Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[ ]X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer [ ]                                                                                   Accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

Aggregate market value of the registrant's Common Stock held by non-affiliates of registrant as of June 30, 2009:  $99,953,629.2012: $408,645,383

Number of shares of registrant's Common Stock outstanding as of March 19, 2010:  12,945,981.11, 2013: 14,137,792.

Documents incorporated by reference: Portions of the definitive proxy statement for the annual meeting of shareholders to be held in 20102013 are incorporated by reference into Part III hereof.

DXP was incorporated in Texas in 1996 to be the successor to a companySEPCO Industries, Inc., founded in 1908. Since our predecessor company was founded, we have primarily been engaged in the business of distributing maintenance, repair and operating (“MRO”)(MRO) products, equipment and service to industrial customers. We areThe Company is organized into twothree business segments: MROService Centers, Supply Chain Services and Electrical Contractor.Innovative Pumping Solutions. Sales, Operating income, and operating incomeother financial information for 2007, 20082010, 2011 and 2009,2012, and identifiable assets at the close of such years for our business segments are presented in Note 16 of the Notes to the Consolidated Financial Statements.Statements in Item 8 of this report.

The industrial distribution market is highly fragmented. Based on 20082011 sales as reported by industry sources,Industrial Distribution magazine, we were the 16th22nd largest distributor of MRO products in the United States. Most industrial customers currently purchase their industrial supplies through numerous local distribution and supply companies. These distributors generally provide the customer with repair and maintenance services, technical support and application expertise with respect to one product category. Products typically are purchased by the distributor for resale directly from the manufacturer and warehoused at distribution facilities of the distributor until sold to the customer. The customer also typically will purchase an amount of product inventory for its near term anticipated needs and store those products at its industrial site until the products are used.

We believe that the distribution system for industrial products, in the United States,as described in the preceding paragraph, creates inefficiencies at both the customer and the distributor levels through excess inventory requirements and duplicative cost structures. To compete more effectively, our customers and other users of MRO products are seeking ways to enhance efficiencies and lower MRO product and procurement costs. In response to this customer desire, three primary trends have emerged in the industrial supply industry:

We believe we have increased our competitive advantage through our traditional fabrication of integrated system pump packages and integrated supply programs, which are designed to address the customer'sour customers’ specific product and procurement needs. We offer our customers various options for the integration of their supply needs, ranging from serving as a single source of supply for all or specific lines of products and product categories to offering a fully integrated supply package in which we assume the procurement and management functions, includingwhich can include ownership of inventory, at the customer's location. Our approach to integrated supply allows us to design a program that best fits the needs of the customer. For those customersCustomers purchasing a number of products in large quantities the customer isof product are able to outsource all or most of those needs to us. For customers with smaller supply needs, w ewe are able to combine our traditional distribution capabilities with our broad product categories and advanced ordering systems to allow the customer to engage in one-stop shoppingsourcing without the commitment required under an integrated supply contract.

The Service Centers are engaged in providing MRO products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. We acquireoffer our customers a single source of supply on an efficient and competitive basis by being a first-tier distributor that can purchase products directly from manufacturers. As a first-tier distributor, we are able to reduce our customers' costs and improve efficiencies in the supply chain. We also provide services such as field safety supervision, in-house and field repair and predictive maintenance. We offer a wide range of industrial MRO products, equipment and integrated services through numerous original equipment manufacturers, or OEMs. Wea continuum of customized and efficient MRO solutions.

Generally our Service Centers segment does not enter into long-term contracts with our customers requiring them to purchase our products. A majority of our Service Center segment sales are authorized to distribute the manufacturers'derived from customer purchase orders. Sales are directly solicited from customers by our sales force. DXP Service Centers are stocked and staffed with knowledgeable sales associates and backed by a centralized customer service team of experienced industry professionals. At December 31, 2012, our Service Centers’ products and services were distributed from 153 service centers and 7 distribution centers.

DXP Service Centers provide a wide range of MRO products in specific geographic areas. Allthe rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. We currently serve as a first-tier distributor of more than 1,000,000 items of which more than 60,000 are stock keeping units (SKUs) for use primarily by customers engaged in the oil and gas, food and beverage, petrochemical, transportation and other general industrial industries. Other industries served by our Service Centers include mining, construction, chemical, municipal, agriculture and pulp and paper.

Decades of supply chain inventory management experience and comprehensive research, as well as a thorough understanding of our distribution authorizationscustomers’ businesses and industries have allowed us to design standardized programs that are subjectflexible enough to cancellationbe fully adaptable to address our customers’ unique supply chain challenges. These standardized programs include:

DXP’s SmartSolutions programs help customers to cut product costs, improve supply chain efficiencies and obtain expert technical support. DXP represents manufacturers of up to 90% of all the manufacturer upon one-year notice or less.  No manufacturer providedmaintenance, repair and operating products that accountedof our customers. Unlike many other distributors who buy products from second-tier sources, DXP takes customers to the source of the products they need.

DXP’s Innovative Pumping Solutions® segment provides fabrication and technical design to meet the capital equipment needs of our global customer base. DXP’s Innovative Pumping Solutions provides a single source for 10% or more or our revenues. We believe that alternative sourcesengineering, systems design and fabrication of supply could be obtained in a timely manner if any distribution authorization were canceled. Accordingly,custom integrated pump packages.

Generally we do not believe that the loss of any one distribution authorization would have a material adverse effect onenter into long-term contracts with our business, financial condition or results of operations. Representative manufacturerscustomers requiring them to purchase our pumps. A majority of our sales are derived from customer purchase orders. Sales are directly solicited from new customers by our sales force.

With over 100 years of fabrication experience, DXP has acquired the technical expertise to ensure that our pumps and pump packages are built to meet the highest standards. DXP utilizes manufacturer authorized equipment and manufacturer certified personnel. Pump packages require MRO and original equipment manufacturers’ (OEM) equipment such as pumps, motors, valves, and consumable products, include BACOU/DALLOZ, Baldor Electric, Emerson, Falk, G&L, Gates, Gould's, INA/Fag Bearing, LaCross Rainfair Safety Products, Martin Sprocket, National Oilwell, Norton Abrasives, NTN, Rexnord, SKF, ULTRA, 3M, Timken, Tyco, Union Butterfield, Vikingsuch as welding supplies. DXP leverages its MRO product inventories and Wilden.breadth of authorized products to lower the total cost and maintain the quality of the pump package.

All of the Innovative Pumping Solutions segment’s long-lived assets are located in the U. S. and virtually all of 2012 sales arewere recognized in the U. S.U.S.

At December 31, 2009,2012, the MRO SegmentInnovative Pumping Solutions segment had 1,687approximately 207 full-time employees.

The Electrical ContractorMost industrial customers currently purchase their MRO supplies through local or national distribution companies that are focused on single or unique product categories. As a first-tier distributor, our network of service and distribution centers stock more than 60,000 SKUs and provide customers with access to more than 1,000,000 items. Given our breadth of product and our industrial distribution customers focus around specific product categories we have become customer driven experts in five key product categories. As such, our three business segments are supported by these five key product categories including, rotating equipment, bearings & power transmission, industrial supplies, metal working and safety products & services. Each business segment was formed in 1998 withtailors its inventory and leverages product experts to meet the acquisitionneeds of substantially all of the assets of an electrical supply business.  The Electrical Contractor segment sells a broad range of electrical products, such as wire conduit, wiring devices, electrical fittings and boxes, signaling devices, heaters, tools, switch gear, lighting, lamps, tape, lugs, wire nuts, batteries, fans and fuses, to electrical contractors.  The segment has one owned warehouse/sales facility in Memphis, Tennessee.its local customers.

We acquire our electrical products through numerous OEMs. We are authorized to distribute thecertain manufacturers' products only in specific geographic areas. All of our oral or written distribution authorizations are subject to cancellation by the manufacturer, some upon one-year noticelittle or less. No oneno notice. For the last three fiscal years, no manufacturer providesprovided products that accountaccounted for 10% or more of our revenues. We believe that alternative sources of supply could be obtained in a timely manner if any distribution authorization were canceled. Accordingly, we do not believe that the loss of any one distribution authorization would have a material adverse effect on our business, financial condition or results of operations.  Significant vendors include Cutler-Hammer, Cooper, Killark, 3M, General Electric

The Company has operations in the United States of America, Canada and Allied.  To meet prompt delivery demandsMexico. Information regarding financial data by geographic areas is set forth in Item 8 of its customers, this segment maint ains large inventories.Annual Report on Form 10-K. See Note 16 of Notes to Consolidated Financial Statements under Item 8.

AllOn August 28, 2008, DXP completed the acquisition of the segment’s long-lived assets are locatedPFI, LLC. DXP acquired this business to strengthen DXP’s expertise in the U. S. and virtually all sales are recognizeddistribution of fasteners. DXP paid $66.4 million in the U. S.

On March 5,December 1, 2008, DXP completed the acquisition of Falcon Pump. DXP acquired this business to strengthen DXP’s pump offering in the Rocky Mountain area. DXP paid $3.1 million in cash, $0.8 million in promissory notes and $0.2 million in cash based upon earnings after the acquisition date.

On April 1, 2010, DXP acquired substantially all the Company soldassets of Quadna, Inc. (“Quadna”). The purchase price of approximately $25.0 million (net of $3.0 million of acquired cash) consisted of $11 million paid in cash, $10 million in the form of convertible promissory notes bearing interest at a rate of 10% and approximately $4.0 million in the form of 343,337 shares of DXP common stock. The $11 million cash portion of the purchase price was funded by borrowings under DXP’s existing credit facility. DXP completed this acquisition to expand its pump business in the Western U.S. On April 9, 2010, $4.5 million principal amount of the convertible promissory notes, along with accrued interest, were converted into 376,417 shares of DXP’s common stock. On August 18, 2010, $3.7 million of the convertible promissory notes were paid off using funds obtained from DXP’s credit facility and $1.8 million of the convertible promissory notes were converted to 117,374 shares of DXP common stock.

On November 30, 2010, DXP acquired substantially all of the assets of D&F Distributors, Inc. (“D&F”). The purchase price of $13.4 million consisted of approximately $7.4 million paid in cash, approximately $2.9 million in the Electrical Contractor segmentform of promissory notes bearing interest at a rate of 5%, and approximately $3.1 million in the form of 155,393 shares of DXP common stock. The cash portion of the purchase price was funded by borrowings under DXP’s existing credit facility. DXP completed this acquisition to expand its pump business in Indiana, Kentucky, Tennessee and Ohio.

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 and supply chain services offerings. DXP paid approximately $15.6 million for KC, which was borrowed under our existing credit facility.

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 in Texas and Louisiana. DXP paid approximately $1.4 million.$1.1 million of DXP's common stock (35,714 shares) and approximately $42 million in cash for CW Rod, which was borrowed during 2011 and 2012 under our existing credit facility.

We maintain liability and other insurance that we believe to be customary and generally consistent with industry practice. We retain a portion of the risk for medical claims, general liability, worker’s compensation and property losses. The various deductibles of our insurance policies generally do not exceed $200,000$250,000 per occurrence. There are also certain risks for which we do not maintain insurance. There can be no assurance that such insurance will be adequate for the risks involved, that coverage limits will not be exceeded or that such insurance will apply to all liabilities. The occurrence of an adverse claim in excess of the coverage limits that we maintain could have a material adverse effect on our financial condition and results of operations. The premiums for insurance have i ncreasedincreased significantly over the past three years. This trend could continue. Additionally, we are partially self-insured for our group health plan, worker’s compensation, auto liability and general liability insurance. The cost of claims for the group health plan has increased over the past three years. This trend is expected to continue.

We are subject to various laws and regulations relating to our business and operations, and various health and safety regulations as established by the Occupational Safety and Health Administration.Administration and Canadian Occupational Health and Safety.

Certain of our operations are subject to federal, state and local laws and regulations as well as provincial regulations controlling the discharge of materials into or otherwise relating to the protection of the environment. Although we believe that we have adequate procedures to comply with applicable discharge and other environmental laws, the risks of accidental contamination or injury from the discharge of controlled or hazardous materials and chemicals cannot be eliminated completely. In the event of such a discharge, we could be held liable for any damages that result, and any such liability could have a material adverse effect on us. We are not currently aware of any situation or condition that we believe is likely to have a material adverse effect on our results of operations or financial condition.

At December 31, 2009, we2012, DXP had 1,697approximately 2,817 full-time employees. We believe that we maintain positive relationships with all of our relationship withemployees. Less than one percent (1%) of our employees are unionized.

The following is good.a list of DXP’s executive officers, their age, positions, and a description of their business experience as of March 11, 2013. All of our executive officers hold office at the pleasure of DXP’s Board of Directors.

TheInvesting in DXP involves risk. In deciding whether to invest in DXP, you should carefully consider the following is a discussionrisk factors. Any of significantthese risk factors relevant to DXP’s business that could adversely affect its business, financial condition or results of operations.

A significant portion of our credit agreementrevenue depends upon the level of capital and operating expenditures in the oil and natural gas industry, including capital expenditures in connection with the upstream, midstream, and downstream phases in the energy industry. Therefore, a significant decline in oil or natural gas prices could lead to a decrease in our bank lenders contains certain restrictions thatcustomers’ capital and other expenditures and could adversely affect our abilityrevenues.

Typically, MRO products have been purchased through distributors and not directly from the manufacturers of those products. If customers were to purchase our acquisition strategy.  Such restrictions includeproducts directly from manufacturers, or if manufacturers sought to increase their efforts to sell directly to end users, we could experience a provision prohibitingsignificant decrease in sales and earnings.

Changes in our customer mix have resulted from geographic expansion, daily selling activities within current geographic markets, and targeted selling activities to new customers. Changes in our product mix have resulted from marketing activities to existing customers and needs communicated to us from merging or consolidating with, or acquiring all or a substantial part of the properties or capital stock of, any other entity without the prior written consent of the lenders.existing and prospective customers. There can be no assurance that we will be able to obtainmaintain our historical gross margins. In addition, we may also be subject to price increases from vendors that we may not be able to pass along to our customers.

We will continue to be dependent to a significant extent upon the efforts and ability of David R. Little, our Chairman of the Board, President and Chief Executive Officer. The loss of the services of Mr. Little or any otherof the executive officerofficers of ourthe Company could have a material adverse effect on our financial condition and results of operations. In addition, our ability to grow successfully will be dependent upon our ability to attract and retain qualified management and technical and operational personnel. The failure to attract and retain such persons could materially adversely affect our financial condition and results of operations.

We have distribution rights for certain product lines and depend on these distribution rights for a substantial portion of our business. Many of these distribution rights are pursuant to contracts that are subject to cancellation upon little or no prior notice. Although we believe that we could obtain alternate distribution rights in the event of such a cancellation, the termination or limitation by any key supplier of its relationship with the Company could result in a temporary disruption of our business and, in turn, could adversely affect our results of operations and financial condition.

The proper functioning of DXP’s information systems is critical to the successful operation of our business. Although DXP’s information systems are protected through physical and software safeguards and remote processing capabilities exist, our information systems are still vulnerable to natural disasters, power losses, telecommunication failures and other

None.

We own our headquarters facility in Houston, Texas, which has approximately 48,000 square feet of office space. At December 31, 2012, we had approximately 154 facilities which contained 153 services centers, 7 distribution centers and 8 fabrication facilities.

The MROService Centers segment owns or leases 112153 service center facilities. Of these facilities, 126 are located in the U.S. in 38 states and 26 are located in 7 Canadian provinces and 1 in Sonora, Mexico. All of the distribution centers are located in the U.S., specifically in California, Georgia, Illinois, Massachusetts, Montana, Nebraska, and Texas. The Innovative Pumping Solutions segment operates out of 8 facilities located in Alabama, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia and Wyoming. In addition, we operate4 states in the U.S. The Supply Chain Services segment operates supply chain installations in 5061 of our customers’ facilities in Arkansas, Arizona, California, Florida, Georgia, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Jersey, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas and Virginia, and as well as in Ontario, Canada. The Electrical Contractor segment owns one service center facility in Tennessee.  28 U.S. states.

Our owned facilities range from 5,000 square feet to 65,00048,000 square feet in size. We lease facilities for terms generally ranging from one to sevenfifteen years. The leased facilities range from 1,500 square feet to 170,000 square feet in size. The leases provide for periodic specified rental payments and certain leases are renewable at our option. We believe that our facilities are suitable and adequate for the needs of our existing business. We believe that if the leases for any of our facilities were not renewed, other suitable facilities could be leased with no material adverse effect on our business, financial condition or results of operations. One of the facilities owned by us is pledged to secure our indebtedness.

From time to time, the Company is a party to various legal proceedings arising in the ordinary course of its business. The Company believes that the outcome of any of these various proceedings will not have a material adverse effect on its business, cash flows, financial condition or results of operations.

Our common stock trades on The NASDAQ Global Market under the stock symbol "DXPE".

The following table sets forth on a per share basis the high and low sales prices for our common stock as reported by NASDAQ for the periods indicated.

On March 19, 2010,7, 2013, we had approximately 541registered 463 holders of record for outstanding shares of our common stock. This number does not include shareholders for whom shares are held in “nominee” or “street name”.

We anticipate that future earnings will be retained to finance the continuing development of our business. In addition, our bank credit facility prohibits us from declaring or paying any cash dividends or other distributions on our capital stock, except for the monthly $0.50 per share dividend on our Series B convertible preferred stock, which amounts to $90,000 in the aggregate per year. Accordingly, we do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, the success of our business activities, regulatory and capital requirements, our lenders, ourand general financial condition and general business conditions.

The following performance graph compares the performance of DXP Common Stock to the NASDAQ Industrial Index and the NASDAQ Composite (US). The graph assumes that the value of the investment in DXP Common Stock and in each index was $100 at December 31, 20042007 and that all dividends were reinvested.

The following table provides information regarding shares covered by the Company’s equity compensation plans as of December 31, 2009:2012:

The selected historical consolidated financial data set forth below for each of the years in the five-year period ended December 31, 20092012 has been derived from our audited consolidated financial statements. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Report.

Our products and services are marketed in at least 37 states in the United States, Canada, and one province in CanadaMexico to over 40,00050,000 customers that are engaged in a variety of industries, many of which may be countercyclical to each other. Demand for our products generally is subject to changes in the United States and Canada, and global economy and economicmicro-economic trends affecting our customers and the industries in which they compete in particular. Certain of these industries, such as the oil and gas industry, are subject to volatility driven by a variety of factors, while others, such as the petrochemical industry and the construction industry, are cyclical and materially affected by changes in the United States and global economy. As a result, we may experience changes in demand within particular markets, segments and product categories as changes occur in our customers' respective markets.

During 2008, the general economy weakened. However, the oil and gas exploration and production business continued to be positive during the first half of 2008, before declining during the second half of 2008. During 2008 our headcount increased by 18% primarily as a result of three acquisitions. Sales by the three businesses acquired in 2008 accounted for $33.4 million of the $292.32008 sales. Sales by three businesses acquired in 2007 accounted for $200.4 million of 2008 sales increase. The 2008 sales increase, excludingsales. Excluding sales of businesses acquired in 2007 and 2008, on a same store sales basis, 2008 sales increased 13.2%. This increase resulted from a broad-based increase in sales by our service centers, innovative pumping solutionService Centers, Innovative Pumping Solutions locations and supply chainSupply Chain locations.

During 2009, the general economy and the oil and gas exploration and production business declined significantly. During 2009, our headcount decreased by approximately 10% as a result of actions taken to reduce operating costs. Sales for 2009 declined by 20.9%21% from 2008. Sales by businesses acquired during 2008 on a same store sales basis, accounted for $36.1 million of 2009 sales. Excluding these sales by acquired businesses, sales declined by 25.8%26% from 2008. The 2009 sales decline is primarily due to a broad-based decline in the sales of pumps, bearings, safety products and millindustrial supplies in connection with a broad-based decline in the U.S. economy. This economic decline led to the impairment of our goodwill and other intangibles. During the fourth quarter of 2009 the Company recognized an impairment charge of $53.0 million for goodwill and other intangibles and an impairment charge of $13.8 million to reduce the valuation of inventory acquired in the 2007 acquisition of Precision.Precision Industries, Inc. The impairment charges did not result in any cash expenditures, did not adversely affect compliance with covenants under our credit facility, and did not affect our cash position or cash flows from operating activities.

Our sales growth strategy in recent years has focused on internal growth and acquisitions. Key elements of our sales strategy include leveraging existing customer relationships by cross-selling new products, expanding product offerings to new and existing customers, and increasing business-to-business solutions using system agreements and supply chain solutions for our integrated supply customers. We will continue to review opportunities to grow through the acquisition of distributors and other businesses that would expand our geographic breadthreach and/or add additional products and services. Our results will depend on our success in executing our internal growth strategy and, to the extent we complete any acquisitions, our ability to integrate such acquisitions effectively.

Our strategies to increase productivity include consolidated purchasing programs, centralizing product distribution centers, centralizing certainand customer service and inside sales functions, converting selected locations from full warehouse and customer service operations to service centers, and using information technology to increase employee productivity.

SALES. Sales for the year ended December 31, 2009 decreased $153.72012 increased $290.1 million, or 20.9%35.9%, to approximately $583.2$1,097.1 million from $736.9$807.0 million in 2008. Sales for the MRO segment decreased $152.8 million, or 20.8%, to $580.5 million for the year ended December 31, 2009, from $733.3 million for 2008.2011. Sales by businesses acquired in 2008,2012 accounted for $86.3 million of 2012 sales. Sales by businesses acquired in 2011 accounted for $107.7 million of the 2012 increase, on a same store sales basis. Excluding 2012 sales of $194.0 million by businesses acquired in 2011 and 2012, on a same store sales basis, accounted for $36.1sales increased by $96.1 million, or 11.9% from 2011. The majority of 2009 sales.  Excluding thesethis 11.9% sales by the acquired businesses, sales for the MRO segment decreased 25.8%.  This sales decrease is primarily due toincrease came from a broad-based decreaseincrease in sales of pumps, bearings, safety products and millindustrial supplies to customers engaged in connection with a broad-based decline in the U. S. economy. Sales for the Electrical Contractor segment decreased by $0.9 million, or 24.4%, to $2.7 million for the year ended December 31 , 2009 from $3.6 million for 2008, resulting from the decline in the U. S. economy.  Sales of commodityoilfield service, oil and specialty type electrical products declined.gas exploration and production, mining, manufacturing and petrochemical processing.

GROSS PROFIT. Gross profit as a percentage of sales decreasedincreased to 29.1% for 2012 compared to 28.7% for the prior corresponding period primarily as a result of increased gross profit percentages experienced by our Innovative Pumping Solutions and Supply Chain Services segments.  Supply Chain Services’ gross profit percentage increased primarily as a result of a change in customer mix. The increase in gross profit percentage in the IPS segment was primarily related to stronger demand for IPS products.

OPERATING INCOME. Operating income for 2008.2012 increased $35.0 million from $55.5 million to $90.5 million, or 63.1%, compared to the prior corresponding period. The increase is primarily related to the combination of the 35.9% increase in sales, the increase in gross profit as a percentage of sales, and selling, general and administrative expense increasing only 29.7% compared to the 35.9% increase in sales.

GROSS PROFIT. Gross profit as a percentage of sales was 28.7% for the MRO segment decreased to 25.9% for 2009, from 28.1% for 2008.  This decrease is the result of the $13.8 million charge in the fourth quarter of 2009 to reduce the value of inventory acquired in connection with the acquisition of Precision on September 10, 2007.  Gross profit as a percentage of sales for the Electrical Contractor segment decreased to 35.4% for 2009, from 35.9% for 2008. This decrease resulted from sales of higher margin specialty-type electrical products decreasing more than sales of commodity products decreased.2011 and 2010.

INTEREST EXPENSE. Interest expense for 20092011 decreased by 14.4%32.5% from 2008.2010. This decrease primarily resulted from lower average interest rates combined with a reduction in the average amount of debt outstanding compared to 2010. On July 25, 2011 we amended our credit facility. This amendment significantly decreased marketthe interest rates.

INCOME TAXES. Our provision for income taxes differed from the U. S. statutory rate of 35% due to state income taxes and non-deductible expenses. Our effective tax rate for 2009 decreased2011 of 39.6% was consistent with the 39.7% rate for 2010.

SERVICE CENTERS SEGMENT. Sales for Service Centers increased $107.5 million, or 23.7%. Excluding $9.1 million of first quarter 2011 Quadna Service Centers segment sales, first eleven months of 2011 sales by D&F of $23.2 million and $5.9 million of fourth quarter 2011 KC Service Centers segment sales, Service Center segment sales for 2011 increased 15.3% from 38.8%2010, on a same store sales basis. This sales increase is primarily due to improvement in the oil and gas and manufacturing portions of the U.S. economy. Operating income for 2008the Service Centers segment increased 27.6%, primarily as a result of the non-deductible impairment charge for PFI, LLC goodwill.

SUPPLY CHAIN SERVICES SEGMENT. Sales for Supply Chain Services increased by $18.0 million, or 14.2%, for 2011 when compared to companies engaged in oilfield service, oil and gas production, food processing, agriculture,  mining, electricity generation and petrochemical processing.  Sales by businesses acquired during 2007 and 2008,2010. Excluding KC SCS segment sales of $5.9 million, SCS segment sales for 2011 increased 9.5% from 2010, on a same store sales basis, accountedbasis. Operating income for $233.8 millionthe SCS segment increased 18.7% primarily as a result of the 2008 MRO14.2% increase in sales increase.for this segment.

OTHER INCOME.  Other incomeThe pro forma unaudited results of operations for 2008 decreased to $0.2 million from $0.3 millionthe Company on a consolidated basis for 2007the years ended December 31, 2012 and 2011, assuming the acquisitions of businesses completed in 2012 were consummated as a result of reduced interest income.January 1, 2011 follows:

The pro forma unaudited results of operations for income taxes differed from the U. S. statutory rateCompany on a consolidated basis for the years ended December 31, 2010 and 2011, assuming the acquisitions of 35% due to state income taxes and non-deductible expenses.  Our effective tax rate for 2008 decreased to 38.8% from 40.0% for 2007 primarilybusinesses completed in 2011 were consummated as a result of a decreased effective state income tax rate.January 1, 2010 follows:

As a distributor of MRO products and Electrical Contractor products,services, we require significant amounts of working capital to fund inventories and accounts receivable. Additional cash is required for capital items such as information technology, warehouse equipment and warehouse equipment.capital expenditures for our safety products and services category. We also require cash to pay our lease obligations and to service our debt.

We generated approximately $51.6$51.2 million of cash in operating activities in 20092012 as compared to generating $18.5$25.8 million in 2008.2011. This change between the two years was primarily attributable to the $24.1 million decrease in accounts receivable and the $46.5 million reduction in inventories in 2009 compared to a $10.9$19.5 million increase in accounts receivable and a $11.2 million increase in inventories in 2008.net income.

During 20092012 we paid $0.5$106.0 million in cash, net of $12.4 million of cash acquired, for seven businesses acquired during 2012 and $38.9 million for an acquisition that occurred in late 2011 compared to paying $18.4 million in cash related to the purchase of two businesses acquired in earlier years compared to paying $73.9 million for acquisitions in 2008.during 2011.

We purchased approximately $1.6$14.1 million of capital assets during 20092012 compared to $5.1$4.1 million for 2008.2011. Capital expenditures during 2009 and 20082012 were related primarily to transportation equipment, computer equipment, computer software, production equipment, inventory handling equipment, safety rental equipment and building improvements. Capital expenditures for 20102013 are expected to be morelower than the 20092012 amount.

At December 31, 2009,2012, our total long-term debt, including the current portion, was $115.5$238.4 million compared to total capitalization (total long-term debt plus shareholders’ equity) of $205.7$446.9 million. Approximately $113.5$234.5 million of this outstanding debt bears interest at various floating rates. Therefore, as an example, a 200 basis point increase in interest rates would increase our annual interest expense by approximately $2.3$4.7 million.

Our normal trade terms for our customers require payment within 30 days of invoice date. In response to competition and customer demands we will offer extended terms to selected customers with good credit history. Customers that are financially strong tend to request extended terms more often than customers that are not financially strong. Many of our customers, including companies listed in the Fortune 500, do not pay us within stated terms for a variety of reasons, including a general business philosophy to pay vendors as late as possible.  We generally collect the amounts due from these large, slow-paying customers.

During 2009,2012, the amount available to be borrowed under our credit facility increased from $37.0$78.2 million at December 31, 2008,2011, to $37.3$109.5 million at December 31, 2009.2012. The increase in availability is primarily the result of the effectterms of reduced borrowings on the loan covenant ratios.  Our total long-term debt decreased $53.0 million during 2009.  Management believesnew credit facility. We believe that the liquidity of our balance sheet and credit facility at December 31, 2009,2012, provides us with the ability to meet our working capital needs, scheduled principal payments, capital expenditures and Series B convertible preferred stock dividend payments during 2010.2013.

On August 28, 2008,July 11, 2012 DXP entered into a credit agreementfacility with Wells Fargo Bank National Association, as lead arrangerIssuing Lender, Swingline Lender and administrative agentAdministrative Agent for the lenderslenders. On December 31, 2012 the Company amended the agreement which increased the Credit Facility by $75 million (the “Facility)“Facility”).  The Facility was amended on March 15, 2010. The Facility consists of a $50$130 million term loan and a revolving credit facility that provides a $150$262.5 million line of credit to the Company. 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 requires principal paymentscomponent are 25 basis points higher than the line of $2.5credit 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 basis points higher than they were immediately prior to the acquisition. Approximately $0.7 million perof debt issuance costs associated with the prior credit facility were expensed in the third quarter beginning onof 2012.

On December 31, 2008. 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 maturesexpires on AugustJuly 11, 2013.2017. 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 and certain month ends for the asset test.  The asset test is defined under the Facility as the sum of 85% of the Company’s net accounts receivable, 60% of net inventory, and 50% of the net book value of non real estate property and equipment. The Company’s borrowing and letter of credit capacity under the revolving credit portion of the Facility at any given time is $150 million less borrowings under the revolving credit portion of the facility and letters of credit outstanding, subject to the asset test described above.end.

The Facility’s principal financial covenants include:

Consolidated EBITDA as defined under the Facility for financial covenant purposes means, without duplication, for any period the consolidated net income (excluding any extraordinary gains or losses) of DXP plus, to the extent deducted in calculating consolidated net income, depreciation, amortization other(except to the extent that such non-cash items and non-recurring items (including, without limitation, impairment charges are reserved for cash charges to be taken in the future), non-cash compensation including stock option or asset write-offs and accruals in respect of closed locations),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 minus, toclosing costs, severance costs and expenses and one-time compensation costs in connection with the extent addedacquisition of HSE and any permitted acquisition, write-down of cash expenses incurred in calculating consolidated netconnection with the existing credit agreement and extraordinary losses less interest income any non-cash items and non-recurring items; provided that, if DXP acquires the equity interests or assets of any person during such period under circumstances permitted under the Facility,extraordinary gains. Consolidated EBITDA shall be adjusted to give pro forma effect to such acquisition assu mingdisposals or business acquisitions assuming that such transactiontransaction(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 provided further that, if DXP divests theincluding all income statement items attributable to property or equity interests or assets of any person during such period under circumstancesacquisitions permitted under this Facility, EBITDA shall be adjusted to give pro forma effect to such divestiture assuming that such transaction had occurred on the first day of such period.  Add-backs allowed pursuant to Article 11, Regulation S-X,Facility.

Accounts receivable days of sales outstanding were 50.1 at December 31, 2009 compared to 48.557.2 days at December 31, 2008.  The increase resulted primarily from a change in customer mix which resulted in slower collection of accounts receivable.  Annualized inventory turns were 5.9 times2012 compared to 56.8 days at December 31, 2009 compared to 4.7 times2011. The slight increase resulted from higher than average days of sales outstanding at our 2012 business acquisitions. However, this increase was partially offset by improvements on days of sales outstanding excluding 2012 and 2011 acquisitions on a same store sales basis. Inventory turns were 8.0 at December 31, 2008.2012 and 6.6 at December 31, 2011. The increase in inventory turns primarily resulted from the reduction in inventories, including the $13.8 million reduction in the valueacquisitions of inventory acquired in the acquisition of Precision.Industrial Paramedic Services and HSE which have very little inventory.

During 2012, DXP purchased 76,300 shares of debt or equity securities.  In connection with any such financing, we may issue securities that substantially dilute the interestsDXP’s common stock at an average price per share of our shareholders.  We may not be able to obtain additional financing on acceptable terms, if$44.82 under this authorization.

During 2011, DXP repurchased 65,171 shares of DXP's common stock in non-open market transactions at all.an average price per share of $22.18.

The impact that our contractual obligations as of December 31, 20092012 are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities ("SPE's"), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2009,2012, we were not involved in any unconsolidated SPE transactions.transactions, nor did we have any other off-balance sheet arrangements.

In the ordinary course of business, DXP enters into contractual arrangements under which DXP may agree to indemnify customers from any losses incurred relating to the services we perform. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnities have been immaterial.

DiscussionCritical accounting and business policies are those that are both most important to the portrayal of Critical Accounting Policiesa company’s financial position and results of operations, and require management’s subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP. Below is a discussion of what we believe are our critical accounting policies.

The preparation of financial statements in conformity with generally accepted accounting principles generally accepted inrequires the United States of America requires usmanagement 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. The significant estimates made by usIn the opinion of management, all adjustments necessary in order to make the accompanying financial statements relate to reserves for accounts receivable collectability, inventory valuations, income taxes, self-insured liability claims and self-insured medical claims.not misleading have been included. Actual results could differ from those estimates. Management periodically re-evaluates these estimates as events and circumstances change. Together with the effects of the matter s discussed above, these factors may significantly impact the Company’s results of operations from period-to-period.

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 policiesprinciples 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 3 applies to assets or liabilities for which there are unobservable inputs to the portrayal of a company’s financial position and results of operations, and require management’s subjective or complex judgments.  These policies have been discussed withvaluation methodology that are significant to the Audit Committeemeasurement of the Board of Directors of DXP.  Below is a discussion of what we believe are our critical accounting policies.  Also, see Note 1fair value of the Notes to the Consolidated Financial Statements.assets or liabilities.

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.

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.  Revenues recognized include product sales and billings for freight and handling charges.

The Company estimatesreserves for potential customer returns based upon the fair valuehistorical level of assets, including property, machinery and equipment and their related useful lives and salvage values, and liabilities when allocating the purchase price of an acquisition.returns.

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.

In July 2006, the Company’s existing stock option plans.  The Company currently uses restricted stock for share-based compensation programs.  Compensation expense recognized for share-based compensation programs in the years ended December 31, 2007, 2008 and 2009 was $591,000, $930,000 and $1,555,000, respectively.  Unrecognized compensation expense under the Restricted Stock Plan was $3,092,000 and $2,601,000, respectively, at December 31, 2008 and 2009.  As of December 31, 2009, the weighted average period overFinancial Accounting Standards Board (“FASB”) issued authoritative guidance which the unrecognized compensation expense isrequires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is 30.9 months.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.

See Note 2 ofIn May 2011, the NotesFinancial Accounting Standards Board (FASB) issued an amendment to the Consolidated Financial Statementsfair value measurement guidance and disclosure requirements. The new requirements were effective for discussionthe 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 recent2012; however, the adoption of this guidance did not have a material effect on its consolidated financial position, results of operations or cash flows.

In September 2010, the FASB issued an accounting pronouncements.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.

We do not believe the effects of inflation have any material adverse effect on our results of operations or financial condition. We attempt to minimize inflationary trends by passing manufacturer price increases on to the customer whenever practicable.

Our market risk results primarily from volatility in interest rates. Our exposure to interest rate risk relates primarily to our debt portfolio. Using floating interest rate debt outstanding at December 31, 2009,2012, a 100 basis point increase in interest rates would increase our annual interest expense by approximately $1.1$2.3 million. Also see “Risk Factors,” included in Item 1A of this report for additional risk factors associated with our business.

The table below provides information about the Company’s market sensitive financial instruments and constitutes a forward-looking statement.

To the Board of Directors and Shareholders of

   DXP Enterprises, Inc., and Subsidiaries

Houston, Texas

We have audited the accompanying consolidated balance sheets of DXP Enterprises, Inc. and Subsidiaries as of December 31, 20082012 and 2009,2011, and the related consolidated statements of operations,income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2009.2012.  These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DXP Enterprises, Inc., and Subsidiaries at December 31, 20082012 and 2009,2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009,2012, in conformity with accounting principles generally accepted in the United States of America.

Hein & Associates LLP

Houston, Texas

March 23, 201011, 2013

To the Board of Directors and Shareholders of

DXP Enterprises, Inc., and Subsidiaries

Houston, Texas

We were engaged to audithave audited DXP Enterprises, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2012, based uponon criteria established in Internal Control — Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)(COSO).  The Company’sDXP Enterprises, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.accounting principles.  A company’scompany's internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America,accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of DXP Enterprises, Inc. as of December 31, 20092012 and 2008,2011, and the related consolidated statements of operations,income and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2009.2012. Our report thereon dated March 23, 201011, 2013 expressed an unqualified opinion.

Hein & Associates LLP

Internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of f inancialfinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

The Company’s assessment of the effectiveness of its internal control over financial reporting included testing and evaluating the design and operating effectiveness of its internal controls with the participation of its principal executive and principal financial officers. In management’s opinion, the Company has maintained effective internal control over financial reporting as of December 31, 2009,2012, based on criteria established in the COSO Framework.

David R. Little                                                                                                Mac McConnell

Chairman of the Board and Chief Executive Officer                                  Senior Vice President/Finance and