RESTATEMENT

12 Months Ended

Dec. 31, 2020

Accounting Changes and Error Corrections [Abstract]

The Company has restated its consolidated balance sheet at December 31, 2020 and 2019, and consolidated statements of earnings, cash flows, and comprehensive income and retained earnings for the years ended December 31, 2020, 2019 and 2018. The restatement also affected periods prior to 2018. The impact of the restatement on such prior periods was reflected as an adjustment to retained earnings as of January 1, 2018. In addition, the restatement impacts the first, second and third quarters of 2020. The restated amounts for these quarters and the comparable interim periods in 2019 and 2018 are presented in “Note 23. Selected Quarterly Financial Data (Unaudited),” below. The restatement corrects errors resulting from the failure to timely clear aged payables resulting from the Company's three-way match process discrepancies and the recognition of true-up consideration in business combination accounting, as well as, certain additional errors that the Company has determined to be immaterial, both individually and in aggregate. Set forth below are the restatement adjustments included in the restatement of the previously issued financial statements for the years ended December 31, 2020, 2019 and 2018, each of which is an “error” within the meaning of ASC Topic 250: Accounting Changes and Error Corrections

The following table presents the impact of the restatement adjustments described below on net income and comprehensive income for the years ended December 31, 2020, 2019 and 2018 and retained earnings as of January 1, 2018:


								Retained Earnings
		Year Ended December 31,						as of
		2020		2019		2018		Jan.1, 2018
As reported	Net Income (As reported)	$	(29,074)	$	35,775	$	35,521	$	134,193
	Unvouchered Purchase Orders	(1,874)		3,737		2,411		7,818
	Landed cost inventory adjustment	(1,366)		623		525		218
	Obsolete inventory reserve adjustments	1,160		(1,160)		—		—
	Direct shipment cut off adjustment	7		(635)		699		390
	Cut-off for credit card payment accruals	581		(581)		—		—
	Sales tax payable accruals	694		(694)		—		—
	Provision for income taxes	255		(300)		(922)		(2,145)
Net	Net Income (Restated)	$	(29,617)	$	36,765	$	38,234	$	140,474
	Cumulative translation adjustment, net of taxes	1,941		(687)		224
	Comprehensive income (loss) as restated	$	(27,676)	$	36,078	$	38,458

Adjustments to Net Sales and Related Adjustments to Cost of Products Sold

Unvouchered Purchase Orders The Company determined it had aged unvouchered purchase orders included in trade accounts payable. After lengthy investigation and research, DXP determined that these balances were not valid legal obligations to vendors and will not be invoiced or paid. As a result, the Company wrote off the aged balances that no longer represented legal obligations, resulting in a net reduction in accounts payable.

Landed cost inventory adjustment The Company determined that cost mark-ups for landed costs for certain inventory items related to our private label pumps had not been properly relieved upon the sale of these items.

Slow moving and obsolete inventory reserve The Company determined it had not appropriately adjusted its inventory reserve on an item-by-item basis for items that moved from obsolete to slow moving or vice versa.

Direct shipment cut off adjustment Direct shipment orders placed near period end may not be properly reflected in the correct period. The Company adjusted sales and cost of goods sold for items recorded in the incorrect period, as well as accounts receivable and payable.

Other Adjustments to Earnings from Continuing Operations Before Non-Controlling Interest and Income Taxes

Cut-off for credit card payment accruals In January 2020, the Company recorded its monthly payment for its P-Card credit card program, however, the charges were incurred in December 2019. This adjustment reflects the accrual in the correct period, resulting in a shift in other current liabilities between periods.

Sales tax payable accruals The Company increased other current liabilities for its accrual for state sales tax obligations stemming from open audits.

Adjustments to Provision for Income Taxes

The adjustments reflected for the provision for income taxes are the tax consequences of the above listed corrections.

Balance sheet adjustments related to purchase accounting and consolidation

On December 31, 2020, DXP closed on the acquisition of four businesses. The owners of two of the targets were eligible for true-up consideration based upon the closing financial results of calendar year 2020. This true-up consideration was paid in July 2021; however, the amount of true-up consideration was deemed to have been accrued as of the closing of the acquisitions. Therefore, this adjustment resulted in an accrual for the true-up consideration and an increase in goodwill of $13.4 million.

As described above, the unvouchered purchase order discrepancies resulted in a reduction of accounts payable in the amount of $10.2 million as of December 31, 2018, a further reduction of $13.9 million as of December 31, 2019 and a net decrease of $12.2 million as of December 31, 2020.

During the consolidation of the four acquisitions closed on December 31, 2020, the Company improperly reflected the cash on hand at the targets as an increase in cumulative translation adjustment and other comprehensive income for approximately $2 million. This reclassification adjustment properly records the increase in cash and cash equivalents upon closing. In addition, cumulative translation adjustment was also reduced by $1.8 million as the a result of a reclassification associated with trade accounts receivable.

The following table presents the impact of the restatement adjustments on the Company’s previously reported 2020, 2019 and 2018 results on a condensed basis:


	For the Year Ended December 31,
	2020				2019				2018
	As Reported		As Restated		As Reported		As Restated		As Reported		As Restated
STATEMENT(S) OF INCOME
Sales	$	1,005,266	$	1,005,266	$	1,267,189	$	1,264,851	$	1,216,197	$	1,218,709
Cost of sales	725,997		728,070		919,965		915,062		883,989		882,866
Gross profit	279,269		277,196		347,224		349,789		332,208		335,843
Selling, general and administrative costs	246,256		244,981		281,102		282,377		263,757		263,757
Income (loss) before income taxes	(47,515)		(48,313)		46,669		47,959		48,706		52,341
Provision (benefit) for income taxes	(18,441)		(18,696)		10,894		11,194		13,185		14,107
Net (loss) income attributable to common shareholders	$	(28,816)	$	(29,359)	$	35,945	$	36,935	$	35,542	$	38,255

Basic earnings (loss) per share	$	(1.62)	$	(1.65)	$	2.04	$	2.10	$	2.02	$	2.18

Diluted earnings (loss) per share	$	(1.62)	$	(1.65)	$	1.96	$	2.01	$	1.94	$	2.08


	As of December 31,
	2020				2019				2018
	As Reported		As Restated		As Reported		As Restated		As Reported		As Restated
BALANCE SHEET:
Cash and cash equivalents	$	117,444	$	119,419	$	54,327	$	54,327	$	40,519	$	40,519
Accounts Receivable	163,429		166,941		187,116		188,774		191,829		195,825
Inventory	97,071		97,071		129,364		129,570		114,830		115,573
Federal income taxes receivable	5,632		2,987		996		—		960		—
Goodwill	248,339		261,767		194,052		194,052		194,052		194,052
Total Assets	851,861		868,131		788,220		789,088		699,962		703,741

Accounts Payable	75,744		64,849		76,438		63,676		87,407		80,085
Other current liabilities	20,834		34,729		12,939		14,754		17,269		17,774
Federal income taxes payable	—		—		—		2,101		—		1,602
Deferred Taxes	1,777		1,777		9,872		9,602		8,633		8,633
Total Liabilities	$	503,995	$	506,995	$	443,272	$	434,156	$	391,708	$	386,493

Accumulated Other Comprehensive Income	(21,842)		(18,013)		(19,954)		(19,954)		(19,267)		(19,267)
Retained Earnings	176,637		186,078		205,680		215,664		169,735		178,729
Equity	347,866		361,136		344,948		354,932		308,254		317,248
Total Liabilities & Equity	$	851,861	$	868,131	$	788,220	$	789,088	$	699,962	$	703,741


	Years ended December 31,
	2020				2019				2018
	As Reported		As Restated		As Reported		As Restated		As Reported		As Restated

CONSOLIDATED STATEMENTS OF CASH FLOWS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(29,074)	$	(29,617)	$	35,775	$	36,765	$	35,521	$	38,234
Reconciliation of net income (loss) to net cash provided by operating activities:
Deferred income taxes	(14,771)		(14,732)		1,110		840		$	1,004	$	1,004
Changes in operating assets and liabilities
Trade accounts receivable	42,909		44,884		5,560		7,898		(22,487)		(24,999)
Inventories	22,208		22,414		(14,447)		(13,910)		(20,838)		(21,363)
Prepaid expenses and other assets	13,053		13,782		5,110		5,110		188		187
Accounts payable and accrued expenses	(14,897)		(15,345)		(15,408)		(19,003)		7,093		7,418
Other long-term liabilities	(8,870)		(8,853)		(6,718)		(6,718)		2,610		2,610
Net cash provided by operating activities	$	107,675	$	109,650	$	41,306	$	41,306	$	35,840	35,840