BUSINESS ACQUISITIONS

9 Months Ended

Sep. 30, 2015

BUSINESS ACQUISITIONS [Abstract]

BUSINESS ACQUISITIONS

NOTE 12 - BUSINESS ACQUISITIONS

All of the Company’s acquisitions have been accounted for using the purchase method of accounting. Revenues and expenses of the acquired businesses have been included in the accompanying consolidated financial statements beginning on their respective dates of acquisition. The allocation of purchase price to the acquired assets and liabilities is based on estimates of fair market value and may be prospectively revised if and when additional information the Company is awaiting concerning certain asset and liability valuations is obtained, provided that such information is received no later than one year after the date of acquisition. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. It specifically includes the expected synergies and other benefits that we believe will result from combining the operations of our acquisitions with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce.

On January 2, 2014, the Company completed the acquisition of all of the equity securities and units of B27, LLC (“B27”) by way of a Securities Purchase Agreement to expand DXP’s pump packaging offering. The total transaction value was approximately $293.6 million, excluding approximately $1.0 million in transaction costs recognized within SG&A in the 2013 statement of income.  The purchase price was financed with borrowings under the Facility and approximately $4.0 million (36,000 shares) of DXP common stock. Goodwill of $178.3 million and intangible assets of $81.1 million were recognized for this acquisition. Approximately $154.6 million of the estimated goodwill or intangible assets are expected not to be tax deductible. The goodwill associated with this acquisition is included in the IPS and Service Centers segments. During the fourth quarter of 2014, DXP performed its annual impairment test and recognized impairment expense of $105.3 million on the goodwill associated with the acquisition of B27. During the third quarter of 2015, DXP performed an interim impairment test and recognized preliminary impairment expense of $57.8 million associated with the acquisition of B27. During the third quarter of 2015, the accounting expert issued his report on the working capital dispute between DXP and the sellers of B27. The report required DXP to pay the sellers of B27 an additional $11.3 million. Because the time period to allow adjustments of purchase accounting had expired, $7.3 million of the payment was expensed. The remaining $4.0 million of the required payment represents tax refunds, which are expected to be received during 2016.

On May 1, 2014, the Company completed the acquisition of all of the equity interests of Machinery Tooling and Supply, LLC (“MT&S”) to expand DXP’s cutting tools offering in the North Central region of the United States. DXP paid approximately $14.7 million for MT&S, which was borrowed under the Facility. Goodwill of $4.3 million and intangible assets of $4.1 million were recognized for this acquisition. All of the goodwill is included in the Service Centers segment.

On April 1, 2015, the Company completed the acquisition of all of the equity interests of Tool Supply, Inc. (“TSI”) to expand DXP’s cutting tools offering in the Northwest region of the United States. DXP paid approximately $5.0 million for TSI, which was borrowed under the Facility. DXP has not completed valuations of intangibles for TSI, the valuation of working capital items or completed the analysis of the tax effects, and therefore has made preliminary estimates for the purposes of this disclosure. Estimated goodwill of $2.9 million and intangible assets of $2.0 were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment.

On September 1, 2015, the Company completed the acquisition of all of the equity interests of Cortech Engineering, LLC (“Cortech”) to expand DXP’s rotating equipment offering to the Western seaboard. DXP paid approximately $14.9 million for Cortech. The purchase was financed with borrowings under the Facility as well as by issuing $4.4 million (148.8 thousand shares) of DXP common stock. DXP has not completed valuations of intangibles for Cortech, the valuation of working capital items or completed the analysis of the tax effects, and therefore has made preliminary estimates for the purposes of this disclosure. Estimated goodwill of $8.5 million and intangible assets of $5.2 were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment.

The value assigned to the non-compete agreements and customer relationships for business acquisitions were determined by discounting the estimated cash flows associated with non-compete agreements and customer relationships as of the date the acquisition was consummated. The estimated cash flows were based on estimated revenues net of operating expenses and net of capital charges for assets that contribute to the projected cash flow from these assets. The projected revenues and operating expenses were estimated based on management estimates at the date of purchase. Net capital charges for assets that contribute to projected cash flow were based on the estimated fair value of those assets. For B27, a discount rate of 13.5% was deemed appropriate for valuing these assets and was based on the risks associated with the respective cash flows taking into consideration the acquired company’s weighted average cost of capital.

For the three months ended September 30, 2015, businesses acquired during 2014 and 2015 contributed sales of $44.3 million and a loss before taxes and impairment of approximately $10.1 million.

For the nine months ended September 30, 2015, businesses acquired during 2014 and 2015 contributed sales of $132.8 million and a loss before taxes and impairment of approximately $13.7 million.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed during 2014 and 2015 in connection with the acquisitions described above (in thousands):

	2015				2014
	TSI2		Cortech2			B27	MT&S
Cash	$	-	$	-	$	2,538	$	806
Accounts receivable, net		442		2,293		51,448		5,656
Inventory		475		1,243		6,472		2,522
Property & equipment		42		253		14,573		557
Goodwill and intangibles1		4,929		13,699		259,412		8,405
Other assets		100		21		1,791		59
Assets acquired		5,988		17,509		336,234		18,005
Current liabilities assumed		335		2,610		26,690		3,336
Non-current liabilities assumed		653		-		15,992		-
Net assets acquired	$	5,000	$	14,899	$	293,552	$	14,669

(1) The amounts in the table above have not been reduced by the $105.3 million, or the $57.8 million, of goodwill impairment charges for B27 recorded in the fourth quarter of 2014 and the third quarter of 2015, respectively.

(2) Preliminary allocation.

The pro forma unaudited results of operations for the Company on a consolidated basis for the three and nine months ended September 30, 2015 and 2014, assuming the acquisition of businesses completed in 2014 and 2015 were consummated as of January 1, 2014 are as follows (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
Net sales	$	306,923		$	394,590	$	984,247		$	1,150,171
Net income (loss) attributable to DXP Enterprises, Inc.	$	(52,235	)	$	17,968	$	(34,551	)	$	45,848
Per share data attributable to DXP Enterprises, Inc.
Basic earnings (loss)	$	(3.62	)	$	1.22	$	(2.41	)	$	3.12
Diluted earnings (loss)	$	(3.62	)	$	1.16	$	(2.41	)	$	2.95