-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wgk/zUaED3a4nB2msQrWQozVcNgf4Bh4i9Gl7262S9X/q1C6sFEZfAQE9v23VrD2 CscBMTwauXTkGB4HlDlRUQ== /in/edgar/work/20000814/0000950129-00-004184/0000950129-00-004184.txt : 20000921 0000950129-00-004184.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950129-00-004184 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DXP ENTERPRISES INC CENTRAL INDEX KEY: 0001020710 STANDARD INDUSTRIAL CLASSIFICATION: [5084 ] IRS NUMBER: 760509661 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21513 FILM NUMBER: 699391 BUSINESS ADDRESS: STREET 1: 580 WESTLAKE PARK BLVD STREET 2: SUITE 1100 CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 713-531-42 MAIL ADDRESS: STREET 1: 580 WESTLAKE PARK BLVD STREET 2: SUITE 1100 CITY: HOUSTON STATE: TX ZIP: 77079 FORMER COMPANY: FORMER CONFORMED NAME: INDEX INC DATE OF NAME CHANGE: 19960808 10-Q 1 e10-q.txt DXP ENTERPRISES, INC. - DATED JUNE 30, 2000 1 =============================================================================== 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 =============================================================================== 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 --------- --------- (UNAUDITED) 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 ========= =========
See notes to condensed consolidated financial statements. 2 3 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ----------- 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 ========= ========= ========= =========
See notes to condensed consolidated financial statements. 3 4 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------ 2000 1999 ---------- ----------- 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 ========== ==========
See notes to condensed consolidated financial statements. 4 5 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:
JUNE 30, DECEMBER 31, 2000 1999 --------- --------- (IN THOUSANDS) 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 ========= =========
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 5 6 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 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 7 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 8 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 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 10 11 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. 11 12 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 12 13 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------ 11.1 -- Statement re: Computation of Per Share Earnings. 27.1 -- Financial Data Schedule. EX-11.1 2 ex11-1.txt STATEMENT RE: COMPUTAION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Basic: Average shares outstanding.................. 4,076,618 4,068,454 4,076,618 4,095,192 Net Income.................................. $ 115,000 $ (422,000) $ 830,000 $ (186,000) Per share amount............................ $ .0282 $ (.1037) $ .2036 $ (.0454) Diluted: Average shares outstanding.................. 4,076,618 4,068,454 4,076,618 4,095,192 Net effect of dilutive stock options-- based on the treasury stock method using period-end market price, if higher than average market price......... 1,219 -- 187,797 -- Assumed conversion of Class B convertible Preferred Stock............................. 420,000 -- 420,000 -- Total............................... 4,497,837 4,068,454 4,684,415 4,095,192 Net Income.................................... $ 138,000 $ (422,000) $ 875,000 $ (186,000) Per share amount* $ .0307 $ (.1037) $ .1868 $ (.0454)
- ---------- * Due to a loss for the quarter ended June 30, 1999 and for the six months ended June 30, 1999, the conversion of common stock equivalents would be anti-dilutive. EX-27.1 3 ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED FINANCIAL STATEMENTS OF DXP ENTERPRISES, INC. AS OF JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,391 0 24,343 1,765 24,764 50,411 20,743 9,244 72,858 23,046 0 112 0 41 0 72,858 87,556 87,556 65,281 65,281 18,805 0 1,847 1,623 748 875 0 0 0 875 .20 .19
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