Stockholders' Equity

12 Months Ended

Jan. 31, 2016

Stockholders' Equity

Stockholders' Equity

11. STOCKHOLDERS’ EQUITY

Earnings Per Share—Basic net earnings per common share is computed using the weighted average of common shares outstanding during the year. Diluted net earnings per common share reflects the potential dilution from assumed conversion of all dilutive securities such as stock options and unvested restricted stock using the treasury stock method. When the effects of the outstanding stock options, restricted stock awards or restricted stock units are anti‑dilutive, they are not included in the calculation of diluted earnings per common share. For the years ended January 31, 2016, December 31, 2014 and 2013 and the one month ended January 31, 2015, no shares and approximately 0.1,  0.1 and 0.1 million shares, respectively, were excluded from the determination of diluted earnings per common share because the effect would have been anti‑dilutive.

The following table sets forth the computation of basic and diluted net earnings per share for the years ended January 31, 2016, December 31, 2014 and 2013 and the one month ended January 31, 2015:

	Year Ended						Month Ended
	January 31, 2016		December 31, 2014		December 31, 2013		January 31, 2015
Numerator: net (loss) earnings	$	(385.8)	$	88.1	$	150.4	$	7.1
Denominator:
Denominator for basic earnings per share—Weighted average shares (in millions)		52.2		52.2		52.2		52.2
Effect of dilutive securities—Dilutive securities (in millions)		—		0.1		0.1		0.1
Denominator for diluted earnings per share—Adjusted weighted average shares (in millions)		52.2		52.3		52.3		52.3
Basic net (loss) earnings per share(1)	$	(7.39)	$	1.69	$	2.88	$	0.14
Diluted net (loss) earnings per share(1)	$	(7.39)	$	1.68	$	2.88	$	0.14

(1) On December 16, 2014, the distribution date, B/E Aerospace stockholders of record as of the close of business on December 5, 2014 received one share of KLX common stock for every two shares of B/E Aerospace’s common stock held as of the record date. Basic and diluted earnings per common share and the average number of common shares outstanding were calculated using the number of KLX common shares outstanding immediately following the distribution.

Long‑Term Incentive Plan—B/E Aerospace has a Long‑Term Incentive Plan (“LTIP”) under which the Former Parent’s Compensation Committee may grant stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity based or equity related awards. KLX adopted an LTIP similar to the Former Parent’s upon the Spin‑off, and unvested shares in the Former Parent were transferred with the employees to KLX on the same terms and conditions on an exchange ratio of 1.8139 such that the impact was neutral to employees at the date of the Spin‑off.

During 2014, 2013 and 2012, B/E Aerospace granted restricted stock under the LTIP to certain members of the Company’s management. Restricted stock grants vest over four years and are granted at the discretion of the Compensation Committee of the B/E Aerospace’s Board of Directors. Certain awards also vest upon attainment of performance goals. Compensation cost is recorded on a straight‑line basis over the vesting term of the shares based on the grant date value using the closing trading price. Share based compensation of $11.4,  $3.5,$3.5 and $0.5 was recorded during fiscal year 2015, 2014 and 2013 and the one month ended January 31, 2015, respectively. Unrecognized compensation cost related to these grants was $36.6 at January 31, 2016.

The following table summarizes shares of restricted stock that were granted, vested, forfeited and outstanding:

	January 31, 2016				January 31, 2015
				Weighted				Weighted
		Weighted		Average		Weighted		Average
		Average		Remaining		Average		Remaining
	Shares	Grant Date		Vesting Period	Shares	Grant Date		Vesting Period
	(in thousands)	Fair Value		(in years)	(in thousands)	Fair Value		(in years)
Outstanding, beginning of period	559.2	$	38.09	2.97	275.5	$	37.21	2.49
Shares granted	497.8		33.42		288.6		39.08
Shares vested	(171.4)		34.65		—		—
Shares forfeited	(58.4)		38.56		(4.9)		47.16
Outstanding, end of period	827.2	$	35.96	3.12	559.2	$	38.09	2.97

Our stock options are eligible to vest over three years in three equal annual installments, subject to continued employment on each vesting date. Vested options are exercisable at any time until 10 years from the date of the option grant, subject to earlier expirations under certain terminations of service and other conditions. The stock options granted have an exercise price equal to the closing stock price of our common stock on the grant date.

At January 31, 2016 and January 31, 2015, we have outstanding 596,598 and 894,899 unvested time-based stock options, respectively, under the KLX Inc. Long-Term Incentive Plan (the “Plan”), which stock options vest on the basis of continuous employment. All of the time-based options vest ratably during the period of service.

The following table sets forth the summary of options activity under the Plan (dollars in thousands except per share data):

	January 31, 2016						January 31, 2015
				Weighted						Weighted
		Weighted		Average				Weighted		Average
		Average		Remaining		Aggregate		Average		Remaining		Aggregate
	Number	Exercise		Contractual Life		Intrinsic	Number	Exercise		Contractual Life		Intrinsic
	of Shares	Price		(in years)		Value (1)	of Shares	Price		(in years)		Value (1)
Outstanding, beginning of period	894,899	$	39.08	9.96	$	205.8	—		—	—	$	—
Granted	—		—				894,899	$	39.08
Exercised	—		—				—		—
Canceled	—		—				—		—
Outstanding, end of period	894,899	$	39.08	8.96	$	—	894,899	$	39.08	9.96	$	205.8
Exercisable, end of period	298,301	$	39.08	8.96	$	—	—	$	—	—	$	—

(1) Aggregate intrinsic value is calculated based on the difference between our closing stock price at year end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised all their options on the fiscal year end date.

For the year ended January 31, 2016 and the one month ended January 31, 2015, we recorded $3.9 and $0.2, respectively, of stock-based compensation expense related to these options that is included within selling, general and administrative expenses. At January 31, 2016 and January 31, 2015, the unrecognized stock-based compensation related to these options was $7.5 and $11.3, respectively, and is expected to be recognized over a weighted-average period of 1.87 and 2.87 years, respectively.

We use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding complex and subjective variables. These variables include the expected stock price volatility over the term of the awards, risk-free interest rate and expected dividends.

Due to the limited trading history of our common stock, we estimated expected volatility based on historical data of comparable public companies. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on guidelines provided in U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 110 and represents the average of the vesting tranches and contractual terms. The risk-free rate assumed in valuing the options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the option. We do not anticipate paying any cash dividends in the foreseeable future and, therefore, used an expected dividend yield of zero in the option pricing model. Compensation expense is recognized only for those options expected to vest with forfeitures estimated based on our historical experience at B/E Aerospace and future expectations. Stock-based compensation awards are amortized on a straight line basis over a three year period.

The weighted average assumptions used to value the option grants are as follows:

	January 31,
	2015
Expected life (in years)	6.50
Volatility	30.0%
Risk free interest rate	1.5%
Dividend yield	-

The weighted average fair value per option at the grant date for options issued during the one month ended January 31, 2015 was $12.99.