UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13270
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
FLOTEK INDUSTRIES, INC. 401(k) PLAN
B. Name of issuer of securities held pursuant to the plan and the address of its principal executive office:
FLOTEK INDUSTRIES, INC.
(Name of Issuer of the Securities Held Pursuant to the Plan)
7030 Empire Central Drive
Houston, Texas 77040
FLOTEK INDUSTRIES, INC. 401(k) PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
All Other schedules required by Employee Retirement Income Security Act of 1974 (“ERISA”) have been omitted because they are not applicable.
EXHIBIT
| 23.1 | Consent of Independent Registered Public Accounting Firm | |
Report of Independent Registered Public Accounting Firm
To the Administrative Committee of
Flotek Industries, Inc. 401(k) Plan
Houston, Texas
We have audited the accompanying statements of net assets available for benefits of the Flotek Industries, Inc. 401(k) Plan (the “Plan”) as of December 31, 2006 and 2005, and the related statement of changes in net assets available for benefits for the year ended December 31, 2006. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in the net assets available for benefits for the year ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ UHY LLP
Houston, Texas
June 29, 2007
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FLOTEK INDUSTRIES INC. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
| December 31, | ||||||
| 2006 | 2005 | |||||
| INVESTMENTS, at fair value |
||||||
| Money market funds |
$ | 29,496 | $ | 12,905 | ||
| Common stock |
68,758 | — | ||||
| Mutual funds |
847,742 | 547,456 | ||||
| Participant loans |
11,804 | 16,892 | ||||
| TOTAL INVESTMENTS |
957,800 | 577,253 | ||||
| NET ASSETS AVAILABLE FOR PLAN BENEFITS |
$ | 957,800 | $ | 577,253 | ||
See notes to financial statements.
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FLOTEK INDUSTRIES INC. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2006
| ADDITIONS TO NET ASSETS | |||
| INVESTMENT INCOME |
|||
| Interest on participant loans |
$ | 819 | |
| Interest and dividends |
964 | ||
| Net appreciation in fair value of investments |
114,298 | ||
| TOTAL INVESTMENT INCOME |
116,081 | ||
| CONTRIBUTIONS |
|||
| Employer |
15,776 | ||
| Participants |
247,555 | ||
| Rollovers |
14,532 | ||
| TOTAL CONTRIBUTIONS |
277,863 | ||
| TOTAL ADDITIONS TO NET ASSETS |
393,944 | ||
| DEDUCTIONS FROM NET ASSETS |
|||
| Benefit payments |
1,592 | ||
| Corrective distributions |
11,805 | ||
| Administrative fees |
— | ||
| TOTAL DEDUCTIONS FROM NET ASSETS |
13,397 | ||
| NET INCREASE |
380,547 | ||
| NET ASSETS AVAILABLE FOR BENEFITS, beginning of year |
577,253 | ||
| NET ASSETS AVAILABLE FOR BENEFITS, end of year |
$ | 957,800 | |
See notes to financial statements.
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FLOTEK INDUSTRIES, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE A – DESCRIPTION OF PLAN
The following brief description of the Flotek Industries Inc. 401(k) Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the plan document for a more complete description of the Plan’s provisions.
General
Effective June 1, 2002, Flotek Industries, Inc. (the “Company”) established the Plan, a defined contribution plan, in which participation is voluntary on the part of the employees. Employees are eligible to become a participant in the Plan upon satisfying the age and the service requirements. The employee must attain the age of 18 and complete 6 months of service with the Company.
Contributions
A participant may elect to defer a percentage of their compensation during the plan year, which is defined in the plan document and is subject to the limits imposed by the Internal Revenue Code. Contributions can be made on a pre-tax (before federal and state taxes are withheld) basis through payroll deductions. The participant is always fully vested in his or her contributions. The Company permits compensation deferrals of 1% to 20% in increments of 1% each plan year.
Effective September 1, 2006, the Company makes a matching contribution to the Plan in an amount equal to 25% of each participant’s salary reduction contribution not to exceed 3%. The Company’s matching contributions are made in the same ratio as the participants elective deferrals.
Vesting
Participants are vested in their salary reduction contributions, any rollover contributions, and earnings on these amounts. Matching contributions to the Plan, plus any earnings these amounts generate, are 100% vested after six years of service (20% per year after two years of service). Participants hired prior to January 1, 2001 are 100% vested in the matching contributions and the related earnings.
Investment Elections
The Plan also allows the participants to (i) change the percentage of pay withheld through payroll deduction by completing and signing a revised Salary Reduction Agreement and returning it to the Company at least 30 days before the change will take effect or lesser number of days if the Company permits, (ii) change investment fund options for future contributions at any time, directly by telephone with Bisys Retirement Services Inc. (“Bisys”), the investment custodian, or via the internet and (iii) discontinue participation in the Plan as of the first day of the plan year or the first day of the seventh month of the plan year. Re-enrollment must occur the first day of the plan year or the first day of the seventh month.
Withdrawals during Employment
A participant is eligible to make certain withdrawals while employed. A withdrawal of after-tax contributions requires a withdrawal of a proportionate share of investment earnings thereon, which will be taxable and will include 10 percent early distribution tax if made before age 59-1/2 under current tax laws (unless certain exceptions apply).
Participant Loans
A participant can borrow up to 50 percent of his or her vested account balance while in the Plan. The amount borrowed may be from a minimum of $1,000 to a maximum of $50,000, but never more than 50 percent of the participant’s vested account balance. Only one loan can be outstanding at any one time. A loan must be repaid by payroll deduction over a period not to exceed five years; however, early payoff is permitted. The loan interest rate is the prime rate printed in the Wall Street Journal at the time of the loan. Loans are limited to members who are active employees.
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FLOTEK INDUSTRIES, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Payments of Benefits
A participant can withdraw the total vested amount in the participant’s account as a result of either (i) termination of employment, (ii) retirement at age 65 or (iii) permanent and total disability or death. The full value of the participant’s account will be paid and will be subject to income tax when the participant retires or qualifies as permanently and totally disabled, unless an election is made by the participant to rollover the funds as allowed by the Internal Revenue Code. If death occurs before retirement, the full value of the account will be paid to the designated beneficiary. If the value of the participant’s account is less than $5,000, the beneficiary will receive a lump sum payment of the entire amount. If the value of the participant’s account is greater than $5,000, the beneficiary will receive a payout(s) in a form other than a life annuity.
Disposition of Forfeitures by Participants
A forfeiture of unvested benefits shall be accounted for in the following manner. Forfeitures will be allocated to each participant’s individual account in the ratio which each participant’s compensation for the plan year bears to the total compensation of all participants for the plan year.
Forfeitures for the Plan for the year ended December 31, 2006 were not significant to the Plan.
Rollover Contributions
Generally, if a participant received a qualified total distribution as defined in the Internal Revenue Code of 1986 as amended, the participant can deposit or rollover those funds into the Plan.
Participant Accounts
Each participant’s account is credited with the employee’s contribution, the Company contributions and the proportionate allocation of the earnings of the Plan, as defined by the Plan.
Plan Trustee
Frontier Trust Company (“Frontier”) was appointed trustee and investment custodian of the Plan by a contract dated June 1, 2002. Under the contract Frontier has named Bisys as plan record keeper. Under the agreement, Frontier shall hold all property received, manage the Plan and invest and reinvest Plan assets.
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Valuation of Investments: Investments are recorded at fair market value based on externally quoted and reported market prices.
Net Appreciation/(Depreciation) in Fair Market Value of Investments: The statement of changes in net assets available for plan benefits presents the net appreciation/(depreciation) in the fair market value of investments which consists of realized gains or losses and the unrealized appreciation/(depreciation) on those investments.
Administrative Expenses: Administrative expenses consist of all expenses incidental to the administration, termination or protection of the Plan, including, but not limited to, legal, accounting, investment manager and trustee fees. Substantially all administrative expenses, except for expenses associated with loans to participants, were paid by the Company.
Risks and Uncertainties: The Plan provides for various investment options in any combination of stocks and mutual funds. Investment securities are exposed to various risks, such as market and credit risk. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits.
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FLOTEK INDUSTRIES, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits at the date of the financial statements and the reported amounts of changes in net assets available for benefits during the reporting period. Actual results could differ from those estimates.
NOTE C – INVESTMENTS
The following table presents the fair value of investments held by the Plan. Individual investments that represent five percent or more in any of the Plan’s net assets available for benefits in either plan year are shown separately:
| December 31, | ||||||||||
| 2006 | 2005 | |||||||||
| Value | Shares | Value | Shares | |||||||
| Investments at estimated fair value: |
||||||||||
| Collective trust funds: |
||||||||||
| BlackRock Eurofund |
$ | 90,059 | 4,863 | $ | 56,680 | 3,610 | ||||
| BlackRock Global Allocation Fund |
155,498 | 8,746 | 110,027 | 6,640 | ||||||
| BlackRock Value Opportunities Fund |
172,258 | 8,016 | 35,281 | 1,527 | ||||||
| BlackRock Large Cap Value Fund |
261,290 | 14,532 | — | — | ||||||
| BlackRock Aurora Portfolio |
— | — | 97,795 | 3,198 | ||||||
| BlackRock Basic Value Fund |
— | — | 69,615 | 2,291 | ||||||
| Van Kampen Comstock Fund |
— | — | 91,179 | 5,120 | ||||||
| Investments at fair value as determined by quoted market price: |
||||||||||
| Flotek Industries Inc. Common Stock |
68,758 | 2,451 | — | — | ||||||
| Total investments exceeding 5% |
747,863 | 460,577 | ||||||||
| Other |
209,937 | 116,676 | ||||||||
| TOTAL INVESTMENTS |
$ | 957,800 | $ | 577,253 | ||||||
During the year ended December 31, 2006, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value as follows:
| Common stock |
$ | 22,133 | |
| Mutual funds |
92,165 | ||
| TOTAL NET APPRECIATION |
$ | 114,298 | |
NOTE D – PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and terminate the Plan subject to the provisions of ERISA. In the event of plan terminations, participants will become 100% vested in their accounts and all assets remaining in the Plan will be paid to the participants and their beneficiaries in accordance with the Plan provisions.
If the Plan terminates, benefits are not insured by the Pension Benefit Guaranty Corporation (“PBGC”). Under the law, PBGC insurance does not cover the type of plan called defined contribution plans. This Plan is a defined contribution plan and, therefore, is not covered.
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FLOTEK INDUSTRIES, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE E – INCOME TAX STATUS
The Employer adopted the trustee’s Prototype Standardized Profit Sharing Plan with CODA in which the trustee received a letter dated November 27, 2001 from the Internal Revenue Service informing the trustee that the form of the plan and amendment thereto is acceptable under Section 401 of the Internal Revenue Code for use by employers for the benefit of their employees. The Company believes that the Plan is currently designed and being operated in compliance with applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
NOTE F – PARTY-IN-INTEREST TRANSACTIONS
The Plan invests in various mutual funds and other funds offered by the Trustee. These investments are considered party-in-interest transactions because Frontier Trust Company serves as trustee of the Plan. The Plan management has approved these investment options.
The Plan also invests in the Company’s common stock. Transactions in Company stock are considered party-in-interest transactions because the Company is the Plan sponsor.
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EIN: 90-0023731
Plan number: 001
FLOTEK INDUSTRIES INC. 401(k) PLAN
SCHEDULE H, LINE 4i – SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2006
| (a) | (b) | (c) | (d) | (e) | |||||
| Identity of Issue, Borrower, |
Description of Investment Including Maturity Date, Rate of Interest, Collateral, Par or Maturity Value |
Cost | Current Value | ||||||
| Mutual Funds | |||||||||
| * | Frontier Trust Company | BlackRock Fundamental Growth Fund | N/A | $ | 30,469 | ||||
| * | Frontier Trust Company | BlackRock Small Cap Growth Fund | N/A | 28,104 | |||||
| * | Frontier Trust Company | BlackRock Eurofund | N/A | 90,059 | |||||
| * | Frontier Trust Company | BlackRock Global Allocation Fund | N/A | 155,498 | |||||
| * | Frontier Trust Company | BlackRock Bond Fund | N/A | 22,937 | |||||
| * | Frontier Trust Company | BlackRock Value Opportunities Fund | N/A | 172,258 | |||||
| * | Frontier Trust Company | BlackRock Large Cap Core Fund | N/A | 29,714 | |||||
| * | Frontier Trust Company | Goldman Sachs Mid Cap Value Fund | N/A | 3,369 | |||||
| * | Frontier Trust Company | AIM Advisor Real Estate Fund | N/A | 4,332 | |||||
| * | Frontier Trust Company | AllianceBerstein International Growth Fund | N/A | 5,279 | |||||
| * | Frontier Trust Company | Oppenheimer Developing Markets Fund | N/A | 12,134 | |||||
| * | Frontier Trust Company | MFS Utilities Fund | N/A | 7,531 | |||||
| * | Frontier Trust Company | BlackRock Large Cap Value Fund | N/A | 261,290 | |||||
| * | Frontier Trust Company | BlackRock Natural Resources Fund | N/A | 11,848 | |||||
| * | Frontier Trust Company | BlackRock Government Income Portfolio | N/A | 12,920 | |||||
| Total mutual funds |
847,742 | ||||||||
| Money Market Funds | |||||||||
| * | Frontier Trust Company | Merrill Lynch Ready Asset Trust | N/A | 29,496 | |||||
| Total money market funds |
29,496 | ||||||||
| Common Stock | |||||||||
| * | Frontier Trust Company | Flotek Industries, Inc. Common Stock | N/A | 68,758 | |||||
| Total common stock |
68,758 | ||||||||
| Loans | |||||||||
| * | Participant loans | Participant loans with 6 participants reflecting rates from 5.50% to 6.00% and various maturity dates |
$— | 11,804 | |||||
| Total loans |
11,804 | ||||||||
| Total investments | $ | 957,800 | |||||||
| * | Represents identification of known party-in-interest in the Plan. |
| N/A | This information is not required by ERISA or the Department of Labor to be reported for participant-directed investments. |
See report of independent registered public accounting firm.
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The Plan
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| Flotek Industries Inc. 401(k) Plan | ||||
| (Name of Plan) | ||||
| Date: June 29, 2007 | By: | /s/Rosalie Melia | ||
| Rosalie Melia | ||||
| Corporate Secretary Plan Administrator | ||||
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