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KLX Inc. Reports Full Year and Fourth Quarter Ended January 31, 2016 Financial Results

WELLINGTON, Fla., March 08, 2016 (GLOBE NEWSWIRE) -- KLX Inc. (the “Company”) (NASDAQ:KLXI), the world’s leading distributor and value added service provider of aerospace fasteners and consumables, and a provider of services and products to the oil and gas exploration and production industry, today announced its full fiscal year and fourth fiscal quarter 2015 financial results. As a result of the change in our year end from December 31 to a January 31 year end, we have presented our full fiscal year and fourth fiscal quarter ended January 31, 2016, as compared with the twelve month and three month periods ended December 31, 2014.

FULL YEAR ENDED JANUARY 31, 2016 HIGHLIGHTS COMPARED TO FULL YEAR ENDED DECEMBER 31, 2014

  • Consolidated revenues of $1.6 billion declined 7.6 percent
  • Aerospace Solutions Group (“ASG”) revenues of $1.3 billion were an all-time record, an increase of 2.2 percent on a constant currency basis; adjusted operating margin was 18.3 percent
  • Energy Services Group (“ESG”) revenues of $254.9 million declined 33.9 percent, reflecting the challenging energy industry operating conditions
  • Adjusted operating earnings were $170.9 million 1
  • Adjusted EBITDA was $261.7 million 1
  • Adjusted EPS was $2.37 1
  • Cash flow from operating activities was $217.2 million
  • Initiated share repurchase program in January 2016
  • The Company recorded a $640 million pre-tax, non-cash impairment charge in the third quarter of 2015, and an $11 million after-tax charge in the fourth quarter of 2015 related to cost reduction initiatives at both its ASG and ESG business segments

FOURTH QUARTER ENDED JANUARY 31, 2016 HIGHLIGHTS COMPARED WITH THE FOURTH QUARTER ENDED DECEMBER 31, 2014

  • Consolidated revenues of $358.2 million declined 18.7 percent
  • Aerospace Solutions Group (“ASG”) revenues of $306.1 million declined 2.0 percent on a constant currency basis
  • Energy Services Group (“ESG”) revenues of $52.1 million declined 57.9 percent
  • Adjusted operating earnings were $34.6 million; adjusted EBITDA was $54.7 million
  • The Company recorded an $11 million after-tax charge associated with its cost reduction initiatives
  • Adjusted EPS was $0.49

1 Adjustments primarily include non-cash impairment charges, branding, IT implementation costs, spin-off related costs, business repositioning costs including facility consolidations, severance and related items, start-up costs associated with ESG expansion initiatives, and certain tax related adjustments with respect to adjusted EPS. See “Reconciliations of Non-GAAP Financial Measures.”

Amin J. Khoury, Chairman and Chief Executive Officer of KLX stated, “January 31, 2016 marks the close of KLX’s first full year as an independent public company. The Company’s full year financial results included record performance by our ASG business, which was partially offset by the performance of our ESG business. Importantly, our financial position remains strong and we are addressing actionable acquisition opportunities for our ASG business as we enter our fiscal year 2016.”

Mr. Khoury noted, “Our ASG business delivered market leading performance in 2015 driven by solid demand from our commercial aerospace manufacturing customers, offset by a decline in demand from our military and business jet customers. Based upon aircraft manufacturers’ backlogs, we expect the current level of production to remain reasonably consistent; and, although we expect continued weak demand from our business jet manufacturing customers in 2016 and 2017, we do expect a significant upswing in 2018 as numerous new business jet aircraft types enter into service. With respect to demand from our defense related customer base, a material improvement in the military spending environment is dependent upon the lifting of budgetary constraints on defense spending. During 2015, our aftermarket revenues grew 2.6 percent on a constant currency basis continuing to reflect the ongoing introduction of new aircraft to the fleet and associated reduction in older aircraft that otherwise would normally have required heavy maintenance to support current flight hours. We anticipate aftermarket activity to improve further over the next year to support the approximately 25,000 aircraft in the commercial airliner fleet, including the 8,100 aircraft delivered over the past six years.”

Commenting on the ESG segment, Mr. Khoury noted, “2015 was one of the most difficult years ever for the global oil and gas industry. Plummeting commodity prices driven by excess global supply resulted in record reductions in spending by all of our customers, as the domestic onshore drilling rig count was cut by approximately 75 percent from 1,744 rigs to 473 rigs, currently. In response to this dramatic reduction in activity, essentially all companies engaged in oil and gas exploration, production and support services have experienced dramatic reductions in revenues and profitability resulting in billions of dollars of impairment charges. The ensuing deep cuts in capital spending have resulted in severely negative impacts on both volume and pricing, and as a result essentially all industry participants have implemented massive cuts in headcount and spending. Market conditions continued to worsen throughout the year and into 2016, and are currently at levels of activity and pricing which are unsustainable. In fact, through our fiscal year end, there have been 45 bankruptcies, with more expected in 2016.”

Mr. Khoury continued, “While there is no near term relief in sight, ESG has the foundation to weather the current market turmoil and is positioned to differentially benefit as activity levels improve. It is encouraging to see our ESG team respond to these challenging times by continuing to focus on making our business more efficient while providing the highest quality service to our customers. The integration of the seven acquired businesses that comprise ESG is now essentially complete, and with the implementation of enterprise-wide accounting and asset tracking systems, our ESG management team is able to coordinate and optimize asset and personnel utilization. ESG management has undertaken a series of intensive reviews of its operations throughout 2015, which has led to deep reductions in headcount, aggressive management of expenses, and other efficiency improvement initiatives. During the fourth quarter of fiscal 2015, ESG recorded an approximate $7 million after-tax charge related to a further cost reduction program. While painful, our workforce reductions, when completed, are expected to total over 750 people or approximately 50 percent of our December 2014 workforce. At the same time, ESG has been successful in substantially upgrading the quality of our workforce and has been able to acquire fixed assets at deep discounts of up to 80 percent of their replacement value. This upgrade in the quality of our workforce together with judicious spending on capital equipment has enabled us to fill out our product and service portfolio and to enhance the package of services we can deliver to our customers. We are carefully managing our strong financial resources as we continue to address what is clearly a generational opportunity to establish our ESG business as a market leader in the services niche in which we operate. We believe the aforementioned cost reduction initiatives will provide substantial progress to move our ESG segment toward our goal of achieving break-even cash flow results in these very challenging times.”

Certain financial information in the narrative of this press release has been presented exclusive of non-recurring costs and expenses incurred in 2015 following the spin-off from our former parent, B/E Aerospace, Inc. In addition, for comparison purposes, we have presented interest expense for the 2014 period based on the current KLX capital structure and have utilized the current estimated 2015 effective tax rate for the fourth quarter and full year 2014. For comparative purposes, the fourth quarter and full year 2015 results are adjusted to exclude the $640 million pre-tax, non-cash impairment charge, business repositioning costs including facility consolidations, severance and related items, and certain costs related to the spin-off from the Company’s former parent, B/E Aerospace, Inc., on December 16, 2014. As previously reported, we incurred approximately $31 million of one-time costs related to branding, new IT systems and other related new public company expenses. Additionally, we incurred approximately $14 million in start-up expenses during 2015 in connection with our Energy Services Group’s geographical and service offering expansion activities. The aforementioned non-cash impairment charge, together with business repositioning costs including facility consolidations, severance and related items, and one-time post spin-off related activities are collectively referred to as “costs as defined.” We have also presented adjusted earnings and adjusted earnings per diluted share to reflect net earnings before costs as defined, amortization, non-cash compensation expense, and to include the tax benefit from the amortization of tax deductible goodwill. See “Reconciliation of Non-GAAP Financial Measures.”

FULL YEAR CONSOLIDATED RESULTS

For the twelve months ended January 31, 2016, revenues of $1.6 billion decreased 7.6 percent, as compared with the prior year period ending December 31, 2014. The consolidated results reflect flat revenue growth at ASG (2.2 percent increase on a constant currency basis) and a 33.9 percent decline in ESG revenues.

For the twelve months ended January 31, 2016, adjusted operating earnings, excluding costs as defined, were $170.9 million and adjusted operating margin was 10.9 percent. Adjusted EBITDA, excluding costs as defined and non-cash compensation expense was $261.7 million. Adjusted EBITDA margin was 16.7 percent and free cash flow was approximately $86.7 million, or $1.66 per share. On a GAAP basis, to include the approximate $640 million pre-tax, non-cash asset impairment charge and the fourth quarter $11 million after-tax charge related to its cost reduction initiatives, operating loss was $(536.8) million.

For the twelve months ended January 31, 2016, adjusted net earnings and adjusted net earnings per diluted share, excluding costs as defined, amortization and non-cash compensation expense, and including the tax benefit from the amortization of tax deductible goodwill (“adjusted net earnings” and “adjusted net earnings per diluted share”), were $123.6 million and $2.37 per share, respectively. On a GAAP basis, net loss and loss per diluted share were $(385.8) million and $(7.39) per share, respectively.

FULL YEAR SEGMENT RESULTS

The following is a tabular summary and commentary of revenues, adjusted operating earnings (loss) and adjusted EBITDA by segment for the twelve months ended January 31, 2016, as compared with the twelve months ended December 31, 2014. Full year 2015 results include ongoing operating expenses associated with stand-alone public company costs of approximately $18 million for the year ending January 31, 2016 ($ in millions):

REVENUES
YEAR ENDED
Segment January 31, 2016 December 31, 2014 % Change
Aerospace Solutions Group $ 1,312.5 $ 1,310.2 0.2%
Energy Services Group 254.9 385.5 (33.9%)
Total $ 1,567.4 $ 1,695.7 (7.6%)
ADJUSTED OPERATING EARNINGS (LOSS)
YEAR ENDED
Segment January 31, 2016 December 31, 2014 % Change
Aerospace Solutions Group $ 240.6 $ 237.9 1.1%
Energy Services Group (69.7) 65.8 (205.9%)
Total $ 170.9 $ 303.7 (43.7%)
ADJUSTED EBITDA
YEAR ENDED
Segment January 31, 2016 December 31, 2014 % Change
Aerospace Solutions Group $ 280.2 $ 271.7 3.1%
Energy Services Group (18.5) 107.5 (117.2%)
Total $ 261.7 $ 379.2 (31.0%)

For the twelve months ended January 31, 2016, ASG revenues were $1.3 billion, an increase of 2.2 percent on a constant currency basis, driven by solid growth among commercial aerospace manufacturing customers, partially offset by a decrease in sales to military and business jet customers. ASG revenues, including the negative impact of foreign exchange, were essentially flat. Aftermarket revenues, on a constant currency basis, increased 2.6 percent. Adjusted operating earnings were $240.6 million and adjusted operating margin was 18.3 percent. On a pro forma basis, to include ongoing public company costs in both periods as if the spin-off had occurred on January 1, 2014, adjusted operating margin for the full year 2015 period increased by 120 basis points. ASG’s adjusted EBITDA was $280.2 million, or 21.3 percent of revenues, an increase of 60 basis points as compared with the prior year period. ASG operating earnings on a GAAP basis were $211.6 million, or 16.1 percent of sales.

For the twelve months ended January 31, 2016, ESG revenues were $254.9 million, adjusted operating loss was $(69.7) million, and adjusted EBITDA loss was $(18.5) million, reflecting the extremely challenging oil and gas industry conditions. On a pro forma basis, assuming all acquisitions were completed on January 1, 2014, revenues declined 43.7 percent. On a GAAP basis, including the approximately $640 million pre-tax, non-cash asset impairment charge, the fourth quarter $7 million after-tax charge related to cost reduction initiatives, and other costs as defined, ESG’s operating loss was $(748.4) million.

FOURTH QUARTER 2015 CONSOLIDATED RESULTS

Fourth quarter 2015 revenues of $358.2 million declined 18.7 percent, as compared to the three-month period ended December 31, 2014. The consolidated results reflect a 3.4 percent year over year decline in ASG revenues (2.0 percent decline on a constant currency basis) and a 57.9 percent decline in ESG revenues.

Adjusted operating earnings, excluding costs as defined, were $34.6 million and adjusted operating margin was 9.7 percent. On a GAAP basis, operating earnings were $2.2 million. Adjusted EBITDA, excluding costs as defined and non-cash compensation expense, was $54.7 million, and adjusted EBITDA margin was 15.3 percent.

Adjusted fourth quarter 2015 net earnings and adjusted earnings per diluted share, excluding costs as defined, amortization and non-cash compensation expense, and including the tax benefit from the amortization of tax deductible goodwill (“adjusted net earnings” and “adjusted net earnings per diluted share”), were $25.7 million and $0.49 per diluted share, respectively. On a GAAP basis, including the $11 million after-tax charge related to the cost reduction program, net loss and loss per share were $(10.3) million and $(0.20) per share, respectively.

FOURTH QUARTER 2015 SEGMENT RESULTS

The following is a tabular summary and commentary of revenues, adjusted operating earnings (loss) and adjusted EBITDA by segment for the three months ended January 31, 2016, as compared with the three months ended December 31, 2014 ($ in millions):

REVENUES
THREE MONTHS ENDED
Segment January 31, 2016 December 31, 2014 % Change
Aerospace Solutions Group $ 306.1 $ 317.0 (3.4%)
Energy Services Group 52.1 123.7 (57.9%)
Total $ 358.2 $ 440.7 (18.7%)
ADJUSTED OPERATING EARNINGS (LOSS)
THREE MONTHS ENDED
Segment January 31, 2016 December 31, 2014 % Change
Aerospace Solutions Group $ 54.0 $ 58.1 (7.1%)
Energy Services Group (19.4) 20.9 (192.8%)
Total $ 34.6 $ 79.0 (56.2%)
ADJUSTED EBITDA
THREE MONTHS ENDED
Segment January 31, 2016 December 31, 2014 % Change
Aerospace Solutions Group $ 64.1 $ 66.7 (3.9%)
Energy Services Group (9.4) 35.0 (126.9%)
Total $ 54.7 $ 101.7 (46.2%)

Fourth quarter 2015 ASG revenues decreased 3.4 percent to $306.1 million, as compared with the fourth quarter of 2014 (2.0 percent decline on a constant currency basis). Revenues from our commercial aerospace manufacturing and aftermarket customers increased at a low single-digit rate, offset by a double-digit decline in revenues from ASG's military and business jet customers.

ASG fourth quarter 2015 adjusted operating earnings and adjusted operating margin were $54.0 million and 17.6 percent, respectively. On a pro forma basis, to include ongoing public company costs in both periods as if the spin-off had occurred on January 1, 2014, adjusted operating margin in the 2015 period increased by 30 basis points. ASG’s fourth quarter EBITDA, adjusted for costs as defined and $3.1 million of non-cash compensation expense was $64.1 million, or 20.9 percent of revenues. On a GAAP basis, including fourth quarter cost reduction initiatives of approximately $3.5 million after-tax, ASG operating earnings were $43.9 million.

Fourth quarter 2015 ESG revenues were $52.1 million, adjusted operating loss was $(19.4) million, and adjusted EBITDA loss was $(9.4) million. ESG’s financial performance reflects the effects of the collapse in oil and natural gas prices, which have dramatically reduced both activity and pricing across both the breadth of our service and product offerings and across all of the geographic regions in which we operate. On a GAAP basis, including the fourth quarter $7 million after-tax charge related to cost reduction initiatives, ESG operating loss was $(41.7) million. EBITDA loss, including “costs as defined” and non-cash compensation expense, was $(33.5) million.

LIQUIDITY

As of January 31, 2016, cash was $428 million. Total long-term debt of $1.2 billion less cash, resulted in net debt of $772 million, and the Company’s net debt to net capital ratio was 26 percent. For the twelve month period ended January 31, 2016, cash flows provided by operating activities were $217.2 million, and free cash flow was $86.7 million. Capital expenditures were $24.1 million for the fourth quarter and $130.5 million for the year ended January 31, 2016. Capital expenditures in 2015 were related to establishing KLX as an independent public company, including stand-alone global ERP systems, e-commerce, telephony, asset tracking systems, payroll, HR and compensation systems and other interrelated business systems and infrastructure costs, as well as segment expansion initiatives. The Company expects to incur approximately $60 to $70 million in capital expenditures for the full year 2016. At January 31, 2016, there were no borrowings outstanding under the Company’s $750.0 million credit facility.

OUTLOOK

Commenting on the Company’s outlook, Mr. Khoury stated, “For the full year 2016, we expect ASG to deliver a low single digit constant currency increase in revenues as compared to the prior year, and an operating margin in excess of 18 percent on an unadjusted basis. We are focused on executing our previously announced cost reduction program. We expect ASG’s cost reduction program to be implemented by the end of the third quarter of 2016. In addition, we are actively evaluating strategic acquisition opportunities that would complement our ASG business.”

Mr. Khoury continued, “With respect to our ESG business, we expect the current challenging industry conditions to continue. The financial crisis facing the domestic exploration and production industry is placing unprecedented pressures on all market participants. We are taking the necessary steps within our ESG business to aggressively manage our costs, without compromising the tremendous business platform we have built. This includes an approximately 50 percent reduction in capital expenditures in 2016, additional workforce rightsizing and other significant ongoing cost reduction initiatives. We believe the aforementioned cost reduction initiatives will provide substantial progress to move our ESG segment toward our goal of achieving break-even cash flow results in these very challenging times. We remain focused on serving ESG’s customers and continuing to build ESG’s reputation for first class service. We also believe ESG is well positioned to benefit as weaker competitors are forced to abandon the marketplace. Industry sources are beginning to coalesce around a point of view and expectation that at some point in 2017, there will be a rebalancing of oil supply and demand as a result of continued global demand growth and the contraction of non-OPEC production, which should ultimately begin to lift oil and gas prices and spur capital investment and eventually provide an impetus to a recovery in this industry.”

This release includes adjusted net earnings, adjusted earnings per diluted share, adjusted operating earnings, adjusted operating margin, adjusted EBITDA, free cash flow, free cash flow per share, ASG adjusted operating earnings, ASG adjusted operating margin, ESG adjusted operating earnings and ESG adjusted operating margin. Each of these measures excludes “costs as defined.” For more information, see “Reconciliation of Non-GAAP Financial Measures.”

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve risks and uncertainties. The Company’s actual experience and results may differ materially from the experience and results anticipated in such statements. Factors that might cause such a difference include those discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”), which include its Annual Report on Form 10-K and Current Reports on Form 8-K. For more information, see the section entitled “Forward-Looking Statements” contained in the Company’s Form 10-K and in other filings. The forward-looking statements included in this news release are made only as of the date of this news release and, except as required by federal securities laws and rules and regulations of the SEC, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About KLX Inc.

KLX Inc., through its two operating segments, provides mission critical products and complex logistical solutions to support its customers’ high value assets. KLX serves its customers in demanding environments that face high cost of downtime and require dependable, high quality just-in-time customer support. The Aerospace Solutions Group is the world’s leading distributor and value added service provider of aerospace fasteners and consumables offering the broadest range of aerospace hardware and consumables and inventory management services worldwide. The Energy Services Group provides vital services and products to the oil and gas industry on an episodic, 24/7 basis. For more information, visit the KLX website at www.klx.com.

KLX INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
(In Millions, Expect Per Share Data)
THREE MONTHS ENDED YEAR ENDED
January 31, 2016 December 31, 2014 December 31, 2014 January 31, 2016 December 31, 2014 December 31, 2014
(As Adjusted) (1) (GAAP) (As Adjusted) (1) (GAAP)
Revenues$ 358.2 $ 440.7 $ 440.7 $ 1,567.4 $ 1,695.7 $ 1,695.7
Cost of sales 284.1 322.3 322.3 1,202.4 1,194.9 1,194.9
Selling, general and administrative 71.9 86.5 86.5 261.6 254.0 254.0
Goodwill impairment - - - 310.4 - -
Long-lived asset impairment - - - 329.8 - -
Operating earnings (loss) 2.2 31.9 31.9 (536.8) 246.8 246.8
Interest expense (1) 19.1 19.1 3.3 77.3 77.3 3.0
(Loss) / earnings before income taxes (16.9) 12.8 28.6 (614.1) 169.5 243.8
Income tax (benefit) expense (1) (6.6) 4.8 61.2 (228.3) 63.1 155.7
Net (loss) earnings$ (10.3) $ 8.0 $ (32.6) $ (385.8) $ 106.4 $ 88.1
Net (loss) earnings per common share:
Basic$ (0.20) $ 0.15 $ (0.62) $ (7.39) $ 2.04 $ 1.69
Diluted$ (0.20) $ 0.15 $ (0.62) $ (7.39) $ 2.04 $ 1.68
Weighted average common shares:
Basic 52.3 52.2 52.2 52.2 52.2 52.2
Diluted 52.3 52.2 52.2 52.2 52.3 52.3
(1) Interest expense and income taxes for 2014 period adjusted to reflect the FY 2015 capital structure and to utilize the FY 2015 effective tax rate (37.2%) in both periods


KLX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Millions)
January 31, December 31,
2016 2014
ASSETS
Current assets:
Cash and cash equivalents$ 427.8 $ 470.8
Accounts receivable 259.6 308.0
Inventories 1,295.3 1,289.2
Other current assets 40.1 50.6
Total current assets 2,022.8 2,118.6
Long-term assets 1,668.2 2,162.0
$ 3,691.0 $ 4,280.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities$ 261.2 $ 330.2
Total long-term liabilities 1,227.3 1,330.1
Total stockholders' equity 2,202.5 2,620.3
$ 3,691.0 $ 4,280.6


KLX INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Millions)
YEAR ENDED
January 31, 2016 December 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings$ (385.8) $ 88.1
Adjustments to reconcile net earnings to
net cash flows provided by operating activities:
Depreciation and amortization 75.0 68.0
Deferred income taxes (229.3) 42.8
Asset impairment 640.2 -
Non-cash compensation 15.8 3.7
Amortization of deferred financing fees 2.3 -
Excess tax benefit / (loss) realized from prior exercises 0.2 (0.6)
of restricted stock
Provision for doubtful accounts 3.3 12.4
Loss on disposal of property and equipment 2.9 6.6
Changes in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable 40.3 (83.6)
Inventories 25.7 (67.2)
Other current and non-current assets 4.4 (21.9)
Accounts payable 3.4 36.7
Other current and non-current liabilities 18.8 22.5
Net cash flows provided by operating activities 217.2 107.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (130.5) (136.8)
Acquisitions, net of cash acquired (4.3) (513.8)
Net cash flows used in investing activities (134.8) (650.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (9.5) -
Cash proceeds from stock issuance 1.5 -
Proceeds from long-term debt - 1,200.0
Debt origination costs - (27.9)
Excess tax (loss) / benefit realized from prior exercises
of restricted stock (0.2) 0.6
Net transfers from B/E Aerospace, Inc. - (233.3)
Deferred acquisition payments (90.9) -
Net cash flows (used in) provided by financing activities (99.1) 939.4
Effect of foreign exchange rate changes on cash and
cash equivalents (2.7) (4.1)
Net (decrease) increase in cash and cash equivalents (19.4) 392.2
Cash and cash equivalents, beginning of period 447.2 78.6
Cash and cash equivalents, end of period$ 427.8 $ 470.8

KLX INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

This release includes “adjusted net earnings,” “adjusted earnings per diluted share,” “adjusted operating earnings,” “adjusted operating margin,” “adjusted EBITDA,” “free cash flow,” “free cash flow per share,” “ASG adjusted operating earnings,” “ASG adjusted operating margin,” “ESG adjusted operating earnings” and “ESG adjusted operating margin,” in each case excluding “costs as defined”, each of which are “non-GAAP financial measures” as defined in Regulation G of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Each of these measures is adjusted to exclude costs as defined from their most directly comparable GAAP measure.

The Company uses the above described adjusted measures to evaluate and assess the operational strength and performance of the business and of particular segments of the business. The Company believes these financial measures are relevant and useful for investors because it allows investors to have a better understanding of the Company’s actual operating performance unaffected by the impact of the costs as defined. These financial measures should not be viewed as a substitute for, or superior to, operating earnings or net earnings (each as defined under GAAP), the most directly comparable GAAP measures, as a measure of the Company’s operating performance.

Pursuant to the requirements of Regulation G of the Exchange Act, we are providing the following tables that reconcile the above mentioned non-GAAP financial measures to the most directly comparable GAAP financial measures:

KLX INC.
RECONCILIATION OF NET EARNINGS PER DILUTED SHARE
TO ADJUSTED NET EARNINGS PER DILUTED SHARE
(In Millions, Except Per Share Data)
THREE MONTHS ENDED YEAR ENDED
January 31,
2016
December 31,
2014
January 31,
2016
December 31,
2014
Net (loss) earnings $ (10.3) $ (32.6) $ (385.8) $ 88.1
Amortization expense 4.6 8.3 23.7 30.5
Non-cash compensation 4.9 2.1 15.8 7.5
Income taxes (6.6) 61.2 (228.3) 155.7
Costs as defined* 32.4 47.1 707.7 56.9
Adjusted earnings before tax expense 25.0 86.1 133.1 338.7
Income taxes at normalized rate 9.3 32.0 49.5 126.0
Less: impact of goodwill deduction ** 10.0 10.0 40.0 40.0
Adjusted income taxes (0.7) 22.0 9.5 86.0
Adjusted net earnings $ 25.7 $ 64.1 $ 123.6 $ 252.7
Adjusted net earnings
per diluted share $ 0.49 $ 1.23 $ 2.37 $ 4.83
Diluted weighted average
shares 52.3 52.2 52.2 52.3
* Costs and expenses related to one-time post spin-off related activities, $640.2 of non-cash asset impairment charges at ESG, business repositioning costs including facility consolidations, severance and related items, and start-up costs in connection with our ESG geographical and service line expansion activities
** Tax benefit of goodwill deduction calculated at an assumed benefit of approximately 37.2%


KLX INC.
RECONCILIATION OF CONSOLIDATED OPERATING EARNINGS
TO ADJUSTED OPERATING EARNINGS AND ADJUSTED EBITDA
(In Millions)
THREE MONTHS ENDED
January 31,
2016
December 31,
2014
Operating earnings$ 2.2 $ 31.9
Costs as defined (1) 32.4 47.1
Adjusted operating earnings 34.6 79.0
Depreciation and amortization 15.2 20.6
Non-cash compensation 4.9 2.1
Adjusted EBITDA$ 54.7 $ 101.7
RECONCILIATION OF AEROSPACE SOLUTIONS GROUP OPERATING EARNINGS
TO ADJUSTED OPERATING EARNINGS AND ADJUSTED EBITDA
(In Millions)
THREE MONTHS ENDED
January 31,
2016
December 31,
2014
ASG operating earnings$ 43.9 $ 17.3
Costs as defined (1) 10.1 40.8
Adjusted ASG operating earnings 54.0 58.1
Depreciation and amortization 7.0 7.1
Non-cash compensation 3.1 1.5
Adjusted EBITDA$ 64.1 $ 66.7
RECONCILIATION OF ENERGY SERVICES GROUP OPERATING (LOSS) EARNINGS
TO ADJUSTED OPERATING (LOSS) EARNINGS AND ADJUSTED EBITDA
(In Millions)
THREE MONTHS ENDED
January 31,
2016
December 31,
2014
ESG operating (loss) earnings$ (41.7) $ 14.6
Costs as defined (1) 22.3 6.3
Adjusted ESG operating (loss) earnings (19.4) 20.9
Depreciation and amortization 8.2 13.5
Non-cash compensation 1.8 0.6
Adjusted EBITDA$ (9.4) $ 35.0
RECONCILIATION OF NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW
(In Millions)
THREE MONTHS ENDED
January 31,
2016
December 31,
2014
Net cash flows provided by operating activities$ 19.7 $ (16.6)
Capital expenditures (24.1) (47.5)
Free cash flow$ (4.4) $ (64.1)
Free cash flow per diluted share$ (0.08) $ (1.23)
Diluted weighted average shares 52.3 52.2
(1) Costs and expenses related to one-time post-spin-off and related activities, non-cash asset impairment charges, business repositioning costs including facility consolidations, severance and related items, and start-up costs in connection with our ESG geographical and service line expansion activities


KLX INC.
RECONCILIATION OF CONSOLIDATED OPERATING (LOSS) EARNINGS
TO ADJUSTED OPERATING EARNINGS AND ADJUSTED EBITDA
(In Millions)
YEAR ENDED
January 31,
2016
December 31,
2014
Operating (loss) earnings$ (536.8) $ 246.8
Costs as defined (1) 707.7 56.9
Adjusted operating earnings 170.9 303.7
Depreciation and amortization 75.0 68.0
Non-cash compensation 15.8 7.5
Adjusted EBITDA$ 261.7 $ 379.2
RECONCILIATION OF AEROSPACE SOLUTIONS GROUP OPERATING EARNINGS
TO ADJUSTED OPERATING EARNINGS AND ADJUSTED EBITDA
(In Millions)
YEAR ENDED
January 31,
2016
December 31,
2014
ASG operating earnings$ 211.6 $ 192.0
Costs as defined (1) 29.0 45.9
Adjusted ASG operating earnings 240.6 237.9
Depreciation and amortization 28.1 28.0
Non-cash compensation 11.5 5.8
Adjusted EBITDA$ 280.2 $ 271.7
RECONCILIATION OF ENERGY SERVICES GROUP OPERATING (LOSS) EARNINGS
TO ADJUSTED OPERATING (LOSS) EARNINGS AND ADJUSTED EBITDA
(In Millions)
YEAR ENDED
January 31,
2016
December 31,
2014
ESG operating (loss) earnings$ (748.4) $ 54.8
Costs as defined (1) 678.7 11.0
Adjusted ESG operating (loss) earnings (69.7) 65.8
Depreciation and amortization 46.9 40.0
Non-cash compensation 4.3 1.7
Adjusted EBITDA$ (18.5) $ 107.5
RECONCILIATION OF NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW
(In Millions)
YEAR ENDED
January 31,
2016
December 31,
2014
Net cash flows provided by operating activities$ 217.2 $ 107.5
Capital expenditures (130.5) (136.8)
Free cash flow$ 86.7 $ (29.3)
Free cash flow per diluted share$ 1.66 $ (0.56)
Diluted weighted average shares 52.2 52.3
(1) Costs and expenses related to one-time post-spin-off and related activities, non-cash asset impairment charges, business repositioning costs including facility consolidations, severance and related items, and start-up costs in connection with our ESG geographical and service line expansion activities


CONTACT: Michael Perlman Assistant Treasurer KLX Inc. (561) 383-5100

Source:KLX Inc.