UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
☒[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 20172018
or
☐[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For1934.For the transition period from                     tofromto

Commission file number 0-21513
DXP Enterprises, Inc.
(Exact name of registrant as specified in its charter)

Texas 76-0509661
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
7272 Pinemont, Houston, Texas 77040
(Address of principal executive offices, including zip code)
 
(713) 996-4700
(Registrant’sRegistrant's telephone number, including area code)

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☒[X] No ☐[ ]

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

Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐(Do not check if a smaller reporting company)              Smaller reporting company ☐
Large accelerated filer [ ]     Accelerated filer [X]    Non-accelerated filer [ ] (Do not check if a smaller reporting company)    Smaller reporting company [ ]    Emerging growth company ☐   [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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

Number of shares of registrant’sregistrant's Common Stock outstanding as of May 10, 2017: 17,417,8617, 2018: 17,373,651 par value $0.01 per share.
PART I:FINANCIAL INFORMATION

PART I: FINANCIAL INFORMATION
ITEM 1:
ITEM 1: FINANCIAL STATEMENTS

DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)(unaudited)

      
 March 31, 2017  December 31, 2016  March 31, 2018  December 31, 2017 
ASSETS            
Current assets:            
Cash $995  $1,590  $12,646  $22,047 
Trade accounts receivable, net of allowance for doubtful accounts of $8,761 in 2017 and $8,160 in 2016  156,971   148,919 
Inventories, net  84,325   83,699 
Restricted cash  399   3,532 
Trade accounts receivable, net of allowance for doubtful accounts of $10,172 in 2018 and $9,015 in 2017  168,176   167,272 
Inventories  103,194   91,413 
Costs and estimated profits in excess of billings on uncompleted contracts  19,218   18,421   35,534   26,915 
Prepaid expenses and other current assets  3,816   2,138   4,580   5,296 
Federal income taxes recoverable  1,642   2,558   2,269   1,440 
Total current assets  266,967   257,325   326,798   317,915 
Property and equipment, net  58,304   60,807   52,257   53,337 
Goodwill  187,591   187,591   194,074   187,591 
Other intangible assets, net of accumulated amortization of $74,192 in 2017 and $70,027 in 2016  90,665   94,831 
Other intangible assets, net of accumulated amortization of $89,002 in 2018 and $84,624 in 2017  80,037   78,525 
Other long-term assets  1,787   1,498   1,707   1,715 
Total assets $605,314  $602,052  $654,873  $639,083 
LIABILITIES AND EQUITY                
Current liabilities:                
Current maturities of long-term debt, less unamortized debt issuance costs of $822 in 2017 $224,715  $51,354 
Current maturities of long-term debt $3,387  $3,381 
Trade accounts payable  79,279   78,698   90,930   80,303 
Accrued wages and benefits  13,998   16,962   14,411   18,483 
Customer advances  
3,092
   2,441   2,718   2,189 
Billings in excess of costs and estimated profits on uncompleted contracts  4,000   2,813   4,156   4,249 
Other current liabilities  13,768   14,391   18,421   16,220 
Total current liabilities  338,852   166,659   134,023   124,825 
Long-term debt, less current maturities and unamortized debt issuance costs of $992 in 2016  2,504   173,331 
Long-term debt, less current maturities and unamortized debt issuance costs  238,217   238,643 
Deferred income taxes  10,388   9,513   8,429   7,069 
Total long-term liabilities  246,646   245,712 
Total liabilities  380,669   370,537 
Commitments and contingencies (Note 13)                
Equity:                
Series A preferred stock, 1/10th vote per share; $1.00 par value; liquidation preference of $100 per share ($112 at March 31, 2017) 1,000,000 shares authorized; 1,122 shares issued and outstanding
  1   1 
Series B convertible preferred stock, 1/10th vote per share; $1.00 par value; $100 stated value; liquidation preference of $100 per share; ($1,500 at March 31, 2017); 1,000,000 shares authorized; 15,000 shares issued and outstanding
  15   15 
Common stock, $0.01 par value, 100,000,000 shares authorized; 17,417,861 at March 31, 2017 and 17,197,380 at December 31, 2016 shares issued  174   172 
Series A preferred stock, 1/10th vote per share; $1.00 par value; liquidation preference of $100 per share ($112 at March 31, 2018) 1,000,000 shares authorized; 1,122 shares issued and outstanding  1   1 
Series B convertible preferred stock, 1/10th vote per share; $1.00 par value; $100 stated value; liquidation preference of $100 per share; ($1,500 at March 31, 2018); 1,000,000 shares authorized; 15,000 shares issued and outstanding  15   15 
Common stock, $0.01 par value, 100,000,000 shares authorized; 17,354,300 at March 31, 2018 and 17,315,573 at December 31, 2017 shares issued  173   174 
Additional paid-in capital  152,768   152,313   154,663   153,087 
Retained earnings  120,505   117,396   138,710   134,193 
Accumulated other comprehensive loss  (20,594)  (18,274)  (19,868)  (19,491)
Total DXP Enterprises, Inc. equity  252,869   251,623   273,694   267,979 
Noncontrolling interest  701   926   510   567 
Total equity  253,570   252,549   274,204   268,546 
Total liabilities and equity $605,314  $602,052  $654,873  $639,083 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts) (unaudited)

  
Three Months Ended
March 31,
 
  2017  2016 
       
Sales $238,527  $253,561 
Cost of sales  174,012   184,743 
Gross profit ��64,515   68,818 
Selling, general and administrative expenses  56,279   
70,820
 
Income (loss) from operations  8,236   (2,002)
Other expense (income), net  (228)  (155)
Interest expense  3,653   3,409 
Income (loss) before provision for income taxes  4,811   (5,256)
Provision (benefit) for income taxes  1,817   (8)
Net income (loss)  2,994   (5,248)
Net loss attributable to noncontrolling interest  (139)  (136)
Net income (loss) attributable to DXP Enterprises, Inc.  3,133   (5,112)
Preferred stock dividend  23   23 
Net income (loss) attributable to common shareholders $3,110  $(5,135)
         
Net income (loss) $2,994  $(5,248)
Cumulative translation adjustment  (2,320)  638 
Comprehensive income (loss) $674  $(4,610)
         
Basic earnings (loss) per share attributable to DXP Enterprises, Inc. $0.18  $(0.35)
Weighted average common shares outstanding  
17,409
   
14,486
 
Diluted earnings (loss) per share attributable to DXP Enterprises, Inc. $0.17  $(0.35)
Weighted average common shares and common equivalent shares outstanding  18,249   
14,486
 

  
Three Months Ended
March 31,
 
  2018  2017 
       
Sales $285,936  $238,527 
Cost of sales  209,491   174,012 
Gross profit  76,445   64,515 
Selling, general and
 administrative expenses
  65,296   
56,279
 
Income from operations  11,149   8,236 
Other income, net  (22)  (228)
Interest expense  5,041   3,653 
Income before provision for income taxes  6,130   4,811 
Provision for income taxes  1,636   1,817 
Net income  4,494   2,994 
Net loss attributable to noncontrolling interest  (57)  (139)
Net income attributable to DXP Enterprises, Inc.  4,551   3,133 
Preferred stock dividend  23   23 
Net income attributable to
 common shareholders
 $4,528  $3,110 
         
Net income $4,494  $2,994 
Foreign currency translation adjustment  (377)  (2,320)
Comprehensive income $4,117  $674 
         
Basic earnings per share attributable to DXP Enterprises, Inc. $0.25  $0.18 
Weighted average common
 shares outstanding
  
17,901
   
17,409
 
Diluted earnings per share attributable to DXP Enterprises, Inc. $0.24  $0.17 
Weighted average common shares
 and common equivalent
 diluted shares outstanding
  18,741   
18,249
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

DXP ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)

 Three Months Ended 
 
Three Months Ended
March 31,
  March 31, 
 2017  2016  2018  2017 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss) attributable to DXP Enterprises, Inc. $3,133  $(5,112)
Net income attributable to DXP Enterprises, Inc. $4,551  $3,133 
Less net loss attributable to non-controlling interest  (139)  (136)  (57)  (139)
Net income (loss)  2,994   (5,248)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Net income  4,494   2,994 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation  2,699   3,018   2,356   2,699 
Amortization of intangible assets  4,316   4,528   4,358   4,316 
Bad debt expense  515   405   829   515 
Amortization of debt issuance costs  190   330   462   190 
Write off of debt issuance costs  -   395 
Compensation expense for restricted stock  533   766   446   533 
Tax loss related to vesting of restricted stock  -   561 
Stock compensation expense  290   - 
Deferred income taxes  800   3,532   (179)  800 
Changes in operating assets and liabilities, net of assets and liabilities acquired in business combinations:                
Trade accounts receivable  (8,425)  3,549   3,953   (8,425)
Costs and estimated profits in excess of billings on uncompleted contracts  (780)  3,532   (8,642)  (780)
Inventories  (595)  (1,801)  (9,107)  (595)
Prepaid expenses and other assets  (1,959)  (1,646)  699   (1,959)
Trade accounts payable and accrued expenses  (3,660))  (15,606)  (691)  (3,660)
Billings in excess of costs and estimated profits on uncompleted contracts  1,182   (3,905)  (76)  1,182 
Net cash used in operating activities  (2,190)  (7,590)  (808)  (2,190)
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment  (601)  (1,690)  (791)  (601)
Equity method investment contribution, net of distributions  -   (4,000)
Acquisitions of business, net of cash acquired  (9,836)  - 
Net cash used in investing activities  (601)  (5,690)  (10,627)  (601)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from debt  192,891   109,288   -   192,891 
Principal payments on revolving line of credit and other long-term debt  (190,527)  (96,001)  (844)  (190,527)
Costs for registration of common shares  -   (216)
Debt issuance fees  (20)  - 
Debt issuance costs  (38)  (20)
Loss for non-controlling interest owners, net of tax  (84)  (83)  -   (84)
Dividends paid  (23)  (23)  (23)  (23)
Payment for employee taxes withheld from stock awards  (38)  (109)  (54)  (38)
Tax loss related to vesting of restricted stock  -   (561)
Net cash provided by financing activities  2,199   12,295 
Net cash provided (used in) financing activities  (959)  2,199 
EFFECT OF FOREIGN CURRENCY ON CASH  (3)  (86)  (140)  (3)
NET CHANGE IN CASH  (595)  (1,071)  (12,534)  (595)
CASH AT BEGINNING OF PERIOD  1,590   1,693   25,579   1,590 
CASH AT END OF PERIOD $995  $622  $13,045  $995 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

DXP ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY

DXP Enterprises, Inc. together with its subsidiaries (collectively “DXP,” “Company,” “us,” “we,”"DXP," "Company," "us," "we," or “our”"our") was incorporated in Texas on July 26, 1996 to be the successor to SEPCO Industries, Inc.1996. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating (MRO) products, and servicesservice to energy and industrial customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company is organized into three business segments: Service Centers (“SC”("SC"), Supply Chain Services (“SCS”("SCS"), and Innovative Pumping Solutions (“IPS”("IPS"). See Note 1415 for discussion of the business segments.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Basis of Presentation

The Company’sCompany's financial statements are prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“("US GAAP”GAAP"). The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity (“VIE”("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2016.2017. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017.28, 2018. The results of operations for the three months ended March 31, 20172018 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, these condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’sCompany's condensed consolidated balance sheets as of December 31, 20162017 and March 31, 2017 (unaudited),2018, condensed consolidated statements of incomeoperations and comprehensive incomeoperations for the three months ended March 31, 20172018 and March 31, 2016 (unaudited),2017, and condensed consolidated statements of cash flows for the three months ended March 31, 20172018 and March 31, 2016 (unaudited)2017 . All such adjustments represent normal recurring items.

DXP is the primary beneficiary of a VIE in which DXP owns 47.5% of the equity. DXP consolidates the financial statements of the VIE with the financial statements of DXP. As of March 31, 2017,2018, the total assets of the VIE were approximately $5.4$5.1 million including approximately $5.1$4.7 million of property and equipmentfixed assets compared to $5.2 million of total assets and $5.2$4.5 million of property and equipmentfixed assets at December 31, 2016.2017. DXP is the primary customer of the VIE. For the three months ended March 31, 20172018 and 2016,2017, consolidation of the VIE increased cost of sales by approximately $0.1 million, and $0.4 million, respectively.respectively for each period. The Company recognized a related income tax benefit of $0.2 million$14,058 and $0.1$0.2 million, respectively, related to the VIE for the three months ended March 31, 20172018 and 2016.2017. At March 31, 2017,2018, the owners of 52.5% of the equity not owned by DXP included a former executive officer and other employees of DXP.

Equity investments in which we exercise significant influence, but do not control and are not the primary beneficiary, are accounted for using the equity method of accounting. During the first quarter of 2016, DXP invested $4.0 million in a related party equity method investment.  During the third and fourth quarters of 2016, the investment was reduced to zero by $4.0 million of distributions received from the entity.

All intercompany accounts and transactions have been eliminated upon consolidation.

NOTE 3 – RISKS AND UNCERTAINTIES

We believe cash generated from our operations will meet our normal working capital needs during the next twelve months. We expect that we will be in compliance with the financial covenants under our credit facility through and including March 31, 2018. However, because our credit facility matures on March 31, 2018, and we do not foresee the ability to pay the credit facility with cash from our operations, we intend to seek alternative financing during the next twelve months.  This alternative financing could include additional bank debt and/or the public or private sale of debt or equity securities. If we issue securities as a way of obtaining such financing, that may substantially dilute the interests of our shareholders. However, we may not be able to obtain alternative financing on attractive terms.  Based upon discussions with investment bankers, DXP management believes that it is probable that DXP will have the ability to refinance the current debt before maturity. DXP’s Board of Directors has approved a plan to refinance the credit facility.  The plan to refinance could include institutional debt or equity, combined with an asset based revolving loan.
5
NOTE 43 - RECENT ACCOUNTING PRONOUNCEMENTS

Standards Effective in 20172018 or EarlierLater

Accounting Changes and Error Corrections.Compensation - Stock Compensation.  In JanuaryMay 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2017-03 ("ASU") ASU 2017-03"), Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This update adds language to the SEC Staff Guidance in relation to ASU 2014-09, ASU 2016-02, and ASU 2016-13. This ASU 2017-03 provides the SEC Staff view that a registrant should consider additional quantitative and qualitative disclosures related to the previously mentioned ASUs in connection with the status and impact of their adoption. This guidance, which was effective immediately, did not have a material impact on our Condensed Consolidated Financial Statements.

2017-09, Compensation – Stock Compensation. In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation –- Stock Compensation (Topic 718): ImprovementsScope of Modification Accounting. This ASU provides guidance on the types of changes to Employee Share-Based Payment Accounting. The update aims to simplify aspectsthe terms or conditions of accounting for share-based payment award transactions, including (a) income tax consequences, (b)awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards as either equity or liabilities,are the same immediately before and (c) classification onafter the statement of cash flows. This pronouncement ismodification. The amendments in this ASU are effective for financial statements issuedall entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 and interim periods within those annual periods.2017 with early adoption permitted. The Company adoptedamendments in this ASU should be applied prospectively to an award modified on or after the ASU January 1, 2017 and it had the following impact on the Company’s Condensed Consolidated Financial Statements:

Topic
Method of Adoption
Impact on Consolidated Financial Statements
Recognize all excess tax benefits and tax deficiencies as income tax benefit or expenseProspective
The Company recognized $0.1 million of excess tax expense in income taxes in the three months ended March 31, 2017, increasing the effective tax rate for the quarter.
Excess tax benefits on the statement of cash flows are classified as an operating activityProspective
The Company recognized $0.1 million of excess tax expense in the three months ended March 31, as an operating activity.  Prior to the adoption of the ASU 2016-09, the excess tax expense in the three months ended March 31, 2016 was $0.6 million recognized as a financing activity.
Employee taxes paid when an employer withholds shares for tax-withholding purposes on the statement of cash flows are classified as financing activityRetrospective
The Company reclassified $0.1 million of employee taxes paid from cash flows from operating activities to cash flows from financing  on the Consolidated Statements of Cash Flows in the three months ended March 31, 2016.
Accounting for forfeitures and tax withholding electionsProspectiveThe Company has not changed its accounting policy for forfeitures.  There is no significant impact on Consolidated Financial Statements.
6
Income Taxes. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The update requires entities to present deferred tax assets and liabilities as noncurrent in a classified balance sheet. The update simplifies the current guidance, which requires entities to separately present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. This pronouncement is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within.adoption date. The Company adopted this ASU as of January 1, 2017 and reclassified $9.5 million of current deferred income tax assets from current assets to non-current deferred income tax liabilities on the Condensed Consolidated Balance Sheet.

Inventory. In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory. The amendments in ASU 2015-11 clarify the subsequent measurement of inventory requiring an entity to subsequently measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. This ASU applies only to inventory that is measured using the first-in, first-out (FIFO) or average cost method. Subsequent measurement is unchanged for inventory measured using last-in, first-out (LIFO) or the retail inventory method. The amendments in ASU 2015-11 should be applied prospectively and are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.  The Company adopted this ASU January 1, 20172018, and it did not have a material impact on the Company’s Condensed ConsolidatedCompany's Financial Statements.

Standards Effective in 2018 or Later
Intangibles-Goodwill and Other. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  This ASU is to simplify how an entity is required to test goodwill for impairment. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2017,2019, including interim periods within those fiscal years. The Company adopted this ASU early on December 31, 2017. The Company's annual tests of goodwill for impairment, testing for the fiscal period beginning January 1, 2018, will follow the provisionsincluding qualitative assessments of this ASU.  This ASU isall of its reporting units goodwill, determined a quantitative impairment test was not expected to have a material impact on the Company’s Consolidated Financial Statements.
necessary.
Business Combinations. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The effective date of this ASU is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ThisThe Company adopted this ASU isas of January 1, 2018, and it did not expected to have a material impact on the Company’s ConsolidatedCompany's Financial Statements.

Statement of Cash Flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ThisThe Company adopted this ASU isas of January 1, 2018, and it did not expected to have a material impact on the Company's Consolidated Financial Statements.

Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13: Financial Instruments – Credit Losses, which replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses.  The update is intended to provide financial statement users with more useful information about expected credit losses.  The amended guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.  We are currently evaluating the effect, if any, that the guidance will have on the Company’sCompany's Consolidated Financial Statements and related disclosures.
7

Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The update requires organizations that lease assets (“lessees”("lessees") to recognize the assets and liabilities for the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The criteria for determining whether a lease is a finance or operating lease has not been significantly changed by this ASU. The ASU also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. This pronouncement is effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that this standard will have on its Consolidated Financial Statements.

Financial Instruments. In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities. This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under fair value options and the presentation and disclosure requirements for financial instruments. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions of the new guidance can be adopted early. The Company is evaluatingadopted this ASU as of January 1, 2018, and it did not have a material impact on the impact of this ASU.Company's Financial Statements.

Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance on revenue recognition. The core principal of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance requires entities to apply a five-step method to (1) identify the contract(s) with customers, (2) identify the performance obligation(s) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligation(s) in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This pronouncement, as amended by ASU 2015-14, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.

The Company has evaluated the provisions of the new standard and is in the process of assessingassessed its impact on financial statements, information systems, business processes and financial statement disclosures. We had engaged third party consultants to assist us in assessing our contracts with customers, processes and controls required to address the impact that ASU No. 2014-09 would have on our business. The Company elected the modified retrospective method and adopted the new revenue guidance effective January 1, 2018, with no impact to the opening retained earnings.

The analysis of contracts with customers under the new revenue recognition standard was consistent with the Company's current revenue recognition model, whereby revenue is recognized primarily on the date products are shipped to the customer. The ASU also requires expanded qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, significant judgments and accounting policy.

Based on initial reviews,our overall assessment performed to date, the adoption of the new standard isdid not expected to have a material impact on the Company’sCompany's Consolidated Financial Statements. See Note 4 – Revenue Recognition

NOTE 4 – REVENUE RECOGNITION

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively. The core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance defines a five-step process to achieve this core principle. The new guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance provides for two transition methods, a full retrospective approach and a modified retrospective approach.

On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective method with no impact to the opening retained earnings and determined there were no changes required to its reported revenues as a result of the adoption. The Company has enhanced its disclosures of revenue to comply with the new guidance.

Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with ASC Topic 605, "Revenue Recognition." 

Overview
 
The Company's primary source of revenue is the sale of products, and service to energy and industrial customers. The Company is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS").

The Service Centers segment provides a wide range of MRO products, equipment and integrated services, including logistics capabilities, to industrial customers within our Service Center segment. Revenues are recognized 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, which is generally upon delivery to the customer. Revenues are recorded net of sales taxes.

The Company fabricates and assembles custom-made pump packages, remanufactures pumps and manufactures branded private label pumps within our Innovative Pumping Solutions segment. 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. The typical time span of these contracts is approximately one to two years.

The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management. Revenues are recognized 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, which is generally upon delivery to the customer. Revenues are recorded net of sales taxes.

See Note 16 "Segment Reporting" for disaggregation of revenue by reporting segments. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

NOTE 5 - 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.
8

Level 3 Inputs

Level 3 inputs are unobservable inputs for the asset or liability which require the Company’sCompany'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.

NOTE 6 – INVENTORIES NET

The carrying values of inventories are as follows (in thousands):

 
March 31,
2017
  
December 31,
2016
  
March 31,
2018
  
December 31,
2017
 
            
Finished goods $74,457  $74,269  $90,402  $79,820 
Work in process  9,868   9,430   12,792   11,593 
Inventories, net $84,325  $83,699 
Inventories $103,194  $91,413 

NOTE 7 – COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS

Costs and estimated profits in excess of billings on uncompleted contracts arise in the consolidated balance sheets when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract.


Costs and estimated profits on uncompleted contracts and related amounts billed were as follows (in thousands):

 
March 31,
2017
  
December 31,
2016
  
March 31,
2018
  
December 31,
2017
 
Costs incurred on uncompleted contracts $23,976  $25,214  $47,906  $37,899 
Estimated profits, thereon  5,420   6,274   5,439   2,665 
Total  29,396   31,488   53,345   40,564 
Less: billings to date  14,173   15,864   21,962   17,881 
Net $15,223  $15,624  $31,383  $22,683 


Such amounts were included in the accompanying condensed consolidated balance sheets for 20172018 and 20162017 under the following captions (in thousands):

 
March 31,
2017
  
December 31,
2016
  
March 31,
2018
  December 31, 2017 
Costs and estimated profits in excess of billings on uncompleted contracts $19,218  $18,421  $35,534  $26,915 
Billings in excess of costs and estimated profits on uncompleted contracts  (4,000)  (2,813)  (4,156)  (4,249)
Translation adjustment  5   16   5   17 
Net $15,223  $15,624  $31,383  $22,683 

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NOTE 8 - PROPERTY AND EQUIPMENT, NET

The carrying values of property and equipment are as follows (in thousands):

      
 
March 31,
2017
  
December 31,
2016
  March 31, 2018  
December 31,
2017
 
            
Land $2,346  $2,346  $2,381  $2,346 
Buildings and leasehold improvements  16,332   16,259   17,017   16,724 
Furniture, fixtures and equipment  94,826   94,784   96,495   94,475 
Less – Accumulated depreciation  (55,200)  (52,582)  (63,636)  (60,208)
Total property and equipment, net $58,304  $60,807  $52,257  $53,337 


NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the changes in the carrying amount of goodwill and other intangible assets during the three months ended March 31, 20172018 (in thousands):

 
Goodwill
  
Other
Intangible
Assets
  Total  
Goodwill
  
Other
Intangible Assets
  Total 
                  
Balance as of December 31, 2016 $187,591  $94,831  $282,422 
Balance as of December 31, 2017 $187,591  $78,525  $266,116 
Acquired during the period  6,483   6,185   12,668 
Translation adjustment      150   150   -   (315)  (315)
Amortization  -   (4,316)  (4,316)  -   (4,358)  (4,358)
Balance as of March 31, 2017 $187,591  $90,665  $278,256 
Balance as of March 31, 2018 $194,074  $80,037  $274,111 

The following table presents the goodwill balance by reportable segment as of March 31, 20172018 and December 31, 20162017 (in thousands):
 
March 31,
2017
  
December 31,
2016
  
March 31,
2018
  
December 31,
2017
 
Service Centers $154,473  $154,473  $160,956  $154,473 
Innovative Pumping Solutions  15,980   15,980   15,980   15,980 
Supply Chain Services  17,138   17,138   17,138   17,138 
Total $187,591  $187,591  $194,074  $187,591 

The following table presents a summary of amortizable other intangible assets (in thousands):

 As of March 31, 2017  As of December 31, 2016  March 31, 2018  
 
December 31, 2017
   		 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Carrying
 Amount,
net
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Carrying
Amount,
net
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  Carrying Amount, net  
Gross
Carrying
Amount
  
Accumulated
Amortization
  Carrying Amount, net 
Customer relationships $163,021  $(72,572)  90,449   163,022   (68,446)  94,576  $168,255  $(88,557)  79,698   162,200   (83,806)  78,394 
Non-compete agreements  1,836   (1,620)  216   1,836   (1,581)  255   784   (445)  339   949   (818)  131 
Total $164,857  $(74,192) $90,665  $164,858  $(70,027) $94,831  $169,039  $(89,002) $80,037  $163,149  $(84,624) $78,525 

Gross carrying amounts as well as accumulated amortization are partially affected by the fluctuation of foreign currency rates. Other intangible assets are amortized according to estimated economic benefits over their estimated useful lives.
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NOTE 10 – INCOME TAXES

The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Tax Cuts and Jobs Act contains several tax law changes that will impact the Company in the current and future periods. The Company is applying the guidance in SAB 118 issued by the Securities and Exchange Commission when accounting for the enactment-date effects of the Tax Cuts and Jobs Act. Specifically, SAB 118 permits companies to record a provisional amount which can be remeasured during the measurement period due to obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enacted date.  At March 31, 2018, the Company has not completed our accounting for all of the tax effects of the Tax Cuts and Jobs Act; however, in certain cases, as described below, the Company has made a reasonable estimate of other effects. The Company will continue to refine our calculations as additional analysis is completed.

The Company originally remeasured our U.S. net deferred tax liabilities and recorded a provisional $1.3 million benefit and a corresponding provisional decrease in the U.S. net deferred tax liability relating to the reduction in the U.S. federal corporate income tax rate to 21% from 35%. We are still in the process of analyzing Tax Cuts and Jobs Act's impact as permitted under SAB 118. The largest impact to the Company being the remeasurement of deferred taxes due to the U.S. statutory tax rate change. The mandatory repatriation and resulting toll charge on accumulated foreign earnings and profits has limited impact on the Company as unremitted earnings from non-US jurisdictions is minimal.  The Company is provisional in its approach and assertion that there is no financial statement impact related to mandatory repatriation as of March 31, 2018. We will continue to monitor tax reform, as we anticipate additional guidance from the Internal Revenue Service will become more available throughout 2018.

Our effective tax rate from continuing operations was a tax expense of 25.59% for the three months ended March 31, 2018 compared to a tax expense of 37.77% for the three months ended March 31, 2017. Compared to the U.S. statutory rate for the three months ended March 31, 2018, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by research and development tax credits. Compared to the U.S. statutory rate for the three months ended March 31, 2017, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by lower income tax rates on income earned in foreign jurisdictions, domestic production activities deduction, and research and development credits.

NOTE 11 – LONG-TERM DEBT

All of our debt under DXP’s credit facility has been classified as current because our credit facility matures on March 31, 2018.  DXP does not currently have the liquid funds necessary to repay the credit facility debt at maturity. Based upon discussions with investment bankers, DXP management believes that it is probable that DXP will have the ability to refinance the current debt before maturity. DXP’s Board of Directors has approved a plan to refinance the credit facility.   This plan could include institutional debt or equity, combined with an asset based revolving loan.
Long-term debt consisted of the following at March 31, 2017 and December 31, 2016 (in thousands):

 
March 31,
2017
  
December 31,
2016
  
March 31,
2018
  
December 31,
2017
 
            
Line of credit $153,800  $147,600 
Term loan  70,875   74,500 
ABL Revolver $-  $- 
Term Loan B  248,750   249,375 
Promissory note payable in monthly installments at 2.9% through January 2021, collateralized by equipment  3,366   3,577   2,504   2,722 
Less unamortized debt issuance costs  (822)  (992)  (9,650)  (10,073)
  227,219   224,685 
Total long-term debt  241,604   242,024 
Less: Current portion  (224,715)  (51,354)  (3,387)  (3,381)
Long-term debt less current maturities $2,504  $173,331  $238,217  $238,643 

ABL Facility
On July 11, 2012,August 29, 2017, DXP entered into a creditfive year, $85 million Asset Based Loan and Security Agreement (the "ABL Credit Agreement").  The ABL Credit Agreement provides for asset-based revolving loans in an aggregate principal amount of up to $85.0 million (the "ABL Loans"). The ABL Loans may be increased, in increments of $10.0 million, up to an aggregate of $50.0 million. The facility with Wells Fargo Bank National Association, as Issuing Lender, Swingline Lender and Administrative Agentwill mature on August 29, 2022. Interest accrues on outstanding borrowings at a rate equal to LIBOR or CDOR plus a margin ranging from 1.25% to 1.75% per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25% to 0.75% per annum, in each case, based upon the average daily excess availability under the facility for the lenders (as amended,most recently completed calendar quarter. Fees ranging from 0.25% to 0.375% per annum are payable on the “Original Facility”). On January 2, 2014,portion of the facility not in use at any given time. The interest rate for the ABL facility was 3.2% at March 31, 2018. The unused line fee was 0.375% at March 31, 2018. As of March 31, 2018 there were no amounts of ABL Loans outstanding under the facility.

The obligations of the borrowers are guaranteed by the Company and its direct and indirect material wholly-owned subsidiaries other than certain excluded subsidiaries.

The ABL Credit Agreement contains a financial covenant restricting the Company from allowing its Fixed Charge Coverage Ratio to be less than 1.00 to 1.00 during a compliance period, which is triggered when the availability under ABL facility falls below a threshold set forth in the ABL Credit Agreement. As of March 31, 2018, the Company's consolidated Fixed Charge Coverage Ratio was 3.44to 1.00.
As of March 31, 2018, DXP was in compliance with all such covenants that were in effect on such date under the ABL facility.   

The ABL Loan is secured by substantially all of the assets of the Company.

Senior Secured Term Loan B:
On August 29, 2017, DXP entered into a six year Senior Secured Term Loan B (the "Term Loan") with an Amendedoriginal principal amount of $250 million which amortizes in equal quarterly installments of 0.25% with the balance payable in August 2023, when the facility matures.  Subject to securing additional lender commitments, the Term Loan allows for incremental increases in facility size up to an aggregate of $30 million, in minimum increments of $10 million, plus an additional amount such that DXP's Secured Leverage Ratio (as defined under the Term Loan) would not exceed 3.60 to 1.00. We are required to repay the Term Loan in connection with certain asset sales and Restatedinsurance proceeds, certain debt proceeds and 50% of excess cash flow, reducing to 25%, if our total leverage ratio is no more than 3.00 to 1.00 and 0%, if our total leverage ratio is no more than 2.50 to 1.00. In addition, the Term Loan contains a number of customary restrictive covenants. The interest rate for the Term Loan was 7.4 % as of March 31, 2018. At March 31, 2018, the aggregate principal amount of Term Loan borrowings outstanding under the facility was $248.8 million.
The Term Loan requires that the company's Secured Leverage Ratio, defined as the ratio, as of the last day of any fiscal quarter of consolidated secured debt (net of restricted cash, not to exceed $30 million) as of such day to EBITDA, beginning with the fiscal quarter ending December 31, 2017, be either equal to or less than the ratio indicated in the table below:

Fiscal QuarterSecured Leverage Ratio
December 31, 20175.75:1.00
March 31, 20185.75:1.00
June 30, 20185.50:1.00
September 30, 20185.50:1.00
December 31, 20185.25:1.00
March 31, 20195.25:1.00
June 30, 20195.00:1.00
September 30, 20195.00:1.00
December 31, 20194.75:1.00
March 31, 20204.75:1.00
June 30, 2020 and each Fiscal Quarter thereafter4.50:1.00
As of March 31, 2018, the Company's consolidated Secured Leverage Ratio was 3.43 to 1.00.

As of March 31, 2018, DXP was in compliance with all such covenants that were in effect on such date under the Term Loan facility.   

The Term Loan is guaranteed by each of the Company's direct and indirect material wholly owned subsidiaries, other than any of the Company's Canadian subsidiaries and certain other excluded subsidiaries.

The Term Loan is secured by substantially all of the assets of the Company.
Extinguishment of Previously Existing Credit AgreementFacility

As set forth above, on August 29, 2017, the Company terminated its previously existing credit agreement and facility and replaced it with Wells Fargo Bank, National Association, as Issuing Lenderthe Term Loan and Administrative Agent for other lenders (as amended by that certain First Amendment tothe ABL Credit Agreement. The terminated facility was under the Amended and Restated Credit Agreement, dated as of January 2, 2014, by and among the Company, as borrower, and Wells Fargo Bank, National Association, as issuing lender and administrative agent for other lenders (the "OriginalCredit Agreement"). This Original Credit Agreement was subsequently amended five times by the First Amendment to Restated Credit Agreement dated as of August 6, 2015, (the “First Amendment”), that certain Second Amendment to the Amended and Restated Credit Agreement dated as of September 30, 2015, (the “Second Amendment”), that certain Third Amendment to the Amended and Restated Credit Agreement dated as of May 12, 2016, (the “Third Amendment”), that certain Fourth Amendment to the Amended and Restated Credit Agreement dated as of August 15, 2016, (the “Fourth Amendment”), and that certain Fifth Amendment to the Amended and Restated Credit Agreement dated as of November 28, 2016 (the “Fifth Amendment”2016. A description of the material terms of these terminated agreements can be found in the Company's Annual Report on Form 10-K filed with the Securities and as so amended, the “Facility”), amending and restating the Original Facility. Pursuant to the Facility, as of March 31, 2017, the lenders named therein provided to DXP a $70.9 million term loan and a $190 million revolving line of credit.  The Facility expiresExchange Commission on March 31, 2018.  Loans made from28, 2017.  In connection with the extinguishment of the previously existing Credit Facility may be used for working capital and general corporate purposeswe recorded a $0.6 million write-off of DXP and its subsidiaries.  As of March 31, 2017, the aggregate principal amount of revolving loans outstanding under the facility was $153.8 million.debt issuance costs.

Amortization payments are payable at $15.625 million per quarter for the fiscal quarter periods ending March 31, 2017 and thereafter. On October 31, 2016, DXP prepaid $12 million of the $15.625 million amortization payment due on March 31, 2017. At March 31, 2017, the aggregate principal amount of term loan outstanding under the Facility was $70.9 million.

On March 31, 2017, the LIBOR based rate in effect under the Facility was LIBOR plus 5.0% and the prime based rate of the Facility was prime plus 4.0%. At March 31, 2017, $224.7 million was borrowed under the Facility at a weighted average interest rate of approximately 6.0%.  At March 31, 2017, the Company had $29.9 million available for borrowing under the Facility.

Commitment fees of 0.50% 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 Condensed Consolidated Statements of Operations.
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The Facility contains financial covenants defining various financial measures and levels of these measures with which the Company must comply monthly. Substantially all of the Company’s assets are pledged as collateral to secure the credit facility.

NOTE 1112 - STOCK-BASED COMPENSATION

Restricted Stock

Under the restricted stockequity incentive plans approved by our shareholders, directors, consultants and employees weremay be awarded shares of DXP’sDXP's common stock. The shares of restricted stock and restricted stock units granted to employees and that are outstanding as of March 31, 20172018 vest (or have forfeiture restrictions that lapse) in accordance with one of the following vesting schedules: 100% one year after date of grant; 33.3% each year for three years after the date of grant; 20% each year for five years after the grant date;date of grant; or 10% each year for ten years after the grant date.date of grant. 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 wasis measured based upon the closing prices of DXP’sDXP's common stock on the grant dates and is recognized as compensation expense over the vesting period of the awards. Shares of our common stock are issued and outstanding upon the grant of awards of restricted stock. Once restricted stock vests,units vest, new shares of the Company’sCompany's stock are issued.  At March 31, 2017, 407,4472018, 288,899 shares were available for future grants.grant.

Changes in restricted stock for the three months ended March 31, 20172018 were as follows:

 
Number of
Shares
  
Weighted
Average
Grant Price
  
Number of
Shares
  
Weighted Average
Grant Price
 
Non-vested at December 31, 2016  143,380  $26.76 
Non-vested at December 31, 2017  77,901  $30.36 
Granted  12,150  $33.84   114,724  $30.94 
Forfeited  -  $-   (2,400) $46.68 
Vested  (11,900) $70.43   (10,699) $55.90 
Non-vested at March 31, 2017  143,630  $23.74 
Non-vested at March 31, 2018  179,526  $28.99 


Compensation expense, associated with restricted stock, recognized in the three months ended March 31, 2018 and 2017 was $446 thousand and 2016 was $0.5 million and $0.8 million, respectively. Related income tax benefits recognized in earnings for the three months ended March 31, 20172018 and 20162017 were approximately $0.2 million and $0.3$0.2 million, respectively. Unrecognized compensation expense under the Restricted Stock Plan at March 31, 20172018 and December 31, 20162017 was $2.5$4.5 million and $2.7$1.6 million, respectively. As of March 31, 2017,2018, the weighted average period over which the unrecognized compensation expense is expected to be recognized is 16.326.7 months.

NOTE 1213 - 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):

  
Three Months Ended
March 31,
 
  2018  2017 
Basic:         
Weighted average shares outstanding  17,901   17,409 
Net income attributable to DXP Enterprises, Inc. $4,551  $3,133
Convertible preferred stock dividend  23   23
Net income attributable to common shareholders $4,528  $3,110
Per share amount $0.25  $0.18
             
Diluted:            
Weighted average shares outstanding  17,901   17,409
Assumed conversion of convertible
 preferred stock
  840   840
Total dilutive shares  18,741   18,249
Net income attributable to  common shareholders $4,528  $3,110
Convertible preferred stock dividend  23   23
Net income attributable to DXP Enterprises, Inc. for diluted
 earnings per share
 $4,551  $3,133
Per share amount $0.24  $0.17

  
Three Months Ended
March 31,
 
  2017  2016 
Basic:      
Weighted average shares outstanding  17,409   14,486 
Net income (loss) attributable to DXP Enterprises, Inc. $3,133  $(5,112)
Convertible preferred stock dividend  23   23 
Net income (loss) attributable to common shareholders $3,110  $(5,135)
Per share amount $0.18  $(0.35)
         
Diluted:        
Weighted average shares outstanding  17,409   14,486 
Assumed conversion of convertible preferred stock  840   - 
Total dilutive shares  18,249   14,486 
Net income (loss) attributable to common shareholders $3,110  $(5,135)
Convertible preferred stock dividend  23     
Net income (loss) attributable to DXP Enterprises, Inc. for diluted earnings per share $3,133  $(5,135)
Per share amount $0.17  $(0.35)
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For the three months ended March 31, 2016, we excluded the potential dilution of convertible preferred stocks, which could be converted into 840,000 shares because the conversion would be anti-dilutive.

NOTE 1314 - COMMITMENTS AND CONTINGENCIES

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’sDXP's consolidated financial position, cash flows, or results of operations.

NOTE 15 – BUSINESS ACQUISITIONS

On January 1, 2018, the Company completed the acquisition of Application Specialties, Inc. ("ASI"), a distributor of cutting tools, abrasives, coolants and machine shop supplies. The Company paid approximately $11.5 million for ASI. The purchase was financed with $10.6 million of cash on hand as well as issuing $0.9 million of the Company's common stock. ASI will provide the Company's metal working division with new geographic territory and enhance DXP's end market mix. With ASI, we continue to build on our strategy of providing a breadth of technical products and services on a regional and local level. ASI provides us scale and access to the U.S. Pacific Northwest market, while allowing us to continue to serve our customer's evolving needs within our Service Center segment. For the three months ended March 31, 2018, the business acquired contributed sales of $10.6 million and earnings before taxes of approximately $1.3 million.

NOTE 1416 - SEGMENT REPORTING

The Company’sCompany'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, remanufactures pumps and manufactures branded private label pumps. The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management.

The high degree of integration of the Company’sCompany'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.

The following table sets out financial information related to the Company’sCompany's segments (in thousands):
  For the Three Months Ended March 31, 
  2018  2017 
  SC  IPS  SCS  Total  SC  IPS  SCS Total 
Sales $175,362  $67,642  $42,932  $285,936  $148,713  $49,058  $40,756  $238,527 
Amortization  2,459   1,627   272   4,358   2,250   1,795   271   4,316 
Income (loss) from operations  13,371   4,755   3,782   21,908   11,090   1,715   3,787   16,592 
Income from operations,
excluding amortization
 $15,830  $6,382  $4,054  $26,266  $13,340  $3,510  $4,058  $20,908 
                                 

  For the Three Months Ended March 31, 
  2017  2016 
  SC  IPS  SCS  Total  SC  IPS  SCS  Total 
Sales $148,713  $49,058  $40,756  $238,527  $167,502  $47,431  $38,628  $253,561 
Amortization  2,250   1,795   271   4,316   2,295   1,962   271   4,528 
Income (loss) from operations  11,090   1,715   3,787   16,592   7,241   (1,656)  3,209   8,794 
Income from operations, excluding amortization $13,340  $3,510  $4,058  $20,908  $9,536  $306  $3,480  $13,322 
13

The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes (in thousands):
     
Three Months Ended
March 31,
 
  
2018
  
2017
 
Operating income for reportable segments, excluding amortization $26,266  $20,908 
Adjustment for:        
 Amortization of intangible assets  4,358   4,316 
 Corporate expense  10,759   8,356 
Income from operations  11,149   8,236 
Interest expense  5,041   3,653 
Other income, net  (22)  (228)
Income before income taxes $6,130  $4,811 

  Three Months Ended
March 31,
 
  
2017
  
2016
 
Operating income for reportable segments, excluding amortization $20,908  $13,322 
Adjustment for:        
Amortization of intangible assets  4,316   4,528 
Corporate expense  8,356   10,796 
Income (loss) from operations  8,236   (2,002)
Interest expense  3,653   3,409 
Other expense (income), net  (228)  (155)
Income (loss) before income taxes $4,811  $(5,256)
NOTE 1517 - SUBSEQUENT EVENTS

We have evaluated subsequent events through the date the interim Condensed Consolidated Financial Statements were issued. There were no subsequent events that required recognition or disclosure unless elsewhere identified in this report.

ITEM 2: MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis (MD&A)("MD&A") of the financial condition and results of operations of
DXP Enterprises, Inc. together with its subsidiaries (collectively “DXP,” “Company,” “us,” “we,”"DXP," "Company," "us," "we," or “our”"our") for the three months ended March 31, 20172018 should be read in conjunction with our previous annual report on Form 10-K and our quarterly reports on Form 10-Q, and the financial statements and notes thereto included in our annual and quarterly reports. The Company’sCompany's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“("US GAAP”GAAP").

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”"Report") contains statements that constitute “forward-looking statements”"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements can be identified by the use of forward-looking terminology such as “believes”"believes", “expects”"expects", “may”"may", “might”"might", “estimates”"estimates", “will”"will", “should”"should", “could”"could", “would”"would", “suspect”"suspect", “potential”"potential", “current”"current", “achieve”"achieve", “plans”"plans" or “anticipates”"anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include our ability to satisfy our debt covenants under our credit facility, our ability to refinance our debt on acceptable terms, the effectiveness of management’smanagement's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditionconditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, our success in remediating our internal control weaknesses, new or modified statutory or regulatory requirements, availability of materials and changinglabor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts or war or terrorist acts and the governmental or military response thereto, cyber-attacks adversely affecting our operations, other geological, operating and economic considerations and declining prices and market conditions.conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service, and our ability to obtain financing on favorable terms or amend our credit facilities as needed. This Report identifies other factors that could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors", included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017.28, 2018. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Report to the "Company", "DXP", “we”"we" or “our”"our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries.
14

RESULTS OF OPERATIONS
(in thousands, except percentages and per share data)

 Three Months Ended March 31,  Three Months Ended March 31, 
 2017  %  2016  %  2018  % of Sales  2017  % of Sales 
Sales $238,527   100.0  $253,561   100.0  $285,936   100.0  $238,527   100.0 
Cost of sales  174,012   72.9   184,743   72.9   209,491   73.3   174,012   72.9 
Gross profit  64,515   27.0   68,818   27.1   76,445   26.7   64,515   27.0 
Selling, general and administrative expense  56,279   23.6   70,820   27.9   65,296   22.8   56,279   23.6 
Income (loss) from operations  8,236   3.4   (2,002)  -0.8 
Other expense (income), net  (228)  -0.1   (155)  -0.1 
Income from operations  11,149   3.9   8,236   3.4 
Other income, net  (22)  0.0   (228)  -0.1 
Interest expense  3,653   1.5   3,409   1.3   5,041   1.8   3,653   1.5 
Income (loss) before taxes  4,811   2.0   (5,256)  -2.1 
Income before taxes  6,130   2.1   4,811   2.0 
Provision for income taxes  1,817   0.8   (8)  -0.0   1,636   0.6   1,817   0.8 
Net income (loss)  2,994   1.2   (5,248)  -2.1 
Net income  4,494   1.6   2,994   1.2 
Net loss attributable to noncontrolling interest  (139)  -0.1   (136)  -0.1   (57)  0.0   (139)  -0.1 
Net income (loss) attributable to DXP Enterprises, Inc. $3,133   1.3  $(5,112)  -2.0 
Net income attributable to DXP Enterprises, Inc. $4,551   1.6  $3,133   1.3 
Per share amounts attributable to DXP Enterprises, Inc.                                
Basic earnings (loss) per share $0.18      $(0.35)    
Diluted earnings (loss) per share $0.17      $(0.35)    
Basic earnings per share $0.25      $0.18     
Diluted earnings per share $0.24      $0.17     


DXP is organized into three business segments: Service Centers (“SC”("SC"), Supply Chain Services (“SCS”("SCS") and Innovative Pumping Solutions (“IPS”("IPS"). The Service Centers are engaged in providing maintenance, repair and operating (“MRO”("MRO") products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. The Service Centers provide a wide range of MRO products and services in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. The SCS segment provides a wide range of MRO products and manages all or part of our customer’scustomer's supply chain, including inventory. The IPS segment fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps. Over 90% of DXP’sDXP's revenues represent sales of products.

Three Months Ended March 31, 20172018 compared to Three Months Ended March 31, 20162017

SALES. Sales for the three months ended March 31, 2017 decreased2018 increased $ 15.047.4 million, or 5.9%19.9%, to approximately $238.5$285.9 million from $253.6$238.5 million for the prior year's corresponding period. Sales from a business sold in 2016acquired on January 1, 2018 accounted for $7.8$10.6 million of the declineincrease in sales. Excluding first quarter 20162018 sales of the sold business on a same store sales basis,acquired, sales for the first quarter in 2017 decreased2018 increased by $7.2$36.8 million, or 3.0%15.5% from the prior year's corresponding period. This same store sales decreaseincrease is the result of a declinean increase in our Service Centers segment of $11.0 million slightly offset by sales increases in our IPS, SC and SCS segments of $1.6$26.6 million, $18.6 million and $2.1$2.2 million, respectively, on a same store sales basis. These fluctuations in the sales in our segments are further explained in segment discussions below.

GROSS PROFIT. Gross profit as a percentage of sales for the three months ended March 31, 20172018 decreased by approximately 931 basis points from the prior year's corresponding period. On a same store sales basis,Excluding the impact of the business acquired, gross profit as a percentage of sales increaseddecreased by approximately 271 basis points.point. The overall increasedecrease in the same store gross profit percentage on a same store sales basisexcluding the business acquired, is primarily the result of an approximate 21730 basis point increasedecrease in the gross profit percentage in our IPS segment and an approximate 1531 basis point increase in the gross profit percentage in our Service Centers segment. Increases in the gross profit percentage in our IPS and Service Centers segments on a same store sales basis, were partially offset by an approximate 60 basis point decline in gross profit as a percent of sales for our Supply Chain Service Segment. These fluctuations are explained in the segment discussions below.
15

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense (SG&A)("SG&A") for the three months ended March 31, 2017 decreased2018 increased by approximately $14.5$9.0 million, or 20.5%16.0%, to $56.3$65.3 million from $70.8$56.3 million for the prior year's corresponding period. Selling, general and administrative expense from a business that was soldacquired accounted for $2.2$0.7 million of the first quarter decrease.increase. Excluding first quarter expenses from the business that was sold, on a same store sales basis,acquired, SG&A for the quarter decreasedincreased by $12.3$8.3 million, or 18.0%14.7%. The overall declineincrease in SG&A on a same store sales basis,adjusting for the business acquired, is the result decreasedof increased payroll, incentive compensation and related taxes and 401(k) expenses due to headcount and salary reductions and other cost reduction measures primarily implemented near the end of the first quarter of 2016.  Additionally, amortization expense declined by $0.2 million, on a same store sales basis.401(K) expenses. The remaining declineincrease in SG&A expense for the first quarter of 20172018 is consistent witha result of the decreaseincrease in sales. As a percentage of sales, the first quarter 20172018 expense decreased approximately 43015 basis points to 23.6%23.5% from 27.9%23.6% for the prior year's corresponding period, on a same store sales basis,adjusting for the business acquired, primarily as a result of the percentage decreaseincrease in SG&Asales exceeding the percentage declinedecrease in sales.SG&A.

OPERATING INCOME. Operating income for the first quarter of 20172018 increased $10.2by $2.9 million, to $8.2$11.1 million, from a loss of $2.0$8.2 million in the prior year's corresponding period. The operating income from the business soldacquired in 2016 reduced2018 increased the overall increase in operating income in the amount of $0.8$1.3 million. Excluding the operating income from the business sold, on a same store sales basis,acquired, operating income increased $11.0$1.6 million, or 392.7%19.5% from the prior year's corresponding period. This increase in operating income is primarily related to the decreaseincrease in SG&Asales discussed above.

INTEREST EXPENSE. Interest expense for the first quarter of 20172018 increased 7.2%38.0% from the prior year's corresponding period primarily as a result of increased interest rates under our credit facility.

INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of 25.59% for the three months ended March 31, 2018 compared to a tax expense of 37.77% for the three months ended March 31, 2017. Compared to the U.S. statutory rate for the three months ended March 31, 2018, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by research and development tax credits. Compared to the U.S. statutory rate for the three months ended March 31, 2017, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by lower income tax rates on income earned in foreign jurisdictions, domestic production activities deduction, and research and development credits.

SERVICE CENTERS SEGMENT. Sales for the Service Centers segment decreasedincreased by $18.8$26.6 million, or 11.2%17.9% for the first quarter of 20172018 compared to the prior year's corresponding period. Excluding $7.8$10.6 million of first quarter 20162018 Service Centers segment sales from a business sold,acquired, Service Centers segment sales for the first quarter in 2016 decreased $11.02018 increased $16.0 million, or 6.9%10.8% from the prior year's corresponding period, on a same store sales basis.period. This sales decreaseincrease is primarily the result of decreasedincreased sales of rotating equipment, bearings and metal working products to customers engaged in the late upstream, midstream or downstream oil and gas marketmarkets or manufacturing equipment for the upstreamthese markets in connection with increased capital spending by oil and gas market. Increases and decreases in DXP’s sales to oil and gas related customers tend to lag many months behind increases and decreases in crude oil and natural gas prices and the drilling rig count.producers. If crude oil and natural gas prices and the drilling rig count remain at levels experienced during the first quarter of 2017,2018, this level of sales to the upstream oil and gas industry could be expected tomight continue, or improve, during the remainder of 2017.2018. As a percentage of sales, the first quarter gross profit percentage for the Service Centers decreasedincreased approximately 3031 basis points but increased approximately 151 basis points, on a same store sales basis,adjusting for the business acquired, from the prior year's corresponding period. Operating income for the Service Centers segment increased $3.8$2.5 million, or 39.9%18.7%. The increase in operating income is primarily the result of the decline in SG&Aimproved sales.

INNOVATIVE PUMPING SOLUTIONS SEGMENT. Sales for the IPS segment increased by $1.6$18.6 million, or 3.4%37.9% for the first quarter of 20172018 compared to the prior year's corresponding period. This increase was primarily the result of an increase in the capital spending by oil and gas producers and related businesses stemming from an increase in the drilling rig count production and the price of oil during the fourth quarter of 20162017 and first quarter of 2017.2018.  This level of IPS sales could be expectedmight continue, or improve, during the remainder of 20172018 if crude oil and natural gas prices and the drilling rig count remain at levels experienced during the first quarter of 2017.2018.  As a percentage of sales, the first quarter gross profit percentage for the IPS segment increaseddecreased approximately 21730 basis points from the prior year's corresponding period primarily as a result of competitive pricing pressures and a decrease in unabsorbed manufacturing overhead.reduced level of large, complex, high margin orders.  Additionally, gross profit margins for individual orders for the IPS segment can fluctuate significantly because each order is for a unique package built to customer specifications and subject to varying competition. Operating income for the IPS segment increased $3.2$2.9 million, or 1,046.9%81.8%, primarily as a result of the above mentioned increase in sales, decrease in SG&A, and 217 basis point increase in the gross profit percentage discussed above.sales.

SUPPLY CHAIN SERVICES SEGMENT. Sales for the SCS segment increased by $2.1$2.2 million, or 5.5%5.3%, for the first quarter of 20172018, compared to the prior year's corresponding period. The increase in sales is primarily related to increased sales to customers in the oil and gas industries. We suspect customers in the oilfield services and oilfield equipment manufacturing industries purchased more from DXP because of the increase in capital spending by oil and gas companies operating in the U.S and Canada.U.S.. Gross profit as a percentage of sales decreasedincreased approximately 603 basis points, compared to the prior year's corresponding periodperiod.  This was primarily as a result of increased sales of lower margin products to oil and gas related customers.  Operating income for the SCS segment increased 16.6% primarily as a resultfirst quarter of increased2018 remained flat compared to the prior year's corresponding period mainly due to an increase in gross profit from increased sales and reducedof $0.5 million primarily offset by an increase in SG&A due to cost reduction measures.of $0.5 million.
 
16
LIQUIDITY AND CAPITAL RESOURCES

General Overview

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. As a distributor of MRO products and services, we require significant amounts of working capital to fund inventories and accounts receivable. Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and safety services equipment. We also require cash to pay our lease obligations and to service our debt.

The following table summarizes our net cash flows used in operating activities, net cash used in investing activities and net cash provided by financing activities for the periods presented (in thousands):


     
Three Months Ended
March 31,
 
Net Cash Provided by (Used in): 
2018
  
2017
 
Operating Activities $(808) $(2,190)
Investing Activities  (10,627)  (601)
Financing Activities  (959)  2,199 
Effect of Foreign Currency  (140)  (3)
Net Change in Cash $(12,534) $(595)

Operating Activities

The Company used $2.2$0.8 million of cash in operating activities during the three months ended March 31, 20172018 compared to using $7.6$2.2 million of cash during the prior year's corresponding period. The $5.4$12.1 million decreaseincrease in the amount of cash used between the two periods was primarily driven by stronger working capital needs.

Investing Activities

For the $8.2three months ended March 31, 2018, net cash used in investing activities was $10.6 million improvementcompared to $0.6 million in the corresponding period in 2017. This was primarily driven by the purchase of ASI. For the three months ended March 31, 2018, purchase of property, plant and equipment were approximately $0.8 million.

Financing Activities

For the three months ended March 31, 2018, net income.cash used by financing activities was $1.0 million, compared to net cash provided by financing activities of $2.2 million for the corresponding period in 2017.  The activity in the period was primarily attributed to the Company making principal repayments on the Term Loan.

During the first quarter of 2017,2018, the amount available to be borrowed under our credit facility decreased from $37.3to $80.1 million at March 31, 2018 compared to $82.0 million at December 31, 2016, to $29.92017.  This was the result of $5.2 million atin letters of credit outstanding as of March 31, 2017. This decrease in availability2018.

We believe this is adequate funding to support working capital needs within the business. 
Funding Commitments

We intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be determined with certainty. We continue to expect to fund future acquisitions primarily a resultwith cash flows from operations and borrowings, including the undrawn portion of the revolving line of credit reducing from $205 millionfacility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at December 31, 2016,terms acceptable to $190 million at March 31, 2017.us.

CreditSenior Secured Term Loan B and ABL Facility

On July 11, 2012,August 29, 2017, DXP entered into a five year, $85 million Asset Based Loan and Security Agreement (the "ABL Credit Agreement") and a six-year, $250 million Senior Secured Term Loan B (the "Term Loan B Agreement"), which replaced DXP's previously existing credit facility with Wells Fargo Bank National Association, as Issuing Lender, Swingline Lender and Administrative Agent for the lenders (as amended, the “Original Facility”). On January 2, 2014, the Company entered into an Amended and Restatedfacility.
The ABL Credit Agreement with Wells Fargo Bank, National Association, as Issuing Lender and Administrative Agentprovides for other lenders (as amended by that certain First Amendment to the Amended and Restated Credit Agreement, dated as of August 6, 2015 (the “First Amendment”), that certain Second Amendment to the Amended and Restated Credit Agreement, dated as of September 30, 2015 (the “Second Amendment”), that certain Third Amendment to the Amended and Restated Credit Agreement, dated as of May 12, 2016 (the “Third Amendment”), that certain Fourth Amendment to the Amended and Restated Credit Agreement, dated as of August 15, 2016 (the “Fourth Amendment”), and that certain Fifth Amendment to the Amended and Restated Credit Agreement, dated as of November 28, 2016 (the “Fifth Amendment” and as so amended, the “Facility”), amending and restating the Original Facility. Pursuant to the Facility, as of March 31, 2017, the lenders named therein provided to DXP a $70.9 million term loan and a $190 millionasset-based revolving line of credit.  The Facility expires on March 31, 2018.  Loans made from the Facility may be used for working capital and general corporate purposes of DXP and its subsidiaries.  As of March 31, 2017, theloans in an aggregate principal amount of revolving loansup to $85.0 million (the "ABL Loans").  The ABL Credit Agreement may be increased in increments of $10.0 million up to an aggregate of $50.0 million. The facility will mature on August 29, 2022. Interest accrues on outstanding borrowings at a rate equal to LIBOR or CDOR plus a margin ranging from 1.25% to 1.75% per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25% to 0.75% per annum, in each case, based upon the average daily excess availability under the facility was $153.8 million.

Amortization payments are payable at $15.625 million per quarter for the fiscal quarter periods ending March 31, 2017 and thereafter. On October 31, 2016, DXP prepaid $12 million of the $15.625 million amortization payment due on March 31, 2017.  At March 31, 2017, the aggregate principal amount of term loan outstanding under the Facility was $70.9 million.

On March 31, 2017, the LIBOR based rate in effect under the Facility was LIBOR plus 5.0% and the prime based rate of the Facility was prime plus 4.0%. At March 31, 2017, $224.7 million was borrowed under the Facility at a weighted average interest rate of approximately 6.0%.  At March 31, 2017, the Company had $29.9 million available for borrowing under the Facility.

Commitment fees of 0.50%most recently completed calendar quarter. Fees ranging from 0.25% to 0.375% per annum are payable on the portion of the Facility capacityfacility not in use at any given timetime. The unused line fee was 0.375% at March 31, 2018.
The interest rate for the ABL facility was 3.2% at March 31, 2018.
The Term Loan B Agreement provides for a $250 million term loan (the "Term Loan") that amortizes in equal quarterly installments of 0.25% with the balance payable in August 2023, when the facility matures.  Subject to securing additional lender commitments, the Term Loan B Agreement allows for incremental increases in facility size up to an aggregate of $30 million, plus an additional amount such that DXP's Secured Leverage Ratio (as defined in the Term Loan B Agreement) would not exceed 3.60 to 1.00. Interest accrues on the lineTerm Loan at a rate equal to the base rate plus a margin of credit. Commitment fees are included as interest4.5% for the Base Rate Loans (as defined in the condensed consolidated statementsTerm Loan B Agreement), or LIBOR plus a margin of operations.

5.5% for the Eurodollar Rate Loans (as defined in the Term Loan B Agreement). We are required to repay the Term Loan with certain asset sales and insurance proceeds, certain debt proceeds and 50% of excess cash flow, reducing to 25%, if our total leverage ratio is no more than 3.00 to 1.00 and 0%, if our total leverage ratio is no more than 2.50 to 1.00.
The Facility contains financial covenants defining various financial measures and levels of these measures with whichinterest rate for the Company must comply. Covenant compliance is assessedTerm Loan was 7.4% as of each month end. Substantially all of the Company’s assets are pledged as collateral to secure the credit facility.
17
The Facility’s principal financial covenants included:

Consolidated Leverage Ratio – 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; and (e) contingent obligations for funded indebtedness. At March 31, 2017, the Company’s Leverage Ratio was 3.30 to 1.00, but the Facility does not require compliance with a Consolidated Leverage Ratio from June 30, 2016 through March 31, 2018.

Consolidated DXP's principal financial covenants under the ABL Credit Agreement and Term Loan B Agreement include:
Fixed Charge Coverage Ratio – The Consolidated Fixed Charge Coverage Ratio under the ABL Credit Agreement is defined as the ratio for the most recently completed four-fiscal quarter period, 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 minusthose financed or funded with debt (other than the aggregate amountABL Loans), the portion thereof funded with the net proceeds from asset dispositions of restricted payments defined inequipment or real property which DXP is permitted to reinvest pursuant to the agreement to (b)Term Loan and the interest expense paid in cash, scheduled principal paymentsportion thereof funded with the net proceeds of casualty insurance or condemnation awards in respect of long-term debtany equipment and real estate which DXP is not required to use to prepay the current portionABL Loans pursuant to the Term Loan B Agreement or with the proceeds of capital lease obligations forcasualty insurance or condemnation awards in respect of any other property) minus cash taxes paid (net of cash tax refunds received during such 12-monthperiod), to (b) fixed charges.  The Company is restricted from allowing its fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance period, determinedwhich is triggered when the availability under the ABL facility falls below a threshold set forth in each case on a consolidated basis for DXP and its subsidiaries. Atthe ABL Credit Agreement.

As of March 31, 2017,2018, the Company's Consolidatedconsolidated Fixed Charge Coverage Ratio was 0.933.44 to 1.00, but the Facility does not require compliance with a Consolidated Fixed Charge Coverage Ratio from June 30, 2016 through March 31, 2018.1.00.

Asset CoverageSecured Leverage Ratio – The FacilityTerm Loan B Agreement requires that the Asset CoverageCompany's Secured Leverage Ratio, at any time be not less than 0.95 to 1.00 from June 30, 2016 and thereafter, 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 on such date and excluding the Permitted Overadvance Facility. At March 31, 2017, the Company's Asset Coverage Ratio was 1.18 to 1.00.

Minimum Consolidated EBITDA– The  Facility requires that the Company’s Consolidated EBITDA for any twelve month period as of the last day of any calendar monthfiscal quarter of consolidated secured debt (net of unrestricted cash, not to exceed $30 million) as of such day to EBITDA, beginning with the fiscal quarter ending during the periods specified below not beDecember 31, 2017, is either equal to or less than as indicated in the corresponding amount set forthtable below:
Period 
Minimum Consolidated
EBITDA
 
March 31, 2017 $43,276,000 
April 30, 2017 $41,266,000 
May 31, 2017 $39,283,000 
June 30, 2017 $36,210,000 
July 31, 2017 $42,968,000 
August 31, 2017 $42,411,000 
September 30, 2017 $39,306,000 
October 31, 2017 and thereafter $39,000,000 

Fiscal QuarterSecured Leverage Ratio
December 31, 20175.75:1.00
March 31, 20185.75:1.00
June 30, 20185.50:1.00
September 30, 20185.50:1.00
December 31, 20185.25:1.00
March 31, 20195.25:1.00
June 30, 20195.00:1.00
September 30, 20195.00:1.00
December 31, 20194.75:1.00
March 31, 20204.75:1.00
June 30, 2020 and each Fiscal Quarter thereafter4.50:1.00
Consolidated
EBITDA as defined under the FacilityTerm Loan B Agreement for financial covenant purposepurposes means, without duplication, for any period of determination, the sum of, consolidated net income of DXP during such period; plus to the extent deducted in calculatingfrom consolidated net income depreciation, amortization (except to the extent thatin 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 andperiod: (i) income tax expense, for taxes based on income, certain one-time costs associated with out acquisitions, integration costs, facility consolidation(ii) franchise tax expense, (iii) consolidated interest expense, (iv) amortization and closing costs, severance costsdepreciation during such period, (v) all non-cash charges and expenses, write-down ofadjustments, and (vi) non-recurring cash expenses incurredrelated to the Term Loan, provided, that if the Company acquires or disposes of any property during such period (other than under certain exceptions specified in connection with the existing credit agreement and extraordinary losses less interest income and extraordinary gains.Term Loan B Agreement, including the sale of inventory in the ordinary course of business, then EBITDA shall be calculated, after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period.

At March 31, 2017, the Company’s Consolidated EBITDA was $69,168,000.
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The following table sets forth the computation of the Consolidated Leverage Ratio asAs of March 31, 2017 (in thousands, except for ratios):2018, the Company's consolidated Secured Leverage Ratio was 3.43 to 1.00.

For the Twelve Months ended
March 31, 2017
   
    
Income before taxes $19,741 
Before tax loss attributable to noncontrolling interest  891 
Interest expense  15,808 
Depreciation and amortization  29,463 
Stock compensation expense  3,265 
(A) Defined EBITDA
 $69,168 
As of March 31, 2017    
Total long-term debt, including current maturities $227,219 
Unamortized debt issuance costs  822 
(B) Defined indebtedness
 $228,041 
Consolidated Leverage Ratio (B)/(A)  3.30 

The following table sets forthABL Loans and the computationTerm Loan are secured by substantially all of the Consolidated Fixed Charge Coverage Ratio as of March 31, 2017 (in thousands, except for ratios):

For the Twelve Months ended
March 31, 2017
   
    
Defined EBITDA $69,168 
Cash paid for income taxes  1,547 
Capital expenditures  3,688 
(A) Defined EBITDA minus capital expenditures & cash income taxes
 $63,933 
Cash interest payments $14,487 
Dividends  91 
Scheduled principal payments  53,822 
(B) Fixed charges
 $68,400 
Consolidated Fixed Charge Coverage Ratio (A)/(B)  0.93 

The following table sets forth the computationassets of the Asset Coverage Ratio as of March 31, 2017 (in thousands, except for ratios):Company.

Accounts receivable (net), valued at 85% of gross $133,425 
Inventory, valued at 65% of gross  54,811 
(A)Aggregate outstanding
 $188,236 
     
Credit facility outstanding balance $153,800 
Outstanding letters of credit  6,247 
(B)
 $160,047 
Asset Coverage Ratio (A)/(B)  1.18 
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Borrowings (in thousands):

  
March 31,
2017
  
December 31,
2016
  
Increase
(Decrease)
 
Current maturities of long-term debt, less unamortized debt issuance costs (2)
 $224,715  $51,354  $173,361 
Long-term debt  2,504   173,331   (170,827)
Total long-term debt (2)
 $227,219  $224,685  $2,534 
Amount available (1)
 $29,953  $37,347  $(7,394)

(1)Represents the amount available to be borrowed at the indicated date under the Facility under the most restrictive covenant. The decrease in the amount available to be borrowed is primarily the result of the revolving line of credit reducing from $205 million at December 31, 2016, to $190 million at March 31, 2017.
(2)All of our debt under the Facility has been characterized as current because the Facility matures on March 31, 2018.
  March 31,2018  December 31, 2017  Increase (Decrease) 
Current maturities of long-term debt, less unamortized debt issuance costs $3,387  $3,381  $6 
Long-term debt  238,217   238,643   (426)
Total long-term debt $241,604  $242,024  $(420)
Amount available (1)
 $80,082  $82,007  $(1,925)
(1) Represents the amount available to be borrowed at the indicated date under the most restrictive covenant of the credit facility in effect at the indicated date.
 

Performance Metrics (in days):

 Three Months Ended March 31,    
       Increase Three Months Ended March 31,  
 2017  2016  (Decrease)     Increase
   
                            
2018
 2017 (Decrease)
Days of sales outstanding  62.5   61.1   1.4 56.062.5(6.5) 
Inventory turns  8.4   7.0   1.4 8.28.4(0.2) 

Accounts receivable days of sales outstanding were 56.0 days at March 31, 2018 compared to 62.5 days at March 31, 2017 compared to 61.12017. The 6.5 days at March 31, 2016. The 1.4 days increasedecrease was primarily due to March 2017 sales representing a larger percentage of sales for the 2017 quarter compared to the same for the 2016 quarter.more timely payment times in connection with an improved economy. Inventory turns were 8.4 times at March 31, 2017 compared to 7.0 times at March 31, 2017. The increase is primarily related toconsistent between the 2016 organic sales decline, which resulted in sales decreasing faster than inventory decreased.two periods.

Funding Commitments

We believe our cash generated from our operations will meet our normal working capital needs during the next twelve months. We expectHowever, we will be in compliance with the financial covenants under the Facility through and including March 31, 2018.  However, because themay require additional debt outside of our credit facility matures on March 31, 2018, and we do not foresee the abilityfacilities or equity financing to pay the credit facility with cash from our operations, we intend to seek alternative financing during the next twelve months. This alternative financing couldfund potential acquisitions. Such additional financings may include additional bank debt or the public or private sale of debt or equity securities. IfIn connection with any such financing, we may issue securities as a way of obtaining such maythat substantially dilute the interests of our shareholders. However, we may not be able to obtain alternative financing on attractive terms.  Based upon discussions with investment bankers, DXP management believes that it is probable that DXP will have the ability to refinance the current debt before maturity. DXP’s Board of Directors has approved a plan to refinance the credit facility.  This plan to refinance could include institutional debt or equity, combined with an asset based revolving loan.

Sales of Common Stock

During September 2016, the Company sold 238,858 shares of common stock at a weighted average price of $26.38 per share through a Form S-3 Registration Statement. Net proceeds were approximately $6.0 million and were used to pay down debt obligations.

On October 31, 2016, the Company closed on the sale of 2,484,000 shares of stock for total net proceeds of $46.2 million after expenses. These proceeds were used to pay down debt obligations.

The Company has not made any sales of common stock in the three months ended March 31, 2017.
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Acquisitions

All of the Company’sCompany'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.

DISCUSSION OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Critical accounting and business policies are those that are both most important to the portrayal of a company’scompany's financial position and results of operations, and require management’smanagement's subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP.

The Company’sCompany's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“("US GAAP”GAAP"). The accompanying Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity (“VIE”("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2016.2017. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017.28, 2018. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of results expected for the full fiscal year.

DXP is the primary beneficiary of a VIE in which DXP owns 47.5% of the equity. DXP consolidates the financial statements of the VIE with the financial statements of DXP. As of March 31, 2017,2018, the total assets of the VIE were approximately $5.4$5.1 million including approximately $5.1million$4.7 million of property and equipmentfixed assets compared to $5.2 million of total assets and $5.2$4.5 million of property and equipmentfixed assets at December 31, 2016.2017. DXP is the primary customer of the VIE. For the three months ended March 31, 20172018 and 2016,2017, consolidation of the VIE increased cost of sales by approximately $0.1 million, and $0.4 million, respectively.respectively for each period. The Company recognized a related income tax benefit of $0.2 million$14,058 and $0.1$0.2 million, respectively, related to the VIE for the three months ended March 31, 20172018 and 2016.2017. At March 31, 2017,2018, the owners of the 52.5% of the equity not owned by DXP included a former executive officer and other employees of DXP.

Equity investments in which we exercise significant influence, but do not control and are not the primary beneficiary, are accounted for using the equity method of accounting. During the first quarter of 2016, DXP invested $4.0 million in a related party equity method investment.  During the third and fourth quarters of 2016, the investment was reduced by $4.0 million of distributions received from the entity.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 43 to the Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

ITEM 3:
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our market risk results from volatility in interest rates. Our exposure to interest rate risk relates primarily to our debt portfolio. Using floating interest rate debt outstanding at March 31, 20172018 and 2016,2017, a 100 basis point change in interest rates would result in approximately a $2.3$2.5 million and a $3.6$2.3 million change in annual interest expense, respectively. The decrease from 2016 is primarily the result of paying down debt during 2016.

ITEM 4:
ITEM 4: CONTROLS AND PROCEDURES.

We have established disclosure controlsThe Company's management is responsible for establishing and procedures that aremaintaining adequate internal control over financial reporting. Our internal control system was designed to ensureprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material information relatingmisstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to us, including our consolidated subsidiaries, is made knowndesign into the process safeguards to our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer)reduce, though not eliminate, this risk.

Management has used the 2013 framework set forth in the report entitled "Internal Control – Integrated Framework" published by others within our organizationthe Committee of Sponsoring Organizations ("COSO") of the Treadway Commission to allow timely decisions regarding required disclosures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation ofevaluate the effectiveness of our disclosure controls and procedures as of March 31, 2017. Based on this evaluation, as a result of the material weakness in ourCompany's internal control over financial reporting. Management has concluded that the Company's internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures werewas not effective as of MarchDecember 31, 2017.2017 due to material weaknesses in internal control over financial reporting as further discussed below.  Management's remediation plans are also discussed below.
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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’sCompany's annual or interim financial statements will not be prevented or detected on a timely basis.

We had material weaknesses in our control environment and monitoring to support the financial reporting process.
We
The Company's control environment did not design and maintainsufficiently promote effective internal control over financial reporting; specifically, the accounting for income taxes, includingfollowing factors relating to the timely preparation of the income tax provision and schedules supporting the related tax assets and liabilities. Specifically, management did not design and maintain controls with a level of precision that would allow for an effective review to identify a material misstatement. We did not maintain effective management review controls over the monitoring and review of certain accounts, thus we were not able to properly conclude these account reconciliations and analyses were performed at an appropriate level of detail.  We did not design and maintain effective controls to provide reasonable assurance over the accuracy and completeness relating to:control environment:

·Recognizing revenue inManagement did not maintain effective management review controls over the proper period;monitoring and review of certain accounts.

·Maintaining adequate documentation to support proper revenue recognition;Management did not effectively design, document nor monitor (review, evaluate and assess) the key internal control activities that provide the accounting information contained in the Company's financial statements.
·Capturing and accounting for all fixed price contracts;
·Obtaining proper approvals for contract change orders;
·Documenting approval of management bonuses in a timely manner;
·Improperly recording proceeds from property and equipment disposals to cost of sales;
·Improper recording of valuation accounts in purchase accounting;
·Obtaining proper approvals for freight invoices;
·Accounting for fully amortized intangible assets;
·Improperly recording operating leases on a method other than straight line recognition; and
·Improper access to payroll records.

We had material weaknesses related to information technology general controls (“ITGC”("ITGC").  We did not maintain effective ITGC, which are required to support automated controls and information technology (“IT”("IT") functionality; therefore, automated controls and IT functionality were ineffective.

We had material weaknesses related to internal control activities to support the financial reporting process and failure to maintain adequate evidence of control operations.  We did not effectively design, document nor monitor (review, evaluate and assess) the risks associated with the key internal control activities that provide the accounting information contained in our financial statements.

Remediation Plans

Beginning inDuring the fourthsecond quarter of 2016, as part of2018, we will engage third party accounting consultants to assist us with our routine efforts to maintain adequate and effective internal control over financial reporting, we initiated and are continuing to implement measures designed to improve our financial closing process and enhance certain internal controls, processes and procedures. As indicated below, a number of these initiatives relate directly to strengthening our control over accounting for income taxes and address specific control deficiencies which contributed to the material weaknesses as discussed above. As a result of these efforts, the Company believes it has made progress as of March 31, 2017 toward remediating the underlying causes of the material weaknesses.procedures, including ITGC. Specifically, the Company has undertakenwill undertake the following steps to remediate the deficiencies underlying these material weaknesses:

·We augmented our tax accounting resources by engaging third party professionals to strengthen tax accounting review procedures in the United States and Canada.
·We developed and implemented enhanced policies and procedures relating to tax account reconciliations and analysis.
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·We are implementing close procedures at interim periods to allow for more timely and increased oversight by our management of the calculation and reporting of certain tax balances.
·We are reassessing the design of our tax review controls to identify areas where enhanced precision will help detect and prevent material misstatements.
·In connection with the remediation of the material weakness in our control activities, we are enhancingwill enhance our policies relating to the design, documentation, review, monitoring and approval of account reconciliations.management review controls and other key internal control activities that provide the accounting information contained in our financial statements.
·To enhance our information technology controls, we are implementingwill implement systems and processes in order to create an effective segregation of duties, restrict user access to applications and improve output controls.
·We are implementing procedures to enhance the level of communication and understanding of our accounting and internal control policies and procedures in an effort to remediate the material weakness in our monitoring efforts.

We are committed to maintaining a strong internal control environment, and believe that these remediation efforts represent significant improvements in our control environment. The identified material weaknesses in internal control will not be considered fully remediated until the internal controls over these areas have been in operation for a sufficient period of time for our management to conclude that the material weakness has been fully remediated. The Company will continue its efforts to implement and test the new controls in order to make this final determination.

Changes in Internal Control over Financial Reporting

Except as described above, there are no changes in our internal control over financial reporting that occurred during the three months ended March 31, 20172018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1.
ITEM 1. LEGAL PROCEEDINGS.

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’sDXP's consolidated financial position, cash flows, or results of operations.

ITEM 1A.
ITEM 1A. RISK FACTORS.

No material changes have occurred from risk factors previously disclosed in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016.2017.

ITEM 2.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5.
ITEM 5. OTHER INFORMATION.

None.

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ITEM 6.
ITEM 6. EXHIBITS.

3.1Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.1 to the Registrant’sCompany's Registration Statement on Form S-8 (Reg. No. 333-61953), filed with the Commission on August 20, 1998).

*3.2Bylaws, (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4 (Reg. No. 333-10021), filed with the Commission on August 12, 1996).
3.3Amendment No. 1 to Bylaws (incorporated by reference to Exhibit A to the Registrant’s Current Report on Form 8-K, filed with the Commissionas amended on July 28, 2011 (file no. 000-71513)).27, 2011.

* 31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.

* 31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.


* 32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


* 32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 101Interactive Data Files

Exhibits designated by the symbol * are filed with this Quarterly Report on Form 10-Q. All exhibits not so designated are incorporated by reference to a prior filing with the Commission as indicated.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DXP ENTERPRISES, INC.
(Registrant)
By: /s/ MAC McCONNELLKent Yee
  Mac McConnellKent Yee
Senior Vice-President/FinanceVice President and
Chief Financial Officer
(Duly Authorized Signatory and Principal Financial Officer)

Dated: May 15, 201710, 2018





 
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