What changed in this filing

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Item 1. Financial Statements

2022-05-13 compared with 2021-12-09 · 147 added, 201 removed, 286 unchanged (55% of the section changed)

4 unchanged sentences

(in thousands, except per share amounts) (unaudited)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(Restated) (Restated)

Three Months Ended March 31,

Sales $ 319,411 $ 245,587

2 unchanged sentences

Selling, general and administrative expenses 73,325 65,397

Impairment and other charges — 48,401 — 48,401

Income from operations 21,559 6,233

1 unchanged sentence

Interest expense 5,162 5,243

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 )

Income before income taxes 15,861 1,420

Provision for income taxes 3,332 1,261

Net income 12,529 159

Net loss attributable to noncontrolling interest ( 113 ) ( 212 )

Net income (loss) attributable to DXP Enterprises, Inc.

7,125 ( 34,666 ) 15,615 ( 26,187 )

Net income attributable to DXP Enterprises, Inc.

Preferred stock dividend 23 23

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 )

Net income attributable to common shareholders $ 12,619 $ 348

Net income $ 12,529 $ 159

Currency translation adjustments 1,669 1,491

Comprehensive income (loss) $ 4,807 $ ( 35,227 ) $ 15,500 $ ( 26,640 )

Earnings (loss) per share (Note 9) :

Comprehensive income $ 14,198 $ 1,650

Earnings per share (Note 10) :

Basic $ 0.68 $ 0.02

8 unchanged sentences

(in thousands, except share and per share data) (unaudited)

September 30, 2021 December 31, 2020

ASSETS (Restated)

March 31, 2022 December 31, 2021

Current assets:

21 unchanged sentences

Billings in excess of costs and estimated profits 5,328 3,581

Federal income taxes payable 104 —

Short-term operating lease liabilities 18,093 18,203

11 unchanged sentences

1,000,000 shares authorized each

Common stock, $ 0.01 par value, 100,000,000 shares authoriz ed;

Common stock, $ 0.01 par value, 100,000,000 shares authorized;

18,633,271 and 18,580,364 outstanding

2 unchanged sentences

Accumulated other comprehensive loss ( 27,613 ) ( 29,282 )

Treasury stock, at cost 1,014,053 shares a t September 30, 2021

Treasury stock, at cost 1,243,535 shares at March 31, 2022

( 35,024 ) ( 33,511 )

Total DXP Enterprises, Inc.

8 unchanged sentences

(in thousands) (unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income attributable to DXP Enterprises, Inc.

$ 15,615 $ ( 26,187 )

net loss attributable to non-controlling interest ( 590 ) ( 233 )

Net income 12,529 159

4 unchanged sentences

Provision for credit losses ( 147 ) ( 682 )

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 531 —

Amortization of debt issuance costs 458 427

Stock compensation expense 1,354 2,870

Restricted stock compensation expense 370 380

Deferred income taxes 411 580

5 unchanged sentences

Acquisition of business, net of cash acquired ( 5,316 ) —

Net cash used in investing activities $ ( 66,297 ) $ ( 20,525 )

Net cash (used in) provided by investing activities $ ( 6,056 ) $ 617

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal debt payments ( 825 ) ( 825 )

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 )

Preferred Stock dividends paid ( 23 ) ( 23 )

Purchase of treasury stock ( 8,315 ) —

7 unchanged sentences

Shares issued for acquisitions (Note 13)

Share repurchase agreement $ 20,405 $ —

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4 unchanged sentences

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

Balance at December 31, 2020 $ 1 $ 15 $ 189 $ 192,068 $ 186,078 $ — $ 798 $ ( 30,029 ) $ 349,120

Preferred dividends paid — — — — ( 23 ) — — — ( 23 )

Compensation expense for restricted stock — — — 458 — — — — 458

Stock compensation expense — — — 56 — — — — 56

Restricted stock compensation expense — — — 380 — — — — 380

Tax related items for share based awards — — — ( 517 ) — — — — ( 517 )

Issuance of shares of common stock — — 1 1,982 — — — — 1,983

Currency translation adjustment — — — — — — — 1,491 1,491

Net income — — — — 371 — ( 212 ) — 159

Balance at September 30, 2021 $ 1 $ 15 $ 195 $ 206,007 $ 201,626 $ ( 29,174 ) $ 208 $ ( 17,538 ) $ 361,340

Balance at March 31, 2021 $ 1 $ 15 $ 189 $ 191,931 $ 186,426 $ — $ 586 $ ( 28,538 ) $ 350,610

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

Balance at December 31, 2021 $ 1 $ 15 $ 195 $ 206,772 $ 202,484 $ ( 33,511 ) $ 53 $ ( 29,282 ) $ 346,727

Preferred dividends paid — — — — ( 23 ) — — — ( 23 )

Compensation expense for restricted stock — — — 1,298 — — — — 1,298

Stock compensation expense — — — 56 — — — — 56

Restricted stock compensation expense — — — 370 — — — — 370

Tax related items for share based awards — — — ( 159 ) — — — — ( 159 )

3 unchanged sentences

Net income — — — — 12,642 — ( 113 ) — 12,529

Balance at September 30, 2021 $ 1 $ 15 $ 195 $ 206,007 $ 201,626 $ ( 29,174 ) $ 208 $ ( 17,538 ) $ 361,340

Balance at March 31, 2022 $ 1 $ 15 $ 195 $ 207,510 $ 215,103 $ ( 35,024 ) $ ( 60 ) $ ( 27,613 ) $ 360,127

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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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.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE").

For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 5, 2022.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results expected for the full fiscal year.

In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2022 and March 31, 2021, condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, condensed consolidated statements of cash flows for the three months ended March 31, 2022 and March 31, 2021, and condensed consolidated statements of equity for the three months ended March 31, 2022 and March 31, 2021.

All such adjustments represent normal recurring items.

6 unchanged sentences

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.

The Company evaluated the impact of this ASU and it does not expect a material impact on the Consolidated 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.

6 unchanged sentences

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.

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

NOTE 4 - REVISION

During the first quarter of 2022, we identified errors in the translation of the goodwill associated with our investment in our Canadian subsidiaries.

We determined that we were not appropriately translating Canadian goodwill in consolidation since acquiring these businesses in 2012 and 2013.

The failure to translate these balances resulted in an overstatement of US dollar-based goodwill for several years.

We assessed the materiality of the errors on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No.

99, Materiality , codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements.

We concluded that the errors were not material to our prior period consolidated financial statements and therefore, amendments of previously filed consolidated financial statements are not required.

In accordance with ASC 250, we have corrected the errors by revising the consolidated financial statements presented herein.

Prior periods not presented herein will be revised, as applicable, in future filings.

The impacts of the revisions on the periods presented herein are provided in the following tables.

Three Months Ended March 31, 2021

As previously

Reported Adjustments As Restated

Reported Adjustments Revised

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Net income $ ( 26,814 ) $ 627 $ ( 26,187 )

Currency translation adjustments $ 1,277 $ 214 $ 1,491

Total comprehensive income $ 1,436 $ 214 $ 1,650

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 .

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 previously

Reported Adjustments Revised

BALANCE SHEET (AT DECEMBER 31, 2021):

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 $ 308,506 $ ( 11,965 ) $ 296,541

Total Assets $ 906,192 $ ( 11,965 ) $ 894,227

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 $ ( 17,317 ) $ ( 11,965 ) $ ( 29,282 )

Retained Earnings 176,637 9,441 186,078

Equity $ 358,692 $ ( 11,965 ) $ 346,727

Total Liabilities & Equity $ 906,192 $ ( 11,965 ) $ 894,227

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

Accumulated Other Comprehensive Loss

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

Reported Adjustments Revised

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Balance at December 31, 2020 $ ( 18,013 ) $ ( 12,016 ) $ ( 30,029 )

Currency translation adjustment $ 1,277 $ 214 $ 1,491

Balance at March 31, 2021 $ ( 16,736 ) $ ( 11,802 ) $ ( 28,538 )

Balance at December 31, 2021 $ ( 17,317 ) $ ( 11,965 ) $ ( 29,282 )

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis.

Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:

Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are other than quoted prices that are observable for an asset or liability.

These inputs include:

quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability;

and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Our acquisitions may include contingent consideration as part of the purchase price.

The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments.

The unobservable inputs used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis.

The fair value measurement includes inputs that are Level 3 inputs as discussed above, as they are not observable in the market.

Should actual results increase or decrease as compared to the assumptions used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable.

Changes in the fair value of the contingent earn-out consideration are measured each reporting period and reflected in our results of operations.

As of March 31, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisition of PMI, Burlingame and Drydon of $ 1.4 million, $ 0.1 million and $ 2.6 million, respectively.

See further discussion at Note 13 - Business Acquisitions .

For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the three months ended March 31, 2022:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Contingent Liability for Accrued Consideration

(in thousands)

Beginning balance at December 31, 2021 $ 905

Acquisitions and settlements

Acquisitions (Note 1 3 )

Settlements —

Total remeasurement adjustments:

Changes in fair value recorded in other (income) expense, net 531

*Ending Balance at March 31, 2022 $ 4,125

The amount of total (gains) or losses for the quarter included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at March 31, 2022.

* Included in other current liabilities

Quantitative Information about Level 3 Fair Value Measurements

The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:

(in thousands, unaudited) Fair value at March 31, 2022 Valuation Technique Significant Unobservable

Contingent consideration:

(PMI, Burlingame and Drydon acquisitions) $ 4,125 Discounted cash flow Annualized EBITDA and probability of achievement

Sensitivity to Changes in Significant Unobservable Inputs

As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisition of PMI, Burlingame and Drydon are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results.

The discount rate used in the calculation was 7.6 %.

Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly (lower) higher fair value measurement.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at March 31, 2022 and December 31, 2021, but which require disclosure of their fair values include:

cash, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit and term loan debt under our syndicated credit agreement facility ( Note 9 ).

Due to the short-term nature of these aforementioned securities, the Company believes that the estimated fair value of such instruments at March 31, 2022 and December 31, 2021 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets.

NOTE 6 – INVENTORIES

The carrying values of inventories are as follows ( in thousands ):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Finished goods $ 83,655 $ 80,329

Work in process 28,207 20,565

Obsolescence reserve ( 16,448 ) ( 25,477 )

Inventories $ 111,862 $ 100,894

NOTE 6 – COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS

NOTE 7 – CONTRACT ASSETS AND LIABILITIES

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.

1 unchanged sentence

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

March 31, 2022 December 31, 2021

Costs incurred on uncompleted contracts $ 54,888 $ 41,329

3 unchanged sentences

Net $ 15,167 $ 13,613

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

Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for March 31, 2022 and December 31, 2021 under the following captions ( in thousands ):

March 31, 2022 December 31, 2021

Costs and estimated profits in excess of billings $ 20,504 $ 17,193

2 unchanged sentences

Net $ 15,167 $ 13,613

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.

During the three months ended March 31, 2022, $ 2 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 8 – 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.

Our effective tax rate from continuing operations was a tax expense of 21.0 percent for the three months ended March 31, 2022 compared to a tax expense of 90.9 percent for the three months ended March 31, 2021.

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.

statutory rate for the three months ended March 31, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ 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.

statutory rate for the three months ended March 31, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ auditing of research and development tax credits.

The effective tax rate decreased by research and development tax credits and other 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.

1 unchanged sentence

The components of the Company's long-term debt consisted of the following ( in thousands ):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Carrying Value (1)

5 unchanged sentences

Long-term debt less current maturities $ 322,575 $ 321,768 $ 323,400 $ 322,591

(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 .

(1) Carrying value amounts do not include unamortized debt issuance costs of $ 7.5 million and $ 8.0 million for March 31, 2022 and December 31, 2021, respectively .

Credit Agreements

1 unchanged sentence

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.

As of March 31, 2022, the Company had no amount outstanding under the ABL Revolver and had $ 132.2 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.

1 unchanged sentence

The fair value estimates were based on quoted prices for identical or similar securities.

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of September 30, 2021.

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of March 31, 2022, and December 31, 2021.

NOTE 10 - EARNINGS PER SHARE DATA

2 unchanged sentences

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

(Restated) (Restated)

Three Months Ended March 31,

Weighted average shares outstanding 18,534 19,186

14 unchanged sentences

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.

While DXP is unable to predict the outcome or estimate the financial impact of these disputes, 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 12 - SEGMENT REPORTING

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The following table sets out financial information related to the Company's segments excluding amortization ( in thousands ):

Three Months Ended September 30,

Three Months Ended March 31,

SC IPS SCS Total SC IPS SCS Total

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Income from operations 5

Nine Months Ended September 30,

SC IPS SCS Total SC IPS SCS Total

Product sales 1

$ 27,351 $ 7,069 $ 4,020 $ 38,440 $ 22,137 $ 947 $ 2,323 $ 25,407

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.

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4 Custom pump production and delivery is recognized over time.

5 Income from operations excludes amortization of intangibles and corporate expenses.

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)

Three Months Ended March 31,

Operating income for reportable segments $ 38,440 $ 25,407

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Amortization of intangible assets 4,235 4,146

Impairment and other charges — 48,401 — 48,401

Corporate expenses 12,646 15,028

4 unchanged sentences

NOTE 13 - 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.

On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc.

(“Drydon”), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest.

The acquisition of Drydon was funded with cash on hand as well as issuing DXP's common stock.

The Company paid approximately $ 7.9 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.

A majority of Drydon's sales are project-based work under the percentage-of-completion accounting model.

As a result, Drydon has been included in the IPS segment.

For the three months ended March 31, 2022, Drydon contributed sales of $ 1.4 million and net income of $ 0.7 million.

Goodwill for the transaction totaled approximately $ 4.1 million.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc.

(“Burlingame”), a provider of water and wastewater equipment in the industrial and municipal sectors.

The Company paid approximately $ 1.1 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:

For the three months ended March 31, 2022, Burlingame contributed sales of $ 0.4 million and net income of $ 6 thousand.

Pro forma revenue and net income have been excluded as the amounts would have been immaterial to the consolidated results of the Company for the current and prior year.

In aggregate, the acquisition-date fair value of the consideration transferred for the two businesses totaled $ 9.0 million, which consisted of the following:

Purchase Price Consideration (in millions)

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Total purchase price consideration $ 9.0

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,

(in thousands/unaudited)

Revenue $ 841,333 $ 788,937

Net income $ 15,870 $ ( 25,241 )

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

The fair value of the 21,844 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 table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

(In thousands)

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Other receivables 56

Costs in excess of billings 3,003

Non-compete agreements 229

Customer relationships 1,770

Goodwill 47,203

Property and equipment 124

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Current liabilities assumed ( 1,061 )

Contingent consideration ( 301 )

Net assets acquired $ 4,383

Total Consideration ( 9,049 )

Goodwill $ 4,666

Of the $ 2 million of acquired intangible assets, $ 0.2 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, $ 1.8 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 goodwill total of approximately $ 4.7 million is

attributable primarily to expected synergies and the assembled workforce of each entity and is generally deductible for tax purposes.

The fair value of accounts receivables acquired is $ 2.7 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.

These costs are included in the Condensed Consolidated Statements of Operations and Comprehensive Income 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.

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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.

During the three months ended March 31, 2022, the Company repurchased 58.9 thousand shares of common stock for $ 1.5 million at an average price of $ 25.66 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

Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal quarterly installments beginning on June 15, 2021.

The remaining one installment totaling $ 6.8 million was included in other current liabilities as of March 31, 2022.

Three Months Ended March 31,

(in thousands, except per share data) 2022

Total number of shares purchased 58.9

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Average price paid per share $ 25.66

NOTE 15 - SUBSEQUENT EVENT

On May 3, 2022, the Company completed the acquisition of Cisco Air Systems, Inc.

Cisco is a leading distributor of air compressors and related products and services focused on serving the food & beverage, transportation and general industrial markets in the Northern California and Nevada territories.

Total consideration for the transaction was approximately $ 45 million, funded with a mixture of cash on hand of $ 29 million, DXP stock valued at approximately $ 5 million and a draw down of approximately $ 11 million on the ABL.

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-Q

Item 1. Financial Statements