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Share Name | Share Symbol | Market | Type |
---|---|---|---|
DXP Enterprises Inc | NASDAQ:DXPE | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 48.76 | 19.61 | 54.77 | 0 | 09:09:33 |
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 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
|
September 30, 2016
|
December 31, 2015
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash
|
$
|
3,429
|
$
|
1,693
|
||||
Trade accounts receivable, net of allowance for doubtful accounts of $10,536 in 2016 and $9,364 in 2015
|
152,952
|
162,925
|
||||||
Inventories, net
|
98,189
|
103,819
|
||||||
Costs and estimated profits in excess of billings on uncompleted contracts
|
16,836
|
22,045
|
||||||
Prepaid expenses and other current assets
|
6,707
|
2,644
|
||||||
Federal income taxes recoverable
|
107
|
1,839
|
||||||
Deferred income taxes
|
9,829
|
8,996
|
||||||
Total current assets
|
288,049
|
303,961
|
||||||
Property and equipment, net
|
63,100
|
68,503
|
||||||
Goodwill
|
197,211
|
197,362
|
||||||
Other intangible assets, net of accumulated amortization of $98,260 in 2016 and $85,098 in 2015
|
99,662
|
112,297
|
||||||
Other long-term assets
|
1,669
|
1,857
|
||||||
Total assets
|
$
|
649,691
|
$
|
683,980
|
||||
LIABILITIES AND EQUITY
|
||||||||
Current liabilities:
|
||||||||
Current maturities of long-term debt
|
$
|
115,222
|
$
|
50,829
|
||||
Trade accounts payable
|
77,028
|
77,108
|
||||||
Accrued wages and benefits
|
17,411
|
20,864
|
||||||
Customer advances
|
3,054
|
1,076
|
||||||
Billings in excess of costs and estimated profits on uncompleted contracts
|
2,474
|
8,021
|
||||||
Other current liabilities
|
17,787
|
22,220
|
||||||
Total current liabilities
|
232,976
|
180,118
|
||||||
Long-term debt, less current maturities and unamortized debt issuance costs of $1,022 in 2016 and $2,046 in 2015
|
203,043
|
298,680
|
||||||
Non-current deferred income taxes
|
7,586
|
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 September 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 September 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; 14,848,469 at September 30, 2016 and 14,655,356 at December 31, 2015 shares issued
|
148
|
146
|
||||||
Additional paid-in capital
|
104,772
|
110,306
|
||||||
Retained earnings
|
110,036
|
109,783
|
||||||
Accumulated other comprehensive loss
|
(10,211
|
)
|
(10,616
|
)
|
||||
Treasury stock, at cost (zero shares at September 30, 2016 and 264,297 at December 31, 2015)
|
-
|
(12,577
|
)
|
|||||
Total DXP Enterprises, Inc. equity
|
204,761
|
197,058
|
||||||
Noncontrolling interest
|
1,325
|
1,812
|
||||||
Total equity
|
206,086
|
198,870
|
||||||
Total liabilities and equity
|
$
|
649,691
|
$
|
683,980
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Sales
|
$
|
230,025
|
$
|
303,080
|
$
|
739,801
|
$
|
968,362
|
||||||||
Cost of sales
|
166,205
|
217,374
|
535,560
|
693,308
|
||||||||||||
Gross profit
|
63,820
|
85,706
|
204,241
|
275,054
|
||||||||||||
Selling, general and administrative expense
|
58,887
|
75,082
|
192,461
|
232,336
|
||||||||||||
Impairment of goodwill and other intangible assets
|
-
|
58,888
|
-
|
58,888
|
||||||||||||
B27 settlement
|
-
|
7,348
|
-
|
7,348
|
||||||||||||
Income (loss) from operations
|
4,933
|
(55,612
|
)
|
11,780
|
(23,518
|
)
|
||||||||||
Other expense (income), net
|
(251
|
)
|
327
|
(397
|
)
|
(67
|
)
|
|||||||||
Interest expense
|
4,338
|
2,630
|
11,698
|
7,905
|
||||||||||||
Income (loss) before income taxes
|
846
|
(58,569
|
)
|
479
|
(31,356
|
)
|
||||||||||
Provision (benefit) for income taxes
|
664
|
(5,885
|
)
|
459
|
4,510
|
|||||||||||
Net income (loss)
|
182
|
(52,684
|
)
|
20
|
(35,866
|
)
|
||||||||||
Net loss attributable to noncontrolling interest
|
(81
|
)
|
(249
|
)
|
(301
|
)
|
(249
|
)
|
||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
263
|
(52,435
|
)
|
321
|
(35,617
|
)
|
||||||||||
Preferred stock dividend
|
23
|
23
|
68
|
68
|
||||||||||||
Net income (loss) attributable to common shareholders
|
$
|
240
|
$
|
(52,458
|
)
|
$
|
253
|
$
|
(35,685
|
)
|
||||||
Net income (loss)
|
$
|
182
|
$
|
(52,684
|
)
|
$
|
20
|
$
|
(35,866
|
)
|
||||||
Cumulative translation adjustment
|
(19
|
)
|
(168
|
)
|
(409
|
)
|
4,603
|
|||||||||
Comprehensive income (loss)
|
$
|
201
|
$
|
(52,516
|
)
|
$
|
429
|
$
|
(40,469
|
)
|
||||||
Basic earnings (loss) per share attributable to DXP Enterprises, Inc.
|
$
|
0.02
|
$
|
(3.64
|
)
|
$
|
0.02
|
$
|
(2.48
|
)
|
||||||
Weighted average common shares outstanding
|
14,600
|
14,422
|
14,529
|
14,394
|
||||||||||||
Diluted earnings (loss) per share attributable to DXP Enterprises, Inc.
|
$
|
0.02
|
$
|
(3.64
|
)
|
$
|
0.02
|
$
|
(2.48
|
)
|
||||||
Weighted average common shares and common equivalent shares outstanding
|
15,440
|
14,422
|
15,369
|
14,394
|
Nine Months Ended
September 30,
|
||||||||
2016
|
2015
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
$
|
321
|
$
|
(35,617
|
)
|
|||
Less net loss attributable to non-controlling interest
|
(301
|
)
|
(249
|
)
|
||||
Net income (loss)
|
20
|
(35,866
|
)
|
|||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||
Depreciation
|
9,070
|
9,008
|
||||||
Amortization of intangible assets
|
13,557
|
15,907
|
||||||
Impairment of goodwill and other intangibles
|
-
|
58,888
|
||||||
Bad debt expense
|
1,476
|
1,302
|
||||||
Amortization of debt issuance costs
|
673
|
881
|
||||||
Write off of debt issuance costs
|
967
|
-
|
||||||
Compensation expense for restricted stock
|
1,944
|
2,304
|
||||||
Tax loss related to vesting of restricted stock
|
619
|
33
|
||||||
Deferred income taxes
|
(121
|
)
|
(8,104
|
)
|
||||
Changes in operating assets and liabilities, net of assets and liabilities acquired in business acquisitions:
|
||||||||
Trade accounts receivable
|
9,965
|
48,212
|
||||||
Costs and estimated profits in excess of billings on uncompleted contracts
|
5,067
|
(497
|
)
|
|||||
Inventories
|
5,818
|
8,558
|
||||||
Prepaid expenses and other assets
|
(608
|
)
|
(1,389
|
)
|
||||
Trade accounts payable and accrued expenses
|
(8,798
|
)
|
(22,550
|
)
|
||||
Billings in excess of costs and estimated profits on uncompleted contracts
|
(4,171
|
)
|
(1,884
|
)
|
||||
Net cash provided by operating activities
|
35,478
|
74,803
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase of property and equipment
|
(3,843
|
)
|
(11,719
|
)
|
||||
Proceeds from sale of property and equipment
|
1,198
|
-
|
||||||
Acquisitions of businesses, net of cash acquired
|
-
|
(15,501
|
)
|
|||||
Equity method investment contribution, net of distributions
|
(3,214
|
)
|
-
|
|||||
Net cash used in investing activities
|
(5,859
|
)
|
(27,220
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from debt
|
324,229
|
310,290
|
||||||
Principal payments on revolving line of credit and other long-term debt
|
(356,497
|
)
|
(343,246
|
)
|
||||
Proceeds for the issuance of common shares, net of expenses
|
5,959
|
-
|
||||||
Debt issuance fees
|
(616
|
)
|
(543
|
)
|
||||
Contributions from non-controlling interest owners
|
-
|
2,494
|
||||||
Loss for non-controlling interest owners, net of tax
|
(186
|
)
|
-
|
|||||
Dividends paid
|
(68
|
)
|
(68
|
)
|
||||
Purchase of treasury stock
|
-
|
(8,908
|
)
|
|||||
Tax loss related to vesting of restricted stock
|
(619
|
)
|
(33
|
)
|
||||
Net cash used in financing activities
|
(27,798
|
)
|
(40,014
|
)
|
||||
EFFECT OF FOREIGN CURRENCY ON CASH
|
(85
|
)
|
521
|
|||||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
1,736
|
8,090
|
||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
1,693
|
47
|
||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
3,429
|
$
|
8,137
|
September 30,
2016
|
December 31,
2015
|
|||||||
Finished goods
|
$
|
85,640
|
$
|
94,524
|
||||
Work in process
|
12,549
|
9,295
|
||||||
Inventories, net
|
$
|
98,189
|
$
|
103,819
|
September 30,
2016
|
December 31,
2015
|
|||||||
Costs incurred on uncompleted contracts
|
$
|
24,441
|
$
|
34,400
|
||||
Estimated profits, thereon
|
8,189
|
13,119
|
||||||
Total
|
32,630
|
47,519
|
||||||
Less: billings to date
|
18,269
|
33,422
|
||||||
Net
|
$
|
14,361
|
$
|
14,097
|
September 30,
2016
|
December 31,
2015
|
|||||||
Costs and estimated profits in excess of billings on uncompleted contracts
|
$
|
16,836
|
$
|
22,045
|
||||
Billings in excess of costs and estimated profits on uncompleted contracts
|
(2,474
|
)
|
(8,021
|
)
|
||||
Translation adjustment
|
(1
|
)
|
73
|
|||||
Net
|
$
|
14,361
|
$
|
14,097
|
September 30,
2016
|
December 31,
2015
|
|||||||
Land
|
$
|
2,346
|
$
|
2,386
|
||||
Buildings and leasehold improvements
|
16,230
|
16,631
|
||||||
Furniture, fixtures and equipment
|
102,573
|
102,494
|
||||||
Less – Accumulated depreciation
|
(58,049
|
)
|
(53,008
|
)
|
||||
Total property and equipment, net
|
$
|
63,100
|
$
|
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
|
-
|
922
|
922
|
|||||||||
Amortization
|
-
|
(13,557
|
)
|
(13,557
|
)
|
|||||||
Balance as of September 30, 2016
|
$
|
197,211
|
$
|
99,662
|
$
|
296,873
|
September 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 September 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
|
$
|
196,079
|
$
|
(96,716
|
)
|
99,363
|
195,580
|
(83,741
|
)
|
111,839
|
||||||||||||||
Non-compete agreements
|
1,843
|
(1,544
|
)
|
299
|
1,815
|
(1,357
|
)
|
458
|
||||||||||||||||
Total
|
$
|
197,922
|
$
|
(98,260
|
)
|
$
|
99,662
|
$
|
197,395
|
$
|
(85,098
|
)
|
$
|
112,297
|
September 30,
2016
|
December 31,
2015
|
|||||||
Line of credit
|
$
|
177,999
|
$
|
172,147
|
||||
Term loan
|
137,500
|
175,000
|
||||||
Promissory note payable in monthly installments at 2.9% through January 2021, collateralized by equipment
|
3,788
|
4,408
|
||||||
Less unamortized debt issuance costs
|
(1,022
|
)
|
(2,046
|
)
|
||||
318,265
|
349,509
|
|||||||
Less: Current portion
|
(115,222
|
)
|
(50,829
|
)
|
||||
Long-term debt less current maturities
|
$
|
203,043
|
$
|
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. As of October 31, 2016, both of these mandatory prepayments have been paid.
|
·
|
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, 2017 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 a capital expenditure covenant were added to the Facility.
|
Number of shares authorized for grants
|
1,300,000
|
|||
Number of shares granted
|
(981,752
|
)
|
||
Number of shares forfeited
|
158,876
|
|||
Number of shares expired from 2005 plan
|
(81,527
|
)
|
||
Number of shares available for future grants
|
395,597
|
|||
Weighted-average grant price of granted shares
|
$
|
27.15
|
Number of
Shares
|
Weighted
Average
Grant Price
|
|||||||
Non-vested at December 31, 2015
|
137,507
|
$
|
54.58
|
|||||
Granted
|
108,553
|
$
|
17.07
|
|||||
Forfeited
|
(15,000
|
)
|
$
|
91.56
|
||||
Vested
|
(59,680
|
)
|
$
|
48.40
|
||||
Non-vested at September 30, 2016
|
171,380
|
$
|
29.74
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Basic:
|
||||||||||||||||
Weighted average shares outstanding
|
14,600
|
14,422
|
14,529
|
14,394
|
||||||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
$
|
263
|
$
|
(52,435
|
)
|
$
|
321
|
$
|
(35,617
|
)
|
||||||
Convertible preferred stock dividend
|
23
|
23
|
68
|
68
|
||||||||||||
Net income (loss) attributable to common shareholders
|
$
|
240
|
$
|
(52,458
|
)
|
$
|
253
|
$
|
(35,685
|
)
|
||||||
Per share amount
|
$
|
0.02
|
$
|
(3.64
|
)
|
$
|
0.02
|
$
|
(2.48
|
)
|
||||||
Diluted:
|
||||||||||||||||
Weighted average shares outstanding
|
14,600
|
14,422
|
14,529
|
14,394
|
||||||||||||
Assumed conversion of convertible preferred stock
|
840
|
-
|
840
|
-
|
||||||||||||
Total dilutive shares
|
15,440
|
14,422
|
15,369
|
14,394
|
||||||||||||
Net income (loss) attributable to common shareholders
|
$
|
240
|
$
|
(52,458
|
)
|
$
|
253
|
$
|
(35,685
|
)
|
||||||
Convertible preferred stock dividend
|
(23
|
)
|
-
|
(68
|
)
|
-
|
||||||||||
Net income (loss) attributable to DXP Enterprises, Inc. for diluted earnings per share
|
$
|
263
|
$
|
(52,458
|
)
|
$
|
321
|
$
|
(35,685
|
)
|
||||||
Per share amount
|
$
|
0.02
|
$
|
(3.64
|
)
|
$
|
0.02
|
$
|
(2.48
|
)
|
2015
|
||||||||
TSI
|
Cortech
|
|||||||
Accounts receivable
|
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
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
230,025
|
$
|
306,924
|
$
|
739,801
|
$
|
984,247
|
||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
$
|
263
|
$
|
(52,435
|
)
|
$
|
321
|
$
|
(34,551
|
)
|
||||||
Per share data attributable to DXP Enterprises, Inc.
|
||||||||||||||||
Earnings (loss) per share:
|
||||||||||||||||
Basic earnings (loss)
|
$
|
0.02
|
$
|
(3.62
|
)
|
$
|
0.02
|
$
|
(2.41
|
)
|
||||||
Diluted earnings (loss)
|
$
|
0.02
|
$
|
(3.62
|
)
|
$
|
0.02
|
$
|
(2.41
|
)
|
For the Three Months Ended September 30,
|
||||||||||||||||||||||||||||||||
2016
|
2015
|
|||||||||||||||||||||||||||||||
SC
|
IPS
|
SCS
|
Total
|
SC
|
IPS
|
SCS
|
Total
|
|||||||||||||||||||||||||
Sales
|
$
|
152,018
|
$
|
39,830
|
$
|
38,177
|
$
|
230,025
|
$
|
199,306
|
$
|
61,458
|
$
|
42,316
|
$
|
303,080
|
||||||||||||||||
Amortization
|
2,292
|
1,956
|
271
|
4,519
|
2,627
|
2,097
|
516
|
5,240
|
||||||||||||||||||||||||
Income (loss) from operations
|
11,053
|
(326
|
)
|
3,658
|
14,385
|
15,330
|
4,042
|
3,305
|
22,677
|
|||||||||||||||||||||||
Income from operations, excluding amortization
|
$
|
13,345
|
$
|
1,630
|
$
|
3,929
|
$
|
18,904
|
$
|
17,957
|
$
|
6,139
|
$
|
3,821
|
$
|
27,917
|
For the Nine Months Ended September 30,
|
||||||||||||||||||||||||||||||||
2016
|
2015
|
|||||||||||||||||||||||||||||||
SC
|
IPS
|
SCS
|
Total
|
SC
|
IPS
|
SCS
|
Total
|
|||||||||||||||||||||||||
Sales
|
$
|
481,352
|
$
|
141,614
|
$
|
116,835
|
$
|
739,801
|
$
|
639,212
|
$
|
202,627
|
$
|
126,523
|
$
|
968,362
|
||||||||||||||||
Amortization
|
6,871
|
5,874
|
812
|
13,557
|
7,988
|
6,312
|
1,607
|
15,907
|
||||||||||||||||||||||||
Income from operations
|
28,608
|
1,549
|
10,799
|
40,956
|
53,955
|
14,365
|
9,228
|
77,548
|
||||||||||||||||||||||||
Income from operations, excluding amortization
|
$
|
35,479
|
$
|
7,423
|
$
|
11,611
|
$
|
54,513
|
$
|
61,943
|
$
|
20,677
|
$
|
10,835
|
$
|
93,445
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Operating income for reportable segments, excluding amortization
|
$
|
18,904
|
$
|
27,917
|
$
|
54,513
|
$
|
93,455
|
||||||||
Adjustment for:
|
||||||||||||||||
B27 settlement
|
-
|
7,348
|
-
|
7,348
|
||||||||||||
Impairment
|
-
|
58,888
|
-
|
58,888
|
||||||||||||
Amortization of intangible assets
|
4,519
|
5,240
|
13,557
|
15,907
|
||||||||||||
Corporate expense
|
9,452
|
12,053
|
29,176
|
34,830
|
||||||||||||
Income (loss) from operations
|
4,933
|
(55,612
|
)
|
11,780
|
(23,518
|
)
|
||||||||||
Interest expense
|
4,338
|
2,630
|
11,698
|
7,905
|
||||||||||||
Other expense (income), net
|
(251
|
)
|
327
|
(397
|
)
|
(67
|
)
|
|||||||||
Income (loss) before income taxes
|
$
|
846
|
$
|
(58,569
|
)
|
$
|
479
|
$
|
(31,356
|
)
|
ITEM 2: |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Three Months Ended September 30,
|
Nine Months September 30,
|
|||||||||||||||||||||||||||||||
2016
|
%
|
2015
|
%
|
2016
|
%
|
2015
|
%
|
|||||||||||||||||||||||||
Sales
|
$
|
230,025
|
100.0
|
%
|
$
|
303,080
|
100.0
|
%
|
$
|
739,801
|
100.0
|
%
|
$
|
968,362
|
100.0
|
%
|
||||||||||||||||
Cost of sales
|
166,205
|
72.3
|
%
|
217,374
|
71.7
|
%
|
535,560
|
72.4
|
%
|
693,308
|
71.6
|
%
|
||||||||||||||||||||
Gross profit
|
63,820
|
27.7
|
%
|
85,706
|
28.3
|
%
|
204,241
|
27.6
|
%
|
275,054
|
28.4
|
%
|
||||||||||||||||||||
Selling, general and administrative expense
|
58,887
|
25.6
|
%
|
75,802
|
24.8
|
%
|
192,461
|
26.0
|
%
|
232,336
|
24.0
|
%
|
||||||||||||||||||||
Impairment of goodwill and other intangible
|
58,888
|
19.4
|
%
|
58,888
|
6.1
|
%
|
||||||||||||||||||||||||||
B27 settlement
|
7,348
|
2.4
|
%
|
7,348
|
0.8
|
%
|
||||||||||||||||||||||||||
Income (loss) from operations
|
4,933
|
2.1
|
%
|
(55,612
|
)
|
-18.3
|
%
|
11,780
|
1.6
|
%
|
(23,518
|
)
|
-2.4
|
%
|
||||||||||||||||||
Other expense (income), net
|
(251
|
)
|
-0.1
|
%
|
327
|
0.1
|
%
|
(397
|
)
|
-0.1
|
%
|
(67
|
)
|
0.0
|
%
|
|||||||||||||||||
Interest expense
|
4,338
|
1.9
|
%
|
2,630
|
0.9
|
%
|
11,698
|
1.6
|
%
|
7,905
|
0.8
|
%
|
||||||||||||||||||||
Income (loss) before taxes
|
846
|
0.4
|
%
|
(58,569
|
)
|
-19.3
|
%
|
479
|
0.1
|
%
|
(31,356
|
)
|
-3.2
|
%
|
||||||||||||||||||
Provision for income taxes
|
664
|
0.3
|
%
|
(5,885
|
)
|
-2.1
|
%
|
459
|
0.1
|
%
|
4,510
|
0.4
|
%
|
|||||||||||||||||||
Net income (loss)
|
182
|
0.0
|
%
|
(52,684
|
)
|
-17.2
|
%
|
20
|
0.0
|
%
|
(35,866
|
)
|
-3.6
|
%
|
||||||||||||||||||
Net loss attributable to noncontrolling interest
|
(81
|
)
|
0.0
|
%
|
(249
|
)
|
-.01
|
%
|
(301
|
)
|
0.0
|
%
|
(249
|
)
|
0.0
|
%
|
||||||||||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
$
|
263
|
0.1
|
%
|
$
|
(52,435
|
)
|
-17.1
|
%
|
$
|
321
|
0.0
|
%
|
$
|
(35,617
|
)
|
-3.6
|
%
|
||||||||||||||
Per share amounts attributable to DXP Enterprises, Inc.
|
||||||||||||||||||||||||||||||||
Basic earnings (loss) per share
|
$
|
0.02
|
$
|
(3.64
|
)
|
$
|
0.02
|
$
|
(2.48
|
)
|
||||||||||||||||||||||
Diluted earnings (loss) per share
|
$
|
0.02
|
$
|
(3.64
|
)
|
$
|
0.02
|
$
|
(2.48
|
)
|
2015
|
||||||||
TSI
|
Cortech
|
|||||||
Accounts receivable
|
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
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
230,025
|
$
|
306,924
|
$
|
739,801
|
$
|
984,247
|
||||||||
Net income (loss) attributable to DXP Enterprises, Inc.
|
$
|
263
|
$
|
(52,435
|
)
|
$
|
321
|
$
|
(34,551
|
)
|
||||||
Per share data attributable to DXP Enterprises, Inc.
|
||||||||||||||||
Earnings (loss) per share:
|
||||||||||||||||
Basic earnings (loss)
|
$
|
0.02
|
$
|
(3.62
|
)
|
$
|
0.02
|
$
|
(2.41
|
)
|
||||||
Diluted earnings (loss)
|
$
|
0.02
|
$
|
(3.62
|
)
|
$
|
0.02
|
$
|
(2.41
|
)
|
· |
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. As of October 31, 2016, both of these mandatory prepayments have been paid.
|
· |
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, 2017 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
September 30, 2016
|
||||
Loss before taxes
|
$
|
(7,085
|
)
|
|
Loss attributable to noncontrolling interest
|
919
|
|||
Interest expense
|
14,725
|
|||
Depreciation and amortization
|
30,955
|
|||
Impairment of goodwill and other intangibles
|
9,847
|
|||
Stock compensation expense
|
2,613
|
|||
(A)
Defined EBITDA
|
$
|
51,974
|
||
As of September 30, 2016
|
||||
Total long-term debt, including current maturities
|
$
|
318,265
|
||
Unamortized debt issuance costs
|
1,022
|
|||
(B)
Defined indebtedness
|
$
|
319,287
|
||
Consolidated Leverage Ratio (B)/(A)
|
6.14
|
For the Twelve Months ended
September 30, 2016
|
||||
Defined EBITDA
|
$
|
51,974
|
||
Cash paid for income taxes
|
5,461
|
|||
Capital expenditures
|
6,116
|
|||
(A)
Defined EBITDA minus capital expenditures & cash income taxes
|
$
|
40,397
|
||
Cash interest payments
|
$
|
12,754
|
||
Dividends
|
90
|
|||
Scheduled principal payments
|
47,699
|
|||
(B)
Fixed charges
|
$
|
60,543
|
||
Consolidated Fixed Charge Coverage Ratio (A)/(B)
|
0.67
|
Accounts receivable (net), valued at 85% of gross
|
$
|
130,009
|
||
Inventory, valued at 65% of gross
|
63,823
|
|||
Aggregate outstandings
|
$
|
193,832
|
||
Credit facility outstanding balance
|
$
|
177,999
|
||
Outstanding letters of credit
|
5,810
|
|||
$
|
183,809
|
|||
Asset Coverage Ratio
|
1.05
|
September 30,
2016
|
December 31,
2015
|
Increase
(Decrease)
|
||||||||||
Current maturities of long-term debt
|
$
|
115,222
|
(2)
|
$
|
50,829
|
$
|
64,393
|
|||||
Long-term debt, less unamortized debt issuance costs
|
203,043
|
298,680
|
(95,637
|
)
|
||||||||
Total long-term debt
|
$
|
318,265
|
$
|
349,509
|
$
|
(31,244
|
)
|
|||||
Amount available
|
$
|
20,225
|
(1)
|
$
|
19,754
|
(1)
|
$
|
471
|
(1) |
Represents amount available to be borrowed at the indicated date under the Facility under the most restrictive covenant. The increase in the amount available to be borrowed is the result of paying down debt in 2016 combined with the reduction to the minimum Asset Coverage Ratio beginning June 30, 2016.
|
(2) |
The increase in short-term debt is due to mandatory prepayments under the Fourth Amendment to the Facility and increased scheduled principal payments. The $55 million of mandatory prepayments and $24.5 million of scheduled principal payments were prepaid during October 2016.
|
Three Months Ended
September 30,
|
||||||||||||
2016
|
2015
|
Increase
(Decrease)
|
||||||||||
Days of sales outstanding
|
65.4
|
60.1
|
5.3
|
|||||||||
Inventory turns
|
6.7
|
8.0
|
(1.3
|
)
|
ITEM 3: |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
ITEM 4: |
CONTROLS AND PROCEDURES.
|
· |
We augmented our tax accounting resources by engaging third party professionals to strengthen tax accounting review procedures in significant jurisdictions;
|
· |
We developed and implemented enhanced policies and procedures relating to account reconciliations and analysis;
|
· |
We are implementing close procedures at an interim period to allow for more timely and increased oversight by our management of the calculation and reporting of certain tax balances; and
|
· |
We are reassessing the design of our tax review controls to identify areas where enhanced precision will help detect and prevent material misstatements.
|
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)).
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10.1
|
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 (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period June 30, 2016, filed with the Commission on August 15, 2016).
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10.2
|
DXP Enterprises, Inc. 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period June 30, 2016, filed with the Commission on August 15, 2016).
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10.3
|
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period June 30, 2016, filed with the Commission on August 15, 2016).
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10.4
|
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).
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10.5
|
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).
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