SecProbe.io

CORRESP
1
filename1.htm

Correspondence

 2930 W. Sam Houston Pkwy N., Suite 300

 Houston, Texas 77043

 (713) 849-9911

 November 18, 2009

 Mr. Terence O’Brien

 Accounting Branch Chief

 United States Securities
and Exchange Commission

 1 Station Place, N.E., Stop 4631

 Washington, D.C. 20549

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, 2009

 File No. 000-52423

 Dear Mr. O’Brien:

 Set forth below are the responses of Flotek Industries, Inc., a Delaware corporation (the “Company”), to comments received
from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated October 21, 2009 (the “Comment Letter”), with
respect to the above-referenced filings (the “Filings”). For your convenience, we have repeated in bold face type the comments exactly as set forth in the Comment Letter. The Company’s response to each comment is set forth
immediately below the text of the applicable comment. A copy of this letter has been furnished on EDGAR as correspondence.

 Please let us know if you have any questions or if we can provide additional information or otherwise be of assistance in expediting the review process.

Very truly yours,

 /s/ Jesse E. Neyman

Jesse E. Neyman

Executive Vice President,

Finance and Strategic Planning

cc:
Tracey McKoy (SEC)

 Sherry
Haywood (SEC)

 W. Mark Young (Andrews Kurth LLP)

 United States Securities and Exchange Commission

 November 18, 2009

  Page
 2

 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 comment 3 from our letter dated September 14, 2009. Your proposed disclosure states “we utilize the financial
measure of income from operations to track our segment performance.” If the measure you are referring to above is actually adjusted 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 refer to your non-GAAP measure.

 Response: In future filings, management will refrain from using non-GAAP measures such as the one disclosed on page 34 of the referenced Form 10-K. Should we provide a non-GAAP disclosure in a
future filing, we will include the disclosures discussed in Question 8 of Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures.

2.
You state your non-GAAP measure is used to track your segment performance. We note you adjust your non-GAAP performance measure to eliminate impairment charges of
$67.7 million incurred in 2008 because you believe the impairment will become immaterial to users 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 appear you have fully
demonstrated the usefulness of the non-GAAP measure. Please tell us and disclose in future filings the reasons why you believe that presentation of the non-GAAP financial measure provides useful information to investors regarding your financial
condition and results of operations. If you continue to present this 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.

 Response: In future filings, management will refrain from using non-GAAP measures such as the one disclosed on page 34 of the referenced Form 10-K. Should we provide a non-GAAP disclosure in a future filing, we will include the
disclosures discussed in Question 8 of Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures.

 United States Securities and Exchange Commission

 November 18, 2009

  Page
 3

 Capital Resources and Liquidity, page 41

3.
We have read your response to prior comment 4 from our letter dated September 14, 2009. We note you have chosen to no longer disclose capital expenditure
by segment because you believe it is not useful to investors. We further note your statement that you believe an investor would 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 long-term capital expenditures. This discussion should describe the capital expenditures, quantify the cash needs and the sources of funds to meet such needs. Refer to Section 501.03(a) of the Financial Reporting
Codification.

 Response: In future filings, management agrees to provide the requested disclosure
related to related to capital expenditures by segment and a discussion describing the capital expenditures, quantifying cash needs and the sources of funds to meet those needs. Please see “Financial Statements – Note 17 –
Segment Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Investing Activities” in the recently filed Form 10-Q
for the quarter ended September 30, 2009, where this disclosure has been provided.

4.
In response to prior comment 25, you state you will provide disclosure of actual and required ratios, “provided that the Company believes there is a
possibility that a ratio or covenant will be breached within the next reporting period.” Please provide this disclosure in future filings whenever future non-compliance is reasonably likely, regardless of when the covenant would be breached
(i.e. whether it is likely to occur within the next reporting period or in a subsequent reporting period).

 Response: In future filings, management will provide disclosure related to actual and required ratios. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources – Financing Activities” in the recently filed Form 10-Q for the quarter ended September 30, 2009, where this disclosure has been provided.

 Critical Accounting Policies and Estimates, page 47

5.
 We note your response to prior comment 7. Based on an evaluation of “qualitative factors,” you have “determined 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 “misstatements of
relatively small amounts” is not clear. Paragraph 12 of APB Opinion No. 22 requires disclosure of accounting policies “that materially affect the determination of financial position or results of operations.” Since sales
from

 United States Securities and Exchange Commission

 November 18, 2009

  Page
 4

services outside of the logistics division represented 6% and 7% of total revenue in 2008 and 2007, it appears these disclosures would be material and useful. Please clarify, if true, exactly
how your analysis determined that your revenue recognition policies for these services do not materially affect your results. Also, please supplementally describe your revenue recognition policies for these services. Refer to SAB Topic 13B.

 Response: For the nine months ended September 30, 2009, $3.9 million of the consolidated
$9.1 million of service revenue was contributed by the logistics division. The remaining $5.7 million consolidated service revenue was comprised of the following: $2.0 million – inspection services; $1.3 million – technician fees; $1.0
million – machine shop service; $0.8 million – mileage (related to inspections and technician fees); and $0.1 million – other services. Based on this analysis management believes that no additional disclosure is necessary.

Note 9 – Long-term Debt, page 78

6.
We have read your response to prior comment 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 Regulation S-X. If condensed consolidating financial information is not required under paragraph (f)(4), your
financial statements should include a footnote stating, 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 section. Please revise future filings accordingly.

 Response: In future filings, management agrees to provide the requested disclosure which states that the condensed consolidating
financial information is not required under paragraph (f)(4). Please see “Financial Statements – Note 9 – Long-term Debt” subheading “Convertible Senior Notes” in the recently filed Form 10-Q
for the quarter ended September 30, 2009, where the following disclosure has been provided:

 “Because the Company is
a holding company with no independent assets or operations, the Convertible Senior Notes are guaranteed by each of our 100% owned subsidiaries. The guarantees are full and unconditional, and joint and several.”

 In future annual filings, management will also include the following additional disclosure in the Long-term Debt note:

 “The agreements governing the Company’s long-term indebtedness do not contain any significant restrictions on the ability of the
Company or any guarantor to obtain funds from its subsidiaries by dividend or loan so long as there is no default under those agreements.”

 United States Securities and Exchange Commission

 November 18, 2009

  Page
 5

 Exhibit 12 – Ratio of Earnings To Fixed Charges

7.
We have read your response to prior comment 14 from out 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.

 Response: In future annual filings, management will disclose the dollar amount of the deficiency to comply with Item 503 of Regulation S-K. The following is an example of the disclosure we will use to comply with Item 503
of Regulation S-K:

For the Year Ended December 31,

2004

2005

2006

2007

2008

 Computation of earnings:

 Income from continuing operations before income taxes and fixed charges

$
2,367

$
9,373

$
17,933

$
27,141

$
(41,080
)

 Add:

 Fixed charges

753

881

1,121

3,738

10,716

 Subtract:

 Minority interest in pretax income of subsidiaries that have not incurred fixed charges

-

-

-

916

-

$
3,120

$
10,254

$
19,054

$
29,963

$
(30,364
)

 Computation of fixed charges and combined fixed charges and preferred stock dividends:

 Interest expensed and capitalized

$
691

$
827

$
1,005

$
3,501

$
10,233

 Estimate of interest within rental expense (1)

62

54

116

237

483

 Fixed charges

753

881

1,121

3,738

10,716

 Dividends on preferred stock and losses on purchases of preferred stock

-

-

-

-

-

 Combined fixed charges and preferred stock dividends

$
753

$
881

$
1,121

$
3,738

$
10,716

 Ratio of earnings to fixed charges

4.14

11.64

17.00

8.02

-

 Deficiency of earnings to cover fixed charges

$
-

$
-

$
-

$
-

$
(41,080
)

 Ratio of earnings to fixed charges and preferred stock dividends

4.14

11.64

17.00

8.02

-

 Deficiency of earnings to cover combined fixed charges and preferred stock dividends

$
-

$
-

$
-

$
-

$
(41,080
)

(1)
One third of rental expense is deemed to be representative of interest.

 United States Securities and Exchange Commission

 November 18, 2009

  Page
 6

 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 Regulation S-K. Also, consider providing the information pursuant to Item 407(e)(4), Compensation Committee Interlocks and Insider Participation, in the governance
section of the Schedule 14A instead of the Compensation Discussion and Analysis section.

 Response: In future filings, the Company will enhance its disclosure regarding its review, approval or ratification of transactions with related persons. An example of this future disclosure follows:

 “Transactions With Related Persons

 The Company recognizes that related person transactions can present potential or actual conflicts of interest and it is the Company’s preference that related person transactions are avoided as a
general matter. However, the Company also recognizes that there are situations, including certain transactions negotiated on an arm’s length basis, where related person transactions may be in, or may not be inconsistent with, the best interests
of the Company and its stockholders. Therefore, the Nominating and Governance Committee of the Board will review, ratify or approve, as necessary, any related person transaction prior to the transaction being entered into, or ratify any related
person transaction that has not been previously approved, in which a director, executive officer, five percent owner or immediate family member of any such person has a material interest, and which the transaction is in an amount in excess of
$120,000, either individually or in the aggregate of several transactions during any calendar year.”

 The Company will
provide the information pursuant to Item 407(e)(4) of Regulation S-K in the governance section of the proxy statement rather than 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 75th 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 and (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.

 United States Securities and Exchange Commission

 November 18, 2009

  Page
 7

 Response: In future filings, the Company will provide additional disclosure with
respect to executive officer compensation. An example of the revised disclosure follows (with the new disclosure presented in italics for your reference).

 Executive Officer Compensation

 Principal Elements of Compensation of Our Named
Executive Officers

 Historically, the principal elements of the compensation package offered to our executive officers has
consisted of:

•

 Base salary;

•

 Cash bonus incentive compensation under