SEC Comment Letter for FLOTEK INDUSTRIES (FTK) — Oct 21, 2009
FLOTEK INDUSTRIES INC/CN/ (FTK) (CIK 0000928054)
Date: Oct. 21, 2009 · CIK: 0000928054 · Accession: 0000000000-09-059275
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-52423
Referenced dates: October 5, 2009, September 14, 2009, September 14, 2009
Letter
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-4631 DIVISION OF CORPORATION FINANCE Mail Stop 4631 October 21, 2009 via U.S. mail and facsimile Jerry Dumas, Chief Executive Officer Flotek Industries, Inc. 2930 W. Sam Houston Pkwy N. Houston, Texas 77043 RE: Flotek Industries, Inc. Form 10-K for the Fiscal Year Ended December 31, 2008 Form 10-Q for the Fiscal Quarter Ended June 30, 2009 Proxy Statement Filed April 29, 2008 File No. 000-52423
Dear Mr. Dumas:
We have reviewed your response letter dated October 5, 2009 and have the following additional comments. If you disagree , we will consider your explanation as to why our comment is inapplicable. Form 10-K for the Fiscal Year Ended December 31, 2008
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Page 28
Results of Operations, page 34
1. We have read your response to prior co mment 3 from our letter dated September 14, 2009. Your proposed disclosure states “we utilize the financial measure of income from operations to track our se gment performance.” If the measure you are referring to above is actually adju sted income from operations (a non-GAAP measure), as presented in your filing, we remind you that titles of non-GAAP measures should not be confusingly similar to GAAP measures. Please revise to clearly and distinctly refe r to your non-GAAP measure.
2. You state your non-GAAP measure is used to track your segment performance. We note you adjust your non-GAAP perf ormance measure to eliminate
Mr. Dumas Flotek Industries, Inc. October 21, 2009 Page 2 impairment charges of $67.7 million in curred in 2008 because you believe the impairment will become immaterial to us ers of your financial statements in the near-term period. We further note from your proposed disclosure that you state “large non-cash impacts to operating income that do not recur are not considered by Management when reviewing segment performance…” However, we note you incurred additional impairment charges of $18.5 million for the six months ended June 30, 2009. Please eliminate any reference to items as non-recurring when they are reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Given this and your proposed disclosure, it does not app ear you have fully demonstrat ed the usefulness of the non-GAAP measure. Please tell us and disc lose in future filings the reasons why you believe that presentation of the non-GAAP financial measure provides useful information to investors regarding yo ur financial condition and results of operations. If you continue to present th is measure in future filings, please include the disclosures discussed in Question 8 of Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures , available on our website. Provide us with an example of your intended future disclosure. Capital Resources and Liquidity, page 41
3. We have read your response to prior co mment 4 from our letter dated September 14, 2009. We note you have chosen to no l onger disclose capital expenditure by segment because you believe it is not useful to investors. We further note your statement that you believe an investor w ould be most interested in understanding capital expenditures for a total Company. It is unclear to us how aggregated information would be more useful to an investor, given the fact that it appears capital expenditures are more material to the Drilling Products segment, given your disclosure in the 2008 Form 10-K. At a minimum, in future filings please include a discussion of your short and l ong-term capital expenditures. This discussion should describe the capital e xpenditures, quantify the cash needs and the sources of funds to meet such need s. Refer to Section 501.03(a) of the Financial Reporting Codification.
4. In response to prior comment 25, you stat e you will provide disclosure of actual and required ratios, “provided that the Comp any believes there is a possibility that a ratio or covenant will be breached with in the next reporting period.” Please provide this disclosure in future f ilings whenever future non-compliance is reasonably likely, regardless of when th e covenant would be breached (i.e. whether it is likely to occur within the next reporting period or in a subsequent reporting period).
Mr. Dumas Flotek Industries, Inc. October 21, 2009 Page 3 Critical Accounting Policies and Estimates, page 47
5. We note your response to prior comme nt 7. Based on an evaluation of “qualitative factors,” you have “determine d that misstatements of relatively small amounts of sales from services outside the logistics division would not have a material effect on the financial statements .” The basis for your analysis or its focus on hypothetical “misstatem ents of relatively small amounts” is not clear. Paragraph 12 of APB Opinion No. 22 re quires disclosure of accounting policies “that materially affect the determinati on of financial posit ion or results of operations.” Since sales from servic es outside of the logistics division represented 6% and 7% of total re venue in 2008 and 2007, it appears these disclosures would be material and useful. Please clarif y, if true, exactly how your analysis determined that your revenue recognition policies for these services do not materially affect your results. Al so, please supplementally describe your revenue recognition policies for these services. Refer to SAB Topic 13B. Note 9 – Long-term Debt, page 78
6. We have read your response to prior co mment 11 from our letter dated September 14, 2009. You state you are not required to provide condensed consolidating financial information for your subsidiaries that guarantee your debt pursuant to paragraph (f) of Rule 3-10 of Regula tion S-X. If condensed consolidating financial information is not required under paragraph (f)(4), your financial statements should include a footnote stati ng, if true, that the parent company has no independent assets or operations, the guarantees are full and unconditional and joint and several, and any subsidiaries other than the subsidiary guarantors are minor. The footnote also must include the narrative disclosures specified in paragraphs (i)(9) and (i)(10) of this s ection. Please revise future filings accordingly. Exhibit 12 – Ratio of Earnings To Fixed Charges
7. We have read your response to prior co mment 14 from our letter dated September 14, 2009. Your proposed disclosure does not disclose the dollar amount of the deficiency. Please revise proposed disclosure to comply with Item 503 of Regulation S-K. Definitive Proxy Statement
General
8. We note your response to comment 16 in our letter dated September 14, 2009. Please provide information pursuant to 404( b) of Regulation S-K, even if there are no related person transactions to disclose pursuant to Item 404(a) of
Mr. Dumas Flotek Industries, Inc. October 21, 2009 Page 4 Regulation S-K. Also, consider provid ing the information pursuant to Item 407(e)(4), Compensation Committee Interloc ks and Insider Part icipation, in the governance section of the Schedule 14A in stead of the Compensation Discussion and Analysis section.
Compensation Discussion and Analysis, page 11
9. We note your response to comment 17 in our letter dated September 14, 2009. We note disclosure: (a) on revised page 3 that you benchmark each element of compensation and you benchmark total compensation for each named executive officer at a level below the 75 th percentile of the peer group, (b) on revised page 4 that Mr. Dumas’ annual salary was “in line” with the salaries being paid to chief executive officers in your peer group a nd (c) on revised page 7 that equity compensation is established consistent with a 50% benchmark or below of the peer group. For each named executive officer, please disclose where you target base salaries and where actual payments fall for each element of compensation within the targeted parameters.
* * * *
As appropriate, please respond to these co mments within 10 business days or tell us when you will provide us with a response. Please furnish a letter that keys your responses to our comments and provides any requested supplemental information. Detailed response letters greatly facilitate our review. Please file your response letter on EDGAR. Please understand that we may ha ve additional comments after reviewing responses to our comments. You may contact Tracey McKoy, Staff A ccountant, at (202) 551-3772 or, in her absence the undersigned Accounting Branch Chief at (202) 551-3355 if you have questions regarding comments on the financial statements and related matters. Please contact Sherry Haywood, Staff Attorney at (202) 551-3345 with any legal related questions. Sincerely, T e r e n c e O ’ B r i e n A c c o u n t i n g B r a n c h C h i e f
Show Raw Text
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-4631
DIVISION OF
CORPORATION FINANCE
Mail Stop 4631
October 21, 2009
via U.S. mail and facsimile
Jerry Dumas, Chief Executive Officer Flotek Industries, Inc. 2930 W. Sam Houston Pkwy N. Houston, Texas 77043 RE: Flotek Industries, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2008
Form 10-Q for the Fiscal Quarter Ended June 30, 2009
Proxy Statement Filed April 29, 2008 File No. 000-52423
Dear Mr. Dumas:
We have reviewed your response letter dated October 5, 2009 and have the
following additional comments. If you disagree , we will consider your explanation as to
why our comment is inapplicable. Form 10-K for the Fiscal Year Ended December 31, 2008
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Page 28
Results of Operations, page 34
1. We have read your response to prior co mment 3 from our letter dated September
14, 2009. Your proposed disclosure states “we utilize the financial measure of
income from operations to track our se gment performance.” If the measure you
are referring to above is actually adju sted income from operations (a non-GAAP
measure), as presented in your filing, we remind you that titles of non-GAAP
measures should not be confusingly similar to GAAP measures. Please revise to
clearly and distinctly refe r to your non-GAAP measure.
2. You state your non-GAAP measure is used to track your segment performance.
We note you adjust your non-GAAP perf ormance measure to eliminate
Mr. Dumas
Flotek Industries, Inc. October 21, 2009 Page 2
impairment charges of $67.7 million in curred in 2008 because you believe the
impairment will become immaterial to us ers of your financial statements in the
near-term period. We further note from your proposed disclosure that you state
“large non-cash impacts to operating income that do not recur are not considered
by Management when reviewing segment performance…” However, we note you incurred additional impairment charges of $18.5 million for the six months ended June 30, 2009. Please eliminate any reference to items as non-recurring
when they are reasonably likely to recur within two years or there was a similar
charge or gain within the prior two years. Given this and your proposed
disclosure, it does not app ear you have fully demonstrat ed the usefulness of the
non-GAAP measure. Please tell us and disc lose in future filings the reasons why
you believe that presentation of the non-GAAP financial measure provides useful
information to investors regarding yo ur financial condition and results of
operations. If you continue to present th is measure in future filings, please
include the disclosures discussed in Question 8 of Frequently Asked Questions
Regarding the Use of Non-GAAP Financial Measures , available on our website.
Provide us with an example of your intended future disclosure.
Capital Resources and Liquidity, page 41
3. We have read your response to prior co mment 4 from our letter dated September
14, 2009. We note you have chosen to no l onger disclose capital expenditure by
segment because you believe it is not useful to investors. We further note your statement that you believe an investor w ould be most interested in understanding
capital expenditures for a total Company. It is unclear to us how aggregated
information would be more useful to an investor, given the fact that it appears
capital expenditures are more material to the Drilling Products segment, given
your disclosure in the 2008 Form 10-K. At a minimum, in future filings please include a discussion of your short and l ong-term capital expenditures. This
discussion should describe the capital e xpenditures, quantify the cash needs and
the sources of funds to meet such need s. Refer to Section 501.03(a) of the
Financial Reporting Codification.
4. In response to prior comment 25, you stat e you will provide disclosure of actual
and required ratios, “provided that the Comp any believes there is a possibility that
a ratio or covenant will be breached with in the next reporting period.” Please
provide this disclosure in future f ilings whenever future non-compliance is
reasonably likely, regardless of when th e covenant would be breached (i.e.
whether it is likely to occur within the next reporting period or in a subsequent
reporting period).
Mr. Dumas
Flotek Industries, Inc. October 21, 2009 Page 3 Critical Accounting Policies and Estimates, page 47
5. We note your response to prior comme nt 7. Based on an evaluation of
“qualitative factors,” you have “determine d that misstatements of relatively small
amounts of sales from services outside the logistics division would not have a
material effect on the financial statements .” The basis for your analysis or its
focus on hypothetical “misstatem ents of relatively small amounts” is not clear.
Paragraph 12 of APB Opinion No. 22 re quires disclosure of accounting policies
“that materially affect the determinati on of financial posit ion or results of
operations.” Since sales from servic es outside of the logistics division
represented 6% and 7% of total re venue in 2008 and 2007, it appears these
disclosures would be material and useful. Please clarif y, if true, exactly how your
analysis determined that your revenue recognition policies for these services do
not materially affect your results. Al so, please supplementally describe your
revenue recognition policies for these services. Refer to SAB Topic 13B.
Note 9 – Long-term Debt, page 78
6. We have read your response to prior co mment 11 from our letter dated September
14, 2009. You state you are not required to provide condensed consolidating
financial information for your subsidiaries that guarantee your debt pursuant to
paragraph (f) of Rule 3-10 of Regula tion S-X. If condensed consolidating
financial information is not required under paragraph (f)(4), your financial
statements should include a footnote stati ng, if true, that the parent company has
no independent assets or operations, the guarantees are full and unconditional and
joint and several, and any subsidiaries other than the subsidiary guarantors are
minor. The footnote also must include the narrative disclosures specified in
paragraphs (i)(9) and (i)(10) of this s ection. Please revise future filings
accordingly.
Exhibit 12 – Ratio of Earnings To Fixed Charges
7. We have read your response to prior co mment 14 from our letter dated September
14, 2009. Your proposed disclosure does not disclose the dollar amount of the
deficiency. Please revise proposed disclosure to comply with Item 503 of
Regulation S-K.
Definitive Proxy Statement
General
8. We note your response to comment 16 in our letter dated September 14, 2009.
Please provide information pursuant to 404( b) of Regulation S-K, even if there
are no related person transactions to disclose pursuant to Item 404(a) of
Mr. Dumas
Flotek Industries, Inc. October 21, 2009 Page 4
Regulation S-K. Also, consider provid ing the information pursuant to Item
407(e)(4), Compensation Committee Interloc ks and Insider Part icipation, in the
governance section of the Schedule 14A in stead of the Compensation Discussion
and Analysis section.
Compensation Discussion and Analysis, page 11
9. We note your response to comment 17 in our letter dated September 14, 2009.
We note disclosure: (a) on revised page 3 that you benchmark each element of
compensation and you benchmark total compensation for each named executive officer at a level below the 75
th percentile of the peer group, (b) on revised page 4
that Mr. Dumas’ annual salary was “in line” with the salaries being paid to chief
executive officers in your peer group a nd (c) on revised page 7 that equity
compensation is established consistent with a 50% benchmark or below of the
peer group. For each named executive officer, please disclose where you target base salaries and where actual payments fall for each element of compensation within the targeted parameters.
* * * *
As appropriate, please respond to these co mments within 10 business days or tell
us when you will provide us with a response. Please furnish a letter that keys your
responses to our comments and provides any requested supplemental information.
Detailed response letters greatly facilitate our review. Please file your response letter on
EDGAR. Please understand that we may ha ve additional comments after reviewing
responses to our comments. You may contact Tracey McKoy, Staff A ccountant, at (202) 551-3772 or, in her
absence the undersigned Accounting Branch Chief at (202) 551-3355 if you have
questions regarding comments on the financial statements and related matters. Please
contact Sherry Haywood, Staff Attorney at (202) 551-3345 with any legal related
questions.
Sincerely,
T e r e n c e O ’ B r i e n A c c o u n t i n g B r a n c h C h i e f