Exhibit 99.3 |
DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Balance Sheet June 30, 2008 (in thousands) | ||||||||||||||||
DXP Enterprises, Inc. June 30, 2008 | Vertex Holdings, Inc. July 5, 2008 | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 5,960 | $ | 19 | $ | (19 | )(a) | $ | 5,960 | |||||||
Accounts receivable, net | 96,626 | 8,481 | - | 105,107 | ||||||||||||
Inventory, net | 89,883 | 25,609 | - | 115,492 | ||||||||||||
Advance to related party | - | 500 | (500 | )(a) | - | |||||||||||
Prepaid expenses and other current assets | 2,254 | 166 | - | 2,420 | ||||||||||||
Deferred income taxes | 2,084 | 1,507 | - | 3,591 | ||||||||||||
Total current assets | 196,807 | 36,282 | (519 | ) | 232,570 | |||||||||||
Property & equipment, net | 18,418 | 1,913 | (930 | )(c) | 19,401 | |||||||||||
Other assets: | ||||||||||||||||
Goodwill | 61,710 | 5,363 | 18,143 | (d) | 85,216 | |||||||||||
Other intangible assets, net | 33,671 | - | 21,460 | (e) | 55,131 | |||||||||||
Other non current assets | 995 | 477 | - | 1,472 | ||||||||||||
Total assets | $ | 311,601 | $ | 44,035 | $ | 38,154 | $ | 393,790 | ||||||||
Liabilities & Shareholders' Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Trade accounts payable | $ | 65,221 | $ | 2,429 | - | $ | 67,650 | |||||||||
Accrued expenses and other current liabilities | 19,230 | 5,629 | (1,058 | )(a) | 23,801 | |||||||||||
Current portion of long term debt | 3,894 | 8,082 | (8,082 | )(b) | 3,894 | |||||||||||
Total current liabilities | 88,345 | 16,140 | (9,140 | ) | 95,345 | |||||||||||
Long term debt | 105,803 | 9,732 | 57,268 | (b) | 172,803 | |||||||||||
Minority interest in consolidated subsidiary | 12 | - | 12 | |||||||||||||
Other liabilities | 150 | 150 | ||||||||||||||
Deferred income taxes | 2,567 | 678 | 7,511 | (l) | 10,756 | |||||||||||
Total liabilities | 196,877 | 26,550 | 55,639 | 279,066 | ||||||||||||
Shareholders' equity | 114,724 | 17,485 | (17,485 | )(f) | 114,724 | |||||||||||
Total liabilities & stockholders' equity | $ | 311,601 | $ | 44,035 | $ | 38,154 | $ | 393,790 | ||||||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements. |
DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Statement of Income For the Six Months Ended June 30, 2008 (in thousands, except per share amounts) | ||||||||||||||||
Six Months Ended | ||||||||||||||||
DXP Enterprises, Inc. June 30, 2008 | Vertex Holdings, Inc. July 5, 2008 | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Sales | $ | 356,301 | $ | 37,374 | $ | 393,675 | ||||||||||
Cost of sales | 258,479 | 24,838 | 283,317 | |||||||||||||
Gross profit | 97,822 | 12,536 | 110,358 | |||||||||||||
Selling and general expense | 134 | (g) | ||||||||||||||
Administrative expense | 75,769 | 6,947 | 1,650 | (h) | 84,500 | |||||||||||
Operating income | 22,053 | 5,589 | (1,784 | ) | 25,858 | |||||||||||
Other income (expense) | 40 | (324 | ) | 276 | (k) | (8 | ) | |||||||||
Interest expense | (2,559 | ) | (945 | ) | (1,430 | )(i) | (4,934 | ) | ||||||||
Income before taxes | 19,534 | 4,320 | (2,938 | ) | 20,916 | |||||||||||
Provision for income taxes | 7,722 | 1,746 | (1,131 | )(j) | 8,337 | |||||||||||
Net income | 11,812 | 2,573 | (1,807 | ) | 12,579 | |||||||||||
Preferred stock dividend | (45 | ) | - | (45 | ) | |||||||||||
Net income attributable to common shareholders | $ | 11,767 | $ | 2,573 | (1,807 | ) | 12,534 | |||||||||
Basic income per share | $ | 0.93 | $ | 0.99 | ||||||||||||
Weighted average common shares outstanding | 12,648 | 12,648 | ||||||||||||||
Diluted income per share | $ | 0.86 | $ | 0.92 | ||||||||||||
Weighted average common and common equivalent shares outstanding | 13,680 | 13,680 | ||||||||||||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements. |
DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Statement of Income For Year Ended December 31, 2007 (in thousands, except per share amounts) | ||||||||||||||||
Fiscal Year Ended | ||||||||||||||||
DXP Enterprises December 31, 2007 | Vertex Holdings, Inc. December 30, 2007 | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Sales | $ | 444,547 | $ | 68,688 | $ | 513,235 | ||||||||||
Cost of sales | 318,855 | 44,628 | 363,483 | |||||||||||||
Gross profit | 125,692 | 24,060 | 149,752 | |||||||||||||
Selling and general expense | 67 | (g) | ||||||||||||||
Administrative expense | 93,800 | 10,057 | 3,300 | (h) | 107,224 | |||||||||||
Operating income | 31,892 | 14,003 | (3,367 | ) | 42,528 | |||||||||||
Other income (expense) | 349 | (519 | ) | 519 | (k) | 349 | ||||||||||
Interest expense | (3,344 | ) | (2,219 | ) | (4,066 | )(i) | (9,629 | ) | ||||||||
Income before taxes | 28,897 | 11,265 | (6,914 | ) | 33,248 | |||||||||||
Provision for income taxes | 11,550 | 4,372 | (2,662 | )(j) | 13,260 | |||||||||||
Net income | 17,347 | 6,893 | (4,252 | ) | 19,988 | |||||||||||
Preferred stock dividend | (90 | ) | - | (90 | ) | |||||||||||
Net income attributable to common shareholders | $ | 17,257 | 6,893 | (4,252 | ) | $ | 19,898 | |||||||||
Basic income per share | $ | 1.48 | $ | 1.70 | ||||||||||||
Weighted average common shares outstanding | 11,698 | 11,698 | ||||||||||||||
Diluted income per share | $ | 1.36 | $ | 1.56 | ||||||||||||
Weighted average common and common equivalent shares outstanding | 12,782 | 12,782 | ||||||||||||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements. |
DXP Enterprises, Inc. |
Notes to Unaudited Pro Forma Condensed Combined Financial Statements |
Note 1. Basis of Presentation |
On August 28, 2008 DXP Enterprises, Inc. (“DXP” or the “Company”) acquired all of the outstanding common stock of Vertex Holdings, Inc. (“Vertex”) for approximately $67 million (including estimated acquisition costs) subject to certain post-closing purchase price adjustments. DXP funded the purchase price with 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, 2008. 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 $67 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 August 28, 2008. 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 | $ 35.7 |
Intangible assets | 21.5 |
Goodwill | 23.5 |
Property, plant and equipment, net | 1.0 |
Other assets | 0.5 |
Total liabilities | (15.2) |
Total purchase price, including transaction costs | $ 67.0 |
The acquired intangible assets are estimated to consist primarily of customer relationships ($20.0 million) and non-compete agreements ($1.4 million). These intangible assets are estimated to be amortized over 7 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 Vertex, including DXP’s annual report on Form 10-K for the year ended December 31, 2007 and DXP‘s quarterly reports on Form 10-Q for the periods ended June 30, 2008 and September 30, 2008. |
Note 2. Pro Forma Adjustments |
Note: All pro forma adjustments are preliminary. |
(a) | These adjustments are made to eliminate assets and liabilities of Vertex which were not acquired. These items include cash and amounts due to and from related parties. |
(b) | DXP used borrowings under its new credit facility to fund the $67 million purchase price, including estimated transaction costs. All existing Vertex long-term debt was paid off by Vertex simultaneous with the acquisition. |
(c) | This adjustment is made to reflect the estimated value of software which will not be needed upon conversion of Vertex to DXP’s computer system. |
(d) | This adjustment is made to reflect incremental goodwill arising from the acquisition of Vertex 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 Vertex’s historical shareholders’ equity. |
(g) | This adjustment is made to reflect compensation expense related to $0.5 million of restricted stock awarded to employees of Vertex in connection with the acquisition which is being expensed using the straightline method over four 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 Vertex’s historical interest expense and record additional interest expense associated with the $67 million (including estimated acquisition costs) used to acquire Vertex as if the acquisition had been completed as of the beginning of the period presented. The assumed interest rate is libor plus 1.75% on $17 million of debt and 2.5% on $50 million of debt, plus $0.1 million a month of increased interest on DXP’s preacquisition debt resulting from the new credit facility and amortization of financing costs. |
(j) | This adjustment is made to record estimated income tax expense for the effect of the pro forma acquisition of Vertex using the estimated incremental tax rate. |
(k) | This adjustment is made to eliminate management fees charged to Vertex by selling shareholders. |
(l) | This adjustment is made to record the deferred tax liability established in connection with recording the estimated fair value of intangibles at the acquisition date. |