DXP Enterprises, an industrial distributor based in Houston, has announced that it is unable to file its latest quarterly report because it has discovered that it has $8 million to $12 million of ‘unvouchered purchased orders included in its trade accounts payable’ that are not valid obligations that will be invoiced or paid.
The company states that some of these balances are more than three years old. In its unaudited results for the six months to June 2021, the company states that any change will likely be immaterial in 2021. For the comparable period in 2020, the amount is less than $1 million. That implies that most of these balances are at least 18 months old. The company plans to restate the trade accounts payable balance to the correct amount and flush the gain (less tax impact) through retained earnings.
DXP distributes maintenance, repair and operating products to energy and industrial customers, primarily in North America. It has a market capitalization of $567 million. One of its three business segments is Supply Chain Services…
For context, for the past five years, the company has had revenues of between $1 billion and $1.2 billion. It reported net income of $16 million in 2017, $36 million in 2018 and 2019 before making a loss of $29 million in 2020. The trade accounts payable has been around $75 million to $82 million. Therefore, a $10 million dollar error out of $80 million is a big miss.
Moss Adams, the company’s auditor, has not yet completed its review of the proposed adjustment. Additionally, the company is in ‘the process of assessing the impact of this issue on our assessment that our internal control over financial reporting is effective’.
CFO Kent Yee was appointed in June 2017 and Chief Accounting Officer Gene Padgett joined in May 2018.