UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
CURRENT REPORT
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Item 4.02 | Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. |
As previously reported by DXP Enterprises, Inc. (the “Company”) in its Form 12b-25 filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2021, and its Current Report on Form 8-K filed with the SEC on August 16, 2021 (the “Original Form 8-K”), the Company was unable to file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 within the prescribed time period without unreasonable effort or expense.
During the course of the review of the Form 10-Q for the quarter ended June 30, 2021, the Company determined that it had aged un-vouchered purchase orders included in trade accounts payable. After lengthy investigation and research, the Company concluded that certain of these balances were not valid obligations to vendors and will never be invoiced or paid. For the consolidated balance sheets, the Company expects to reduce trade accounts payable by an estimated $8 million - $12 million in the aggregate over the prior periods and increase retained earnings by a corresponding amount less the impacts associated with taxes. In addition, the Company expects to reduce the cost of sales in the consolidated statement of operations and reflect the associated impacts to the provision for income taxes for the comparative periods presented. The Company is continuing to review the impact of these items on prior periods and intends to adjust prior year balances to reflect these changes. The Company is also continuing to evaluate whether any amendments to previously filed annual reports or financial statements will be necessary to reflect these changes.
In the course of the Company’s evaluation of these changes, on September 2, 2021, management of the Company concluded, and the Audit Committee of the Company’s Board of Directors concurred, that a material weakness in internal controls over financial reporting existed as of December 31, 2020, and consequently that the Company’s disclosure controls and procedures as of December 31, 2020 were not effective. As such, the management and the Audit Committee, after consultation with Moss Adams LLP, the Company’s independent registered public accounting firm, concluded that the Company’s previous evaluation of its disclosure controls and procedures as of December 31, 2020, and the report of Moss Adams LLP dated March 18, 2021, should no longer be relied upon.
To address the internal control deficiencies noted above, management has implemented certain, and are continuing to evaluate and expect to implement a number of additional, remedial measures. Since the Original Form 8-K, the Company has revised its process for clearing exceptions identified in its purchase order three-way match process. The Company modified its tolerance threshold to allow for more timely clearing of exceptions through automation within our Accounts Payable software. The Company also implemented a timetable for clearing aged items, and unvouchered exceptions can no longer be carried without approval.
The Company is working to promptly amend its Annual Report on Form 10-K for the year ended December 31, 2020 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 to restate the evaluation of disclosure controls and procedures and the changes thereto. The Company intends to file the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 as promptly as possible.
The Company’s management and the Audit Committee have discussed these matters with Moss Adams LLP, the Company’s independent registered public accounting firm.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DXP ENTERPRISES, INC. | ||||||
September 9, 2021 | By: | /s/ Kent Yee | ||||
Kent Yee | ||||||
Senior Vice President/Finance and Chief Financial Officer | ||||||
By: | /s/ Gene Padgett | |||||
Gene Padgett | ||||||
Senior Vice President/Chief Accounting Officer |