EX-99.3 5 exhibit99-3.htm EXHIBIT 99.3 exhibit99-3.htm
 
 
 

 
Exhibit 99.3

DXP Enterprises, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2008
(in thousands)
  
   
   
DXP
Enterprises, Inc.
June 30, 2008
    
Vertex
Holdings, Inc.
July 5, 2008
    
Pro Forma
Adjustments
    
Pro Forma
Combined
  
Assets
                        
Current Assets:
                        
Cash
   $ 5,960     $ 19     $ (19 )(a)   $ 5,960  
Accounts receivable, net
     96,626       8,481       -       105,107  
Inventory, net
     89,883       25,609       -       115,492  
Advance to related party
     -       500       (500 )(a)     -  
Prepaid expenses and other current assets
     2,254       166       -       2,420  
Deferred income taxes
     2,084       1,507       -       3,591  
Total current assets
     196,807       36,282       (519 )     232,570  
Property & equipment, net
     18,418       1,913       (930 )(c)     19,401  
Other assets:
                                
Goodwill
     61,710       5,363       18,143 (d)     85,216  
Other intangible assets, net
     33,671       -       21,460 (e)     55,131  
Other non current assets
     995       477       -       1,472  
Total assets
   $ 311,601     $ 44,035     $ 38,154     $ 393,790  
                                 
Liabilities & Shareholders' Equity
                                
Current liabilities:
                                
Trade accounts payable
   $ 65,221     $ 2,429       -     $ 67,650  
Accrued expenses and other current liabilities
     19,230       5,629       (1,058 )(a)     23,801  
Current portion of long term debt
     3,894       8,082       (8,082 )(b)     3,894  
Total current liabilities
     88,345       16,140       (9,140 )     95,345  
Long term debt
     105,803       9,732       57,268 (b)     172,803  
Minority interest in consolidated subsidiary
     12       -               12  
Other liabilities
     150                       150  
Deferred income taxes
     2,567       678       7,511 (l)     10,756  
                                 
Total liabilities
     196,877       26,550       55,639       279,066  
                                 
Shareholders' equity
     114,724       17,485       (17,485 )(f)     114,724  
                                 
Total liabilities & stockholders' equity
   $ 311,601     $ 44,035     $ 38,154     $ 393,790  
                                 
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
  

 
 
 


DXP Enterprises, Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Six Months Ended June 30, 2008
(in thousands, except per share amounts)
 
  
   
Six Months Ended
              
   
DXP
Enterprises, Inc.
June 30, 2008
    
Vertex
Holdings, Inc.
July 5, 2008
    
Pro Forma
Adjustments
    
Pro Forma
Combined
  
Sales
   $ 356,301     $ 37,374           $ 393,675  
Cost of sales
     258,479       24,838             283,317  
Gross profit
     97,822       12,536             110,358  
Selling and general expense
                     134 (g)        
Administrative expense
     75,769       6,947       1,650 (h)     84,500  
Operating income
     22,053       5,589       (1,784 )     25,858  
Other income (expense)
     40       (324 )     276 (k)     (8 )
Interest expense
     (2,559 )     (945 )     (1,430 )(i)     (4,934 )
Income before taxes
     19,534       4,320       (2,938 )     20,916  
Provision for income taxes
     7,722       1,746       (1,131 )(j)     8,337  
Net income
     11,812       2,573       (1,807 )     12,579  
Preferred stock dividend
     (45 )     -               (45 )
Net income attributable to common shareholders
   $ 11,767     $ 2,573       (1,807 )     12,534  
                                 
Basic income per share
   $ 0.93                     $ 0.99  
Weighted average common shares outstanding
     12,648                       12,648  
Diluted income per share
   $ 0.86                     $ 0.92  
Weighted average common and common equivalent shares outstanding
       13,680                         13,680  
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
  


 
 
 


DXP Enterprises, Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For Year Ended December 31, 2007
(in thousands, except per share amounts)
  
                   
   
Fiscal Year Ended
              
   
DXP
Enterprises
December 31, 2007
    
Vertex
Holdings, Inc.
December 30, 2007
    
Pro Forma
Adjustments
    
Pro Forma
Combined
  
Sales
   $ 444,547     $ 68,688           $ 513,235  
Cost of sales
     318,855       44,628             363,483  
Gross profit
     125,692       24,060             149,752  
Selling and general expense
                     67 (g)        
Administrative expense
     93,800       10,057       3,300 (h)     107,224  
Operating income
     31,892       14,003       (3,367 )     42,528  
Other income (expense)
     349       (519 )     519 (k)     349  
Interest expense
     (3,344 )     (2,219 )     (4,066 )(i)     (9,629 )
Income before taxes
     28,897       11,265       (6,914 )     33,248  
Provision for income taxes
     11,550       4,372       (2,662 )(j)     13,260  
Net income
     17,347       6,893       (4,252 )     19,988  
Preferred stock dividend
     (90 )     -               (90 )
Net income attributable to common shareholders
   $ 17,257       6,893       (4,252 )   $ 19,898  
                                 
Basic income per share
   $ 1.48                     $ 1.70  
Weighted average common shares outstanding
     11,698                       11,698  
Diluted income per share
   $ 1.36                     $ 1.56  
Weighted average common and common equivalent shares outstanding
       12,782                         12,782  
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
  


 
 
 

 
DXP Enterprises, Inc.
 
Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 
Note 1.  Basis of Presentation

 
On August 28, 2008 DXP Enterprises, Inc. (“DXP” or the “Company”) acquired all of the outstanding common stock of Vertex Holdings, Inc.  (“Vertex”) for approximately $67 million (including estimated acquisition costs) subject to certain post-closing purchase price adjustments.  DXP funded the purchase price with proceeds from a new credit facility, which was closed simultaneously with the acquisition.

 
The unaudited pro forma condensed combined balance sheet has been prepared assuming the acquisition occurred as of June 30, 2008.  The unaudited pro forma condensed consolidated statements of income have been prepared assuming the acquisition occurred as of the beginning of the periods presented.

 
For the pro forma condensed combined balance sheet, the $67 million purchase price, including an estimate of costs incurred by the Company directly as a result of the acquisition, has been allocated based on management’s preliminary estimate of the fair values of assets acquired and liabilities assumed as of August 28, 2008.  The purchase price allocation is considered preliminary, particularly as it relates to the final valuation of certain identifiable intangible assets and there could be significant adjustments when the valuation is finalized.  The preliminary estimate of the purchase price allocation is as follows (in millions).

Total current assets
$  35.7
Intangible assets
21.5
Goodwill
23.5
Property, plant and equipment, net
1.0
Other assets
0.5
Total liabilities
(15.2)
Total purchase price, including transaction costs
$  67.0

 
The acquired intangible assets are estimated to consist primarily of customer relationships ($20.0 million) and non-compete agreements ($1.4 million).  These intangible assets are estimated to be amortized over 7 years and 3 years, respectively, using the straight-line method.

 
The accompanying unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of DXP and Vertex, including DXP’s annual report on Form 10-K for the year ended December 31, 2007 and DXP‘s quarterly reports on Form 10-Q for the periods ended June 30, 2008 and   September 30, 2008.

 
Note 2.  Pro Forma Adjustments

 
Note:  All pro forma adjustments are preliminary.

(a)  
These adjustments are made to eliminate assets and liabilities of Vertex which were not acquired.  These items include cash and amounts due to and from related parties.

(b)  
DXP used borrowings under its new credit facility to fund the $67 million purchase price, including estimated transaction costs.  All existing Vertex long-term debt was paid off by Vertex simultaneous with the acquisition.

(c)  
This adjustment is made to reflect the estimated value of software which will not be needed upon conversion of Vertex to DXP’s computer system.

(d)  
This adjustment is made to reflect incremental goodwill arising from the acquisition of Vertex based upon the preliminary purchase allocation, including estimated transaction costs.

(e)  
This adjustment is made to reflect the estimated fair value of intangibles at the acquisition date.

 
 
 
(f)  
This adjustment is made to eliminate Vertex’s historical shareholders’ equity.

(g)  
This adjustment is made to reflect compensation expense related to $0.5 million of restricted stock awarded to employees of Vertex in connection with the acquisition which is being expensed using the straightline method over four years.

(h)  
This adjustment records the amortization of estimated intangible assets over 8 years for customer relationships and 3 years for non-compete agreements.

(i)  
This adjustment is made to eliminate Vertex’s historical interest expense and record additional interest expense associated with the $67 million (including estimated acquisition costs) used to acquire Vertex as if the acquisition had been completed as of the beginning of the period presented.  The assumed interest rate is libor plus 1.75% on $17 million of debt and 2.5% on $50 million of debt, plus $0.1 million a month of increased interest on DXP’s preacquisition debt resulting from the new credit facility and amortization of financing costs.

(j)  
This adjustment is made to record estimated income tax expense for the effect of the pro forma acquisition of Vertex using the estimated incremental tax rate.

(k)  
This adjustment is made to eliminate management fees charged to Vertex by selling shareholders.

(l)  
This adjustment is made to record the deferred tax liability established in connection with recording the estimated fair value of intangibles at the acquisition date.