BUSINESS ACQUISITIONS

9 Months Ended

Sep. 30, 2016

BUSINESS ACQUISITIONS [Abstract]

BUSINESS ACQUISITIONS

NOTE 13 - 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 condensed 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 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. Estimated goodwill of $2.9 million and intangible assets of $2.0 million were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment. None of the estimated goodwill or intangible assets are expected to be tax deductible.

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. Estimated goodwill of $8.7 million and intangible assets of $5.2 million were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment. Approximately $4.5 million of the goodwill and intangible assets are not deductible for tax purposes.

The values 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 the three months ended September 30, 2016, businesses acquired during 2015 contributed sales of $5.4 million and a loss before taxes of approximately $0.8 million.

For the nine months ended September 30, 2016, businesses acquired during 2015 contributed sales of $18.4 million and a loss before taxes of approximately $1.2 million.

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

	2015
	TSI			Cortech
Accounts receivable		442			2,444
Inventory		475			1,243
Property & equipment		42			253
Goodwill and intangibles		4,929			13,897
Other assets		100			21
Assets acquired		5,988			17,858
Current liabilities assumed		(335	)		(2,610	)
Non-current liabilities assumed		(653	)		(349	)
Net assets acquired	$	5,000		$	14,899

The pro forma unaudited results of operations for the Company on a consolidated basis for the three and nine months ended September 30, 2016 and 2015, assuming the acquisition of businesses completed in 2015 were consummated as of January 1, 2015, are as follows (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
Net sales	$	230,025	$	306,924		$	739,801	$	984,247
Net income (loss) attributable to DXP Enterprises, Inc.	$	263	$	(52,435	)	$	321	$	(34,551	)
Per share data attributable to DXP Enterprises, Inc.
Earnings (loss) per share:
Basic earnings (loss)	$	0.02	$	(3.62	)	$	0.02	$	(2.41	)
Diluted earnings (loss)	$	0.02	$	(3.62	)	$	0.02	$	(2.41	)