NOTE 11 - 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 April 16, 2013, DXP acquired all of the stock of National Process Equipment Inc. ("NatPro") through its wholly owned subsidiary, DXP Canada Enterprises Ltd. DXP acquired this business to expand DXP's geographic presence in Canada and strengthen DXP's pump, integrated system packaging, compressor, and related equipment offering. The $40.0 million purchase price was financed with $36.6 million of borrowings under DXP's existing credit facility and 52,542 shares of DXP common stock. Additionally, the purchase agreement included an earn-out provision, which stated that former owners of NatPro may earn $6.0 million based on achievement of an earnings target during the first year of DXP's ownership. The fair value of the earn-out recorded at the acquisition date was $2.8 million. As of December 31, 2013, the Company's earn-out liability was estimated to be zero and $2.8 million was recorded as a reduction of selling, general and administrative expense in the fourth quarter of 2013. No earn-out was earned. Estimated goodwill of $24.6 million and intangible assets of $14.8 million were recognized for this acquisition. None of the estimated goodwill or intangible assets are expected to be tax deductible. The goodwill associated with this acquisition is included in both the Service Centers segment and IPS segment.

On May 17, 2013, DXP acquired substantially all of the assets of Tucker Tool Company, Inc. ("Tucker Tool"). DXP acquired this business to expand DXP's geographic presence in the northern U.S. and strengthen DXP's industrial cutting tools offering. DXP paid approximately $5.0 million for Tucker Tool which was borrowed under our existing credit facility. Estimated goodwill of $3.2 and intangible assets of $1.5 million were recognized for this acquisition. All of the goodwill is included in the Service Centers segment.

On July 1, 2013, DXP acquired all of the stock of Alaska Pump & Supply, Inc. (APS). DXP acquired this business to expand DXP's geographic presence in Alaska. DXP paid approximately $13.0 million for APS which was borrowed under our existing credit facility. Estimated goodwill of $8.1 million and intangible assets of $4.1 million were recognized for this acquisition. None of the estimated goodwill or intangible assets are expected to be tax deductible. All of the goodwill is included in the Service Centers segment.

On July 31, 2013, DXP acquired substantially all of the assets of Tool-Tech Industrial Machine & Supply, Inc. ("Tool-Tech"). DXP acquired this business to enhance our metal working product offering in the southwest region of the United States. DXP paid approximately $7.6 million for Tool-Tech which was borrowed under our existing credit facility. Estimated goodwill of $4.9 million and intangible assets of $2.4 million were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment.

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 DXP’s amended credit facility and approximately $4.0 million (36,000 shares) of DXP common stock. DXP has not completed appraisals of intangibles for B27, the valuation of working capital items or completed analysis of tax effects, and therefore, has made preliminary estimates for purposes of this disclosure. Estimated goodwill of $181.1 million and intangible assets of $81.1 million were recognized for this acquisition. Approximately $209.8 million of the estimated goodwill or intangible assets are expected not to be tax deductible. The estimated goodwill associated with this acquisition will be included in the IPS and Service Centers segments.

On May 1, 2014, the Company completed the acquisition of all of the equity interests of Machinery Tooling and Supply, LLC (MT&S) by way of an Equity Purchase Agreement to expand DXP’s cutting tools offering in the North Central region of the United States. DXP paid approximately $14.9 million for MT&S, which was borrowed under our existing credit facility. DXP has not completed appraisals of intangibles for MT&S or completed analysis of tax effects, and therefore, has made preliminary estimates for purposes of this disclosure. Estimated goodwill of $3.4 million and intangible assets of $5.3 million 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. Net capital charges for assets that contribute to projected cash flow were based on the estimated fair value of those assets. For the acquisitions discussed above, discount rates of 13.5% to 15.9% 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.

For the three months ended June 30, 2014, businesses acquired during 2013 and 2014 contributed sales of $27.1 million and $49.7 million, respectively, and earnings (loss) before taxes of approximately $0.5 million and $2.4 million, respectively.

For the six months ended June 30, 2014, businesses acquired during 2013 and 2014 contributed sales of $50.1 million and $80.1 million, respectively, and earnings (loss) before taxes of approximately $(0.4) million and $1.0 million, respectively.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed during 2013 and 2014 in connection with the acquisitions described above (in thousands):


	NatPro		Tucker Tool		APS		Tool-Tech			B27	MT&S		Total

Cash	$	-	$	-	$	-	$	430	$	2,538	$	806	$	3,774
Accounts Receivable, net		14,549		505		1,424		1,505		51,448		5,656		75,087
Inventory		6,883		209		1,332		409		6,472		2,522		17,827
Property and equipment		3,317		-		172		19		14,573		557		18,638
Goodwill and intangibles		39,345		4,678		12,241		7,254		262,250		8,656		334,424
Other assets		698		-		389		2		1,163		59		2,311
Assets acquired		64,792		5,392		15,558		9,619		348,444		18,256		452,061
Current liabilities assumed		19,175		391		1,079		1,987		26,690		3,336		52,658
Non-current liabilities assumed		5,649		-		1,419		-		18,202		-		25,270
Net assets acquired	$	39,968	$	5,001	$	13,060	$	7,632	$	293,552	$	14,920	$	374,133

The pro forma unaudited results of operations for the Company on a consolidated basis for the three and six months ended June 30, 2014 and 2013, assuming the acquisition of businesses completed in 2014 and 2013 were consummated as of January 1, 2013 are as follows (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Net sales	$	384,751	$	370,350	$	743,055	$	730,888
Net income	$	15,562	$	15,991	$	27,415	$	29,959
Per share data
Basic earnings	$	1.06	$	1.10	$	1.86	$	2.07
Diluted earnings	$	1.00	$	1.04	$	1.77	$	1.96