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, 2016~~April 30, 2017

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, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act: Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer (do not check if a smaller reporting company) [ ] Smaller reporting company [ ] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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, ~~52,508,734~~51,723,309 shares were outstanding as of ~~December 6, 2016.~~May 23, 2017.

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KLX INC.

Form 10-Q for the Quarter Ended ~~October 31, 2016~~April 30, 2017

Table of Contents



		Page
Part I	Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of ~~October 31, 2016~~April 30, 2017 and January 31, ~~2016~~2017	3

	Condensed Consolidated Statements of Earnings ~~(Loss)~~ and Comprehensive Income ~~(Loss)~~ for the Three ~~and Nine~~ Months Ended ~~October 31,~~April 30, 2017 and 2016 ~~and 2015~~	4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~October 31,~~April 30, 2017 and 2016 ~~and 2015~~	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24 22

Item 4.	Controls and Procedures	24 22
Part II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25 24

Item 6.	Exhibits	26 25

Signatures		27 26

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PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KLX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In Millions, Except Share Data)


	October 31,		January 31,		April 30,		January 31,
	2016		2016		2017		2017

ASSETS

Current assets:
Cash and cash equivalents	$	297.7	$	427.8	$	269.1	$	277.3
Accounts receivable–trade, less allowance for doubtful accounts ($11.2 at October 31, 2016 and $11.3 at January 31, 2016)		294.0		259.6
Accounts receivable–trade, less allowance for doubtful accounts ($11.3 at April 30, 2017 and $13.5 at January 31, 2017)						306.6		261.3
Inventories, net		1,362.1		1,295.3		1,392.7		1,381.4
Other current assets		34.7		40.1		44.3		39.6
Total current assets		1,988.5		2,022.8		2,012.7		1,959.6

Property and equipment, net of accumulated depreciation ($140.3 at October 31, 2016 and $109.3 at January 31, 2016)		257.4		260.5
Property and equipment, net of accumulated depreciation ($160.6 at April 30, 2017 and $149.4 at January 31, 2017)						250.8		248.3
Goodwill		993.3		954.9		999.9		996.4
Identifiable intangible assets, net		320.3		262.7		310.5		314.8
Deferred income taxes		147.0		163.4		146.5		147.0
Other assets		22.1		26.7		27.9		32.2
	$	3,728.6	$	3,691.0	$	3,748.3	$	3,698.3

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	158.0	$	145.9	$	182.2	$	166.0
Accrued liabilities		109.3		115.3		106.1		91.1
Total current liabilities		267.3		261.2		288.3		257.1

Long-term debt		1,181.3		1,179.5		1,182.6		1,182.0
Deferred income taxes		6.5		16.2		5.1		5.0
Other non-current liabilities		36.0		31.6		35.3		33.1

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; 53.3 million shares issued as of October 31, 2016 and 53.3 million shares issued as of January 31, 2016		0.5		0.5
Common stock, $0.01 par value; 250.0 million shares authorized; 53.5 million shares issued as of April 30, 2017 and 53.5 million shares issued as of January 31, 2017						0.5		0.5
Additional paid-in capital		2,678.1		2,662.4		2,691.9		2,686.5
Treasury stock: 0.8 million shares at October 31, 2016 and 0.4 million shares at January 31, 2016		(23.0)		(12.5)
Treasury stock: 1.8 million shares at April 30, 2017 and 1.5 million shares at January 31, 2017						(69.0)		(54.4)
Accumulated deficit		(338.4)		(373.7)		(307.7)		(328.0)
Accumulated other comprehensive loss		(79.7)		(74.2)		(78.7)		(83.5)
Total stockholders’ equity		2,237.5		2,202.5		2,237.0		2,221.1
	$	3,728.6	$	3,691.0	$	3,748.3	$	3,698.3

See accompanying notes to condensed consolidated financial statements.

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KLX INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS ~~(LOSS)~~

AND COMPREHENSIVE INCOME ~~(LOSS)~~ (UNAUDITED)

(In Millions, Except Per Share Data)

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 31,

OCTOBER 31,

OCTOBER 31,

OCTOBER 31,

2016

2015

2016

2015

Product revenues

$
348.8

$
306.7

$
1,039.0

$
1,006.4

Service revenues

40.2

58.3

109.6

202.8

Total revenues

389.0

365.0

1,148.6

1,209.2

Cost of sales - products

244.2

213.7

728.0

705.7

Cost of sales - services

44.8

65.4

136.0

212.6

Total cost of sales

289.0

279.1

864.0

918.3

Selling, general and administrative

61.4

65.0

181.9

189.7

Goodwill impairment charge

-

310.4

-

310.4

Long-lived asset impairment charge

-

329.8

-

329.8

Operating earnings (loss)

38.6

(619.3)

102.7

(539.0)

Interest expense

18.8

19.0

56.8

58.2

Earnings (loss) before income taxes

19.8

(638.3)

45.9

(597.2)

Income tax expense (benefit)

-

(237.5)

10.3

(221.7)

Net earnings (loss)

$
19.8

$
(400.8)

$
35.6

$
(375.5)

Other comprehensive (loss) income:

Foreign currency translation adjustment

(10.8)

(0.4)

(5.5)

(6.6)

Comprehensive income (loss)

$
9.0

$
(401.2)

$
30.1

$
(382.1)

Net earnings (loss) per share - basic

$
0.38

$
(7.68)

$
0.69

$
(7.19)

Net earnings (loss) per share - diluted

$
0.38

$
(7.68)

$
0.68

$
(7.19)


	THREE MONTHS ENDED
	April 30,		April 30,
	2017		2016
Product revenues	$	347.5	$	315.8
Service revenues		63.8		37.0
Total revenues		411.3		352.8
Cost of sales - products		242.5		219.9
Cost of sales - services		55.9		49.4
Total cost of sales		298.4		269.3
Selling, general and administrative		64.3		60.3
Operating earnings		48.6		23.2
Interest expense		19.0		18.9
Earnings before income taxes		29.6		4.3
Income tax expense		11.2		1.8
Net earnings	$	18.4	$	2.5

Other comprehensive income:
Foreign currency translation adjustment		4.8		21.0
Comprehensive income	$	23.2	$	23.5
Net earnings per share - basic	$	0.36	$	0.05
Net earnings per share - diluted	$	0.36	$	0.05

See accompanying notes to condensed consolidated financial statements.

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KLX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Millions)


	NINE MONTHS ENDED				THREE MONTHS ENDED
	OCTOBER 31,		OCTOBER 31,		April 30,		April 30,
	2016		2015		2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)	$	35.6	$	(375.5)
Adjustments to reconcile net earnings (loss) to net cash flows provided by operating activities:
Net earnings					$	18.4	$	2.5
Adjustments to reconcile net earnings to net cash flows provided by operating activities:
Depreciation and amortization		50.6		59.8		16.5		16.6
Deferred income taxes		6.5		(226.6)		9.7		0.2
Asset impairment charge		-		640.2
Non-cash compensation		14.7		10.9		5.9		4.8
Amortization of deferred financing fees		3.2		2.9		1.1		1.1
Tax impact from prior sales of restricted stock		-		(0.9)
Provision for doubtful accounts		(0.1)		0.9
Loss on disposal of property, equipment and other		4.3		2.8
Provision for inventory write-downs						4.7		6.4
Change in allowance for doubtful accounts and sales returns						(2.2)		(0.3)
Loss on disposal of property and equipment						0.4		1.5
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(22.2)		33.6		(43.0)		8.8
Inventories		35.3		9.0		(15.9)		(3.4)
Other current and non-current assets		9.3		4.7		(8.3)		4.8
Accounts payable		2.7		(0.1)		16.1		(2.6)
Other current and non-current liabilities		(0.8)		35.8		16.6		1.0
Net cash flows provided by operating activities		139.1		197.5		20.0		41.4

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(33.9)		(106.4)		(14.5)		(19.2)
Acquisitions, net of cash acquired		(220.8)		1.0
Net cash flows used in investing activities		(254.7)		(105.4)		(14.5)		(19.2)

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock		(13.5)		(0.1)		(14.5)		(3.3)
Cash proceeds from stock issuance		0.8		0.7
Tax impact from prior sales of restricted stock		-		0.9
Deferred acquisition payments		-		(90.8)
Net cash flows used in financing activities		(12.7)		(89.3)		(14.5)		(3.3)

Effect of foreign exchange rate changes on cash and cash equivalents		(1.8)		(1.0)		0.8		2.3

Net (decrease) increase in cash and cash equivalents		(130.1)		1.8		(8.2)		21.2
Cash and cash equivalents, beginning of period		427.8		447.2		277.3		427.8
Cash and cash equivalents, end of period	$	297.7	$	449.0	$	269.1	$	449.0

Supplemental disclosures of cash flow information:
Cash paid during period for:
Income taxes paid, net of refunds	$	4.1	$	9.1	$	1.2	$	1.6
Interest		36.4		35.2		0.5		-

See accompanying notes to condensed consolidated financial statements.

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KLX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - In Millions, Except Per Share Data)

Note 1.Description of Business and Basis of Presentation

The accompanying unaudited condensed consolidated 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 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 financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the KLX Inc. (the “Company” or “KLX”) Annual Report on Form 10-K (the “2016 Form 10-K”) for the fiscal year ended January 31, ~~2016.~~2017 (“Fiscal 2016”).

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. Certain items in the Company’s Condensed Consolidated Statements of Cash Flows have been reclassified for the quarter ended April 30, 2016 to conform to current year presentation.

Note 2.Recent Accounting Pronouncements

In ~~March~~October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which eliminates a current exception in U.S. GAAP to the recognition of the income tax effects of temporary differences that result from intra-entity transfers of non-inventory assets. The intra-entity exception is being eliminated under the ASU. The standard is required to be applied on a modified retrospective basis and will be effective beginning with the first quarter of 2018. Early adoption is permitted, and the Company adopted the new standard during the first quarter of 2017, which resulted in the elimination of a $7.7 long-term prepaid tax balance and the recognition of a $8.8 long-term deferred tax asset with the offset recorded to the accumulated deficit.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based ~~payments. The ASU is effective for annual periods beginning after December 15, 2016,~~payments, including that excess tax benefits and ~~interim periods within those years. Earlier adoption is permitted.~~shortfalls be recorded as income tax benefit or expense in the income statement, rather than equity, and requires excess tax benefits from stock-based compensation to be classified in cash flow from operations. The Company ~~is currently evaluating~~adopted the ~~effect this update~~new standard during the first quarter of 2017 in compliance with the effective date, which resulted in the recognition of a $0.5 long-term deferred tax asset with the offset recorded to accumulated deficit. Prior year periods have been adjusted to conform to the current year presentation. With respect to forfeitures, the Company will ~~have on its consolidated financial statements.~~continue to estimate the number of awards expected to be forfeited upon award issuance.

In February 2016, the FASB issued ASU 2016-02, Leases, ~~(“ASU 2016-02”),~~ which supersedes ASC Topic 840, Leases, and creates a new topic, ASC Topic 842, Leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Earlier adoption is permitted. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02 will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest

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comparative period presented in the financial statements. The Company is currently evaluating the effect of this update on its consolidated financial statements.

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 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. In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and

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Licensing, and in May 2016, ASU 2016-12, Revenues from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients both of which provide supplemental adoption guidance and clarification to ASU 2014-09. ASU 2016-10 and ASU 2016-12 must be adopted concurrently with the adoption of ASU 2014-09. The Company has not determined the impact this guidance will have on the financial statements. However, the identification of implementation project team members and the inventorying of contracts with customers, particularly large customer contracts, has begun. Other than increased disclosures, the impact of the revised accounting guidance to the results of operations and cash flows of the Company cannot be determined until the assessment process is complete.

Note 3.Business Combinations

On May 17, 2016, the Company acquired Herndon Aerospace & Defense LLC (“Herndon”), an aftermarket aerospace supply chain management and consumables hardware distributor servicing principally aftermarket military depots as well as the commercial aerospace aftermarket, for an aggregate purchase price of $220.8 (net of cash acquired). During the quarter ended October 31, 2016, Herndon’s acquired working capital was finalized resulting in a reduction in purchase price of $0.7 and customary working capital adjustments as of the closing date which were not material individually or in the aggregate. Additionally,April 30, 2017, the Company ~~adjusted the allocation~~finalized its valuation of ~~the Herndon purchase price to increase~~inventory and intangible ~~assets by $16.4 and decrease goodwill and inventories by $14.2 and $3.0, respectively, related to the Company’s preliminary purchase price allocation.~~assets. The impact of the purchase price ~~adjustment~~adjustments was not material to the Company’s ~~condensed consolidated statement of earnings from the date of acquisition was not material.~~financial statements.

Based on the Company’s ~~preliminary~~final purchase price allocation, the excess of the purchase price of the fair value of the identifiable assets acquired approximated ~~$113.6,~~$119.6, of which $68.9 was allocated to identifiable intangible assets consisting of customer contracts and relationships and covenants not to compete and ~~$44.7~~$50.7 is included in goodwill. The useful life assigned to the customer contracts and relationships is 20 years, and the covenants not to compete are being amortized over their contractual periods of five years.

The Herndon acquisition was accounted for as a purchase under FASB ASC 805, Business ~~Combinations.~~Combinations. The assets acquired and liabilities assumed have been reflected in the accompanying condensed consolidated balance sheet as of ~~October 31, 2016~~April 30, 2017, and the results of operations are included in the accompanying condensed consolidated statements of earnings and comprehensive income from the date of acquisition. The valuation of certain assets, principally intangible assets and inventories, is not yet complete, and as such, the Company has not yet finalized its allocation of the purchase price for the acquisition.

The following table summarizes the ~~current~~final estimates of fair values of assets acquired and liabilities assumed in the Herndon acquisition in accordance with ASC 805, which are ~~currently~~ recorded based on management’s estimates as follows:





~~Accounts receivable-trade~~	$	~~12.3~~
~~Inventories~~		~~103.2~~
~~Other current and non-current assets~~		~~1.1~~
~~Property and equipment~~		~~2.3~~
~~Goodwill~~		~~44.7~~
~~Identified intangibles~~		~~68.9~~
~~Accounts payable~~		~~(9.7)~~
~~Other current and non-current liabilities~~		~~(2.0)~~
~~Total consideration paid~~	$	~~220.8~~

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Accounts receivable-trade	$	12.3
Inventories		103.8
Other current and non-current assets		3.7
Property and equipment		2.1
Goodwill		50.7
Identified intangibles		68.9
Accounts payable		(9.7)
Other current and non-current liabilities		(11.0)
Total consideration paid	$	220.8

The majority of goodwill and intangible assets are expected to be deductible for tax purposes.

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On a pro forma basis to give effect to the Herndon acquisition as if it occurred on February 1, ~~2015,~~2016, revenues, net earnings ~~(loss)~~ and earnings ~~(loss)~~ per diluted share for the three months ended ~~October 31, 2015~~April 30, 2016 were $397.0, $5.6 and ~~the nine months ended October 31, 2016 and 2015 were:~~

THREE MONTHS ENDED

NINE MONTHS ENDED

OCTOBER 31,

OCTOBER 31,

OCTOBER 31,

OCTOBER 31,

2016

2015

2016

2015

As Reported

Pro forma

Pro forma

Pro forma

Revenues
$
389.0

$
399.5

$
1,198.8

$
1,309.3

Net earnings (loss)

19.8

(398.4)

39.1

(368.6)

Earnings (loss) per diluted share

0.38

(7.63)

0.75

(7.06)

$0.11, respectively.

The Company has ~~begun integrating~~substantially integrated Herndon into its Aerospace Solutions Group (“ASG”) segment systems. As a result, it is not practicable to report stand-alone revenues or operating earnings of the acquired business since the acquisition date, and going forward it will not be practicable to report stand-alone revenues of the acquired business. Revenues from Herndon from the acquisition date of May 17, 2016 through October 31, 2016 were $56.7.date.

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 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. In accordance with industry practice, inventories include amounts relating to long-term contracts with long production cycles, some of which are not expected to be realized within one year. In addition, the Company supports a substantial portion of the global fleet of aircraft in service, and in its capacity as a stocking distributor will acquire and hold inventories for aircraft maintenance at periodic intervals as mandated by the Federal Aviation Administration (“FAA”) or similar regulatory agencies. Based on historical experience, the support of the aftermarket activities with products such as those which the Company sells will necessitate holding inventory in excess of the amount required to support new build production activity contracts. Obsolescence has historically been immaterial for the Company due to the long life of an aircraft and nature of the products sold by the Company. 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 been immaterial. Reserves for excess and obsolete inventory were approximately ~~$47.8~~$60.3 and ~~$40.4~~$56.4 as of ~~October 31, 2016~~April 30, 2017 and January 31, ~~2016,~~2017, respectively.

Note 5.Goodwill and Intangible Assets

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

October 31, 2016

Useful Life

Original

Accumulated

Net Book


(Years)

Cost

Amortization

Value

Customer contracts and relationships

8
-
30

$
422.5

$
124.6

$
297.9

Covenants not to compete

4
-
5

5.5

3.4

2.1

Developed technologies

15

3.3

0.2

3.1

Trade names

Indefinite

17.2

-

17.2

$
448.5

$
128.2

$
320.3


				April 30, 2017
	Useful Life			Original		Accumulated		Net Book
	(Years)			Cost		Amortization		Value
Customer contracts and relationships	8	-	30	$	422.7	$	134.1	$	288.6
Covenants not to compete	5				5.5		3.7		1.8
Developed technologies	15				3.3		0.3		3.0
Trade names	Indefinite				17.1		-		17.1
				$	448.6	$	138.1	$	310.5

~~Amortization expense associated with identifiable intangible assets was approximately $4.8 and $5.8 for the three months ended October 31, 2016 and 2015, respectively, and $14.7 and $19.1 for the nine~~

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Amortization expense associated with identifiable intangible assets was approximately $4.8 and $4.7 for the three months ended ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ respectively. The Company currently expects to recognize amortization expense of approximately $20.0 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 finalization of purchase price allocations of acquisitions, 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. Goodwill increased by ~~$38.4~~$3.5 as compared to January 31, ~~2016~~2017 primarily as a result of ~~the May 17, 2016 acquisition of Herndon by the ASG segment.~~foreign currency translation adjustments.

The fair value of the ASG reporting unit exceeded the carrying value by approximately 16% as of December 31, 2015, and approximately $993.3 of goodwill has been allocated to the ASG reporting unit as of October 31, 2016. ASG's cash flow projections were a significant input into the December 31, 2015 reporting unit fair value. Should ASG’s future cash from operations decline to levels inconsistent with ASG’s projected results, long-term projections may be adjusted downward, which could result in an impairment charge at the ASG reporting unit.

Note 6. Related Party Transactions

On December 17, 2014, B/E Aerospace, Inc. ~~( “B/~~(“B/E Aerospace”) created an independent public company through a spin-off of its ASG and Energy Services Group (“ESG”) businesses to B/E Aerospace’s stockholders (“Spin-Off”). Following the Spin-Off, the Company created in-house substantially all of the functions that were previously provided to it by B/E Aerospace. ~~In addition, the~~The Company ~~has~~ entered into certain agreements with B/E Aerospace ~~relating~~related to transition services and IT services ~~for a transitional period of approximately 24 months following the Spin-Off.~~through April 2017. In addition, the Company 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. Expenses incurred under those agreements ~~totaled $2.1~~were not material for the three months ended April 30, 2017 and were $2.7 for the three months ended October 31, 2016 and 2015, respectively, and $7.1 and $8.8 for the nine months ended October 31, 2016 and 2015, respectively. As of October 31, 2016, the Company has recorded a tax indemnity payable toApril 30, 2016.

On April 13, 2017, B/E Aerospace ~~totaling $4.7, of which $0.1~~was sold to Rockwell Collins, Inc. and is ~~classified in other current liabilities and $4.6 is classified in other long term liabilities.~~

no longer a related party. Sales to B/E Aerospace were ~~$5.4~~$4.4 and ~~$5.1~~$5.7 through April 12, 2017 and for the three months ended ~~October 31,~~April 30, 2016, ~~and 2015, respectively, and $18.6 and $14.4 for the nine months ended October 31, 2016 and 2015,~~ respectively.

Note 7.Accrued Liabilities

Accrued liabilities consisted of the following:


					April 30,		January 31,
	October 31, 2016		January 31, 2016		2017		2017
Accrued salaries, vacation and related benefits	$	30.1	$	28.7	$	28.5	$	31.6
Accrued commissions		7.5		6.2		6.2		8.7
Income taxes payable		4.3		11.4		11.6		10.3
Accrued interest		29.4		11.7		29.4		11.7
Other accrued liabilities		38.0		57.3		30.4		28.8
	$	109.3	$	115.3	$	106.1	$	91.1

Note 8.Long-Term Debt

As of ~~October 31, 2016,~~April 30, 2017, 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”). On a net basis, after taking into consideration the debt issue costs for the Term Loan Facility, total debt was ~~$1,181.3.~~$1,182.6. As of ~~October 31, 2016,~~April 30, 2017, the Company also had a $750.0 undrawn 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”).

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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~~April 30, 2017 or January 31, ~~2016.~~2017.

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. The credit agreement is collateralized by the Company’s assets and contains customary affirmative covenants, negative covenants, restrictions on the

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payment of dividends and the repurchase of our stock, and conditions precedent for borrowings, all of which were met as of ~~October 31, 2016.~~April 30, 2017.

Letters of credit issued under the Revolving Credit Facility aggregated ~~$4.8~~$5.6 and ~~$3.2~~$5.5 at ~~October~~April 30, 2017 and January 31, ~~2016 and 2015,~~2017, 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, 2016.~~April 30, 2017. 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 ~~$1,218.2~~$1,260.0 and ~~$1,136.4~~$1,260.7 as of ~~October 31, 2016~~April 30, 2017 and January 31, ~~2016,~~2017, respectively.

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, 2016,~~April 30, 2017, future minimum lease payments under these arrangements approximated ~~$90.9,~~$110.7, 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 consolidated 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

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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 consolidated financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees.

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The Company has employment agreements with certain key members of management with three year initial terms and which renew for one additional year on each anniversary ~~date, with certain key members of management.~~date. 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, 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 ~~October 31,~~April 30, 2017 and 2016 ~~and 2015~~ related to KLX restricted stock and stock options was ~~$4.8~~$5.7 and ~~$3.5, and $14.3 and $10.6,~~$4.6, respectively. Unrecognized compensation expense related to these grants was ~~$32.5~~$35.3 at ~~October 31, 2016.~~April 30, 2017.

KLX has established a qualified Employee Stock Purchase Plan, the terms of which allow for qualified employees (as defined in the Plan) to participate in the purchase of designated shares of KLX’s common stock at a price equal to 85% of the closing price on the last business day of 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 recognized during the three months ended April 30, 2017 and 2016 for this plan was ~~not material to any of the periods presented.~~$0.1 and $0.1, respectively.

Note 12.Segment Reporting

The Company is organized based on the products and services it offers. The Company’s reportable segments which are also its operating segments, are comprised of ASG and ESG. The segments regularly report their results of operations and make 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.

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


	THREE MONTHS ENDED				NINE MONTHS ENDED				THREE MONTHS ENDED
	OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		April 30,		April 30,
Revenues	2016		2015		2016		2015		2017		2016
Aerospace Solutions Group	$	348.8	$	306.7	$	1,039.0	$	1,006.4	$	347.5	$	315.8
Energy Services Group		40.2		58.3		109.6		202.8		63.8		37.0
Total revenues		389.0		365.0		1,148.6		1,209.2		411.3		352.8
Operating earnings (loss) (1)
Aerospace Solutions Group		56.5		47.8		174.9		167.7		58.7		54.1
Energy Services Group		(17.9)		(667.1)		(72.2)		(706.7)		(10.1)		(30.9)
Total operating earnings (loss)		38.6		(619.3)		102.7		(539.0)
Total operating earnings										48.6		23.2
Interest expense		18.8		19.0		56.8		58.2		19.0		18.9
Earnings (loss) before income taxes	$	19.8	$	(638.3)	$	45.9	$	(597.2)
Earnings before income taxes									$	29.6	$	4.3

(1)

Operating earnings (loss) include an allocation of employee benefits and general and administrative costs primarily based on the proportion of each segment’s number of employees for the three ~~and nine~~ months ended ~~October 31, 2016~~April 30, 2017 and ~~revenues for the three and nine months ended October 31, 2015.~~2016.

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The following table presents capital expenditures by reportable segment:


	THREE MONTHS ENDED				NINE MONTHS ENDED				THREE MONTHS ENDED
	OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		April 30,		April 30,
	2016		2015		2016		2015		2017		2016
Aerospace Solutions Group	$	4.1	$	11.9	$	10.4	$	23.4	$	2.7	$	2.8
Energy Services Group		4.5		24.4		23.5		83.0		11.8		16.4
	$	8.6	$	36.3	$	33.9	$	106.4	$	14.5	$	19.2

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,		January 31,		April 30,		January 31,
	2016		2016		2017		2017
Aerospace Solutions Group	$	993.3	$	952.4	$	999.9	$	996.4
Energy Services Group		-		2.5		-		-
	$	993.3	$	954.9	$	999.9	$	996.4

The following table presents total assets by reportable segment:


	October 31,		January 31,		April 30,		January 31,
	2016		2016		2017		2017
Aerospace Solutions Group	$	3,496.0	$	3,422.8	$	3,498.8	$	3,471.4
Energy Services Group		232.6		268.2		249.5		226.9
	$	3,728.6	$	3,691.0	$	3,748.3	$	3,698.3

Corporate assets (primarily cash and cash equivalents) of ~~$411.9~~$377.8 and ~~$559.5~~$378.2 at ~~October 31, 2016~~April 30, 2017 and January 31, ~~2016,~~2017, respectively, have been allocated to the above segments based on each segment’s percentage of total assets.

As discussed in Note 15. in the 2016 Form 10-K, Selected Quarterly Data (Unaudited), during our Fiscal 2016 preparation of the annual 10-K, the Company restated its April 30, 2016 interim financial statements to reflect the correction of errors that were identified related to the ASG segment’s product revenues and cost of sales. These errors related to the application of an accounting principle on claims related to the termination of programs under a long-term contract and other errors associated with inventory and sales reserves. The Company concluded the corrected errors were immaterial individually and in the aggregate, and the Company’s Condensed Consolidated Balance Sheet, Statement of Earnings and Comprehensive Income and Statement of Cash Flows reflect the correction of errors for the prior three-month period ended April 30, 2016. The impact of the restatement to the three-month period ended April 30, 2016 is summarized in the table below:

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	THREE MONTHS ENDED
	As Reported		As Restated
	April 30,		April 30,
	2016		2016
Accounts receivable - trade	$	267.8	$	252.4
Inventories, net		1,284.0		1,293.5
Total stockholders' equity		2,234.0		2,230.4
Total revenues		368.2		352.8
Total cost of sales		278.7		269.3
Income tax expense		4.0		1.8
Net earnings		6.2		2.5
Net earnings per share - basic		0.12		0.05
Net earnings per share - diluted		0.12		0.05

The Statement of Cash Flows was restated to reflect the impact of these errors. In addition, the Company separately disclosed the provision for inventory write-downs in the Statement of Cash Flows which was previously included in the change in inventory line item. There were no changes in total operating, investing, or financing cash flows. The restated results for the three months ended April 30, 2016 include the correction of amounts relating to prior periods, which correction resulted in a reduction of revenue, cost of sales, and net earnings of $12.1, $6.6 and $3.4, respectively. The impact of these prior period errors was not material to the year ended January 31, 2017 or to any prior periods.

Note 13.Net Earnings Per Common Share

Basic net earnings per common share is computed using the weighted average common shares outstanding during the period. Diluted net 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 LTIP and restricted shares based on an average share price during the period. For the three months ended ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ approximately ~~0.4 and~~ no shares and ~~for the nine months ended October 31, 2016 and 2015, approximately 0.3 and no~~0.2 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,~~April 30, 2017 and 2016 ~~and 2015~~ are as follows:


	THREE MONTHS ENDED				NINE MONTHS ENDED				THREE MONTHS ENDED
	OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		April 30,		April 30,
	2016		2015		2016		2015		2017		2016
Net earnings (loss)	$	19.8	$	(400.8)	$	35.6	$	(375.5)
Net earnings									$	18.4	$	2.5
(Shares in millions)
Basic weighted average common shares		51.8		52.2		51.9		52.2		51.1		52.0
Effect of dilutive securities - dilutive securities		0.4		-		0.3		-		0.7		0.2
Diluted weighted average common shares		52.2		52.2		52.2		52.2		51.8		52.2

Basic net earnings (loss) per common share	$	0.38	$	(7.68)	$	0.69	$	(7.19)
Diluted net earnings (loss) per common share	$	0.38	$	(7.68)	$	0.68	$	(7.19)
Basic net earnings per common share									$	0.36	$	0.05
Diluted net earnings per common share									$	0.36	$	0.05

Note 14.Income Taxes

In accordance with FASB ASC 740, Income Taxes, 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,~~April 30, 2017 and 2016, ~~and 2015,~~ the Company had ~~$12.3~~$8.5 and ~~$10.3,~~$12.5, respectively, of uncertain tax positions, including accrued interest of ~~$1.7~~$1.2 and ~~$1.1~~$1.5 at ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ respectively, all of which would affect the Company’s effective tax rate if recognized. During the quarter, the Company determined that certain loss carryforwards, previously reserved in the Company’s valuation allowance, would no longer require a reserve as we realized a one-time benefit from our ongoing tax planning initiatives. The release of valuation allowance with respect to these loss carryforwards resulted in a tax benefit for the quarter. The tax benefit netted against the Company’s tax expense on book income for the quarter, which resulted in no tax expense for the quarter.

~~As a result, the Company now expects an effective tax rate~~

Table of ~~approximately 27.5% for the year ending January 31, 2017.~~ Contents

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 ~~2007-2015.~~2007-2014. The Company is currently undergoing a U.S. federal income tax examination for the period from December 17, 2014 through December 31, 2015.

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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, 2016~~April 30, 2017 as compared to our results of operations for the three ~~and nine~~ months ended ~~October 31, 2015.~~April 30, 2016. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.

As discussed in Note 15. Selected Quarterly Data (Unaudited) to our consolidated and combined financial statements contained in the 2016 Form 10-K, during our Fiscal 2016 preparation of the annual 10-K, the Company restated its April 30, 2016 interim financial statements to reflect the correction of errors that were identified. The Company concluded the corrected errors were immaterial individually and in the aggregate, and the Company’s Condensed Consolidated Balance Sheet, Statement of Earnings and Comprehensive Income and Statement of Cash Flows reflect the correction of errors for the prior three-month period ended April 30, 2016.

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. Founded in 1974 as M&M Aerospace Hardware, our Aerospace Solutions Group (“ASG”), formerly the consumables management segment of B/E Aerospace, has evolved into an industry leader through multiple acquisitions and strong organic growth. As of January 31, ~~2016,~~2017, ASG’s global presence consisted of ~~more than 1.4~~approximately 1.5 million square feet in 1718 principal facilities with approximately ~~1,900~~2,000 employees worldwide. We have substantially expanded the size, scope and nature of our business as a result of a number of acquisitions. B/E Aerospace acquired M&M in 2001. Between 2002 and ~~2012,~~2016, we completed ~~six~~seven acquisitions, for an aggregate purchase price of approximately ~~$1.9~~$2.1 billion. We believe our organic growth together with these acquisitions enabled us to position ourselves as a preferred global supplier to our customers. We believe we have become an industry leader providing 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 original equipment manufacturers (“OEMs”), maintenance, repair and overhaul (“MRO”) operators, and fixed base operators (“FBOs”). We have a large and diverse global customer base, including commercial airlines, business jet and defense OEMs, OEM subcontractors and major MRO operators across five continents, and 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. In addition, through the acquisition of Herndon Aerospace & Defense LLC (“Herndon”) in May 2016, ~~for $220.8 net of cash acquired,~~ we expanded our capability to provide comprehensive supply chain management solutions to a broader portfolio of aftermarket customers. Herndon has established itself within the Department of Defense and its procurement arm, the Defense Logistics Agency, as a proven supplier of a broad range of consumables resulting in a number of long-term contracts with major military installations. We believe Herndon’s unique land-based military depot aftermarket product distribution platform will serve as an excellent new growth platform for ASG. The aforementioned operating business is operated within our ASG segment.

ASG 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 ASG contemporaneously with the delivery of the product, and as such, once the product is delivered, ASG 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, ASG has satisfied its obligations to the customer. We do not account for these services as a separate element, as the

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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. During 2013 and 2014, we acquired seven companies engaged 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 customers include independent and major oil and gas companies that are engaged in the

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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 Energy Services Group (“ESG”) segment.

Revenues by reportable segment for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ respectively, were as follows:


	THREE MONTHS ENDED								NINE MONTHS ENDED								THREE MONTHS ENDED
	October 31, 2016				October 31, 2015				October 31, 2016				October 31, 2015				April 30, 2017				April 30, 2016
	Revenues		%		Revenues		%		Revenues		%		Revenues		%		Revenues		%		Revenues		%
Aerospace Solutions Group	$	348.8	89.7	%	$	306.7	84.0	%	$	1,039.0	90.5	%	$	1,006.4	83.2	%	$	347.5	84.5	%	$	315.8	89.5	%
Energy Services Group		40.2	10.3	%		58.3	16.0	%		109.6	9.5	%		202.8	16.8	%		63.8	15.5	%		37.0	10.5	%
Total revenues	$	389.0	100.0	%	$	365.0	100.0	%	$	1,148.6	100.0	%	$	1,209.2	100.0	%	$	411.3	100.0	%	$	352.8	100.0	%

Revenues by geographic area (based on destination) for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ respectively, were as follows:


	THREE MONTHS ENDED								NINE MONTHS ENDED								THREE MONTHS ENDED
	OCTOBER 31, 2016				OCTOBER 31, 2015				OCTOBER 31, 2016				OCTOBER 31, 2015				April 30, 2017				April 30, 2016
	Revenues		%		Revenues		%		Revenues		%		Revenues		%		Revenues		%		Revenues		%
United States	$	235.3	60.5	%	$	219.5	60.1	%	$	679.1	59.1	%	$	745.0	61.6	%	$	250.5	60.9	%	$	195.7	55.5	%
Europe		92.3	23.7	%		89.7	24.6	%		287.9	25.1	%		284.4	23.5	%		97.2	23.6	%		99.4	28.2	%
Asia, Pacific Rim, Middle East and other		61.4	15.8	%		55.8	15.3	%		181.6	15.8	%		179.8	14.9	%		63.6	15.5	%		57.7	16.3	%
Total revenues	$	389.0	100.0	%	$	365.0	100.0	%	$	1,148.6	100.0	%	$	1,209.2	100.0	%	$	411.3	100.0	%	$	352.8	100.0	%

Revenues from our domestic and foreign operations for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ respectively, were as follows:


	THREE MONTHS ENDED				NINE MONTHS ENDED
	OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		OCTOBER 31,		April 30,		April 30,
	2016		2015		2016		2015		2017		2016
Domestic	$	372.3	$	337.8	$	1,083.8	$	1,123.8	$	409.8	$	327.0
Foreign		16.7		27.2		64.8		85.4		1.5		25.8
Total revenues	$	389.0	$	365.0	$	1,148.6	$	1,209.2	$	411.3	$	352.8

We are organized based on the products and services we offer. The Company’s reportable segments which are also its operating segments, are comprised of ASG and ESG. We determined that ASG and ESG met the requirements of a reportable segment each operating in a single line of business. Each 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. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their customers.

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Current ESG Industry Conditions

Over the past ~~21 months, as~~several years, the price of crude oil declined from over $100.00 per barrel in 2014 to approximately ~~$45.00~~$50.00 at ~~October 31, 2016,~~April 30, 2017, and as a result, over this period, oil field service companies that provide services similar to ESG have all suffered significant reductions in demand and pricing from their oil exploration and production customers. This severe change in industry conditions resulted in a reduction of almost 800 oil rigs, a loss of almost 200,000 U.S. jobs throughout the energy sector and a corresponding decrease in demand and pricing for oil field services as the exploration and production (“E&P&P”) companies cut back their spending for new exploration.

We ~~initiated~~implemented a business alignment and cost reduction initiative in 2015 to size our operations to current demand levels. We began to see a stabilization in demand in late 2016, and during the first quarter of Fiscal 2017, ESG experienced a 72.4% increase in revenues versus the same period in the prior year, and an increase of 46.3% as compared to the fourth quarter of Fiscal 2016. We believe ESG’s ~~third~~first quarter performance ~~continues to reflect~~reflects our business realignment and cost reduction initiatives as ~~evidenced by a reduction~~well as the improvement in ~~operating loss as compared with the~~

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same period in the prior year (exclusive of the asset impairment charge). In addition, on a sequential quarterly basis, ESG’s operating loss decreased by $5.6, or 23.8%, to $(17.9) on a $7.9, or 24.5%, increase in sequential quarterly revenues.industry conditions. We are continuing to carefully manage our costs, while continuing to invest in differentiating technologies, personnel and innovative product and service lines, as we build an industry leading platform in the services niche in which we operate.

Management is focused on controlling costs to limit losses while adding differentiated technologies and services to continue to build our valuable franchise. We expect the benefit of the business alignment actions we have taken, which include an approximately 55% reduction in headcount and the consolidation of 11 facilities, together with our commitment to closely scrutinize all capital expenditures, will continue to lower both our costs and our cash burn rate, which we define as EBITDA less capital expenditures, during the remainder of the year, while retaining the capability to disproportionally benefit as market conditions improve.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED ~~OCTOBER 31, 2016~~APRIL 30, 2017

COMPARED TO THREE MONTHS ENDED ~~OCTOBER 31, 2015~~APRIL 30, 2016

($ in Millions, Except Per Share Data)



	REVENUES						REVENUES
	THREE MONTHS ENDED				Percent		THREE MONTHS ENDED				Percent
	October 31, 2016		October 31, 2015		Change		April 30, 2017		April 30, 2016		Change
Aerospace Solutions Group	$	348.8	$	306.7	13.7	%	$	347.5	$	315.8	10.0	%
Energy Services Group		40.2		58.3	(31.0)	%		63.8		37.0	72.4	%
Total revenues	$	389.0	$	365.0	6.6	%	$	411.3	$	352.8	16.6	%

~~Third~~First quarter ~~2016~~2017 revenues of ~~$389.0~~$411.3 increased ~~6.6%~~16.6% as compared with the prior year. Our consolidated ~~results reflect~~revenue growth was driven by a ~~13.7%, or $42.1,~~10.0% increase in ASG revenues ~~partially offset by an $18.1 decline~~and a 72.4% increase in ESG revenues.

~~Third~~First quarter ~~2016~~2017 cost of sales was ~~$289.0,~~$298.4, or ~~74.3%~~72.6% of sales, as compared to the prior year period of ~~$279.1,~~$269.3, or ~~76.5%~~76.3% of sales. The year-over-year improvement in cost of sales as a percentage of revenues is primarily due to ~~ASG revenue mix as well as~~substantially improved results at our ESG business due to improved industry conditions and the benefits from our ESG cost reduction initiatives.

Selling, general and administrative (“SG&A”) expense during the ~~third~~first quarter of ~~2016~~2017 was ~~$61.4,~~$64.3, or ~~15.8%~~15.6% of revenues, as compared with ~~$65.0,~~$60.3, or ~~17.8%~~17.1% of revenues, in the prior year period. ~~The decrease in~~ SG&A, ~~expense in~~as a percentage of revenues, decreased as compared with the ~~current~~prior year isperiod by 150 basis points primarily due to ~~our cost reduction and business realignment initiatives~~increased operating leverage at ~~ESG.~~ESG, which grew revenues by 72.4% while SG&A only increased 2.7%.

Operating earnings of ~~$38.6~~$48.6 increased ~~$657.9 as compared~~$25.4, or 109.5%. Operating margin improved 520 basis points to 11.8% driven by improved performance by our ESG business slightly offset by the ~~three months ended October 31, 2015. Excluding an asset impairment charge~~impact of ~~$640.2 in~~lower margins at ASG resulting from the ~~third~~inclusion of lower margin Herndon results for the first quarter of 2015, operating earnings increased 84.7% to $38.6, and operating margin was 9.9%. Included in operating earnings in the 2016 period are approximately $3.5 of costs and expenses associated with the recent Herndon acquisition. Consolidated operating margins improved at a faster rate than revenues driven by an 18.2% improvement in ASG’s operating margin and 97.3% improvement in ESG’s operating loss (33.5% exclusive of the 2015 asset impairment charge).2017.

Interest expense for the three months ended ~~October 31, 2016~~April 30, 2017 was ~~$18.8.~~$19.0 as compared to $18.9 in the prior year period.

~~There was no income~~Income tax expense for the three months ended ~~October 31, 2016~~April 30, 2017 was $11.2, or 37.8% of earnings before income taxes, as ~~we realized a one-time benefit from our ongoing tax planning initiatives, which eliminated our current period~~compared with an income tax expense ~~bringing our estimated tax rate for~~of $1.8 in the prior year ~~ending January 31, 2017 to approximately 27.5%.~~period.

Net earnings ~~(loss)~~ and net earnings ~~(loss)~~ per share for the three months ended ~~October 31, 2016~~April 30, 2017 were ~~$19.8~~$18.4 and ~~$0.38,~~$0.36, respectively, as compared to ~~$(400.8) net loss~~$2.5 and ~~$(7.68) net loss per share~~$0.05, respectively, in ~~2015.~~2016. The changes in net earnings are due to the various factors discussed above.

Segment Results

The following is a summary of operating earnings (loss) by segment:


	THREE MONTHS ENDED				Percent		THREE MONTHS ENDED				Percent
	October 31, 2016		October 31, 2015		Change		April 30, 2017		April 30, 2016		Change
Aerospace Solutions Group	$	56.5	$	47.8	18.2	%	$	58.7	$	54.1	8.5	%
Energy Services Group		(17.9)		(667.1)	97.3	%		(10.1)		(30.9)	67.3	%
Total operating earnings (loss)	$	38.6	$	(619.3)	106.2	%
Total operating earnings							$	48.6	$	23.2	109.5	%

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~~Third quarter 2016~~For the three months ended April 30, 2017, ASG revenues of ~~$348.8~~$347.5 increased ~~13.7% as~~10.0% compared to the ~~three-month~~same period ~~ended October 31, 2015. ASG‘s third quarter 2016 operating earnings of $56.5 increased 18.2% when compared to~~in the prior ~~year, and operating margin~~year. Revenue growth was ~~16.2%. ASG’s operating margin was negatively impacted~~driven primarily by ~~the margin dilutive impact of the Herndon acquisition and approximately $3.5 of Herndon acquisition and integration costs.~~

~~Compared to the prior year, organic revenue growth from our commercial aerospace manufacturing and~~an increase in military aftermarket ~~customers were up 5.8% and 4.2%, respectively, partially offset by a decline in sales to our legacy military manufacturing customers.~~

ESG’s third quarter revenues were $40.2 and decreased by $18.1 as compared to the prior year period. Operating loss improved by $649.2, principally due to a $640.2 asset impairment charge in the third quarter of 2015 as well as the benefits from our cost reduction and business realignment initiatives.

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~~NINE MONTHS ENDED OCTOBER 31, 2016~~

~~COMPARED TO NINE MONTHS ENDED OCTOBER 31, 2015~~

REVENUES

NINE MONTHS ENDED

Percent


October 31, 2016

October 31, 2015

Change

Aerospace Solutions Group

$
1,039.0

$
1,006.4

3.2
%
Energy Services Group

109.6

202.8

(46.0)
%
Total revenues

$
1,148.6

$
1,209.2

(5.0)
%

~~For the nine months ended October 31, 2016, revenues of $1,148.6 decreased 5.0%, as compared to the prior year period. The consolidated results reflect a 3.2% increase in~~demand. ASG ~~revenues, offset by a 46.0% decrease in ESG revenues, as compared to the prior year.~~

~~Cost of sales for the current nine-month period was $864.0, or 75.2% of sales, as compared to $918.3, or 75.9% of sales, in the nine-month period ended October 31, 2015.~~

~~SG&A expense during the nine months ended October 31, 2016 were $181.9, or 15.8% of revenues, as compared with $189.7, or 15.7% of revenues, in the prior year period.~~

~~For the nine months ended October 31, 2016,~~ operating earnings of $58.7 were $102.7 and operating margin was 8.9% as compared to a $(539.0) operating loss in the prior year. Operating earnings and operating margin increased primarily due to a $640.2 asset impairment charge in the prior year period, the recent acquisition of Herndon, and our cost reduction and business realignment initiatives at ESG.

~~Interest expense for the nine months ended October 31, 2016 was $56.8 as compared with $58.2 in the prior year.~~

Income tax expense for the nine months ended October 31, 2016 was $10.3, or 22.4% of earnings before income taxes, as compared with 37.1% in the prior year period as we realized a one-time benefit from our ongoing tax planning initiatives. As a result, we now expect a full year effective tax rate for the year ending January 31, 2017 of approximately 27.5%.

For the nine months ended October 31, 2016, net earnings and earnings per diluted share were $35.6 and $0.68, respectively, as compared to net loss and net loss per share of $(375.5) and $(7.19), respectively, in 2015.

~~Segment Results~~

~~The following is a summary of operating earnings (loss) by segment:~~

NINE MONTHS ENDED

Percent


October 31, 2016

October 31, 2015

Change

Aerospace Solutions Group

$
174.9

$
167.7

4.3
%
Energy Services Group

(72.2)

(706.7)

89.8
%
Total operating earnings (loss)

$
102.7

$
(539.0)

119.1
%

~~For the nine months ended October 31, 2016, ASG revenues of $1,039.0 increased 3.2%~~up 8.5% as compared to the same period in the prior year. ASG operating ~~earnings of $174.9 and operating~~ margin of ~~16.8% improved by $7.2 or 4.3%, despite~~16.9% declined 20 basis points reflecting the ~~margin dilutive impact of~~lower, but improving, margins associated with the ~~recent~~ Herndon ~~acquisition and~~business along with integration ~~costs of approximately $5.0.~~related expenses.

For the ~~nine~~three months ended ~~October 31, 2016,~~April 30, 2017, ESG revenues of ~~$109.6 declined~~$63.8 increased by ~~$93.2, or 46.0%~~72.4%, as compared to the prior year, ~~while~~and operating loss decreased $20.8, or 67.3%, to $(10.1). On a sequential quarterly basis, revenues increased by 46.3%, and operating loss decreased by ~~$634.5 to $(72.2)~~46.8%. ~~Despite the 46.0% decrease in revenues, excluding the asset impairment charge in the nine months ended October 31, 2015, operating loss~~

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~~increased by only 8.6%, or $5.7, from $(66.5) to $(72.2) reflecting the benefits from our cost reduction and business realignment initiatives.~~

LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition

Cash on hand at ~~October 31, 2016~~April 30, 2017 decreased by ~~$130.1~~$8.2 as compared with cash on hand at January 31, ~~2016~~2017 primarily as a result of capital expenditures of ~~$33.9~~$14.5 and the ~~acquisition~~Company’s repurchase of ~~Herndon for $220.8 (net~~$14.5 of ~~cash acquired),~~KLX common shares, partially offset by cash flows from operating activities of ~~$139.1.~~$20.0. Our liquidity requirements consist of working capital needs and ongoing capital expenditure requirements. Our primary requirements for working capital are directly related to the level of our operations. Our sources of liquidity consist of cash on hand, cash flow from operations and availability under our $750.0 Revolving Credit Facility. At ~~October 31, 2016,~~April 30, 2017, we had ~~$297.7~~$269.1 of cash and cash equivalents. The substantial majority of our cash is held within the United States, and we believe substantially all of our foreign cash may be brought back into the United States in a tax efficient manner.

Working Capital

Working capital as of ~~October 31, 2016~~April 30, 2017 was ~~$1,721.2, a decrease~~$1,724.4, an increase of ~~$40.4,~~$21.9, as compared with working capital at January 31, ~~2016. Excluding the working capital associated with the Herndon acquisition, working capital decreased by $127.5.~~2017. As of ~~October 31, 2016,~~April 30, 2017, total current assets ~~decreased~~increased by ~~$34.3~~$53.1 and total current liabilities increased by ~~$6.1~~$31.2 as compared with the prior fiscal year end amounts. Total current assets ~~decreased~~increased primarily as a result of a ~~$130.1 decrease in cash offset by a $34.4~~$45.3 increase in accounts receivable and ~~a $66.8~~an $11.3 increase in ~~inventories.~~inventories offset by an $8.2 decrease in cash and cash equivalents. The increase in total current liabilities was ~~primarily~~ due to a ~~$12.1~~$16.2 increase in accounts payable ~~offset by~~and a ~~$6.0 decrease~~$15.0 increase in accrued ~~liabilities.~~liabilities (principally accrued interest).

Cash Flows

As of ~~October 31, 2016,~~April 30, 2017, our cash and cash equivalents were ~~$297.7~~$269.1 as compared to ~~$427.8~~$277.3 at January 31, ~~2016.~~2017. Cash generated from operating activities was ~~$139.1~~$20.0 for the ~~nine~~three months ended ~~October 31, 2016~~April 30, 2017 as compared to ~~$197.5 in~~$41.4 for the ~~nine~~three months ended ~~October 31, 2015,~~April 30, 2016, primarily reflecting a ~~$22.2~~$43.0 increase in accounts receivable, reflecting the 10.0% increase in ASG revenues and 72.4% increase in ESG revenues, as compared with ~~a $33.6~~an $8.8 decrease in the prior year, and a ~~$1.9~~$15.9 increase in inventories compared to a $3.4 increase in the prior year. The decrease was partially offset by a $32.7 increase in accounts payable and accrued liabilities in ~~2016~~2017 compared with a $35.7 increase in the prior year, partially offset by a $35.3 decrease in inventories (excluding the acquired Herndon inventory which is accounted for in cash flows from investing activities) compared to a $9.0$1.6 decrease in the prior year.

Capital Spending

Our capital expenditures were ~~$33.9~~$14.5 and ~~$106.4~~$19.2 during the ~~nine~~three months ended ~~October 31,~~April 30, 2017 and 2016, ~~and 2015,~~ respectively. We expect capital expenditures to be approximately ~~$40.0~~$75.0 during ~~2016~~2017 related to the build-out of ~~KLX’s stand-alone data center as we migrate from the B/E systems~~ASG’s new global warehouse and segment headquarters and for general business ~~purposes and the ongoing capital requirements of our ESG business ($23.5 as of the nine months ended October 31, 2016).~~purposes. We expect to fund future capital expenditures from cash on hand, cash flow from operations and from funds available from our secured $750.0 Revolving Credit Facility, none of which was drawn at ~~October 31, 2016.~~April 30, 2017.

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Outstanding Debt and Other Financing Arrangements

Long-term debt at ~~October 31, 2016~~April 30, 2017 totaled $1,200.0 and consisted of our 5.875% senior unsecured notes. On a net basis, after taking into consideration the debt issue costs for the Term Loan Facility, total debt was ~~$1,181.3.~~$1,182.6.

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We also have a $750.0 Secured Revolving Credit Facility tied to a borrowing base formula, which bears interest at the London interbank offered rate (“LIBOR”) plus the applicable margin (as defined). No amounts were outstanding under this credit facility as of ~~October 31, 2016.~~April 30, 2017. We believe that our cash flows, together with cash on hand and funds available under the credit facility will provide us with the ability to fund our operations, make planned capital expenditures payments, and meet our debt service obligations for at least the next twelve months.

Contractual Obligations

The following table reflects our contractual obligations and commercial commitments as of ~~October 31, 2016.~~April 30, 2017. Commercial commitments include lines of credit, guarantees and other potential cash outflows resulting from a contingent event that requires performance by us or our subsidiaries pursuant to a funding commitment.


Contractual Obligations	2016		2017		2018		2019		2020		Thereafter		Total		2017		2018		2019		2020		2021		Thereafter		Total
Long-term debt and other non-current liabilities (1)	$	0.4	$	1.3	$	1.1	$	0.8	$	0.9	$	1,219.2	$	1,223.7	$	0.8	$	0.8	$	0.8	$	0.9	$	1.1	$	1,222.4	$	1,226.8
Operating leases		6.0		18.9		15.0		13.2		11.3		26.5		90.9		19.1		23.0		19.9		17.0		13.4		18.3		110.7
Future interest payments on outstanding debt (2)		36.7		72.6		72.6		72.6		72.6		213.9		541.0		72.1		72.6		72.6		72.6		72.6		213.9		576.4
Total	$	43.1	$	92.8	$	88.7	$	86.6	$	84.8	$	1,459.6	$	1,855.6	$	92.0	$	96.4	$	93.3	$	90.5	$	87.1	$	1,454.6	$	1,913.9

Commercial Commitments
Letters of credit	$	4.8		—		—		—		—		—	$	4.8	$	5.6		—		—		—		—		—	$	5.6

(1)

Our liability for unrecognized tax benefits of ~~$12.3,~~$8.5, including related ~~interests~~interest and penalties at ~~October 31, 2016,~~April 30, 2017, has been omitted from the above table because we cannot determine with certainty when this liability will be settled. It is reasonably possible that the amount of liability for unrecognized tax benefits will change in the next twelve months; however, we do not expect the change to have a material impact on our consolidated financial statements.

(2)

Interest payments include interest payments due on the 5.875% senior unsecured notes based on the stated rate of 5.875%. To the extent we incur interest on the Revolving Credit Facility, interest payments would fluctuate based on LIBOR or the prime rate pursuant to the terms of the Revolving Credit Facility.

We believe that our cash flows, together with cash on hand and the availability under the Revolving Credit Facility, provide us with the ability to fund our operations, make planned capital expenditures and make scheduled debt service payments for at least the next twelve months. However, such cash flows are dependent upon our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If, in the future, we cannot generate sufficient cash from operations to meet our debt service obligations, we will need to refinance such debt obligations, obtain additional financing or sell assets. We cannot assure you that our business will generate cash from operations or that we will be able to obtain financing from other sources sufficient to satisfy our debt service or other requirements.

Off-Balance Sheet Arrangements

Lease Arrangements

We finance our use of certain equipment under committed lease arrangements provided by various financial 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 in our condensed

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consolidated balance sheets. Our aggregate future minimum lease payments under these arrangements totaled approximately ~~$90.9~~$110.7 at ~~October 31, 2016.~~April 30, 2017.

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Indemnities, Commitments and Guarantees

During the normal course of business, we have made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include indemnities to our customers in connection with the sale and delivery of our products, 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. We believe that many of our indemnities, commitments and guarantees provide for limitations on the maximum potential future payments we could be obligated to make. However, we are unable to estimate the maximum amount of liability related to our indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events which are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to our condensed consolidated financial statements.

Backlog

We believe that backlog is not a relevant measure for our ASG segment, given the long-term nature of our contracts with our customers. Few, if any, include minimum purchase requirements, annually or over the term of the agreement. Our ESG segment operates under Master Service Agreements (“MSAs”) with our oil and gas customers, which set forth the terms and conditions for the provision of services and the rental of equipment. Rental tool and service contracts are typically based on a day rate with rates based on the type of equipment and competitive conditions. As a result, we do not record backlog.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~Annual Report on~~2016 Form ~~10-K for the fiscal year ended January 31, 2016.~~

The Company has revised its methodology for estimating the provision required for excess and obsolete (“E&O”) inventories as part of its remediation efforts to address the material weakness in internal controls. The new methodology more adequately considers historical demand of our inventory to project future demand in order to estimate the provision required for E&O inventories. Other factors considered in the methodology include expected market growth rates and related elements. The implementation of the changes in internal controls did not impact the current period or any prior period provision for E&O inventory.

10-K. There have been no ~~other~~ changes to our critical accounting policies since January 31, ~~2016.~~2017.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information to investors. This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes forward-looking statements that reflect our current expectations and

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projections about our future results, performance and prospects. Forward-looking statements include all statements that are not historical in nature or are not current facts. We have tried to identify these forward-looking statements by using forward-looking words including "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "continue," "may," "might," "should," "could," "will" or the negative of these terms or similar expressions.

These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results, performance and prospects to differ materially from those expressed in, or implied by, these forward-looking statements. Factors that might cause such a difference include those discussed in our filings with the SEC, in particular those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2016,~~2017, including the following factors:

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regulation of and dependence upon the aerospace and energy industries;

the cyclical nature of the aerospace and energy industries and the deterioration of general economic conditions;

market prices for fuel, oil and natural gas;

competitive conditions;

legislative or regulatory changes and potential liability under federal and state laws and regulations;

risks inherent in international operations, including compliance with anti-corruption laws and regulations of the U.S. government and various international jurisdictions;

doing business with the U.S. government;

reduction in government military spending;

JIT contracts and LTAs having no guarantee of future customer purchase requirements;

dependence on suppliers and on third-party package delivery companies;

decreases in the rate at which oil or natural gas reserves are discovered or developed;

impact of technological advances on the demand for our products and services;

delays of customers obtaining permits for their operations;

hazards and operational risks that may not be fully covered by insurance;

the write-off of a significant portion of intangible assets;

the need to obtain additional capital or financing, and the cost of obtaining such capital or financing;

limitations that our organizational documents, debt instruments and U.S. federal income tax requirements may have on our financial flexibility or our ability to engage in strategic transactions;

failure to have the Spin-Off qualified as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended, or our inability to achieve some or all of the benefits of the Spin-Off;

our credit profile;

changes in supply and demand of equipment;

oilfield anti-indemnity provisions;

severe weather;

reliance on information technology resources and the inability to implement new technology;

increased labor costs or the unavailability of skilled workers;

inability to manage inventory; and

inability to successfully consummate acquisitions or integrate acquisitions after closing or inability to manage potential growth.

In light of these risks and uncertainties, you are cautioned not to put undue reliance on any forward-looking statements in this Form 10-Q. These statements should be considered only after carefully reading this entire Form 10-Q. Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Form 10-Q not to occur.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks, including foreign currency fluctuations and changes in interest rates affecting the cost of our variable-rate debt.

Foreign Currency – We have direct operations in Europe that receive revenues from customers primarily in U.S. dollars and we purchase component parts from foreign vendors primarily in British pounds or Euros. Accordingly, we are exposed to transaction gains and losses that could result from changes in foreign currency exchange rates relative to the U.S. dollar. Our largest foreign currency exposure results from activity in British pounds and Euros.

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From time to time, we and our foreign subsidiaries may enter into foreign currency exchange contracts to manage risk on transactions conducted in foreign currencies. At ~~October 31, 2016,~~April 30, 2017, we had no outstanding forward currency exchange contracts. In addition, we have not entered into any other derivative financial instruments.

Interest Rates – As of ~~October 31, 2016,~~April 30, 2017, we have no adjustable rate debt outstanding. We do not engage in transactions intended to hedge our exposure to changes in interest rates.

As of ~~October 31, 2016,~~April 30, 2017, we maintained a portfolio of cash and securities consisting mainly of taxable, interest-bearing deposits with weighted average maturities of less than three months. If short-term interest rates were to increase or decrease by 10%, we estimate interest income would increase or decrease by approximately $0.1.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, of the effectiveness, as of ~~October 31, 2016,~~April 30, 2017, of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer concluded that due to the material weakness in internal control over financial reporting described in our Form 10-K, our disclosure controls and procedures were not effective as of ~~October 31, 2016.~~April 30, 2017.

Internal Control Over Financial Reporting

~~During the quarter ended October 31, 2016, management remediated the previously disclosed material weakness related~~The Company created a data center substantially similar to the data center maintained by B/E Aerospace under a transition services agreement (“TSA”) through April 2017. The Company relied on the B/E Aerospace TSA to provide the appropriate controls. The Company adopted its own set of policies, procedures and controls ~~surrounding~~when it transitioned to its data center in April 2017. Substantially all of the ~~Company’s excess~~policies, procedures and ~~obsolete (E&O) inventory reserve. During~~controls were in place prior to April 2017; however, the ~~quarter~~Company continues to document and test its internal controls over financial reporting and may make changes aimed at enhancing their effectiveness.

We disclosed in our Annual Report on Form 10-K for the year ended ~~October~~January 31, ~~2016,~~2017 that management ~~established~~had concluded that our internal control over financial reporting was not effective as of January 31, 2017 due the design and operating effectiveness of controls over the ~~compilation and validation of data and inputs used in the new demand based E&O reserve model that includes a reconciliation~~evaluation of the ~~inputs used~~accounting treatment of significant events and transactions. We are developing documentation to further improve these internal controls; however, no change in ~~the model~~our Company’s internal control over financial reporting occurred during our first fiscal quarter that has materially affected, or is reasonably likely to ~~source data to validate the accuracy and completeness of the significant inputs. Management also established a management review~~materially affect, our internal control ~~which includes consideration of each significant assumption and input used in the new demand based model.~~ over financial reporting.

~~Other than the changes described above related to the controls related to the new demand based E&O reserve model, there~~There were no other changes in our internal control over financial reporting that occurred during the ~~third~~first quarter of fiscal ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchases

($ in Millions, Except Shares and Per Share Data)

The following table presents the total number of shares of our common stock that we repurchased during the three months ended ~~October 31, 2016:~~April 30, 2017:

Period

Total number of shares purchased1

Average price paid per share2

Total number of shares purchased as part of publicly announced plans or programs

Approximate dollar value of shares that may yet be purchased under the plans or programs

August 1, 2016 - August 31, 2016

—

$
—

—

$
232.8

September 1, 2016 - September 30, 2016

140,702.0

33.40

140,702.0

228.1

October 1, 2016 – October 31, 2016

—

—

—

228.1

Total

140,702.0

140,702.0


Period	Total number of shares purchased1		Average price paid per share2		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs
February 1, 2017 - February 28, 2017		—	$	—		—	$	198.1
March 1, 2017 - March 31, 2017		304,917.0		47.16		304,917.0		183.7
April 1, 2017 - April 30, 2017		—		—		—		183.7
Total		304,917.0				304,917.0

(1)

In November 2014, our board of directors authorized a common stock repurchase program for up to $250. In ~~December 2015,~~March 2017, our board of directors authorized ~~repurchases of up~~an increase in the Company’s share repurchase authorization from $100 to ~~$100~~$200 under the existing $250 repurchase program.

(2)

The average price paid per share of common stock repurchased under the stock repurchase program includes the commissions paid to the brokers.

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ITEM 6. EXHIBITS



~~Exhibit 4 – Instruments Defining the Rights of Security Holders, Including Indentures~~

~~4.1~~	~~Second Supplemental Indenture, dated August 2, 2016, between KLX Inc. as Issuer and Wilmington Trust Company, as Trustee.~~

~~Exhibit 10 – Material Contracts~~

~~10.1~~	~~Medical Care Reimbursement Plan for Executives of KLX Inc.~~

Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications

	31.1	Certification of Chief Executive Officer

	31.2	Certification of Chief Financial Officer

	Exhibit 32 - Section 1350 Certifications

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

	Exhibit 101 – Interactive Data Files

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		KLX INC.


Date: ~~December 9, 2016~~May 25, 2017	By:	/s/ Amin J. Khoury
		Amin J. Khoury
		Chairman and
		Chief Executive Officer

	By:	/s/ Michael F. Senft
		Michael F. Senft
		Vice President, Chief Financial Officer
		and Treasurer

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