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RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | 6 Months Ended
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Jun. 30, 2021
Accounting Changes and Error Corrections [Abstract] |
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS As previously reported, the Company restated its consolidated balance sheets as of December 31, 2020 and 2019, and consolidated statements of operations and comprehensive income, equity and cash flows 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 and the first quarter of 2021. The restated amounts for the comparable interim period in 2020 are presented below. The restatement corrects errors resulting from the failure to timely clear aged payables resulting from the Company's three-way match process discrepancies, the recognition of additional consideration related to a business combination, 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 year ended December 31, 2020, and the quarter ended June 30, 2020, each of which is an “error” within the meaning of ASC Topic 250: Accounting Changes and Error Corrections. The following tables presents the impact of the restatement adjustments described below on net income and comprehensive income for the quarter and the six months ended June 30, 2020:
| For the Three Months Ended June 30, 2020 |  | For the Six Months Ended June 30, 2020
| As Previously |  |  |  |  |  | As Previously |  |  |  |
| Reported |  | Adjustments |  | As Restated |  | Reported |  | Adjustments |  | As Restated
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Sales | $ | 251,401 |  |  |  |  | $ | 251,401 |  |  | $ | 552,384 |  |  |  |  | $ | 552,384 |
Cost of sales | 181,705 |  |  | (385) |  |  | 181,320 |  |  | 398,703 |  |  | 486 |  |  | 399,189 |
Gross profit | 69,696 |  |  | 385 |  |  | 70,081 |  |  | 153,681 |  |  | (486) |  |  | 153,195 |
Selling, general and administrative costs | 62,943 |  |  | — |  |  | 62,943 |  |  | 136,013 |  |  | (1,275) |  |  | 134,738 |
Income before income taxes | 2,690 |  |  | 385 |  |  | 3,075 |  |  | 10,062 |  |  | 789 |  |  | 10,851 |
Provision for income taxes | 610 |  |  | 100 |  |  | 710 |  |  | 2,334 |  |  | 162 |  |  | 2,496 |
Net income | $ | 2,080 |  |  | $ | 285 |  |  | $ | 2,365 |  |  | $ | 7,728 |  |  | $ | 627 |  |  | $ | 8,355 |
Basic earnings per share | $ | 0.12 |  |  |  |  | $ | 0.14 |  |  | $ | 0.44 |  |  |  |  | $ | 0.48 |
Diluted earnings per share | $ | 0.12 |  |  |  |  | $ | 0.13 |  |  | $ | 0.42 |  |  |  |  | $ | 0.45 |
| For the Three Months Ended June 30, 2020 |  | For the Six Months Ended June 30, 2020
| As previously |  |  |  | As previously |  |
| Reported | Adjustments | As Restated |  | Reported | Adjustments | As Restated
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income | $ | 2,080 |  | $ | 285 |  | $ | 2,365 |  |  | $ | 7,728 |  | $ | 627 |  | $ | 8,355 |
Total comprehensive income | $ | 3,475 |  | $ | 285 |  | $ | 3,760 |  |  | $ | 7,960 |  | $ | 627 |  | $ | 8,587 |
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. 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 $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 restricted cash upon closing. In addition, cumulative translation adjustment was also reduced by $1.8 million as 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 balance sheet as of December 31, 2020 on a condensed basis:
| As |  |  |  | As
BALANCE SHEET (AT DECEMBER 31, 2020): | Reported |  | Adjustments |  | Restated
Cash and restricted cash | $ | 117,444 |  |  | $ | 1,975 |  |  | $ | 119,419 |
Accounts Receivable | 163,429 |  |  | 3,512 |  |  | 166,941 |
Inventory | 97,071 |  |  | — |  |  | 97,071 |
Federal income taxes receivable | 5,632 |  |  | (2,645) |  |  | 2,987 |
Goodwill | 248,339 |  |  | 13,428 |  |  | 261,767 |
Total Assets | $ | 851,861 |  |  | $ | 16,270 |  |  | $ | 868,131 |
Accounts Payable | 75,744 |  |  | (10,895) |  |  | 64,849 |
Other current liabilities | 20,834 |  |  | 13,895 |  |  | 34,729 |
Total Liabilities | $ | 503,995 |  |  | $ | 3,000 |  |  | $ | 506,995 |
Cumulative Translation Adjustment | (21,842) |  |  | 3,829 |  |  | (18,013) |
Retained Earnings | 176,637 |  |  | 9,441 |  |  | 186,078 |
Equity | 347,866 |  |  | 13,270 |  |  | 361,136 |
Total Liabilities & Equity | $ | 851,861 |  |  | $ | 16,270 |  |  | $ | 868,131 |
The table below presents the impact to Operating Cash Flows on a Condensed Basis as a result of the restatement for the period ended June 30, 2020:
| For the Six Months Ended June 30, 2020
| As Previously |  |  |  |
| Reported |  | Adjustments |  | As Restated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income | $ | 7,728 |  |  | $ | 627 |  |  | $ | 8,355 |
Reconciliation of net income to net cash provided by operating activities: |  |  |  |
Changes in operating assets and liabilities | 38,711 |  |  | (627) |  |  | 38,084 |
Net cash provided by operating activities | $ | 61,764 |  |  |  |  | $ | 61,764 |

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- Definition The entire disclosure for reporting accounting changes and error corrections. It includes the conveyance of information necessary for a user of the Company's financial information to understand all aspects and required disclosure information concerning all changes and error corrections reported in the Company's financial statements for the period. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22644-107794 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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