 19,296 | ||||||||||||||||||||||
3
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006
(Unaudited)
(a) Flotek | (m) Triumph | Triumph Pro Forma Adjustments | Teledrift | Teledrift Pro Forma Adjustments | Pro Forma for the Transactions | |||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||||||
Revenue | $ | 100,642 | $ | 15,996 | $ | — | $ | 13,997 | $ | — | $ | 130,635 | ||||||||||||
Operating expenses | 81,789 | 13,600 | 1,285 | (o)(p) | 6,635 | 2,884 | (o)(p) | 106,193 | ||||||||||||||||
Gain on equipment lost in hole | — | — | — | 1,673 | — | 1,673 | ||||||||||||||||||
Income from operations | 18,853 | 2,396 | (1,285 | ) | 9,035 | (2,884 | ) | 26,115 | ||||||||||||||||
Interest expense | (1,005 | ) | (341 | ) | (1,649 | )(q) | (51 | ) | (6,060 | )(t) | (9,106 | ) | ||||||||||||
Other, net | 85 | 56 | — | 214 | — | 355 | ||||||||||||||||||
Provision for income taxes | (6,583 | ) | — | 1,027 | (s) | (374 | ) | 285 | (s) | (5,645 | ) | |||||||||||||
Net income | $ | 11,350 | $ | 2,111 | $ | (1,907 | ) | $ | 8,824 | $ | (8,659 | ) | $ | 11,719 | ||||||||||
Basic earnings per common share | $ | 0.66 | $ | 0.68 | ||||||||||||||||||||
Diluted earnings per common share | $ | 0.61 | $ | 0.63 | ||||||||||||||||||||
Weighted average common shares used in computing basic earnings per common share | 17,290 | 17,290 | ||||||||||||||||||||||
Incremental common shares from stock options and warrants | 1,298 | 1,298 | ||||||||||||||||||||||
Weighted average common shares used in computing diluted earnings per common share | 18,588 | 18,588 | ||||||||||||||||||||||
4
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(a) | Historical unaudited financial statements. |
(b) | Historical audited financials statements. |
(c) | Reflects the elimination of intercompany receivables and payables between CAVO and Flotek. |
(d) | Reflects the elimination of Flotek’s equity investment in CAVO purchased on January 31, 2007. |
(e) | Reflects the step-up in the basis of the fixed assets as a result of the acquisition to the fair market value. |
(f) | Reflects the preliminary estimated excess of purchase price to the fair value of net assets acquired. |
(g) | Reflects the preliminary estimated fair value of intangible assets such as customer lists as a result of the acquisition. |
(h) | Reflects the cash needed to complete the acquisition of CAVO. |
(i) | Reflects the elimination of acquisition stockholders’ equity balances. |
(j) | Reflects the preliminary estimated fair value of intangible assets such as customer lists, non-competes, patents pending, trade secrets and branding. |
(k) | Reflects the preliminary estimated deferred financing costs of $4.1 million and $0.8 million of capitalized deal expenses. |
(l) | Reflects the debt from the issuance of $100 million in convertible notes used to complete the acquisition of Teledrift. |
(m) | Reflects the elimination of intercompany sales. |
(n) | Reflects the elimination of estimated cost of goods sold for intercompany sales. Elimination does not reflect elimination of overhead or indirect costs. |
(o) | Reflects the increase in depreciation expense as a result of the step-up in basis of fixed assets. |
(p) | Reflects the increase in amortization due to the acquisition of intangible assets. |
(q) | Reflects the interest expense related to cash borrowed to effect the acquisition. |
(r) | Reflects the elimination of pretax income from equity investment in CAVO. |
(s) | A statutory rate of 35% was applied to the adjustments and the historical pretax income of CAVO. CAVO changed its tax status from an S-corporation to a C-corporation effective January 1, 2007. Historical Teledrift provision reflects international withholding taxes in accordance with their S-corporation tax status. The pro forma tax adjustment reflects the application of a 35% statutory rate to the adjustments and the historical pretax income of Teledrift, net of the international withholding taxes. |
(t) | Reflects the interest expense related to the issuance of $100 million of convertible notes bearing interest at 5.25%, a 200 basis point increase in our floating borrowing rate under our senior credit facility and the amortization of deferred financing costs. |
(u) | Reflects the issuance of shares of our common stock as a part of the acquisition price for the initial 50% interest in CAVO, completed January 31, 2007. The weighted average common shares does not consider the effect of the shares to be loaned to an affiliate of Bear Stearns & Co. Inc. as issued and outstanding for purposes of computing earnings per share. |
5