☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2016 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to |
Texas
|
76-0509661
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
7272 Pinemont, Houston, Texas 77040
|
(Address of principal executive offices, including zip code)
|
(713) 996-4700
|
(Registrant’s telephone number, including area code)
|
Large accelerated filer ☒
|
Accelerated filer ☐
|
|
Non-accelerated filer ☐
|
(Do not check if a smaller reporting company)
|
Smaller reporting company ☐
|
PART I:
|
FINANCIAL INFORMATION
|
ITEM 1: | FINANCIAL STATEMENTS |
June 30, 2016
|
December 31, 2015
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash
|
$
|
1,087
|
$
|
1,693
|
||||
Trade accounts receivable, net of allowance for doubtful accounts of $10,116 in 2016 and $9,364 in 2015
|
159,147
|
162,925
|
||||||
Inventories, net
|
98,397
|
103,819
|
||||||
Costs and estimated profits in excess of billings on uncompleted contracts
|
19,784
|
22,045
|
||||||
Prepaid expenses and other current assets
|
8,050
|
2,644
|
||||||
Federal income taxes recoverable
|
1,243
|
1,839
|
||||||
Deferred income taxes
|
9,815
|
8,996
|
||||||
Total current assets
|
297,523
|
303,961
|
||||||
Property and equipment, net
|
66,430
|
68,503
|
||||||
Goodwill
|
197,211
|
197,362
|
||||||
Other intangible assets, net of accumulated amortization of $93,910 in 2016 and $85,098 in 2015
|
104,441
|
112,297
|
||||||
Other long-term assets
|
1,676
|
1,857
|
||||||
Total assets
|
$
|
667,281
|
$
|
683,980
|
||||
LIABILITIES AND EQUITY
|
||||||||
Current liabilities:
|
||||||||
Current maturities of long-term debt
|
$
|
112,091
|
$
|
50,829
|
||||
Trade accounts payable
|
72,494
|
77,108
|
||||||
Accrued wages and benefits
|
18,924
|
20,864
|
||||||
Customer advances
|
1,675
|
1,076
|
||||||
Billings in excess of costs and estimated profits on uncompleted contracts
|
2,197
|
8,021
|
||||||
Other current liabilities
|
16,766
|
22,220
|
||||||
Total current liabilities
|
224,147
|
180,118
|
||||||
Long-term debt, less current maturities and unamortized debt issuance costs of $602 in 2016 and $2,046 in 2015
|
235,041
|
298,680
|
||||||
Non-current deferred income taxes
|
8,921
|
6,312
|
||||||
Commitments and contingencies (Note 15)
|
||||||||
Shareholders’ equity:
|
||||||||
Series A preferred stock, 1/10
th
vote per share; $1.00 par value; liquidation preference of $100 per share ($112 at June 30, 2016 1,000,000 shares authorized; 1,122 shares issued and outstanding
|
1
|
1
|
||||||
Series B convertible preferred stock, 1/10
th
vote per share; $1.00 par value; $100 stated value; liquidation preference of $100 per share; $1,500 at June 30, 2016); 1,000,000 shares authorized; 15,000 shares issued and outstanding
|
15
|
15
|
||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; 14,655,356 at June 30, 2016 and 14,655,356 at December 31, 2015 shares issued
|
146
|
146
|
||||||
Additional paid-in capital
|
104,516
|
110,306
|
||||||
Retained earnings
|
109,796
|
109,783
|
||||||
Accumulated other comprehensive loss
|
(10,230
|
)
|
(10,616
|
)
|
||||
Treasury stock, at cost (142,900 shares in 2016 and 264,297 in 2015)
|
(6,528
|
)
|
(12,577
|
)
|
||||
Total DXP Enterprises, Inc. equity
|
197,716
|
197,058
|
||||||
Noncontrolling interest
|
1,456
|
1,812
|
||||||
Total equity
|
199,172
|
198,870
|
||||||
Total liabilities and equity
|
$
|
667,281
|
$
|
683,980
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Sales
|
$
|
256,215
|
$
|
323,688
|
$
|
509,776
|
$
|
665,282
|
||||||||
Cost of sales
|
184,612
|
232,389
|
369,355
|
475,934
|
||||||||||||
Gross profit
|
71,603
|
91,299
|
140,421
|
189,348
|
||||||||||||
Selling, general and administrative expense
|
62,754
|
77,304
|
133,574
|
157,254
|
||||||||||||
Operating income
|
8,849
|
13,995
|
6,847
|
32,094
|
||||||||||||
Other expense (income), net
|
9
|
(145
|
)
|
(146
|
)
|
(394
|
)
|
|||||||||
Interest expense
|
3,951
|
2,592
|
7,360
|
5,275
|
||||||||||||
Income (loss) before income taxes
|
4,889
|
11,548
|
(367
|
)
|
27,213
|
|||||||||||
Provision for income taxes
|
(197
|
)
|
4,381
|
(205
|
)
|
10,395
|
||||||||||
Net income (loss)
|
5,086
|
7,167
|
(162
|
)
|
16,818
|
|||||||||||
Less Net loss attributable to noncontrolling interest
|
(84
|
)
|
-
|
(220
|
)
|
-
|
||||||||||
Net income attributable to DXP Enterprises, Inc.
|
5,170
|
7,167
|
58
|
16,818
|
||||||||||||
Preferred stock dividend
|
22
|
22
|
45
|
45
|
||||||||||||
Net income attributable to common shareholders
|
$
|
5,148
|
$
|
7,145
|
$
|
13
|
$
|
16,773
|
||||||||
Net income (loss)
|
$
|
5,086
|
$
|
7,167
|
$
|
(162
|
)
|
$
|
16,818
|
|||||||
Cumulative translation adjustment
|
251
|
1,731
|
(387
|
)
|
4,771
|
|||||||||||
Comprehensive income
|
$
|
4,835
|
$
|
5,436
|
$
|
225
|
$
|
12,047
|
||||||||
Basic earnings per share attributable to DXP Enterprises, Inc.
|
$
|
0.36
|
$
|
0.50
|
$
|
0.00
|
$
|
1.17
|
||||||||
Weighted average common shares outstanding
|
14,503
|
14,368
|
14,494
|
14,380
|
||||||||||||
Diluted earnings per share attributable to DXP Enterprises, Inc.
|
$
|
0.34
|
$
|
0.47
|
$
|
0.00
|
$
|
1.11
|
||||||||
Weighted average common shares and common equivalent shares outstanding
|
15,343
|
15,208
|
15,334
|
15,220
|
Six Months Ended
June 30,
|
||||||||
2016
|
2015
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income attributable to DXP Enterprises, Inc.
|
$
|
58
|
$
|
16,818
|
||||
Less net loss attributable to non-controlling interest
|
(220
|
)
|
-
|
|||||
Net income (loss)
|
(162
|
)
|
16,818
|
|||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||
Depreciation
|
5,997
|
5,919
|
||||||
Amortization of intangible assets
|
9,038
|
10,667
|
||||||
Bad debt expense
|
986
|
917
|
||||||
Amortization of debt issuance costs
|
477
|
578
|
||||||
Write off of debt issuance costs
|
967
|
-
|
||||||
Compensation expense for restricted stock
|
1,253
|
1,557
|
||||||
Tax loss related to vesting of restricted stock
|
565
|
10
|
||||||
Deferred income taxes
|
738
|
13
|
||||||
Changes in operating assets and liabilities, net of assets and liabilities acquired in business acquisitions:
|
||||||||
Trade accounts receivable
|
4,483
|
41,632
|
||||||
Costs and estimated profits in excess of billings on uncompleted contracts
|
2,124
|
(5,983
|
)
|
|||||
Inventories
|
5,650
|
6,069
|
||||||
Prepaid expenses and other assets
|
(1,145
|
)
|
(3,164
|
)
|
||||
Accounts payable and accrued expenses
|
(13,937
|
)
|
(20,691
|
)
|
||||
Billings in excess of costs and estimated profits on uncompleted contracts
|
(5,829
|
)
|
(538
|
) | ||||
Net cash provided by operating activities
|
11,205
|
53,804
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase of property and equipment
|
(2,930
|
)
|
(6,516
|
)
|
||||
Acquisitions of businesses, net of cash acquired
|
-
|
(5,000
|
)
|
|||||
Equity method investment contribution
|
(4,000
|
)
|
-
|
|||||
Net cash used in investing activities
|
(6,930
|
)
|
(11,516
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from debt
|
219,019
|
206,486
|
||||||
Principal payments on revolving line of credit and other long-term debt
|
(222,840
|
)
|
(238,473
|
)
|
||||
Costs for registration of common shares
|
(226
|
)
|
-
|
|||||
Loss for non-controlling interest owners, net of tax
|
(136
|
)
|
-
|
|||||
Dividends paid
|
(45
|
)
|
(45
|
)
|
||||
Purchase of treasury stock
|
-
|
(8,908
|
)
|
|||||
Tax loss related to vesting of restricted stock
|
(565
|
)
|
(10
|
)
|
||||
Net cash used in financing activities
|
(4,793
|
)
|
(40,950
|
)
|
||||
EFFECT OF FOREIGN CURRENCY ON CASH
|
(88
|
)
|
103
|
|||||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
(606
|
)
|
1,441
|
|||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
1,693
|
47
|
||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
1,087
|
$
|
1,488
|
June 30,
2016
|
December 31,
2015
|
|||||||
Finished goods
|
$
|
89,813
|
$
|
94,524
|
||||
Work in process
|
8,584
|
9,295
|
||||||
Inventories, net
|
$
|
98,397
|
$
|
103,819
|
June 30,
2016
|
December 31,
2015
|
|||||||
Costs incurred on uncompleted contracts
|
$
|
36,297
|
$
|
34,400
|
||||
Estimated profits, thereon
|
11,258
|
13,119
|
||||||
Total
|
47,555
|
47,519
|
||||||
Less: billings to date
|
29,975
|
33,422
|
||||||
Net
|
$
|
17,580
|
$
|
14,097
|
June 30,
2016
|
December 31,
2015
|
|||||||
Costs and estimated profits in excess of billings on uncompleted contracts
|
$
|
19,784
|
$
|
22,045
|
||||
Billings in excess of costs and estimated profits on uncompleted contracts
|
(2,197
|
)
|
(8,021
|
)
|
||||
Translation adjustment
|
(7
|
)
|
73
|
|||||
Net
|
$
|
17,580
|
$
|
14,097
|
June 30,
2016
|
December 31,
2015
|
|||||||
Land
|
$
|
2,384
|
$
|
2,386
|
||||
Buildings and leasehold improvements
|
16,843
|
16,631
|
||||||
Furniture, fixtures and equipment
|
105,830
|
102,494
|
||||||
Less – Accumulated depreciation
|
(58,627
|
)
|
(53,008
|
)
|
||||
Total property and equipment, net
|
$
|
66,430
|
$
|
68,503
|
Goodwill
|
Other
Intangible
Assets
|
Total
|
||||||||||
Balance as of December 31, 2015
|
$
|
197,362
|
$
|
112,297
|
$
|
309,659
|
||||||
Purchase price adjustment
|
(151
|
)
|
-
|
(151
|
)
|
|||||||
Translation adjustment
|
-
|
1,182
|
1,182
|
|||||||||
Amortization
|
-
|
(9,038
|
)
|
(9,038
|
)
|
|||||||
Balance as of June 30, 2016
|
$
|
197,211
|
$
|
104,441
|
$
|
301,652
|
June 30,
2016
|
December 31,
2015
|
|||||||
Service Centers
|
$
|
164,093
|
$
|
164,244
|
||||
Innovative Pumping Solutions
|
15,980
|
15,980
|
||||||
Supply Chain Services
|
17,138
|
17,138
|
||||||
Total
|
$
|
197,211
|
$
|
197,362
|
As of June 30, 2016
|
As of December 31, 2015
|
|||||||||||||||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Carrying
Amount,
net
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Carrying
Amount,
net
|
|||||||||||||||||||
Customer relationships
|
$
|
196,503
|
$
|
(92,404
|
)
|
104,099
|
195,580
|
(83,741
|
)
|
111,839
|
||||||||||||||
Non-compete agreements
|
1,848
|
(1,506
|
)
|
342
|
1,815
|
(1,357
|
)
|
458
|
||||||||||||||||
Total
|
$
|
198,351
|
$
|
(93,910
|
)
|
$
|
104,441
|
$
|
197,395
|
$
|
(85,098
|
)
|
$
|
112,297
|
June 30,
2016
|
December 31,
2015
|
|||||||
Line of credit
|
$
|
193,738
|
$
|
172,147
|
||||
Term loan
|
150,000
|
175,000
|
||||||
Promissory note payable in monthly installments at 2.9% through January 2021, collateralized by equipment
|
3,996
|
4,408
|
||||||
Less unamortized debt issuance costs
|
(602
|
)
|
(2,046
|
)
|
||||
347,132
|
349,509
|
|||||||
Less: Current portion
|
(112,091
|
)
|
(50,829
|
)
|
||||
Long-term debt less current maturities
|
$
|
235,041
|
$
|
298,680
|
· | The revolving line of credit was reduced from $250 million to $205 million, as of August 15, 2016, and shall be reduced to $190 million, as of March 31, 2017. |
· | A permitted overadvance facility (the “Permitted Overadvance Facility”) has been added with amounts to be determined but which shall permit drawings in excess of the ratio of (i) the sum of 85% of net accounts receivable and 65% of net inventory to (ii) the aggregate amount of revolving credit outstandings (the “Asset Coverage Ratio”). |
· | Certain modifications were made to the pricing grid set forth in the Facility to increase the rate at which the Facility bears interest to a rate equal to LIBOR (or CDOR for Canadian dollar loans) plus 5.00% and Base Rate (or Canadian Base Rate for Canadian dollar loans) plus 4.00%; provided, that drawings under the Permitted Overadvance Facility shall bear interest at a rate equal to LIBOR (or CDOR for Canadian dollar loans) plus 6.00% and Base Rate (or Canadian Base Rate for Canadian dollar loans) plus 5.00% |
· | The maturity date of the Facility was modified from January 2, 2019 to March 31, 2018. |
· | Additional mandatory prepayments were added in an amount equal to $30 million (including $17 million to be applied to the term loan) by December 31, 2016 and $25 million (including $14 million to be applied to the term loan) by March 31, 2017. |
· | The negative covenants were modified to reduce certain debt baskets, including for purchase money, capital lease and unsecured debt and to limit the ability of the Company to conduct asset sales in excess of $3.5 million without the consent of the Required Lenders. |
· | A financial covenant holiday has been provided through June 30, 1017 for the Consolidated Leverage Ratio and the Consolidated Fixed Charge Ratio. |
· | The minimum Asset Coverage Ratio was adjusted to .95 to 1.00 beginning June 30, 2016. |
· | A minimum EBITDA and capital expenditure covenant were added to the Facility.” |
Number of shares authorized for grants
|
1,300,000
|
|||
Number of shares granted
|
(883,199
|
)
|
||
Number of shares forfeited
|
158,876
|
|||
Number of shares expired from 2005 plan
|
(81,527
|
)
|
||
Number of shares available for future grants
|
494,150
|
|||
Weighted-average grant price of granted shares
|
$
|
28.26
|
Number of
Shares
|
Weighted
Average
Grant Price
|
|||||||
Non-vested at December 31, 2015
|
137,507
|
$
|
54.58
|
|||||
Granted
|
10,000
|
$
|
16.35
|
|||||
Forfeited
|
(15,000
|
)
|
$
|
91.56
|
||||
Vested
|
(46,642
|
)
|
$
|
52.32
|
||||
Non-vested at June 30, 2016
|
85,865
|
$
|
44.89
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Basic:
|
||||||||||||||||
Weighted average shares outstanding
|
14,503
|
14,368
|
14,494
|
14,380
|
||||||||||||
Net income attributable to DXP Enterprises, Inc.
|
$
|
5,170
|
$
|
7,167
|
$
|
58
|
$
|
16,818
|
||||||||
Convertible preferred stock dividend
|
22
|
22
|
45
|
45
|
||||||||||||
Net income attributable to common shareholders
|
$
|
5,148
|
$
|
7,145
|
$
|
13
|
$
|
16,773
|
||||||||
Per share amount
|
$
|
0.36
|
$
|
0.50
|
$
|
0.00
|
$
|
1.17
|
||||||||
Diluted:
|
||||||||||||||||
Weighted average shares outstanding
|
14,503
|
14,368
|
14,494
|
14,380
|
||||||||||||
Assumed conversion of convertible preferred stock
|
840
|
840
|
840
|
840
|
||||||||||||
Total dilutive shares
|
15,343
|
15,208
|
15,334
|
15,220
|
||||||||||||
Net income attributable to common shareholders
|
$
|
5,148
|
$
|
7,145
|
$
|
13
|
$
|
16,773
|
||||||||
Convertible preferred stock dividend
|
(22
|
)
|
(22
|
)
|
(45
|
)
|
(45
|
)
|
||||||||
Net income attributable to DXP Enterprises, Inc. for diluted earnings per share
|
$
|
5,170
|
$
|
7,167
|
$
|
58
|
$
|
16,818
|
||||||||
Per share amount
|
$
|
0.34
|
$
|
0.47
|
$
|
0.00
|
$
|
1.11
|
2015
|
||||||||
TSI
|
Cortech
1
|
|||||||
Accounts receivable, net
|
442
|
2,444
|
||||||
Inventory
|
475
|
1,243
|
||||||
Property & equipment
|
42
|
253
|
||||||
Goodwill and intangibles
|
4,929
|
13,897
|
||||||
Other assets
|
100
|
21
|
||||||
Assets acquired
|
5,988
|
17,858
|
||||||
Current liabilities assumed
|
(335
|
)
|
(2,610
|
)
|
||||
Non-current liabilities assumed
|
(653
|
)
|
(349
|
)
|
||||
Net assets acquired
|
$
|
5,000
|
$
|
14,899
|
(1)
|
Preliminary allocation.
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
256,215
|
$
|
329,886
|
$
|
509,776
|
$
|
677,324
|
||||||||
Net income attributable to DXP Enterprises, Inc.
|
$
|
5,170
|
$
|
7,540
|
$
|
58
|
$
|
17,684
|
||||||||
Per share data attributable to DXP Enterprises, Inc.
|
||||||||||||||||
Basic earnings
|
$
|
0.36
|
$
|
0.52
|
$
|
0.00
|
$
|
1.23
|
||||||||
Diluted earnings
|
$
|
0.34
|
$
|
0.50
|
$
|
0.00
|
$
|
1.16
|
For the Three Months Ended June 30,
|
||||||||||||||||||||||||||||||||
2016
|
2015
|
|||||||||||||||||||||||||||||||
SC
|
IPS
|
SCS
|
Total
|
SC
|
IPS
|
SCS
|
Total
|
|||||||||||||||||||||||||
Sales
|
$
|
161,832
|
$
|
54,353
|
$
|
40,030
|
$
|
256,215
|
$
|
214,116
|
$
|
66,905
|
$
|
42,667
|
$
|
323,688
|
||||||||||||||||
Amortization
|
2,284
|
1,955
|
271
|
4,510
|
2,928
|
2,107
|
274
|
5,309
|
||||||||||||||||||||||||
Operating income
|
10,313
|
3,532
|
3,931
|
17,776
|
18,191
|
3,805
|
3,462
|
25,458
|
||||||||||||||||||||||||
Operating income, excluding amortization
|
$
|
12,597
|
$
|
5,487
|
$
|
4,202
|
$
|
22,286
|
$
|
21,119
|
$
|
5,912
|
$
|
3,736
|
$
|
30,767
|
For the Six Months Ended June 30,
|
||||||||||||||||||||||||||||||||
2016
|
2015
|
|||||||||||||||||||||||||||||||
SC
|
IPS
|
SCS
|
Total
|
SC
|
IPS
|
SCS
|
Total
|
|||||||||||||||||||||||||
Sales
|
$
|
329,334
|
$
|
101,784
|
$
|
78,658
|
$
|
509,776
|
$
|
439,907
|
$
|
141,169
|
$
|
84,206
|
$
|
665,282
|
||||||||||||||||
Amortization
|
4,579
|
3,917
|
542
|
9,038
|
5,904
|
4,215
|
548
|
10,667
|
||||||||||||||||||||||||
Operating income
|
17,555
|
1,876
|
7,140
|
26,571
|
38,081
|
10,324
|
6,466
|
54,871
|
||||||||||||||||||||||||
Operating income, excluding amortization
|
$
|
22,134
|
$
|
5,793
|
$
|
7,682
|
$
|
35,609
|
$
|
43,985
|
$
|
14,539
|
$
|
7,014
|
$
|
65,538
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Operating income for reportable segments, excluding amortization
|
$
|
22,286
|
$
|
30,767
|
$
|
35,609
|
$
|
65,538
|
||||||||
Adjustment for:
|
||||||||||||||||
Amortization of intangibles
|
4,510
|
5,309
|
9,038
|
10,667
|
||||||||||||
Corporate expense
|
8,927
|
11,463
|
19,724
|
22,777
|
||||||||||||
Total operating income
|
8,849
|
13,995
|
6,847
|
32,094
|
||||||||||||
Interest expense
|
3,951
|
2,592
|
7,360
|
5,275
|
||||||||||||
Other expense (income), net
|
9
|
(145
|
)
|
(146
|
)
|
(394
|
)
|
|||||||||
Income before income taxes
|
$
|
4,889
|
$
|
11,548
|
$
|
(367
|
)
|
$
|
27,213
|
· | The revolving line of credit was reduced from $250 million to $205 million, as of August 15, 2016, and shall be reduced to $190 million, as of March 31, 2017. |
· | A permitted overadvance facility (the “Permitted Overadvance Facility”) has been added with amounts to be determined but which shall permit drawings in excess of the ratio of (i) the sum of 85% of net accounts receivable and 65% of net inventory to (ii) the aggregate amount of revolving credit outstandings (the “Asset Coverage Ratio”). |
· | Certain modifications were made to the pricing grid set forth in the Facility to increase the rate at which the Facility bears interest to a rate equal to LIBOR (or CDOR for Canadian dollar loans) plus 5.00% and Base Rate (or Canadian Base Rate for Canadian dollar loans) plus 4.00%; provided, that drawings under the Permitted Overadvance Facility shall bear interest at a rate equal to LIBOR (or CDOR for Canadian dollar loans) plus 6.00% and Base Rate (or Canadian Base Rate for Canadian dollar loans) plus 5.00% |
· | The maturity date of the Facility was modified from January 2, 2019 to March 31, 2018. |
· | Additional mandatory prepayments were added in an amount equal to $30 million (including $17 million to be applied to the term loan) by December 31, 2016 and $25 million (including $14 million to be applied to the term loan) by March 31, 2017. |
· | The negative covenants were modified to reduce certain debt baskets, including for purchase money, capital lease and unsecured debt and to limit the ability of the Company to conduct asset sales in excess of $3.5 million without the consent of the Required Lenders. |
· | A financial covenant holiday has been provided through June 30, 1017 for the Consolidated Leverage Ratio and the Consolidated Fixed Charge Ratio. |
· | The minimum Asset Coverage Ratio was adjusted to .95 to 1.00 beginning June 30, 2016. |
· | A minimum EBITDA and capital expenditure covenant were added to the Facility.” |
ITEM 2:
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Three Months Ended June 30,
|
Six Months June 30,
|
|||||||||||||||||||||||||||||||
2016
|
%
|
2015
|
%
|
2016
|
%
|
2015
|
%
|
|||||||||||||||||||||||||
Sales
|
$
|
256,215
|
100.0
|
%
|
$
|
323,688
|
100.0
|
%
|
$
|
509,776
|
100.0
|
%
|
$
|
665,282
|
100.0
|
%
|
||||||||||||||||
Cost of sales
|
184,612
|
72.1
|
%
|
232,389
|
71.8
|
%
|
369,355
|
72.5
|
%
|
475,934
|
71.5
|
%
|
||||||||||||||||||||
Gross profit
|
71,603
|
27.9
|
%
|
91,299
|
28.2
|
%
|
140,421
|
27.5
|
%
|
189,348
|
28.5
|
%
|
||||||||||||||||||||
Selling, general and administrative expense
|
62,754
|
24.5
|
%
|
77,304
|
23.9
|
%
|
133,574
|
26.2
|
%
|
157,254
|
23.6
|
%
|
||||||||||||||||||||
Operating income
|
8,849
|
3.5
|
%
|
13,995
|
4.3
|
%
|
6,847
|
1.3
|
%
|
32,094
|
4.9
|
%
|
||||||||||||||||||||
Other expense (income), net
|
9
|
0.0
|
%
|
(145
|
)
|
(0.1
|
)%
|
(146
|
)
|
0.0
|
%
|
(394
|
)
|
(0.1
|
)%
|
|||||||||||||||||
Interest expense
|
3,951
|
1.5
|
%
|
2,592
|
0.8
|
%
|
7,360
|
1.4
|
%
|
5,275
|
0.8
|
%
|
||||||||||||||||||||
Income (loss) before taxes
|
4,889
|
2.0
|
%
|
11,548
|
3.6
|
%
|
(367
|
)
|
-0.1
|
%
|
27,213
|
4.2
|
%
|
|||||||||||||||||||
Provision for income taxes
|
(197
|
)
|
0.0
|
%
|
4,381
|
1.4
|
%
|
(205
|
)
|
0.0
|
%
|
10,395
|
1.6
|
%
|
||||||||||||||||||
Net income (loss)
|
5,086
|
2.0
|
%
|
7,167
|
2.2
|
%
|
(162
|
)
|
0.0
|
%
|
16,818
|
2.5
|
%
|
|||||||||||||||||||
Net loss attributable to noncontrolling interest
|
(84
|
)
|
0.0
|
%
|
-
|
0.0
|
%
|
(220
|
)
|
0.0
|
%
|
-
|
0.0
|
%
|
||||||||||||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
$
|
5,170
|
2.0
|
%
|
$
|
7,167
|
2.2
|
%
|
$
|
58
|
0.0
|
%
|
$
|
16,818
|
2.5
|
%
|
||||||||||||||||
Per share amounts attributable to DXP Enterprises, Inc.
|
||||||||||||||||||||||||||||||||
Basic earnings (loss) per share
|
$
|
0.36
|
$
|
0.50
|
$
|
0.00
|
$
|
1.17
|
||||||||||||||||||||||||
Diluted earnings (loss) per share
|
$
|
0.34
|
$
|
0.47
|
$
|
0.00
|
$
|
1.11
|
2015
|
||||||||
TSI
|
Cortech
1
|
|||||||
Accounts receivable, net
|
442
|
2,444
|
||||||
Inventory
|
475
|
1,243
|
||||||
Property & equipment
|
42
|
253
|
||||||
Goodwill and intangibles
|
4,929
|
13,897
|
||||||
Other assets
|
100
|
21
|
||||||
Assets acquired
|
5,988
|
17,858
|
||||||
Current liabilities assumed
|
(335
|
)
|
(2,610
|
)
|
||||
Non-current liabilities assumed
|
(653
|
)
|
(349
|
)
|
||||
Net assets acquired
|
$
|
5,000
|
$
|
14,899
|
(1)
|
Preliminary allocation.
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
256,215
|
$
|
329,886
|
$
|
509,776
|
$
|
677,324
|
||||||||
Net income attributable to DXP Enterprises, Inc.
|
$
|
5,170
|
$
|
7,540
|
$
|
58
|
$
|
17,684
|
||||||||
Per share data attributable to DXP Enterprises, Inc.
|
||||||||||||||||
Basic earnings
|
$
|
0.36
|
$
|
0.52
|
$
|
0.00
|
$
|
1.23
|
||||||||
Diluted earnings
|
$
|
0.34
|
$
|
0.50
|
$
|
0.00
|
$
|
1.16
|
· | The revolving line of credit was reduced from $250 million to $205 million, as of August 15, 2016, and shall be reduced to $190 million, as of March 31, 2017. |
· | A permitted overadvance facility (the “Permitted Overadvance Facility”) has been added with amounts to be determined but which shall permit drawings in excess of the ratio of (i) the sum of 85% of net accounts receivable and 65% of net inventory to (ii) the aggregate amount of revolving credit outstandings (the “Asset Coverage Ratio”). |
· | Certain modifications were made to the pricing grid set forth in the Facility to increase the rate at which the Facility bears interest to a rate equal to LIBOR (or CDOR for Canadian dollar loans) plus 5.00% and Base Rate (or Canadian Base Rate for Canadian dollar loans) plus 4.00%; provided, that drawings under the Permitted Overadvance Facility shall bear interest at a rate equal to LIBOR (or CDOR for Canadian dollar loans) plus 6.00% and Base Rate (or Canadian Base Rate for Canadian dollar loans) plus 5.00% |
· | The maturity date of the Facility was modified from January 2, 2019 to March 31, 2018. |
· | Additional mandatory prepayments were added in an amount equal to $30 million (including $17 million to be applied to the term loan) by December 31, 2016 and $25 million (including $14 million to be applied to the term loan) by March 31, 2017. |
· | The negative covenants were modified to reduce certain debt baskets, including for purchase money, capital lease and unsecured debt and to limit the ability of the Company to conduct asset sales in excess of $3.5 million without the consent of the Required Lenders. |
· | A financial covenant holiday has been provided through June 30, 1017 for the Consolidated Leverage Ratio and the Consolidated Fixed Charge Ratio. |
· | The minimum Asset Coverage Ratio was adjusted to .95 to 1.00 beginning June 30, 2016. |
· | A minimum EBITDA and capital expenditure covenant were added to the Facility.” |
For the Twelve Months ended
June 30, 2016
|
Leverage
Ratio
|
|||
Loss before taxes
|
$
|
(66,500
|
)
|
|
Loss attributable to noncontrolling interest
|
1,168
|
|||
Interest expense
|
13,017
|
|||
Depreciation and amortization
|
31,692
|
|||
Impairment of goodwill and other intangibles
|
68,735
|
|||
B27 settlement
|
7,348
|
|||
Stock compensation expense
|
2,669
|
|||
Pro forma acquisition EBITDA
|
458
|
|||
(A)
Defined EBITDA
|
$
|
58,587
|
||
As of June, 2016
|
||||
Total long-term debt, including current maturities
|
$
|
347,132
|
||
Unamortized debt issuance costs
|
602
|
|||
(B)
Defined indebtedness
|
$
|
347,734
|
||
Leverage Ratio (B)/(A)
|
5.94
|
For the Twelve Months ended
June 30, 2016
|
||||
Defined EBITDA
|
$
|
58,587
|
||
Cash paid for income taxes
|
6,475
|
|||
Capital expenditures
|
10,406
|
|||
(A)
Defined EBITDA minus capital expenditures & cash income taxes
|
$
|
41,706
|
||
Cash interest payments
|
$
|
10,940
|
||
Dividends
|
90
|
|||
Scheduled principal payments
|
44,569
|
|||
(B)
Fixed Charges
|
$
|
55,599
|
||
Fixed Charge Coverage Ratio (A)/(B)
|
0.75
|
Accounts receivable (net), valued at 85% of gross
|
$
|
135,275
|
||
Inventory, valued at 65% of gross
|
63,958
|
|||
Aggregate outstandings
|
$
|
199,233
|
||
Credit facility outstanding balance
|
$
|
193,738
|
||
Outstanding letters of credit
|
5,928
|
|||
$
|
199,666
|
|||
Asset Coverage Ratio
|
1.00
|
June 30,
2016
|
December 31,
2015
|
Increase
(Decrease)
|
||||||||||
Current portion of long-term debt
|
$
|
112,091
|
(2)
|
$
|
50,829
|
$
|
61,262
|
|||||
Long-term debt, less unamortized debt issuance costs
|
235,041
|
298,680
|
(63,639
|
)
|
||||||||
Total long-term debt
|
$
|
347,132
|
$
|
349,509
|
$
|
(2,377
|
)
|
|||||
Amount available
|
$
|
10,053
|
(1)
|
$
|
19,754
|
(1)
|
$
|
(9,701
|
)
|
(1) | Represents amount available to be borrowed at the indicated date under the Facility under the most restrictive covenant. The decrease in the amount available to be borrowed is the result of the increase in the Credit facility outstanding balance. |
(2) | The increase in short term debt is due to mandatory prepayments under the Fourth Amendment to the Facility and increased scheduled principal payments. |
Three Months Ended
June 30,
|
||||||||||||
2016
|
2015
|
Increase
(Decrease)
|
||||||||||
Days of sales outstanding
|
60.1
|
57.1
|
3.0
|
|||||||||
Inventory turns
|
7.5
|
8.5
|
(1.0
|
)
|
ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 4: | CONTROLS AND PROCEDURES. |
ITEM 1. | LEGAL PROCEEDINGS. |
ITEM 1A. | RISK FACTORS. |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
ITEM 4. | MINE SAFETY DISCLOSURES. |
ITEM 5. | OTHER INFORMATION. |
ITEM 6. | EXHIBITS. |
3.1
|
Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 (Reg. No. 333-61953), filed with Commission on August 20, 1998).
|
3.2
|
Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4 (Reg. No. 333-10021), filed with the Commission on August 12, 1996).
|
3.3
|
Amendment No. 1 to Bylaws (incorporated by reference to Exhibit A to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 28, 2011 (file no. 000-71513)).
|
Fourth Amendment to Restated Credit Agreement dated as of August 15, 2016 by and among DXP Enterprises, Inc., Borrower, and Wells Fargo Bank, National Association, as Issuing Lender, and Administrative Agent for other lenders.
|
|
10.2
|
Third Amendment to Restated Credit Agreement dated as of May 12, 2016 by and among DXP Enterprises, Inc., Borrower, and Wells Fargo Bank, National Association, as Issuing Lender, and Administrative Agent for other lenders (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period March 31, 2016, filed with the Commission on May 13, 2016).
|
10.3
|
Second Amendment to Restated Credit Agreement dated as of September 30, 2015 by and among DXP Enterprises, Inc., Borrower, and Wells Fargo Bank, National Association, as Issuing Lender, and Administrative Agent for other lenders (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period September 30, 2015, filed with the Commission on November 9, 2015).
|
10.4
|
First Amendment to Restated Credit Agreement dated as of August 6, 2015 by and among DXP Enterprises, Inc., Borrower, and Wells Fargo Bank, National Association, as Issuing Lender, and Administrative Agent for other lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report Form 10-Q for the quarterly period June 30, 2015, filed with the Commission on August 10, 2015).
|
10.5
|
Amended and Restated Credit Agreement dated as of January 2, 2014 by and among DXP Enterprises, Borrower, and Wells Fargo Bank, National Association, as Issuing Lender, and Administrative Agent for other lenders (incorporate by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2014).
|
*10.6 |
DXP Enterprises, Inc. 2016 Omnibus Incentive Plan
|
*10.7 |
Form of Restricted Stock Award Agreement
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101
|
Interactive Data Files
|
Commitment
Fee
|
LIBOR
Rate and
CDOR Rate
|
Base Rate and Canadian
Base Rate
|
0.50%
|
5.00%
|
4.00%
|
Period
|
Maximum Ratio
|
June 30, 2015 through December 31, 2015
|
4.25 to 1.00
|
January 1, 2016 through June 30, 2017
|
None
|
July 1, 2017 through December 31, 2017
|
3.50 to 1.00
|
January 1, 2018 and thereafter
|
3.25 to 1.00
|
Period
|
Minimum Ratio
|
June 30, 2015 through December 31, 2015
|
1.15 to 1.00
|
January 1, 2016 through June 30, 2017
|
None
|
July 1, 2017 and thereafter
|
1.25 to 1.00
|
Period
|
Minimum Consolidated
EBIDTA
|
|||
July 31, 2016
|
$
|
49,429,000
|
||
August 31, 2016
|
$
|
45,667,000
|
||
September 30, 2016
|
$
|
43,900,000
|
||
October 31, 2016
|
$
|
43,764,000
|
||
November 30, 2016
|
$
|
44,068,000
|
||
December 31, 2016
|
$
|
39,891,000
|
||
January 31, 2017
|
$
|
40,576,000
|
||
February 28, 2017
|
$
|
42,257,000
|
||
March 31, 2017
|
$
|
43,276,000
|
||
April 30, 2017
|
$
|
41,266,000
|
||
May 31, 2017
|
$
|
39,283,000
|
||
June 30, 2017
|
$
|
36,210,000
|
DXP ENTERPRISES, INC.,
|
||
as US Borrower
|
||
By:
|
/s/ Mac McConnell
|
|
Name:
|
Mac McConnell
|
|
Title:
|
Senior Vice President, Chief Financial Officer and Secretary
|
|
DXP CANADA ENTERPRISES LTD.,
|
||
as Canadian Borrower
|
||
By:
|
/s/ Mac McConnell
|
|
Name:
|
Mac McConnell
|
|
Title:
|
Chief Financial Officer
|
|
DXP HOLDINGS, INC.,
|
||
as a US Subsidiary Guarantor
|
||
By:
|
/s/ Mac McConnell
|
|
Name:
|
Mac McConnell
|
|
Title:
|
Vice President
|
|
PMI OPERATING COMPANY, LTD.,
|
||
as a US Subsidiary Guarantor
|
||
By:
|
PUMP-PMI, LLC,
|
|
as General Partner
|
||
By:
|
/s/ Mac McConnell | |
Name:
|
Mac McConnell
|
|
Title:
|
Secretary and Treasurer
|
|
PMI INVESTMENT, LLC,
|
||
as a US Subsidiary Guarantor
|
||
By:
|
/s/ Mac McConnell
|
|
Name:
|
Mac McConnell
|
|
Title:
|
Secretary and Treasurer
|
|
PUMP-PMI, LLC,
|
||
as a US Subsidiary Guarantor
|
||
By:
|
/s/ Mac McConnell
|
|
Name:
|
Mac McConnell
|
|
Title:
|
Secretary and Treasurer
|
VERTEX CORPORATE HOLDINGS, INC.,
|
|
as a US Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President, Secretary and Treasurer
|
VERTEX-PFI, INC.,
|
|
as a US Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President and Secretary
|
PFI, LLC,
|
|
as a US Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President and Secretary
|
B27 HOLDINGS CORP.,
|
|
as Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President, Chief Financial Officer and Secretary
|
|
|
B27, LLC,
|
|
as a US Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President and Chief Financial Officer
|
B27 RESOURCES, INC.,
|
|
as a US Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President and Chief Financial Officer
|
BEST HOLDING, LLC,
|
|
as Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Vice President and Chief Financial Officer
|
BEST EQUIPMENT SERVICE & SALES COMPANY, LLC,
|
|
as Subsidiary Guarantor
|
|
By:
|
/s/ Kent Yee
|
Name:
|
Kent Yee
|
Title:
|
Secretary
|
PUMPWORKS 610, LLC,
|
|
as Subsidiary Guarantor
|
|
By:
|
/s/ Kent Yee
|
Name:
|
Kent Yee
|
Title:
|
Secretary
|
INTEGRATED FLOW SOLUTIONS, LLC,
|
|
as a US Subsidiary Guarantor
|
|
By:
|
/s/ Kent Yee
|
Name:
|
Kent Yee
|
Title:
|
Secretary
|
INDUSTRIAL PARAMEDIC SERVICES LTD.,
|
|
as a Canadian Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Director
|
HSE INTEGRATED LTD.,
|
|
as a Canadian Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Senior Vice President
|
NATIONAL PROCESS EQUIPMENT INC.,
|
|
as a Canadian Subsidiary Guarantor
|
|
By:
|
/s/ Mac McConnell
|
Name:
|
Mac McConnell
|
Title:
|
Chief Financial Officer
|
WELLS FARGO BANK, NATIONAL ASSOCIATION,
|
|
as Administrative Agent, Issuing Lender, Swingline Lender, and Lender
|
|
By:
|
/s/ Jennifer L. Norris
|
Name:
|
Jennifer L. Norris
|
Title:
|
Senior Vice President
|
BANK OF AMERICA, N.A.,
|
|
as Lender
|
|
By:
|
/s/ Anthony D. Healey
|
Name:
|
Anthony D. Healey
|
Title:
|
Senior Vice President
|
BRANCH BANKING AND TRUST COMPANY,
|
|
as Lender
|
|
By:
|
/s/ Mary McElwain
|
Name:
|
Mary McElwain
|
Title:
|
Senior Vice President
|
CADENCE BANK,
|
|
as Lender
|
|
By:
|
/s/ Bill Bobbora
|
Name:
|
William Bobbora
|
Title:
|
Executive Vice President
|
COMPASS BANK,
|
|
as Lender
|
|
By:
|
/s/ Albert M. Watson
|
Name:
|
Albert M. Watson
|
Title:
|
Senior Vice President
|
JPMORGAN CHASE BANK, N.A.,
|
|
as Lender
|
|
By:
|
/s/ Laura Woodward
|
Name:
|
Laura Woodward
|
Title:
|
Vice President
|
ACKNOWLEDGED BY:
|
|
JPMORGAN CHASE BANK, N.A., TORONTO BRANCH,
|
|
as its Applicable Designee
|
|
By:
|
/s/ Michael N. Tam
|
Name:
|
Michael N. Tam
|
Title:
|
Senior Vice President
|
ROYAL BANK OF CANADA,
|
|
as Lender
|
|
By:
|
/s/ Greg Smith
|
Name:
|
Greg Smith
|
Title:
|
Director
|
U.S. BANK NATIONAL ASSOCIATION,
|
|
as Lender
|
|
By:
|
/s/ David C. Heyson
|
Name:
|
David C. Heyson
|
Title:
|
Senior Vice President
|
ZB, N.A. dba Amegy Bank,
|
|
as Lender
|
|
By:
|
/s/ Jeremy A. Newsom
|
Name:
|
Jeremy A. Newsom
|
Title:
|
Executive Vice President
|
|
ARTICLE I
|
ESTABLISHMENT, PURPOSE AND DURATION
|
1
|
|
1.1
|
Establishment
|
1
|
|
1.2
|
Purpose of the Plan
|
1
|
|
1.3
|
Duration of the Plan
|
1
|
|
ARTICLE II
|
DEFINITIONS
|
1
|
|
2.1
|
“Adoption Date”
|
1
|
|
2.2
|
“Affiliate”
|
1
|
|
2.3
|
“Cash Performance Award”
|
1
|
|
2.4
|
“Authorized Shares”
|
2
|
|
2.5
|
“Award”
|
2
|
|
2.6
|
“Award Agreement”
|
2
|
|
2.7
|
“Beneficial Owner”
|
2
|
|
2.8
|
“Board”
|
2
|
|
2.9
|
“Change of Control”
|
2
|
|
2.10
|
“Code”
|
3
|
|
2.11
|
“Committee”
|
3
|
|
2.12
|
“Company”
|
3
|
|
2.13
|
“Compensation Committee”
|
3
|
|
2.14
|
“Corporate Change”
|
3
|
|
2.15
|
“Covered Employee”
|
3
|
|
2.16
|
“Disability”
|
3
|
|
2.17
|
“Dividend Equivalent”
|
4
|
|
2.18
|
“Employee”
|
4
|
|
2.19
|
“Exchange Act”
|
4
|
|
2.20
|
“Fair Market Value”
|
4
|
|
2.21
|
“Holder”
|
4
|
|
2.22
|
“Incentive Stock Option” or “ISO”
|
5
|
|
2.23
|
“Mature Shares”
|
5
|
|
2.24
|
“Minimum Statutory Tax Withholding Obligation”
|
5
|
|
2.25
|
“Non-Employee Director”
|
5
|
|
2.26
|
“Nonqualified Stock Option” or “NQSO”
|
5
|
|
2.27
|
“Option”
|
5
|
|
2.28
|
“Optionee”
|
5
|
|
2.29
|
“Option Price”
|
5
|
|
2.30
|
“Other Cash-Based Award”
|
5
|
|
2.31
|
“Other Stock-Based Award”
|
5
|
|
2.32
|
“Parent Corporation”
|
5
|
|
2.33
|
“Performance-Based Compensation”
|
5
|
|
2.34
|
“Performance Goals”
|
5
|
|
2.35
|
“Performance Stock Award”
|
5
|
|
2.36
|
“Performance Unit Award”
|
5
|
|
2.37
|
“Period of Restriction”
|
5
|
|
2.38
|
“Plan”
|
6
|
|
2.39
|
“Restricted Stock”
|
6
|
|
2.40
|
“Restricted Stock Award”
|
6
|
|
2.41
|
“Restricted Stock Unit” or “RSU”
|
6
|
|
2.42
|
“Retire” or “Retirement”
|
6
|
2.43
|
“RSU Award”
|
6
|
|
2.44
|
“Separation from Service”
|
6
|
|
2.45
|
“Stock Appreciation Right” or “SAR”
|
6
|
|
2.46
|
“Section 409A”
|
6
|
|
2.47
|
“Stock”
|
6
|
|
2.48
|
“Subsidiary Corporation”
|
6
|
|
2.49
|
“Substantial Risk of Forfeiture”
|
6
|
|
2.50
|
“Ten Percent Stockholder”
|
6
|
|
2.51
|
“Termination of Employment”
|
6
|
|
2.52
|
“Termination of Service”
|
7
|
|
2.53
|
“Third Party Service Provider”
|
7
|
|
2.54
|
“Voting Stock”
|
7
|
|
ARTICLE III
|
ELIGIBILITY AND PARTICIPATION
|
7
|
|
3.1
|
Eligibility
|
7
|
|
3.2
|
Participation
|
7
|
|
ARTICLE IV
|
GENERAL PROVISIONS RELATING TO AWARDS
|
8
|
|
4.1
|
Authority to Grant Awards
|
8
|
|
4.2
|
Shares That Count Against Limit
|
8
|
|
4.3
|
Non-Transferability
|
9
|
|
4.4
|
Requirements of Law
|
9
|
|
4.5
|
Changes in the Company’s Capital Structure
|
9
|
|
4.6
|
Election Under Section 83(b) of the Code
|
12
|
|
4.7
|
Forfeiture for Cause
|
12
|
|
4.8
|
Forfeiture Events
|
13
|
|
4.9
|
Recoupment in Restatement Situations
|
13
|
|
4.10
|
Award Agreements
|
13
|
|
4.11
|
Rights as Stockholder
|
14
|
|
4.12
|
Issuance of Shares of Stock
|
14
|
|
4.13
|
Restrictions on Stock Received
|
14
|
|
4.14
|
Compliance With Section 409A
|
14
|
|
4.15
|
Date of Grant
|
14
|
|
4.16
|
Source of Shares Deliverable Under Awards
|
14
|
|
4.17
|
Limitations on Vesting of Awards
|
15
|
|
ARTICLE V
|
OPTIONS
|
15
|
|
5.1
|
Authority to Grant Options
|
15
|
|
5.2
|
Type of Options Available
|
15
|
|
5.3
|
Option Agreement
|
15
|
|
5.4
|
Option Price
|
15
|
|
5.5
|
Duration of Option
|
15
|
|
5.6
|
Amount Exercisable
|
15
|
|
5.7
|
Exercise of Option
|
16
|
|
5.8
|
Notification of Disqualifying Disposition
|
17
|
|
5.9
|
No Rights as Stockholder
|
17
|
|
5.10
|
$100,000 Limitation on ISOs
|
17
|
|
5.11
|
Separation from Service
|
17
|
ARTICLE VI
|
STOCK APPRECIATION RIGHTS
|
17
|
|
6.1
|
Authority to Grant SAR Awards
|
17
|
|
6.2
|
General Terms
|
17
|
|
6.3
|
SAR Agreement
|
17
|
|
6.4
|
Term of SAR
|
18
|
|
6.5
|
Exercise of SARs
|
18
|
|
6.6
|
Payment of SAR Amount
|
18
|
|
6.7
|
Separation from Service
|
18
|
|
6.8
|
No Rights as Stockholder
|
18
|
|
6.9
|
Restrictions on Stock Received
|
18
|
|
ARTICLE VII
|
RESTRICTED STOCK AWARDS
|
18
|
|
7.1
|
Restricted Stock Awards
|
18
|
|
7.2
|
Restricted Stock Award Agreement
|
19
|
|
7.3
|
Holder’s Rights as Stockholder
|
19
|
|
ARTICLE VIII
|
RESTRICTED STOCK UNIT AWARDS
|
19
|
|
8.1
|
Authority to Grant RSU Awards
|
19
|
|
8.2
|
RSU Award
|
19
|
|
8.3
|
RSU Award Agreement
|
19
|
|
8.4
|
Dividend Equivalents
|
19
|
|
8.5
|
Form of Payment Under RSU Award
|
19
|
|
8.6
|
Time of Payment Under RSU Award
|
19
|
|
8.7
|
Holder’s Rights as Stockholder
|
20
|
|
ARTICLE IX
|
PERFORMANCE STOCK AWARDS AND PERFORMANCE UNIT AWARDS
|
20
|
|
9.1
|
Authority to Grant Performance Stock Awards and Performance Unit Awards
|
20
|
|
9.2
|
Performance Goals and Performance Criteria
|
20
|
|
9.3
|
Time of Establishment of Performance Goals
|
23
|
|
9.4
|
Written Agreement
|
23
|
|
9.5
|
Form of Payment Under Performance Unit Award
|
23
|
|
9.6
|
Time of Payment Under Performance Unit Award
|
23
|
|
9.7
|
Holder’s Rights as Stockholder With Respect to a Performance Stock Award
|
23
|
|
9.8
|
Increases Prohibited
|
23
|
|
9.9
|
Stockholder Approval
|
23
|
|
9.10
|
Dividend Equivalents
|
23
|
|
ARTICLE X
|
CASH PERFORMANCE AWARDS
|
24
|
|
10.1
|
Authority to Grant Cash Performance Awards
|
24
|
|
10.2
|
Covered Employees
|
24
|
|
10.3
|
Written Agreement
|
24
|
|
10.4
|
Form of Payment Under Cash Performance Award
|
24
|
|
10.5
|
Time of Payment Under Cash Performance Award
|
24
|
|
ARTICLE XI
|
OTHER STOCK-BASED AWARDS
|
24
|
|
11.1
|
Authority to Grant Other Stock-Based Awards
|
24
|
|
11.2
|
Value of Other Stock-Based Award
|
24
|
|
11.3
|
Written Agreement
|
24
|
|
11.4
|
Payment of Other Stock-Based Award
|
25
|
|
11.5
|
Separation from Service
|
25
|
|
11.6
|
Time of Payment of Other Stock-Based Award
|
25
|
ARTICLE XII
|
OTHER CASH-BASED AWARDS
|
25
|
|
12.1
|
Authority to Grant Other Cash-Based Awards
|
25
|
|
12.2
|
Value of Other Cash-Based Award
|
25
|
|
12.3
|
Written Agreement
|
25
|
|
12.4
|
Payment of Other Cash-Based Award
|
25
|
|
12.5
|
Time of Payment of Other Cash-Based Award
|
25
|
|
12.6
|
Separation from Service
|
25
|
|
ARTICLE XIII
|
SUBSTITUTION AWARDS
|
26
|
|
ARTICLE XIV
|
NON-EMPLOYEE DIRECTOR AWARDS
|
26
|
|
ARTICLE XV
|
ADMINISTRATION
|
26
|
|
15.1
|
Awards
|
26
|
|
15.2
|
Authority of the Committee
|
26
|
|
15.3
|
Decisions Binding
|
27
|
|
15.4
|
No Liability
|
27
|
|
ARTICLE XVI
|
AMENDMENT OR TERMINATION OF PLAN OR AWARD AGREEMENT
|
28
|
|
16.1
|
Amendment, Modification, Suspension, and Termination of the Plan
|
28
|
|
16.2
|
Amendment, Modification, Suspension, and Termination of Award Agreement
|
28
|
|
16.3
|
Awards Previously Granted
|
28
|
|
ARTICLE XVII
|
MISCELLANEOUS
|
28
|
|
17.1
|
Unfunded Plan/No Establishment of a Trust Fund
|
28
|
|
17.2
|
No Employment Obligation
|
28
|
|
17.3
|
Tax Withholding
|
29
|
|
17.4
|
Gender and Number
|
29
|
|
17.5
|
Severability
|
29
|
|
17.6
|
Headings
|
29
|
|
17.7
|
Other Compensation Plans
|
29
|
|
17.8
|
Retirement and Welfare Plans
|
30
|
|
17.9
|
Other Awards
|
30
|
|
17.10
|
Law Limitations/Governmental Approvals
|
30
|
|
17.11
|
Delivery of Title
|
30
|
|
17.12
|
Inability to Obtain Authority
|
30
|
|
17.13
|
Investment Representations
|
30
|
|
17.14
|
Persons Residing Outside of the United States
|
30
|
|
17.15
|
No Fractional Shares
|
30
|
|
17.16
|
Interpretation
|
31
|
|
17.17
|
Governing Law; Venue
|
31
|
(i) | asset write-downs; |
(ii) | the effect of changes in tax laws or other laws or provisions affecting reported results; |
(iii) | any reorganization and restructuring programs; |
(iv) | extraordinary nonrecurring items as described in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable year; |
(v) | acquisitions or divestitures; |
(vi) | foreign exchange gains and losses; |
(vii) | changes in generally accepted accounting principles (“GAAP”); |
(viii) | items that are non-recurring, extraordinary, unusual in nature, infrequent in occurrence, and may be defined in an objective and non-discretionary manner under applicable GAAP accounting standards or other applicable accounting standards in effect from time to time or consistent with the Company’s accounting policies and practices in effect on the date the Performance Goal is established; |
(ix) | the disposal or acquisition of all or a segment of a business; |
(x) | the sale of investments or non-core assets; |
(xi) | discontinued operations, categories or segments; |
(xii) | legal claims, settlements and/or litigation and insurance recoveries relating thereto; |
(xiii) | amortization, depreciation or impairment of tangible or intangible assets; |
(xiv) | reductions in force, early retirement programs, or severance expense; |
(xv) | investments, acquisitions or dispositions; |
(xvi) | political, legal and other business interruptions (such as due to war, insurrection, riot, terrorism, confiscation, expropriation, nationalization, deprivation, seizure, and regulatory requirements); |
(xvii) | natural catastrophes; |
(xviii) | currency fluctuations; |
(xix) | stock based compensation expense; |
(xx) | early retirement of debt; |
(xxi) | conversion of convertible debt securities; and |
(xxii) | termination of real estate leases. |
Lapse Date
|
Cumulative Vested Percentage
of Restricted Stock Award
|
First Anniversary of Grant Date
|
20%
|
Second Anniversary of Grant Date
|
40%
|
Third Anniversary of Grant Date
|
60%
|
Fourth Anniversary of Grant Date
|
80%
|
Fifth Anniversary of Grant Date
|
100%
|
DXP ENTERPRISES, INC.
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By:
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Name:
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Title:
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Date:
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________________
, 20___
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[Recipient Name]
|
[RECIPIENT NAME]
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1. | I have reviewed this report on Form 10-Q of DXP Enterprises, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
1. | I have reviewed this report on Form 10-Q of DXP Enterprises, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |