<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7272 PINEMONT 77040
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
713/996-4700
(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 August 11, 2000:
Common Stock: 4,076,618
===============================================================================
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 1,391 $ 2,991
Trade accounts receivable, net of allowance for doubtful
accounts of $1,765 and $1,535, respectively............. 22,578 21,268
Inventory.................................................. 24,764 24,238
Prepaid expenses and other................................. 583 644
Deferred income taxes...................................... 1,095 900
--------- ---------
Total current assets.................................. $ 50,411 $ 50,041
Property, plant and equipment, net........................... 11,499 12,931
Goodwill, net................................................ 9,881 10,068
Note receivables from officers and employees................. 826 770
Other assets................................................. 241 156
--------- ---------
Total assets.......................................... $ 72,858 $ 73,966
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable..................................... $ 17,967 $ 15,570
Accrued wages and benefits................................. 924 1,086
Other accrued liabilities.................................. 770 220
Current portion of long-term debt.......................... 3,385 3,206
--------- ---------
Total current liabilities............................. $ 23,046 $ 20,082
Long-term debt, less current portion......................... 31,882 36,780
Deferred compensation........................................ 778 778
Deferred income taxes........................................ 556 561
Equity subject to redemption:
Series A preferred stock-- 1,122 shares.................... 112 112
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;
2,992 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; 17,700 shares
issued and 15,000
outstanding, and 2,700 shares as treasury stock......... 18 18
Common stock, $.01 par value, 100,000,000 shares
authorized; 4,262,693 and 4,257,760 shares issued, of
which 4,076,618 and 4,071,685 shares are outstanding,
and 186,075 shares are treasury stock................... 41 41
Paid-in capital............................................ 2,251 2,251
Retained earnings.......................................... 16,066 15,235
Treasury stock............................................. (1,894) (1,894)
--------- ---------
Total shareholders' equity............................ 16,484 15,653
--------- ---------
Total liabilities and shareholders' equity............ $ 72,858 $ 73,966
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales................................................. $ 43,799 $ 46,436 $ 87,556 $ 94,846
Cost of sales......................................... 32,476 34,747 65,281 70,395
--------- --------- --------- ---------
Gross profit.......................................... 11,323 11,689 22,275 24,451
Selling, general and administrative expenses.......... 10,684 11,134 21,394 22,959
--------- --------- --------- ---------
Operating income...................................... 639 555 881 1,492
Other income.......................................... 599 66 2,589 574
Interest expense...................................... (918) (936) (1,847) (1,865)
--------- --------- ---------- ---------
Income(loss) before income taxes...................... 320 (315) 1,623 201
Provision for income taxes............................ 182 84 748 342
--------- --------- --------- ---------
Net income (loss)..................................... $ 138 $ (399) $ 875 $ (141)
Preferred stock dividend.............................. 23 23 45 45
--------- --------- --------- ---------
Net income (loss) attributable to common
Shareholders........................................ $ 115 $ (422) $ 830 $ (186)
========= ========= ========= =========
Basic earnings (loss) per common share................ $ .03 $ (.10) $ .20 $ (.05)
========= ========= ========= =========
Common shares outstanding............................. 4,077 4,068 4,077 4,095
========= ========= ========= =========
Diluted earnings (loss) per share..................... $ .03 $ (.10) $ .19 $ (.05)
========= ========= ========= =========
Common and common equivalent shares outstanding....... 4,498 4,068 4,684 4,095
========= ========= ========= =========
</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>
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities................ $ 598 $ 5,800
INVESTING ACTIVITIES:
Purchase of property and equipment....................... (667) (1,650)
Net proceeds on the sale of assets....................... 3,233 267
---------- ----------
Net cash provided by/(used in) investing activities.. 2,566 (1,383)
FINANCING ACTIVITIES:
Proceeds from debt....................................... 90,450 92,894
Principal payments on revolving line of credit, long-term
and subordinated debt, and notes payable to bank...... (95,169) (96,834)
Acquisition of common stock.............................. -- (914)
Dividends paid........................................... (45) (45)
---------- ----------
Net cash used in financing activities.............. (4,764) (4,899)
----------- ----------
DECREASE IN CASH........................................... (1,600) (482)
CASH AT BEGINNING OF PERIOD................................ 2,991 1,625
========== ==========
CASH AT END OF PERIOD...................................... $ 1,391 $ 1,143
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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DXP ENTERPRISES INC. AND SUBSIDIARIES
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. DXP
Enterprises, Inc. (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, 1999,
filed with the Securities and Exchange Commission.
NOTE 2: THE COMPANY
The Company is a leading supplier of maintenance, repair and operating
("MRO") products, equipment and services to industrial customers. The Company
provides MRO products in the following categories: fluid handling equipment,
bearings and power transmission equipment, general mill and safety supplies and
electrical supplies.
NOTE 3: INVENTORY
The Company uses the last-in, first-out ("LIFO") method of inventory
valuation for approximately 56 percent 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>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.................... $ 26,507 $ 25,259
Work in process................... 1,509 2,208
--------- ---------
Inventories at FIFO............... 28,016 27,467
Less-- LIFO allowance............. (3,252) (3,229)
--------- ---------
Inventories....................... $ 24,764 $ 24,238
========= =========
</TABLE>
NOTE 4: DIVESTITURES
During the first quarter of 2000, the Company completed a transaction to
sell certain of its fabrication and warehouse properties in Houston, Texas, for
approximately $2.8 million in cash. A gain of approximately $1.7 million was
recorded as other income as a result of the sale. Additionally, the Company
sold additional warehouse and office space during the second quarter of 2000
for approximately $0.7 million, resulting in a gain of approximately $0.3
million included in other income.
NOTE 5: LONG-TERM DEBT
The Company and its lender amended its secured lines of credit (the
"Credit Facility") on August 10, 2000. Such amendment was effective June 30,
2000. The amendment reduced the Company's lines from $44.0 million to $38.0
million, increased the borrowing
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rate to prime plus 1 1/2% on the real estate loan and extended the maturity
date to July 1, 2001.
The Credit Facility provides for borrowings up to an aggregate of the
lesser of (i) a percentage of the collateral value based on a formula set forth
therein or (ii) $38.0 million, and matures on July 1, 2001. Interest accrues at
prime plus 1 1/2% on the term portion of the Credit Facility, which was $10.6
million at June 30, 2000, and prime plus 1/2% on the revolving portion of the
Credit Facility, which was $21.0 million at June 30, 2000. The prime rate at
June 30, 2000, was 9.5%. The Credit Facility is secured by receivables,
inventory, and machinery and equipment. An executive officer of the Company,
who is also a shareholder, has personally guaranteed up to $500,000 of the
obligations of the Company under the line of credit. Additionally, certain
shares held in trust for this executive officer's children are also pledged to
secure the line of credit. The available borrowings under the revolving portion
of the Credit Facility at June 30, 2000, were approximately $2.7 million.
The Credit Facility includes loan covenants that are measured monthly,
which, among other things, require the Company to maintain a certain cash flow
and other financial ratios. The Company from time to time has not been in
compliance with certain covenants under the Credit Facility regarding financial
ratios. At June 30, 2000, the Company was not in compliance with certain of
those covenants. The lender has provided waivers to the Company regarding the
compliance with these covenants. In the opinion of management, the Company will
be able to maintain compliance with the loan covenants, although there can be no
assurance that they will maintain compliance, and in the event of default,
whether the lender will be willing to provide waivers in the future.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a leading provider of MRO products, equipment and
integrated services, including engineering expertise and logistics
capabilities, to industrial customers. The Company provides a wide range of MRO
products in the fluid handling equipment, bearings and power transmission
equipment, general mill and safety supplies and electrical product categories.
The Company offers its customers a single source of integrated services and
supply on an efficient and competitive basis by being a first-tier distributor
which purchases its products directly from the manufacturer. The Company also
provides integrated services such as system design, fabrication, installation,
repair and maintenance for its customers. The Company offers a wide range of
industrial MRO products, equipment and services through a complete continuum of
customized and efficient MRO solutions, ranging from traditional distribution
to fully integrated supply contracts. The integrated solution is tailored to
satisfy the customer's unique needs.
The Company believes that the Internet will have an impact on the supply
chain and will therefore impact distribution as well. Many of the products sold
over the Internet are products that are typically sold in the industrial
distribution market. The Company is developing its technology program in and
enter the second quarter of 2000 the business to business e-commerce
marketplace for certain products with its website (DXPE.com).
The Company's products and services are marketed in 16 states to over
25,000 customers that are engaged in a variety of industries, many of which may
be counter cyclical to each other. Demand for the Company's products generally
is subject to changes in the United States economy and economic trends
affecting the Company's customers and the industries in which they compete in
particular. Certain of these industries, such as the oil and gas industry, are
subject to volatility while others, such as the petrochemical industry, are
cyclical and materially affected by changes in the economy. As a result, the
Company may experience changes in demand within particular markets and product
categories as changes occur in its customers' respective markets.
The Company's strategy in the past focused on addressing current trends in
the industrial distribution market through a combination of acquisitions and
internal growth. Due to current conditions in the industry, the Company has
curtailed its acquisition efforts. Key elements of the Company's internal
growth strategy include leveraging existing customer relationships, expanding
product offerings from existing locations, reducing costs through consolidated
purchasing programs and combined product distribution centers, designing and
implementing innovative solutions to address the procurement and supply needs
of the Company's customers and using the Company's traditional distribution and
integrated supply capabilities to increase sales in each area. Should
conditions in the MRO industry improve, the Company may seek acquisitions that
will provide the Company access to additional product lines and customers to
enhance its position as a single source industrial distributor with first-tier
distribution capabilities. Future results for the Company will be dependent on
the Company's success in implementing its internal growth strategy and, to the
extent the Company completes any acquisitions, the Company's ability to
integrate such acquisitions.
6
<PAGE> 7
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999
Revenues for the three months ended June 30, 2000 decreased 5.7% to $43.8
million from the three months ended June 30, 1999. Sales of fluid handling
equipment decreased 6.4%, or $1.2 million, over the comparable period in 1999,
due primarily to lower revenue of specialty pipe to the oil and gas industry.
Sales of bearings and power transmission equipment for the quarter ended June
30, 2000 increased by 14.2%, or $1.4 million, over the comparable period in
1999, due to an improvement in the oil and gas markets served by the Company.
During the three months ended June 30, 2000, sales of general mill and safety
supplies decreased 6.4%, or $0.7 million over the comparable period in 1999,
due primarily to a Company-initiated alignment of its operating locations that
resulted in the closure of several stores and reduced business at other
locations. Sales of electrical products for the second quarter of 2000
decreased 7.6%, or $0.3 million, from the same period in 1999 and is attributed
to a Company-initiated market shift that focused on higher margin projects
which tend to be lower in revenue volume. The remaining decline in sales was
due to the sale of the valve and valve automation business during the third
quarter of 1999.
Gross margins increased slightly to 25.9% of sales for the second quarter
of 2000 as compared to 25.2% for the second quarter of 1999; this is primarily
due to a change in the product mix sold by the Company resulting in increased
sales of higher margin products. The Company currently expects some increase in
manufacturers' prices to continue due to increased raw material costs and
market conditions. Although the Company intends to pass on these price
increases to its customers to maintain current gross margins, there can be no
assurances that the Company will be successful in this regard.
Although selling, general and administrative expense for the second
quarter of 2000 was lower in the current year by approximately $0.5 million
when compared to the same period in 1999, as a percentage of revenue, the 2000
expense was slightly higher as a percentage of sales (24.4%) when compared to
1999's expense (24.0%). Management has reduced selling, general and
administrative expenses when appropriate but certain of these expenses are
fixed in nature which would make percentage of revenue higher than previously
reported.
Operating income for the three month period ended June 30, 2000 increased
slightly as a percent of revenues by 0.3% to 1.5%, from 1.2% in the second
quarter of 1999, due primarily to the increased gross margin.
Other income for the second quarter of 2000 was approximately $0.5 million
higher than the comparable period in 1999 due primarily to the sale in the
second quarter of 2000 of a warehouse property in Houston, Texas, for
approximately $0.7 million in cash. A gain of approximately $0.3 million was
recognized as a result of the sale.
Interest expense during the second quarter of 2000 remained relatively
constant when compared to the second quarter of 1999. Although the Company's
outstanding debt has decreased approximately $7.5 million from the same period
in 1999, the increased rates paid by the Company as a result of its amending
the Credit Facility and the overall increase in lending rates, has resulted in
interest expense remaining constant from the prior year.
The Company's current provision for income taxes reflects an effective
rate of 56.8% for the current quarter; this high effective tax rate is
attributable to no tax benefit taken for state net operating loss
carryforwards.
Net income for the three month period ended June 30, 2000, increased by
approximately $0.5 million from the three month period ended June 30, 1999,
primarily as a result of the gain on the sale of a Company warehouse previously
discussed.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues for the six months ended June 30, 2000 decreased 7.7% to $87.6
million from the six months ended June 30, 1999. Sales of fluid handling
equipment decreased 7.3%, or $2.9 million, from the same period in 1999 and is
due primarily to lower revenue of specialty pipe to the oil and gas industry as
well as a softness in the demand for the fluid handling equipment sold by the
Company. Sales of bearings and power transmission equipment for the six months
ended June 30, 2000 increased 9.9%, or $2.0 million, from the comparable period
in 1999 and can be attributed to an improvement in the oil and gas markets
served by the Company. Sales of general mill and safety supplies for the six
months ended June 30, 2000 decreased 6.9%, or $1.6 million, from the comparable
period in 1999, due primarily to a Company-initiated alignment of its operating
locations that resulted in the closure of several stores and reduced business at
other locations. Sales of electrical products for the first half of 2000
decreased 13.8%, or $1.0 million, from the same period in 1999 and is
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<PAGE> 8
attributed to a Company-initiated market shift that focused on higher margin
projects which tend to be lower in revenue volume. The remaining decline in
sales was due to the sale of the valve and valve automation business during the
third quarter of 1999.
Gross margins remained relatively constant in the first half of 2000 as
compared to 1999. The Company currently expects some increase in manufacturer
prices to continue due to increased raw material costs. Although the Company
intends to pass on these price increases to its customers to maintain current
gross margins, there can be no assurances that the Company will be successful
in this regard.
Although selling, general and administrative expense for the first half of
2000 was lower in the current year by approximately $1.6 million when compared
to the same period in 1999, as a percentage of revenue, the 2000 expense was
slightly higher as a percentage of sales (24.4%) when compared to 1999's
expense (24.2%). Management has reduced selling, general and administrative
expenses when appropriate but certain of these expenses are fixed in nature
making percentage of revenue higher than previously reported.
Operating income for the six month period ended June 30, 2000 decreased
from $1.5 million to $0.9 million, due primarily to the decrease in revenue
volume.
Other income for the first half of 2000 was approximately $2.0 million
higher than the comparable period in 1999 due primarily to the sale of certain
fabrication and warehouse properties during the current year for approximately
$3.5 million. Gains on the sale of these properties were approximately $2.0
million.
Interest expense during the first half of 2000 remained constant when
compared to the first half of 1999. Although the Company's outstanding debt has
decreased by approximately $7.5 million over the past 12 months, the increased
rates paid by the Company as a result of its amending the Credit Facility and
the overall increase in lending rates, has resulted in interest expense
remaining relatively constant when compared to the prior year.
The Company's provision for income taxes for the six months ended June 30,
2000 increased by $0.4 million compared to the same period of 1999, primarily
as a result of the gain on sales of certain properties previously discussed.
Net income for the six month period ended June 30, 2000, increased
approximately $1.0 million from the six month period ended June 30, 1999,
primarily due to gain on the sale of its fabrication and warehouse properties.
LIQUIDITY AND CAPITAL RESOURCES
General
Under the Company's loan agreements with its bank lender, all available
cash is generally applied to reduce outstanding borrowings, with operations
funded through borrowings under the Credit Facility. The Company's policy is to
maintain low levels of cash and cash equivalents and to use borrowings under
its line of credit for working capital. The Company had approximately $2.7
million available for borrowings under the revolving portion of the Credit
Facility at June 30, 2000. Working capital at June 30, 2000 and December 31,
1999 was approximately $27.4 million and $30.0 million, respectively. During
both the first six months of 2000 and 1999, the Company collected its trade
receivables in approximately 48 days and turned its inventory approximately
four times on an annualized basis.
In the third quarter of 2000, the Company and its lender amended the
Credit Facility effective June 30, 2000, which now provides for borrowings up
to an aggregate of the lesser of (i) a percentage of the collateral value based
on a formula set forth therein or (ii) $38.0 million, and matures on July 1,
2001. Interest accrues at prime plus 1 1/2% on the term portion of the Credit
Facility and prime plus 1/2% on the revolving portion of the Credit Facility.
The prime rate at June 30, 2000, was 9.5%. The line of credit is secured by
receivables, inventory, and machinery and equipment. The Credit Facility
contains customary affirmative and negative covenants as well as financial
covenants that are measured monthly and require the Company to maintain a
certain cash flow and other financial ratios.
The Company from time to time has not been in compliance with certain
covenants under the Credit Facility regarding financial ratios. At June 30,
2000, the Company was not in compliance with certain of those covenants. The
lender has provided waivers to the Company regarding the compliance with these
covenants. In the opinion of management, the Company will be able to maintain
compliance with the loan covenants, although there can be no assurance that they
will maintain compliance, and in the event of
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<PAGE> 9
default, whether the lender will be willing to provide waivers in the future.
The Company generated cash through operating activities of approximately
$0.6 million in the first half of 2000 as compared to $5.8 million in cash
provided during the comparable six months of 1999; this is primarily
attributable to the decrease in using the Company's suppliers as a source of
funding.
The Company generated cash through investing activities of approximately
$2.6 million in the first six months of 2000 as compared to $1.4 million in
cash used during the comparable six months of 1999. This increase was primarily
attributed to the sales of certain of its fabrication and warehouse properties
in Houston, Texas, for approximately $3.5 million in cash. The Company also had
capital expenditures of approximately $0.7 million for the first half of 2000
as compared to $1.7 million during the same period of 1999. Capital
expenditures during the first six months of 2000 were related primarily to
computer equipment and its developing e-commerce website. Capital expenditures
in the first six months of 1999 were primarily related to the purchase of
furniture and fixtures and a phone system ($.9 million) for the Company's
corporate headquarters as well as the purchase of computer equipment ($.4
million).
The Company believes that cash generated from operations and available
under its Credit Facility will meet its future ongoing operational and
liquidity needs and capital requirements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments that could expose the Company to
significant market risk. The Company's exposure to market risk for changes in
interest rates relate primarily to its Credit Facility. At June 30, 2000, the
term portion of the Credit Facility (at an interest rate of prime plus 1 1/2%)
was at $10.6 million while the revolving portion of the Credit Facility (at an
interest rate of prime plus 1/2%) was at $21.0 million.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is a party to legal proceedings arising in
the ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the results
of operations or financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 6, 2000, at the Company's annual meeting of shareholders, the
individuals listed below were elected directors by the holders of Common Stock,
Series A Preferred Stock and Series B Preferred Stock, voting together as a
class. Set forth opposite each director's name is the tabulation of votes cast.
NOMINEE VOTES FOR VOTES AGAINST VOTES WITHHELD
-------------------- ----------- ------------- --------------
David R. Little.............. 3,800,659 --0-- 1,243
Gary A.Allcorn............... 3,800,659 --0-- 1,243
Cletus Davis................. 3,800,659 --0-- 1,243
Thomas V. Orr................ 3,800,659 --0-- 1,243
Kenneth H. Miller............ 3,800,659 --0-- 1,243
9
<PAGE> 10
ITEM 5. OTHER INFORMATION.
CAUTIONARY STATEMENTS
The Company's expectations with respect to future results of operations
that may be embodied in oral and written forward-looking statements, including
any forward-looking statements that may be contained in this Quarterly Report
on Form 10-Q, are subject to risks and uncertainties that must be considered
when evaluating the likelihood of the Company's realization of such
expectations. The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below.
Ability to Comply with Financial Covenants of Credit Facility
The Company's loan agreements with its bank lender requires the Company to
comply with certain specified covenants, restrictions, financial ratios and
other financial and operating tests. The Company's ability to comply with any
of the foregoing restrictions will depend on its future performance, which will
be subject to prevailing economic conditions and other factors, including
factors beyond the Company's control. A failure to comply with any of these
obligations could result in an event of default under the Credit Facility,
which could permit acceleration of the Company's indebtedness under the Credit
Facility. The Company from time to time has been unable to comply with some of
the financial covenants contained in the Credit Facility (relating to, among
other things, the maintenance of prescribed financial ratios) and has, when
necessary, obtained waivers or amendments to the covenants from its lender.
Although the Company expects to be able to comply with the covenants, including
the financial covenants, of the Credit Facility, there can be no assurance that
in the future the Company will be able to do so or that its lender will be
willing to waive such compliance or further amend such covenants.
Risks Related to Internal Growth Strategy
Future results for the Company will depend in part on the Company's
success in implementing its internal growth strategy, which includes expanding
existing product lines and adding new product lines. The ability of the Company
to implement this strategy will depend on its success in acquiring and
integrating new product lines and marketing integrated forms of supply
arrangements such as those being pursued by the Company through its
SmartSource(R) program. Although the Company intends to increase sales and
product offerings to existing customers, increase business to business
e-commerce capability through its developing website and reduce costs through
consolidating certain administrative and sales functions, there can be no
assurance that the Company will be successful in these efforts.
Substantial Competition
The Company's business is highly competitive. The Company competes with a
variety of industrial supply distributors, some of which may have greater
financial and other resources than the Company. Although many of the Company's
traditional distribution competitors are small enterprises selling to customers
in a limited geographic area, the Company also competes with larger
distributors that provide integrated supply programs such as those offered
through outsourcing services similar to those that are offered by the Company's
SmartSource(R) program. Some of these large distributors may be able to supply
their products in a more timely and cost-efficient manner than the Company. The
Company's competitors include direct mail suppliers, large warehouse stores
and, to a lesser extent, certain manufacturers.
Risks of Economic Trends
Demand for the Company's products is subject to changes in the United
States economy in general and economic trends affecting the Company's customers
and the industries in which they compete in particular. Many of these
industries, such as the oil and gas industry, are subject to volatility while
others, such as the petrochemical industry, are cyclical and materially
affected by changes in the economy. As a result, the Company may experience
changes in demand for its products as changes occur in the markets of its
customers.
Dependence on Key Personnel
The Company will continue to be dependent to a significant extent upon the
efforts and ability of David R. Little, its Chairman of the Board, President
and Chief Executive Officer. The loss of the services of Mr. Little or any
other executive officer of the Company could have a material adverse effect on
the Company's financial condition and results of operations. The Company does
not maintain
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key-man life insurance on the life of Mr. Little or on the lives of its other
executive officers. In addition, the Company's ability to grow successfully
will be dependent upon its ability to attract and retain qualified management
and technical and operational personnel. The failure to attract and retain such
persons could materially adversely affect the Company's financial condition and
results of operations.
Dependence on Supplier Relationships
The Company has distribution rights for certain product lines and depends
on these distribution rights for a substantial portion of its business. Many of
these distribution rights are pursuant to contracts that are subject to
cancellation upon little or no prior notice. Although the Company believes that
it could obtain alternate distribution rights in the event of such a
cancellation, the termination or limitation by any key supplier of its
relationship with the Company could result in a temporary disruption on the
Company's business and, in turn, could adversely affect results of operations
and financial condition.
Risks Associated With Hazardous Materials
Certain of the Company's operations are subject to federal, state and
local laws and regulations controlling the discharge of materials into or
otherwise relating to the protection of the environment. Although the Company
believes that it has adequate procedures to comply with applicable discharge
and other environmental laws, the risks of accidental contamination or injury
from the discharge of controlled or hazardous materials and chemicals cannot be
eliminated completely. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could have a
material adverse effect on the Company's financial condition and results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------
11.1 -- Statement re: Computation of Per Share Earnings.
27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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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.
By: /s/ GARY A. ALLCORN
-------------------
Gary A. Allcorn
Senior Vice President/Finance and
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Date: August 11, 2000
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------
11.1 -- Statement re: Computation of Per Share Earnings.
27.1 -- Financial Data Schedule.
