Exhibit 99.3
DXP Enterprises, Inc. Unaudited Pro Forma Condensed Combined Balance Sheet - June 30, 2012 (in thousands of U.S. Dollars) | |||||||||||
DXP | HSE | U.S. GAAP and Pro Forma | Pro Forma | ||||||||
Historical | Historical | Adjustments | Combined | ||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash | $ 6,591 | $ 6,640 | $13,231 | ||||||||
Accounts receivable, net | 157,781 | 24,487 | 182,268 | ||||||||
Inventory, net | 99,389 | 182 | 99,571 | ||||||||
Prepaid expenses and other current assets | 3,279 | 1,184 | - | 4,463 | |||||||
Deferred income taxes | 5,219 | 621 | 5,840 | ||||||||
Total current assets | 272,259 | 33,114 | - | 305,373 | |||||||
Property & equipment, net | 27,972 | 33,584 | (8,650)(l) | 52,906 | |||||||
Other assets: | |||||||||||
Goodwill | 119,844 | 378 | (378)(c) 19,807(c) 3,117(a) | 142,768 | |||||||
Other intangible assets, net | 55,766 | 1,923 | 29,999(d) (1,923)(h) | 85,765 | |||||||
Other non current assets | 2,372 | 230 | 2,602 | ||||||||
Total assets | $ 478,213 | $ 69,229 | $ 41,972 | $589,414 | |||||||
Liabilities & Shareholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Trade accounts payable and cash overdraft | $ 75,521 | $ 7,489 | $ 83,010 | ||||||||
Accrued expenses and other current liabilities | 35,533 | 2,854 | $ 3,117(a) (931)(m) | 40,573 | |||||||
Current portion of long term debt | 3,127 | 4,041 | (2,073)(h) (1,968)(l) | 3,127 | |||||||
Total current liabilities | 114,181 | 14,384 | (1,855) | 126,710 | |||||||
Long term debt | 178,154 | 5,622 | (2,187)(h) (3,435)(l) 84,333(b) | 262,487 | |||||||
Deferred income taxes | 4,190 | 3,650 | 10,500(d) 189(l) | 18,529 | |||||||
Total liabilities | 296,525 | 23,656 | 87,321 | 407,726 | |||||||
Shareholders' equity | 181,688 | 45,573 | (43,068)(e) (3,437)(l) 932(m) | 181,688 | |||||||
Total stockholders’ equity | 181,688 | 45,573 | (45,573) | 181,688 | |||||||
Total liabilities & stockholders' equity | $478,213 | $ 69,229 | $41,972 | $589,414 | |||||||
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, 2012 (in thousands of U. S. Dollars, except per share amounts) | |||||||
DXP Historical | HSE Historical | U. S. GAAP and Pro Forma Adjustments | Pro Forma Combined | ||||
Sales | $ 514,181 | $ 56,312 | $ 570,493 | ||||
Cost of sales | 366,078 | 42,385 | 537(l) 206(n) | 409,206 | |||
Gross profit | 148,103 | 13,927 | (743) | 161,287 | |||
Selling, general and administrative expense | 102,561 | 7,089 | $ (1,782)(j) 134(m) - | 108,002 | |||
Intangible asset amortization | 4,790 | 265 | (265)(h) 1,912(f) 29(n) | 6,731 | |||
Operating income | 40,752 | 6,573 | (771) | 46,554 | |||
Other income | 12 | (74) | 553(l) | 491 | |||
Interest expense | (1,591) | (458) | 324(h) 134(l) (1,904)(g) | (3,495) | |||
Reversal of impairment of property and equipment and intangible assets | - | 4,111 | (4,111)(l) | - | |||
Income before taxes | 39,173 | 10,152 | (5,775) | 43,550 | |||
Provision for income taxes | 15,350 | 3,637 | (2,021)(i) | 16,966 | |||
Net income | 23,823 | 6,515 | (3,754) | 26,584 | |||
Preferred stock dividend | (45) | - | - | (45) | |||
Net income attributable to common shareholders | $ 23,778 | $ 6,515 | $ (3,754) | $26,539 | |||
Basic income per share | $1.66 | $1.85 | |||||
Weighted average common shares outstanding | 14,360 | 14,360 | |||||
Diluted income per share | $1.57 | $1.75 | |||||
Weighted average common and common equivalent shares outstanding | 15,200 | 15,200 | |||||
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, 2011 (in thousands of U. S. Dollars, except per share amounts) | |||||||
DXP Historical | HSE Historical | U. S. GAAP and Pro Forma Adjustments | Pro Forma Combined | ||||
Sales | $ 807,005 | $ 99,428 | 906,433 | ||||
Cost of sales | 575,169 | 81,048 | 1,346(l) | 657,563 | |||
Gross profit | 231,836 | 18,380 | (1,346) | 248,870 | |||
Selling, general and administrative expense | 169,779 | 10,447 | $ (665)(j) (77)(m) 1,000(a) | 180,484 | |||
Intangible asset amortization | 6,572 | 498 | (498)(h) 3,825(f) | 10,397 | |||
Operating income | 55,485 | 7,435 | (4,931) | 57,989 | |||
Other income | 28 | (33) | 416(l) | 411 | |||
Interest expense | (3,518) | (779) | 607(h) 172(l) (3,489)(g) | ||||
Reversal of impairment of property and equipment and intangible assets | 1,027 | (640)(k) (1,027)(h) | (7,647) | ||||
Income before taxes | 51,995 | 7,650 | (8,892) | 50,753 | |||
Provision for income taxes | 20,558 | 1,568 | (2,762)(i) | 19,364 | |||
Net income | 31,437 | 6,082 | (6,130) | $ 31,389 | |||
Preferred stock dividend | (90) | (90) | |||||
Net income attributable to common shareholders | $ 31,347 | $ 6,082 | $ (6,130) | $ 31,299 | |||
Basic income per share | $2.19 | $ 2.19 | |||||
Weighted average common shares outstanding | 14,301 | 14,301 | |||||
Diluted income per share | $2.08 | $ 2.07 | |||||
Weighted average common and common equivalent shares outstanding | 15,141 | 15,141 | |||||
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 July 11, 2012, DXP Enterprises, Inc. ("DXP") completed the acquisition of HSE Integrated Ltd. ("HSE"). Through its wholly-owned subsidiary, DXP Canada Enterprises Ltd., DXP acquired all of the outstanding common shares of HSE by way of a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement"). Pursuant to the Arrangement, HSE shareholders received CDN $1.80 in cash per each common share of HSE held. The total transaction value is approximately $85 million, including approximately $4 million in debt and approximately $3 million in transaction costs, $1 million of which was incurred by DXP. The purchase price was financed with borrowings under DXP’s new $325 million 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, 2012. The unaudited pro forma condensed consolidated statements of income have been prepared assuming the acquisition occurred as of January 1, 2011.
For the unaudited pro forma condensed combined balance sheet, the approximately $84 million purchase price, has been allocated based on management’s preliminary estimate of the fair values of assets acquired and liabilities assumed as of July 11, 2012. The purchase price allocation, which excludes transaction costs, is considered preliminary, particularly as it relates to the final valuation of certain identifiable intangible assets and property and equipment. 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 | $ 33 |
Intangible assets | 30 |
Goodwill | 19 |
Property, plant and equipment, net | 25 |
Total liabilities | (23) |
Total purchase price | $ 84 |
The acquired intangible assets consist primarily of customer relationships and non-compete agreements. These intangible assets are estimated to be amortized over approximately 8 years using the straight-line method.
The historic financial statements of HSE are presented in accordance with International
Financial Accounting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). The historical HSE results have been expressed in Canadian Dollars and have been translated into U.S. Dollars using .994 conversion rate for six months ending June 30, 2012 (which amounted to approximately $ 0.99 per Canadian Dollar) and 1.012 for year ending December 31, 2011 (which amounted to approximately $1.02 per Canadian Dollar). The unaudited pro forma statements are prepared in accordance with Regulation S-X and the accounting policies used in the preparation of the pro forma statements are in accordance with generally accepted accounting principles in the United States ("U. S. GAAP"), which are consistent with those used in DXP's audited financial statements as of and for the year ended December 31, 2011 and unaudited financial statements as of and for the six months ended June 30, 2012 and 2011.
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had HSE been consolidated with DXP during the periods shown. The pro forma adjustments are based on information available at the time of the preparation of these unaudited pro forma condensed combined financial statements.
The accompanying unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of DXP and HSE, including DXP’s annual report on Form 10-K for the year ended December 31, 2011 and DXP‘s quarterly reports on Form 10-Q for the period ended June 30, 2012.
Description of U.S. GAAP and Pro Forma Adjustments
a. | This adjustment is made to accrue HSE and DXP acquisition related costs and expense DXP acquisition related costs. |
b. | DXP used borrowings under its new credit facility to fund the approximately $85 million purchase price, including estimated transaction costs. All existing HSE long-term debt was paid off by DXP simultaneous with the acquisition. DXP borrowed and funded approximately $84.3 million on the July 11, 2011 acquisition date. |
c. | This adjustment is made to reflect incremental goodwill arising from the acquisition of HSE based upon the preliminary purchase allocation, including estimated transaction costs. |
d. | This adjustment is made to reflect the estimated fair value of intangibles at the acquisition date including the effect of deferred taxes. |
e. | This adjustment is made to eliminate HSE’s historical shareholders’ equity . The adjustment is net of the capital lease adjustment described in “l” and the onerous contract adjustment described in “m”. |
f. | This adjustment records the amortization of estimated intangible assets over an estimate of approximately 8 years. |
g. | This adjustment is made to record additional interest expense associated with the approximately $85 million (including estimated acquisition costs) used to acquire HSE and the effect of the increased interest rates on existing debt of DXP resulting from the new credit facility, as if the acquisition had been completed as of the beginning of the period presented. |
h. | This adjustment is made to eliminate HSE historical amounts. For debt and interest expense the adjustment is net of the capital lease adjustment described in “l” below. |
i. | This adjustment is made to record estimated income tax expense for the effect of the pro forma acquisition of HSE using estimated incremental tax rate. |
j. | This adjustment is made to eliminate public company and severance expenses of HSE which will not be ongoing. |
k. | This adjustment is made to write-off debt issuance costs and the tax effect of the write-off associated with DXP’s previous credit facility. |
Description of IFRS to U.S. GAAP Adjustments
l. | This adjustment removes the vehicle lease asset and finance lease liability and adjusts operating expenses, depreciation and interest, as presented under (“IFRS”) as issued by the International Accounting Standards Board. Consistent with US GAAP the leases have been treated as operating leases. |
m. | This adjustment removes the onerous contract liability and adjusts the operating expenses (rent), as presented under (“IFRS”) as issued by the Accounting Standards Board. Consistent with US GAAP operating expenses (rent) are recorded as incurred for property leases that are not required for the current business. |
n. | On the January 1, 2010 adoption of International Accounting Standard 36 – Impairments of Assets, HSE recorded an impairment change for property and equipment and intangible assets. March 31, 2012 HSE reversed the impairment change in accordance with (“IFRS”) as issued by the International Accounting Standards Board. Consistent with US GAAP impairment rules this adjustment is made to record the property and equipment and intangibles at their depreciated value as if the impairment write-down had not been recorded January 1, 2010. |