Exhibit 99.3
DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Balance Sheet June 30, 2007 (in thousands) | |||||||
DXP | Precision | Pro Forma | Pro Forma | ||||
6/30/2007 | 6/25/2007 | Adjustments | Combined | ||||
Assets | |||||||
Current Assets: | |||||||
Cash | $ 15,622 | $ 318 | $(12,011)(a)(b) | $ 3,929 | |||
Accounts receivable, net | 46,558 | 25,705 | - | 72,263 | |||
Inventory, net | 37,022 | 40,196 | - | 77,218 | |||
Prepaid expenses and other current assets | 1,235 | 2,787 | (95)(a) | 3,927 | |||
Deferred income taxes | 784 | - | - | 784 | |||
Total current assets | 101,221 | 69,006 | (12,106) | 158,121 | |||
Property & equipment, net | 10,508 | 15,742 | (9,347) (a) | 16,903 | |||
Other assets: | |||||||
Goodwill | 18,561 | - | 42,474(d) | 61,035 | |||
Other intangible assets, net | 11,538 | - | 22,544(e) | 34,082 | |||
Other non current assets | 296 | 6,625 | (6,498) (a) | 423 | |||
Total assets | $ 142,124 | $ 91,373 | $ 37,067 | $270,564 | |||
Liabilities & Shareholders' Equity | |||||||
Current liabilities: | |||||||
Trade accounts payable and cash overdraft | $ 22,118 | $ 24,311 | $ - | $ 46,429 | |||
Accrued expenses and other current liabilities | 16,424 | 2,634 | 52(k) | 19,110 | |||
Current portion of long term debt | 2,318 | 1,718 | (1,718) (b) | 2,318 | |||
Total current liabilities | 40,860 | 28,663 | (1,666) | 67,857 | |||
Long term debt | 8,131 | 55,735 | 43,417 (b) | 107,283 | |||
Minority interest in consolidated subsidiary | 12 | - | - | 12 | |||
Deferred income taxes | 2,258 | - | 2,291 (c) | 4,549 | |||
Total liabilities | 51,261 | 84,398 | 44,042 | 179,701 | |||
Shareholders' equity | 90,863 | 6,975 | (6,975)(f) | 90,863 | |||
Total liabilities & stockholders' equity | $142,124 | $ 91,373 | $ 37,067 | $270,564 | |||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements. |
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DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Statement of Income For the Six Months Ended June 30, 2007 (in thousands, except per share amounts) | |||||||
Six Months Ended | |||||||
DXP Enterprises, Inc. June 30, 2007 | Precision Industries, Inc. June 25, 2007 | Pro Forma Adjustments | Pro Forma Combined | ||||
Sales | $ 168,954 | $ 138,246 | $ (23)(a) | $ 307,177 | |||
Cost of sales | 119,506 | 104,503 | - | 224,009 | |||
Gross profit | 49,448 | 33,743 | (23) | 83,168 | |||
Selling, general and administrative expense | 35,811 | 28,669 | (623)(a) (g) | 63,857 | |||
Intangible asset amortization | 836 | - | 1,494(h) | 2,330 | |||
Operating income | 12,801 | 5,074 | (894) | 16,981 | |||
Other income | 99 | 14 | (14)(a) | 99 | |||
Interest expense | (1,107) | (2,236) | (1,428)(i) | (4,771) | |||
Minority interest | - | 27 | (27) (a) | - | |||
Income before taxes | 11,793 | 2,879 | (2,363) | 12,309 | |||
Provision for income taxes | 4,649 | - | 207(j) | 4,856 | |||
Net income | 7,144 | 2,879 | (2,570) | 7,453 | |||
Preferred stock dividend | (45) | - | - | (45) | |||
Net income attributable to common shareholders | $ 7,099 | $ 2,879 | $ (2,570) | $ 7,408 | |||
Basic income per share | $1.32 | $1.38 | |||||
Weighted average common shares outstanding | 5,366 | 5,366 | |||||
Diluted income per share | $1.20 | $1.26 | |||||
Weighted average common and common equivalent shares outstanding | 5,936 | 5,936 | |||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements. |
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DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Statement of Income For Year Ended December 31, 2006 (in thousands, except per share amounts) | |||||||
Fiscal Year Ended | |||||||
DXP Enterprises December 31, 2006 | Precision Industries, Inc. December 27, 2006 | Pro Forma Adjustments | Pro Forma Combined | ||||
Sales | $ 279,820 | $ 297,340 | $ (46) (a) | $ 577,114 | |||
Cost of sales | 201,198 | 225,608 | - | 426,806 | |||
Gross profit | 78,622 | 71,732 | (46) | 150,308 | |||
Selling, general and administrative expense | 57,406 | 63,414 | (1,396)(a) (g) | 119,424 | |||
Intangible asset amortization | 538 | - | 2,988(h) | 3,526 | |||
Operating income | 20,678 | 8,318 | (1,638) | 27,358 | |||
Other income | 651 | 159 | (159)(a) | 651 | |||
Interest expense | (1,943) | (4,201) | (2,673)(i) | (8,817) | |||
Minority interest | 18 | (268) | 268 (a) | 18 | |||
Income before taxes | 19,404 | 4,008 | (4,202) | 19,210 | |||
Provision for income taxes | 7,482 | - | (78)(j) | 7,404 | |||
Net income | 11,922 | 4,008 | (4,124) | 11,806 | |||
Preferred stock dividend | (90) | - | - | (90) | |||
Net income attributable to common shareholders | $ 11,832 | $ 4,008 | $ (4,124) | $ 11,716 | |||
Basic income per share | $2.34 | $2.34 | |||||
Weighted average common shares outstanding | 5,063 | 5,063 | |||||
Diluted income per share | $2.08 | $2.08 | |||||
Weighted average common and common equivalent shares outstanding | 5,732 | 5,732 | |||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements. |
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DXP Enterprises, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Basis of Presentation
On September 10, 2007 DXP Enterprises, Inc. (“DXP” or the “Company”) acquired all of the outstanding common stock of Precision Industries, Inc. (“Precision”) for approximately $110 million (including estimated acquisition costs) subject to certain post-closing purchase price adjustments. DXP funded the purchase price with cash on hand and proceeds from a new credit facility, which was closed simultaneously with the acquisition.
The unaudited pro forma condensed combined balance sheet has been prepared assuming the acquisition occurred as of June 30, 2007. The unaudited pro forma condensed consolidated statements of income have been prepared assuming the acquisition occurred as of the beginning of the periods presented.
For the pro forma condensed combined balance sheet, the $110 million purchase price, including an estimate of costs incurred by the Company directly as a result of the acquisition, has been allocated based on management’s preliminary estimate of the fair values of assets acquired and liabilities assumed as of September 10, 2007. The purchase price allocation is considered preliminary, particularly as it relates to the final valuation of certain identifiable intangible assets and there could be significant adjustments when the valuation is finalized. The preliminary estimate of the purchase price allocation is as follows (in millions).
Total current assets | $ 66.1 |
Intangible assets | 22.5 |
Goodwill | 42.5 |
Property, plant and equipment, net | 6.1 |
Other assets | 1.4 |
Total liabilities | (28.6) |
Total purchase price, including transaction costs | $110.0 |
The acquired intangible assets consist primarily of customer relationships ($21.7 million) and non-compete agreements ($0.8 million). These intangible assets will be amortized over 8 years and 3 years, respectively, using the straight-line method.
The accompanying unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of DXP and Precision, including DXP’s annual report on Form 10-K for the year ended December 31, 2006 and DXP‘s quarterly reports on Form 10-Q for the periods ended June 30, 2007 and September 30, 2007.
Note 2. Pro Forma Adjustments
Note: All pro forma adjustments are preliminary.
(a) | These adjustments are made to eliminate revenues, expenses (including selling shareholder expenses of $2.8 million for the year ended December 27, 2006 and $1.2 million for the six months ended June 25, 2007), assets and liabilities of Precision operations and activities which were not acquired or will not be continued. Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities (“VIEs”) required Precision to consolidate various variable interest entities in its consolidated financial statements. These VIEs were not acquired by DXP and are eliminated in these unaudited pro forma condensed combined financial statements. |
These adjustments include the following:
June 30, 2007 Unaudited Pro Forma Condensed Combined Balance Sheet
Cash - $(206) – Eliminate VIE cash.
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Prepaid expenses - $(95) – Eliminate assets not acquired.
Property & Equipment - $(5,802) – Eliminate VIE assets, $(3,545) – Eliminate property not acquired.
Other non current assets - $(6,498) – Eliminate property not acquired.
Unaudited Pro Forma Condensed Combined Statement of Income for the Six Months Ended June 30, 2007
Sales - $(23) – Eliminate VIE revenues.
Selling, general and administrative expense - $(1,184) – Eliminate selling shareholder expenses which will not be ongoing. |
Other income - $(14) – Eliminate VIE interest income. |
Minority interest - $(27) – Eliminate VIE minority interest. |
Unaudited Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 2006 |
Sales - $(46) – Estimate VIE revenues. |
Selling, general and administrative expense - $(2,863) – Eliminate selling shareholder expenses which will not be ongoing. |
Other income – $(159) – Eliminate VIE interest income. |
Minority interest - $268 – Eliminate VIE minority interest. |
(b) | DXP used cash on hand and borrowings under its new credit facility to fund the $110 million purchase price, including estimated transaction costs. All existing Precision long-term debt was paid off by Precision simultaneous with the acquisition. |
(c) | This adjustment is made to reflect the effect of an estimated $5.8 million difference between book and tax basis of assets acquired. |
(d) | This adjustment is made to reflect incremental goodwill arising from the acquisition of Precision based upon the preliminary purchase allocation, including estimated transaction costs. |
(e) | This adjustment is made to reflect the estimated fair value of intangibles at the acquisition date. |
(f) | This adjustment is made to eliminate Precision’s historical shareholders’ equity. |
(g) | Includes compensation expense related to $1.9 million of restricted stock awarded to employees of Precision at the acquisition date which is being expensed using the straightline method over five years. |
(h) | This adjustment records the amortization of estimated intangible assets over 8 years for customer relationships and 3 years for non-compete agreements. |
(i) | This adjustment is made to eliminate Precision’s historical interest expense and record additional interest expense associated with the $110 million (including estimated acquisition costs) used to acquire Precision as if the acquisition had been completed as of the beginning of the period presented. The assumed interest rate is libor plus 1.25%, plus amortization of financing costs. |
(j) | This adjustment is made to record estimated income tax expense for the effect of the pro forma acquisition of Precision using the estimated incremental tax rate. |
(k) | This adjustment is made to accrue acquisition related expenses. |
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