NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
DXP Enterprises, Inc. together with its subsidiaries (collectively “DXP,” “Company,” “us,” “we,” or “our”) was incorporated in Texas on July 26, 1996, to be the successor to SEPCO Industries, Inc. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating (MRO) products, equipment and service to industrial customers. The Company is organized into three segments: Service Centers, Supply Chain Services (SCS) and Innovative Pumping Solutions (IPS). See Note 16 for discussion of the business segments.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with the current year presentation.
Foreign Currency
The financial statements of the Company’s Canadian subsidiaries are measured using local currencies as their functional currencies. Assets and liabilities are translated into U.S. dollars at current exchange rates, while income and expenses are translated at average exchange rates. Translation gains and losses are reported in other comprehensive income (loss) in the statements of consolidated comprehensive income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company’s presentation of cash includes cash equivalents. Cash equivalents are defined as short-term investments with maturity dates of 90 days or less at time of purchase.
Receivables and Credit Risk
Trade receivables consist primarily of uncollateralized customer obligations due under normal trade terms, which usually require payment within 30 days of the invoice date. However, these payment terms are extended in select cases and many customers do not pay within stated trade terms.
The Company has trade receivables from a diversified customer base located primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and Southwestern regions of the United States, and Canada. The Company believes no significant concentration of credit risk exists. The Company evaluates the creditworthiness of its customers' financial positions and monitors accounts on a regular basis, but generally does not require collateral. Provisions to the allowance for doubtful accounts are made monthly and adjustments are made periodically (as circumstances warrant) based upon management’s best estimate of the collectability of all such accounts. The Company writes-off uncollectible trade accounts
receivable when the accounts are determined to be uncollectible. No customer represents more than 10% of consolidated sales.
Fair Value of Financial Instruments
The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Generally accepted accounting principles in the U.S. (“USGAAP”) establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. USGAAP prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
See Note 4 for further information regarding the Company’s financial instruments.
Inventories
Inventories consist principally of finished goods and are priced at lower of cost or market, cost being determined using the first-in, first-out (“FIFO”) method. Reserves are provided against inventories for estimated obsolescence based upon the aging of the inventories and market trends.
Property and Equipment
Property and equipment are carried on the basis of cost. Expenditures for major additions and betterments are capitalized. Depreciation of property and equipment is computed using the straight-line method. Maintenance and repairs of depreciable assets are charged against earnings as incurred. Additions and improvements are capitalized. When properties are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and gains or losses are credited or charged to earnings.
The principal estimated useful lives used in determining depreciation are as follows:
Buildings
|
20-39 years
|
Building improvements
|
10-20 years
|
Furniture, fixtures and equipment
|
3-20 years
|
Leasehold improvements
|
Shorter of estimated useful life or related lease term
|
Impairment of Goodwill and Other Intangible Assets
The Company tests goodwill and other indefinite lived intangible assets for impairment on an annual basis and when events or changes in circumstances indicate that the carrying amount may not be recoverable.. The Company assigns the carrying value of these intangible assets to its "reporting units" and applies the test for goodwill at the reporting unit level. A reporting unit is defined as an operating segment or one level below a segment (a "component") if the component is a business and discrete information is prepared and reviewed regularly by segment management.
The Company’s goodwill impairment assessment first requires evaluating qualitative factors to determine if a reporting unit's carrying value would more likely than not exceed its fair value. If the Company concludes, based on the qualitative assessment, that a reporting unit's carrying value would more likely than not exceed its fair value, the Company would perform a two-step quantitative test for that reporting unit. When a quantitative assessment is performed, the first step is to identify a potential impairment, and the second step measures the amount of the impairment loss, if any. Goodwill is deemed to be impaired if the carrying amount of a
reporting unit’s goodwill exceeds its estimated fair value.
No impairment of goodwill was required in 2012, 2011 or 2010.
Impairment of Long-Lived Assets, Excluding Goodwill
The Company tests long-lived assets or asset groups for recoverability on an annual basis and when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Stock-based Compensation
The Company uses restricted stock for share-based compensation programs. The Company measures compensation cost with respect to equity instruments granted as stock-based payments to employees based upon the estimated fair value of the equity instruments at the date of the grant. The cost as measured is recognized as expense over the period which an employee is required to provide services in exchange for the award.
Revenue Recognition
For binding agreements to fabricate tangible assets to customer specifications, the Company recognizes revenues using the percentage of completion method. Under this method, revenues are recognized as costs are incurred and include estimated profits calculated on the basis of the relationship between costs incurred and total estimated costs at completion. If at any time expected costs exceed the value of the contract, the loss is recognized immediately. Revenues of approximately $15.9 million were recognized on contracts in process for the year ended December 31, 2012. The typical time span of these contracts is approximately one to two years. At December 31, 2012 and 2011, $8.5 million and $7.4 million,
respectively, of unbilled costs and estimated earnings are included in accounts receivable.
For other sales, the Company recognizes revenues when an agreement is in place, the price is fixed, title for product passes to the customer or services have been provided and collectability is reasonably assured. Revenues are recorded net of sales taxes.
The Company reserves for potential customer returns based upon the historical level of returns.
Shipping and Handling Costs
The Company classifies shipping and handling charges billed to customers as sales. Shipping and handling charges paid to others are classified as a component of cost of sales.
Self-insured Insurance and Medical Claims
We generally retain up to $100,000 of risk for each claim for workers compensation, general liability, automobile and property loss. We accrue for the estimated loss on the self-insured portion of these claims. The accrual is adjusted quarterly based upon reported claims information. The actual cost could deviate from the recorded estimate.
We generally retain up to $200,000 of risk on each medical claim for our employees and their dependents. We accrue for the estimated outstanding balance of unpaid medical claims for our employees and their dependents. The accrual is adjusted monthly based on recent claims experience. The actual claims could deviate from recent claims experience and be materially different from the reserve.
The accrual for these claims at December 31, 2012 and 2011 was approximately $1.8 million and $1.6 million, respectively.
Purchase Accounting
DXP estimates the fair value of assets, including property, machinery and equipment and their related useful lives and salvage values, intangibles and liabilities when allocating the purchase price of an acquisition. The fair value estimates are developed using the best information available. Third party valuation specialists assist in valuing the Company’s significant acquisitions.
Cost of Sales and Selling, General and Administrative Expense
Cost of sales includes product and product related costs, inbound freight charges, internal transfer costs and depreciation. Selling, general and administrative expense includes purchasing and receiving costs, inspection costs, warehousing costs, depreciation and amortization. DXP’s gross margins may not be comparable to those of other entities, since some entities include all of the costs related to their distribution network in cost of sales and others like DXP exclude a portion of these costs from gross margin, including the costs in a line item, such as selling, general and administrative expense.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. Valuation allowances are established to reduce deferred income tax assets to the amounts expected to be realized.
Comprehensive Income
Comprehensive income includes net income, foreign currency translation adjustments, unrecognized gains (losses) on postretirement and other employment-related plans, changes in fair value of certain derivatives, and unrealized gains and losses on certain investments in debt and equity securities. The Company’s other comprehensive (loss) income is comprised of changes in the market value of an investment with quoted market prices in an active market for identical instruments and translation adjustments from translating foreign subsidiaries to the reporting currency.
Accounting for Uncertainty in Income Taxes
In July 2006, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U. S. federal,
state and local tax examination by tax authorities for years prior to 2007. The Company's policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued an amendment to the fair value measurement guidance and disclosure requirements. The new requirements were effective for the first interim or annual period beginning after December 15, 2011 and were to be applied prospectively. DXP adopted the new requirements in the first quarter of 2012; however, the adoption of this guidance did not have a material effect on its consolidated financial position, results of operations or cash flows.
In June 2011, the FASB issued an amendment to the requirements for presenting comprehensive income. The new requirements were effective for the first interim or annual period beginning after December 15, 2011 and were to be applied retrospectively. The standard requires other comprehensive income to be presented in a continuous statement of comprehensive income that would combine the components of net income and other comprehensive income, or in a separate, but consecutive, statement following the statement of income. DXP elected to early adopt these new requirements effective December 31, 2011.
In September 2010, the FASB issued an accounting standards update with new guidance on annual goodwill impairment testing. The standards update allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than it's carrying amount. If based on its qualitative assessment an entity concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. The standards update is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011, with early adoption permitted. DXP elected to early adopt these new requirements effective December 31, 2011.
NOTE 4 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:
Level 1 Inputs
Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs
Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Inputs
Level 3 inputs are unobservable inputs for the asset or liability which require the Company’s own assumptions.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following table presents the changes in Level 1 assets for the period indicated (
in thousands
):
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
|
|
|
Fair value at beginning of period
|
$ 1,679
|
|
$ -
|
Investment during period
|
105
|
|
1,572
|
Realized and unrealized gains (losses)
included in other comprehensive income
|
629
|
|
107
|
Fair value at end of period
|
$ 2,413
|
|
$ 1,679
|
During the fourth quarter of 2011, the Company paid $1.6 million for an investment with quoted market prices in an active market. At December 31, 2011, the market value of this investment was $1.7 million. During 2012, the Company paid $0.1 million for additional shares of this investment. At December 31, 2012, the market value of the investment was $2.4 million. The $0.6 million increase in the market value during the year ended December 31, 2012 was included in other comprehensive income.
NOTE 5 - INVENTORY
The carrying values of inventories are as follows (
in thousands
):
|
December 31,
2012
|
|
December 31,
2011
|
Finished goods
|
$ 97,679
|
|
$ 93,258
|
Work in process
|
7,470
|
|
5,246
|
Inventory reserve
|
(3,727)
|
|
(4,603)
|
Inventories
|
$ 101,422
|
|
$ 93,901
|
NOTE 6 - PROPERTY AND EQUIPMENT
The carrying values of property and equipment are as follows (
in thousands
):
|
December 31,
2012
|
|
December 31,
2011
|
|
|
|
|
|
|
Land
|
$ 1,861
|
|
$ 1,652
|
Buildings and leasehold improvements
|
7,378
|
|
7,956
|
Furniture, fixtures and equipment
|
72,219
|
|
28,756
|
Less – Accumulated depreciation
|
(22,745)
|
|
(21,453)
|
Total Property and Equipment
|
$ 58,713
|
|
$ 16,911
|
Capital expenditures by segment are included in Note 16.
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the changes in the carrying amount of goodwill and other intangible assets during the year ended December 31, 2012 (
in thousands
):
|
Goodwill
|
|
Other
Intangible Assets
|
|
Total
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
$ 101,764
|
|
$ 43,194
|
|
$ 144,958
|
Acquired during the year
|
44,074
|
|
30,831
|
|
74,905
|
Adjustments to prior year estimates
|
(50)
|
|
50
|
|
-
|
Amortization
|
-
|
|
(10,886)
|
|
(10,886)
|
Balance as of December 31, 2012
|
$ 145,788
|
|
$ 63,189
|
|
$ 208,977
|
The following table presents the changes in the carrying amount of goodwill and other intangible assets during the year ended December 31, 2011 (
in thousands
):
|
Goodwill
|
|
Other
Intangible Assets
|
|
Total
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
$ 84,942
|
|
$ 32,236
|
|
$ 117,178
|
Acquired during the year
|
15,822
|
|
17,530
|
|
33,352
|
Payment of earnout
|
1,000
|
|
-
|
|
1,000
|
Amortization
|
-
|
|
(6,572)
|
|
(6,572)
|
Balance as of December 31, 2011
|
$ 101,764
|
|
$ 43,194
|
|
$ 144,958
|
The following table presents goodwill balance by reportable segment as of December 31, 2012 and 2011
(in thousands)
:
|
As of December 31,
|
2012
|
|
2011
|
Service Centers
|
$ 121,901
|
|
$ 77,877
|
Innovative Pumping Solutions
|
15,980
|
|
15,980
|
Supply Chain Services
|
7,907
|
|
7,907
|
Total
|
$ 145,788
|
|
$ 101,764
|
The following table presents a summary of amortizable other intangible assets (
in thousands
):
|
As of December 31, 2012
|
|
As of December 31, 2011
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Carrying
Amount, net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Carrying Amount, net
|
Vendor agreements
|
$ 2,496
|
|
$ (1,081)
|
|
$ 1,415
|
|
$ 2,496
|
|
$ (956)
|
|
$ 1,540
|
Customer relationships
|
90,851
|
|
(30,010)
|
|
60,841
|
|
64,262
|
|
(23,508)
|
|
40,754
|
Non-compete agreements
|
1,541
|
|
(608)
|
|
933
|
|
2,611
|
|
(1,711)
|
|
900
|
Total
|
$ 94,888
|
|
$ (31,699)
|
|
$ 63,189
|
|
$ 69,369
|
|
$ (26,175)
|
|
$ 43,194
|
Other intangible assets are generally amortized on a straight-line basis over their estimated useful lives. The estimated future annual amortization of intangible assets for each of the next five years and thereafter are as follows
(in thousands)
:
2013
|
11,747
|
2014
|
11,473
|
2015
|
10,039
|
2016
|
7,735
|
2017
|
7,686
|
Thereafter
|
14,509
|
NOTE 8 – LONG-TERM DEBT
Long-term debt consisted of the following (
in thousands
):
|
December 31,
|
|
2012
|
|
2011
|
|
|
|
|
Line of credit
|
$ 104,526
|
|
$ 110,828
|
Term loan
|
130,000
|
|
-
|
Unsecured subordinated notes payable in quarterly installments at 5%
through November 2015
|
3,870
|
|
2,320
|
Mortgage loan payable to financial institution, 6.25% collateralized
by real estate, payable in monthly installments through December 2012
|
-
|
|
1,751
|
|
238,396
|
|
114,899
|
Less: Current portion
|
(22,057)
|
|
(694)
|
Total Long-term Debt
|
$ 216,339
|
|
$114,205
|
On July 11, 2012 DXP entered into a new credit facility with Wells Fargo Bank National Association, as Issuing Lender, Swingline Lender and Administrative Agent for the lenders. On December 31, 2012 the Company amended the agreement which increased the Credit Facility by $75 million (the “Facility”). The Facility consists of a $130 million term loan and a revolving credit facility that provides a $262.5 million line of credit to the Company as of December 31, 2012.
The line of credit portion of the Facility provides the option of interest at LIBOR plus an applicable margin ranging from 1.25% to 2.25% or prime plus an applicable margin from 0.25% to 1.25% where the applicable margin is determined by the Company’s leverage ratio as defined by the Facility at the date of borrowing. Rates for the $130 million term loan component are 25 basis points higher than the line of credit borrowings. Commitment fees of 0.20% to 0.40% per annum are payable on the portion of the Facility capacity not in use at any given time on the line of credit. Commitment fees are included as interest in the consolidated statements of income.
Primarily because the leverage ratio was higher after the acquisition of HSE that occurred on July 11, 2012, interest rates in effect on July 11, 2012 were approximately 70 points higher than they were prior to the acquisition. Approximately $0.7 million of debt issuance costs associated with the prior credit facility were expensed in the third quarter of 2012.
On December 31, 2012, the LIBOR based rate on the line of credit portion of the Facility was LIBOR plus 1.75%, the prime based rate of the Facility was prime plus 0.75%, the LIBOR based rate on the term loan portion of the Facility was LIBOR plus 2.00% and the commitment fee was 0.30%. At December 31, 2012, $226.5 million was borrowed under the Facility at a weighted average interest rate of approximately 2.11% under the LIBOR options and $8.0 million was borrowed at 3.75% under the prime option. At December 31, 2012, the Company had $109.5 million available for borrowing under the Facility.
The Facility expires on July 11, 2017. The Facility contains financial covenants defining various financial measures and levels of these measures with which the Company must comply. Covenant compliance is assessed as of each quarter end. Substantially all of the Company’s assets are pledged as collateral to secure the credit facility.
The Facility’s principal financial covenants include:
Consolidated Leverage Ratio – The Facility requires that the Company’s Consolidated Leverage Ratio, determined at the end of each fiscal quarter, not exceed 3.5 to 1.0 as of the last day of each quarter from the closing date through March 31, 2015 and not to exceed 3.25 to 1.00 from June 30, 2015 and thereafter. The Consolidated Leverage Ratio is defined as the outstanding indebtedness divided by Consolidated EBITDA for the period of four consecutive fiscal quarters ending on or immediately prior to such date. Indebtedness is defined under the Facility for financial covenant purposes as: (a) all obligations of DXP for borrowed money including but not limited to obligations evidenced by bonds,
debentures, notes or other similar instruments; (b) obligations to pay deferred purchase price of property or services; (c) capital lease obligations; (d) obligations under conditional sale or other title retention agreements relating to property purchased; (e) issued and outstanding letters of credit; and (f) contingent obligations for funded indebtedness. At December 31, 2012, the Company’s Leverage Ratio was 1.87 to 1.00.
Consolidated Fixed Charge Coverage Ratio –The Facility requires that the Consolidated Fixed Charge Coverage Ratio on the last day of each quarter be not less than 1.25 to 1.0 with “Consolidated Fixed Charge Coverage Ratio” defined as the ratio of (a) Consolidated EBITDA for the period of 4 consecutive fiscal quarters ending on such date minus capital expenditures during such period (excluding acquisitions) minus income tax expense paid minus the aggregate amount of restricted payments defined in the agreement to (b) the interest expense paid in cash, scheduled principal payments in respect of long-term debt and the current portion of capital lease obligations for such 12-month period, determined
in each case on a consolidated basis for DXP and its subsidiaries. At December 31, 2012, the Company's Consolidated Fixed Charge Coverage Ratio was 3.10 to 1.00.
Asset Coverage Ratio –The credit facility requires that the Asset Coverage Ratio at any time be not less than 1.0 to 1.0 with “Asset Coverage Ratio” defined as the ratio of (a) the sum of 85% of net accounts receivable plus 65% of net inventory to (b) the aggregate outstanding amount of the revolving credit outstandings on such date. At December 31, 2012, the Company's Asset Coverage Ratio was 2.04 to 1.00.
Consolidated EBITDA as defined under the Facility for financial covenant purposes means, without duplication, for any period the consolidated net income of DXP plus, to the extent deducted in calculating consolidated net income, depreciation, amortization (except to the extent that such non-cash charges are reserved for cash charges to be taken in the future), non-cash compensation including stock option or restricted stock expense, interest expense and income tax expense for taxes based on income, certain one-time costs associated with our acquisitions, integration costs, facility consolidation and closing costs, severance costs and expenses and one-time compensation costs in connection with the acquisition of
HSE and any permitted acquisition, write-down of cash expenses incurred in connection with the existing credit agreement and extraordinary losses less interest income and extraordinary gains. Consolidated EBITDA shall be adjusted to give pro forma effect to disposals or business acquisitions assuming that such transaction(s) had occurred on the first day of the period excluding all income statement items attributable to the assets or equity interests that is subject to such disposition made during the period and including all income statement items attributable to property or equity interests of such acquisitions permitted under the Facility.
The following table sets forth the computation of the Leverage Ratio as of December 31, 2012 (
in thousands, except for ratios
):
For the Twelve Months ended
December 31, 2012
|
Leverage
Ratio
|
|
|
Income before taxes
|
$ 85,009
|
Interest expense
|
5,560
|
Depreciation and amortization
|
18,082
|
Stock compensation expense
|
1,955
|
Pro forma acquisition EBITDA
|
16,542
|
Other adjustments
|
913
|
(A)
Defined EBITDA
|
$ 128,061
|
|
|
As of December 31, 2012
|
|
Total long-term debt
|
$ 238,396
|
Letters of credit outstanding
|
476
|
(B)
Defined indebtedness
|
$ 238,872
|
|
|
Leverage Ratio (B)/(A)
|
1.87
|
The maturities of long-term debt under the Company’s term loan for the next five years and thereafter are as follows (
in thousands
):
2013
|
22,057
|
2014
|
25,495
|
2015
|
31,943
|
2016
|
34,376
|
2017
|
124,525
|
Thereafter
|
-
|
NOTE 9 - INCOME TAXES
The components of income before income taxes are as follows
(in thousands)
:
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
Domestic
|
$ 84,349
|
|
$ 51,995
|
|
$ 32,132
|
Foreign
|
660
|
|
-
|
|
-
|
Total income before taxes
|
$ 85,009
|
|
$ 51,995
|
|
$ 32,132
|
The provision for income taxes consists of the following (
in thousands
):
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Current -
|
|
|
|
|
|
Federal
|
$ 27,393
|
|
$ 15,401
|
|
$ 7,952
|
State
|
4,438
|
|
2,731
|
|
1,446
|
Foreign
|
963
|
|
-
|
|
-
|
|
32,794
|
|
18,132
|
|
9,398
|
Deferred -
|
|
|
|
|
|
Federal
|
1,835
|
|
2,081
|
|
2,914
|
State
|
146
|
|
345
|
|
439
|
Foreign
|
(751)
|
|
-
|
|
-
|
|
1,230
|
|
2,426
|
|
3,353
|
|
$ 34,024
|
|
$ 20,558
|
|
$12,751
|
The difference between income taxes computed at the federal statutory income tax rate (35%) and the provision for income taxes is as follows (
in thousands
):
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Income taxes computed at federal statutory rate
|
$ 29,753
|
|
$18,198
|
|
$ 11,246
|
State income taxes, net of federal benefit
|
2,917
|
|
1,999
|
|
1,225
|
Other, primarily non-tax deductible items
|
1,354
|
|
361
|
|
280
|
|
$ 34,024
|
|
$20,558
|
|
$ 12,751
|
The net current and noncurrent components of deferred income tax balances are as follows (
in thousands
):
|
December 31,
|
|
2012
|
|
2011
|
Net current assets
|
$ 5,182
|
|
$ 4,539
|
Net non-current assets
|
-
|
|
1,588
|
Net non-current liabilities
|
(16,448)
|
|
-
|
Net assets (liabilities)
|
$ (11,266)
|
|
$ 6,127
|
Deferred tax liabilities and assets were comprised of the following (
in thousands
):
|
December 31,
|
|
2012
|
|
2011
|
Deferred tax assets:
|
|
|
|
Goodwill
|
$ 2,270
|
|
$ 3,575
|
Allowance for doubtful accounts
|
2,408
|
|
2,077
|
Inventories
|
1,803
|
|
1,707
|
Accruals
|
842
|
|
889
|
Other
|
342
|
|
229
|
Total deferred tax assets
|
7,665
|
|
8,477
|
Less valuation allowance
|
-
|
|
-
|
Total deferred tax assets, net of valuation allowance
|
7,665
|
|
8,477
|
Deferred tax liabilities
|
|
|
|
Intangibles
|
(9,232)
|
|
(786)
|
Property and equipment
|
(8,430)
|
|
(1,421)
|
Unremitted foreign earnings
|
(577)
|
|
-
|
Cumulative translation adjustment
|
(298)
|
|
-
|
Other
|
(394)
|
|
(143)
|
Net deferred tax asset (liability)
|
$ (11,266)
|
|
$ 6,127
|
NOTE 10 - SHARE-BASED COMPENSATION
Restricted Stock
Under the restricted stock plan approved by our shareholders (the “Restricted Stock Plan”), directors, consultants and employees may be awarded shares of DXP’s common stock. The shares of restricted stock granted to employees and that are outstanding as of December 31, 2012 vest in accordance with one of the following vesting schedules: 100% one year after date of grant; 33.3% each year for three years after date of grant; 20% each year for five years after the grant date; or 10% each year for ten years after the grant date. The Restricted Stock Plan provides that on each July 1 during the term of the plan each non-employee director of DXP will be granted the number of whole shares calculated by
dividing $75 thousand by the closing price of the common stock on such July 1. The shares of restricted stock granted to non-employee directors of DXP vest one year after the grant date. The fair value of restricted stock awards is measured based upon the closing prices of DXP’s common stock on the grant dates and is recognized as compensation expense over the vesting period of the awards. Once restricted stock vests, new shares of the Company’s stock are issued.
The following table provides certain information regarding the shares authorized and outstanding under the Restricted Stock Plan at December 31, 2012:
Number of shares authorized for grants
|
800,000
|
Number of shares granted
|
(688,371)
|
Number of shares forfeited
|
79,998
|
Number of shares available for future grants
|
191,627
|
Weighted-average grant price of granted shares
|
$ 19.61
|
Changes in restricted stock for the twelve months ended December 31, 2012 were as follows:
|
Number of
Shares
|
|
Weighted Average
Grant Price
|
Non-vested at December 31, 2011
|
228,592
|
|
$ 21.10
|
Granted
|
76,417
|
|
$38.99
|
Forfeited
|
(19,260)
|
|
$ 32.68
|
Vested
|
(75,419)
|
|
$ 20.30
|
Non-vested at December 31, 2012
|
210,330
|
|
$ 26.85
|
Compensation expense, associated with restricted stock, recognized in the years ended December 31, 2012, 2011 and 2010 was $2.0 million, $1.3 million, and $1.0 million, respectively. Related income tax benefits recognized in earnings in the years ended December 31, 2012, 2011, and 2010 were approximately $0.8 million, $0.5 million, and $0.4 million, respectively. Unrecognized compensation expense under the Restricted Stock Plan at December 31, 2012 and December 31, 2011 was $4.6 million and $4.1 million, respectively. As of December 31, 2012, the weighted average period over which the unrecognized compensation expense is expected to be recognized is 28.2 months.
Stock Options
The DXP Enterprises, Inc. 1999 Employee Stock Option Plan (the “Plan”), the DXP Enterprises, Inc. Long-Term Incentive Plan and the DXP Enterprises, Inc. Director Stock Option Plan authorized the grant of options to purchase 1,800,000, 660,000 and 400,000 shares of the Company’s common stock, respectively. In accordance with these stock option plans that were approved by the Company’s shareholders, options were granted to key personnel for the purchase of shares of the Company’s common stock at prices not less than the fair market value of the shares on the dates of grant. Most options could be exercised not earlier than 12 months nor later than 10 years from the date of grant. No
future grants will be made under these stock option plans. There was no activity under the Plan during 2012 or 2011. Activity during 2010 with respect to the stock options follows:
|
Shares
|
|
Options Price
Per Share
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic
Value
|
Outstanding and exercisable at
December 31, 2009
|
50,000
|
|
$ 1.25 - $3.36
|
|
$ 2.50
|
|
$ 529,000
|
Exercised during 2010
|
(50,000)
|
|
$ 1.25 - $3.36
|
|
$ 2.50
|
|
$ 489,000
|
Outstanding and exercisable at
December 31, 2010
|
-
|
|
-
|
|
-
|
|
-
|
Cash received from stock options exercised during 2012 and 2011 and 2010 was zero, zero, and $0.1 million, respectively.
During 2010, employees and directors of DXP exercised non-qualified stock options. DXP received a tax deduction for the amount of the difference between the exercise price and the fair market value of the shares recognized as income by the individuals exercising the options. The after tax benefit of the tax deduction is accounted for as an increase in paid-in capital.
NOTE 11 - EARNINGS PER SHARE DATA
Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities.
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (
in thousands, except per share data
):
|
December 31,
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Basic:
|
|
|
|
|
|
Weighted average shares outstanding
|
14,374
|
|
14,301
|
|
13,821
|
|
|
|
|
|
|
Net income
|
$ 50,985
|
|
$ 31,437
|
|
$ 19,381
|
Convertible preferred stock dividend
|
(90)
|
|
(90)
|
|
(90)
|
Net income attributable to common shareholders
|
$ 50,895
|
|
$ 31,347
|
|
$ 19,291
|
Per share amount
|
$ 3.54
|
|
$ 2.19
|
|
$ 1.40
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
Weighted average shares outstanding
|
14,374
|
|
14,301
|
|
13,821
|
Net effect of dilutive stock options from treasury stock method
|
-
|
|
-
|
|
7
|
Assumed conversion of convertible notes
|
-
|
|
-
|
|
153
|
Assumed conversion of convertible
preferred stock
|
840
|
|
840
|
|
840
|
Total dilutive shares
|
15,214
|
|
15,141
|
|
14,821
|
Net income attributable to
common shareholders
|
$ 50,895
|
|
$ 31,347
|
|
$ 19,291
|
Interest on convertible notes, net of income taxes
|
-
|
|
-
|
|
142
|
Convertible preferred stock dividend
|
90
|
|
90
|
|
90
|
Net income for diluted
earnings per share
|
$ 50,985
|
|
$ 31,437
|
|
$ 19,523
|
Per share amount
|
$ 3.35
|
|
$ 2.08
|
|
$ 1.32
|
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.
During 2011 the Company paid $1.0 million in contingent purchase price related to the acquisition of Indian Fire & Safety in 2007.
On October 10, 2011, DXP acquired substantially all of the assets of Kenneth Crosby (KC). DXP acquired this business to expand DXP's geographic presence in the Eastern U.S. and strengthen DXP's metal working offering. DXP paid approximately $15.6 million for KC, which was borrowed under our existing credit facility. Goodwill of $5.8 million was recognized for this acquisition and 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 KC with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. The goodwill associated with this acquisition is included in both the Service Centers segment and Supply Chain Services segment.
On December 30, 2011, DXP acquired substantially all of the assets of C.W. Rod Tool Company ("CW Rod"). DXP acquired this business to strengthen DXP's metal working offering. DXP paid approximately $1.1 million of DXP's common stock (35,714 shares) and approximately $41.7 million in cash for CW Rod, which was borrowed during 2011 and 2012 under our credit facility. The $41.7 million of cash paid for CW Rod includes $36.7 million paid in the form of checks which did not clear our bank until 2012. Goodwill of $10 million was recognized for this acquisition and 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 CW Rod with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. All of the goodwill is included in the Service Centers segment.
On January 31, 2012, DXP acquired substantially all of the assets of Mid-Continent Safety ("Mid-Continent"). DXP acquired this business to expand DXP's geographic presence in the Midwestern U.S. and strengthen DXP's safety products offering. DXP paid approximately $3.7 million for Mid-Continent, which was borrowed under our existing credit facility. Goodwill of $1.2 million was recognized for this acquisition and 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 Mid-Continent with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. All of the goodwill is included in the Service Centers segment.
On February 29, 2012, DXP acquired substantially all of the assets of Pump & Power Equipment, Inc. ("Pump & Power"). DXP acquired this business to expand DXP's geographic presence in the Midwestern U.S. and strengthen DXP's municipal pump products and services offering. DXP paid approximately $1.9 million for Pump & Power which was borrowed under our existing credit facility. Goodwill of $0.7 million was recognized for this acquisition and 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 Pump & Power with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. All of the goodwill is included in the Service Centers segment.
On April 2, 2012, DXP acquired the stock of Aledco, Inc. ("Aledco"). Aledco is focused on servicing customers in the oil and gas, water and waste water treatment, pharmaceutical and industrial markets. DXP paid approximately $8.1 million for Aledco which was borrowed under our existing credit facility. Goodwill of $3.4 million was recognized for this acquisition and 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 Aledco with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. None of the estimated goodwill is expected to be tax deductible. All of the goodwill is included in the Service Centers segment.
On May 1, 2012, DXP completed the acquisition of Industrial Paramedic Services through its wholly owned subsidiary, DXP Canada Enterprises Ltd. Industrial Paramedic Services is a provider of industrial medical and safety services to industrial customers operating in remote locations and large facilities in western Canada. DXP acquired this business to expand DXP's geographic presence into Canada and to expand our safety services offering. Industrial Paramedic Services is headquartered in Calgary, Alberta and operates out of three locations in Calgary, Nisku and Dawson Creek. The $25.3 million purchase price was financed with $20.6 million of borrowings under DXP's existing credit facility, $2.5 million of
promissory notes bearing a 5% interest rate and 19,685 shares of DXP common stock. Estimated goodwill of $12.1 million was recognized for this acquisition and 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 Industrial Paramedic Services with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. None of the estimated goodwill is expected to be tax deductible. All of the goodwill is included in the Service Centers segment.
On May 31, 2012, DXP acquired the stock of Austin and Denholm Industrial Sales Alberta, Inc. (“ADI”). DXP acquired this business to expand DXP's geographic presence in Western Canada and strengthen DXP's pump products and services offering. DXP paid approximately $2.7 million for ADI which was borrowed under our existing credit facility. Goodwill of $0.3 million was recognized for this acquisition and 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 ADI with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. None of the estimated goodwill is expected to be tax deductible. All of the estimated goodwill is included in the Service Centers segment.
On July 11, 2012, DXP completed the acquisition of HSE Integrated Ltd. (“HSE"). DXP Canada Enterprises Ltd., acquired all of the outstanding common shares of HSE by way of a plan of arrangement under the
Business Corporations Act
(Alberta) (the "Arrangement"). Pursuant to the Arrangement, HSE shareholders received CDN $1.80 in cash per each common share of HSE held. The total transaction value is approximately $85 million, including approximately $4 million in debt and approximately $3 million in transaction costs. The purchase price was financed with borrowings under DXP’s new $325 million credit facility. DXP acquired HSE to expand our
industrial health and safety services offering. Estimated goodwill of $25.8 million was recognized for this acquisition. The estimate of goodwill for this acquisition 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 these companies with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce. None of the estimated goodwill is expected to be tax deductible
.
All of the goodwill is included in the Service Centers Segment.
On October 1, 2012, DXP acquired substantially all of the assets of Jerzy Supply, Inc. (“Jerzy”). DXP acquired this business to expand DXP's geographic presence in the Southern U.S. and strengthen DXP's industrial and hydraulic hoses offering. DXP paid approximately $5.3 million for Jerzy which was borrowed under our existing credit facility. No goodwill was recognized on the purchase.
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. Net capital charges for assets that contribute to projected cash flow were based on the estimated fair value of those assets. Discount rates of 17.0% to 28.2% were deemed
appropriate for valuing these assets and were based on the risks associated with the respective cash flows taking into consideration the acquired company’s weighted average cost of capital.
DXP has not completed appraisals of intangibles or property and equipment for certain acquisitions completed in 2012. DXP has made preliminary estimates for purposes of this disclosure.
For the twelve months ended December 31, 2012, business acquisitions that occurred during 2012 and 2011 contributed sales of $204.8 million. For the twelve months ended December 31, 2012, business acquisitions that occurred during 2012 and 2011 contributed earnings before taxes of approximately $5.8 million.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed during 2012 and 2011 in connection with the acquisitions described above (
in thousands
):
Cash
|
|
$ 12,377
|
Accounts Receivable, net
|
|
50,645
|
Inventory
|
|
17,805
|
Property and equipment
|
|
36,303
|
Goodwill and intangibles
|
|
108,842
|
Other assets
|
|
2,839
|
Assets acquired
|
|
228,811
|
Current liabilities assumed
|
|
(32,166)
|
Non-current liabilities assumed
|
|
(15,296)
|
Net assets acquired
|
|
$ 181,349
|
The pro forma unaudited results of operations for the Company on a consolidated basis for the twelve months ended December 31, 2012 and 2011, assuming the acquisition of businesses completed in 2012 and 2011 were consummated as of January 1, 2011 are as follows (
in thousands, except per share data
):
|
Years Ended
December 31,
|
|
2012
|
|
2011
|
Net sales
|
$ 1,177,091
|
|
$ 1,062,540
|
Net income
|
$ 54,033
|
|
$ 41,359
|
Per share data
|
|
|
|
Basic earnings
|
$ 3.75
|
|
$ 2.88
|
Diluted earnings
|
$ 3.55
|
|
$ 2.72
|
The pro forma unaudited results of operations for the Company on a consolidated basis for the years ended December 31, 2010 and 2011, assuming the acquisitions of businesses completed in 2011 were consummated as of January 1, 2010 follows (
in thousands, except per share data
):
|
Years Ended
December 31,
|
|
2011
|
|
2010
|
|
$ 903,240
|
|
$ 778,267
|
|
$ 35,511
|
|
$ 22,898
|
Per share data
|
|
|
|
Basic earnings
|
$ 2.48
|
|
$ 1.65
|
Diluted earnings
|
$ 2.35
|
|
$ 1.56
|
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company leases equipment, automobiles and office facilities under various operating leases. The future minimum rental commitments as of December 31, 2012, for non-cancelable leases are as follows (
in thousands
):
2013
|
$17,904
|
2014
|
14,971
|
2015
|
10,956
|
2016
|
8,103
|
2017
|
5,029
|
Thereafter
|
8,721
|
Rental expense for operating leases was $19.9 million, $14.2 million and $12.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The Company’s commitments related to long-term debt are discussed in Note 8.
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome of these lawsuits, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP’s consolidated financial position, cash flows, or results of operations.
NOTE 14 - EMPLOYEE BENEFIT PLANS
The Company offers a 401(K) plan which is eligible to substantially all employees. During 2012, 2011 and part of 2010, the Company elected to match employee contributions at a rate of 50 percent of up to 4 percent of salary deferral. During 2009 the Company stopped matching employee contributions. During 2010 the Company resumed matching of employee contributions. The Company contributed $1.9 million, $1.5 million, and $0.5 million to the 401(K) plan in the years ended December 31, 2012, 2011, and 2010, respectively.
NOTE 15 - OTHER COMPREHENSIVE INCOME
|
Other comprehensive income generally represents all changes in shareholders’ equity during the period, except those resulting from investments by, or distributions to, shareholders. During 2010 the Company had other comprehensive income related to changes in interest rates in connection with an interest rate swap. At December 31, 2012 and 2011, accumulated derivative (loss) income, net of income tax was nil.
During 2012, 2011, and 2010 the Company had net other comprehensive income of $0.4 million, $0.1 million and nil, respectively, related to changes in the market value of an investment with quoted market prices in an active market for identical instruments.
During 2012, the Company acquired three entities that operate in Canada. These Canadian entities maintain financial data in Canadian dollars. Upon consolidation, the Company translates the financial data from these foreign subsidiaries into U.S. dollars and records cumulative translation adjustments in other comprehensive income. The Company recorded $0.6 million in translation adjustments in other comprehensive income during the year ended December 31, 2012.
NOTE 16 – SEGMENT AND GEOGRAPHICAL REPORTING
The Company’s reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment is engaged in providing maintenance, MRO products, equipment and integrated services, including logistics capabilities, to industrial customers. The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, fastener, industrial supply, safety products and safety services categories. The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages. The Supply Chain Services segment manages all or part of a customer's supply chain, including
warehouse and inventory management.
The high degree of integration of the Company’s operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of intersegment eliminations.
Business Segmented Financial Information
The following table sets out financial information relating the Company’s segments (
in thousands
):
Years Ended December 31,
|
Service
Centers
|
|
Innovative
Pumping
Solutions
|
|
Supply
Chain
Services
|
|
Total
|
2012
|
|
|
|
|
|
|
|
Sales
|
$779,038
|
|
$161,834
|
|
$156,238
|
|
$1,097,110
|
Operating income for reportable segments
|
88,924
|
|
32,099
|
|
12,495
|
|
133,518
|
Identifiable assets at year end
|
440,271
|
|
56,982
|
|
50,515
|
|
547,768
|
Capital expenditures
|
4,829
|
|
261
|
|
-
|
|
5,090
|
Depreciation
|
5,734
|
|
306
|
|
175
|
|
6,215
|
Amortization
|
8,795
|
|
663
|
|
1,428
|
|
10,886
|
Interest expense
|
3,701
|
|
1,243
|
|
616
|
|
5,560
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
Sales
|
$560,233
|
|
$102,305
|
|
$144,467
|
|
$807,005
|
Operating income for reportable segments
|
64,491
|
|
16,920
|
|
8,455
|
|
89,866
|
Identifiable assets at year end
|
294,410
|
|
43,636
|
|
56,058
|
|
394,104
|
Capital expenditures
|
1,258
|
|
310
|
|
73
|
|
1,641
|
Depreciation
|
2,090
|
|
326
|
|
276
|
|
2,692
|
Amortization
|
4,725
|
|
675
|
|
1,172
|
|
6,572
|
Interest expense
|
2,073
|
|
986
|
|
459
|
|
3,518
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
Sales
|
$452,719
|
|
$ 77,024
|
|
$126,459
|
|
$656,202
|
Operating income for reportable segments
|
50,549
|
|
10,335
|
|
7,120
|
|
68,004
|
Identifiable assets at year end
|
240,068
|
|
25,405
|
|
45,813
|
|
311,286
|
Capital expenditures
|
1,075
|
|
17
|
|
92
|
|
1,184
|
Depreciation
|
2,426
|
|
368
|
|
389
|
|
3,183
|
Amortization
|
4,055
|
|
604
|
|
1,165
|
|
5,824
|
Interest expense
|
4,115
|
|
700
|
|
393
|
|
5,208
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Operating income for reportable segments
|
$ 133,518
|
|
$ 89,866
|
|
$ 68,004
|
Adjustments for:
|
|
|
|
|
|
Amortization of intangibles
|
10,886
|
|
6,572
|
|
5,824
|
Corporate and other expense, net
|
32,110
|
|
27,809
|
|
25,089
|
Total operating income
|
90,522
|
|
55,485
|
|
37,091
|
Interest expense
|
5,560
|
|
3,518
|
|
5,208
|
Other expenses (income), net
|
(47)
|
|
(28)
|
|
(249)
|
Income before income taxes
|
$ 85,009
|
|
$ 51,995
|
|
$ 32,132
|
The Company had capital expenditures at Corporate of $9.0 million, $2.5 million, and zero for the years ended December 31, 2012, 2011, and 2010, respectively. The Company had identifiable assets at Corporate of $22 million, $11.2 million, and $9.3 million as of December 31, 2012, 2011, and 2010, respectively. Corporate depreciation was $1.0 million, $0.8 million, and $0.6 million for the years ended December 31, 2012, 2011, and 2010, respectively.
Geographical Information
Revenues are presented in geographic area based on location of the facility shipping products or providing services. Long-lived assets are based on physical locations and are comprised of the net book value of property.
The Company’s revenues and property and equipment by geographical location are as follow
(in thousands)
:
|
Years Ended December 31,
|
|
2012
|
2011
|
2010
|
Revenues
|
|
|
|
United States
|
$1,039,712
|
$ 807,005
|
$ 656,202
|
Canada
|
57,398
|
-
|
-
|
Total
|
$1,097,110
|
$ 807,005
|
$ 656,202
|
|
As of December 31,
|
|
2012
|
2011
|
Property and Equipment, net
|
|
|
United States
|
$ 31,334
|
$ 16,911
|
Canada
|
27,379
|
-
|
Total
|
$58,713
|
$ 16,911
|
NOTE 17 - QUARTERLY FINANCIAL INFORMATION (unaudited)
Summarized quarterly financial information for the years ended December 31, 2012, 2011 and 2010 is as follows (
in millions, except per share data
):
|
First
|
Second
|
Third
|
Fourth
|
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
2012
|
|
|
|
|
Sales
|
$ 252.3
|
$ 261.9
|
$ 289.9
|
$ 293.0
|
Gross profit
|
71.5
|
76.6
|
83.5
|
87.5
|
Net income
|
11.6
|
12.2
|
13.1
|
14.1
|
Earnings per share - basic
|
$ 0.81
|
$ 0.84
|
$ 0.91
|
$ 0.98
|
Earnings per share - diluted
|
$ 0.77
|
$ 0.80
|
$ 0.86
|
$ 0.92
|
|
|
|
|
|
2011
|
|
|
|
|
Sales
|
$ 183.1
|
$ 197.7
|
$ 207.9
|
$ 218.3
|
Gross profit
|
52.4
|
57.3
|
59.5
|
62.6
|
Net income
|
6.3
|
7.6
|
8.3
|
9.2
|
Earnings per share - basic
|
$ 0.44
|
$ 0.53
|
$ 0.58
|
$ 0.64
|
Earnings per share - diluted
|
$ 0.42
|
$ 0.50
|
$ 0.55
|
$ 0.61
|
|
|
|
|
|
2010
|
|
|
|
|
Sales
|
$ 147.0
|
$ 167.3
|
$ 172.2
|
$ 169.7
|
Gross profit
|
42.0
|
47.9
|
48.9
|
49.6
|
Net income
|
3.6
|
4.6
|
5.3
|
5.9
|
Earnings per share - basic
|
$ 0.27
|
$ 0.33
|
$ 0.38
|
$ 0.41
|
Earnings per share - diluted
|
$ 0.26
|
$ 0.31
|
$ 0.36
|
$ 0.39
|
The sum of the individual quarterly earnings per share amounts may not agree with year-to-date earnings per share as each quarter’s computation is based on the weighted average number of shares outstanding during the quarter, the weighted average stock price during the quarter and the dilutive effects of the stock options and restricted stock in each quarter.
NOTE 18 – SUBSEQUENT EVENTS
We have evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission. There were no subsequent events that required recognition for disclosure.