DXP ENTERPRISES INC 10-Q

ITEM 1: FINANCIAL STATEMENTS DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Restated) (Restated) Sales $ 289,494 $ 220,193 $ 820,772 $ 772,577 Cost of sales 202,551 158,892 576,921 558,081 Gross profit 86,943 61,301 243,851 214,496 Selling, general and administrative expenses 75,758 53,746 211,587 188,484 Impairment and other charges — 48,401 — 48,401 Income from operations 11,185 ( 40,846 ) 32,264 ( 22,389 ) Other (income) expense ( 450 ) 320 ( 985 ) ( 381 ) Interest expense 5,264 3,752 15,844 12,059 Income (loss) before income taxes 6,371 ( 44,918 ) 17,405 ( 34,067 ) Provision for income taxes (benefit) ( 565 ) ( 10,143 ) 2,380 ( 7,647 ) Net income (loss) 6,936 ( 34,775 ) 15,025 ( 26,420 ) Net loss attributable to noncontrolling interest ( 189 ) ( 109 ) ( 590 ) ( 233 ) Net income (loss) attributable to DXP Enterprises, Inc. 7,125 ( 34,666 ) 15,615 ( 26,187 ) Preferred stock dividend 23 23 68 68 Net income (loss) attributable to common shareholders $ 7,102 $ ( 34,689 ) $ 15,547 $ ( 26,255 ) Net income (loss) $ 6,936 $ ( 34,775 ) $ 15,025 $ ( 26,420 ) Currency translation adjustments ( 2,129 ) ( 452 ) 475 ( 220 ) Comprehensive income (loss) $ 4,807 $ ( 35,227 ) $ 15,500 $ ( 26,640 ) Earnings (loss) per share (Note 9) : Basic $ 0.38 $ ( 1.95 ) $ 0.82 $ ( 1.47 ) Diluted $ 0.36 $ ( 1.95 ) $ 0.78 $ ( 1.47 ) Weighted average common shares outstanding : Basic 18,710 17,790 19,060 17,743 Diluted 19,550 17,790 19,900 17,743 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited) September 30, 2021 December 31, 2020 ASSETS (Restated) Current assets: Cash $ 63,043 $ 119,328 Restricted cash 91 91 Accounts Receivable, net of allowance of $ 8,201 and $ 8,628 205,817 166,941 Inventories 106,376 97,071 Costs and estimated profits in excess of billings 17,714 18,459 Prepaid expenses and other current assets 6,444 4,548 Federal income taxes receivable 10,906 2,987 Total current assets 410,391 409,425 Property and equipment, net 51,756 56,899 Goodwill 308,880 261,767 Other intangible assets, net 83,589 80,088 Operating lease ROU assets 53,233 55,188 Other long-term assets 5,108 4,764 Total assets $ 912,957 $ 868,131 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 3,300 $ 3,300 Trade accounts payable 91,385 64,849 Accrued wages and benefits 26,597 20,621 Customer advances 7,652 3,688 Billings in excess of costs and estimated profits 891 4,061 Short-term operating lease liabilities 18,213 15,891 Other current liabilities 40,583 34,729 Total current liabilities 188,621 147,139 Long-term debt, net of unamortized debt issuance costs 315,920 317,139 Long-term operating lease liabilities 35,478 38,010 Other long-term liabilities 3,097 2,930 Deferred income taxes 8,501 1,777 Total long-term liabilities 362,996 359,856 Total liabilities 551,617 506,995 Commitments and contingencies ( Note 10 ) Shareholders' equity: Series A and B preferred stock, $ 1.00 par value each; 1,000,000 shares authorized each 16 16 Common stock, $ 0.01 par value, 100,000,000 shares authoriz ed; 18,750,597 and 19,208,067 outstanding 195 189 Additional paid-in capital 206,007 192,068 Retained earnings 201,626 186,078 Accumulated other comprehensive loss ( 17,538 ) ( 18,013 ) Treasury stock, at cost 1,014,053 shares a t September 30, 2021 ( 29,174 ) — Total DXP Enterprises, Inc. equity 361,132 360,338 Noncontrolling interest 208 798 Total equity 361,340 361,136 Total liabilities and equity $ 912,957 $ 868,131 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: (Restated) Net income attributable to DXP Enterprises, Inc. $ 15,615 $ ( 26,187 ) Less: net loss attributable to non-controlling interest ( 590 ) ( 233 ) Net income 15,025 ( 26,420 ) Reconciliation of net income to net cash provided (used in) by operating activities: Depreciation 7,380 7,998 Amortization of intangible assets 12,690 9,296 Gain on sale of property and equipment ( 246 ) — Provision for credit losses ( 361 ) 788 Impairment and other charges — 48,401 Payment of contingent consideration liability in excess of acquisition-date fair value ( 145 ) ( 136 ) Fair value adjustment on contingent consideration — 13 Amortization of debt issuance costs 1,256 1,406 Stock compensation expense 1,354 2,870 Deferred income taxes 6,711 ( 6,464 ) Net change in operating assets and liabilities ( 20,833 ) 54,488 Net cash provided by operating activities $ 22,831 $ 92,240 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 2,984 ) ( 6,530 ) Proceeds from the sale of property and equipment 1,297 123 Acquisition of business, net of cash acquired ( 64,610 ) ( 14,118 ) Net cash used in investing activities $ ( 66,297 ) $ ( 20,525 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal debt payments ( 2,475 ) ( 26,875 ) Issuance of Common Stock- shares sold in public market — 1,142 Payment for contingent consideration liability ( 955 ) ( 1,864 ) Dividends paid ( 68 ) ( 68 ) Debt issuance costs — ( 138 ) Purchase of treasury stock ( 8,769 ) — Payment for employee taxes withheld from stock awards ( 637 ) ( 139 ) Net cash used in financing activities $ ( 12,904 ) $ ( 27,942 ) Effect of foreign currency on cash 85 ( 721 ) Net change in cash and restricted cash ( 56,285 ) 43,052 Cash and restricted cash at beginning of period 119,419 54,326 Cash and restricted cash at end of period $ 63,134 $ 97,378 Supplemental schedule of non-cash investing and financing activities: Shares issued for acquisitions (Note 12) $ 11,140 $ — Share repurchase agreement $ 20,405 $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity Balance at June 30, 2020 (Restated) $ 1 $ 15 $ 175 $ 163,094 $ 223,871 $ — $ 1,022 $ ( 19,722 ) $ 368,456 Preferred dividends paid — — — — ( 23 ) — — — ( 23 ) Compensation expense for restricted stock — — — 983 — — — — 983 Tax related items for share based awards — — — ( 23 ) — — — — ( 23 ) Currency translation adjustment — — — — — — — ( 452 ) ( 452 ) Net income (As restated) — — — — ( 34,666 ) — ( 109 ) — ( 34,775 ) Balance at September 30, 2020 (Restated) $ 1 $ 15 $ 175 $ 164,054 $ 189,182 $ — $ 913 $ ( 20,174 ) $ 334,166 Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity Balance at December 31, 2019 (Restated) $ 1 $ 15 $ 174 $ 157,886 $ 215,664 $ — $ 1,146 $ ( 19,954 ) $ 354,932 Preferred dividends paid — — — — ( 68 ) — — — ( 68 ) Compensation expense for restricted stock — — — 2,843 — — — — 2,843 Stock compensation expense — — — 27 — — — — 27 Tax related items for share based awards — — — ( 139 ) — — — — ( 139 ) Issuance of shares of common stock — — 1 1,999 — — — — 2,000 Issuance of common stock sold in public markets, net of commissions and fees — — — 1,142 — — — — 1,142 Currency translation adjustment — — — 296 ( 227 ) — ( 220 ) ( 151 ) Net income (As restated) — — — — ( 26,187 ) — ( 233 ) — ( 26,420 ) Balance at September 30, 2020 (Restated) $ 1 $ 15 $ 175 $ 164,054 $ 189,182 $ — $ 913 $ ( 20,174 ) $ 334,166 Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity Balance at June 30, 2021 $ 1 $ 15 $ 194 $ 203,562 $ 194,523 $ ( 29,174 ) $ 397 $ ( 15,409 ) $ 354,109 Preferred dividends paid — — — — ( 22 ) — — — ( 22 ) Compensation expense for restricted stock — — — 458 — — — — 458 Stock compensation expense — — — 56 — — — — 56 Tax related items for share based awards — — — ( 51 ) — — — — ( 51 ) Issuance of shares of common stock — — 1 1,982 — — — — 1,983 Currency translation adjustment — — — — — — — ( 2,129 ) ( 2,129 ) Net income — — — — 7,125 — ( 189 ) — 6,936 Balance at September 30, 2021 $ 1 $ 15 $ 195 $ 206,007 $ 201,626 $ ( 29,174 ) $ 208 $ ( 17,538 ) $ 361,340 Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity Balance at December 31, 2020 (Restated) $ 1 $ 15 $ 189 $ 192,068 $ 186,078 $ — $ 798 $ ( 18,013 ) $ 361,136 Preferred dividends paid — — — — ( 67 ) — — — ( 67 ) Compensation expense for restricted stock — — — 1,298 — — — — 1,298 Stock compensation expense — — — 56 — — — — 56 Tax related items for share based awards — — — ( 637 ) — — — — ( 637 ) Issuance of shares of common stock — — 6 13,222 — — — — 13,228 Currency translation adjustment — — — — — — — 475 475 Purchase of treasury stock — — — — — ( 29,174 ) — — ( 29,174 ) Net income — — — — 15,615 — ( 590 ) — 15,025 Balance at September 30, 2021 $ 1 $ 15 $ 195 $ 206,007 $ 201,626 $ ( 29,174 ) $ 208 $ ( 17,538 ) $ 361,340 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 7 DXP ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and service to a variety of end markets and industrial customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). See Note 11 - Segment Reporting for discussion of the business segments. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES Basis of Presentation The Company's financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K/A for the year ended December 31, 2020. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on October 22, 2021. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, these condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated statements of operations and comprehensive income for the nine months ended September 30, 2021 and September 30, 2020, condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and September 30, 2020, and condensed consolidated statement of equity for the nine months ended September 30, 2021 and September 30, 2020. All such adjustments represent normal recurring items. All inter-company accounts and transactions have been eliminated upon consolidation. NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-Bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this ASU on the financial statements. In October 2021, the FASB issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination. ASU 2021-08 will require an acquirer to recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers . For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The ASU should be applied prospectively to business combinations occurring on or after the effective date. Early adoption of ASU 2021-08 is permitted, including in an interim period. The Company expects the new Standard to have an impact for future acquisitions. From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities. All other new accounting pronouncements that have been issued, but not yet effective, are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations. 8 NOTE 4 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS As previously reported, the Company restated its consolidated balance sheets as of December 31, 2020 and 2019, and consolidated statements of operations and comprehensive income, equity and cash flows for the years ended December 31, 2020, 2019 and 2018. The restatement also affected periods prior to 2018. The impact of the restatement on such prior periods was reflected as an adjustment to retained earnings as of January 1, 2018. In addition, the restatement impacts the first, second and third quarters of 2020 and the first quarter of 2021. The restated amounts for the comparable interim period in 2020 are presented below. The restatement corrects errors resulting from the failure to timely clear aged payables resulting from the Company's three-way match process discrepancies, the recognition of additional consideration related to a business combination, as well as certain additional errors that the Company has determined to be immaterial, both individually and in aggregate. Set forth below are the restatement adjustments included in the restatement of the previously issued financial statements for the year ended December 31, 2020, and the quarter ended September 30, 2020, each of which is an “error” within the meaning of ASC Topic 250: Accounting Changes and Error Corrections. The following tables presents the impact of the restatement adjustments described below on net income and comprehensive income for the nine months ended September 30, 2020: Nine Months Ended September 30, 2020 As Previously Reported Adjustments As Restated CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Sales $ 772,577 $ — $ 772,577 Cost of sales 557,595 486 558,081 Gross profit 214,982 ( 486 ) 214,496 Selling, general and administrative costs 189,759 ( 1,275 ) 188,484 Income before income taxes ( 34,856 ) 789 ( 34,067 ) Provision for income taxes ( 7,809 ) 162 ( 7,647 ) Net income $ ( 26,814 ) $ 627 $ ( 26,187 ) Basic earnings per share $ ( 1.52 ) $ ( 1.47 ) Diluted earnings per share $ ( 1.52 ) $ ( 1.47 ) Nine Months Ended September 30, 2020 As previously Reported Adjustments As Restated CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Net income $ ( 26,814 ) $ 627 $ ( 26,187 ) Total comprehensive income $ ( 27,267 ) $ 627 $ ( 26,640 ) Adjustments to Net Sales and Related Adjustments to Cost of Products Sold Unvouchered Purchase Orders The Company determined it had aged unvouchered purchase orders included in trade accounts payable. After lengthy investigation and research, DXP determined that these balances were not valid legal obligations to vendors and will not be invoiced or paid. As a result, the Company wrote off the aged balances that no longer represented legal obligations, resulting in a net reduction in accounts payable. Landed cost inventory adjustment The Company determined that cost mark-ups for landed costs for certain inventory items related to our private label pumps had not been properly relieved upon the sale of these items . 9 Direct shipment cut off adjustment Direct shipment orders placed near period end were not properly reflected in the correct period. The Company adjusted sales and cost of goods sold for items recorded in the incorrect period, as well as accounts receivable and payable. Other Adjustments to Earnings from Continuing Operations Before Non-Controlling Interest and Income Taxes Cut-off for credit card payment accruals In January 2020, the Company recorded its monthly payment for its P-Card credit card program, however, the charges were incurred in December 2019. This adjustment reflects the accrual in the correct period, resulting in a shift in other current liabilities between periods. Sales tax payable accruals The Company increased other current liabilities for its accrual for state sales tax obligations stemming from open audits. Adjustments to Provision for Income Taxes The adjustments reflected for the provision for income taxes are the tax consequences of the above listed corrections. Balance sheet adjustments related to purchase accounting and consolidation On December 31, 2020, DXP closed on the acquisition of four businesses. The owners of two of the targets were eligible for true-up consideration based upon the closing financial results of calendar year 2020. This true-up consideration was paid in July 2021; however, the amount of true-up consideration was deemed to have been accrued as of the closing of the acquisitions. Therefore this adjustment resulted in an accrual for the true-up consideration and an increase in goodwill of $ 13.4 million. As described above, the unvouchered purchase order discrepancies resulted in a reduction of accounts payable in the amount of $ 12.2 million as of December 31, 2020. During the consolidation of the four acquisitions closed on December 31, 2020, the Company improperly reflected the cash on hand at the targets as an increase in cumulative translation adjustment and other comprehensive income for approximately $ 2 million. This reclassification adjustment properly records the increase in cash and restricted cash upon closing. In addition, cumulative translation adjustment was also reduced by $ 1.8 million as a result of a reclassification associated with trade accounts receivable. The following table presents the impact of the restatement adjustments on the Company’s previously reported balance sheet as of December 31, 2020 on a condensed basis: As As BALANCE SHEET (AT DECEMBER 31, 2020): Reported Adjustments Restated Cash and restricted cash $ 117,444 $ 1,975 $ 119,419 Accounts Receivable 163,429 3,512 166,941 Inventory 97,071 — 97,071 Federal income taxes receivable 5,632 ( 2,645 ) 2,987 Goodwill 248,339 13,428 261,767 Total Assets $ 851,861 $ 16,270 $ 868,131 Accounts Payable 75,744 ( 10,895 ) 64,849 Other current liabilities 20,834 13,895 34,729 Total Liabilities $ 503,995 $ 3,000 $ 506,995 Cumulative Translation Adjustment ( 21,842 ) 3,829 ( 18,013 ) Retained Earnings 176,637 9,441 186,078 Equity 347,866 13,270 361,136 Total Liabilities & Equity $ 851,861 $ 16,270 $ 868,131 10 The table below presents the impact to Operating Cash Flows on a Condensed Basis as a result of the restatement for the period ended September 30, 2020: Nine Months Ended September 30, 2020 As Previously Reported Adjustments As Restated CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Net income $ ( 27,047 ) $ 627 $ ( 26,420 ) Reconciliation of net income to net cash provided by operating activities: Changes in operating assets and liabilities 55,115 ( 627 ) 54,488 Net cash provided by operating activities $ 92,240 $ 92,240 NOTE 5 – INVENTORIES The carrying values of inventories are as follows ( in thousands ): September 30, 2021 December 31, 2020 Finished goods $ 101,167 $ 105,527 Work in process 21,657 17,021 Obsolescence reserve ( 16,448 ) ( 25,477 ) Inventories $ 106,376 $ 97,071 NOTE 6 – COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS Under our customized pump production and long-term water and wastewater project contracts in our IPS segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contract assets are presented as “Cost and estimated profits in excess of billings” on our condensed consolidated balance sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities that are presented as “Billings in excess of costs and estimated profits” on our condensed consolidated balance sheets. Costs and estimated profits on uncompleted contracts and related amounts billed were as follows ( in thousands ): September 30, 2021 December 31, 2020 Costs incurred on uncompleted contracts $ 50,861 $ 36,969 Estimated profits, thereon 16,693 6,711 Total 67,554 43,680 Less: billings to date 50,732 29,315 Net $ 16,822 $ 14,365 Such amounts were included in the accompanying condensed Consolidated Balance Sheets for September 30, 2021 and December 31, 2020 under the following captions ( in thousands ): September 30, 2021 December 31, 2020 Costs and estimated profits in excess of billings $ 17,714 $ 18,459 Billings in excess of costs and estimated profits ( 891 ) ( 4,061 ) Translation adjustment ( 1 ) ( 33 ) Net $ 16,822 $ 14,365 11 During the nine months ended September 30, 2021, $ 3.9 million of the balances that were previously classified as contract liabilities at the beginning of the period shipped. Contract assets and liability changes were primarily due to normal activity and timing differences between our performance and customer payments. NOTE 7 – INCOME TAXES Our effective tax rate from continuing operations was a tax benefit of 8.9 percent for the three months ended September 30, 2021 compared to a tax benefit of 22.5 percent for the three months ended September 30, 2020. Compared to the U.S. statutory rate for the three months ended September 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax rate decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits and was partially offset by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits. . Our effective tax rate from continuing operations was a tax expense of 13.7 percent for the nine months ended September 30, 2021 compared to a tax benefit of 22.4 percent for the nine months ended September 30, 2020. Compared to the U.S. statutory rate for the nine months ended September 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax was decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the nine months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits and was partially offset by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits. To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy. NOTE 8 – LONG-TERM DEBT The components of the Company's long-term debt consisted of the following ( in thousands ): September 30, 2021 December 31, 2020 Carrying Value (1) Fair Value Carrying Value (1) Fair Value ABL Revolver $ — $ — $ — $ — Term Loan B 327,525 325,887 330,000 325,875 Total long-term debt 327,525 325,887 330,000 325,875 Less: current portion ( 3,300 ) ( 3,284 ) ( 3,300 ) ( 3,259 ) Long-term debt less current maturities $ 324,225 $ 322,603 $ 326,700 $ 322,616 (1) Carrying value amounts do not include unamortized debt issuance costs of $ 8.3 million and $ 9.6 million for September 30, 2021 and December 31, 2020, respectively . Credit Agreements On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $ 135.0 million asset-backed revolving line of credit (the "ABL Revolver") a $ 50.0 million increase above the $ 85.0 million original revolver. The Increase Agreement amends and supplements that certain Loan and Security Agreement, dated as of August 29, 2017. As of September 30, 2021, the Company had no amount outstanding under the ABL Revolver and had $ 131.0 million of borrowing capacity, net of the impact of outstanding letters of credit. On December 23, 2020, DXP entered into a new seven year , $ 330 million Senior Secured Term Loan B (the “Term Loan B Agreement”), which replaced DXP’s previously existing Senior Secured Term Loan. The fair value measurements used by the Company are considered Level 2 inputs, as defined in the fair value hierarchy. The fair value estimates were based on quoted prices for identical or similar securities. 12 The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of September 30, 2021. NOTE 9 - EARNINGS PER SHARE DATA Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. The following table sets forth the computation of basic and diluted earnings per share for the periods indicated ( in thousands, except per share data ): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Basic: (Restated) (Restated) Weighted average shares outstanding 18,710 17,790 19,060 17,743 Net income attributable to DXP Enterprises, Inc. $ 7,125 $ ( 34,666 ) $ 15,615 $ ( 26,187 ) Convertible preferred stock dividend 23 23 68 68 Net income attributable to common shareholders $ 7,102 $ ( 34,689 ) $ 15,547 $ ( 26,255 ) Per share amount $ 0.38 $ ( 1.95 ) $ 0.82 $ ( 1.47 ) Diluted: Weighted average shares outstanding 18,710 17,790 19,060 17,743 Assumed conversion of convertible preferred stock 840 — 840 — Total dilutive shares 19,550 17,790 19,900 17,743 Net income attributable to common shareholders $ 7,102 $ ( 34,689 ) $ 15,547 $ ( 26,255 ) Convertible preferred stock dividend 23 — 68 — Net income attributable to DXP Enterprises, Inc. $ 7,125 $ ( 34,689 ) $ 15,615 $ ( 26,255 ) Per share amount $ 0.36 $ ( 1.95 ) $ 0.78 $ ( 1.47 ) NOTE 10 - COMMITMENTS AND CONTINGENCIES From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome of these lawsuits, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations. NOTE 11 - SEGMENT REPORTING The Company's reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment is engaged in providing maintenance, repair and operating MRO products, equipment and integrated services, including logistics capabilities, to industrial customers. The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply, safety products and safety services categories. The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, re-manufactures pumps, manufactures branded private label pumps and provides products and process lines for the water and wastewater treatment industries. The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management. The high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of inter-segment eliminations. 13 The following table sets out financial information related to the Company's segments excluding amortization ( in thousands ): Three Months Ended September 30, 2021 2020 (Restated) SC IPS SCS Total SC IPS SCS Total Product sales 1 $ 187,302 $ — $ 36,213 $ 223,515 $ 143,767 $ — $ 29,360 $ 173,127 Inventory services 2 — — 4,302 4,302 — — 4,057 4,057 Staffing services 3 25,237 — — 25,237 21,133 — — 21,133 Pump production and delivery 4 — 36,440 — 36,440 — 21,876 — 21,876 Total Revenue $ 212,539 $ 36,440 $ 40,515 $ 289,494 $ 164,900 $ 21,876 $ 33,417 $ 220,193 Income from operations $ 29,381 $ 277 $ 3,181 $ 32,839 $ 22,151 $ ( 2,913 ) $ 2,900 $ 22,138 Nine Months Ended September 30, 2021 2020 (Restated) SC IPS SCS Total SC IPS SCS Total Product sales 1 $ 538,134 $ — $ 103,058 $ 641,192 $ 457,848 $ — $ 106,500 $ 564,348 Inventory services 2 — — 12,761 12,761 — — 12,368 12,368 Staffing services 3 70,408 — — 70,408 43,485 — — 43,485 Pump production and delivery 4 — 96,411 — 96,411 — 152,376 — 152,376 Total Revenue $ 608,542 $ 96,411 $ 115,819 $ 820,772 $ 501,333 $ 152,376 $ 118,868 $ 772,577 Income from operations $ 77,819 $ 6,027 $ 8,991 $ 92,837 $ 53,531 $ 16,080 $ 10,008 $ 79,619 1 Product sales that are recognized at a point in time. 2 Inventory management services that are recognized over the contract life. 3 Staffing services that are invoiced on a day-rate basis. 4 Custom pump production and delivery is recognized over time. The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes ( in thousands ): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Restated) (Restated) Operating income for reportable segments $ 32,839 $ 22,138 $ 92,837 $ 79,619 Adjustment for: Amortization of intangible assets 4,238 3,053 12,690 9,296 Impairment and other charges — 48,401 — 48,401 Corporate expenses 17,416 11,530 47,883 44,311 Income from operations $ 11,185 $ ( 40,846 ) 32,264 ( 22,389 ) Interest expense 5,264 3,752 15,844 12,059 Other (income) expense, net ( 450 ) 320 ( 985 ) ( 381 ) Income before income taxes $ 6,371 $ ( 44,918 ) $ 17,405 $ ( 34,067 ) 14 NOTE 12 - BUSINESS ACQUISITIONS On April 30, 2021, the Company completed the acquisition of Carter & Verplanck, LLC (“CVI”), a distributor of products and services exclusively focused on serving the water and wastewater markets. The acquisition of CVI was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $ 49.7 million in cash and stock. A majority of CVI's sales are project-based work under the percentage-of-completion accounting model. As a result, CVI has been included in the IPS segment. For the nine months ended September 30, 2021, CVI contributed sales of $ 9.8 million and net income of $ 1.1 million. On July 1, 2021, the Company completed the acquisition of Process Machinery, Inc. (“PMI”), a leading distributor of pumps, mechanical seals, tank, filters and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries. The Company paid approximately $ 9.6 million in cash, stock and future consideration. For the nine months ended September 30, 2021, PMI contributed sales of $ 2.3 million and net income of $ 240 thousand. On September 20, 2021, the Company closed on the acquisition of Premier Water LLC (“Premier”). Premier is a leading distributor and provider of products and services exclusively focused on serving the water and wastewater treatment markets primarily in North and South Carolina. The Company paid approximately $ 5.8 million in cash and stock. In aggregate, the acquisition-date fair value of the consideration transferred for the three businesses totaled $ 65.0 million, which consisted of the following: Purchase Price Consideration (in millions) Total Consideration Cash payments $ 53.6 Fair value of stock issued 11.1 Future consideration 0.3 Total purchase price consideration $ 65.0 The fair value of the approximately 422,000 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date, adjusted for holding restrictions following consummation. The following represents the pro forma unaudited revenue and earnings as if each of the acquisitions had been included in the consolidated results of the Company for the full nine months period ending September 30, 2021 and 2020, respectively: Nine Months Ended September 30, 2021 2020 (in thousands/unaudited) Revenue $ 841,333 $ 788,937 Net income $ 15,870 $ ( 25,241 ) 15 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date: (In thousands) Cash $ 34 Accounts receivable 5,011 Other receivables 1,291 Costs in excess of billings 3,003 Non-compete agreements 1,040 Customer relationships 15,219 Goodwill 47,203 Property and equipment 214 Other assets 2,460 Assets acquired $ 75,475 Current liabilities assumed ( 10,134 ) Contingent consideration ( 301 ) Net assets acquired $ 65,040 Of the $ 63.5 million of acquired intangible assets, $ 1.0 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coincident with the terms of the agreements. In addition, $ 15.2 million was assigned to customer relationships, and will be amortized over a period of 8 years. The goodwill total of $ 47.2 million is attributable primarily to expected synergies and the assembled workforce of each entity. The fair value of accounts receivables acquired is $ 5.0 million, which approximated book value. The Company recognized less than $ 300,000 of acquisition related costs that were expensed in the current period. These costs are included in the consolidated income statement in Selling, General and Administrative costs. The Company also recognized an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity. NOTE 13 - SHARE REPURCHASE On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $ 85.0 million or 1.5 million shares of its outstanding common stock may be acquired in the open market over the next 24 months at the discretion of management. During the nine months ended September 30, 2021, the Company repurchase 1.0 million shares of common stock for $ 29.2 million at an average price of $ 28.77 per share. Total consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury shares. Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal installments beginning on June 15, 2021. The remaining three installments totaling $ 20.4 million were included in other current liabilities as of September 30, 2021. Three Months Ended September 30, Nine Months Ended September 30, (in millions, except per share data) 2021 2021 Total number of shares purchased — 1.0 Amount paid $ — $ 29.2 Average price paid per share $ — $ 28.77 16