RESULTS OF OPERATIONS

                               Three Months Ended September 30,         Nine Months Ended September 30,
                              2008         %        2007       %       2008         %       2007       %
                                       (in thousands, except percentages and per share amounts)
Sales                        $186,937     100.0   $106,785   100.0    $543,238    100.0   $275,739   100.0
Cost of sales                 134,687      72.0     76,930    72.0     393,166     72.4    196,436    71.2
Gross profit                   52,250      28.0     29,855    28.0     150,072     27.6     79,303    28.8
Selling, general and
 administrative expense        39,460      21.1     22,053    20.7     115,229     21.2     58,700    21.3
Operating income               12,790       6.9      7,802     7.3      34,843      6.4     20,603     7.5
Interest expense              (1,456)     (0.8)      (502)   (0.5)     (4,015)    (0.7)    (1,609)   (0.6)
Other income                       67         -        229     0.2         107        -        328     0.1
Income before  income taxes    11,401       6.1      7,529     7.0      30,935      5.7     19,322     7.0
Provision for
 income taxes                   4,375       2.3      3,052     2.8      12,097      2.2      7,701     2.8
Net income                   $  7,026       3.8    $ 4,477     4.2      18,838      3.5     11,621     4.2
Per share amounts
Basic earnings per share      $  0.55              $  0.35             $  1.48             $  1.02
Diluted earnings per share    $  0.51              $  0.33             $  1.38             $  0.93

Three Months Ended September 30, 2008 compared to Three Months Ended September 30, 2007

SALES. Revenues for the quarter ended September 30, 2008, increased $80.1 million, or 75.1%, to approximately $186.9 million from $106.8 million for the same period in 2007. Sales for the MRO Segment increased $80.1 million, or 75.7%, primarily due to sales by businesses acquired in 2007 and 2008. Sales by businesses acquired since September 9, 2007, on a same store basis, accounted for $65.7 million of the 2008 sales increase. Excluding sales of the acquired businesses, sales for the MRO segment increased 13.6%. This sales increase is primarily due to a broad based increase in sales of pumps, bearings, safety products and mill supplies to companies engaged in oilfield service, oil and gas production, mining, electricity generation and petrochemical processing. Sales for the Electrical Contractor segment increased 1.7% for the current quarter when compared to the same period in 2007.

GROSS PROFIT. Gross profit as a percentage of sales remained unchanged when compared to the same period in 2007. Gross profit as a percentage of sales for the MRO segment remained unchanged at 27.9% for the three months ended September 30, 2008 when compared to the same period in 2007. Gross profit as a percentage of sales for the Electrical Contractor segment decreased to 36.0% for the three months ended September 30, 2008, from 37.9% in the comparable period of 2007. This decrease resulted from increased sales of lower margin commodity type electrical products in the 2008 period.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense for the quarter ended September 30, 2008, increased by approximately $17.4 million when compared to the same period in 2007. The increase is primarily attributed to increased selling, general and administrative expenses of acquired businesses. Selling, general and administrative expense associated with businesses acquired since September 9, 2007, on a same stores basis, accounted for $12.2 million of the $17.4 million increase. The remaining $5.2 million of the increase is primarily the result of increased salaries, incentive compensation, amortization of intangibles, employee benefits and payroll related expenses. These expenses have increased partially as a result of increased profits, which increased incentive compensation, and hiring more sales related personnel for the purpose of increasing sales. As a percentage of revenue, the 2008 expense increased by approximately 0.4%, to 21.1%, from 20.7% for the quarter ended September 30, 2007. This increase is primarily the result of increased amortization of intangibles in the 2008 period.

OPERATING INCOME. Operating income for the three months ended September 30, 2008 increased 63.9% when compared to the same period in 2007. Operating income for the MRO segment increased 65.1% as a result of increased gross profit, partially offset by increased selling, general and administrative expense. Operating income for the Electrical Contractor segment increased 1.4% primarily as a result of selling, general and administrative expense decreasing more than gross profit decreased.

INTEREST EXPENSE. Interest expense for the quarter ended September 30, 2008 increased by 190.0% from the same period in 2007. This increase results from increased debt used to fund acquisitions.

Nine Months Ended September 30, 2008 compared to Nine Months Ended September 30, 2007

SALES. Revenues for the nine months ended September 30, 2008, increased $267.5 million, or 97.0%, to approximately $543.2 million from $275.7 million for the same period in 2007. Sales for the MRO Segment increased $267.1 million, or 97.8%, primarily due to sales by businesses acquired since May 1, 2007. Sales by these acquired businesses, on a same stores basis, accounted for $215.4 million of the 2008 sales increase. Excluding sales of the acquired businesses, sales for the MRO segment increased 18.9%. This sales increase is primarily due to a broad based increase in sales of pumps, bearings, safety products and mill supplies to companies engaged in oilfield service, oil and gas production, mining, electricity generation and petrochemical processing. Sales for the Electrical Contractor segment increased by $0.4 million, or 14.6%, for the first nine months of 2008 when compared to the same period in 2007. The sales increase resulted from the sale of more specialty and commodity type electrical products.

GROSS PROFIT. Gross profit as a percentage of sales decreased by approximately 1.2% for the first nine months of 2008, when compared to the same period in 2007. Gross profit as a percentage of sales for the MRO segment decreased to 27.6% for the nine months ended September 30, 2008, from 28.7% in the comparable period of 2007. This decrease can be primarily attributed to the lower gross profit on sales by Precision which was acquired on September 10, 2007. Gross profit as a percentage of sales for the Electrical Contractor segment decreased to 36.3% for the nine months ended September 30, 2008, from 36.6% in the comparable period of 2007. This decrease resulted from sales of higher margin specialty type electrical products making up a smaller percentage of total sales compared to the 2007 period.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense for the first nine months ended September 30, 2008, increased by approximately $56.5 million when compared to the same period in 2007. The increase is primarily attributed to increased selling, general and administrative expenses of acquired businesses. Selling, general and administrative expense associated with businesses acquired since May 1, 2007, on a same stores basis, accounted for $44.2 million of the $56.5 million increase. The remaining $12.3 million of the increase is primarily the result of increased salaries, incentive compensation, amortization of intangibles, employee benefits and payroll related expenses. These expenses have increased partially as a result of increased profits, which increased incentive compensation, and hiring more sales related personnel for the purpose of increasing sales. As a percentage of revenue, the 2008 expense decreased by approximately 0.1%, to 21.2%, from 21.3% for the nine months ended September 30, 2007. This decrease is primarily the result of economies of scale.

OPERATING INCOME. Operating income for the first nine months of 2008 increased 69.1% when compared to the same period in 2007. Operating income for the MRO segment increased 69.4% as a result of increased gross profit, partially offset by increased selling, general and administrative expense. Operating income for the Electrical Contractor segment increased 51.3% primarily as a result of increased gross profit.

INTEREST EXPENSE. Interest expense for the nine months ended September 30, 2008 increased by 149.5% from the same period in 2007. This increase results from increased debt used to fund acquisitions.

Acquisitions

All of the Company's acquisitions have been accounted for using the purchase method of accounting. Revenues and expenses of the acquired businesses have been included in the accompanying consolidated financial statements beginning on their respective dates of acquisition. The allocation of purchase price to the acquired assets and liabilities is based on estimates of fair market value and may be prospectively revised if and when additional information the Company is awaiting concerning certain asset and liability valuations is obtained, provided that such information is received no later than one year after the date of acquisition.

On October 19, 2007, DXP completed the acquisition of the business of Indian Fire & Safety. DXP acquired this business to strengthen DXP's expertise in safety products and services in New Mexico and Texas. DXP paid $6.0 million in cash, $3.0 million in the form of a promissory note and $3.0 million in future payments contingent upon earnings for the business of Indian Fire & Safety. The cash portion was funded by utilizing available capacity under DXP's credit facility.

On February 1, 2008, DXP completed the acquisition of the business of Rocky Mtn Supply, Inc. DXP acquired this business to expand DXP's geographic presence in Colorado. DXP paid approximately $4.6 million, net of acquired cash, for this business. The purchase price consisted of approximately $3.9 million paid in cash and $0.7 million in the form of promissory notes. The cash portion was funded by utilizing available capacity under DXP's credit facility.

On August 28, 2008, DXP completed the acquisition of PFI, LLC. DXP acquired this business to expand DXP's expertise in fasteners. DXP paid $65 million in cash for this business. The purchase price was funded with funds borrowed under the Facility.

The allocation of purchase price for all acquisitions completed since September 30, 2007 are preliminary in the September 30, 2008 consolidated balance sheets. The initial purchase price allocations may be adjusted within one year of the purchase date for changes in the estimates of the fair value of assets acquired and liabilities assumed. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed since September 30, 2007 in connection with the acquisitions described above (in thousands).

Cash                              $  698
Accounts Receivable               10,320
Inventory                         28,013
Property and equipment             3,310
Goodwill and intangibles          50,934
Other assets                         329
Assets acquired                   93,604
Current liabilities assumed      (5,464)
Non-current liabilities assumed  (7,844)
 Net assets acquired            $ 80,296

The pro forma unaudited results of operations for the Company on a consolidated basis for the three months and nine months ended September 30, 2008 and 2007, assuming the purchases completed in 2007 and 2008 were consummated as of January 1 of each year follows:

                   Three Months Ended        Nine Months Ended
                      September 30,            September 30,
                   2008          2007         2008       2007
                                  (Unaudited)
                   (in thousands, except for per share data)

Net sales         $197,547       $180,679   $592,301   $541,366
Net income        $  7,134      $   4,972   $ 19,646   $ 15,547
Per share data
 Basic earnings      $0.56          $0.39      $1.55      $1.23
 Diluted             $0.52          $0.36      $1.44      $1.13

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As a distributor of MRO products and Electrical Contractor products, we require significant amounts of working capital to fund inventories and accounts receivable. Additional cash is required for capital items such as information technology and warehouse equipment. We also require cash to pay our lease obligations and to service our debt.

We generated $5.5 million of cash in operating activities during the first nine months of 2008 as compared to generating $13.1 million during the first nine months of 2007. This change between the two periods was primarily attributable to increased inventory in the 2008 period, increased accounts receivable in the 2008 period and a smaller increase in accounts payable in the 2008 period compared to the 2007 period.

During the first nine months of 2008, the amount available to be borrowed under our credit facility increased from $17.1 million at December 31, 2007 to $34.0 million at September 30, 2008. This increase in availability primarily resulted from increased accounts receivable and inventory.

Credit Facility

On August 28, 2008 DXP entered into the Facility with Wells Fargo Bank, National Association, as lead arranger and administrative agent for the lenders. The Facility consists of a $50 million term loan and a revolving credit facility that provides a $150 million line of credit to the Company. The term loan requires principal payments of $2.5 million per quarter beginning on December 31, 2008. This Facility replaces the Company's prior credit facility, which consisted of a $130 million revolving credit facility. The new Facility expires on August 11, 2013. The Facility contains financial covenants defining various financial measures and levels of these measures with which the company must comply. Covenant compliance is assessed as of each quarter end.

The Company's borrowings under the revolving credit portion of the Facility and letters of credit outstanding under the Facility at each month-end must be less than an asset test measured as of the same month-end. The asset test is defined under the Facility as the sum of 85% of the Company's net accounts receivable, 60% of net inventory, and 50% of non real estate Aproperty and equipment. The Company's borrowing and letter of credit capacity under the revolving credit portion of the Facility at any given time is $150 million less borrowings under the revolving credit facility and letters of credit outstanding, subject to the asset test described above.

The revolving credit portion of the Facility provides the option of interest at LIBOR plus a margin ranging from 1.00% to 2.00% or prime plus a margin of 0.0% to 0.50%. The initial LIBOR based rate on the revolving credit portion of the Facility is LIBOR plus 1.75%. The initial prime based rate on the revolving credit portion of the Facility is prime plus 0.25%. Commitment fees of 0.15% to 0.30% per annum are payable on the portion of the Facility capacity not in use for borrowings or letters of credit at any given time. The term loan provides the option of interest at LIBOR plus a margin ranging from 2.00% to 2.50% or prime plus a margin of 0.50% to 1.00%. The initial LIBOR based rate for the term loan is LIBOR plus 2.50%. The initial prime based rate for the term loan is prime plus 1.00%. Borrowings under the Facility are secured by all of the Company's accounts receivable, inventory, general intangibles and non real estate property and equipment.

The Facility's principal financial covenants include:

Fixed Charge Coverage Ratio - The Facility requires that the Fixed Charge Coverage Ratio for the 12 month period ending on the last day of each quarter be not less than 1.25 to 1.0, stepping up to 1.5 to 1.0 for the quarter ending December 31, 2009 and to 1.75 for the quarter ending December 31, 2010, with "Fixed Charge Coverage Ratio" defined as the ratio of (a) EBITDA for the 12 months ending on such date minus cash taxes, minus Capital Expenditures for such period (excluding Acquisitions) to (b) the aggregate of interest expense, scheduled principal payments in respect of long term debt and current portion of capital leases for such 12-month period, determined in each case on a consolidated basis for Borrower and its subsidiaries.

Leverage Ratio - The Facility requires that the Company's Leverage Ratio, determined at the end of each fiscal quarter, not exceed 3.5 to 1.0 as of each quarter end, stepping down to 3.0 to 1.0 beginning the quarter ending December 31, 2009 and to 2.75 to 1.0 for the quarter ending December 31, 2010. Leverage Ratio is defined as the outstanding Indebtedness divided by EBITDA for the twelve months then ended. Indebtedness is defined under the Facility for financial covenant purposes as: a) all obligations of DXP for borrowed money including but not limited to senior bank debt, senior notes, and subordinated debt; b) capital leases; c) issued and outstanding letters of credit; and d) contingent obligations for funded indebtedness.

EBITDA as defined under the Facility for financial covenant purposes means, without duplication, for any period the consolidated net income (excluding any extraordinary gains or losses) of DXP plus, to the extent deducted in calculating consolidated net income, depreciation, amortization, other non-cash items and non-recurring items, interest expense, and tax expense for taxes based on income and minus, to the extent added in calculating consolidated net income, any non-cash items and non-recurring items; provided that, if DXP acquires the equity interests or assets of any person during such period under circumstances permitted under the Facility, EBITDA shall be adjusted to give pro forma effect to such acquisition assuming that such transaction had occurred on the first day of such period and provided further that, if DXP divests the equity interests or assets of any person during such period under circumstances permitted under this Facility, EBITDA shall be adjusted to give pro forma effect to such divestiture assuming that such transaction had occurred on the first day of such period. Add-backs allowed pursuant to Article 11, Regulation S-X, of the Securities Act of 1933 will also be included in the calculation of EBITDA.

To hedge a portion of our floating rate debt, as of January 10, 2008 DXP entered into an interest rate swap agreement with our lead bank. Through January 11, 2010 this interest rate swap effectively fixes the interest rate on $40 million of floating rate LIBOR borrowings under the Credit Facility at 3.68% plus the margin in effect under the Credit Facility.

Borrowings
                         September       December 31,        Increase
                            30,              2007           (Decrease)
                           2008
                               (in Thousands)
Current portion of         $ 13,793         $   4,200            $ 9,593
long-term debt
Long-term debt, less        160,364           101,989             58,375
current portion
Total long-term debt    $174,157(1)         $ 106,189         $67,968(2)
Amount available           $ 33,974        $17,116(1)         $16,858(3)

(1) Represents amount available to be borrowed at the indicated date under the credit facility.
(2) The funds obtained from the increase in long-term debt were primarily used to fund the acquisition of the businesses of Rocky Mtn Supply, Inc. and PFI, LLC.
(3) The $16.9 million increase in the amount available is primarily a result of increased accounts receivable and inventory.

Performance Metrics

                           September 30,     Increase
                           2008      2007    (Decrease)
                                    (in Days)
Days of sales outstanding   51.5      55.8        (4.3)
Inventory turns              5.5       6.2        (0.7)

Accounts receivable days of sales outstanding were 51.5 days at September 30, 2008 compared to 55.8 days at September 30, 2007. The decrease resulted primarily from a change in customer mix which resulted in faster collection of accounts receivable. Annualized inventory turns were 5.5 at September 30, 2008 compared to 6.2 at September 30, 2007. The decline

in inventory turns resulted from the inclusion of businesses acquired in 2007 and 2008 which have lower inventory turns compared to the rest of DXP.

Funding Commitments

We believe our cash generated from operations and available under our Credit Facility will meet our normal working capital needs during the next twelve months. However, we may require additional debt 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. We may not be able to obtain additional financing on attractive terms, if at all.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates made by us in the accompanying financial statements relate to accounts receivable collectibility, inventory valuations, income taxes, self-insured liability claims, allocation of purchase price, impairment of goodwill and other intangibles, useful lives of intangibles, and self-insured medical claims. Actual results could differ from those estimates. Management periodically re-evaluates these estimates as events and circumstances change. Together with the effects of the matters discussed above, these factors may significantly impact the Company's results of operations from period to period.

Critical accounting policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's subjective or complex judgments. Below is a discussion of what we believe are our critical accounting policies.

Revenue Recognition

For binding agreements to fabricate tangible assets to customer specifications we recognize revenues using the percentage-of-completion method. For other sales we recognize revenues when an agreement is in place, the price is fixed, title for product passes to the customer or services have been provided, and collectibility is reasonably assured.

Allowance for Doubtful Accounts

Provisions to the allowance for doubtful accounts are made monthly and adjustments are made periodically (as circumstances warrant) based upon the expected collectibility of all such accounts. Write-offs could be materially different from the reserve if economic conditions change or actual results deviate from historical trends.

Inventory

Inventory consists principally of finished goods and is priced at lower of cost or market, cost being determined using the first-in, first-out (FIFO) method. Reserves are provided against inventory for estimated obsolescence based upon the aging of the inventory and market trends. Actual obsolescence could be materially different from the reserve if economic conditions or market trends change significantly.

Self-Insured Medical Claims

We accrue for the estimated outstanding balance of unpaid medical claims for our employees and their dependents. The accrual is adjusted monthly based on recent claims experience. The actual claims could deviate from recent claims experience and be materially different from the reserve.

Deferred 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. Valuation allowances are established to reduce deferred income tax assets to the amounts expected to be realized.

Self-Insured Insurance Claims

We accrue for the estimated loss on self-insured liability claims. The accrual is adjusted quarterly based upon reported claims information. The actual cost could deviate from the recorded estimate.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets attributable to our reporting units are tested for impairment by comparing the fair value of each reporting unit with its carrying value. Significant estimates used in the determination of fair value include estimates of future cash flows, future growth rates, costs of capital and estimates of market multiples. As required under current accounting standards, we test for impairment annually at year end unless factors otherwise indicate that impairment may have occurred. We did not have any impairments under the provisions of SFAS No. 142 as of September 30, 2008.

Purchase Accounting

The Company estimates the fair value of assets, including property, machinery and equipment and its related useful lives and salvage values, and liabilities when allocating the purchase price of an acquisition.