NOTE 13 - BUSINESS ACQUISITIONS

All of the Company’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 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 and may be revised if and when additional information the Company is awaiting concerning certain asset and liability valuations is obtained, provided that such information is received no later than one year after the date of acquisition. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. It specifically includes the expected synergies and other benefits that we believe will result from combining the operations of our acquisitions with the operations of DXP and any intangible assets that do not qualify for separate recognition such as the assembled workforce.

On April 16, 2013, DXP acquired all of the stock of NatPro through its wholly owned subsidiary, DXP Canada Enterprises Ltd. DXP acquired this business to expand DXP’s geographic presence in Canada and strengthen DXP’s pump, integrated system packaging, compressor, and related equipment offering. The $40.1 million purchase price was financed with $36.6 million of borrowings under DXP's existing credit facility and 52,542 shares of DXP common stock. Additionally, the purchase agreement included an earn-out provision, which stated that former owners of NatPro may earn $6.0 million based on achievement of an earnings target during the first year of DXP’s ownership. The fair value of the earn-out recorded at the acquisition date was $2.8 million. As of December 31, 2013, the Company’s earn-out liability was estimated to be zero and $2.8 million was recorded as a reduction of selling, general and administrative expense. Estimated goodwill of $24.6 million and intangible assets of $14.8 million were recognized for this acquisition. None of the estimated goodwill or intangible assets are expected to be tax deductible. The estimated goodwill associated with this acquisition is included in both the Service Centers segment and IPS segment. See Note 8 regarding the 2014 impairment of NatPro goodwill.

On May 17, 2013, DXP acquired substantially all of the assets of Tucker Tool Company, Inc. (“Tucker Tool”). DXP acquired this business to expand DXP's geographic presence in the northern U.S. and strengthen DXP's industrial cutting tools offering. DXP paid approximately $5.0 million for Tucker Tool which was borrowed under our existing credit facility. Estimated goodwill of $3.2 and intangible assets of $1.5 million were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment.

On July 1, 2013, DXP acquired all of the stock of Alaska Pump & Supply, Inc. (“APS”). DXP acquired this business to expand DXP's geographic presence in Alaska. DXP paid approximately $13.0 million for APS which was borrowed under our existing credit facility. Estimated goodwill of $8.1 million and intangible assets of $4.1 million were recognized for this acquisition. None of the estimated goodwill or intangible assets are expected to be tax deductible. All of the estimated goodwill is included in the Service Centers segment.

On July 31, 2013, DXP acquired substantially all of the assets of Tool-Tech Industrial Machine & Supply, Inc. (“Tool-Tech”). DXP acquired this business to enhance our metal working product offering in the southwest region of the United States. DXP paid approximately $7.2 million for Tool-Tech which was borrowed under our existing credit facility. Estimated goodwill of $4.1 million and intangible assets of $2.4 million were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment.

On January 2, 2014, the Company completed the acquisition of all of the equity securities and units of B27, LLC (“B27”) by way of a Securities Purchase Agreement to expand DXP’s pump packaging offering. The total transaction value was approximately $293.6 million, excluding approximately $1.0 million in transaction costs recognized within SG&A in the 2013 statement of income. The purchase price was financed with borrowings under our amended credit facility and approximately $4.0 million (36,000 shares) of DXP common stock. DXP has not completed the valuation of working capital. Estimated goodwill of $178.3 million and intangible assets of $81.1 million were recognized for this acquisition. Approximately $154.6 million of the estimated goodwill or intangible assets are expected not to be tax deductible. The estimated goodwill associated with this acquisition is included in the IPS and Service Centers segments. See Note 8 of the Notes to Consolidated Financial Statements regarding the 2014 impairment of B27 goodwill.

On May 1, 2014, the Company completed the acquisition of all of the equity interests of Machinery Tooling and Supply, LLC (“MT&S”) to expand DXP’s cutting tools offering in the North Central region of the United States. DXP paid approximately $14.6 million for MT&S, which was borrowed under our existing credit facility. DXP has not completed appraisals of intangibles for MT&S, the valuation of working capital items or completed analysis of tax effects, and therefore, has made preliminary estimates for purposes of this disclosure. Estimated goodwill of $4.3 million and intangible assets of $4.1 million were recognized for this acquisition. All of the estimated goodwill is included in the Service Centers segment.

The value assigned to the non-compete agreements and customer relationships for business acquisitions were determined by discounting the estimated cash flows associated with non-compete agreements and customer relationships as of the date the acquisition was consummated. The estimated cash flows were based on estimated revenues net of operating expenses and net of capital charges for assets that contribute to the projected cash flow from these assets. The projected revenues and operating expenses were estimated based on management estimates. Net capital charges for assets that contribute to projected cash flow were based on the estimated fair value of those assets. For the B27 and NatPro acquisitions, discount rates of 13.5% to 15.9% were deemed appropriate for valuing these assets and were based on the risks associated with the respective cash flows taking into consideration the acquired company’s weighted average cost of capital.

For the twelve months ended December 31, 2014, businesses acquired during 2014 and 2013 contributed sales of $176.4 million and $101.1 million, respectively, and earnings before taxes of approximately $(104.0) million and $(11.1) million, respectively. Earnings before taxes included impairment charges of $105.3 million and $12.3 million for businesses acquired in 2014 and 2013, respectively.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed during 2014 and 2013 in connection with the acquisitions described above (in thousands):

	2014		2013
	B27	MT&S	NatPro	Tucker Tool	APS	Tool-Tech
	B27	MT&S	NatPro	Tucker Tool	APS	Tool-Tech

Cash	$ 2,538	$ 806	$ -	$ -	$ -	$ 430
Accounts Receivable, net	51,448	5,656	14,549	505	1,424	1,505
Inventory	6,472	2,522	6,883	209	1,332	409
Property and equipment	14,573	557	3,317	-	172	19
Goodwill and intangibles1	259,412	8,405	39,345	4,678	12,241	7,254
Other assets	1,791	59	698	-	389	2
Assets acquired	336,234	18,005	64,792	5,392	15,558	9,619
Current liabilities assumed	26,690	3,336	19,175	391	1,079	1,987
Non-current liabilities assumed2	15,992	-	5,649	-	1,419	-
Net assets acquired	$ 293,552	$ 14,669	$ 39,968	$ 5,001	$ 13,060	$ 7,632

(1) The amounts in the table above do not reflect the $117.6 million of goodwill impairment charges recorded in the fourth quarter of 2014. Approximately $44.3 million of the impairment charges are deductible for tax purposes. The remaining goodwill deductible for tax purposes was $146.0 million at December 31, 2014.

(2) Includes deferred tax liability of $16.0 million and $17.9 million related to intangible assets acquired for 2014 and 2013, respectively.

The pro forma unaudited results of operations for the Company on a consolidated basis for the twelve months ended December 31, 2014 and 2013, assuming the acquisition of businesses completed in 2014 and 2013 (previously discussed in Item 1, Business) were consummated as of January 1, 2013 are as follows (in millions, except per share amounts):

	Years Ended December 31,
	2014	2013
Net sales	$ 1,513	$ 1,496
Net income (loss)	$ (45)	$ 71
Per share data
Basic earnings (loss)	$ (3.08)	$ 4.90
Diluted earnings (loss)	$ (3.08)	$ 4.64

The pro forma unaudited results of operations for the Company on a consolidated basis for the twelve months ended December 31, 2013 and 2012, assuming the acquisition of businesses completed in 2013 and 2012 were consummated as of January 1, 2012 are as follows (in millions, except per share data):

	Years Ended December 31,
	2013	2012
Net sales	$ 1,284	$ 1,280
Net income	$ 62	$ 55
Per share data
Basic earnings	$ 4.28	$3.83
Diluted earnings	$ 4.05	$3.62