What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-04-17 compared with 2022-04-05 · 334 added, 300 removed, 787 unchanged (45% of the section changed)

Financial Statements and Supplementary Data

Reports of Independent Registered Public Accounting Firm ( McConnell & Jones LLP , Houston, Texas

Reports of Independent Registered Public Accounting Firm ( Moss Adams LLP , Houston, Texas ,

Report of Independent Registered Public Accounting Firm ( PricewaterhouseCoopers LLP , Houston, Texas

Report of Independent Registered Public Accounting Firm ( McConnell & Jones LLP , Houston, Texas

Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Houston, Texas ,

Consolidated Statements of Operations and Comprehensive Income 50

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We have audited the accompanying consolidated balance sheet of DXP Enterprises, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations and comprehensive income (loss), of equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain (i) an effective control environment due to a lack of a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training to appropriately analyze, record and disclose accounting matters timely and accurately, and an appropriate level of knowledge and experience to establish effective processes and controls, (ii) effective controls over the timely clearing of discrepancies arising from the three-way-match process of matching purchase orders, invoices, and item receipts, (iii) effective controls over the completeness, occurrence, cut-off, accuracy and presentation and disclosure of revenue, and (iv) effective controls to ensure appropriate segregation of duties and adequately review user access to transactions within business processes relevant to significant accounts and disclosures within the general ledger system across the Company.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Sullivan Environmental Technologies, Inc.

(Sullivan), Cisco Air Systems, Inc.

(Cisco), Drydon Equipment, Inc.

(Drydon), and Burlingame Engineers, Inc.

(Burlingame) from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in purchase business combinations during 2022.

We have also excluded Sullivan, Cisco, Drydon, and Burlingame from our audit of internal control over financial reporting.

Sullivan, Cisco, Drydon, and Burlingame are wholly-owned subsidiaries whose total assets and total sales excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 3% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Estimated Costs to Complete Contracts - Innovative Pumping Solutions Segment

As described in Note 2 to the consolidated financial statements, revenue recognized under the percentage-of-completion method was $213.3 million for the year ended December 31, 2022.

As disclosed by management, a substantial portion of the Innovative Pumping Solutions segment sales are made pursuant to contracts to fabricate tangible assets to customer specifications that can range from three to eighteen months or more.

The Company accounts for these contracts under the percentage-of-completion method of accounting, which is an input method as defined by ASC 606, Revenue Recognition .

Under this method, the Company recognizes sales and profit based upon the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the asset.

The percentage-of-completion method of accounting requires management to estimate the project costs at completion.

Revenues are estimated based upon the original contract price and change orders.

Contract costs may be incurred over a period of several months, and the estimation of these costs requires judgment based upon the acquired knowledge and experience of program managers, engineers, and finance professionals.

Estimated costs are based primarily on purchase contract terms and assumptions relating to items such as cost of materials, labor productivity and cost, and overhead.

The principal considerations for our determination that performing procedures relating to the estimated costs to complete contracts used in revenue recognition for the Innovative Pumping Solutions segment is a critical audit matter are (i) the significant judgment by management when determining the estimated costs to complete the contracts and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating the significant assumption related to the estimated cost of materials.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, evaluating and testing management’s process for determining the estimated costs to complete the contracts for a sample of contracts, which included evaluating the reasonableness of the significant assumption used by management related to the estimated cost of materials.

Evaluating management's ability to reasonably estimate costs to complete contracts involved (i) obtaining and inspecting executed purchase orders and agreements, (ii) evaluating the reasonableness of the significant assumption related to estimated cost of materials by considering customer specifications and associated vendor quotes, and (iii) performing a comparison of the originally estimated and actual costs incurred on similar completed contracts.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

April 17, 2023

We have served as the Company’s auditor since 2022.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of DXP Enterprises, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of DXP Enterprises, Inc.

and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

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/s/ McConnell & Jones LLP

We have served as the Company’s auditor since 2021.

We served as the Company’s auditor in 2021.

Houston, Texas

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of DXP Enterprises, Inc.

and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020, and the consolidated results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

We have audited the consolidated statements of operations and comprehensive income (loss), equity, and cash flows of DXP Enterprises, Inc.

and subsidiaries (the “Company”) for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provide a reasonable basis for our opinion.

/s/Moss Adams LLP

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Income (loss) from operating 97,752 39,857 ( 27,668 )

Other (income) expense, net ( 414 ) 74 ( 45 )

Other expense (income), net 2,716 ( 414 ) 74

Interest expense 29,135 21,089 20,571

Income (loss) before income taxes 65,901 19,182 ( 48,313 )

Provision for income taxes (benefit) 3,431 ( 18,696 ) 11,194

Provision for income tax expense (benefit) 17,799 3,431 ( 18,696 )

Net income (loss) 48,102 15,751 ( 29,617 )

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Accumulated other comprehensive loss ( 31,675 ) ( 29,282 )

Treasury stock, at cost 1,184,648 shares at December 31, 2021

Treasury stock, at cost 2,435,352 and 1,184,648 shares

( 67,780 ) ( 33,511 )

Total DXP Enterprises, Inc.

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CASH FLOWS FROM OPERATING ACTIVITIES:

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

$ 16,496 $ ( 29,269 ) $ 37,025

net loss attributable to non-controlling interest ( 745 ) ( 348 ) ( 260 )

Net income (loss) $ 48,102 $ 15,751 $ ( 29,617 )

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Impairment and other charges — — 59,883

Amortization of intangible assets 17,197 12,287 15,074

Amortization of intangible assets and deferred financing costs 20,757 18,755 14,162

Bad debt expense 659 67 1,194

Payment of contingent consideration liability in excess of acquisition-date fair value ( 781 ) ( 45 ) ( 136 )

Amortization of debt issuance costs 1,558 1,875 1,875

Fair value adjustment on contingent consideration 2,311 504 ( 395 )

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Deferred income taxes ( 7,541 ) 6,140 ( 14,732 )

Changes in operating assets and liabilities

Trade accounts receivable ( 43,736 ) 44,884 7,898

Costs and estimated profits in excess of billings 3,991 14,009 92

Inventories ( 5,290 ) 22,414 ( 13,910 )

Prepaid expenses and other assets 649 13,782 5,110

Loss on sale of interest in VIE 1,193 — —

Changes in operating assets and liabilities, and other:

Change in accounts receivable, net ( 93,940 ) ( 43,736 ) 44,884

Accounts payable and accrued expenses 35,965 27,004 ( 15,345 )

Billings in excess of costs & estimated profits ( 772 ) ( 7,816 ) 1,142

Other long-term liabilities 2,584 ( 8,853 ) ( 6,718 )

Inventories 2,072 ( 5,290 ) 22,414

Other ( 14,338 ) 6,452 11,122

Net cash provided by operating activities $ 5,894 $ 37,089 $ 109,650

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facilities 827,152 — —

Payments on revolving credit facilities ( 827,152 ) — —

Proceeds from debt 105,000 — 330,000

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Payment for employee taxes withheld from stock awards ( 292 ) ( 637 ) ( 139 )

Net cash (used in) provided by financing activities $ ( 38,493 ) $ 77,406 $ ( 6,092 )

Net cash provided by (used in) financing activities $ 44,312 $ ( 38,493 ) $ 77,406

Effect of foreign currency on cash 253 88 ( 168 )

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Cash and restricted cash at End of Year $ 46,117 $ 49,080 $ 119,419

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

DXP ENTERPRISES, INC.

AND SUBSIDIARIES (CONTINUED)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years Ended December 31,

2022 2021 2020

SUPPLEMENTAL CASH FLOW INFORMATION:

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Cash paid for income taxes 26,179 6,120 6,277

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

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Shares issued for acquisitions (Note 1 7 )

5,757 13,524 29,366

Share repurchase agreement ( Note 15)

$ — $ 13,603 $ —

DXP ENTERPRISES, INC.

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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

Balances at December 31, 2018 $ 1 $ 15 $ 174 $ 156,190 $ 178,729 $ — $ 1,406 $ ( 19,267 ) $ 317,248

Dividends paid — — — — ( 90 ) — — — ( 90 )

Compensation expense for restricted stock — — — 1,963 — — — — 1,963

Tax related items for share based awards — — — ( 267 ) — — — — ( 267 )

Cumulative translation adjustment — — — — — — — ( 687 ) ( 687 )

Net income — — — — 37,025 — ( 260 ) — 36,765

Balance at December 31, 2019 $ 1 $ 15 $ 174 $ 157,886 $ 215,664 $ — $ 1,146 $ ( 32,366 ) $ 342,520

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Purchase of treasury stock — — — — — ( 33,511 ) — — —

Net income — — — — 16,496 — ( 745 ) — 15,751

Net income (loss) — — — — 16,496 — ( 745 ) — 15,751

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

Dividends paid — — — — ( 90 ) — — — ( 90 )

Compensation expense for restricted stock — — — 1,850 — — — — 1,850

Tax related items for share based awards — — — ( 292 ) — — — — ( 292 )

Issuance of shares of common stock — — 150 5,607 — — — — 5,757

Cumulative translation adjustment — — — — — — — ( 2,393 ) ( 2,393 )

Purchase of treasury stock — — — — — ( 34,269 ) — — ( 34,269 )

Noncontrolling interest — — — — — — — — —

Net income (loss) — — — — 48,155 — ( 53 ) — 48,102

Balance at December 31, 2022 $ 1 $ 15 $ 345 $ 213,937 $ 250,549 $ ( 67,780 ) $ — $ ( 31,675 ) $ 365,392

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

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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 customers serving a variety of end markets.

Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers.

The Company and its subsidiaries are engaged in the business of distributing maintenance, repair and operating (MRO) products, and service to customers serving a variety of end markets.

Additionally, the Company 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 21 - Segment and Geographical Reporting for discussion of the business segments.

See Note 22 - 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 accounting principles generally accepted in the United States of America (“US GAAP”).

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

DXP is the primary beneficiary of a VIE in which DXP owns 47.5 % of the equity.

DXP consolidates the financial statements of the VIE with the financial statements of DXP.

As of December 31, 2021, the total assets of the VIE were approximately $ 3.5 million including approximately $ 2.8 million of fixed assets.

DXP is the primary customer of the VIE.

Consolidation of the VIE increased cost of sales by approximately $ 1.8 million for the year ended December 31, 2021 and decreased cost of sales by approximately $ 0.8 million for the year ended December 31, 2020, respectively.

The Company recognized a related income tax benefit of $ 150 thousand and $ 116 thousand related to the VIE for the years ended December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, the owners of the 52.5 % of the equity not owned by DXP included employees of DXP.

All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s financial statements are prepared in accordance with US GAAP.

The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries.

The Company was the primary beneficiary of a VIE in which it owned 47.5 % of the VIE's equity.

The Company consolidated the VIE within its financial statements.

In November 2022, the Company sold its interest in the VIE and ceased the consolidation of the VIE within the Company's financial statements.

The losses associated with the VIE that occurred prior to the deconsolidation are included in the consolidated statements of operations and comprehensive income and loss.

These losses were $ 0.2 million, $ 0.9 million and $ 0.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

All intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations

We allocate the total purchase price of a business combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill.

For material acquisitions, we engage third-party valuation specialists to assist us in determining the fair value of the assets acquired and liabilities assumed, including goodwill, based on recognized business valuation methodologies.

If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded.

Subsequent to the acquisition, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate in the reporting period in which the adjustment amounts are determined based on facts and circumstances that existed as of the acquisition date, as applicable.

An income, market, or cost valuation method may be utilized to estimate the fair value of the assets acquired or liabilities assumed in a business combination.

We expense acquisition-related costs as incurred in connection with each business combination.

Foreign Currency

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The Company evaluates the creditworthiness of its customers' financial positions and monitors accounts on a regular basis.

Provisions to the allowance for doubtful accounts are made monthly and adjustments are made periodically (as circumstances warrant) based upon management’s best estimate of the collectability of such accounts under the current expected credit losses model.

Provisions to the allowance for doubtful accounts are made monthly and adjustments are made periodically based upon management’s best estimate of the collectability of such accounts under the current expected credit losses model.

The Company writes-off uncollectible trade accounts receivable when the accounts are determined to be uncollectible.

No customer represents more than 10% of consolidated sales.

Changes in this allowance for 2021, 2020 and 2019 were as follows ( in thousands ):

Changes in this allowance for 2022, 2021 and 2020 are as follows ( in thousands ):

Years Ended December 31,

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( 770 ) ( 948 ) ( 1,516 )

( 1,415 ) (2)

Balance at end of year $ 7,610 $ 7,759 $ 8,628

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(2) Uncollectible accounts written off, net of recoveries

Inventories consist principally of equipment purchased for resale or finished goods and are priced at net realizable value, cost being primarily determined using the weighted average cost method.

Inventories consist principally of equipment purchased for resale or finished goods and are priced at lower of cost or net realizable value, cost being primarily determined using the weighted average cost method.

The Company regularly reviews inventory to evaluate continued demand and records provisions for the difference between cost and net realizable value arising from excess and obsolete items on hand.

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When properties are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and gains or losses are credited or charged to earnings.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be

The principal estimated useful lives used in determining depreciation are as follows:

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Impairment of Goodwill and Other Intangible Assets

The Company tests goodwill and other indefinite lived intangible assets for impairment on an annual basis in the fourth quarter and when events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company tests goodwill for impairment on an annual basis in the fourth quarter and when events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company assigns the carrying value of these intangible assets to its reporting units and applies the test for goodwill at the reporting unit level.

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The impairment charge is limited to the amount of goodwill allocated to the reporting unit and goodwill will not be reduced below zero.

For the twelve months ended December 31, 2020, goodwill was

evaluated for impairment at the reporting unit level resulting in a $ 36.4 million goodwill impairment which was included in impairment charges in the consolidated statement of operations.

No impairment of goodwill was required in 2021 and 2019.

The Company performed qualitative tests and determined no impairment of goodwill was required in 2022 and 2021.

For the twelve months ended December 31, 2020, goodwill was evaluated for impairment at the reporting unit level resulting in a $ 36.4 million goodwill impairment which was included in impairment charges in the consolidated statement of operations.

Impairment of Long-Lived Assets, Excluding Goodwill

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An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

For the twelve months ended December 31, 2020, long-lived assets were evaluated for impairment at the reporting unit level resulting in a $ 4.8 million long-lived assets impairment which was included in impairment charges in the consolidated statement of operations.

No impairment of long-lived assets was required in 2022 and 2021.

For the twelve months ended December 31, 2020, long-lived assets were evaluated for impairment resulting in a $ 4.8 million long-lived assets impairment which was included in impairment charges in the consolidated statement of operations.

Revenue Recognition

The Company fabricates and assembles custom-made pump packages, remanufactures pumps and manufactures branded private label pumps within our Innovative Pumping Solutions segment.

For binding agreements to fabricate tangible assets to customer specifications, the Company recognizes revenues over time when the customer is able to direct the use of and obtain substantially all of the benefits of the work performed.

This typically occurs when the products have no alternative use for us and we have a right to payment for the work completed to date plus a reasonable profit margin.

Contracts generally include cancellation provisions that require the customer to reimburse us for costs incurred through the date of cancellation.

We recognize revenue for these contracts using the percentage of completion method, an "input method" as defined by ASC 606, "Revenue from Contracts with Customers".

Under this method, revenues are recognized as costs are incurred and include estimated profits calculated on the basis of the relationship between costs incurred and total estimated costs at completion.

If at any time expected costs exceed the value of the contract, the loss is recognized immediately.

The typical time span of these contracts is approximately one to two years.

The Service Centers segment provides a wide range of maintenance, repair and operating (MRO) products, equipment and integrated services, including logistics capabilities, to industrial customers.

The Company primarily provides purchased products distributed through its branch of local Service Centers and or provides services through its local branch network and recognizes revenue at a point in time when control of the product or service performed transfers to the customer, typically upon shipment or completion from a DXP facility or directly from a supplier.

Revenue is measured at the amount of consideration expected to be received in exchange for the products and services provided, net of allowances for product returns, and any taxes collected from customers that will be remitted to governmental authorities.

The Service Centers segment primarily provides a wide range of maintenance, repair and operating (MRO) products, equipment and integrated services, including logistics capabilities, to industrial customers.

The Supply Chain Services segment also provides a wide range of MRO products as well as manages all or part of various customers' supply chain, including warehouse and inventory management services.

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The majority of the Service Centers and Supply Chain Services segment revenues originate from the satisfaction of a single performance obligation--the delivery of products.

Revenues are recognized when an agreement is in place, the performance obligations under the contract have been identified, and the price or consideration to be received is fixed and allocated to the performance obligation(s) in the contract.

Revenues are recognized when an agreement is in place, the performance obligations under the contract have been satisfied, and the price or consideration to be received is fixed and allocated to the performance obligation(s) in the contract.

We believe our performance obligation has been satisfied when title passes to the customer or services have been rendered under the contract.

Revenues are recorded net of sales taxes.

The Company reserves for potential customer returns based upon the historical level of returns.

The Company reserves for potential customer returns based upon historical levels.

The Company also assembles, kits, fabricates and assembles custom-made pump packages, remanufactures pumps, and manufactures branded private label pumps substantially within our Innovative Pumping Solutions segment.

For binding agreements to assemble, fabricate and direct tangible assets to customer specifications, the Company recognizes revenues over time when the customer is able to direct the use of and obtain substantially all of the benefits of the work performed.

This occurs when the products have no alternative use for us and we have a right to payment for the work completed to date plus a reasonable profit margin.

Contracts include cancellation provisions that require the customer to reimburse us for costs incurred through the date of cancellation.

We recognize revenue for these contracts using the percentage of completion method, an "input method" as defined by ASC 606, "Revenue from Contracts with Customers".

Under this method, we recognize sales and profit based upon the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the asset.

The percentage-of-completion method of accounting requires the Company to estimate the project costs at completion.

Revenues are estimated based upon the original contract price and change orders.

Estimated costs are based primarily on purchase contract terms and estimated cost of materials, labor productivity and cost, and overhead.

Percentage of completion revenues were $ 213.3 million for the twelve months ended December 31, 2022.

Additionally, revenue in the fourth quarter included an out-of-period adjustment that increased revenue by $ 21.2 million, of which $ 10.6 million relates to the year ended December 31, 2021.

The impact of this out-of-period adjustment was an increase to income before income taxes of $5.6 million and $3.0 million for the fourth quarter in 2022 and the year-ended December 31, 2022, respectively.

We evaluated the impact of this error on our previously issued financial statements, assessing both quantitatively and qualitatively, and concluded the error was not material to any of our prior period or the current period financial statements.

Shipping and Handling Costs

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The accrual is adjusted monthly based on recent claims experience.

The actual claims could deviate from recent claims experience and be materially different from the reserve.

The actual claims could deviate from recent claims experience and could be materially different from the accrual.

The accrual for these claims at December 31, 2022 and 2021 was approximately $ 2.9 million and $ 2.8 million, respectively.

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federal, state and local tax examination by tax authorities for years prior to 2016.

The Company's policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses.

The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

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NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On April 1, 2022, we adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, along with its subsequently issued guidance, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.

The provisions of this update are applicable to us through December 31, 2022.

The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

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.

In October 2021, the Financial Accounting Standards Board ("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 .

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NOTE 4 - LEASES

We lease office space, warehouses, land, automobiles, and office and manufacturing equipment.

We lease office space, warehouses, land, automobiles, office, and manufacturing equipment.

All of our leases are classified as operating leases.

Our leases have remaining lease terms of 1 month to 9 years, some of which include options to extend the leases for up to 14 years.

Our leases have remaining lease terms within 1 month to 9 years, some of which include options to extend the leases for up to 14 years.

The exercise of lease renewal options is at our sole discretion.

Our lease agreements do not include options to purchase the leased property.

The Company adopted the provisions of ASC 842, "Leases" effective January 1, 2019.

We elected to apply the current period transition approach as introduced by ASU 2018-11 for our transition at January 1, 2019 and we elected to apply the following practical expedients and accounting policy decisions.

In January 2019, we recorded a ROU Asset and total lease liability obligations of $ 72.7 million and $ 72.4 million, respectively.

The new standard did not have a material impact on our consolidated statements of operations and had no impact on cash flows.

The lease expenses were as follows (in thousands) :

Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020

Lease cost Classification

Short-term lease expense SG&A expenses (*)

Other operating lease cost SG&A expenses (*)

23,921 22,983

Total operating lease cost $ 24,165 $ 23,357

(*) Manufacturing equipment and some vehicle rental expenses are included in the cost of sales.

Lease costs recognized in Selling, general, and administrative expense was $ 24.5 million and $ 24.2 million for the years ended December 31, 2022 and 2021, respectively.

Supplemental cash flow information related to leases was as follows (in thousands) :

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Total operating lease liabilities $ 58,272 $ 58,125

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments for lease commenced on or after January 1, 2019.

We used our incremental borrowing rate as of the transition date of January 1, 2019 for operating leases that commenced prior to transition.

Maturities of lease liabilities were as follows (in thousands) :

Maturities of lease liabilities are as follows (in thousands) :

Year Ending December 31, Operating leases (*)

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Present value of lease liabilities $ 58,272

(*) Operating lease payments exclude $ 0.5 million and $ 2.8 millions of legally binding minimum lease payments for leases signed but not yet commenced, as of December 31, 2021 and December 31, 2020, respectively.

(*) Operating lease payments exclude $ 0.2 million and $ 0.5 million of minimum lease payments for leases signed but not yet commenced as of December 31, 2022 and December 31, 2021, respectively.

Rental expense for operating leases was $ 24.5 million, $ 24.2 million and $ 23.4 million for the years ended December, 2022, 2021 and 2020, respectively.

Lease term and discount rate Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021

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Operating lease 6.5 % 6.5 %

For the twelve months ended December 31, 2021, the Company paid approximately $ 2.3 million in lease expenses to entities controlled by the Company's Chief Executive Officer, David Little and family.

For the twelve months ended December 31, 2022, the Company incurred approximately $ 1.9 million in lease expenses to entities controlled by the Company's Chief Executive Officer, David Little and family.

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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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 unobservable inputs used in the determination of the fair value of the contingent consideration include management's 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.

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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 December 31, 2021, we recorded a $ 0.9 million liability for contingent consideration associated with the acquisition of PMI in other current and long-term liabilities.

As of December 31, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisitions of PMI, Burlingame, Drydon, Cisco and Sullivan of $ 1.2 million, $ 0.5 million, $ 2.8 million, $ 4.7 million and $ 1.0 million, respectively.

See further discussion at Note 17 - Business Acquisitions .

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Changes in fair value recorded in other (income) expense, net 2,311

Ending balance at Balance at December 31, 2021 $ 905

The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at year-end.

* Included in other current and long-term liabilities

*Balance at December 31, 2022

*Amounts included in other current liabilities were $ 5.5 million and $ 0.5 million for the periods ending December 31, 2022 and December 31, 2021, respectively.

Amounts included in long-term liabilities were $ 4.7 million and $ 0.4 million for the periods ending December 31, 2022 and December 31, 2021, respectively.

Quantitative Information about Level 3 Fair Value Measurements

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Contingent consideration:

(PMI acquisition) $ 905 Discounted cash flow Annualized EBITDA and probability of achievement

(PMI, Burlingame, Drydon, Cisco and Sullivan acquisitions) $ 10,166 Discounted cash flow and weighted probability of possible payments 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 are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results.

As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions 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 7.8 %.

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

The maximum amount of contingent consideration payable under these arrangements is $ 10.3 million.

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

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NOTE 6 - INVENTORIES

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

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

December 31, 2022 December 31, 2021

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Work in process 18,486 20,565

Obsolescence reserve ( 16,452 ) ( 25,477 )

Inventories $ 101,392 $ 100,894

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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 Consolidated Balance Sheets.

Costs and estimated profits on uncompleted contracts and related amounts billed for 2021 and 2020 were as follows ( in thousands ):

Costs and estimated profits on uncompleted contracts and related amounts billed for 2022 and 2021 are as follows ( in thousands ):

Costs incurred on uncompleted contracts $ 70,329 $ 41,329

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Net $ 13,182 $ 13,613

During the twelve months ended December 31, 2021, $ 4.0 million of the balances that were previously classified as contract liabilities at the beginning of the period shipped.

During the twelve months ended December 31, 2022, $ 3.6 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized into revenues.

Contract assets and liability changes were primarily due to normal activity and timing differences between our performance and customer payments.

NOTE 8 - PROPERTY AND EQUIPMENT

The carrying values of property and equipment were as follows ( in thousands ):

The carrying values of property and equipment are as follows ( in thousands ):

December 31, 2022 December 31, 2021

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Depreciation expense was $ 9.6 million, $ 9.9 million, and $ 10.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Capital expenditures by segment are included in Note 2 1 - Segment and Geographical Reporting .

Capital expenditures by segment are included in Note 22 - Segment Reporting .

NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS

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Acquisitions 46,739 16,259 62,998

Impairment ( 36,435 ) — ( 36,435 )

Amortization — ( 17,197 ) ( 17,197 )

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Total $ 333,759 $ 296,541

The following table presents a summary of other intangible assets ( in thousands ):

As of December 31, 2021 As of December 31, 2020

Amount Accumulated

Amortization Carrying

Amount Accumulated

Amortization Carrying

Customer relationships $ 208,966 $ ( 132,555 ) $ 76,411 $ 193,747 $ ( 116,028 ) $ 77,719

Non-compete agreements 3,657 ( 863 ) 2,794 2,617 ( 248 ) 2,369

Total $ 212,623 $ ( 133,418 ) $ 79,205 $ 196,364 $ ( 116,276 ) $ 80,088

Gross carrying amounts as well as accumulated amortization are partially affected by the fluctuation of foreign currency rates.

Other intangible assets are amortized according to estimated economic benefits over their estimated useful lives.

Customer relationships are amortized over their estimated useful lives.

Amortization expense is recognized according to estimated economic benefits and was $ 18.9 million, $ 17.2 million, and $ 12.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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Total $ 79,584

The weighted average remaining estimated life for customer relationships and non-compete agreements are 6.6 years and 4.1 years, respectively.

The weighted average remaining estimated life for customer relationships and non-compete agreements are 6.1 and 3.6 years, respectively.

NOTE 10 – LONG-TERM DEBT

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Total Long-term Debt $ 423,764 $ 406,814 $ 323,400 $ 322,591

(1) Carrying value amount do not include unamortized debt issuance costs of $ 8.0 million and $ 9.6 million for year ended December 31, 2021 and December 31, 2020 respectively.

Asset-Based Loan Facility:

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $ 135 million asset-backed revolving line of credit (the "ABL Revolver") a $ 50 million increase from the $ 85.0 million available under the original revolver.

During the twelve months ended December 31, 2021, the amount available to be borrowed under our credit facility decreased to $ 131.7 million compared to $ 131.9 million at December 31, 2020 primarily as a result of outstanding letters of credit.

As of December 31, 2021, there were no amounts of ABL Loans outstanding under the ABL Revolver.

The Company's consolidated Fixed Charge Coverage Ratio was 2.74 to 1.00 as of December 31, 2021.

DXP was in compliance with all such covenants that were in effect on such date under the ABL Revolver as of December 31, 2021.

The ABL Credit Agreement may be increased in increments of $ 10.0 million up to an aggregate of $ 50.0 million.

The facility will mature on August 29, 2022.

Interest accrues on outstanding borrowings at a rate equal to LIBOR or CDOR plus a margin ranging from 1.25 % to 1.75 % per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25 % to 0.75 % per annum, in each case, based upon the average daily excess availability under the facility for the most recently completed calendar quarter.

Fees ranging from 0.25 % to 0.375 % per annum are payable on the portion of the facility not in use at any given time.

(1) Carrying value amount does not include unamortized debt issuance costs of $ 14.6 million and $ 8.0 million for years ended December 31, 2022 and December 31, 2021 respectively.

ABL Revolver and Senior Secured Term Loan B

ABL Revolver:

On July 19, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (the “ABL Credit Agreement”) that provided for a $ 135.0 million asset-backed revolving line of credit (the "ABL Revolver").

The ABL Credit Agreement amends and restates the Loan and Security Agreement dated as of August 29, 2017.

The ABL Revolver matures on July 19, 2027.

During the twelve months ended December 31, 2022, the amount available to be borrowed under our credit facility increased to $ 132.4 million compared to $ 131.7 million at December 31, 2021 primarily as a result of outstanding letters of credit.

As of December 31, 2022, there were no amounts outstanding under the ABL Revolver.

Subject to the conditions set forth in the ABL Credit Agreement, the ABL Revolver may be increased in increments of $ 10.0 million up to an aggregate of $ 50.0 million.

The ABL Revolver will mature on July 19, 2027.

Interest shall accrue on outstanding borrowings at a rate equal to SOFR or CDOR plus a margin ranging from 1.25 % to 1.75 % per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25 % to 0.75 % per annum, in each case, based upon the average daily excess availability under the ABL Revolver for the most recently completed calendar quarter.

Fees ranging from 0.25 % to 0.375 % per annum will be payable on the portion of the facility not in use at any given time.

The unused line fee was 0.375 % at December 31, 2022.

The interest rate for the ABL facility was 1.9 % at December 31, 2021.

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 Term Loan B Agreement provides for a new $ 330 million term loan (the “Term Loan”) that amortizes in equal quarterly installments of 0.25 % with the balance payable in December 2027, when the facility matures.

Subject to securing additional lender commitments, the Term Loan B Agreement allows for incremental increases in facility size up to an aggregate of $ 52.5 million, plus an additional amount such that DXP’s Secured Leverage Ratio (as defined in the Term Loan B Agreement) would not exceed 3.75 to 1.00.

Interest accrues on the Term Loan at a rate equal to the base rate plus a margin of 3.75 % for the Base Rate Loans (as defined in the Term Loan B Agreement), or LIBOR plus a margin of 4.75 % for the Eurodollar Rate Loans (as defined in the Term Loan B Agreement).

We are required to repay the Term Loan with certain asset sales and insurance proceeds, certain debt proceeds and 50 % of excess cash flow, if our total leverage ratio is no more than 3.00 to 1.00 and greater than 2.50 to 1:00, reducing to 25 %, if our total leverage ratio is no more than 2.50 to 1.00.

The interest rate for the ABL Revolver was 7.8 % at December 31, 2022.

Senior Secured Term Loan B:

On November 22, 2022, the Company entered into an amendment on its existing $ 330 million Senior Secured Term Loan (the "Term Loan Amendment"), borrowing an additional $ 105 million that was added to the existing $ 330 million Senior Secured Term Loan (the “Term Loan Agreement”).

There was $ 428.1 million outstanding under the Term Loan Agreement, as amended as of December 31, 2022.

The Term Loan Amendment amends and supplements the Term Loan Agreement, dated as of December 23, 2020, and provides for among other things, $ 105 million in new incremental commitments.

The Term Loan Agreement and Term Loan Amendment amortizes in equal quarterly installments of 0.25 % with the balance payable in December 2027, when the facility matures.

Subject to securing additional lender commitments, the Term Loan Agreement allows for incremental increases in facility size up to an aggregate of $ 85.0 million, plus an additional amount such that the Company's Secured Leverage Ratio (as defined in the Term Loan Agreement) would not exceed 3.75 to 1.00.

Interest accrues on the Term Loan at a rate equal to SOFR plus a margin of 5.25 % for the SOFR Loans (as defined in the Term Loan Amendment).

We are required to repay the Term Loan with certain asset sales and insurance proceeds, certain debt proceeds and 50 % of excess cash flow--reducing to (i.) 25 % if our total leverage ratio is no more than 3.00 to 1.00 and (ii.) 0 % if our total leverage ratio is no more than 2.50 to 1.00.

The interest rate for the Term Loan was 10.0 % as of December 31, 2022.

Financial Covenants:

DXP’s principal financial covenants under the ABL Credit Agreement and Term Loan B Agreement include:

Fixed Charge Coverage Ratio – The Fixed Charge Coverage Ratio under the ABL Credit Agreement is defined as the ratio for the most recently completed four-fiscal quarter period, of (a) EBITDA minus capital expenditures (excluding those financed or funded with debt (other than the ABL Loans), (ii) the portion thereof funded with the net proceeds from asset dispositions of equipment or real property which DXP is permitted to reinvest pursuant to the Term Loan and the portion thereof funded with the net proceeds of casualty insurance or condemnation awards in respect of any equipment and real estate which DXP is not required to use to prepay the ABL Loans pursuant to the Term Loan B Agreement or with the proceeds of casualty insurance or condemnation awards in respect of any other property) minus cash taxes paid (net of cash tax refunds received during such period), to (b) fixed charges.

The Company is restricted from allowing its fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance period, which is triggered when the availability under the ABL facility falls below a threshold set forth in the ABL Credit Agreement.

The Company's principal financial covenants under the ABL Credit Agreement and Term Loan B Agreement include:

Fixed Charge Coverage Ratio – The Fixed Charge Coverage Ratio under the ABL Credit Agreement is defined as the ratio for the most recently completed four-fiscal quarter period, of (a) EBITDA minus capital expenditures (excluding those financed or funded with debt (other than the ABL Loans), (ii) the portion thereof funded with the net proceeds from asset dispositions of equipment or real property which the Company is permitted to reinvest pursuant to the Term Loan and the portion thereof funded with the net proceeds of casualty insurance or condemnation awards in respect of any equipment and real estate which DXP is not required to use to prepay the ABL Loans pursuant to the Term Loan B Agreement or with the proceeds of casualty insurance or condemnation awards in respect of any other property) minus cash taxes paid (net of cash tax refunds received during such period), to (b) fixed charges.

The Company is restricted from allowing its fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance period, which is triggered when the availability under the ABL Revolver falls below a threshold set forth in the ABL Credit Agreement.

As of December 31, 2022, the Company's consolidated Fixed Charge Coverage Ratio was 3.59 to 1.00.

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March 31, 2023 5.00 :1:00

June 30, 2022 5.25 :1:00

September 30, 2022 5.25 :1:00

December 31, 2022 5.00 :1:00

March 31, 2023 5.00 :1:00

June 30, 2023 and each Fiscal Quarter thereafter 4.75 :1:00

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plus to the extent deducted from consolidated net income in such period:

(i) income tax expense, (ii) franchise tax expense, (iii) consolidated interest expense, (iv) amortization and depreciation during such period, (v) all non-cash charges and adjustments, and (vi) non-recurring cash expenses related to the Term Loan, provided , that if the Company acquires or disposes of any property during such period (other than under certain exceptions specified in the Term Loan B Agreement, including the sale of inventory in the ordinary course of business, then EBITDA shall be calculated, after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period.

(i) income tax expense, (ii) franchise tax expense, (iii) interest expense, (iv) amortization and depreciation during such period, (v) all non-cash charges and adjustments, and (vi) non-recurring cash expenses related to the Term Loan, provided , that if the Company acquires or disposes of any property during such period (other than under certain exceptions specified in the Term Loan B Agreement, including the sale of inventory in the ordinary course of business, then EBITDA shall be calculated, after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period.

As of December 31, 2022, the Company’s consolidated Secured Leverage Ratio was 2.83 to 1.00.

Interest on Borrowings

The interest rates on our borrowings outstanding at December 31, 2021 and 2020, including the amortization of debt issuance costs, were as follows:

The interest rates on our borrowings outstanding at December 31, 2022 and 2021, including the amortization of debt issuance costs, are as follows:

ABL Revolver 7.75 % 1.85 %

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The Company was in compliance with all financial covenants as of December 31, 2022.

Extinguishment and modification of Previously Existing Credit Agreement

As set forth above, on December 23, 2020, the Company terminated its previously existing credit agreement and replaced it with a new Term Loan and Security Agreement.

The terminated agreement was under the previous Term Loan and Security Agreement dated as of August 29, 2017, by and among the Company, as borrower, and Goldman Sachs Bank USA, as issuing lender and administrative agent for other lenders (the “Original Credit Agreement”).

This Original Credit Agreement was subsequently amended on June 25, 2018 (the “Original Term Loan Agreement”).

The refinancing of the term loan involved multiple lenders who were considered members of a loan syndicate.

In determining whether the refinancing was to be accounted for as a debt extinguishment or modification, we considered whether the lenders remained the same or changed and whether the change in debt terms was substantial.

The debt terms would be considered substantially different if the present value of the cash inflows and outflows of the new term loans, including all principal increases and lender fees on the refinancing date, was at least 10 % different from the present value of the remaining cash inflows and outflows of the original term loans, or the 10 % Test.

We performed a separate 10 % Test for each individual lender participating in the loan syndication.

For existing lenders who participated in the new term loans as part of the new loan syndicate, the refinancing was accounted for as a modification as the change in debt terms was determined to not be substantial using the 10 % Test.

Deferred financing costs of $ 3.0 million and an original issue discount of $ 4.1 million were associated with modified and new debt and will be amortized to interest expense using the interest method over the life of the term loans.

In connection with the original lenders considered an extinguishment of the previously existing Term Loan and Security Agreement we recorded a $ 5.4 million write-off of debt issuance costs and third-party fees, which was included in interest expense during 2020.

Amendment of Previously Existing Credit Agreement

As set forth above, on November 22, 2022, the Company amended and supplemented its previously existing Tern Loan Agreement with the Term Loan Amendment.

The Term Loan Amendment provides for $ 105 million in new Incremental Term Loan Commitments (as defined in the Term Loan Agreement).

The existing and new borrowings under the Term Loan Agreement mature on December 23, 2027 and are priced at Term SOFR plus an applicable margin of 5.25 percent.

Deferred financing costs of $ 7.9 million were associated with modified and new debt and will be amortized to interest expense using the interest method over the life of the term loan.

In connection with the Term Loan Amendment we expensed third-party fees of $ 2.0 million, which was included in interest expense during 2022.

As of December 31, 2022, the maturities of long-term debt for the next five years and thereafter were as follows ( in thousands ):

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NOTE 11 - INCOME TAXES

The components of income (loss) before income taxes were as follows ( in thousands ):

The components of income (loss) before income taxes are as follows ( in thousands ):

Years Ended December 31,

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Business interest expense carryforward — 389

Investment in partnerships ( 188 ) 319

Other ( 29 ) 312

ROU asset 219 226

Research expenses 16,945 —

Total deferred tax assets 33,117 22,613

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Property and equipment ( 8,542 ) ( 8,117 )

ROU asset and liability 226 ( 323 )

Unremitted foreign earnings ( 421 ) ( 421 )

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If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

At December 31, 2021, the valuation allowance primarily relates to federal and foreign capital loss carryforwards.

As of December 31, 2022, the valuation allowance primarily relates to federal and foreign capital loss carryforwards.

The following summarizes changes in the balance of valuation allowances on deferred tax assets (in thousands):

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Balance at December 31 $ ( 4 ) $ ( 4 ) $ ( 12,813 )

Tax carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2021, were as follows (in thousands):

Tax carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2022, are as follows (in thousands):

Domestic Foreign Expiration

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Louisiana research and development tax credits $ 10 $ — 2024 - 2025

Changes in the balance of unrecognized tax benefits excluding interest and penalties on uncertain tax positions were as follows (in thousands):

Changes in the balance of unrecognized tax benefits excluding interest and penalties on uncertain tax positions are as follows (in thousands):

Assets (Liabilities)

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Increases related to current year tax positions ( 216 ) ( 572 ) —

Settlements — — —

Lapse of statute of limitations — — —

Balance at December 31, $ ( 5,918 ) $ ( 6,316 ) $ ( 5,057 )

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To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of income tax provision (benefit) in the consolidated financial statements consistent with Company's policy.

For the year ended December 31, 2021, the Company did no t record any tax expense for interest and penalties related to uncertain tax positions.

For the year ended December 31, 2022, the Company recorded $ 0.1 million tax expense for interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the United States, various states, and foreign jurisdictions.

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This plan authorizes the issuance of up to 1,000,000 shares of our common stock.

Under the 2016 Omnibus Plan approved by our shareholders, directors, consultants and employees may be awarded shares of DXP’s common stock.

Under the 2016 Plan approved by our shareholders, directors, consultants and employees may be awarded shares of the Company's common stock.

The shares of restricted stock awards granted to employees that are outstanding as of December 31, 2022 vest in accordance with one of the following vesting schedules:

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or 10 % each year for ten years after the date of grant.

The shares of restricted stock awards granted to non-employee directors of DXP vest one year after the grant date.

The fair value of restricted stock awards is measured based upon the closing prices of DXP’s common stock on the grant dates and is recognized as compensation expense over the vesting period of the awards.

Once restricted stock vests, new shares of the Company’s stock are issued.

The shares of restricted stock awards granted to non-employee directors of the Company vest one year after the grant date.

The fair value of restricted stock awards is measured based upon the closing prices of the Company's common stock on the grant dates and is recognized as compensation expense over the vesting period of the awards.

Once restricted stock vests, new shares of the Company’s common stock are issued.

At December 31, 2022, 454,732 shares were available for future grant.

Changes in restricted stock awards for the twelve months ended December 31, 2021 were as follows:

Changes in restricted stock awards for the twelve months ended December 31, 2022 are as follows:

Shares Weighted Average

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Non-vested at December 31, 2022 157,767 $ 28.64

Changes in restricted stock awards for the twelve months ended December 31, 2020 were as follows:

Changes in restricted stock awards for the twelve months ended December 31, 2021 are as follows:

Shares Weighted Average

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Non-vested at December 31, 2021 112,044 $ 31.72

Changes in restricted stock awards for the twelve months ended December 31, 2019 were as follows:

Changes in restricted stock awards for the twelve months ended December 31, 2020 are as follows:

Shares Weighted Average

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Related income tax benefits recognized in earnings in the years ended December 31, 2022, December 31, 2021 and December 31, 2020 were approximately $ 0.5 million, $ 0.5 million and $ 0.9 million, respectively.

Unrecognized compensation expense under the DXP Enterprises, Inc.

2016 Omnibus Plan at December 31, 2021, December 31, 2020 and December 31, 2019 was $ 2.1 million, $ 2.2 million and $ 3.0 million, respectively.

Unrecognized compensation expense under the 2016 Plan at December 31, 2022, December 31, 2021 and December 31, 2020 was $ 3.1 million, $ 2.1 million and $ 2.2 million, respectively.

As of December 31, 2022, the weighted average period over which the unrecognized compensation expense is expected to be recognized is 1.6 years.

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The preferred stock is convertible into 840,000 shares of common stock.

For the twelve months ended December 31, 2021, we excluded from the diluted EPS calculation 840,000 convertible preferred shares, respectively, since the effect would have been antidilutive.

For the twelve months ended December 31, 2020, we excluded from the diluted EPS calculation 840,000 convertible preferred shares since the effect would have been antidilutive.

NOTE 14 – CAPITAL STOCK

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NOTE 15 - 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 twelve months ended December 31, 2021, the Company repurchased 1.2 million shares of common stock for $ 33.5 million at an average price of $ 28.28 per share.

In connection with share repurchases we recorded $ 5 thousand in commission fees in 2021 included in additional paid-in capital.

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 two installments totaling $ 13.6 million were included in other current liabilities as of December 31, 2021.

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 worth or 1.5 million shares of its outstanding common stock may be acquired in the open market or through privately negotiated agreements over the next 24 months at the discretion of management.

The Company completed the program in December 2022.

On December 15, 2022, the Company announced a new Share Repurchase Program pursuant to which we may repurchase up to $ 85.0 million worth, or 2.8 million shares of the Company's outstanding common stock over the next 24 months.

During the twelve months ended December 31, 2022 the Company repurchased 1.3 million shares for approximately $ 35.2 million compared to 1.2 million shares for approximately $ 33.5 million for the twelve months ended December 31, 2021.

On June 15, 2021, the Company entered into a negotiated share repurchase agreement to repurchase certain shares of its common stock from certain of its shareholders.

Pursuant to the terms of the share repurchase agreement, The Company agreed to pay the shareholders for the repurchased shares over four equal quarterly installments, which are presented within the purchase of treasury stock in the cash flow statement.

During the twelve months ended December 31, 2022, there were two installment payments totaling $ 13.6 million.

There are no further installment payments outstanding as of December 31, 2022.

Twelve Months Ended December 31,

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(the “Distribution Agent”) pursuant to which the Company may offer and sell shares of the Company’s common stock, par value $ 0.01 per share, having an aggregate offering amount of up to $ 37,500,000 from time to time through the Distribution Agent.

Sales, if any, of the Company’s common stock pursuant to the Equity Distribution

Agreement will be made in “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.

Sales, if any, of the Company’s common stock pursuant to the Equity Distribution Agreement will be made in “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.

During the twelve months ended December 31, 2020, the Company issued and sold 46,000 shares of common stock under the Equity Distribution Agreement, with net proceeds totaling approximately $ 1.1 million, after deducting the Distribution Agent’s commission of approximately $ 26 thousand.

There were no sale of the Company's common stock in 2022 and 2021.

NOTE 17 - BUSINESS ACQUISITIONS

The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive markets.

The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into new and attractive markets.

The Company has completed a number of acquisitions and the purchases of the acquired businesses have resulted in the recognition of goodwill and other intangible assets in the Company’s Consolidated Financial Statements.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its estimate of the fair value of the acquired assets and assumed liabilities.

The Company obtains the information used for the purchase price allocation during due diligence and through other sources.

In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price.

The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.

Final determination of the fair values may result in further adjustments.

The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company.

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2022 Acquisitions

On September 1, 2022, the Company completed the acquisition of Sullivan Environmental Technologies, Inc.

("Sullivan").

Sullivan is a leading distributor for the municipal and industrial water and wastewater treatment industries in the states of Ohio, Kentucky, and Indiana.

Sullivan is included within our IPS business segment.

Total consideration for the transaction was approximately $ 6.5 million, funded with a mixture of cash on hand of $ 4.6 million, the Company's stock valued at approximately $ 0.9 million and potential contingent consideration of $ 1.0 million.

For the twelve months ended December 31, 2022, Sullivan contributed sales of $ 1.0 million and operating income of $ 275 thousand.

Goodwill for the transaction totaled approximately $ 2.5 million.

On May 2, 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 and beverage, transportation and general industrial markets in the Northern California and Nevada territories.

Cisco is included within our SC business segment.

The Company engaged third-party valuation specialists to review the Company's critical assumptions such as:

anticipated revenues, anticipated cost, discount rates, probability of earn-out payments, and calculations of the fair value of acquired intangible assets and goodwill in connection with the Cisco acquisition.

Total consideration for the transaction was approximately $ 52.3 million, funded with a mixture of cash on hand of $ 43.4 million, the Company's common stock valued at approximately $ 4.4 million, and potential contingent consideration of $ 4.5 million.

For the twelve months ended December 31, 2022, Cisco contributed sales of $ 32.1 million and operating income of $ 6.5 million.

Goodwill for the transaction totaled approximately $ 30.5 million.

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 and an issuance of DXP's common stock.

The Company paid approximately $ 7.9 million, funded with a mixture of cash on hand of $ 4.9 million, the Company's common stock valued at approximately $ 441 thousand and contingent consideration of $ 2.6 million.

A majority of Drydon's sales are project-based work.

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

For the twelve months ended December 31, 2022, Drydon contributed sales of $ 5.6 million and operating income of $ 1.1 million.

Goodwill for the transaction totaled approximately $ 5.3 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.

Burlingame is included within our SC business segment.

The Company paid approximately $ 1.1 million in cash, the Company's common stock and contingent consideration.

For the twelve months ended December 31, 2022, Burlingame contributed sales of $ 2.9 million and operating income of $ 604 thousand.

Goodwill for the transaction totaled approximately $ 0.5 million.

2021 Acquisitions

O n 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 acquisition of CVI was funded with cash on hand and an issuance of the Company'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.

A majority of CVI's sales are project-based work.

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

For the year ended December 31, 2021, CVI contributed sales of $ 17.9 million and net income of $ 2.5 million.

Goodwill for the transaction totaled approximately $ 38.3 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 (see below).

For the year ended December 31, 2021, PMI contributed sales of $ 5.2 million and net income of $ 0.7 million.

PMI is included within our SC business segment.

The Company paid approximately $ 9.6 million in cash, stock and contingent consideration.

Goodwill for the transaction totaled approximately $ 5.3 million.

On September 20, 2021, the Company completed 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.

Premier is included within our IPS business segment.

The Company paid approximately $ 5.8 million in cash and stock.

For the year ended December 31, 2021, Premier contributed sales of $ 0.5 million and net loss of $ 162 thousand.

2020 Acquisitions

On December 31, 2020, the Company completed the acquisition of Total Equipment Company, Inc.

(“TEC”), a distributor of industrial and commercial pumps and air compressors focused on serving multiple end markets including steel, chemicals, water / wastewater, oil & gas and general industrial markets.

At closing, the Company paid approximately $ 64.7 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, including but not limited to working capital adjustments.

On December 31, 2020, the Company completed the acquisition of APO Pumps & Compressors (“APO”), a distributor of industrial and commercial pumps and air compressors focused on serving multiple end markets including the water / wastewater, steel, food & beverage, and general industrial markets.

The Company paid approximately $ 53.0 million in cash and stock, following normal transaction adjustments, for example working capital true-ups, customary for a transaction of this size and nature.

Approximately, $ 38.3 millions was paid at closing, and $ 13.4 million has been accrued as of December 31, 2020 as true-up consideration.

On December 31, 2020, the Company completed the acquisition of Pumping Solutions, Inc.

(“Pumping Solutions”), a distributor of industrial and commercial pumps and process equipment focused on serving multiple end markets including the water / wastewater, chemical, food & beverage, and general industrial markets.

The Company paid approximately $ 21.0 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, for example working capital true-ups.

On December 31, 2020, the Company completed the acquisition of Corporate Equipment Company (“CEC”), a distributor of industrial and commercial pumps and air compressors focused on serving multiple end markets including the water / wastewater, steel, food & beverage, and general industrial markets.

The Company paid approximately $ 3.3 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, including working capital true-ups.

On February 1, 2020, the Company completed the acquisition of substantially all of the assets of Turbo Machinery Repair (“Turbo”), a pump and industrial equipment repair, maintenance, machining and labor services company.

The Company paid approximately $ 3.2 million in cash, subject to normal transaction adjustments, customary for a transaction of this size and nature, including working capital true-ups, .

On January 1, 2020, the Company completed the acquisition of Pumping Systems, Inc.

(“PSI”), a distributor of pumps, systems and related services.

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

The Company paid approximately $ 13.0 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, including working capital true-ups.

The tables below summarize the total consideration transferred to acquire these companies and in aggregate the amount of identified assets acquired and liabilities assumed at the acquisition dates.

For the 2021 acquisitions, the Company is in the process of finalizing third-party valuations of certain intangible assets;

thus, the provisional measurements of intangible assets, goodwill and deferred income tax liabilities are subject to change.

In addition, the company continues to finalize inventory, ROU Assets and Liabilities as well as other assets acquired.

Goodwill for the transaction totaled approximately $ 1.4 million.

Pro Forma Financial Results (unaudited)

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$ 50,983 25,807

Purchase Price Allocation and Consideration

Preliminary Purchase Price Allocation and Consideration

The following tables summarize the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for the 2022 acquisitions, as well as the fair value of the consideration transferred:

($ in thousands) 2021

Cisco Recognized as of Acquisition Date Measurement Period Adjustments (1)

Cisco Recognized as of Acquisition Date (As Adjusted) All Other Total

Cash $ 4,352 $ — $ 4,352 $ 743 $ 5,095

Accounts receivable 5,173 — 5,173 5,952 11,125

Other receivables — — — 52 52

Inventory 3,032 — 3,032 37 3,069

Other current assets 472 ( 339 ) 133 4 137

Property and equipment 268

Non-compete agreements 878 ( 1 ) 877 504 1,381

Customer relationships 10,730 6,070 16,800 1,249 18,049

Goodwill 45,749

Property and equipment 1,187 — 1,187 127 1,314

Operating lease ROU asset 2,168 — 2,168 — 2,168

Other assets — — — 2 2

Assets acquired $ 27,992 $ 5,730 $ 33,722 $ 8,670 $ 42,392

Short-term operating lease liability ( 463 ) — ( 463 ) — ( 463 )

Current liabilities assumed ( 5,208 ) — ( 5,208 ) ( 1,069 ) ( 6,277 )

Long-term operating lease liability ( 1,705 ) — ( 1,705 ) — ( 1,705 )

Deferred tax liability ( 2,897 ) ( 1,612 ) ( 4,509 ) ( 389 ) ( 4,898 )

Net assets acquired $ 17,719 $ 4,118 $ 21,837 $ 7,212 $ 29,049

Total Consideration 52,184 147 52,331 15,556 67,887

Goodwill $ 34,465 $ ( 3,971 ) $ 30,494 $ 8,344 $ 38,838

(1) The measurement period adjustments primarily related to the final valuation of intangible assets related to the acquisition of Cisco.

Of the $ 19.4 million of acquired intangible assets, $ 1.4 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, consistent with the terms of the agreements.

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The goodwill total of $ 38.8 million is attributable primarily to expected synergies and the assembled workforce of each entity.

The fair value of accounts receivables acquired is $ 6.8 million, which approximated book value.

In aggregate, the acquisition-date fair value of the consideration transferred for the three businesses acquired in 2021 totaled $ 65.1 million, which consisted of the following:

In aggregate, the acquisition-date fair value of the consideration transferred for the four businesses acquired in 2022 totaled $ 67.9 million, which consisted of the following:

Purchase Price Consideration (in millions) Total Consideration

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Fair value of stock issued 5.8

Future consideration 0.3

Contingent consideration 8.2

Total consideration $ 67.9

The fair value of the approximately 267,248 common shares issued was determined based on the closing market price of the Company’s common shares on the respective acquisition date, adjusted for holding restrictions following consummation.

The fair values of the assets acquired and liabilities assumed for the 2020 acquisitions, as well as the fair value of the consideration transferred were as follows:

Purchase Price Consideration (in thousands) Total Consideration

Cash payments $ 115,247

Fair value of stock issued ( 1,480,909 shares)

Future consideration * 13,428

Total consideration $ 158,042

Accounts Receivable 20,646

Inventory 7,085

Other Current Assets 190

Property and equipment 1,811

Non-compete agreements 2,332

Customer relationships 37,465

Goodwill 105,555

Other assets 96

Assets acquired $ 175,181

Current liabilities assumed ( 10,437 )

Deferred tax liability ( 6,702 )

Net assets acquired $ 158,042

*The future consideration was paid in July 2022.

The Company recognized less than $ 300,000 of acquisition related costs that were expensed in the current period.

The Company recognized $ 0.6 million 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.

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Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed, and customer post-closing reviews are concluded, adjustments may be made to the fair value of assets acquired, and in some cases total purchase price, through the end of each measurement period, generally one year following the applicable acquisition date.

Various insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the respective dates of acquisition.

During twelve months ended December 31, 2021, we recorded measurement-period adjustments that increased goodwill by approximately $ 1.4 million, primarily for changes in the fair value of current assets.

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed and working capital reviews are concluded.

Adjustments may be made to the fair value of assets acquired and in some cases, total purchase price through the end of each measurement period;

generally one year following the applicable acquisition date.

Various adjustments to the fair value of assets acquired and in some cases total purchase price, have been made to certain business combinations since the respective dates of acquisition.

During the twelve months ended December 31, 2022, we recorded measurement-period adjustments that decreased goodwill by approximately $ 4.0 million, primarily for changes in intangible assets acquired and deferred tax liability.

The impact of these adjustments to the consolidated statement of operations were immaterial.

Goodwill to be recognized in connection with these acquisitions is attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions.

Goodwill recognized in connection with these acquisitions was attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions.

Goodwill related to asset acquisitions is currently deductible for income tax purposes.

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Contingent Consideration

The acquisition of PMI included a contingent consideration arrangement that requires additional consideration to be paid based on the achievement of annual gross revenue targets over a two-year period.

The acquisitions of Burlingame, Drydon, Cisco and Sullivan included a contingent consideration arrangement that requires additional consideration to be paid based on the achievement of annual EBITDA targets over a one to three year period.

The range of undiscounted amounts the Company may be required to pay under the contingent consideration agreement is between zero and $ 10.3 million.

The fair value of the contingent consideration recognized on the acquisition date of $ 0.3 million was estimated by applying the income approach using discounted cash flows.

The combined fair value of the contingent consideration recognized on each acquisition date of $ 8.2 million was estimated by using a weighted probability of possible payments.

That measure is based on significant Level 3 inputs not observable in the market.

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NOTE 18 - COMMITMENTS AND CONTINGENCIES

The Company leases equipment, automobiles and office facilities under various operating leases.

The future minimum rental commitments as of December 31, 2021, for non-cancelable leases are as follows ( in thousands ):

2022 $ 21,189

Thereafter 8,515

Total $ 66,844

Rental expense for operating leases was $ 24.2 million, $ 23.4 million and $ 25.0 million for the years ended December, 2021, 2020 and 2019, respectively.

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 the Company 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 its consolidated financial position, cash flows, or results of operations.

NOTE 19 - EMPLOYEE BENEFIT PLANS

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The Company recorded $( 2.4 ) million, $ 0.7 million and $ 2.3 million in translation adjustments, net of tax, in other comprehensive income during the years ended December 31, 2022, 2021 and 2020, respectively.

NOTE 21 – SEGMENT AND GEOGRAPHICAL REPORTING

NOTE 21 - REVENUE

The Company’s disaggregated revenue represents our business of selling MROP products and services to a variety of end markets based upon our geography and our reportable business segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services.

Each of our geographic and reportable business segments are impacted and influenced by varying factors, including the macroeconomic environment, maintenance and capital spending and commodity prices and exploration and production activity.

As such, we believe this information is important in depicting the nature, timing and uncertainty of our contracts with customers.

The following Geographical Information and Note 22 - Segment Reporting present our revenue disaggregated by source.

Geographical Information

Revenues are presented in geographic area based on location of the facility shipping products or providing services.

The Company’s revenues by geographical location are as follows (in millions) :

Years Ended December 31,

2022 2021 2020

United States $ 1,402 $ 1,031 $ 931

Canada 79 83 74

Total $ 1,481 $ 1,114 $ 1,005

NOTE 22 – SEGMENT REPORTING

The Company has three operating segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services.

These business or operating segments were determined primarily on the distribution channels of the products and services offered as and the nature of the customer markets and the primary driver of the customers spend.

Business segments are defined components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company's chief operating decision maker directs the allocation of resources to operating or business segments based on various metrics of each respective segment.

The allocation of resources across the operating segments is dependent upon, among other factors, the operating segments's historical or future expected operating margins;

the operating segments's historical or future expected returns on capital;

outlook within a specific market;

opportunities to grow profitability;

new products, services or new customer accounts;

confidence in management;

and competitive landscape and intensity.

The Company’s reportable business segments are:

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Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total

Product sales (recognized at a point in time) $ 715,111 $ — $ 140,424 $ 855,535

Inventory management services (recognized over contract life) — — 17,410 17,410

Staffing services (day-rate basis) 101,385 — — 101,385

Customized pump production (recognized over time) — $ 139,591 — 139,591

Total Revenue $ 1,009,356 $ 231,102 $ 240,374 $ 1,480,832

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Capital expenditures 1,419 2,506 43 3,968

Proceeds from sale of fixed assets — — — —

Depreciation 3,038 4,549 144 7,731

Amortization 12,294 6,621 — 18,915

Interest expense $ 12,407 $ 7,270 $ 1,412 $ 21,089

Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total

Product sales (recognized at a point in time) $ 595,314 $ — $ 138,653 $ 733,967

Inventory management services (recognized over contract life) — — 16,005 16,005

Staffing services (day-rate basis) 67,303 — — 67,303

Customized pump production (recognized over time) — 187,991 — 187,991

Total Revenue $ 816,496 $ 139,591 $ 157,834 $ 1,113,921

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Capital expenditures 999 2,574 25 3,598

Proceeds from sale of fixed assets — — — —

Depreciation 3,475 4,270 389 8,134

Amortization 11,107 6,090 — 17,197

Interest expense $ 11,506 $ 7,360 $ 1,705 $ 20,571

Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total

Product sales (recognized at a point in time) $ 701,404 $ — $ 184,767 $ 886,171

Inventory management services (recognized over contract life) — — 16,511 16,511

Staffing services (day-rate basis) 58,514 — — 58,514

Customized pump production (recognized over time) — 303,655 — 303,655

Total Revenue $ 662,617 $ 187,991 $ 154,658 $ 1,005,266

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Amortization 6,989 5,298 — 12,287

Interest expense 10,786 6,747 1,965 19,498

Years Ended December 31,

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Corporate depreciation was $ 1.9 million, $ 1.8 million, and $ 2.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Geographical Information

Revenues are presented in geographic area based on location of the facility shipping products or providing services.

Long-lived assets are based on physical locations and are comprised of the net book value of property.

The Company’s revenues and property and equipment by geographical location are as follows (in millions) :

Years Ended December 31,

2021 2020 2019

United States $ 1,031 $ 931 $ 1,163

Canada 83 74 102

Total $ 1,114 $ 1,005 $ 1,265

As of December 31,

Property and Equipment, net

United States $ 48 $ 52

Total $ 52 $ 57

NOTE 23 – RELATED PARTIES DISCLOSURES

The Board uses policies and procedures, to be applied by the Audit Committee of the Board, for review, approval or ratification of any transactions with related persons.

Those policies and procedures will apply to any proposed transactions in which DXP is a participant, the amount involved exceeds $ 120,000 and any director, executive officer or significant shareholder or any immediate family member of such a person has a direct or material indirect interest.

Any related party transaction will be reviewed by the Audit Committee of the Board of Directors to determine, among other things, the benefits of any transaction to DXP, the availability of other sources of comparable products or services and whether the terms of the proposed transaction are comparable to those provided to unrelated third parties.

For the year ended December 31, 2021, the Company paid approximately $ 2.3 million in lease expenses to entities controlled by the Company’s Chief Executive Officer, David Little.

NOTE 23 - SUBSEQUENT EVENTS

On March 2, 2022, we acquired Drydon Equipment, Inc.

(“Drydon”) and Burglingame Engineers ("Burlingame”).

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

Burlingame is a leading California provider of water and wastewater equipment in the industrial and municipal sectors.

The combined purchase price of $ 6.1 million was funded with cash from the balance sheet and common stock as consideration.

The acquisitions were accounted for as business combinations under ASC 805, “Business Combinations.” During the measurement period, we expect to receive additional detailed information to complete the purchase price allocation.

Those policies and procedures will apply to any proposed transactions in which the Company is a participant, the amount involved exceeds $ 120,000 and any director, executive officer or significant shareholder or any immediate family member of such a person has a direct or material indirect interest.

Any related party transaction will be reviewed by the Audit Committee of the Board of Directors to determine, among other things, the benefits of any transaction to the Company, the availability of other sources of comparable products or services and whether the terms of the proposed transaction are comparable to those provided to unrelated third parties.

For the year ended December 31, 2022, the Company incurred approximately $ 1.9 million in lease expenses to entities controlled by the Company’s Chief Executive Officer, David Little.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data