What changed in this filing

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Item 9A. Controls and Procedures

2022-04-05 compared with 2021-03-18 · 42 added, 20 removed, 112 unchanged (36% of the section changed)

Controls and Procedures

Disclosure Controls and Procedures

DXP carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness as of December 31, 2020, of the design and operation of DXP’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15e and 15d-15e.

Disclosure controls and procedures are the controls and other procedures of DXP that are designed to ensure that information required to be disclosed by DXP in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the U.S.

Securities and Exchange Commission (the “Commission”).

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by DXP in the reports that it files or submits under the Exchange Act, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020 at a reasonable assurance level.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), which have been designed to provide reasonable assurance that such controls and procedures will meet their objectives, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were not effective as of December 31, 2021 as a result of the material weaknesses in our internal control over financial reporting discussed below.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

8 unchanged sentences

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control - Integrated Framework (2013).

Based on our evaluation under the COSO framework, our management has concluded that the Company’s internal control over financial reporting were effective as of December 31, 2020.

Pursuant to section 302 of the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the Securities and Exchange Commission.

These certifications are included herein as Exhibits 31.1 and 31.2 .

The effectiveness of the Company's internal control over financial reporting as of December 31, 2020 has been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their audit report which is included herein.

Because the previously disclosed material weakness around inadequate internal controls that ensure timely clearing of aged accounts payables arising from three-way match exceptions for items ordered through purchase orders had not been fully remediated, we concluded that our internal control over financial reporting was not effective as of December 31, 2021.

In addition to the previously identified material weakness, we determined that a material weakness in our internal control over financial reporting existed as of December 31, 2021 in that we did not maintain effective internal controls related to accounting for complex revenue contracts.

Specifically, we did not properly assess the progress toward completion around long-lived project and manufacturing contracts.

The management review controls designed to assess the proper application of generally accepted accounting principles failed to detect errors in the application of the percentage-of-completion method.

During the year ended December 31, 2021 the Company acquired three insignificant businesses with a combined purchase price of approximately $65 million.

Since the Company has not yet fully incorporated the internal controls and procedures of these entities into the Company’s internal control over financial reporting, management excluded them from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

In aggregate, the targets constituted approximately 7% of the Company’s total assets as of December 31, 2021 and accounted for approximately 13% of the Company’s total revenues for the year then ended.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, has been audited by McConnell Jones LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

REMEDIATION OF MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of December 31, 2021, the Company has remediated the previously reported material weaknesses in its internal control over financial reporting related to business combination accounting and journal entry approvals.

The remediation for business combinations was accomplished by updating policies that require coordination across functions to evaluate all agreements, valuations and the transfer of consideration.

The Company’s controls around journal entry approvals were modified to require senior management approval for all significant, manual journal entries.

The Company has completed the documentation, implementation and testing of the effectiveness of the design and operation of the remediation actions described above and, as of December 31, 2021, has concluded that the steps taken have remediated the material weaknesses.

With respect to the previously identified material weakness associated with aged accounts payable balances, the Company continues to enhance controls and monitoring of discrepancies identified during the three-way-match process for purchase orders and invoices.

We continue to develop automation solutions to prevent aged unreconciled items from accumulating in accounts payable.

Our automated accounts payable system continues to improve and limit the number of discrepancies that occur daily.

We will continue to enhance the controls and processes around these items throughout the coming year.

In response to the identified material weaknesses around revenue recognition, our management, with the oversight of the Audit Committee of the Board of Directors, has begun to update and standardize our revenue recognition processes and controls with respect to percentage-of-completion, and intends to continue to update our revenue recognition processes and controls and to implement additional control procedures, including retaining a third-party business and accounting advisory firm to assist us in improving our internal processes in connection with revenue recognition.

The remediation efforts are intended both to address the identified material weaknesses and to enhance our overall financial control environment.

The material weaknesses will not be considered remediated until our management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective.

We will monitor the effectiveness of our remediation plan and will refine said remediation plan as appropriated.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting identified in our evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the year ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Aside from the changes described above under our remediation efforts, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Little /s/ Kent Yee

24 unchanged sentences

000-21513)., as amended on July 27, 2011.

3.3 Amendment to Section 3.4 of the Bylaws of DXP Enterprises, Inc., effective January 1, 2022.

Bylaws, as amended on April 23, 201 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No.

21860170 , filed with the Commission on April 27, 2021).

4.1 Form of Common Stock certificate (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Reg.

32 unchanged sentences

000-21513:161832364) filed with the Commission on August 15, 2016).

10.8+ First Amendment to Loan Agreement as of June 25, 2018 (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10Q for the quarterly period ended June 30, 2018 (File No.

000-21513) filed with the Commission on August 8, 2018.

10.8 Loan and Security Agreement Dated as of August 29, 2017 by and among DXP Enterprises, Inc., Pump-PMI, LLC, PMI Operating Company, LTD., PMI Investment, LLC, Integrated Flow Solutions, LLC, DXP Holdings, Inc., Best Holding, LLC, Best Equipment Service & Sales Company, LLC, B27 Holdings Corp., B27, LLC, B27 Resources, Inc.

and Pumpworks 610, LLC as US Borrowers, DXP Canada Enterprises, LTD., Industrial Paramedic Services, LTD., HSE Integrated LTD., and National Process Equipment Inc., as Canadian Borrowers and the Other Persons Party hereto from time to time, as Guarantors, and Bank of America, N.A., as agent and Certain Financial Institutions as Lenders, Bank of America, N.A.

as Sole Lead Arranger and Sole Bookrunner and BMO Capital Markets Corp., as Documentation Agent (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 (File No.

000-21513:171191516) filed with the Commission on November 9, 2017.

10.9 Increase Agreement, dated as of March 17, 2020, by and among the Company, certain of the Company’s US subsidiaries, as borrowers, certain of the Company’s Canadian subsidiaries, as borrowers, the incremental lenders party thereto and Bank of America, N.A., as agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

6 unchanged sentences

*21.1 Subsidiaries of the Company.

*22.1 Subsidiary Guarantors of Guaranteed Securities.

*23.1 Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.

*23.2 Consent of McConnell & Jones LLP, Independent Registered Public Accounting Firm.

*31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended.

17 unchanged sentences

President and Chief Executive Officer

March 18, 2021

April 5, 2022

Each person whose signature appears below appoints David R.

3 unchanged sentences

Little Chairman of the Board, President

Little Chief Executive Officer and Director March 18, 2021

Little Chief Executive Officer and Director April 5, 2022

(Principal Executive Officer)

/s/Kent Yee Senior Vice President/Finance and March 18, 2021

/s/Kent Yee Senior Vice President/Finance and April 5, 2022

Kent Yee Chief Financial Officer and Secretary

(Principal Financial Officer)

/s/Gene Padgett Senior Vice President/Finance, March 18, 2021

/s/Gene Padgett Senior Vice President/Finance, April 5, 2022

Gene Padgett Chief Accounting Officer

1 unchanged sentence

/s/Timothy P.

Halter Director March 18, 2021

/s/David Patton Director March 18, 2021

/s/Joseph Mannes Director March 18, 2021

Halter Director April 5, 2022

/s/David Patton Director April 5, 2022

/s/Joseph Mannes Director April 5, 2022

Joseph Mannes

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures