<PAGE> 1
AMENDMENT NO. 1
TO
FORM 10-Q
ON
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-21513
DXP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0509661
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
580 Westlake Park Boulevard, Suite 1100 77079
Houston, Texas (Zip Code)
(Address of principal executive offices)
281/531-4214
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares outstanding of each of the issuer's classes of common stock as
of November 7, 1997:
Common Stock: 8,168,551
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The Registrant hereby amends the following item of its Quarterly Report on
Form 10-Q for the period ended September 30, 1997 (Commission File No. 0-21513)
as set forth below.
1. Part 1, Item 1, "Financial Statements" is hereby amended as set forth
herein:
ITEM 1. FINANCIAL STATEMENTS
DXP ENTERPRISES, INC. AND SUBSIDIARIES
(CONDENSED CONSOLIDATED BALANCE SHEETS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 556 $ 876
Trade accounts receivable, net of allowance for doubtful
accounts of $310,000 and $210,000, respectively 26,891 17,125
Inventory 28,027 17,175
Prepaid expenses and other current assets 151 539
Deferred income taxes 638 511
-----------------------------------
Total current assets 56,263 36,226
Property and equipment, net 10,552 7,818
Other assets 3,170 998
-----------------------------------
Total assets $ 69,985 $ 45,042
===================================
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 15,782 $ 6,963
Employee compensation 1,427 1,296
Other accrued liabilities 682 601
Current portion of long-term debt 917 609
Current portion of subordinated debt -- 1,145
-----------------------------------
Total current liabilities 18,808 10,614
Long-term debt, less current portion 35,793 22,300
Deferred compensation 739 739
Deferred income taxes 433 330
Equity subject to redemption: Note 9
Series A Preferred stock--1,122 and 1,496 shares 112 150
Series B convertible preferred stock -- 1,800 and 4,500 shares 180 450
Common Stock -- 280,428 shares 1,963 --
Shareholders' Equity:
Series A preferred stock, 1/10th vote per share; $1.00 par
value; liquidation preference of $100 per share; 1,000,000
shares authorized; 3,366 shares issued and outstanding: 2 2
Series B convertible preferred stock, 1/10th vote per share;
$1.00 par value; $100 stated value; liquidation preference of
$100 per share; 1,000,000 shares authorized; 19,500 shares
issued and outstanding 18 15
Common stock, $.01 par value, 100,000,000 shares authorized;
7,993,997 shares issued and outstanding (7,993,997
outstanding at December 31, 1996) 80 80
Paid-in capital 673 368
Retained earnings 11,765 9,994
-----------------------------------
12,538 10,459
Less: treasury stock, 374 shares series A preferred, 2,700 shares
series B preferred, and 60,872 shares common stock (581) --
-----------------------------------
Total shareholders' equity 11,957 10,459
Total liabilities and shareholders' equity $ 69,985 $ 45,042
===================================
</TABLE>
See notes to condensed consolidated financial statements.
2
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
(CONDENSED CONSOLIDATED STATEMENTS OF INCOME)
(Unaudited)
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 48,806 $ 32,193 $ 118,277 $ 95,214
Cost of sales 36,334 23,784 86,706 70,574
---------------------------------------------------
Gross Profit 12,472 8,409 31,571 24,640
Selling, general and administrative expenses 11,295 7,424 27,642 22,230
---------------------------------------------------
Operating income 1,177 985 3,929 2,410
Other income 86 129 981 643
Interest expense (793) (548) (1,960) (1,556)
---------------------------------------------------
(707) (419) (979) (913)
---------------------------------------------------
Income before income taxes 470 566 2,950 1,497
Provision for income taxes 182 230 1,070 607
---------------------------------------------------
$ 288 $ 336 $ 1,880 $ 890
Net income
38 23 109 68
Preferred Stock Dividend
---------------------------------------------------
Net Income Attributable to Common
Shareholders $250 $313 $ 1,771 $ 822
====================================================
Primary net income per common and
common equivalent shares $0.02 $0.04 $0.17 $0.10
====================================================
Number of shares used to compute primary
net income per common and common
equivalent shares 10,251 8,580 10,251 8,580
====================================================
Fully diluted net income per common and
common equivalent share $0.02 $0.04 $0.17 $0.09
====================================================
Number of shares used to compute fully
diluted net income per common and
common equivalent shares 10,251 9,724 11,192 9,724
====================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities ($2,081) $ 2,118
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 113 7
Purchase of Austin Bearing net assets -- (550)
Purchase of Strategic Supply net assets (4,118) --
Purchase of Pelican State Supply common stock (1,070) --
Purchase of property and equipment (648) (971)
-------------------------------
Net cash used in investing activities (5,723) (1,514)
FINANCING ACTIVITIES
Proceeds from debt 133,488 93,856
Principal payments on revolving line of credit, long-term
and subordinated debt, and notes payable to bank (125,314) (95,884)
Issuance of common stock -- 1
Acquisition of common stock (581) --
Dividends paid (109) (68)
-------------------------------
Net cash used in financing activities 7,484 (2,095)
-------------------------------
INCREASE(DECREASE) IN CASH (320) (1,491)
CASH AT BEGINNING OF PERIOD 876 1,492
-------------------------------
CASH AT END OF PERIOD $ 556 $ 1
===============================
</TABLE>
See notes to condensed consolidated financial statements
4
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
As used herein, references to the "Company" are to DXP Enterprises, Inc. and
its subsidiaries, unless the context otherwise indicates.
Notes to Condensed Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. The condensed consolidated financial statements
reflect all elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
These condensed consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by Amendment No. 1 to Form 10-K on Form 10-K/A.
Note 2: The Company
The Company was incorporated on July 26, 1996 in the State of Texas. The
Company was formed to facilitate a proposed reorganization transaction whereby
subsequent to July 31, 1996 the Company became a public holding company and
acquired 100% of the outstanding capital stock of SEPCO Industries, Inc.
("SEPCO"), a private distribution company with revenues of approximately $125
million, and Newman Communications Corporation ("Newman"), an inactive public
entity with nominal net tangible assets.
The Company filed a registration statement on Form S-4 with the Securities and
Exchange Commission to register 9,292,200 shares of its Common Stock (on a
post-reverse stock split basis), 19,500 shares of its Series B Convertible
Preferred Stock and 3,366 shares of its Series A Preferred Stock. This
registration statement became effective on November 12, 1996. Because the
Company (prior to the reorganization) and Newman were non-operating entities
with nominal tangible net assets, the transaction was accounted for as a
recapitalization of SEPCO into the Company and an issuance of shares for the
net tangible assets of Newman. Accordingly, the historical financial
statements for the Company prior to December 4, 1996 are those of SEPCO.
Note 3. Per Share Amounts
Net income per common and common equivalent share has been computed for the
three- and nine-month periods ended September 30, 1996, as if the
reorganization had occurred between the Company and SEPCO on January 1, 1996.
These amounts were determined by dividing net income applicable to common stock
by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. To the extent they are dilutive,
options to purchase common stock issued by the Company within the twelve months
preceding the filing of the registration statement referenced above have been
included in the calculation of common equivalent shares outstanding (using the
treasury stock method) as if they were outstanding for all periods presented.
The computation of fully diluted net income per common and common equivalent
share assumes the Class A convertible preferred stock was converted as of the
beginning of the period, unless the results are anti-dilutive.
5
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In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Under SFAS No. 128, primary earnings per share ("Primary EPS") will be replaced
by basic earnings per share ("Basic EPS"), and fully diluted earnings per share
("Fully Diluted EPS") will be replaced with diluted earnings per share ("Diluted
EPS"). Basic EPS differs from Primary EPS in that it only includes the weighted
average impact of outstanding shares of the Company's Common Stock (i.e., it
excludes common stock equivalents and the dilutive effect of options, etc.).
Diluted EPS is substantially similar to Fully Diluted EPS as previously
reported. The provisions of SFAS No. 128 will result in the retroactive
restatement of previously reported Primary EPS and Fully Diluted EPS figures,
but SFAS No. 128 prohibits such restatement prior to December 31, 1997. Based
on the Company's computations, the adoption of SFAS 128 is not expected to
materially impact earnings per share amounts reported during the current quarter
or any recent prior period.
On or about April 30, 1997, a proxy statement was furnished to the holders of
the Company's Common Stock, Series A Preferred Stock and Series B Preferred
Stock, in connection with a solicitation of consents by the Board of Directors
of the Company for the adoption of an amendment to the Restated Articles of
Incorporation of the Company to effect a two-to-one reverse split of the
issued and outstanding shares of Common Stock and change the name of the
Company from Index, Inc. to DXP Enterprises, Inc. The shareholders approved
the two-to-one reverse stock split and name change, which became effective
after the close of market on May 12, 1997.
Common stock and earnings per share have been restated to give effect to
the two-to-one reverse stock split.
Note 4: Inventory
The Company uses the last-in, first-out ("LIFO") method of inventory valuation
for approximately 59% of its inventories. Remaining inventories are accounted
for using the first-in, first-out ("FIFO") method. An actual valuation of
inventory under the LIFO method can be made only at the end of each year based
on the inventory levels and costs at that time. Accordingly, interim LIFO
calculations must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Because these are subject to many forces
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation. The reconciliation of FIFO inventory to LIFO basis
is as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
---------------------------------------
(in thousands)
<S> <C> <C>
Finished Goods $ 28,188 $ 18,215
Work in process 3,284 2,405
------------------ -------------------
Inventories at FIFO 31,472 20,620
Less - LIFO allowance (3,445) (3,445)
------------------- -------------------
Inventories $ 28,027 $ 17,175
------------------- -------------------
</TABLE>
Note 5: Acquisition
Effective February 2, 1996, the Company acquired the net assets of Austin
Bearing Corporation. The purchase price totaled approximately $578,000 and
consisted of (i) issuance of a $249,000 note, bearing interest at 9%, payable
monthly over five years and (ii) cash of $329,000. The acquisition has been
accounted for using the purchase method of accounting. Goodwill of $84,000 was
recorded in connection
6
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with the acquisition.
Effective May 30, 1997, the Company acquired 100% of the
outstanding stock of Pelican State Supply Company ("Pelican"). The purchase
price totaled approximately $3.0 million and consisted of 280,428 shares of the
Company's Common Stock and cash of approximately $1.0 million. The acquisition
has been accounted for using the purchase method of accounting. Goodwill of
approximately $2.0 million was recorded in connection with the acquisition.
On June 2, 1997, a wholly owned subsidiary of the Company acquired
substantially all the assets of Strategic Supply, Inc. ("Strategic"). The
purchase price, which is subject to adjustments, consisted of approximately
$4.1 million in cash, assumption of $4.7 million of trade payables and other
accrued expenses, $2.8 million in promissory notes payable to the seller and
earn-out payments (based on the earnings before interest and taxes of
Strategic) to be paid over a period of approximately six years, up to a maximum
of $3.5 million. The acquisition has been accounted for using the purchase
method of accounting. Goodwill of $50,000 was recorded in connection with the
acquisition. Goodwill may be adjusted based upon the final purchase price.
The acquisitions discussed above were accounted for using the purchase method
of accounting. The results of operations of the companies acquired are included
in the consolidated statements of income from the date of acquisition of such
companies. The Company is continuing its evaluation of the acquisitions of
Pelican and Strategic as it relates to the purchase price allocations. The
allocation of the respective purchase prices are based on the estimates of the
Company using information currently available. Certain adjustments relating to
these acquisitions are subject to change based upon the final determination of
the fair values of the net assets acquired.
Note 6: Commitments and Contingencies
In September 1997 the Company reached a settlement with the Internal Revenue
Service ("IRS") which had asserted claims against one of the Company's
subsidiaries for additional taxes and penalties of approximately $1 million
plus interest of approximately $328,000. The claims related primarily to a
challenge by the IRS of the Company's use of the LIFO method of accounting for
inventory. The September 1997 settlement with the IRS resulted in a payment by
the Company of approximately $52,000 in additional tax plus interest of
approximately $18,000. The Company had accrued sufficiently for this expense
at December 31, 1996 and, therefore, the payment will have no impact on current
period earnings.
Note 7: Stock Options
Prior to and during 1995, the Company issued non-qualified, book value plan
stock options to certain officers of the Company to purchase shares of its
Class A common stock, which had exercise prices equal to the book value of the
common stock on the date of the grant. The option agreement allowed the
employee to put the stock acquired back to the Company at the book value at
that time. The Company recognized compensation expense for increases in the
book value of the stock while the options were outstanding.
Effective March 31, 1996, the stock option agreements were amended to become
non-qualified, market value plan stock options. Under the amended agreement,
the employees can no longer put the acquired stock back to the Company. In
connection with these changes, the Company recognized approximately $618,000 of
compensation expense in the three months ended March 31, 1996.
Note 8: Long-Term Debt
In September 1996, the Company amended its credit facility which increased the
existing balance of the term loan from $123,898 to $5.0 million upon conversion
of approximately $4.9 million of the amounts outstanding under the revolving
loan to the term loan. In May 1997, the Company further amended its credit
facility to increase the borrowing base from $20 million to $25 million.
7
<PAGE> 8
Also in May 1997, the Company secured two additional lines of credit from its
existing lender in amounts of $3.0 million and $12.0 million for the purpose
of financing two acquisitions and providing for working capital needs of the
newly acquired companies. The two new subsidiaries are the borrowers under
these lines of credit and the Company has guaranteed the indebtedness
thereunder. The interest rate on the new lines of credit
range from LIBOR plus 2.25% to prime plus .50%. Each line of credit is secured
by accounts receivable, inventory, machinery and equipment and real estate of
the respective subsidiary and matures January 1999.
The borrowings available under the Company's credit facilities at September 30,
1997 approximated $3.5 million.
Note 9: Equity Subject to Redemption
The Company is obligated to repurchase certain of its Series A and Series B
preferred stock owned by certain employees upon the occurrence of certain
events which would result in the employee no longer being employed by the
Company. Additionally, the shares of Common Stock issued pursuant to the
purchase of Pelican are subject to a put option whereby any time between
November 30, 1998 and November 30, 2000 the Company may be required to purchase
all or part of such shares at a price of $7.00 per share. The shares issued
for the purchase of Pelican are subject to certain rights of offset pursuant to
terms of the purchase agreement.
8
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DXP Enterprises, Inc.
Date: November 21, 1997 By: /s/ GARY A. ALLCORN
-----------------------------------
Gary A. Allcorn
Senior Vice President/Finance
(Duly authorized officer and
principal financial officer)
