10-Q 1 klx-20151031x10q.htm 10-Q klx_Current folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

 

For The Quarterly Period Ended October 31, 2015

 

 

Commission File No. 001-36610

 

 

KLX INC.

 

(Exact name of registrant as specified in its charter)

 

 

 

 

 

DELAWARE

47-1639172

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

1300 Corporate Center Way

Wellington, Florida 33414

(Address of principal executive offices)

 

(561) 383-5100 

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES[X] NO[ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer (do not check if a smaller reporting company) [X] Smaller reporting company [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [  ] NO [X]

 

The registrant has one class of common stock, $0.01 par value, of which,  52,779,093 shares were outstanding as of November 30, 2015.

 

 


 

KLX INC.

 

Form 10-Q for the Quarter Ended October 31, 2015

 

Table of Contents

 

 

 

 

 

 

 

 

 

Page

Part I 

Financial Information

 

 

 

 

Item 1. 

Condensed Consolidated and Combined Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of October 31, 2015 and December 31, 2014

 

 

 

 

Condensed Consolidated and Combined Statements of Earnings and Comprehensive (Loss) Income for the Three and Nine Months Ended October 31, 2015 and September 30, 2014

 

 

 

 

Condensed Consolidated and Combined Statements of Cash Flows for the Nine Months Ended October 31, 2015 and September 30, 2014

 

 

 

 

Notes to Condensed Consolidated and Combined Financial Statements

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

29 

 

 

 

Item 4. 

Controls and Procedures

29 

 

Part II

 

Other Information

 

Item 6. 

Exhibits

30 

 

 

 

Signatures 

31 

 

 

 

2


 

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

KLX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Millions, Except Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 

 

December 31,

 

 

 

    

2015

  

2014

 

    

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

449.0

 

$

470.8

 

 

Accounts receivable–trade, less allowance for doubtful accounts ($8.9 at October 31, 2015 and $8.1 at December 31, 2014)

 

 

269.3

 

 

308.0

 

 

Inventories, net

 

 

1,310.4

 

 

1,289.2

 

 

Deferred income taxes

 

 

44.2

 

 

37.5

 

 

Other current assets

 

 

40.1

 

 

50.6

 

 

Total current assets

 

 

2,113.0

 

 

2,156.1

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation ($106.4 at October 31, 2015 and $63.1 at December 31, 2014)

 

 

246.4

 

 

332.2

 

 

Goodwill

 

 

960.6

 

 

1,328.7

 

 

Identifiable intangible assets, net

 

 

268.4

 

 

442.3

 

 

Deferred income tax asset

 

 

115.4

 

 

 —

 

 

Other assets

 

 

47.8

 

 

44.3

 

 

 

 

$

3,751.6

 

$

4,303.6

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

142.4

 

$

149.9

 

 

Deferred acquisition payments

 

 

 —

 

 

92.2

 

 

Accrued liabilities

 

 

129.6

 

 

88.1

 

 

Total current liabilities

 

 

272.0

 

 

330.2

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,200.0

 

 

1,200.0

 

 

Deferred income taxes

 

 

14.7

 

 

123.5

 

 

Other non-current liabilities

 

 

31.7

 

 

29.6

 

 

 

 

 

 

 

 

 

 

 

Commitments, contingencies and off-balance sheet arrangements (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 1.0 million shares authorized; no shares outstanding

 

 

 —

 

 

 —

 

 

Common stock, $0.01 par value; 250.0 million shares authorized; 52.8 million and 52.5 million shares issued as of October 31, 2015 and December 31, 2014, respectively

 

 

0.5

 

 

0.5

 

 

Additional paid-in capital

 

 

2,659.1

 

 

2,644.1

 

 

Treasury stock: 1,532 shares at October 31, 2015

 

 

(0.1)

 

 

 —

 

 

Retained (deficit) earnings

 

 

(364.2)

 

 

4.2

 

 

Accumulated other comprehensive loss

 

 

(62.1)

 

 

(28.5)

 

 

Total stockholders’ equity

 

 

2,233.2

 

 

2,620.3

 

 

 

 

$

3,751.6

 

$

4,303.6

 

 

 

See accompanying notes to condensed consolidated and combined financial statements.

3


 

 

KLX INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS  

AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(In Millions, Except Per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

OCTOBER 31,

 

SEPTEMBER 30,

 

OCTOBER 31,

 

SEPTEMBER 30,

 

 

 

2015

 

2014

 

2015

 

2014

    

Product revenues

 

$

306.7

 

$

326.3

    

$

1,006.4

 

$

993.2

 

Service revenues

 

 

58.3

 

 

126.9

 

 

202.8

 

 

261.8

 

Total revenues

 

 

365.0

 

 

453.2

 

 

1,209.2

 

 

1,255.0

 

Cost of sales - products

 

 

213.7

 

 

231.7

 

 

705.7

 

 

693.0

 

Cost of sales - services

 

 

65.4

 

 

85.2

 

 

212.6

 

 

179.6

 

Total cost of sales

 

 

279.1

 

 

316.9

 

 

918.3

 

 

872.6

 

Selling, general and administrative

 

 

65.0

 

 

61.3

 

 

189.7

 

 

167.5

 

Goodwill impairment charge

 

 

310.4

 

 

 -

 

 

310.4

 

 

 -

 

Long-lived asset impairment charge

 

 

329.8

 

 

 -

 

 

329.8

 

 

 -

 

Operating (loss) earnings

 

 

(619.3)

 

 

75.0

 

 

(539.0)

 

 

214.9

 

Interest expense (income)

 

 

19.0

 

 

(0.1)

 

 

58.2

 

 

(0.3)

 

(Loss) earnings before income taxes

 

 

(638.3)

 

 

75.1

 

 

(597.2)

 

 

215.2

 

Income tax (benefit) expense

 

 

(237.5)

 

 

43.8

 

 

(221.7)

 

 

94.5

 

Net (loss) earnings

 

$

(400.8)

 

$

31.3

 

$

(375.5)

 

$

120.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(0.4)

 

 

(31.6)

 

 

(6.6)

 

 

(34.1)

 

Comprehensive (loss) income

 

$

(401.2)

 

$

(0.3)

 

$

(382.1)

 

$

86.6

 

Net (loss) earnings per share - basic

 

$

(7.68)

 

$

0.60

 

$

(7.19)

 

$

2.31

 

Net (loss) earnings per share - diluted

 

$

(7.68)

 

$

0.60

 

$

(7.19)

 

$

2.31

 

 

See accompanying notes to condensed consolidated and combined financial statements.

 

 

 

4


 

KLX INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Millions)

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED

 

 

 

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

 

 

    

2015

 

2014

    

    

CASH FLOWS FROM OPERATING ACTIVITIES:

    

 

 

    

 

 

    

 

Net (loss) earnings

 

$

(375.5)

 

$

120.7

 

 

Adjustments to reconcile net earnings to net cash flows provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

59.8

 

 

47.3

 

 

Deferred income taxes

 

 

(226.6)

 

 

20.2

 

 

Asset impairment charge

 

 

640.2

 

 

 -

 

 

Non-cash compensation

 

 

10.9

 

 

2.7

 

 

Excess tax benefits realized from prior exercises of restricted stock

 

 

(0.9)

 

 

(0.9)

 

 

Provision for doubtful accounts

 

 

0.9

 

 

0.6

 

 

Loss on disposal of property and equipment

 

 

2.8

 

 

0.4

 

 

Changes in operating assets and liabilities, net of effects from acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

33.6

 

 

(94.8)

 

 

Inventories

 

 

9.0

 

 

(75.4)

 

 

Other current and non-current assets

 

 

7.6

 

 

(6.7)

 

 

Accounts payable

 

 

(0.1)

 

 

128.9

 

 

Other current and non-current liabilities

 

 

35.8

 

 

(18.9)

 

 

Net cash flows provided by operating activities

 

 

197.5

 

 

124.1

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(106.4)

 

 

(89.3)

 

 

Acquisitions, net of cash acquired

 

 

1.0

 

 

(512.3)

 

 

Net cash flows used in investing activities

 

 

(105.4)

 

 

(601.6)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

(0.1)

 

 

 -

 

 

Cash proceeds from stock issuance

 

 

0.7

 

 

 -

 

 

Excess tax benefits realized from prior exercises of restricted stock

 

 

0.9

 

 

0.9

 

 

Net transfers from B/E Aerospace, Inc.

 

 

 -

 

 

437.7

 

 

Deferred acquisition payments

 

 

(90.8)

 

 

 -

 

 

Net cash flows (used in) provided by financing activities

 

 

(89.3)

 

 

438.6

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(1.0)

 

 

(2.5)

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

1.8

 

 

(41.4)

 

 

Cash and cash equivalents, beginning of period

 

 

447.2

 

 

78.6

 

 

Cash and cash equivalents, end of period

 

$

449.0

 

$

37.2

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

 

 

 

Income taxes

 

$

9.1

 

$

21.0

 

 

Interest

 

 

35.2

 

 

 -

 

 

 

See accompanying notes to condensed consolidated and combined financial statements.

 

 

5


 

KLX INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited - In Millions, Except Per Share Data)

 

Note 1.Description of Business and Basis of Presentation

 

On December 17, 2014, B/E Aerospace, Inc. (“Former Parent” or “B/E Aerospace”) created an independent public company through a spin-off of its Aerospace Solutions Group (“ASG”) and Energy Services Group (“ESG”) businesses to Former Parent’s stockholders (“Spin-Off”). As a result of the Spin-Off, KLX Inc. (the “Company” or “KLX”) now operates as an independent, publicly traded company. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the three and nine months ended September 30, 2014 for the number of the Company’s shares outstanding immediately following the transaction.

 

On February 24, 2015, the Board of Directors approved a change in the Company's fiscal year end from December 31 to January 31. This change to the new reporting cycle began February 1, 2015. As a result of the change, the Company will report a January 2015 fiscal month transition period in the Company's Annual Report on Form 10-K for the fiscal year ending January 31, 2016.

 

Financial information for the three and nine months ended October 31, 2014 has not been included in this Form 10-Q for the following reasons: (i) the three and nine month periods ended September 30, 2014 provide a meaningful comparison for the three and nine months ended October 31, 2015; (ii) there are no significant factors, seasonal or otherwise, that would impact the comparability of information if the results for the three and nine months ended October 31, 2014 were presented in lieu of results for the three and nine month periods ended September 30, 2014; and (iii) it was not practicable or cost justified to prepare this information.

 

The accompanying unaudited condensed consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the condensed consolidated and combined financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these condensed consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements and accompanying notes included in the KLX Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

 

The Company’s unaudited condensed consolidated and combined financial statements include KLX and its wholly owned subsidiaries. Prior to the Spin-Off on December 17, 2014, KLX’s financial statements were derived from B/E Aerospace’s consolidated and combined financial statements and accounting records as if it was operated on a stand-alone basis and were prepared in accordance with GAAP. All intercompany transactions and account balances within the Company have been eliminated.

 

Note 2.Recent Accounting Pronouncements

 

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740).  ASU 2015-17 requires that deferred tax liabilities and

6


 

assets be classified as noncurrent in a classified statement of financial position.  ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805).  ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  ASU 2015-16 is effective for fiscal years and interim periods beginning after December 15, 2015.  The adoption of ASU 2015-16 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-15 clarifies the guidance in ASU 2015-03 regarding presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The SEC Staff announced they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company has debt issuance cost of $7.7 and $5.5 related to its secured revolving credit facility included in other assets as of October 31, 2015 and December 31, 2014, respectively.  The Company will continue to present these costs in other assets in accordance with the guidance.

 

In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 requires that inventory be measured at the lower of cost or net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory measured using last-in, first-out (“LIFO”) or the retail inventory method are excluded from the scope of this update which is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  The adoption of ASU 2015-11 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which updated the guidance in ASC Topic 835, Interest. The updated guidance is effective retrospectively for annual periods and interim periods within the annual periods beginning after December 15, 2015. Early adoption is permitted, including early adoption in an interim period. The amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The Company will adopt ASU 2015-03 in the fourth quarter of fiscal year 2015 and had debt issuance costs related to the 5.875% senior unsecured notes of $21.1 and $23.0 as of October 31, 2015 and December 31, 2014 respectively, included in other assets.

 

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updated the guidance in ASC Topic 606, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.  The amendments in this update deferred the effective date for

7


 

implementation of ASU 2014-09 by one year and is now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that period.  The Company is currently evaluating the impact this guidance will have on its consolidated financial condition, results of operations, cash flows and disclosures and is currently unable to estimate the impact of adopting this guidance.

 

Note 3.Business Combinations

 

During 2013, the Company acquired the assets of Blue Dot Energy Services, LLC (“Blue Dot”) and Bulldog Frac Rentals, LLC (“Bulldog”) (the “2013 Acquisitions”), providers of parts distribution, rental equipment and on-site services to the oil and gas industry, for a net purchase price of $114.0. The excess of the purchase price over the fair value of the identifiable assets acquired approximated $70.6, of which $33.2 was allocated to identified intangible assets, consisting of customer contracts and relationships and covenants not to compete, and $37.4 was included in goodwill. The useful life assigned to the customer contracts and relationships was 20 years, and the covenants not to compete were being amortized over their contractual periods of five years. The customer contracts and relationships and the covenants not to compete were both impaired and fully written off as of October 31, 2015. See note 5 for a discussion of the asset impairment charge recorded during the three and nine months ended October 31, 2015.

 

In January 2014, the Company acquired the assets of the LT Energy Services group of companies ("LT"), an Eagle Ford Shale provider of rental equipment, for a net purchase price of approximately $102.5. In February 2014, the Company acquired the assets of Wildcat Wireline LLC ("Wildcat"), a provider of wireline services primarily in the Eagle Ford Shale and also in the Marcellus/Utica Shales, for a net purchase price of approximately $153.4. In April 2014, the Company acquired the assets of the Vision Oil Tools, LLC group of companies ("Vision"), a provider of technical services and associated rental equipment to the energy sector. Vision established a new geographical base of operations for the Company in the North Dakota (Williston/Bakken) and Rocky Mountain regions. The total purchase price was $175.7,  which included a deferred payment of $35.0,  which was paid during the first quarter of fiscal year 2015 based on the achievement of 2014 financial results. In April 2014, the Company acquired the assets of the Marcellus Gasfield Services group of companies ("MGS") engaged in manufacturing and rental of equipment in the Marcellus/Utica Shales for approximately $44.0. During June 2014, the Company acquired the assets of the Cornell Solutions group of companies ("Cornell"), which provides technical services and rental equipment to the energy sector in the Eagle Ford Shale and Permian Basin. The total purchase price was $128.2,  which included a deferred payment of $56.0,  which was paid during the first quarter of fiscal year 2015 based on the achievement of 2014 financial results. These acquisitions are referred to collectively as the "2014 Acquisitions".

 

For the 2014 Acquisitions, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $431.3, of which $162.0 was allocated to identified intangible assets, consisting of customer contracts and relationships and covenants not to compete, and $269.3 was included in goodwill. The useful life assigned to the customer contracts and relationships was 20 years, and the covenants not to compete were being amortized over their contractual periods of five years. The customer contracts and relationships and the covenants not to compete were both impaired and fully written off as of October 31, 2015. See Note 5 for a discussion of the asset impairment charge recorded during the three and nine months ended October 31, 2015.

 

The 2014 and 2013 Acquisitions were accounted for as purchases under FASB ASC 805, Business Combinations (“ASC 805”). The assets purchased and liabilities assumed for the 2014 and 2013 Acquisitions have been reflected in the accompanying consolidated balance sheets as of October 31, 2015 and December 31, 2014 and the results of operations for the 2014 and 2013 Acquisitions are included in the accompanying consolidated and combined statements of earnings from the respective dates of acquisition.

 

8


 

The following table summarizes the fair values of assets acquired and liabilities assumed in the 2014 and 2013 Acquisitions in accordance with ASC 805:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

    

Wildcat

    

Vision

    

Cornell

    

Acquisitions

    

2014

    

2013

    

 

Accounts receivable-trade

 

$

0.4

 

$

10.8

 

$

10.5

 

$

15.1

 

$

36.8

 

$

14.8

 

 

Inventories

 

 

1.3

 

 

 —

 

 

 —

 

 

0.4

 

 

1.7

 

 

3.9

 

 

Other current and non-current assets

 

 

 —

 

 

2.4

 

 

 —

 

 

0.1

 

 

2.5

 

 

0.2

 

 

Property and equipment

 

 

30.3

 

 

44.1

 

 

28.5

 

 

40.5

 

 

143.4

 

 

35.5

 

 

Goodwill

 

 

83.7

 

 

69.8

 

 

57.5

 

 

58.3

 

 

269.3

 

 

37.4

 

 

Identified intangibles

 

 

37.7

 

 

50.1

 

 

33.6

 

 

40.6

 

 

162.0

 

 

33.2

 

 

Accounts payable

 

 

 —

 

 

(1.5)

 

 

(0.7)

 

 

(4.3)

 

 

(6.5)

 

 

(10.0)

 

 

Other current and non-current liabilities

 

 

 —

 

 

(35.0)

 

 

(57.2)

 

 

(4.2)

 

 

(96.4)

 

 

(1.0)

 

 

Total consideration paid

 

$

153.4

 

$

140.7

 

$

72.2

 

$

146.5

 

$

512.8

 

$

114.0

 

 

 

The majority of the goodwill and other intangible assets related to the 2014 and 2013 Acquisitions is expected to be deductible for tax purposes. See note 5 for a discussion of the asset impairment charge recorded during the three and nine months ended October 31, 2015.

On a pro forma basis to give effect to the 2013 and 2014 Acquisitions as if they occurred on January 1, 2013, revenues, net earnings and earnings per diluted share for the three months ended September 30, 2014 were  $453.2, $29.8 and $0.57, respectively, and $1,321.9, $133.1 and $2.54, respectively, for the nine months ended September 30, 2014.

 

 

Note 4. Inventories

 

Inventories, made up of finished goods, consist primarily of aerospace fasteners and consumables. The Company values inventories at the lower of cost or market, using first‑in, first‑out or weighted average cost method. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on historical demand, estimated product demand to support contractual supply agreements with its customers and the age of the inventory, among other factors. Demand for the Company’s products can fluctuate from period to period depending on customer activity. Inventory reserves were approximately $37.9 and $33.0 as of October 31, 2015 and December 31, 2014, respectively.

 

Substantially all of our inventory is comprised of aerospace grade fasteners, which support original equipment manufacturer (“OEM”) production and the aftermarket over the life of the airframe. Inventory with a limited shelf life is continually monitored and reserved for in advance of expiration. The annual provision for inventory with limited shelf life has historically not been material.

 

Note 5.Goodwill and Long-lived Assets

 

Goodwill and indefinite life intangible assets are tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value.  The continued downturn in the oil and gas industry, including the approximate 60 percent decrease in the price of oil, the approximate 60 percent decrease in the number of onshore drilling rigs and the resulting significant cut backs in the capital expenditures of our customers, represented a significant adverse change in the business climate, which indicated that the ESG reporting unit’s goodwill may be impaired and ESG asset

9


 

group’s long-lived assets may not be recoverable.  As a result, during the three months ended October 31, 2015, the Company performed an interim goodwill impairment test and a long-lived asset recoverability test.

 

The valuation of the ESG reporting unit goodwill step one impairment test was estimated using the guideline public company analysis and the discounted cash flow analysis, which were equally weighted in the fair value analysis. See “Note 9 – Fair Value Measurements” for additional information regarding the fair value determination.  The results of the first step of the goodwill impairment test as of August 31, 2015, indicated that goodwill was impaired because the carrying value of the reporting unit exceeded the fair value of the first step test.  Accordingly, the Company is in the process of finalizing the second step goodwill impairment test of the ESG reporting unit, which preliminarily resulted in a $310.4 goodwill impairment charge, which is included in the goodwill impairment expense in the condensed consolidated and combined statement of earnings and comprehensive (loss) income for the three and nine months ended October 31, 2015.

 

Long-lived assets, such as property and equipment and purchased intangibles subject to amortization are tested for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. Based on the impairment indicators above, we performed a long-lived asset impairment analysis and concluded the carrying amount of the long-lived assets exceeded the undiscounted cash flows of the ESG asset group.  As a result, we are in the process of completing a long-lived asset impairment test and have recorded a preliminary $329.8 long-lived asset impairment charge, $177.8 related to identified intangible assets and $152.0 related to property and equipment, which is included in the long-lived asset impairment expense in the condensed consolidated and combined statement of earnings and comprehensive (loss) income for the three and nine months ended October 31, 2015.

 

The charges reflect the full value of the goodwill and identified intangible assets attributable to the ESG segment, leaving the ESG segment with no intangible assets on its books. Due to the significant effort that is required to determine the implied fair value of the reporting unit goodwill and the fair value of ESG’s long-lived assets in the current market environment, the Company was unable to finalize the valuation of the ESG reporting unit goodwill and the long-lived asset impairment analysis as of October 31, 2015.  The Company will finalize the impairment analyses during the fourth quarter.

 

 

The table below sets forth the intangible assets by major asset class, all of which were acquired through business purchase transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2015

 

 

 

 

Useful Life

 

Original

 

Accumulated

 

Impairment

 

Net Book

 

 

 

    

(Years)

    

Cost

    

Amortization

 

Charge

    

Value

  

 

Customer contracts and relationships

 

8

-

30

 

$

538.5

 

$

120.4

 

$

167.1

 

$

251.0

 

 

Covenants not to compete

 

4

-

5

 

 

18.2

 

 

7.3

 

 

10.7

 

 

0.2

 

 

Trade names

 

Indefinite

 

 

17.2

 

 

 -

 

 

 -

 

 

17.2

 

 

 

 

 

 

 

 

$

573.9

 

$

127.7

 

$

177.8

 

$

268.4

 

 

 

 

Substantially all of the unamortized long-lived assets and goodwill at October 31, 2015 relates to the ASG segment.  Exclusive of the aforementioned asset impairment charge, amortization expense associated with identifiable intangible assets was approximately $5.8 and $8.4 for the three months ended October 31, 2015 and September 30, 2014, respectively, and $19.1 and $22.2 for the nine months ended October 31, 2015 and September 30, 2014, respectively. The Company currently expects to recognize amortization expense of approximately $16.8 in each of the next five fiscal years (primarily related to our ASG business). The future amortization amounts are estimates. Actual future amortization expense may be different due to

10


 

future acquisitions, impairments, changes in amortization periods or other factors such as changes in exchange rates for assets acquired outside the United States. The Company expenses costs to renew or extend the term of a recognized intangible asset.

 

Note 6. Related Party Transactions

 

The condensed consolidated and combined statements of earnings and comprehensive (loss) income for the three and nine months ended September 30, 2014 include an allocation of general corporate expenses from B/E Aerospace.  These costs were allocated to the Company on a systematic and reasonable basis when identifiable, with the remainder allocated on the basis of costs incurred, headcount or other measures. 

 

Allocations for general corporate expenses, including management costs and corporate support services provided to the Company, totaled $13.1 and $27.7 for the three and nine months ended September 30, 2014, respectively. These amounts include costs for functions including executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services.

 

Following the Spin-Off, we created in-house substantially all of the functions that were previously provided to us by B/E Aerospace. In addition, we have entered into certain agreements with B/E Aerospace relating to transition services and IT services for a transitional period of approximately 24 months following the Spin-Off. In addition, we entered into an employee matters agreement and a tax sharing and indemnification agreement with B/E Aerospace in connection with the Spin-Off. This transitional support enables KLX to establish its stand-alone processes for various activities that were previously provided by B/E Aerospace and does not constitute significant continuing support of KLX’s operations. The agreements did not have a material effect on the Company’s financial statements for the three and nine months ended October 31, 2015 and September 30, 2014, and the Company does not expect such agreements to have a material effect on our financial statements in the future.

 

Sales and cost of sales to affiliates for the three and nine months ended October 31, 2015 and September 30, 2014 were not significant.

 

Note 7.Accrued Liabilities

 

Accrued liabilities consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 31, 2015

    

December 31, 2014

 

 

Accrued salaries, vacation and related benefits

 

$

32.0

 

$

13.2

 

 

Income taxes payable

 

 

19.3

 

 

19.7

 

 

Accrued interest

 

 

29.4

 

 

3.1

 

 

Other accrued taxes

 

 

5.4

 

 

5.6

 

 

Other accrued liabilities

 

 

43.5

 

 

46.5

 

 

 

 

$

129.6

 

$

88.1

 

 

 

 

 

 

 

 

Note 8.Long-Term Debt

 

As of October 31, 2015, long-term debt consisted of $1,200.0 aggregate principal amount of the Company’s  5.875% senior unsecured notes due 2022 (the “5.875% Notes”). As of October 31, 2015, the Company also had a $750.0 secured revolving credit facility pursuant to a credit agreement dated as of December 16, 2014 and amended and restated on May 19, 2015 (the “Revolving Credit Facility”).

 

Borrowings under the Revolving Credit Facility bear interest at an annual rate equal to the London interbank offered rate (“LIBOR”) (as defined in the Revolving Credit Facility) plus the applicable margin (as defined).  No amounts were outstanding under the Revolving Credit Facility as of October 31, 2015.

11


 

 

The Revolving Credit Facility is tied to a borrowing base formula, and has no maintenance financial covenants.  This Revolving Credit Facility matures in May 2020.

 

Letters of credit outstanding under the Revolving Credit Facility aggregated $3.2 and $0.4 at October 31, 2015 and December 31, 2014, respectively.

 

 

Note 9.Fair Value Measurements

 

All short-term financial instruments are generally carried at amounts that approximate estimated fair value. The fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations.

 

Level 1 – quoted prices in active markets for identical assets and liabilities.

 

Level 2 – quoted prices for identical assets and liabilities in markets that are not active, or observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

 

The carrying amounts of cash and cash equivalents (which the Company classifies as Level 1 assets), accounts receivable – trade and accounts payable represent their respective fair values due to their short- term nature. There was no debt outstanding under the Revolving Credit Facility as of October 31, 2015. The fair value of the Company’s 5.875% Notes, based on market prices for publicly-traded debt (which the Company classifies as Level 2 inputs), was $1,228.6 and $1,206.0 as of October 31, 2015 and December 31, 2014, respectively.  

 

Goodwill and long-lived assets, including property and equipment and purchased intangibles subject to amortization were impaired and written down to their estimated fair values during the third quarter of fiscal year 2015.  The goodwill level 3 fair value was determined using an income based approach utilizing estimates of future cash flow, discount rate, and long-term growth rate, all of which were unobservable.  The long-lived asset level 3 fair value was determined using a combination of the cost approach and the market approach, which used inputs that included replacement costs (unobservable), physical deterioration estimates (unobservable), economic obsolescence (unobservable), and market sales data for comparable assets. 

 

The following table summarizes impairments of goodwill and long-lived assets and the related post-impairment fair values of the corresponding ESG assets for the three and nine months ended October 31, 2015: 

 

 

 

 

 

 

 

 

 

 

 

 

THREE AND NINE MONTHS ENDED OCTOBER 31, 2015

 

    

Impairment

    

Fair Value

Property and equipment, net

 

$

152.0

 

$

164.8

Goodwill

 

 

310.4

 

 

 —

Intangible assets

 

 

177.8

 

 

 —

 

 

$

640.2

 

$

164.8

 

 

Fair value is measured as of the impairment date using Level 3 inputs.  See note 5 for a discussion of the asset impairment charge recorded during the three and nine months ended October 31, 2015.

12


 

 

Note 10.Commitments, Contingencies and Off-Balance Sheet Arrangements

 

Lease Commitments - The Company finances its use of certain facilities and equipment under committed lease arrangements provided by various institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on the condensed consolidated balance sheets. At October 31, 2015, future minimum lease payments under these arrangements approximated $102.0, the majority of which related to long-term real estate leases.

 

Litigation - The Company is a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on the Company’s combined financial statements.

 

Indemnities, Commitments and Guarantees - During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Many of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments the Company could be obligated to make. However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying combined financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees.

 

The Company has employment agreements with three year initial terms, which renew for one additional year on each anniversary date, with certain key members of management. The Company’s employment agreements generally provide for certain protections in the event of a change of control. These protections generally include the payment of severance and related benefits under certain circumstances in the event of a change of control.

 

Note 11.Accounting for Stock-Based Compensation

 

The Company has a Long-Term Incentive Plan (“LTIP”) under which the Company’s Compensation Committee has the authority to grant stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity-based or equity-related awards.

 

The Company accounts for share-based compensation arrangements in accordance with the provisions of FASB ASC 718, Compensation—Stock Compensation (“ASC 718”), whereby share-based compensation cost is measured on the date of grant, based on the fair value of the award, and is recognized over the requisite service period.

 

Compensation cost recognized during the three and nine months ended September 30, 2014 related to grants of restricted stock and restricted stock units granted or approved by B/E Aerospace. All unvested shares of restricted stock held by former B/E employees that joined KLX on the distribution date were converted into unvested shares of KLX on the distribution date at a ratio equal to 1.8139.  Compensation cost recognized during the three and nine months ended October 31, 2015 and September 30, 2014 related to the unvested shares converted on the distribution date and new shares of KLX restricted stock and stock options granted during 2015 was $3.5 and  $0.9, and $10.6 and $2.7, respectively. Unrecognized compensation expense related to these grants was $30.0 at October 31, 2015.

 

The Company has established a qualified Employee Stock Purchase Plan similar to the Former Parent’s plan (“KLX Plan”). The KLX Plan allows qualified employees (as defined in the plan) to participate in

13


 

the purchase of designated shares of KLX’s common stock at a price equal to 85% of the closing price for each semi-annual stock purchase period. The fair value of employee purchase rights represents the difference between the closing price of KLX’s shares on the date of purchase and the purchase price of the shares. Compensation cost for this plan was not material to any of the periods presented.

 

Note 12.Segment Reporting

 

The Company is organized based on the products and services it offers. As a result of the ESG acquisitions, the Company determined that ESG met the requirements of a reportable segment operating in a single line of business. The Company’s ASG reportable segment, which is also its operating segment, is comprised of consumables management and is in a single line of business. The segment regularly reports its results of operations and makes requests for capital expenditures and acquisition funding to the Company’s chief operational decision-making group (“CODM”). This group is comprised of the Chairman and Chief Executive Officer and the President and Chief Operating Officer. As a result, the CODM has determined the Company has two reportable segments.

 

The following table presents revenues and operating earnings (losses) by reportable segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

Revenues:

    

2015

    

2014

    

2015

    

2014

 

Aerospace solutions group

 

$

306.7

 

$

326.3

 

$

1,006.4

 

$

993.2

 

Energy services group

 

 

58.3

 

 

126.9

 

 

202.8

 

 

261.8

 

Total revenues

 

 

365.0

 

 

453.2

 

 

1,209.2

 

 

1,255.0

 

Operating (loss) earnings (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace solutions group

 

 

47.8

 

 

51.4

 

 

167.7

 

 

174.7

 

Energy services group

 

 

(667.1)

 

 

23.6

 

 

(706.7)

 

 

40.2

 

Total operating (loss) earnings

 

 

(619.3)

 

 

75.0

 

 

(539.0)

 

 

214.9

 

Interest expense (income)

 

 

19.0

 

 

(0.1)

 

 

58.2

 

 

(0.3)

 

(Loss) earnings before income taxes

 

$

(638.3)

 

$

75.1

 

$

(597.2)

 

$

215.2

 

 


(1)

Operating (loss) earnings include an allocation of employee benefits and general and administrative costs based on the proportion of each segment’s number of employees and sales, respectively. 

 

 

The following table presents capital expenditures by reportable segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

 

 

    

2015

    

2014

    

2015

    

2014

    

 

Aerospace Solutions Group

 

$

11.9

 

$

3.7

 

$

23.4

 

$

12.3

 

 

Energy Services Group

 

 

24.4

 

 

29.2

 

 

83.0

 

 

77.0

 

 

 

 

$

36.3

 

$

32.9

 

$

106.4

 

$

89.3

 

 

 

Corporate capital expenditures have been allocated to the above segments based on each segment’s percentage of total capital expenditures.

 

The following table presents goodwill by reportable segment:

 

 

 

 

 

 

 

 

 

 

 

October 31, 

 

December 31,

 

 

    

2015

    

2014

 

Aerospace Solutions Group

 

$

960.6

 

$

986.3

 

Energy Services Group

 

 

 -

 

 

342.4

 

 

 

$

960.6

 

$

1,328.7

 

 

14


 

The following table presents total assets by reportable segment:

 

 

 

 

 

 

 

 

 

 

 

October 31, 

 

December 31,

 

 

    

2015

    

2014

 

Aerospace Solutions Group

 

$

3,484.9

 

$

3,316.1

 

Energy Services Group

 

 

266.7

 

 

987.5

 

 

 

$

3,751.6

 

$

4,303.6

 

 

Corporate assets (primarily cash and cash equivalents) of $600.7 and $531.4 at October 31, 2015 and December 31, 2014, respectively, have been allocated to the above segments based on each segment’s percentage of total assets.

 

Note 13.Net (Loss)/Earnings Per Common Share

 

Basic net (loss)/earnings per common share is computed using the weighted average common shares outstanding during the period. Diluted net (loss)/earnings per common share is computed by using the weighted average common shares outstanding including the dilutive effect of stock options, shares issued under the KLX Plan and restricted shares based on an average share price during the period. For the three and nine months ended October 31, 2015 and September 30, 2014, no shares and approximately 0.1 shares of the Company’s common stock, respectively, were excluded from the determination of diluted earnings per common share because their effect would have been anti-dilutive. The computations of basic and diluted earnings per share for the three and nine months ended October 31, 2015 and September 30, 2014 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

OCTOBER 31, 

 

SEPTEMBER 30,

 

 

    

2015

    

2014

 

2015

    

2014

 

Net (loss) earnings

    

$

(400.8)

    

$

31.3

 

$

(375.5)

    

$

120.7

  

(Shares in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares

 

 

52.2

 

 

52.2

 

 

52.2

 

 

52.2

 

Effect of dilutive securities - Dilutive securities

 

 

 -

 

 

0.1

 

 

 -

 

 

0.1

 

Diluted weighted average common shares

 

 

52.2

 

 

52.3

 

 

52.2

 

 

52.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) earnings per common share

 

$

(7.68)

 

$

0.60

 

$

(7.19)

 

$

2.31

 

Diluted net (loss) earnings per common share

 

$

(7.68)

 

$

0.60

 

$

(7.19)

 

$

2.31

 

 

 

 

 

 

 

Note 14.Accounting for Uncertainty in Income Taxes

 

In accordance with FASB ASC 740, Income Taxes (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. As of October 31, 2015 and September 30, 2014, the Company had $9.2 and $2.5, respectively, of net unrecognized tax benefits. This liability, if recognized, would affect the Company’s effective tax rate. Pursuant to the terms of the Tax Sharing Agreement with our former parent, B/E Aerospace, the Company may be liable for income tax in certain foreign jurisdictions arising from the examination of tax years during which the Company was part of the B/E Group.  The statute of limitations in these foreign jurisdictions is open for tax years 2009-2014. There are currently no material income tax audits in progress.

 

The Company classifies interest and penalties related to income tax as income tax expense. The amount included in the Company’s liability for unrecognized tax benefits for interest and penalties was immaterial at October 31, 2015 and September 30, 2014.

 

15


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(In Millions, Except Per Share Data)

 

The following discussion and analysis addresses the results of our operations for the three and nine months ended October 31, 2015 as compared to our results of operations for the three and nine months ended September 30, 2014. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. We previously reported we expect to incur approximately $25 of one-time costs related to branding, new IT system alignments and other related new public company start-up expenses (collectively, “Post Spin-Off Activities”) and that we expect to incur approximately $15 in start-up expenses during 2015 in connection with our energy services group (“ESG”) geographical and service offering expansion initiatives.  We also reported we expect our annual recurring operating costs as a stand-alone public company will be approximately $25 higher than the expenses historically allocated to us from B/E Aerospace, Inc. (“Former Parent” or “B/E Aerospace”). 

 

During the third quarter of 2015, the Company performed an interim asset impairment test. The continuing downturn in the oil and gas industry, including the approximate 60 percent decrease in the price of oil, the approximate 60 percent decrease in the number of onshore drilling rigs, and the resulting significant cut backs in capital expenditures by our oil and gas customers, has resulted in a decrease in both volume and pricing for oil field services. As a result, during the third quarter of 2015, the Company determined that the carrying value of ESG’s assets were impaired, resulting in an approximate $640.2 pre-tax ($402.7 after-tax) non-cash impairment charge.

 

We believe, based on our experience in the industry, that we are a leading distributor and value‑added service provider of aerospace fasteners and consumables, and that we offer one of the broadest ranges of aerospace hardware, consumables and inventory management services worldwide. Through organic growth and a number of strategic acquisitions beginning in 2001, we believe we have become our industry’s leading provider of aerospace fasteners, consumable products and supply chain management services. Through our global facilities network and advanced information technology systems, we believe we offer unparalleled service to commercial airlines, business jet and defense OEMs, maintenance, repair and overhaul (“MRO”) operators, and fixed base operators (“FBOs”). With a large and diverse global customer base, including virtually all of the world’s commercial airlines, business jet and defense OEMs, OEM subcontractors and major MRO operators across five continents, we provide access to over one million stock keeping units (“SKUs”). We serve as a distributor for every major aerospace fastener manufacturer. In order to support our vast range of custom products and services, we have invested over $100 in proprietary IT systems to create a superior technology platform. Our systems support both internal distribution processes and part attributes, along with customer services, including just-in-time (“JIT”) deliveries and kitting solutions, which we believe are unmatched by any competitor. This business is operated within our aerospace solutions group (“ASG”) segment.

 

In connection with the sales of its products, the Company also provides certain supply chain management services to certain of its customers. These services include the timely replenishment of products at the customer site, while also minimizing the customer’s on-hand inventory. These services are provided by the Company contemporaneously with the delivery of the product, and as such, once the product is delivered, the Company does not have a post-delivery obligation to provide services to the customer. The price of such services is generally included in the price of the products delivered to the customer, and revenue is recognized upon delivery of the product, at which point, the Company has satisfied its obligations to the customer. The Company does not account for these services as a separate element, as the services do not have stand-alone value and cannot be separated from the product element of the arrangement.

 

In 2013, we initiated an expansion into the energy services sector. Over the past two years, we have acquired seven companies in the business of providing technical services and related rental equipment to oil and gas exploration and production companies. As a result, we now provide a broad range of solutions and equipment, which bring value‑added resources to a new customer base, often in remote locations. Our

16


 

customers include independent and major oil and gas companies that are engaged in the exploration and production of oil and gas in North America, including in the Northeast (Marcellus and Utica Shales), Rocky Mountains (Williston and Piceance Basins), Southwest (Permian Basin and Eagle Ford Shale) and Mid‑Continent. This business is operated within our ESG segment.

 

We conduct our operations through strategic business units that have been aggregated under two reportable segments: ASG and ESG.

 

Revenues by reportable segment for the three and nine months ended October 31, 2015 and September 30, 2014, respectively, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

OCTOBER 31, 2015

 

SEPTEMBER 30, 2014

 

 

OCTOBER 31, 2015

 

SEPTEMBER 30, 2014

 

 

 

Revenues

 

%

 

Revenues

 

%

 

 

Revenues

 

%

 

Revenues

 

%

 

Aerospace Solutions Group

 

$

306.7

 

84.0

%  

$

326.3

 

72.0

%

 

$

1,006.4

 

83.2

%  

$

993.2

 

79.1

%

Energy Services Group

 

 

58.3

 

16.0

%  

 

126.9

 

28.0

%

 

 

202.8

 

16.8

%  

 

261.8

 

20.9

%

Total revenues

 

$

365.0

 

100.0

%  

$

453.2

 

100.0

%

 

$

1,209.2

 

100.0

%  

$

1,255.0

 

100.0

%

 

Revenues by geographic area (based on destination) for the three and nine months ended October 31, 2015 and September 30, 2014, respectively, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

 

OCTOBER 31, 2015

 

SEPTEMBER 30, 2014

 

 

OCTOBER 31, 2015

 

SEPTEMBER 30, 2014

 

 

 

    

Revenues

    

%

    

Revenues

    

%

 

 

Revenues

    

%

    

Revenues

    

%

 

 

United States

 

$

219.5

 

60.1

%  

$

309.6

 

68.3

%

 

$

745.0

 

61.6

%  

$

817.3

 

65.1

%

    

Europe

 

 

89.7

 

24.6

%  

 

91.6

 

20.2

%

 

 

284.4

 

23.5

%  

 

280.5

 

22.4

%

 

Asia, Pacific Rim, Middle East and other

 

 

55.8

 

15.3

%  

 

52.0

 

11.5

%

 

 

179.8

 

14.9

%  

 

157.2

 

12.5

%

 

Total revenues

 

$

365.0

 

100.0

%  

$

453.2

 

100.0

%

 

$

1,209.2

 

100.0

%  

$

1,255.0

 

100.0

%

 

 

Revenues from our domestic and foreign operations for the three and nine months ended October 31, 2015 and September 30, 2014, respectively, were as follows: