DXP ENTERPRISES: 10-K / A – Discussion and analysis by management of the financial position and operating results

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes contained within   Item 8 -
Financial Statements   and Supplementary Data and the other financial
information found elsewhere in this Report. Management's Discussion and Analysis
uses forward-looking statements that involve certain risks and uncertainties as
described previously in our   Disclosure Regarding Forward-looking Statements
and   Item 1A. Risk Factors  .

General Overview

DXP Enterprises, Inc. is a leading North American distributor of technical
products and services. Our comprehensive knowledge, specialized services and
leading brands serve MRO, OEM and capital equipment end users in virtually all
industrial markets through our multi-channel capabilities that provide choice,
convenience, expertise, timely response and an overall ease of doing business.

DXP's products are marketed in the United States, Canada and Dubai to customers
that are engaged in a variety of industries, many of which may be counter
cyclical to each other. Demand for our products generally is subject to changes
in the United States and Canada, and global and macro-economic trends affecting
our customers and the industries in which they compete in particular. Certain of
these industries, such as the oil and gas industry, are subject to volatility
driven by a variety of factors, while others, such as the petrochemical industry
and the construction industry, are cyclical and materially affected by changes
in the United States and global economy. As a result, we may experience changes
in demand within particular markets, segments and product categories as changes
occur in our customers' respective markets.

CURRENT MARKET CONDITIONS AND OUTLOOK

General

In December 2019, the novel SARS-CoV-2 virus and associated COVID 19 disease
("COVID-19") were reported in China, and in March 2020 the World Health
Organization declared a pandemic. The pandemic had a significant impact on our
business during 2020. The marketplace broadly, and the Company specifically,
throughout the year operated with certain modifications to balance re-opening
with employee and customer safety. However, most of the markets in which we
operate began to normalize during the second half of 2020. This improved the
outlook of the manufacturing and construction customers that support our
traditional branch and onsite business. Although the rate of improvement remains
gradual and the overall activity level remains below pre-pandemic levels, DXP
saw a modest improvement from monthly lows experienced in July.

Consistent with broader social trends, we took steps to safeguard the health of
our employees. This included closing branch and corporate facilities to outside
personnel, enabled through technology, significant work from home capabilities
for many employees, and where employees remained in the workplace, created space
between work areas, provided ample personal protective equipment and cleaning
supplies, and instituting formal policies for mitigation in the event of cases
of illness. Due to these precautions, our operations continued to function
effectively, including internal controls over financial reporting.

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As restrictions ease and the roll out of various vaccines continue, we will
actively monitor the situation and may take further actions that alter our
business operations as may be required by federal, state, or local authorities
or that we determine are in the best interests of our employees, customers,
suppliers, and shareholders. While we are unable to determine or predict the
nature, duration, or scope of the overall impact the COVID-19 pandemic will have
on our business, results of operations, liquidity, or capital resources, we
believe that it is important to share where the Company stands today, how our
response to the COVID-19 pandemic has progressed, and how our operations and
financial condition may change as the fight against COVID-19 progresses.

Impact of the COVID-19 pandemic

During the twelve months ended December 31, 2020, the widely publicized and
discussed coronavirus (COVID-19) outbreak rapidly spread across the world,
driving a sharp erosion in demand for crude oil and other products and services,
as whole economies ordered curtailed activity. In response to declining demand
for crude oil, members of the Organization of the Petroleum Exporting Countries
and other producing countries (OPEC+), including Russia, met in early March to
discuss additional production cuts to help stabilize prices. The group failed to
reach an agreement, and production was instead increased into the already
oversupplied market, decimating oil prices and rapidly filling worldwide oil
storage facilities. OPEC+ eventually reached an agreement in April 2020 to
reduce production, which had a muted effect on oil prices due to the belief that
the cuts were significantly less than the demand destruction caused by COVID-19.
As a result, companies across the oil and gas industry responded with severe
capital spending budget cuts, cost cuts, personnel layoffs, facility closures
and bankruptcy filings.

We made a number of mitigation decisions and took proactive steps in response to
the issues presented by the COVID-19 pandemic and ongoing uncertainties related
to the oil and gas industry. We moved forward with our plans to increase our ABL
revolver facility from $85 million to $135 million. In addition, we reduced
certain discretionary expenditures and suspended the Company's matching
contributions to retirement plans. Some of these measures may have an adverse
impact on our businesses, but we believe we took the necessary steps to
stabilize the business in unprecedented times.

Throughout the COVID-19 pandemic crisis, we continued to operate our business
despite the challenges that arose from closing offices and operating our branch
locations. Our use of technology and third party conferencing platforms enabled
our office employees to work from home, performing their job functions with
little to no loss of productivity. We required our employees to work from home
as a result of governmental isolation orders and, in many cases, in advance of
those orders for the health and safety of our employees. For the most part, our
warehouses and regional distribution centers remained open. Under various
isolation orders by national, state, provincial and local governments, we were
exempted as an "essential" business as the products we sell are necessary for
the maintenance and functioning of many industries including energy
infrastructure. We took measures to safeguard the health and welfare of our
employees, including social distancing measures while at work, certain
screening, providing personal protection equipment such as gloves, face masks
and hand sanitizer and sterilizing cleaning services at Company facilities. As
various governmental restrictions continue to be lifted or phased out, we will
review our operational plans to continue operating our business while addressing
the health and safety of our employees and those with whom our business comes
into contact.

As a distribution business, we continue to closely monitor the ability of our
suppliers and transportation providers to continue the functioning of our supply
chain. We have not experienced significant delays by transportation providers or
significant delays in our supply chains. Our inventory position for most
products has allowed us to continue supply to most customers with little
interruption. In those instances where there was interruption, we worked with
our customers to discuss the impact of the delay. We will continue to monitor
the situation and have ongoing dialogue with our vendors and customers regarding
the status of impacted orders.

Management expects industry activity levels and spending by customers to remain
volatile in the near term, but we do expect some increased activity as the
nation and the world become vaccinated and the oil and gas demand destruction
from COVID-19 begins to subside. DXP remains committed to streamlining
operations and improving organizational efficiencies while continuing to focus
on delivering the products and services that remain in the Company's backlog. We
believe this strategy has further advanced the Company's competitive position,
regardless of the market environment.

DXP monitors several economic indices that have been key indicators for
industrial and oil & gas economic activity in the United States. These include
the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU)
indices published by the Federal Reserve Board and the Purchasing Managers Index
(PMI) published by the Institute for Supply Management (ISM). Additionally, we
track the Metalworking Business Index ("MBI"). A reading above 50 generally
indicates expansion.


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Below are readings for the fourth quarter versus the full year average:

                                  Index Reading *
Period                      MCU      PMI      IP     MBI
October                     73.0     59.3    103.6   53.9
November                    73.4     57.5    104.1   51.0
December                    74.5     60.5    105.7   53.5

Fiscal 2020 Q4 average      73.7     59.1    104.5   52.8
Fiscal 2020 average         71.9     52.5    101.8   47.6
Fiscal 2019 average         77.8     51.3    109.4   50.6
Fiscal 2018 average         78.7     58.6    108.6   57.1


* The information in this table was obtained from publicly available third-party sources.

DXP also monitors various oil & gas indicators including active drilling rigs,
gross U.S. domestic production and the West Texas Intermediate ("WTI") price of
oil. Below are readings for the last three years:

Presentation of the operating environment *

                                                               December 31,
                                                   2020            2019            2018
     Active Drilling Rigs**
     U.S                                              436             944           1,032
     Canada                                            90             135             191
     International                                    825           1,098             988
     Worldwide                                      1,352           2,177           2,211

Gross Domestic Product (in billions) $ 20,932.8 $ 21,429.0

$ 20,500.6

West Texas Intermediate ** (per barrel) $ 39.16 $ 56.98

$ 65.23

     Purchasing Managers Index                         60.5            47.8            54.3


* The information contained in this table has been obtained from third party
publicly available sources.
** Averages for the years indicated.

During 2019, the growth rate of the general economy improved from 2018 while the
rig count decreased, but remained higher than 2016 peaks. Sales for the year
ended December 31, 2019 increased $46.1 million, or 3.8%, to approximately $1.3
billion from $1.2 billion for the prior corresponding period. The majority of
the 2019 sales increase is the result of increased sales of pumps, bearings,
industrial supplies, metal working and safety services to customers engaged in
oilfield service, oil and gas exploration and production, mining, manufacturing
and petrochemical processing.

During 2020, the growth rate of the general economy declined from 2019 as well
as the rig count. Sales for the year ended December 31, 2020 decreased $259.6
million, or 20.5%, to approximately $1.0 billion from $1.3 billion for the prior
corresponding period. The majority of the 2020 sales decrease is the result of a
decrease in the capital spending by oil and gas producers and related businesses
stemming from a decrease in U.S. crude oil production due to low crude prices
and the negative economic impacts of COVID-19.

Our sales growth strategy in recent years has focused on internal growth and
acquisitions. Key elements of our sales strategy include leveraging existing
customer relationships by cross-selling new products, expanding product
offerings to new and existing customers, and increasing business-to-business
solutions using system agreements and supply chain solutions for our integrated
supply customers. We will continue to review opportunities to grow through the
acquisition of distributors and other businesses that would expand our
geographic reach and/or add additional products and services. Our results will
depend on our success in executing our internal growth strategy and, to the
extent we complete any acquisitions, our ability to integrate such acquisitions
effectively.

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Our strategies to increase productivity include consolidated purchasing
programs, centralizing product distribution, customer service and inside sales
functions, and using information technology to increase employee productivity.

Consolidated operating results

                                                                                            Years Ended December 31,
                                                      2020                  %                 2019                 %                2018                 %
                                                   (Restated)                              (Restated)                            (Restated)
                                                                            ( in millions, except percentages and per share amounts)
Sales                                            $    1,005.3             100.0           $  1,264.9             100.0          $  1,218.7             100.0
Cost of sales                                           728.1              72.4                915.1             72.3                882.9             72.4
Gross profit                                     $      277.2              27.6           $    349.8             27.7           $    335.8             27.6
Selling, general & administrative expense               245.0              24.4                282.4             22.3                263.8             21.6
Impairment and other charges                     $       59.9              6.0            $        -               -            $        -               -
Operating income (loss)                          $      (27.7)            (2.8)           $     67.4              5.3           $     72.0              5.9
Other( income) expense, net                               0.1               -                      -               -                  (1.2)            (0.1)
Interest expense                                         20.6              2.0                  19.5              1.5                 20.9              1.7
Income (loss) before income taxes                $      (48.4)            (4.8)           $     47.9              3.8           $     52.3            

4.3

Provision for income taxes (benefit)                    (18.7)            (1.9)                 11.2              0.9                 14.1              1.2
Net income (loss)                                $      (29.7)            (3.0)           $     36.7              2.9           $     38.2              3.1
Net loss attributable to noncontrolling interest         (0.3)              -                   (0.3)              -                  (0.1)             

Net income (loss) attributable to DXP
Enterprises, Inc.                                $      (29.4)            (2.9)           $     37.0              2.9           $     38.3              3.1
Per share
Basic earnings per share                         $      (1.65)                            $     2.10                            $     2.18
Diluted earnings per share                       $      (1.65)                            $     2.01                            $     2.08


Year ended December 31, 2020 compared to the closed financial year December 31, 2019

SALES. Sales for the year ended December 31, 2020 decreased $259.6 million, or
20.5%, to approximately $1.0 billion from $1.3 billion for the year ended
December 31, 2019. Sales from businesses acquired accounted for $19.6 million of
the sales for the twelve months ended December 31, 2020. Excluding the 2020
sales of the business acquired, sales for the year decreased by $279.2 million,
or 22.1% from the prior year's corresponding period. This sales decrease is the
result of a decrease in sales in our SC, IPS and SCS segments of $97.3 million,
$115.7 million and $46.6 million, respectively. The fluctuations in sales is
further explained in our business segment discussions below.
                                                 Years Ended December 31
                                   2020             2019            Change        Change%
                                                 (Restated)
Sales by Business Segment                    (in thousands, except change%)
Service Centers                $   662,617      $   759,918      $  (97,301)      (12.8) %
Innovative Pumping Solutions       187,991          303,655        (115,664)      (38.1) %
Supply Chain Services              154,658          201,278         (46,620)      (23.2) %
Total DXP Sales                $ 1,005,266      $ 1,264,851      $ (259,585)      (20.5) %



Service Centers Segment. Sales for the Service Centers segment decreased by
$97.3 million, or 12.8% for the year ended December 31, 2020, compared to the
year ended December 31, 2019. Excluding $19.6 million of 2020 Service Centers
segment sales from businesses acquired, Service Centers segment sales decreased
$116.9 million, or 15.4% from the prior year's corresponding period. This sales
decrease is primarily the result of decreased sales of metal working, safety
supply products and bearings to customers engaged in the OEM oil and gas markets
in connection with decreased capital spending by oil and gas producers as well
as the negative economic impacts of the COVID-19 pandemic. We expect that this
level of sales to the oil and gas industry will likely continue to decline if
U.S. crude oil production remains at levels experienced during the year.
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Innovative Pumping Solutions Segment. Sales for the IPS segment decreased by
$115.7 million, or 38.1% for the year ended December 31, 2020, compared to the
year ended December 31, 2019. This decrease was primarily the result of a
decrease in the capital spending by oil and gas producers and related businesses
stemming from a decrease in U.S. crude oil production due to low crude prices
and the negative economic impacts of COVID-19. With a prolonged economic
recession related to COVID-19, we will likely experience a further decline in
overall segment sales.
Supply Chain Services Segment. Sales for the SCS segment decreased by $46.6
million, or 23.2%, for the year ended December 31, 2020, compared to the year
ended December 31, 2019. The decline in sales is primarily related to decreased
sales to customers in the aerospace and oil and gas industries due to the
economic impacts of the COVID-19 pandemic.

GROSS PROFIT. Gross profit as a percentage of sales for the year ended
December 31, 2020 decreased by approximately 8 basis points from the prior
year's corresponding period. Excluding the impact of the businesses acquired,
gross profit as a percentage of sales decreased by approximately 12 basis
points. The decrease in the gross profit percentage excluding the businesses
acquired is primarily the result of an approximate 78 basis point decrease in
the gross profit percentage in our IPS segment and a 96 basis point increase in
the gross profit percentage in our SCS segment partially offset by a 45 basis
point decrease in the gross profit percentage in our SC segment.

Service Centers Segment. The gross profit percentage for the Service Centers
decreased approximately 45 basis points and approximately 46 basis points,
adjusting for the businesses acquired, from the prior year's corresponding
period. This was primarily the result of decreased sales of metal working,
safety services and bearings to customers engaged in the OEM oil and gas markets
in connection with decreased capital spending by oil and gas producers as well
as the negative economic impacts of the COVID-19 pandemic.

Innovative Pumping Solutions Segment. The 2020 gross profit percentage for the
IPS segment decreased approximately 78 basis points from the prior year's
corresponding period. The decrease in gross profit is primarily the result of a
decrease in the capital spending by oil and gas producers and related businesses
stemming from a decrease in U.S. crude oil production due to low crude prices
and the economic impacts of COVID-19.

Supply Chain Services Segment. Gross profit as a percentage of sales increased
approximately 96 basis points for the year ended December 31, 2020, compared to
the prior year's corresponding period. This was primarily as a result of costs
associated with new customer implementation in 2019 with no comparable activity
in 2020.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A for the year ended
December 31, 2020 decreased by approximately $37.4 million, or 13.2%, to $245.0
million from $282.4 million for prior year's corresponding period. SG&A expense
from businesses acquired accounted for $4.9 million. Excluding expenses from
businesses acquired, SG&A for the twelve months ended December 31, 2020
decreased by $42.3 million, or 15.0 percent. The overall decrease in SG&A is the
result of decreased payroll, incentive compensation and related taxes and 401(k)
expenses as a result of decreased business activity and cost reduction actions
associated with COVID-19 and depressed demand in oil and gas markets.

DEPRECIATION AND OTHER CHARGES. Due to the circumstances mentioned above, during the twelve months ended December 31, 2020, we have assessed our goodwill, certain long-lived assets and other assets for impairment and recoverability. Based on the results, we recorded the following impairments and other charges:

Service Centers segment. In 2020, we recorded $1.8 million of noncash impairment
charges related primarily to certain long-lived assets that were not recoverable
and $20.5 million of non-cash impairment charges related to goodwill associated
with our operations in Canada.

Segment Innovative pumping solutions. In 2020, we recorded $ 21.7 million non-cash impairment charges related to certain inactive assets and inventories and a $ 16.0 million non-cash impairment charge related to goodwill.

For additional information on our impairment charges, see   Note 5 - Impairments
and Other Charges   of the Notes to Consolidated Financial Statements in this
Annual Report.

OPERATING INCOME. Operating income for the year ended December 31, 2020
decreased by $95.1 million, or 141.0%, to a loss of $27.7 million from income of
$67.4 million in the prior year's corresponding period. This decrease in
operating income is primarily related to the decrease in sales discussed above
and the impact of impairment and other charges.

INTEREST EXPENSE. Interest expense for year ended December 31, 2020 increased by
$1.1 million, or 5.5%, from the prior year's corresponding period primarily due
to refinancing costs incurred in connection with the modification and
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extinguishment of debt, partially offset by lower LIBOR rates and a reduction in
the principal balance through voluntary pay-downs until the Company's
refinancing in December.

INCOME TAXES. Our effective tax rate was a tax benefit of 38.7% for the year
ended December 31, 2020 compared to a tax expense of 23.3% for the year ended
December 31, 2019. The Company reported a loss before income taxes for the year
ended December 31, 2020. As a result, items that ordinarily increase or decrease
the tax rate will have the opposite effect. Compared to the U.S. statutory rate
for the year ended December 31, 2020, the effective tax rate was increased by
state taxes, foreign taxes, research and development tax credits and other tax
credits. This was partially offset by nondeductible expenses and reserve for
uncertain tax positions. Compared to the U.S. statutory rate for the year ended
December 31, 2019, the effective tax rate was increased by state taxes, foreign
taxes, and non-deductible expenses and partially offset by research and
development tax credits and other tax credits.

Year ended December 31, 2019 compared to the closed financial year December 31, 2018

For the full year 2019 to 2018 comparative discussion, see Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations in
DXP's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Inflation
We do not believe the effects of inflation have any material adverse effect on
our results of operations or financial condition. We attempt to minimize
inflationary trends by passing manufacturer price increases on to the customer
whenever practicable.

The rate of inflation, as measured by changes in the producer price index,
affects different commodities, the cost of products purchased and ultimately the
pricing of our different products and product classes to our customers. Our
pricing related to inflation did not have a measurable impact on our sales
revenue for the year. Historically, price changes from suppliers have been
consistent with inflation and have not had a material impact on the results of
our operations.

Non-GAAP Financial Measures and Reconciliations

In an effort to provide investors with additional information regarding our
results of operations as determined by GAAP, we disclose non-GAAP financial
measures. The non-GAAP financial measures we provide in this report should be
viewed in addition to, and not as an alternative for, results prepared in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP").

Our primary non-GAAP financial measures are organic sales (Organic Sales), sales
per business day ("Sales per Business Day"), free cash flow ("Free Cash Flow"),
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
adjusted EBITDA ("Adjusted EBITDA"). The non-GAAP financial measures presented
may differ from similarly titled non-GAAP financial measures presented by other
companies, and other companies may not define these non-GAAP financial measures
in the same way. These measures are not substitutes for their comparable U.S.
GAAP financial measures, such as net sales, net income/(loss), diluted earnings
per common share ("EPS"), or other measures prescribed by U.S. GAAP, and there
are limitations to using non-GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing our
performance on a consistent basis for purposes of business decision making by
removing the impact of certain items that management believes do not directly
reflect our underlying operations. Management believes that presenting our
non-GAAP financial measures (i.e., Organic Sales, Sales per Business Day, Free
Cash Flow, EBITDA and Adjusted EBITDA) are useful to investors because it (i)
provides investors with meaningful supplemental information regarding financial
performance by excluding certain items, (ii) permits investors to view
performance using the same tools that management uses to budget, make operating
and strategic decisions, and evaluate historical performance, and (iii)
otherwise provides supplemental information that may be useful to investors in
evaluating our results. We believe that the presentation of these non-GAAP
financial measures, when considered together with the corresponding U.S. GAAP
financial measures and the reconciliations to those measures, provides investors
with additional understanding of the factors and trends affecting our business
than could be obtained absent these disclosures.

Organic Sales is defined as net sales excluding, when they occur, the impact of
acquisitions and divestitures. Organic Sales is a tool that can assist
management and investors in comparing our performance on a consistent basis by
removing the impact of certain items that management believes do not directly
reflect our underlying operations.

Sales per business day are defined as the total net sales divided by the business days for the period. Sales per business day help management and investors assess the historical performance of the company.

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Free Cash Flow is defined cash provided by operations less net purchase of
property and equipment. We believe Free Cash Flow is an important liquidity
metric because it measures, during a given period, the amount of cash generated
that is available to fund acquisitions, make investments, repay debt
obligations, repurchase company shares, and for certain other activities.

EBITDA is defined as the sum of consolidated net income in such period, plus to
the extent deducted from consolidated net income: (i) income tax expense, (ii)
franchise tax expense, (iii) consolidated interest expense, (iv) amortization
and depreciation during such period, (v) all non-cash charges and adjustments,
and (vi) non-recurring cash expenses related to the Term Loan; in addition to
these adjustments, we exclude, when they occur, the impacts of impairment losses
and losses/(gains) on the sale of a business. EBITDA is a tool that can assist
management and investors in comparing our performance on a consistent basis by
removing the impact of certain items that management believes do not directly
reflect our underlying operations.

From time to time, due to accounting guidelines and rules, the Company incurs non-monetary, one-time or one-time items. As such, the Company will add these elements to determine adjusted EBITDA.

We use internal EBITDA and Adjusted EBITDA to assess and manage the operations of the Company, as we believe it provides additional useful information regarding the continued economic performance of the Company. We have chosen to provide this information to investors to enable them to make more meaningful comparisons of operating results.

A reconciliation of the non-GAAP financial measures, to its most comparable GAAP
financial measure is included below.
The following table sets forth the reconciliation of net sales to organic net
sales (in millions):

                Reconciliation of Net Sales to Organic Net Sales
Fiscal 2020                               Net Sales             Acquisition Sales           Divestiture Sales          Organic Sales
Service Centers                        $         662          $               20          $                -          $         642
Innovative Pumping Solutions                     188                           -                           -                    188
Supply Chain Services                            155                           -                           -                    155
Total Sales                            $       1,005          $               20          $                -          $         985

Fiscal 2019 (Restated)
Service Centers                        $         760          $                -          $                -          $         760
Innovative Pumping Solutions                     304                           -                           -                    304
Supply Chain Services                            201                           -                           -                    201
Total Sales                            $       1,265          $                -          $                -          $       1,265

Year-over-year growth rates
Service Centers                                (12.9) %                        -                           -                  (15.5) %
Innovative Pumping Solutions                   (38.2) %                        -                           -                  (38.2) %
Supply Chain Services                          (22.9) %                        -                           -                  (22.9) %
Total Sales                                    (20.6) %                        -                           -                  (22.1) %


Sales per working day were as follows (in thousands):

                                         Years Ended December 31,
                                      2020           2019         2018
   Business days                            253          252          252
   Sales per Business Day        $   3,974         $ 5,019      $ 4,836


We use internal EBITDA and Adjusted EBITDA to assess and manage the operations of the Company, as we believe it provides additional useful information regarding the continued economic performance of the Company. We have chosen to provide this information to investors to enable them to make more meaningful comparisons of operating results.

For more information on free cash flow as a management measure, see “Liquidity and Capital Resources – Free Cash Flow” below.

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The following table sets forth the reconciliation of EBITDA and Adjusted EBITDA
to the most comparable GAAP financial measure (in thousands):
                                                                       Year Ended December 31,
                                                            2020                 2019                2018
                                                         (Restated)           (Restated)          (Restated)
GAAP net income (loss) attributable to DXP
Enterprises, Inc.                                       $  (29,269)         $    37,025          $   38,345
Loss attributable to non-controlling interest                 (348)                (260)               (111)
Provision for income taxes                                 (18,696)              11,194              14,107
Depreciation and amortization                               22,683               25,174              26,164
Interest and other financing expenses                       20,571               19,498              20,937
EBITDA                                                  $   (5,059)         $    92,631          $   99,442
EBITDA margin as % of sales                                   (0.5) %               7.3  %              8.2  %
NCI loss before tax*                                           632                  342                 157
Impairment and other charges                                59,883                    -                   -
Stock compensation expense                                   3,532                1,963               2,549
Adjusted EBITDA                                         $   58,988          $    94,936          $  102,148
Adjusted EBITDA margin as % of sales                           5.9  %               7.5  %              8.4  %

* NCI represents the non-controlling interest

Liquidity and capital resources

Overview

As of December 31, 2020, we had cash and cash equivalents of $119.4 million and
bank and other borrowings of $320.4 million. We have a $135 million asset-based
Loan facility that is due to mature in August 2022, under which we had no
borrowings outstanding as of December 31, 2020 and a Term Loan B with
$330 million in borrowings.

Our primary source of capital is cash flow from operations, supplemented as necessary by company shares, bank loans or other sources of debt. As a distributor of MRO products and services, we require significant working capital to fund inventory and accounts receivable. Additional cash is needed for capital assets related to information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and security services equipment. We also need cash to pay our lease obligations, finance ongoing work on the project, and service our debt.

The following table summarizes our net cash flows used in and provided by
operating activities, net cash used in investing activities and net cash (used
in) provided by financing activities for the periods presented (in thousands):

                                                     Years Ended December 31,
                                        2020            2019           Change       Change(%)
                                     (Restated)      (Restated)
Net cash provided by (used in):
Operating activities                $  109,650      $    41,306      $ 68,344           165  %
Investing activities                  (121,796)         (22,085)      (99,711)          451  %
Financing activities                    77,406           (6,092)       83,498        (1,371) %
Effect of foreign currency                (168)             679          (847)         (125) %
Net change in cash                  $   65,092      $    13,808      $ 51,284           371  %





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Operating Activities

The Company generated $109.7 million of cash in operating activities during the
year ended December 31, 2020 compared to generating $41.3 million of cash during
the prior year's corresponding period. The $68.3 million increase in the amount
of cash generated between the two periods was primarily driven by the
collections of receivables associated with trade accounts receivables and
decreased inventory purchases.

Investment activities

For the year ended December 31, 2020, net cash used in investing activities was
$121.8 million compared to $22.1 million in the corresponding period in 2019.
This increase was primarily driven by acquisitions during the year of $115.2
million. For the twelve months ended December 31, 2020, purchases of property
and equipment decreased to approximately $6.7 million compared to $22.1 million
in 2019 primarily due to leasehold improvements and software upgrades in 2019
with no comparable activity in 2020. The maintenance capital expenditures for
2021 are expected to be within the range of $4 million to $10 million.

Fundraising activities

For the year ended December 31, 2020, net cash generated in financing activities
was $77.4 million, compared to net cash used in financing activities of $6.1
million for the corresponding period in 2019. The activity in the period was
primarily attributed to the Company refinancing our Term Loan raising $330
million partially offset by the extinguishment of our previous term loan and
higher principal repayments of debt in 2019.

On December 23, 2020, DXP entered into a new seven year, $330 million Senior
Secured Term Loan (the "Term Loan Agreement"), which replaced DXP's previously
existing Senior Secured Term Loan.

On May 11, 2020, the Company entered into an Equity Distribution Agreement (the
"Equity Distribution Agreement") with BMO Capital Markets Corp. (the
"Distribution Agent") pursuant to which the Company may offer and sell shares of
the Company's common stock, par value $0.01 per share, having an aggregate
offering price of up to $37.5 million from time to time through the Distribution
Agent. Sales of the Company's common stock pursuant to the Equity Distribution
Agreement are made in "at the market offerings" as defined in Rule 415(a)(4)
promulgated under the Securities Act of 1933, as amended. During the twelve
months ended December 31, 2020, the Company issued and sold 46 thousand shares
of common stock under the Equity Distribution Agreement, with net proceeds
totaling approximately $1.1 million less Agent's commission.

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase
Agreement") which provides for a $135 million asset-backed revolving line of
credit (the "ABL Revolver"), a $50 million increase from the $85.0 million
available under the original revolver. During the twelve months ended December
31, 2020, the amount available to be borrowed under our credit facility
increased to $131.9 million compared to $81.6 million at December 31, 2019,
primarily as a result of the above mentioned Increase Agreement offset by
outstanding letters of credit.

We believe this is adequate funding to meet the working capital needs of the business.

At December 31, 2020, our total long-term debt, including the current portion,
less principal repayments, was $330.0 million, or 47.7% of total capitalization
(total long-term debt including current portion plus shareholders' equity) of
$691.1 million. Approximately $330.0 million of this outstanding debt bears
interest at various floating rates.   See Item 7A. Quantitative and Qualitative
Disclosure about Market Risk

Free Cash Flow

We believe Free Cash Flow is an important liquidity metric because it measures,
during a given period, the amount of cash generated that is available to fund
acquisitions, make investments, repay debt obligations, repurchase company
shares, and for certain other activities. Our Free Cash Flow, which is
calculated as cash provided by operations less net purchase of property and
equipment, was $103.1 million, $19.2 million and $29.1 million for years 2020,
2019 and 2018, respectively.

Free Cash Flow is not a measure of liquidity under generally accepted accounting
principles in the United States, and may not be defined and calculated by other
companies in the same manner. Free Cash Flow should not be considered in
isolation or as an alternative to net cash provided by operating activities.
Free Cash Flow reconciles to the most directly comparable GAAP financial measure
of cash flows from operations as follows:
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The following table presents the reconciliation of free cash flow to the most comparable GAAP financial measure (in thousands):

                                                                      Years 

Ended the 31st of December,

                                                             2020               2019               2018
Net cash provided by operating activities                $ 109,650          $  41,306          $  35,840
Less: Purchase of property and equipment                     6,672             22,120              9,323
Add: Proceeds from the disposition of property and
equipment                                                      123                 35              2,558
Free Cash Flow                                           $ 103,101          $  19,221          $  29,075


ABL Facility and Senior B Secured Term Loan

Loan facility on assets:

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase
Agreement") that provided for a $135 million asset-backed revolving line of
credit (the "ABL Revolver") a $50 million increase from the $85.0 million
available under the original revolver. During the twelve months ended December
31, 2020, the amount available to be borrowed under our credit facility
increased to $131.9 million compared to $81.6 million at December 31, 2019
primarily as a result of the above mentioned Increase Agreement offset by
outstanding letters of credit.

From December 31, 2020, there were no amounts of ABL loans outstanding under the ABL revolver.

The Company's consolidated Fixed Charge Coverage Ratio was 3.40 to 1.00 as of
December 31, 2020. DXP was in compliance with all such covenants that were in
effect on such date under the ABL Revolver as of December 31, 2020.

The ABL Credit Agreement may be increased in increments of $10.0 million up to
an aggregate of $50.0 million. The facility will mature on August 29, 2022.
Interest accrues on outstanding borrowings at a rate equal to LIBOR or CDOR plus
a margin ranging from 1.25% to 1.75% per annum, or at an alternate base rate,
Canadian prime rate or Canadian base rate plus a margin ranging from 0.25% to
0.75% per annum, in each case, based upon the average daily excess availability
under the facility for the most recently completed calendar quarter. Fees
ranging from 0.25% to 0.375% per annum are payable on the portion of the
facility not in use at any given time. The unused line fee was 0.375% at
December 31, 2020.

The interest rate on the ABL facility was 1.9% at December 31, 2020.

Term loan B:

At December 23, 2020, DXP ​​has entered a new seven-year period, $ 330 million Senior B Secured Term Loan (the “B Term Loan Agreement”), which replaced DXP’s existing Senior Secured Term Loan.

The Term Loan B Agreement provides for a $330 million term loan (the "Term
Loan") that amortizes in equal quarterly installments of 0.25% with the balance
payable in December 2027, when the facility matures. Subject to securing
additional lender commitments, the Term Loan B Agreement allows for incremental
increases in facility size up to an aggregate of $52.5 million, plus an
additional amount such that DXP's Secured Leverage Ratio (as defined in the Term
Loan B Agreement) would not exceed 3.75 to 1.00. Interest accrues on the Term
Loan at a rate equal to the base rate plus a margin of 3.75% for the Base Rate
Loans (as defined in the Term Loan B Agreement), or LIBOR plus a margin of 4.75%
for the Eurodollar Rate Loans (as defined in the Term Loan B Agreement). We are
required to repay the Term Loan with certain asset sales and insurance proceeds,
certain debt proceeds and 50% of excess cash flow, reducing to 25%, if our total
leverage ratio is no more than 3.00 to 1.00 and 0%, if our total leverage ratio
is no more than 2.50 to 1.00.

The interest rate on the term loan was 5.8% as of December 31, 2020.

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Financial Covenants:

DXP’s main financial commitments under the ABL Credit Agreement and the B Term Loan Agreement include:

Fixed Charge Coverage Ratio - The Fixed Charge Coverage Ratio under the ABL
Credit Agreement is defined as the ratio for the most recently completed
four-fiscal quarter period, of (a) EBITDA minus capital expenditures (excluding
those financed or funded with debt (other than the ABL Loans), (ii) the portion
thereof funded with the net proceeds from asset dispositions of equipment or
real property which DXP is permitted to reinvest pursuant to the Term Loan and
the portion thereof funded with the net proceeds of casualty insurance or
condemnation awards in respect of any equipment and real estate which DXP is not
required to use to prepay the ABL Loans pursuant to the Term Loan B Agreement or
with the proceeds of casualty insurance or condemnation awards in respect of any
other property) minus cash taxes paid (net of cash tax refunds received during
such period), to (b) fixed charges.  The Company is restricted from allowing its
fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance
period, which is triggered when the availability under the ABL facility falls
below a threshold set forth in the ABL Credit Agreement. As of December 31,
2020, the Company's consolidated Fixed Charge Coverage Ratio was 3.40 to 1.00.

Secured Leverage Ratio - The Term Loan B Agreement requires that the Company's
Secured Leverage Ratio, defined as the ratio, as of the last day of any fiscal
quarter of consolidated secured debt (net of unrestricted cash, not to exceed
$30 million) as of such day to EBITDA, beginning with the fiscal quarter ending
December 31, 2020, is either equal to or less than as indicated in the table
below:

                     Fiscal Quarter                      Secured Leverage Ratio
                    December 31, 2020                          5.75:1.00
                     March 31, 2021                            5.75:1.00
                      June 30, 2021                            5.75:1.00
                   September 30, 2021                          5.50:1.00
                    December 31, 2021                          5.50:1.00
                     March 31, 2022                            5.25:1.00
                      June 30, 2022                            5.25:1.00
                   September 30, 2022                          5.25:1.00
                    December 31, 2022                          5.00:1.00
                     March 31, 2023                            5.00:1.00
    June 30, 2023 and each Fiscal Quarter thereafter           4.75:1.00



EBITDA as defined under the Term Loan B Agreement for financial covenant
purposes means, without duplication, for any period of determination, the sum
of, consolidated net income during such period; plus to the extent deducted from
consolidated net income in such period: (i) income tax expense, (ii) franchise
tax expense, (iii) consolidated interest expense, (iv) amortization and
depreciation during such period, (v) all non-cash charges and adjustments, and
(vi) non-recurring cash expenses related to the Term Loan, provided, that if the
Company acquires or disposes of any property during such period (other than
under certain exceptions specified in the Term Loan B Agreement, including the
sale of inventory in the ordinary course of business, then EBITDA shall be
calculated, after giving pro forma effect to such acquisition or disposition, as
if such acquisition or disposition had occurred on the first day of such period.
As of December 31, 2020, the Company's consolidated Secured Leverage Ratio was
3.25 to 1.00.

The ABL loans and the term loan are secured by substantially all of the assets of the Company.

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Borrowings (in thousands):
                                                                                                          Increase
                                                December 31, 2020           December 31, 2019             (Decrease)
Current portion of long-term debt             $            3,300          $            2,500          $          800
Long-term debt                                           326,700                     241,875                  84,825
Total long-term debt                                     330,000                     244,375                  85,625



We believe our cash generated from operations will meet our normal working
capital needs during the next twelve months. However, we may require additional
debt outside of our credit facilities or equity financing to fund potential
acquisitions. Such additional financings may include additional bank debt or the
public or private sale of debt or equity securities. In connection with any such
financing, we may issue securities that substantially dilute the interests of
our shareholders.

Borrowing capacity (in thousands):

The following table summarizes the amount of borrowing capacity under our ABL
Revolver as follows:
                                                                                                            Increase
                                                  December 31, 2020           December 31, 2019            (Decrease)
Total borrowing capacity                        $          135,000          $           85,000          $      50,000
Less : ABL                                                       -                           -                      -
Less : Outstanding letters of credit                         3,131                       3,442                   (311)
Total amount available                          $          131,869          $           81,558          $      50,311



Contractual Obligations

The impact that our contractual obligations from December 31, 2020 expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

Payments due per period

                                            Less than 1                                               More than 5
                                                Year            1-3 Years          3-5 Years             Years              Total
Long-term debt, including current portion
(1)                                         $   3,300          $   6,600    

$ 6,600 $ 313,500 $ 330,000
Rental obligations

                    19,183             26,561             10,008               7,271             63,023
Estimated interest payments (2)                18,880             56,999             55,829                   -            131,708
Total                                       $  41,363          $  90,160          $  72,437          $  320,771          $ 524,731


(1) Amounts represent the expected cash payments of our long-term debt and do
not include any fair value adjustment.
(2) Assumes interest rates in effect at December 31, 2020. Assumes debt is paid
on maturity date and not replaced.

Off-balance sheet provisions

As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities ("SPE's"), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As of December 31, 2020, we were not involved in any
unconsolidated SPE transactions.

The Company has not made any guarantees to customers or vendors nor does the
Company have any off-balance sheet arrangements or commitments, that have, or
are reasonably likely to have, a current or future effect on the Company's
financial condition, change in financial condition, revenue, expenses, results
of operations, liquidity, capital expenditures or capital resources that are
material to investors.

Indemnification

In the ordinary course of business, DXP enters into contractual arrangements
under which DXP may agree to indemnify customers from any losses incurred
relating to the services we perform. Such indemnification obligations may not be
subject to maximum loss clauses. Historically, payments made related to these
indemnities have been immaterial.
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DISCUSSION OF CRITICAL ACCOUNTING POLICIES

The Consolidated Financial Statements of DXPE are prepared in accordance with
United States generally accepted accounting principles ("US GAAP"), which
require management to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities. Management bases its estimates
on historical experience and on various other assumptions that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying amount of assets and liabilities that are
not readily apparent from other sources. Management has discussed the
development, selection and disclosure of these estimates with the Audit
Committee of the Board of Directors of DXP. Management believes that the
accounting estimates employed and the resulting amounts are reasonable; however,
actual results may differ from these estimates. Making estimates and judgments
about future events is inherently unpredictable and is subject to significant
uncertainties, some of which are beyond our control. Should any of these
estimates and assumptions change or prove to have been incorrect, it could have
a material impact on our results of operations, financial position and cash
flows.

A summary of significant accounting policies is included in   Note 2 - Summary
of Significant Accounting and Business Policies   to the Consolidated Financial
Statements in   Item 8. Financial Statements and Supplementary Data  , which is
incorporated herein by reference. An accounting policy is deemed to be critical
if it requires an accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is made, if different
estimates reasonably could have been used, or if changes in the estimate that
are reasonably possible could materially impact the financial statements.
Management believes the following critical accounting policies reflect the
significant estimates and assumptions used in the preparation of the
Consolidated Financial Statements.

Receivables and credit risk

Trade receivables consist primarily of uncollateralized customer obligations due
under normal trade terms, which usually require payment within 30 days of the
invoice date. However, these payment terms are extended in select cases and
customers may not pay within stated trade terms.

The Company has trade receivables from a diversified customer base located
primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and
Southwestern regions of the United States, and Canada. The Company believes no
significant concentration of credit risk exists. The Company evaluates the
creditworthiness of its customers' financial positions and monitors accounts on
a regular basis, but generally does not require collateral. Provisions to the
allowance for doubtful accounts are made monthly and adjustments are made
periodically (as circumstances warrant) based upon management's best estimate of
the collectability of such accounts under the current expected credit losses
model. The Company writes-off uncollectible trade accounts receivable when the
accounts are determined to be uncollectible. No customer represents more than
10% of consolidated sales.

Uncertainties require the Company to make frequent judgments and estimates
regarding a customer's ability to pay amounts due in order to assess and
quantify an appropriate allowance for doubtful accounts. The primary factors
used to quantify the allowance are customer delinquency, bankruptcy, and the
Company's estimate of its ability to collect outstanding receivables based on
the number of days a receivable has been outstanding.

Many of the Company’s clients operate in the energy sector. The cyclical nature of the industry can affect the operating performance and cash flow of customers, which could affect the Company’s ability to collect these obligations.

The Company continues to monitor the economic climate in which its customers
operate and the aging of its accounts receivable. The allowance for doubtful
accounts is based on the aging of accounts and an individual assessment of each
invoice. Additionally, the overall allowance is adjusted accordingly based upon
historical experience and economic factors that impact our business and
customers. At December 31, 2020, the allowance was approximately 4.9% of the
gross accounts receivable remaining unchanged from a year earlier. While credit
losses have historically been within expectations and the provisions
established, should actual write-offs differ from estimates, revisions to the
allowance would be required.

Depreciation of Good will, other intangible assets with indefinite duration and long-term assets

The Company tests goodwill and other indefinite lived intangible assets for
impairment on an annual basis in the fourth quarter and when events or changes
in circumstances indicate that the carrying amount may not be recoverable . The
Company assigns the carrying value of these intangible assets to its "reporting
units" and applies the test for goodwill at the reporting unit level. A
reporting unit is defined as an operating segment or one level below a segment
(a "component") if the component is a business and discrete information is
prepared and reviewed regularly by segment management.
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The Company's goodwill impairment assessment first permits evaluating
qualitative factors to determine if a reporting unit's carrying value would more
likely than not exceed its fair value. If the Company concludes, based on the
qualitative assessment, that a reporting unit's carrying value would more likely
than not exceed its fair value, the Company would perform a quantitative test
for that reporting unit. Goodwill is deemed to be impaired if the carrying
amount of a reporting unit's net assets including goodwill exceeds its estimated
fair value.

The Company determines fair value using widely accepted valuation techniques,
including discounted cash flows and market multiples analyses. These types of
analyses contain uncertainties as they require management to make assumptions
and to apply judgments regarding industry economic factors and the profitability
of future business strategies. The Company's policy is to conduct impairment
testing based on current business strategies, taking into consideration current
industry and economic conditions, as well as the Company's future expectations.
Key assumptions used in the discounted cash flow valuation model include, among
others, discount rates, growth rates, cash flow projections and terminal value
rates. Discount rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management judgment. Discount
rates are determined using a weighted average cost of capital ("WACC"). The WACC
considers market an industry data, as well as Company-specific risk factors for
each reporting unit in determining the appropriate discount rate to be used. The
discount rate utilized for each reporting unit is indicative of the return an
investor would expect to receive for investing in a similar business. Management
uses industry considerations and Company-specific historical and projected
results to develop cash flow projections for each reporting unit. Additionally,
as part of the market multiples approach, the Company utilizes market data from
publicly traded entities whose businesses operate in industries comparable to
the Company's reporting units, adjusted for certain factors that increase
comparability.

The Company cannot predict the occurrence of events or circumstances that could
adversely affect the fair value of goodwill. Such events may include, but are
not limited to, deterioration of the economic environment, increase in the
Company's weighted average cost of capital, material negative changes in
relationships with significant customers, reductions in valuations of other
public companies in the Company's industry, or strategic decisions made in
response to economic and competitive conditions. If actual results are not
consistent with the Company's current estimates and assumptions, impairment of
goodwill could be required.

During the third quarter of 2020, the Company's market capitalization and
overall sales declined significantly driven by current macroeconomic and
geopolitical conditions including the collapse of oil prices caused by both
surplus production and supply as well as the decrease in demand caused by the
COVID-19 pandemic. In addition, the uncertainty related to oil demand continued
to have a significant impact on the investment and operating plans of many of
our customers. Based on these events, the Company concluded that it was more
likely than not that the fair values of certain of its reporting units were less
than their carrying values. Therefore, the Company performed an interim goodwill
impairment test.

For the twelve months ended December 31, 2020, goodwill was evaluated for
impairment at the reporting unit level. The Company had four goodwill reporting
units: Service Centers, Innovative Pumping Solutions, Canada and Supply Chain
Services. The Company determined the fair values of two reporting units with
goodwill were below their carrying values, resulting in a $36.4 million goodwill
impairment, which was included in impairments and other charges in the
consolidated statement of operations.

Innovative pumping solutions

The oil and gas industry experienced unprecedented disruption during 2020 as a
result of a combination of factors, including the substantial decline in global
demand for oil caused by the COVID-19 pandemic and subsequent mitigation
efforts. This disruption created a substantial surplus of oil and a decline in
oil prices. West Texas Intermediate (WTI) oil spot prices decreased sharply
during the first quarter of 2020 from a high of $63 per barrel in early January
of 2020 to approximately $21 per barrel by the end of the first quarter of 2020.
Although oil prices recovered modestly, WTI oil spot prices averaged
approximately $41 per barrel during the third quarter of 2020, which was
approximately 28% less than the average price per barrel during 2019. The U.S.
average rig count continued to decline in the third quarter of 2020, dropping
35% compared to the second quarter of 2020. These factors, along with the
continued impact of COVID-19, constituted a triggering event and required a
goodwill impairment analysis for our manufacturing reporting unit. With the
adverse economic impacts discussed above and the uncertainty surrounding the
COVID-19 pandemic, the results of the impairment test indicated that the
carrying amount of the manufacturing reporting unit exceeded the estimated fair
value of the reporting unit, and a full impairment of its remaining goodwill was
required. Significant assumptions inherent in the valuation methodologies for
goodwill impairment calculations include, but are not limited to, prospective
financial information, growth rates, discount rates, inflationary factors, and
the cost of capital. To evaluate the sensitivity of the fair value calculations
for the reporting unit, the Company applied a hypothetical 100 bps reduction in
the weighted average cost of capital, and separately, increased the revenue
projections by 10
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percent, holding other factors steady. Even with more favorable assumptions, the
results of these sensitivity analyses led the Company to record a non-cash
impairment charge of $16.0 million for goodwill during the twelve months ended
December 31, 2020.

Canada

As a result of the reductions in capital spending for oil and gas producers and
processors and the economic repercussions from the COVID-19 pandemic, we
determined these events constituted a triggering event that required us to
review the recoverability of our long-lived assets and perform an interim
goodwill impairment assessment as of July 31, 2020. Our review resulted in the
recording of impairments and other charges during the third quarter of 2020. As
a result of our goodwill impairment assessments, we determined that the fair
value of our Canadian reporting unit was lower than its net book value and,
therefore, resulted in a partial goodwill impairment. The enterprise value of
the Canadian reporting unit at July 31, 2020 was less than its carrying value by
approximately 40 percent. This resulted in a partial goodwill impairment of
approximately $20.5 million for Canada. Per the impairment test and respective
sensitivity analyses, it was noted that a decrease of approximately 480 basis
points in the pre-tax discount rate and an approximately 150 basis points
increase in our revenue long-term growth rate projections would cause the Canada
business enterprise value to increase to the level of its carrying value and
thus avoid a full impairment.

Other deficiencies and methodology

The negative market indicators described above were triggering events that
indicated that certain of the Company's long-lived intangible and tangible
assets and additional inventory items may also have been impaired.
Recoverability testing indicated that certain long-lived assets and inventory
were indeed impaired or otherwise not recoverable. The estimated fair value of
these assets was determined to be below their carrying value. As a result, the
Company recorded the following additional impairment and other charges as
detailed in the table below (in thousands).

                                              Twelve months ended December 

31, 2020

   Long-lived asset impairments              $                              

4 775

   Goodwill impairments                                                     

36,435

   Inventory and work-in-progress costs                                     

18,673

   Total impairment and other charges        $                              

59 883



The Company determined the fair value of both long-lived assets and goodwill,
discussed above, primarily using the discounted cash flow method and in the case
of goodwill, a multiples-based market approach for comparable companies. Given
the current volatile market environment and inherent complexities it presents,
the Company utilized third-party valuation advisors to assist us with these
valuations. These analyses included significant judgment, including management's
short-term and long-term forecast of operating performance, discount rates based
on the weighted average cost of capital, as derived from peers, revenue growth
rates, profitability margins, capital expenditures, the timing of future cash
flows based on an eventual recovery of the oil and gas industry, and in the case
of long-lived assets, the remaining useful life and service potential of the
asset, all of which were classified as Level 3 inputs under the fair value
hierarchy. These impairment assessments incorporate inherent uncertainties,
including supply and demand for the Company's products and services and future
market conditions, which are difficult to predict in volatile economic
environments. The discount rates utilized to value the reporting units were in a
range from 14.8 percent to 16.4 percent. Given the dynamic nature of the
COVID-19 pandemic and related market conditions, we cannot reasonably estimate
the period that these events will persist or the full extent of the impact they
will have on our business. If market conditions continue to deteriorate,
including crude oil prices further declining or remaining at low levels for a
sustained period, we may record further asset impairments, which may include an
impairment of the carrying value of our goodwill associated with other reporting
units.

For inventory and work-in-progress we evaluated the recoverability based upon
their net realizable value, factoring in the costs to complete work-in-progress
and the salability of inventory items primarily tied to oil and gas. The net
realizable value was derived from quotes for similar items and recent
transactions.


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Revenue Recognition

In our Innovative Pumping Solutions segment, we make a substantial portion of
our sales to customers pursuant to long-term contracts to fabricate tangible
assets to customer specifications that can range from three to eighteen months
or more. We account for these long-term contracts under the
percentage-of-completion method of accounting, which is an input method as
defined by ASC 606, Revenue Recognition. Under this method, we recognize sales
and profit based upon the cost-to-cost method, in which sales and profit are
recorded based upon the ratio of costs incurred to estimated total costs to
complete the asset. The percentage-of-completion method of accounting involves
the use of various estimating techniques to project costs at completion and, in
some cases, includes estimates of recoveries asserted against the customer for
changes in specifications (change orders). Due to the size, length of time and
nature of many of our contracts, the estimation of total contract costs and
revenues through completion is complicated and subject to many variables
relative to the outcome of future events over a period of several months. We are
required to make numerous assumptions and estimates relating to items such as
expected engineering requirements, complexity of design and related development
costs, product performance, availability and cost of materials, labor
productivity and cost, overhead, manufacturing efficiencies and the achievement
of contract milestones, including product deliveries, technical requirements, or
schedule.

Management performs detailed quarterly reviews of all of our open contracts.
Based upon these reviews, we record the effects of adjustments in profit
estimates each period. If at any time management determines that in the case of
a particular contract total costs will exceed total contract revenue, we record
a provision for the entire anticipated contract loss at that time. Due to the
significance of judgment in the estimation process described above, it is likely
that materially different profit margins and/or cost of sales amounts could be
recorded if we used different assumptions or if the underlying circumstances
were to change. The percentage-of-completion method requires that we estimate
future revenues and costs over the life of a contract. Revenues are estimated
based upon the original contract price, with consideration being given to
exercised contract options, change orders and in some cases projected customer
requirements. Contract costs may be incurred over a period of several months,
and the estimation of these costs requires significant judgment based upon the
acquired knowledge and experience of program managers, engineers, and finance
professionals. Estimated costs are based primarily on anticipated purchase
contract terms, historical performance trends, business base and other economic
projections. The complexity of certain designs as well as technical risks and
uncertainty as to the future availability of materials and labor resources could
affect the company's ability to accurately estimate future contract costs.

Our earnings could be reduced by a material amount resulting in a charge to
earnings if (a) total estimated contract costs are significantly higher than
expected due to changes in customer specifications prior to contract amendment,
(b) total estimated contract costs are significantly higher than previously
estimated due to cost overruns or inflation, (c) there is a change in
engineering efforts required during the development stage of the contract or (d)
we are unable to meet contract milestones or product specifications. Management
continues to monitor and update program cost estimates quarterly for all open
contracts. A significant change in an estimate on several of these contracts
could have a material effect on our financial position and results of
operations.

Purchasing accounting

DXP estimates the fair value of assets, including property, machinery and
equipment and their related useful lives and salvage values, intangibles and
liabilities when allocating the purchase price of an acquisition. The fair value
estimates are developed using the best information available. Third party
valuation specialists assist in valuing the Company's significant acquisitions.
Our purchase price allocation methodology contains uncertainties because it
requires management to make assumptions and to apply judgment to estimate the
fair value of acquired assets and liabilities. Management estimates the fair
value of assets and liabilities based upon quoted market prices, the carrying
value of the acquired assets and widely accepted valuation techniques, including
the income approach and the market approach. Unanticipated events or
circumstances may occur which could affect the accuracy of our fair value
estimates, including assumptions regarding industry economic factors and
business strategies. We typically engage an independent valuation firm to assist
in estimating the fair value of goodwill and other intangible assets. We do not
expect that there will be material change in the future estimates or assumptions
we use to complete the purchase price allocation and estimate the fair values of
acquired assets and liabilities for the acquisitions completed in fiscal 2020.
However, if actual results are not consistent with our estimates or assumptions,
we may be exposed to losses or gains that could be material.

Some of our acquisitions may include as additional compensation, contingent
consideration. Contingent consideration is a financial liability recorded at
fair value upon acquisition. The amount of contingent consideration to be paid
is based on the occurrence of future events, such as the achievement of certain
revenue or earnings milestones of the target after consummation. Accordingly,
the estimate of fair value contains uncertainties as it involves judgment about
the likelihood and timing of achieving these milestones as well as the discount
rate used. Changes in fair value of the contingent consideration
                                       41
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obligation result from changes to the assumptions used to estimate the
probability of success for each milestone, the anticipated timing of achieving
the milestones and the discount period and rate to be applied. A change in any
of these assumptions could produce a different fair value, which could have a
material impact on the results from operations. The impact of changes in key
assumptions is described in   Note 7- Fair Value of Financial Assets and
Liabilities  .

Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and income tax bases of assets and liabilities.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to reverse. We are required to assess the likelihood that our deferred tax
assets, which may include net operating loss carryforwards, tax credits or
temporary differences that are expected to be deductible in future years, will
be recoverable from future taxable income. In making that assessment, we
consider the nature of the deferred tax assets and related statutory limits on
utilization, recent operating results, future market growth, forecasted
earnings, future taxable income, the mix of earnings in the jurisdictions in
which we operate and prudent and feasible tax planning strategies. If, based
upon available evidence, recovery of the full amount of the deferred tax assets
is not likely, we provide a valuation allowance on amounts not likely to be
realized. Changes in valuation allowances are included in our tax provision in
the period of change. Assessments are made at each balance sheet date to
determine how much of each deferred tax asset is realizable. These estimates are
subject to change in the future, particularly if earnings of a particular
subsidiary are significantly higher or lower than expected, or if management
takes operational or tax planning actions that could impact the future taxable
earnings of a subsidiary.

Accounting for uncertainty in income taxes

In the normal course of business, we are audited by federal, state and foreign
tax authorities, and are periodically challenged regarding the amount of taxes
due. These challenges relate primarily to the timing and amount of deductions
and the allocation of income among various tax jurisdictions. A position taken
or expected to be taken in a tax return is recognized in the financial
statements when it is more likely than not (i.e. a likelihood of more than fifty
percent) that the position would be sustained upon examination by tax
authorities. A recognized tax position is then measured at the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. Although we believe we have adequately reserved for our
uncertain tax positions, no assurance can be given with respect to the final
resolution of these matters. We adjust reserves for our uncertain tax positions
due to changing facts and circumstances, such as the closing of a tax audit,
judicial rulings, refinement of estimates or realization of earnings or
deductions that differ from our estimates. To the extent that the outcome of
these matters is different than the amounts recorded, such differences generally
will impact our provision for income taxes in the period in which such a
determination is made. Our provisions for income taxes include the impact of
reserve provisions and changes to reserves that are considered appropriate as
well as related interest and penalties. Our effective tax rate in a given period
could be impacted if, upon final resolution with taxing authorities, we prevail
on positions for which unrecognized tax benefits have been accrued, or are
required to pay amounts in excess of accrued unrecognized tax benefits.

The Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and various states. With few exceptions, the Company is no longer
subject to U. S. federal, state and local tax examination by tax authorities for
years prior to 2015. The Company's policy is to recognize interest related to
unrecognized tax benefits as interest expense and penalties as operating
expenses. The Company believes that it has appropriate support for the income
tax positions taken and to be taken on its tax returns and that its accruals for
tax liabilities are adequate for all open years based on an assessment of many
factors including past experience and interpretations of tax law applied to the
facts of each matter.

RECENT ACCOUNTING POSITION STATEMENTS

See Note 3 – Recent accounting pronouncements to the consolidated financial statements for information on recent accounting pronouncements.

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