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 ~~April~~July 3031, 2018

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “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, 50,~~741~~746,~~488~~599 shares were outstanding as of ~~May~~August 1823, 2018.

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KLX INC.

Form 10-Q for the Quarter Ended ~~April~~July 3031, 2018

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		Page
Part I	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of April 30, 2018 and January 31, 2018	3
	Condensed Consolidated Balance Sheets as of July 31, 2018 and January 31, 2018	3
	Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three Months Ended April 30, 2018 and 2017	4
	Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three and Six Months Ended July 31, 2018 and 2017	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2018 and 2017	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2018 and 2017	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2530
Item 4.	Controls and Procedures	2531
Part II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 1A.	Risk Factors	32
Item 6.	Exhibits	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Signatures		30
Item 6.	Exhibits	34
Signatures		36

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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)

	April 30,		January 31,
	July 31,		January 31,
	2018		2018
ASSETS
Current assets:
Cash and cash equivalents	$	~~298~~322.47	$	255.3
Accounts receivable–trade, less allowance for doubtful accounts ($11.9 at April 30, 2018 and $12.0 at January 31, 2018)		355.8		316.1
Accounts receivable–trade, less allowance for doubtful accounts ($12.0 at July 31, 2018 and January 31, 2018)		353.1		316.1
Inventories, net		1,~~408~~418.30		1,407.9
Other current assets		46.9		51.7
Total current assets		2,~~109~~140.47		2,031.0
Property and equipment, net of accumulated depreciation ($199.9 at April 30, 2018 and $191.1 at January 31, 2018)		298.6		286.4
Property and equipment, net of accumulated depreciation ($210.4 at July 31, 2018 and $191.1 at January 31, 2018)		310.2		286.4
Goodwill		1,~~047~~038.64		1,056.8
Identifiable intangible assets, net		~~302~~295.38		308.6
Deferred income taxes		6555.3		74.5
Other assets		3335.97		32.7
	$	3,~~857~~876.1	$	3,790.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	~~212~~217.36	$	180.8
Accrued liabilities		~~118~~103.14		106.7
Total current liabilities		~~330~~321.40		287.5
Long-term debt		1,185.29		1,184.6
Deferred income taxes		5.85		5.9
Other non-current liabilities		4244.1		42.1
Commitments, contingencies and off-balance sheet arrangements (Note 9)
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; 54.6 million shares issued as of April 30, 2018 and January 31, 2018		0.5		0.5
Common stock, $0.01 par value; 250.0 million shares authorized; 54.6 million shares issued as of July 31, 2018 and January 31, 2018		0.5		0.5
Additional paid-in capital		2,~~763~~768.78		2,756.5
Treasury stock: 3.8 million shares as of April 30, 2018 and January 31, 2018		(182.9)		(182.7)
Treasury stock: 3.8 million shares as of July 31, 2018 and January 31, 2018		(183.0)		(182.7)
Accumulated deficit		(~~250~~214.42)		(280.0)
Accumulated other comprehensive loss		(3752.35)		(24.4)
Total stockholders’ equity		2,~~293~~319.6		2,269.9
	$	3,~~857~~876.1	$	3,790.0

See accompanying notes to condensed consolidated financial statements.

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KLX INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME (UNAUDITED)

(In Millions, Except Per Share Data)

	THREE MONTHS ENDED				SIX MONTHS ENDED
	APRIL 30,		APRIL 30,
	JULY 31,		JULY 31,		JULY 31,		JULY 31,
	2018		2017		2018		2017
Product revenues	$	~~388~~409.13	$	~~347~~357.51	$	797.4	$	704.6
Service revenues		~~111~~117.09		6373.85		228.9		137.3
Total revenues		~~499~~527.12		~~411~~430.36		1,026.3		841.9
Cost of sales - products		~~277~~291.78		~~242~~248.53		569.5		490.8
Cost of sales - services		8285.07		5563.97		167.7		119.6
Total cost of sales		~~359~~377.75		~~298~~312.40		737.2		610.4
Selling, general and administrative		7885.27		6466.3		163.9		130.6
Operating earnings		6164.20		4852.63		125.2		100.9
Interest expense		18.9		19.0		37.8		38.0
Earnings before income taxes		4245.31		2933.63		87.4		62.9
Income tax expense		10.63		1112.26		20.9		23.8
Net earnings	$	3134.78	$	1820.47	$	66.5	$	39.1
Other comprehensive (loss) income:
Foreign currency translation adjustment		(1215.92)		430.85		(28.1)		35.3
Comprehensive income	$	1819.86	$	2351.2	$	38.4	$	74.4
Net earnings per share - basic	$	0.6369	$	0.3641	$	1.33	$	0.77
Net earnings per share - diluted	$	0.6268	$	0.3640	$	1.30	$	0.76

See accompanying notes to condensed consolidated financial statements.

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KLX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Millions)

	THREE MONTHS ENDED
	SIX MONTHS ENDED
	APRIL 30,		APRIL 30,
	JULY 31,		JULY 31,
	2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	3166.75	$	1839.41
Adjustments to reconcile net earnings to net cash flows provided by (used in) operating activities:
Adjustments to reconcile net earnings to net cash flows provided by operating activities:
Depreciation and amortization		1938.30		1633.50
Deferred income taxes		919.46		921.70
Non-cash compensation		510.23		513.90
Amortization of deferred financing fees		12.13		12.12
Provision for inventory reserve		36.97		49.71
Change in allowance for doubtful accounts and sales returns		(0.42)		(24.2)8
Loss on disposal of property and equipment		0.35		0.45
Changes in operating assets and liabilities:
Accounts receivable		(3936.39)		(4354.08)
Inventories		(416.38)		(1525.96)
Other current and non-current assets		~~2.5~~-		(813.37)
Accounts payable		3237.19		1619.14
Other current and non-current liabilities		110.93		165.63
Net cash flows provided by operating activities		73128.42		2053.03
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2752.07)		(1432.56)
Net cash flows used in investing activities		(27.0)		(14.5)
Acquisitions, net of cash acquired		(2.4)		-
Net cash flows used in investing activities		(55.1)		(32.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock and other		(0.2)		(1429.56)
Net cash flows used in financing activities		(0.2)		(14.5)
Cash proceeds from stock issuance		1.2		1.0
Effect of foreign exchange rate changes on cash and cash equivalents		(3.1)		0.8
Net cash flows provided by (used in) financing activities		1.0		(28.6)
Net increase (decrease) in cash and cash equivalents		43.1		(8.2)
Effect of foreign exchange rate changes on cash and cash equivalents		(6.7)		6.4
Net increase (decrease) in cash and cash equivalents		67.4		(1.5)
Cash and cash equivalents, beginning of period		255.3		277.3
Cash and cash equivalents, end of period	$	~~298~~322.47	$	~~269~~275.18
Supplemental disclosures of cash flow information:
Cash paid during period for:
Income taxes paid, net of refunds	$	23.43	$	10.21
Interest		036.52		036.52
Supplemental schedule of non-cash activities:
Accrued property additions	$	6.6	$	46.31

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 (“SEC”). 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 “2017 Form 10-K”) for the fiscal year ended January 31, 2018 (“Fiscal 2017”).

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.

On April 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Boeing Company, a Delaware corporation (“Boeing”), and Kelly Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Boeing (“Merger Sub”), as amended by Amendment No. 1 thereto, dated June 1, 2018, pursuant to which Boeing has agreed to acquire the Aerospace Solutions Group (“ASG”) business of KLX. In addition, the Company announced its intention to spin-off its Energy Services Group (“ESG”) business (“KLX Energy Services”) to its stockholders. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the closing, Merger Sub will merge with and into the Company, with the Company surviving as a direct or indirect wholly-owned subsidiary of Boeing (the “Merger”).

At the effective time of the Merger (the “Effective Time”), each share of KLX common stock that is issued and outstanding immediately prior to the Effective Time (other than shares of KLX common stock (i) held by KLX as treasury stock, (ii) held, directly or indirectly, by Boeing or Merger Sub immediately prior to the Effective Time or (iii) that are outstanding immediately prior to the Effective Time and that are held by any person who is entitled to demand, and properly demands, appraisal of such shares pursuant to, and who complies in all respects with, Section 262 of the Delaware General Corporation Law) will be converted into the right to receive $63.00 per share in cash, without interest. As a result, KLX shareholders as of the record date of the spin-off who are shareholders of KLX at the Effective Time will have received the $63.00 per share as well as the shares in the business being spun off, KLX Energy Services.

The respective boards of directors of KLX and Boeing have unanimously approved the Merger Agreement, and the board of directors of KLX has agreed to recommend that KLX’s stockholders adopt the Merger Agreement. KLX has agreed, subject to certain exceptions, not to directly or indirectly solicit competing alternative proposals and to terminate all existing discussions, negotiations and communications with respect to any alternative proposal.

The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including, among other things: (i) consummation of the ESG spin-off and (ii) applicable regulatory approvals (see Note 14 – Subsequent Events).

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On July 16, 2018, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), in connection with the Company’s previously announced merger with a wholly owned subsidiary of Boeing, expired. The expiration of the waiting period under the HSR Act satisfies one of the conditions to the closing of the merger, which remains subject to other closing conditions in the Merger Agreement.

KLX and Boeing have made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to (a) the conduct of KLX’s business between the date of the signing of the Merger Agreement and the consummation of the Merger and (b) the efforts of the parties to cause the Merger to be completed.

The Merger Agreement provides that Boeing may be required to pay KLX a termination fee equal to $175.0 and that KLX may be required to pay Boeing a termination fee equal to up to $175.0 if the Merger Agreement is terminated by KLX or Boeing under certain circumstances described in the Merger Agreement.

Note 2.Recent Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, Compensation–Stock Compensation (Topic 718). This ASU was issued to provide clarity and reduce diversity in practice regarding the application of guidance on the modification of equity awards. The ASU states that an entity should account for the effects of a modification unless all of the following are met: the fair value, vesting conditions and the classification of the instrument as equity or liability of the modified award is the same as that of the original award immediately before such award is modified. The guidance isbecame effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods. ~~with~~The ~~early~~ adoption ~~permitted~~of ~~and~~ASU ~~should~~2017-09 bedid ~~applied prospectively to an award modified on or after the adoption date. The Company does~~ not ~~expect~~have a material impact ~~upon~~on ~~adoption~~the ofCompany’s ~~this ASU to its~~ condensed consolidated financial statements as the Company historically has accounted for all modifications in accordance with Topic 718 and has not been subject to the exception described under this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases, 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 comparative period presented in the financial statements. The Company is currently evaluating the effect of this update on its condensed consolidated financial statements.

In May 2014, the 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 deferred the effective date for implementation of ASU 2014-09 by one year and during 2016, the FASB issued various related accounting standard updates, which clarified revenue accounting principles and provided supplemental adoption guidance. The guidance under ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that year. The Company adopted the new standard and its related amendments (collectively known as ASC Topic 606) in the first quarter of 2018 using the modified retrospective method of adoption, which resulted in no changes to the opening consolidated balance sheet as of February 1, 2018. Prior period

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the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB deferred the effective date for implementation of ASU 2014-09 by one year and during 2016, the FASB issued various related accounting standard updates, which clarified revenue accounting principles and provided supplemental adoption guidance. The guidance under ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that year. The Company adopted the new standard and its related amendments (collectively known as ASC Topic 606) in the first quarter of 2018 using the modified retrospective method of adoption, which resulted in no changes to the opening consolidated ~~balance sheet as of February 1, 2018. Prior period consolidated~~ statements of earnings and comprehensive income remain unchanged. The additional disclosures required by ASC Topic 606 have been included below and in Note 11.

Except for the changes below, no material changes have been made to the Company's significant accounting policies disclosed in Note 1, Description of Business and Summary of Significant Accounting Policies, in its 2017 Form 10-K.

Revenue from Contracts with Customers

Revenue Recognition— Under ASC Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company recognizes revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery in accordance with the terms of the sales contract. Management provides allowances for credits and returns, based on historic experience, and adjusts such allowances as considered necessary.

In connection with the sales of its products, the Company also provides certain logistics services which include inventory management and replenishment, supply chain solutions such as third-party logistics programs, packaging and bar coding, parts kitting, quality assurance testing and inspection, purchasing assistance programs and electronic data interchange capability. The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point, the customer has obtained control of the Company’s product. The Company does not account for these service activities separate from the related part sales as the services are inputs required to fulfill part orders received from customers.

Service revenues from oilfield services (product/service lines (“PSLs”)) are recorded over time throughout and for the duration of the service or rental period. Contracts in the Company’s ~~Energy Services Group (“~~ESG”) segment are pursuant to a master services agreement (“MSA”) combined with a completed field ticket or a work order, which sets forth the details of the specific transaction including pricing.

Backlog is not a relevant measure for the Company’s ~~Aerospace Solutions Group (“~~ASG”) segment, given the long-term nature of its contracts with its customers. Few, if any, include minimum purchase requirements, annually or over the term of the agreement. The Company’s ESG segment operates under MSAs with its oil and gas customers, which set forth the terms and conditions for the provision of services and the rental of equipment. Rental tools and service contracts are typically based on a day rate with rates based on the type of equipment and competitive conditions. As a result, the Company dodoes not record backlog.

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Note 3.Business Combinations

The Company acquired two new product lines immediately prior to the end of the fourth quarter of Fiscal 2017. The first purchase includes high performance fasteners and precision components and assemblies dedicated to aircraft engine manufacturing. The second group of products will enable the Company to offer its customers technical products, systems and expertise in motion and control applications, including hydraulics, pneumatics, fluid connectors, filtration, electrical control systems, seals, compressors and engineered systems for both OEM and aftermarket applications. The Company acquired the two product lines for an aggregate purchase price of $64.8, which were accounted for as purchases under FASB ASC 805, Business Combinations (“ASC 805”) and primarily consist of inventory, accounts receivable, goodwill and intangibles and accounts payable and other current liabilities. The acquisitions did not have a material impact on the condensed consolidated financial statements. The ~~valuation~~valuations of the acquired assets related to the product line acquisitions are not yet complete and, as such, the Company has not yet finalized its allocation of the purchase price for the acquisitions.

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 and net realizable value, 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. Inventory reserves were approximately $7576.02 and $72.4 as of ~~April~~July 3031, 2018 and January 31, 2018, 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:

				April 30, 2018						January 31, 2018
				July 31, 2018						January 31, 2018
	Useful Life			Original		Accumulated		Net Book		Original		Accumulated		Net Book
	(Years)			Cost		Amortization		Value		Cost		Amortization		Value
Customer contracts and relationships	10	-	30	$	~~412~~410.12	$	~~132~~136.97	$	~~279~~273.25	$	413.6	$	128.8	$	284.8
Covenants not to compete	5				2.2		0.89		1.43		2.2		0.7		1.5
Developed technologies	15				3.3		0.56		2.87		3.3		0.5		2.8
Trade names	Indefinite				18.93		-		18.93		19.5		-		19.5
				$	~~436~~434.50	$	~~134~~138.2	$	~~302~~295.38	$	438.6	$	130.0	$	308.6

Amortization expense associated with identifiable intangible assets was $54.09 and $4.8 for the three months ended ~~April~~July 3031, 2018 and 2017, respectively, and $9.9 and $9.6 for the six months ended July 31, 2018 and 2017, respectively. The Company currently expects to recognize amortization expense related to intangible assets 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~~

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business). The future amortization amounts are estimates. Actual future amortization expense may be different due to 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 decreased by $918.24 as compared to January 31, 2018 primarily as a result of foreign currency translation adjustments.

Note 6.Accrued Liabilities

Accrued liabilities consisted of the following:

	April 30,		January 31,
	July 31,		January 31,
	2018		2018
Accrued salaries, vacation and related benefits	$	3637.87	$	37.2
Accrued commissions		67.47		10.9
Income taxes payable		1011.4		10.7
Accrued interest		2911.48		11.7
Other accrued liabilities		3534.18		36.2
	$	~~118~~103.14	$	106.7

Note 7.Long-Term Debt

As of ~~April~~July 3031, 2018, 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 5.875% Notes, total debt was $1,185.29. As of April 30, 2018, 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”).

~~Borrowings~~On ~~under~~June ~~the~~8, ~~Revolving~~2018, ~~Credit~~the ~~Facility~~Company ~~bear~~amended ~~interest~~its atamended anand ~~annual~~restated ~~rate~~secured ~~equal~~revolving tocredit ~~the~~facility, ~~London~~dated ~~interbank~~May ~~offered~~19, ~~rate~~2015 (~~“LIBOR”) (~~as ~~defined~~amended, in the “Revolving Credit Facility”) ~~plus~~to ~~the~~provide ~~applicable~~flexibility ~~margin~~to ~~(as~~spin ~~defined)~~off its ESG business. No ~~amounts~~In ~~were~~addition, ~~outstanding~~on ~~under~~June 8, 2018, the ~~Revolving~~Company ~~Credit~~elected ~~Facility~~to asreduce ofthe ~~April~~total ~~30,~~amount ~~2018~~available orto ~~January~~$650.0. As of July 31, 2018, the Company had $650.0 available for borrowing under the Revolving Credit Facility.

~~The~~Borrowings under the Revolving Credit Facility isbear ~~tied~~interest toat aan ~~borrowing~~annual ~~base~~rate ~~formula~~equal ~~and~~to ~~has~~the noLondon ~~maintenance~~interbank ~~financial~~offered ~~covenants. This~~rate ~~Revolving~~(“LIBOR”) ~~Credit~~(as ~~Facility~~defined ~~matures~~ in ~~May~~the ~~2020.~~Revolving ~~The~~Credit ~~credit~~Facility) ~~agreement~~plus ~~is collateralized by~~ the ~~Company’s~~applicable ~~assets~~margin ~~and~~(as ~~contains~~defined). No ~~customary~~amounts ~~affirmative~~were ~~covenants,~~outstanding ~~negative~~under ~~covenants, restrictions on~~ the ~~payment~~Revolving ofCredit ~~dividends~~Facility ~~and~~as ~~the repurchase~~ of ~~its~~July ~~stock~~31, ~~and~~2018 ~~conditions~~or ~~precedent~~January ~~for borrowings~~31, ~~all of which were met as of April 30,~~ 2018.

~~Letters~~The ofRevolving ~~credit~~Credit ~~issued~~Facility ~~under~~is ~~the~~tied to a borrowing base formula and has no maintenance financial covenants. This Revolving Credit Facility ~~aggregated~~matures ~~$5.9~~in May 2020, is collateralized by the Company’s assets and ~~$5.8~~contains atcustomary ~~April~~affirmative 30covenants, ~~2018~~negative covenants, restrictions on the payment of dividends and ~~January~~the 31repurchase of its stock, ~~2018~~and conditions precedent for borrowings, ~~respectively~~all of which were met as of July 31, 2018.

Letters of credit issued under the Revolving Credit Facility aggregated $5.9 and $5.8 at July 31, 2018 and January 31, 2018, respectively.

Note 8.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.~~10

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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 ~~April~~July 3031, 2018. 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,~~252~~242.60 and $1,251.0 as of ~~April~~July 3031, 2018 and January 31, 2018, respectively.

Note 9.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 ~~April~~July 3031, 2018, future minimum lease payments under these arrangements approximated $~~188~~191.48, the majority of which related to long-term real estate leases.

Future payments under operating leases with terms greater than one year as of ~~April~~July 3031, 2018 are as follows:

Year Ending January 31,
2019	$	2417.95
2020		3134.93
2021		2628.14
2022		2122.1
2023		1516.4
Thereafter		6973.01
Total	$	~~188~~191.48

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 condensed consolidated financial statements.

~~Indemnities,~~Following ~~Commitments~~KLX’s ~~and~~announcement ~~Guarantees - During its normal course~~ of ~~business,~~ the ~~Company~~merger, ~~has~~on ~~made~~July ~~certain~~2, ~~indemnities~~2018, ~~commitments~~KLX ~~and~~received ~~guarantees~~a ~~under~~demand ~~which~~letter itfrom ~~may~~counsel ~~be required to make payments in relation to certain transactions. These indemnities include indemnities to various lessors in connection with facility leases~~ for ~~certain~~a ~~claims~~purported ~~arising~~KLX ~~from~~stockholder ~~such~~seeking ~~facility~~inspection ~~or lease and indemnities to other parties to certain acquisition agreements. The duration~~ of ~~these~~KLX’s ~~indemnities,~~books ~~commitments~~ and ~~guarantees varies, and in certain cases, is indefinite~~records. ~~Many~~After ofnegotiation ~~these~~with ~~indemnities,~~counsel ~~commitments and guarantees provide~~ for ~~limitations~~this onpurported ~~the~~stockholder ~~maximum~~and ~~potential~~pursuant ~~future payments the Company could be obligated~~ to ~~make.~~an ~~However,~~agreement ~~the~~governing ~~Company is unable to estimate~~ the ~~maximum~~confidentiality ~~amount~~ of ~~liability~~any ~~related~~produced ~~to its indemnities~~documents, ~~commitments~~KLX ~~and~~produced ~~guarantees~~certain ~~because~~books ~~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~~records ~~would~~in ~~not~~connection bewith ~~material to~~ the ~~accompanying~~proposed ~~condensed~~merger ~~consolidated~~between ~~financial~~KLX ~~statements. Accordingly, no significant amounts have been accrued for indemnities, commitments~~ and ~~guarantees~~Boeing.

~~The~~On ~~Company~~July ~~has~~6, ~~employment~~2018, ~~agreements~~a ~~with~~putative ~~certain~~class ~~key~~action ~~members~~(the of“Complaint”) ~~management~~was ~~with~~filed ~~three~~by ~~year~~a ~~initial~~purported ~~terms~~KLX ~~and~~stockholder ~~which~~in ~~renew~~the ~~for~~United ~~one~~States ~~additional~~District ~~year~~Court onfor ~~each~~the ~~anniversary~~District ~~date~~of Delaware. The ~~Company’s~~Complaint ~~employment~~purports ~~agreements~~to ~~generally~~bring ~~provide~~the ~~for~~litigation ~~certain~~as ~~protections~~a inclass ~~the~~action ~~event~~on behalf of athe ~~change~~public stockholders of ~~control~~KLX (the “Action”). ~~These~~The ~~protections~~Complaint ~~generally~~names ~~include~~as defendants the ~~payment~~members of ~~severance~~the board of directors of KLX and ~~related~~KLX. ~~benefits~~The ~~under~~Complaint ~~certain~~alleges ~~circumstances~~that KLX and the board of directors of KLX failed to disclose material information in KLX’s First Amended Preliminary Proxy Statement on Form 14A filed on June 28, 2018. The Complaint seeks, among other things, equitable relief, including to enjoin the ~~event~~closing of athe ~~change~~merger, to direct disclosure of ~~control~~all material information in KLX’s proxy statement and to award plaintiff’s costs, including attorney’s and expert’s fees.

10 On August 15, 2018, the parties to the Action entered into a confidential Memorandum of Understanding (the "Memorandum of Understanding") providing for the dismissal of the Action with prejudice as to the plaintiff in the Action and without prejudice as to the putative class. While KLX believes that the

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Action lacks merit and that the disclosures in the definitive proxy statement comply fully with applicable law, in order to avoid the expense and distraction of litigation, KLX agreed, pursuant to the terms of the confidential Memorandum of Understanding, to supplement the definitive proxy statement with certain supplemental disclosures, which it did on August 15, 2018. The confidential Memorandum of Understanding also outlined the terms of the plaintiff in the Action’s agreement in principle to dismiss the Complaint and release all claims which it has, has ever had, or could have asserted related to the Merger and disclosures related to the Merger. On August 22, 2018, the plaintiff filed a stipulation of dismissal. The counsel for the plaintiff has reserved the right to seek a mootness fee but has not yet made any specific demand for such a fee.

In the opinion of management, neither the demand letter, nor the Complaint are likely to result in a material adverse effect on the Company’s condensed 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 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 condensed consolidated financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees.

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. 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 10.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~~related ~~during~~to KLX restricted stock and stock options was $4.9 and $6.9 for the three months ended ~~April~~July 3031, 2018 and 2017, ~~related~~respectively, toand ~~KLX~~$9.8 ~~restricted~~and ~~stock~~$12.6 ~~and~~for ~~stock~~the ~~options~~six ~~was~~months ~~$4.9~~ended July 31, 2018 and ~~$5.7~~2017, respectively. Unrecognized compensation expense related to these grants was $3328.38 at ~~April~~July 3031, 2018. The Company will recognize a charge equal to the then unrecognized compensation cost of the grants resulting from the acceleration of shares under the LTIP upon the closing of the sale to Boeing.

KLX has established a qualified Employee Stock Purchase Plan (“ESPP”), 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 was $0.1 and $0.1 for the three months ended ~~April~~July 3031, 2018 and 2017, respectively, and $0. 2 and $0.2

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for the six months ended July 31, 2018 and 2017, respectively. Further option periods after the completion of the option period ending June 30, 2018 under the ESPP were suspended pursuant to the Merger Agreement. If the Merger is completed, the ESPP will be terminated.

Note 11.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.

The Company has not included product line information for the ASG segment due to the similarity of the product offerings and services and the impracticality of determining such information.

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

	THREE MONTHS ENDED				SIX MONTHS ENDED
	APRIL 30,		APRIL 30,
	JULY 31,		JULY 31,		JULY 31,		JULY 31,
Revenues	2018		2017		2018		2017
Aerospace Solutions Group	$	~~388~~409.13	$	~~347~~357.51	$	797.4	$	704.6
Energy Services Group		~~111~~117.09		6373.85		228.9		137.3
Total revenues		~~499~~527.12		~~411~~430.36		1,026.3		841.9
Operating earnings (loss) (1)
Operating earnings (loss) (1)(2)
Aerospace Solutions Group		5451.78		5860.71		106.5		118.8
Energy Services Group		612.52		(107.18)		18.7		(17.9)
Total operating earnings		6164.20		4852.63		125.2		100.9
Interest expense		18.9		19.0		37.8		38.0
Earnings before income taxes	$	4245.31	$	2933.63	$	87.4	$	62.9

(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 six months ended ~~April~~July 3031, 2018 and 2017.

11 (2) Costs related to the spin-off and costs associated with the sale of the business to Boeing have been allocated entirely to ESG and ASG, respectively during the three and six months ended July 31, 2018.

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The following table presents capital expenditures by reportable segment:

	THREE MONTHS ENDED				SIX MONTHS ENDED
	APRIL 30,		APRIL 30,
	JULY 31,		JULY 31,		JULY 31,		JULY 31,
	2018		2017		2018		2017
Aerospace Solutions Group	$	107.31	$	2.76	$	17.4	$	5.3
Energy Services Group		1618.76		1115.85		35.3		27.3
	$	2725.07	$	1418.51	$	52.7	$	32.6

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

Goodwill was $1,~~047~~038.64 and $1,056.8 as of ~~April~~July 3031, 2018 and January 31, 2018, respectively, and is all related to ASG.

The following table presents total assets by reportable segment:

	April 30,		January 31,
	July 31,		January 31,
	2018		2018
Aerospace Solutions Group	$	3,~~532~~543.85	$	3,495.8
Energy Services Group		~~324~~332.36		294.2
	$	3,~~857~~876.1	$	3,790.0

Corporate assets (primarily cash and cash equivalents) of $292.9 and $263.6 at April 30, 2018 and January 31, 2018, respectively, have been allocated to the above segments based on each segment’s percentage of total assets.13

The Company operates principally in three geographic areas, the United States, Europe (primarily Germany) and emerging markets, such as Asia, the Pacific Rim and the Middle East. The following table presents revenues by reportable segment based on the originating location for the quarter ended April 30, 2018.

	Aerospace Solutions Group		Energy Services Group
Revenues:
Domestic	$	386.1	$	111.0
Foreign		2.0		—
	$	388.1	$	111.0

Segment revenues by geographic area, based on destination, for the quarter ended April 30, 2018 were as follows:

	Aerospace Solutions Group				Energy Services Group
			% of				% of
	Revenues		Revenues		Revenues		Revenues
United States	$	217.6	56.1	%	$	111.0	100.0	%
Europe		98.8	25.4	%		—	—	%
Asia, Pacific Rim, Middle East and other		71.7	18.5	%		—	—	%
Total revenues	$	388.1	100.0	%	$	111.0	100.0	%

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Corporate assets (primarily cash and cash equivalents) of $319.6 and $263.6 at July 31, 2018 and January 31, 2018, respectively, have been allocated to the above segments based on each segment’s percentage of total assets.


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 31, 2018				JULY 31, 2018
	Aerospace Solutions Group		Energy Services Group		Aerospace Solutions Group		Energy Services Group
Revenues:
Domestic	$	407.6	$	117.9	$	793.7	$	228.9
Foreign		1.7		—		3.7		—
	$	409.3	$	117.9	$	797.4	$	228.9

Segment revenues by geographic area, based on destination, for the three and six months ended July 31, 2018 were as follows:


	Three Months Ended July 31, 2018
	Aerospace Solutions Group				Energy Services Group
	Revenues		% of Revenues		Revenues		% of Revenues
United States	$	221.2	54.0	%	$	117.9	100.0	%
Europe		109.1	26.7	%		—	—	%
Asia, Pacific Rim, Middle East and other		79.0	19.3	%		—	—	%
Total revenues	$	409.3	100.0	%	$	117.9	100.0	%


	Six Months Ended July 31, 2018
	Aerospace Solutions Group				Energy Services Group
	Revenues		% of Revenues		Revenues		% of Revenues
United States	$	438.8	55.0	%	$	228.9	100.0	%
Europe		207.8	26.1	%		—	—	%
Asia, Pacific Rim, Middle East and other		150.8	18.9	%		—	—	%
Total revenues	$	797.4	100.0	%	$	228.9	100.0	%

Note 12.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 and six months ended ~~April~~July 3031, 2018 and 2017, no shares of the Company’s common stock 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 six months ended ~~April~~July 3031, 2018 and 2017 are as follows:

	THREE MONTHS ENDED
	APRIL 30,		APRIL 30,
	2018		2017
Net earnings	$	31.7	$	18.4
(Shares in millions)
Basic weighted average common shares		50.1		51.1
Effect of dilutive securities - dilutive securities		0.8		0.7
Diluted weighted average common shares		50.9		51.8
Basic net earnings per common share	$	0.63	$	0.36
Diluted net earnings per common share	$	0.62	$	0.36

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	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 31,		JULY 31,		JULY 31,		JULY 31,
	2018		2017		2018		2017
Net earnings	$	34.8	$	20.7	$	66.5	$	39.1
(Shares in millions)
Basic weighted average common shares		50.2		50.9		50.1		51.0
Effect of dilutive securities - dilutive securities		0.8		0.8		0.9		0.7
Diluted weighted average common shares		51.0		51.7		51.0		51.7

Basic net earnings per common share	$	0.69	$	0.41	$	1.33	$	0.77
Diluted net earnings per common share	$	0.68	$	0.40	$	1.30	$	0.76

Note 13.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 ~~April~~July 3031, 2018 and 2017, the Company had $98.67 and $89.53, respectively, of uncertain tax positions, including accrued interest of $1.41 and $1.23 at ~~April~~July 3031, 2018 and 2017, respectively, all of which would affect the Company’s effective tax rate if recognized.

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 2007-2014.

The Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Cut and Jobs Act of 2017 (the “2017 Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting relating to the 2017 Tax Act under the Income Taxes Topic of the FASB ASC. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the 2017 Tax Act for which the accounting under the Income Taxes Topic of the FASB ASC is complete. To the extent that a company's accounting for certain income tax effects of the 2017 Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply the Income Taxes Topic of the FASB ASC on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act. The ultimate impact of the 2017 Tax Act in the Company's financial statements is provisional with regard to certain foreign tax provisions and may differ from its estimates due to changes in the interpretations and assumptions made by the Company as well as additional regulatory guidance that may be issued. No changes were made to the estimate as of ~~April~~July 3031, 2018.

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Note 14.Subsequent Events

On ~~April~~August 3024, 2018, the Company’s ~~entered~~stockholders ~~into~~voted anin ~~Agreement~~favor ~~and~~of ~~Plan~~the ofproposal ~~Merger~~to (adopt the “previously announced Merger Agreement”), ~~with~~at ~~The~~a ~~Boeing~~special ~~Company,~~meeting aof ~~Delaware~~stockholders ~~corporation~~held ~~(“Boeing”)~~on August 24, ~~and~~2018. ~~Kelly~~Under the terms of the Merger ~~Sub~~Agreement, ~~Inc.,~~KLX astockholders ~~Delaware~~will ~~corporation~~have ~~and~~the aright ~~wholly-owned~~to ~~subsidiary~~receive, for each share of ~~Boeing~~KLX ~~(“Merger~~common ~~Sub”),~~stock ~~pursuant~~that they own immediately prior to ~~which~~the ~~Boeing~~effective ~~has~~time ~~agreed~~of tothe ~~acquire~~merger, ~~ASG~~$63.00 Inin ~~addition~~cash per share, without interest (the ~~Company~~“Merger ~~announced~~Consideration”). The ~~its~~Merger ~~intention~~Consideration is in addition to, ~~spin-off~~and ~~its~~separate ~~ESG~~from, ~~business~~the (“shares of KLX Energy Services”) tothat ~~its~~KLX stockholders~~. Upon~~ ~~the~~as ~~terms~~of ~~and~~the ~~subject~~record todate of the ~~conditions~~previously ~~set~~announced ~~forth~~spin-off inof ~~the~~KLX ~~Merger~~Energy ~~Agreement,~~Services atwill receive in the ~~closing,~~spin-off. ~~Merger~~The ~~Sub~~merger ~~will~~is ~~merge~~subject ~~with~~to ~~and~~certain ~~into~~additional ~~the~~customary ~~Company~~closing conditions, ~~with~~including ~~the~~receipt ~~Company~~of ~~surviving~~regulatory asapprovals ain ~~direct~~certain orjurisdictions. The ~~indirect~~merger ~~wholly-owned~~is ~~subsidiary~~expected ofto ~~Boeing~~close (during the ~~“Merger”)~~fourth calendar quarter of 2018.

At the effective time of the Merger (the “Effective Time”), each share of KLX common stock that is issued and outstanding immediately prior to the Effective Time (other than shares of KLX common stock (i) held by KLX as treasury stock, (ii) held, directly or indirectly, by Boeing or Merger Sub immediately prior to the Effective Time or (iii) that are outstanding immediately prior to the Effective Time and that are held by any person who is entitled to demand, and properly demands, appraisal of such shares pursuant to, and who complies in all respects with, Section 262 of the Delaware General Corporation Law) will be converted into the right to receive $63.00 per share in cash, without interest. As a result, the shareholders will have received the $63.00 per share as well as the shares in the spin-off business, KLX Energy Services.15

The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including, among other things: (i) adoption of the Merger Agreement and approval of the Merger Agreement by KLX’s stockholders; (ii) unless KLX has timely elected to sell ESG to a third party, the Exchange Act registration statement with respect to the KLX Energy Services shares to be issued in connection with the spin-off having been declared effective by the SEC and such shares having been approved for listing on Nasdaq and the period of time specified by applicable law for the mailing of an information statement in connection with the spin-off having expired (assuming the information statement in connection with the spin-off is mailed immediately after the Exchange Act registration statement is declared effective by the SEC, whether or not the information statement in connection with the spin-off has in fact been mailed), (iii) consummation of the ESG sale or spin-off, as applicable, and (iv) applicable regulatory approvals.

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On August 24, 2018, the Company’s board of directors (the “Board”) approved the separation of its ESG business through a distribution of all of the shares of KLX Energy Services common stock on a pro rata basis to the holders of KLX’s common stock. For every one share of KLX common stock held, KLX’s shareholders will receive 0.4 shares of KLX Energy Services common stock. No fractional shares of KLX Energy Services will be issued. KLX Shareholders will receive cash in lieu of fractional shares. The Board has set a record date of September 3, 2018 and a distribution date of September 14, 2018. The distribution of KLX Energy Services common stock will complete the separation of KLX Energy Services from KLX. After the distribution, KLX Energy Services will be an independent, publicly-traded company, and KLX will not own any shares of KLX Energy Services common stock.

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

(Dollars In Millions, Except Per Share Data)

The following discussion and analysis addresses the results of our operations for the three and six months ended ~~April~~July 3031, 2018 as compared to our results of operations for the three and six months ended ~~April~~July 3031, 2017. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.

On May 1, 2018, we announced that we entered an agreement with Boeing pursuant to which Boeing has agreed to acquire ASG, which is summarized in Note 141 to our condensed consolidated financial statements, and that we intend to spin-off our ESG business to our shareholders. If the Merger is consummated, ASG will become a wholly-owned subsidiary of Boeing.

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, 2018, ASG’s global presence consisted of approximately 1.7 million square feet in 25 principal facilities with over 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 2017, we completed nine acquisitions. 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 commercial aerospace 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 aerospace manufacturers, 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. Immediately prior to the end of January 2018, we acquired two new product lines. The first purchase includes high performance fasteners and precision components and assemblies dedicated to aircraft engine manufacturing. The second product line will enable us to offer our customers technical products, systems and expertise in motion and control applications, including hydraulics, pneumatics, fluid connectors, filtration, electrical control systems, seals, compressors and engineered systems for both OEM and aftermarket applications. In addition, through the acquisition of Herndon Aerospace & Defense LLC (“Herndon”) in May 2016, 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

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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 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 associated 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 exploration and production of oil and gas in North America, including in the Northeast region (the Marcellus and Utica Shales as well as the Mid-Continent Stack and SCOOP and Haynesville), Rocky Mountains region (the Williston, DJ, Uinta and Piceance Basins) and the Southwest region (including the Permian Basin and Eagle Ford). This business is operated within our Energy Services Group (“ESG”) segment.

Revenues by reportable segment for the three and six months ended ~~April~~July 3031, 2018 and 2017, respectively, were as follows:

	THREE MONTHS ENDED										SIX MONTHS ENDED
	April 30, 2018				April 30, 2017
	July 31, 2018					July 31, 2017					July 31, 2018				July 31, 2017
	Revenues		%		~~Revenues~~	Revenues		%	%		Revenues		%		Revenues		%
Aerospace Solutions Group	$	~~388~~409.13	77.86	%	$	~~347.5~~$	357.1	~~84.5~~	%82.9	%	$	797.4	77.7	%	$	704.6	83.7	%
Energy Services Group		~~111~~117.09	22.24	%		~~63.8~~	73.5	~~15.5~~	%17.1	%		228.9	22.3	%		137.3	16.3	%
Total revenues	$	~~499~~527.12	100.0	%	$	~~411.3~~$	430.6	~~100.0~~	%100.0	%	$	1,026.3	100.0	%	$	841.9	100.0	%

Revenues by geographic area (based on destination) for the three and six months ended ~~April~~July 3031, 2018 and 2017, respectively, were as follows:

	THREE MONTHS ENDED										SIX MONTHS ENDED
	April 30, 2018				April 30, 2017
	July 31, 2018					July 31, 2017					July 31, 2018				July 31, 2017
	Revenues		%		~~Revenues~~	Revenues		%	%		Revenues		%		Revenues		%
United States	$	~~328~~339.61	6564.83	%	$	~~250.5~~$	266.2	~~60.9~~	%61.8	%	$	667.8	65.1	%	$	516.7	61.4	%
Europe		98109.81	1920.87	%		~~97.2~~	97.3	~~23.6~~	%22.6	%		207.8	20.2	%		194.5	23.1	%
Asia, Pacific Rim, Middle East and other		7179.70	1415.40	%		~~63.6~~	67.1	~~15.5~~	%15.6	%		150.7	14.7	%		130.7	15.5	%
Total revenues	$	~~499~~527.12	100.0	%	$	~~411.3~~$	430.6	~~100.0~~	%100.0	%	$	1,026.3	100.0	%	$	841.9	100.0	%

Revenues from our domestic and foreign operations for the three and six months ended ~~April~~July 3031, 2018 and 2017, respectively, were as follows:

	THREE MONTHS ENDED				SIX MONTHS ENDED
	APRIL 30,		APRIL 30,
	JULY 31, 2018		JULY 31, 2017		JULY 31, 2018		JULY 31, 2017
	2018		2017
Domestic	$	525.5	$	428.9	$	1,022.6	$	838.7
Domestic	$	497.1	$	409.8
Foreign		1.7		1.7		3.7		3.2
Foreign		2.0		1.5
Total revenues	$	527.2	$	430.6	$	1,026.3	$	841.9
Total revenues	$	499.1	$	411.3

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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On April 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Boeing Company, a Delaware corporation (“Boeing”), and Kelly Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Boeing (“Merger Sub”), as amended by Amendment No. 1 thereto, dated June 1, 2018, pursuant to which Boeing has agreed to acquire ASG. ~~and~~The Company also announced its intention to spin-off its ESG business (such business, after the completion of the spin-off, “KLX Energy Services”) to its stockholders. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the closing, Merger Sub will merge with and into the Company, with the Company surviving as a direct or indirect wholly-owned subsidiary of Boeing (the “Merger”).

At the effective time of the Merger (the “Effective Time”), each share of KLX common stock that is issued and outstanding immediately prior to the Effective Time (other than shares of KLX common stock (i) held by KLX as treasury stock, (ii) held, directly or indirectly, by Boeing or Merger Sub immediately prior to the Effective Time or (iii) that are outstanding immediately prior to the Effective Time and that are held by any person who is entitled to demand, and properly demands, appraisal of such shares pursuant to, and who complies in all respects with, Section 262 of the Delaware General Corporation Law) will be converted into the right to receive $63.00 per share in cash, without interest. As a result, the shareholders ~~will~~of ~~have~~KLX ~~received~~at the Effective Time will receive the $63.00 per share asand ~~well~~the asshareholders of KLX at the ~~shares~~record indate for the spin-off will receive shares of the business being spun off, KLX Energy Services.

The respective boards of directors of KLX and Boeing have unanimously approved the Merger Agreement,. ~~and~~In ~~the~~addition, ~~board of directors of~~ KLX has agreed ~~to recommend that KLX’s stockholders adopt the Merger Agreement. KLX has agreed~~, subject to certain exceptions, not to directly or indirectly solicit competing alternative proposals and to terminate all existing discussions, negotiations and communications with respect to any alternative proposal.

The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including, among other things: (i) adoption of the Merger Agreement and approval of the Merger Agreement by KLX’s stockholders; (~~ii)~~which ~~unless~~occurred ~~KLX~~on ~~has~~August ~~timely~~24, ~~elected~~2018); to(ii) ~~sell ESG to a third party,~~ the Exchange Act registration statement with respect to the KLX Energy Services shares to be issued in connection with the spin-off having been declared effective by the SEC (which occurred on August 24, 2018) and such shares having been approved for listing on Nasdaq (which occurred on August 24, 2018) and the period of time specified by applicable law for the mailing of an information statement in connection with the spin-off having expired ~~(assuming the information statement in connection with the spin-off is mailed immediately after the Exchange Act registration statement is declared effective by the SEC~~, ~~whether or not the information statement in connection with the spin-off has in fact been mailed),~~ (iii) consummation of the ~~ESG sale or~~ spin-off, ~~as applicable,~~ and (iv) applicable regulatory approvals.

On July 16, 2018, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) in connection with the Merger expired. The expiration of the waiting period under the HSR Act satisfies one of the conditions to the closing of the Merger, which remains subject to other closing conditions in the Merger Agreement.

On August 24, 2018, the Company’s stockholders voted in favor of the proposal to adopt the Merger Agreement at a special meeting of stockholders. The Merger is subject to certain additional customary closing conditions, including receipt of regulatory approvals in certain jurisdictions. The Merger is expected to close during the fourth calendar quarter of 2018.

On August 24, 2018, the Company’s board of directors (the “Board”) approved the separation of its ESG business through a distribution of all of the shares of KLX Energy Services common stock on a pro rata basis to the holders of KLX’s common stock. For every one share of KLX common stock held, KLX’s shareholders as of the record date for the spin-off will receive 0.4 shares of KLX Energy Services common stock. No fractional shares of KLX Energy Services will be issued. KLX Shareholders will receive cash in lieu of fractional shares. The Board has set a record date of September 3, 2018 and a distribution date of September 14, 2018. The distribution of KLX Energy Services common stock will complete the separation of KLX Energy Services from KLX. After the distribution, KLX Energy Services will be an independent, publicly-traded company, and KLX will not own any shares of KLX Energy Services common stock.

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Current ESG Industry Conditions

Our business depends to a significant extent on the level of unconventional resource development activity and corresponding capital spending by oil and gas exploration and production companies onshore in North America. These activity and spending levels are strongly influenced by current and expected oil and natural gas prices. Oil and natural gas prices declined significantly between the third quarter of 2014 and the first quarter of 2016. However, oil and natural gas prices have since gradually increased. This price recovery has stimulated an increase in onshore North American completions activity, and if the current price environment holds or continues to improve, we expect a further increase in demand for our services.

The increase in high-intensity, high-efficiency completions of oil and gas wells further enhances the demand for our services. We compete with a limited number of service companies for the most complex and technically demanding wells in which we specialize, which are characterized by extended laterals, increased stage spacing and cluster spacing and high proppant loads. These well characteristics lead to increased operating leverage and returns for us, as we are able to complete more jobs and stages with the same number of units and crews. Service providers for these projects are selected based on their technical expertise and ability to execute safely and efficiently and, to a lesser extent, on price.

Within our industry, the technological advancements over the past approximately 30 years that allow for enhanced recovery from shale formations underlying much of the major onshore oil and gas reservoirs in the United States have dramatically expanded the market for services to support the drilling, completion and production of onshore oil and gas wells. This has led to rapid growth in the market for the services we provide, culminating in record financial results for many oilfield service providers in 2014. However, the global production of oil and gas that year led to an imbalance of supply and demand that caused a rapid decline in commodity prices starting in late 2014 and continuing throughout 2015 and into 2016. In response to the dramatic downturn in the global markets for oil and gas and associated oilfield services that prevailed through all of 2015 and 2016, the oilfield services industry experienced a deep retrenchment where both capacity of services across the industry was cut and the pricing of services became deeply depressed. In response to these industry conditions, we implemented a business alignment and cost reduction initiative in 2015 to optimize both the size of our operations and the alignment of our assets and personnel. In addition, we integrated the business’ reporting, control asset management, operations, sales and marketing and branding. As a result, we have created an integrated service provider of national scale, providing highly differentiated services, supported by an active research and development (“R&D”) effort integrated with our field personnel to provide real-time solutions to evolving customer requirements, positioning KLX Energy Services as the pre-eminent provider of the services we offer in each of the geographic regions we serve as the industry recovered.

We began to see a stabilization in demand in late 2016, and with oil prices rising through the $40’s per barrel and into the $60’s in 2017, we have begun to benefit from our customers’ renewed commitment to their capital budgets. During the year ended January 31, 2018, we experienced a 109.3% increase in revenues as compared with the prior year, and operating earnings turned positive during the fourth quarter of 2017. This turnaround in operating results has continued ininto ~~the first quarter of~~ Fiscal 2018, as demonstrated by a 7466.07% increase in revenues to $~~111~~228.09 for the six months ended July 31, 2018, and a $1636.6 increase in operating earnings to $618.57, inclusive of allocated costs associated with our strategic alternatives review and costs associated with the proposed spin-off of our ESG business. Exclusive of these costs of approximately $35.87 in the ~~first~~six ~~quarter~~months ofended ~~Fiscal~~July 31, 2018, our operating earnings would have been $1024.34, or 910.37% of revenues. We believe our Fiscal 2017 and ~~first~~six ~~quarter~~months ended July 31, 2018 performance reflects our business realignment and cost reduction initiatives as well as the improvement in 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.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED ~~APRIL~~JULY 3031, 2018

COMPARED TO THREE MONTHS ENDED ~~APRIL~~JULY 3031, 2017

($ in Millions, Except Per Share Data)

	REVENUES
	THREE MONTHS ENDED
	April 30,		April 30,		Percent
	July 31,		July 31,		Percent
	2018		2017		Change
Aerospace Solutions Group	$	~~388~~409.13	$	~~347~~357.51	1114.76	%
Energy Services Group		~~111~~117.09		6373.85	7460.04	%
Total revenues	$	~~499~~527.12	$	~~411~~430.36	2122.34	%

~~First~~Second quarter 2018 revenues increased 2122.34% to $~~499~~527.12 as compared with the same period of the prior year. Our consolidated revenue growth was driven by ana 1114.76% increase in ASG revenues and a 7460.04% increase in ESG revenues.

~~First~~Second quarter 2018 cost of sales was $~~359~~377.75, or 7271.16% of sales, as compared to the prior year period of $~~298~~312.40, or 72.65% of sales. The 5090 basis point year-over-year improvement in cost of sales as a percentage of revenues is primarily due to substantially improved results at our ESG business ~~due~~as toa ~~the~~result of improved market conditions, and operating leverage, offset by a 180 basis point increase at ASG primarily due to ~~acquisition integration costs and~~ $21.68 of costs incurred during the ~~first~~second quarter of 2018 due to the transition to ASG’s new global distribution and operations center as compared to none in the prior year.

Selling, general and administrative (“SG&A”) expenses during the ~~first~~second quarter of 2018 were $7885.27, or 1516.73% of revenues, as compared with $6466.3, or 15.64% of revenues, in the prior year period. SG&A as a percentage of revenues increased by 1090 basis points as compared with the prior year period primarily due to $1121.73 of costs incurred during the ~~first~~second quarter of 2018 ~~due~~associated with the sale of the ASG business to Boeing, the ~~strategic~~spin-off ~~alternatives~~of ~~review~~ESG and the transition to ASG’s new global distribution and operations center.

Operating earnings ~~and operating margin~~ of $6164.20 ~~and 12.3%~~ increased by approximately 2522.94% ~~and approximately 50 basis points~~, ~~respectively,~~ reflecting ~~continued~~a ~~strong~~$20.0 ~~year-over-year~~ improvement atin ESG operating earnings including $31.89 of costs related to the ~~strategic~~spin-off ~~alternatives review~~ offset by aan $8.3 decline in operating ~~margin~~earnings at ASG, which include $21.2 ~~ASG~~of ~~operating~~costs ~~earnings~~associated with the sale of ~~$54~~the business to Boeing and the transition to the new global distribution and operations center in the current year period.7 ~~decreased~~Operating 6margin of 12.81% was flat as compared to the prior year. ~~period~~Exclusive ~~primarily~~of ~~due~~the toaforementioned costs, ASG operating earnings would be $1073.50, ofrepresenting ~~costs~~a ~~related~~$12.9 toincrease ~~the~~in ~~strategic~~operating ~~alternatives~~earnings, ~~review~~ and ~~the~~operating ~~transition~~margin towould ~~ASG’s~~have ~~new~~been ~~global~~17.8% ~~distribution~~as ~~and~~compared ~~operations~~to ~~center~~16.8% in the ~~current~~prior year period.

Interest expense for the three months ended ~~April~~July 3031, 2018 of $18.9 was approximately flat as compared to the prior year period.

Income tax expense for the three months ended ~~April~~July 3031, 2018 was $10.63, or 2522.18% of earnings before income taxes, as compared with $1112.26, or 37.8%, in the prior year period. The decrease in the effective tax rate was due to the recently implemented reduction to the corporate tax rate due to the recently enacted tax legislation.

Net earnings and net earnings per diluted share for the three months ended ~~April~~July 3031, 2018 were $3134.78 and $0.6268, respectively, as compared to $1820.47 and $0.3640, respectively, in 2017. The changes in net earnings are due to the various factors discussed above.

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Segment Results

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

	THREE MONTHS ENDED
	April 30,		April 30,		Percent
	July 31,		July 31,		Percent
	2018		2017		Change
Aerospace Solutions Group	$	5451.78	$	5860.71	(613.8)	%
Energy Services Group		612.52		(107.18)	~~164~~256.4	%
Total operating earnings	$	6164.20	$	4852.63	2522.94	%

For the three months ended ~~April~~July 3031, 2018, ~~our~~the ASG segment generated revenues of $~~388~~409.13, an increase of approximately 1114.76% compared to the same period in the prior year~~, driven by approximately 5~~.9% ~~organic revenue growth.~~ On a channel basis, ~~aftermarket~~revenues ~~organic~~to ~~revenue~~support ~~growth~~original ofequipment ~~6.6%~~manufacturing ~~was~~(“OEM ~~particularly~~“) ~~strong,~~customers ~~driven~~were byup aapproximately ~~substantial~~11.4% ~~increase~~driven inprimarily ~~aircraft~~by ~~maintenance~~new ~~activity~~programs ~~among~~and ~~MROs,~~market ~~repair~~share ~~shops~~gains. ~~and~~Revenue ~~airlines~~growth inwas ~~the~~experienced ~~Americas~~within all channels, ~~Asia~~including business jet and ~~Europe~~defense. ~~Revenues~~The ~~from~~aftermarket ~~our~~had ~~OEM~~its ~~channel~~best ~~increased~~quarter ~~5.4%~~in onmany anyears ~~organic~~delivering ~~basis~~double-digit ~~driven~~percentage byrevenue angrowth ~~increase~~for inthe ~~activity~~second ~~from~~consecutive ~~commercial~~quarter, ~~aerospace~~driven ~~manufacturing~~by ~~customers~~a ~~and~~substantial ~~initial~~increase ~~revenues~~in ~~from~~aircraft ~~the~~maintenance ~~ramp-up~~activity ofamong ~~new~~MRO’s, ~~programs~~repair shops and airlines. ASG operating earnings of $5451.78 decreased 613.8% as compared to the prior year period primarily due to $1021.52 of costs ~~related~~associated towith the ~~strategic~~sale ~~alternatives~~of ~~review~~the business to Boeing and the transition to ~~ASG’s~~the new global distribution and operations center in the current year period.

For the three months ended ~~April~~July 3031, 2018, as compared to the same period of the prior year, ESG revenues of $~~111~~117.09 ~~reflected~~increased ~~organic~~by ~~revenue~~60.4% driven by strong growth ofin bydemand ~~74.0%~~for intervention and completion services, particularly higher margin proprietary product service lines, including frac stacks, proprietary fishing tools and ~~operating~~proprietary down hole production tools. ESG revenues are increasing at a faster rate than fixed costs due to the integration and reorganization of seven private oilfield service companies acquired over the 2013 through 2014 time period, which is resulting in substantial margin expansion. Operating earnings included $1.9 of costs related to the spin-off of the ESG business and increased $1620.60 from a loss of $107.18 during the ~~first~~second quarter of last year to positive earnings of $612.52 in the current year period. Revenue growth and improvement in operating earnings were primarily due to improved market conditions, benefits from our integration initiatives and continued investment in differentiating technologies, personnel and innovative product and service lines.

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SIX MONTHS ENDED JULY 31, 2018

COMPARED TO SIX MONTHS ENDED JULY 31, 2017


	REVENUES
	SIX MONTHS ENDED
	July 31,		July 31,		Percent
	2018		2017		Change
Aerospace Solutions Group	$	797.4	$	704.6	13.2	%
Energy Services Group		228.9		137.3	66.7	%
Total revenues	$	1,026.3	$	841.9	21.9	%

For the six months ended July 31, 2018 revenues increased 21.9% to $1,026.3 as compared with the same period of the prior year. Our consolidated revenue growth was driven by a 13.2% increase in ASG revenues and a 66.7% increase in ESG revenues.

Cost of sales for the period was $737.2, or 71.8% of sales, as compared to the prior year period of $610.4 or 72.5% of sales. The 70 basis point year-over-year improvement in cost of sales as a percentage of revenues is primarily due to substantially improved results at our ESG business due to the improved market conditions, and operating leverage, offset by a 180 basis point increase at ASG primarily due to $4.4 of costs incurred during the first six months of 2018 due to the transition to ASG’s new global distribution and operations center as compared to none in the prior year.

SG&A expenses during the six months ended July 31, 2018 were $163.9, or 16.0% of revenues, as compared with $130.6, or 15.5% of revenues, in the prior year period. SG&A as a percentage of revenues increased by 50 basis points as compared with the prior year period primarily due to $33.0 of costs associated with the sale of the ASG business to Boeing, the spin-off of ESG and the transition to ASG’s new global distribution and operations center.

Operating earnings and operating margin of $125.2 and 12.2% increased by approximately 24.1% and approximately 20 basis points, respectively. Operating earnings reflect a $36.6 improvement at ESG including $3.8 of costs related to the strategic alternatives review incurred in the first quarter of 2018 and $1.9 of spin-off costs incurred during the second quarter of 2018, offset by a $12.3 decline in operating earnings at ASG which include $31.7 of costs associated with the sale of the business to Boeing and the transition to the new global distribution and operations center in the current year period. Exclusive of the aforementioned costs, ASG operating earnings would be $138.2, representing a $19.4 increase in operating earnings, and operating margin would have been 17.3% as compared to 16.9% in the prior year period.

Interest expense for the six months ended July 31, 2018 of $37.8 was approximately flat as compared to the prior year period.

Income tax expense for the six months ended July 31, 2018 was $20.9, or 23.9% of earnings before income taxes, as compared with $23.8, or 37.8%, in the prior year period. The decrease in the effective tax rate was due to the recently implemented reduction to the corporate tax rate due to the recently enacted tax legislation.

Net earnings and net earnings per diluted share for the six months ended July 31, 2018 were $66.5 and $1.30, respectively, as compared to $39.1 and $0.76, respectively, in 2017. The changes in net earnings are due to the various factors discussed above.

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Segment Results

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


	SIX MONTHS ENDED
	July 31,		July 31,		Percent
	2018		2017		Change
Aerospace Solutions Group	$	106.5	$	118.8	(10.4)	%
Energy Services Group		18.7		(17.9)	204.5	%
Total operating earnings	$	125.2	$	100.9	24.1	%

For the six months ended July 31, 2018, ASG revenues of $797.4 increased 13.2% compared to the same period in the prior year. On a channel basis, revenues from both OEM and aftermarket customers increased by a double-digit percentage. ASG operating earnings of $106.5 decreased 10.4% as compared to the prior year period primarily due to $31.7 of costs related to the strategic alternatives review and the transition to ASG’s new global distribution and operations center in the current year period.

For the six months ended July 31, 2018, ESG revenues of $228.9 increased by 66.7% as compared to the same period of the prior year. Operating earnings increased $36.6 from a loss of $17.9 in the prior year period to positive earnings of $18.7, inclusive of spin-off costs. Revenue growth and improvement in operating earnings were primarily due to improved market conditions, benefits from our integration initiatives and continued investment in differentiating technologies, personnel and innovative product and service lines.

LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition

At ~~April~~July 3031, 2018, we had $~~298~~322.47 of cash and cash equivalents. Cash on hand at ~~April~~July 3031, 2018 increased by $4367.14 as compared with cash on hand at January 31, 2018 primarily as a result of cash flows from operating activities of $73128.42 ~~partially~~ offset by capital expenditures of $2752.07. 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 undrawn $~~750~~650.0 Revolving Credit Facility. 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 ~~April~~July 3031, 2018 was $1,~~779~~819.07, an increase of $3576.52 as compared with working capital at January 31, 2018. As of ~~April~~July 3031, 2018, total current assets increased by $78109.47 and total current liabilities increased by $4233.95 as compared with the prior fiscal year end amounts. Total current assets increased primarily as a result of increases in cash and accounts receivable of $4367.14 and $3937.70, respectively. The increase in total current liabilities was primarily due to a $3136.58 increase in accounts payable.

Cash Flows

As of ~~April~~July 3031, 2018, our cash and cash equivalents were $~~298~~322.47 as compared to $255.3 at January 31, 2018. Cash generated from operating activities was $73128.2 for the six months ended July 31, 2018 as compared to $53.3 for the six months ended July 31, 2017, reflecting a $27.4 increase in net earnings, a $16.8 increase in inventories ($25.6 increase in the prior year), a $36.9 increase in accounts receivable ($54.8 increase in the prior year) and a $38.2 increase in accounts payable and accrued liabilities in the current period ($24.7 increase in the prior year). Cash used in investing activities was $55.1 for the ~~three~~six months ended ~~April~~July 3031, 2018 as compared to $32.6 in the same period of the prior year primarily due to investments related to the Company’s new ASG global headquarters in the current year period and discrete

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~~compared~~investments ~~to $20.0 for the three months ended April 30, 2017, reflecting a $13.3 increase~~ in ~~net~~ESG ~~earnings,~~capital ~~a $4~~equipment.3 increase in inventories ($15.9 increase in the prior year), a $2.5 decrease in other assets ($8.3 increase in the prior year) and a $44.0 increase in accounts payable and accrued liabilities in the current period ($32.7 increase in the prior year). Cash ~~used~~provided inby ~~investing~~financing activities was $271.0 for the ~~three~~six months ended ~~April~~July 3031, 2018 as compared to ~~$14.5~~cash in the same period of the prior year primarily due to investments related to the Company’s new ASG global headquarters in the current year period and discrete investments in ESG capital equipment. Cash used in financing activities ~~was~~of $028.26 ~~for~~in the ~~three~~prior ~~months~~year ~~ended~~due ~~April~~to ~~30,~~a ~~2018~~decrease asin ~~compared~~share torepurchases ~~$14.5~~ in the ~~prior~~current year ~~related to repurchases of our common stock~~period.

Capital Spending

Our capital expenditures were $2752.07 and $1432.56 during the ~~three~~six months ended ~~April~~July 3031, 2018 and 2017, respectively. We expect capital expenditures to be approximately $100.0 during 2018 reflecting ~~significant~~discrete ~~investment~~investments ~~related~~within tothe ESG business and investments in the Company’s new ASG global headquarters ~~and discrete investments within the ESG business~~. We expect to fund future capital expenditures from cash on hand, cash flows from operations and from funds available from our secured $~~750~~650.0 Revolving Credit Facility, none of which was drawn at ~~April~~July 3031, 2018.

Outstanding Debt and Other Financing Arrangements

Long-term debt at ~~April~~July 3031, 2018 totaled $1,200.0 and consisted of our 5.875% senior unsecured notes (the “5.875% Notes”). On a net basis, after taking into consideration cash on hand and the debt issue costs for the 5.875% Notes, total debt was $~~886~~863.82.

We also have a $~~750~~650.0 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 ~~April~~July 3031, 2018. 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 ~~April~~July 3031, 2018. 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	2018		2019		2020		2021		2022		Thereafter		Total
Long-term debt and other non-current liabilities (1)	$	(0.67)	$	1.0.8	$	1.0.8	$	10.19	$	1,200.32	$	2833.54	$	1,~~232~~235.54
Operating leases		2417.95		3134.93		2628.14		2122.1		1516.4		6973.01		~~188~~191.48
Future interest payments on outstanding debt (2)		7236.1		72.63		71.21		70.6		70.6		0.2		~~357~~320.39
Total	$	9752.69	$	~~105~~107.54	$	98100.3	$	9293.86	$	1,~~286~~287.32	$	97106.7	$	1,~~778~~748.21
Commercial Commitments
Letters of credit	$	5.9		—		—		—		—		—	$	5.9

(1) Our liability for unrecognized tax benefits of $98.67, including related interest and penalties at ~~April~~July 3031, 2018, 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 any such change to have a material impact on our condensed 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.

21 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

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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 consolidated balance sheets. Our aggregate future minimum lease payments under these arrangements totaled approximately $~~188~~191.48 at ~~April~~July 3031, 2018.

Litigation

We are 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 our condensed consolidated financial statements.

Following our announcement of the merger, on July 2, 2018, we received a demand letter from counsel for a purported KLX stockholder seeking inspection of our books and records. After negotiation with counsel for this purported stockholder and pursuant to an agreement governing the confidentiality of any produced documents, we produced certain books and records in connection with the proposed merger between KLX and Boeing.

On July 6, 2018, a putative class action (the “Complaint”) was filed by a purported KLX stockholder in the United States District Court for the District of Delaware. The Complaint purports to bring the litigation as a class action on behalf of the public stockholders of KLX (the “Action”). The Complaint names as defendants the members of the board of directors of KLX and KLX. The Complaint alleges that KLX and the board of directors of KLX failed to disclose material information in our First Amended Preliminary Proxy Statement on Form 14A filed on June 28, 2018. The Complaint seeks, among other things, equitable relief, including to enjoin the closing of the merger, to direct disclosure of all material information in our proxy statement and to award plaintiff’s costs, including attorney’s and expert’s fees.

On August 15, 2018, the parties to the Action entered into a confidential Memorandum of Understanding (the "Memorandum of Understanding") providing for the dismissal of the Action with prejudice as to the plaintiff in the Action and without prejudice as to the putative class. While we believe that the Action lacks merit and that the disclosures in the definitive proxy statement comply fully with applicable law, in order to avoid the expense and distraction of litigation, we agreed, pursuant to the terms of the confidential Memorandum of Understanding, to supplement the definitive proxy statement with certain supplemental disclosures, which it did on August 15, 2018. The confidential Memorandum of Understanding also outlined the terms of the plaintiff in the Action’s agreement in principle to dismiss the Complaint and release all claims which it has, has ever had, or could have asserted related to the Merger and disclosures related to the Merger. On August 22, 2018, the plaintiff filed a stipulation of dismissal. The counsel for the plaintiff has reserved the right to seek a mootness fee but has not yet made any specific demand for such a fee.

In the opinion of management, neither the demand letter, nor the Complaint are likely to result in a material adverse effect on our condensed consolidated financial statements.

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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 tools 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 2017 Form 10-K. Except for the changes below, there have been no material changes to our critical accounting policies since January 31, 2018.

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Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2017 Form 10-K. Except for the changes below, there have been no material changes to our critical accounting policies since January 31, 2018.

Revenue from Contracts with Customers

Under ASC Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery in accordance with the terms of the sales contract. We provide allowances for credits and returns, based on historic experience, and adjust such allowances as considered necessary.

In connection with the sales of our products, we also provide certain logistics services which include inventory management and replenishment, supply chain solutions such as third-party logistics programs, packaging and bar coding, parts kitting, quality assurance testing and inspection, purchasing assistance programs, and electronic data interchange capability. The price of such services is generally included in the price of the products delivered to our customer, and revenues are recognized upon delivery of the product, at which point, our customer has obtained control of our product. We do not account for these service activities separate from the related part sales as the services are inputs required to fulfill part orders received from customers.

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which point, our customer has obtained control of our product. We do not account for these service activities separate from the related part sales as the services are inputs required to fulfill part orders received from customers.

Service revenues from oilfield services (product/service lines (“PSLS”)) are recorded over time throughout and for the duration of the service or rental period. Contracts in our ESG segment are pursuant to a MSA combined with a completed field ticket or a work order, which sets forth the details of the specific transaction including pricing.

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 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 tools 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.

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 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, 2018, including the following factors:

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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, 2018, including the following factors:

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;

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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;

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.

On May 1, 2018, we announced that we entered an agreement with Boeing pursuant to which Boeing has agreed to acquire ASG and that we intend to spin-off our ESG business to our shareholders, in each case, upon the satisfaction of certain conditions. Factors related to the Merger and spin-off that could cause actual results to differ from those projected or contemplated in any such forward-looking statements include, but are not limited to, the following factors: (1) the possibility that one or more closing conditions to the Merger, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Merger, may require conditions, limitations or restrictions in connection with such approvals or that the required approval by our shareholders may not be obtained; (2) risks related to the filing and effectiveness of appropriate filings with the SEC, the listing of KLX Energy Services’ common stock on a trading market and receiving any required regulatory approvals; (3) execution of the Merger and the spin-off will require significant time and attention from our management, which may distract them from the operation of our business and the execution of other initiatives that may have been beneficial to us; (4) our employees may be distracted due to uncertainty about their future roles pending the completion of the Merger and the spin-off; (5) parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third-parties or alter their present business relationships with us; (6) we will be required to pay significant costs and expenses relating to the Merger and the spin-off, such as legal, accounting and other professional fees, whether or not the Merger or the spin-off is completed; (7) we may experience negative reactions from the financial markets; and (8) other risk factors as detailed from time to time in the Company’s reports filed with the SEC.

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whether or not the Merger or the spin-off is completed; (7) we may experience negative reactions from the financial markets; and (8) other risk factors as detailed from time to time in the Company’s reports filed with the SEC.

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.

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.

~~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 April~~ 30~~, 2018, we had no outstanding forward currency exchange contracts. In addition, we have not entered into any other derivative financial instruments.~~

~~Interest~~Table ~~Rates – As~~ of ~~April 30, 2018, we have no adjustable rate debt outstanding. We do not engage in transactions intended to hedge our exposure to changes in interest rates.~~Contents

AsFrom oftime ~~April~~to 30time, ~~2018,~~ we ~~maintained~~and aour ~~portfolio~~foreign ofsubsidiaries ~~cash~~may ~~and~~enter ~~securities~~into ~~consisting~~foreign ~~mainly~~currency ofexchange ~~taxable,~~contracts ~~interest-bearing~~to ~~deposits~~manage ~~with~~risk ~~weighted~~on ~~average~~transactions ~~maturities~~conducted ofin ~~less~~foreign ~~than~~currencies. ~~three~~At ~~months.~~July If31, ~~short-term~~2018, ~~interest~~we ~~rates~~had ~~were~~no tooutstanding ~~increase~~forward orcurrency ~~decrease~~exchange bycontracts. ~~10%~~In addition, we ~~estimate~~have ~~interest~~not ~~income~~entered ~~would~~into ~~increase~~any orother ~~decrease~~derivative byfinancial ~~approximately $0~~instruments.3.

Interest Rates – As of July 31, 2018, 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 July 31, 2018, 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 $0.4.

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 ~~April~~July 3031, 2018, 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 our disclosure controls and procedures were effective as of ~~April~~July 3031, 2018.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the ~~first~~second fiscal quarter 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 1. LEGAL PROCEEDGINGS

For a discussion of certain legal proceedings related to the Merger, see the discussion under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements – Litigation” in this Form 10-Q.

ITEM 1A. RISK FACTORS

The following risk factor is related to the proposed Merger of ASG and proposed spin-off of our ESG business. In addition to the information set forth in this report, you should carefully consider the risk factors described in Part I, Item IA. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018.

The Merger ~~and/or the spin-off of our ESG business~~ may not be completed on the terms or timeline currently contemplated, if at all, and may have a material adverse effect on us whether or not the Merger ~~or the spin-off of our ESG business~~ is completed.

We are actively engaged in planning for the Merger ~~and the spin-off of our ESG business~~. We currently anticipate that we will effect the ~~spin-off~~Merger asduring ~~early as~~ the ~~third~~fourth calendar quarter of 2018 ~~and the Merger as soon as practicable thereafter~~, but we cannot be certain when or if the respective conditions for the Merger ~~and the spin-off~~ will be satisfied or waived. The Merger ~~and the spin-off~~ cannot be completed until the applicable conditions to each are satisfied or waived.

Unanticipated developments could delay or negatively impact the Merger ~~and/or the spin-off~~, including the possibility that one or more closing conditions to the Merger, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Merger, may require conditions, limitations or restrictions in connection with such approvals ~~or that the required approval by our shareholders may not be obtained, those related to the filing~~ and ~~effectiveness of appropriate filings with the SEC, the listing of KLX Energy Services’ common stock on a trading market and~~ receiving any required regulatory approvals. We cannot assure you that the Merger ~~and/or the spin-off~~ will be completed. ~~Effectuating the spin-off is one of the conditions to the Merger.~~

Whether or not we complete the Merger ~~and/or the spin-off~~, our ongoing businesses may be adversely affected and we may be subject to certain risks and consequences as a result of pursuing the Merger ~~and the spin-off~~, including, among others, the following:

· execution of the Merger ~~and the spin-off~~ will require significant time and attention from our management, which may distract them from the operation of our business and the execution of other initiatives that may have been beneficial to us;

· our employees may be distracted due to uncertainty about their future roles pending the completion of the Merger ~~and the spin-off~~;

parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third-parties or alter their present business relationships with us;

· we will be required to pay significant costs and expenses relating to the Merger ~~and the spin-off~~, such as legal, accounting and other professional fees, whether or not the Merger ~~or the spin-off~~ is completed; and

we may experience negative reactions from the financial markets.

26The Merger Agreement contains certain termination rights for both Boeing and KLX in the event the Merger is not consummated on or before 5:00 p.m. (New York time) on April 30, 2019 (subject to extension until 5:00 p.m. (New York time) on July 30, 2019 in the event that all closing conditions are satisfied or waived, other than required notifications and approvals under certain antitrust laws).

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Any delays in the anticipated completion of the spin-off may increase these risks. In addition, the Merger Agreement contains certain termination rights for both Boeing and KLX, including in the event the required shareholder approval is not obtained at a duly convened meeting of KLX stockholders or in the event the Merger is not consummated on or before 5:00 p.m. (New York time) on April 30, 2019 (subject to extension on or before 5:00 p.m. (New York time) on July 30, 2019 in the event that all closing conditions are satisfied or waived, other than required notifications and approvals under certain antitrust laws).

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 ~~April~~July 3031, 2018:

Period	Total number of shares purchased1		Average price paid per share2		Total number of shares purchased as part of publicly announced plans or programs3		Approximate dollar value of shares that may yet be purchased under the plans or programs
February 1, 2018 - February 28, 2018		1,315	$	65.98		—	$	118.7
May 1, 2018 - May 31, 2018		258	$	73.84		—	$	118.7
March 1, 2018 - March 31, 2018		1,518		70.83		—		118.7
June 1, 2018 - June 30, 2018		—		—		—		118.7
April 1, 2018 - April 30, 2018		303		74.19		—		118.7
July 1, 2018 - July 31, 2018		—		—		—		118.7
Total		~~3,136~~258				—

(1)

Includes shares purchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants under the Company’s Long-Term Incentive Plan.

(2)

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

(3)

In November 2014, our board of directors authorized a share repurchase program for the repurchase of outstanding shares of the Company’s common stock having an aggregate purchase price up to $250. In January 2016, our board of directors authorized management to repurchase up to $100 of the Company’s common stock under the existing $250 share repurchase program. In March 2017, our board of directors authorized an increase in the Company’s share repurchase authorization from $100 to $200 under the existing $250 repurchase program.

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ITEM 6. EXHIBITS

	Exhibit 2 – Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
Exhibit 2 – Plan of acquisition, reorganization, arrangement, liquidation or succession
2.1	Amendment No. 1 to Agreement and Plan of Merger, dated as of June 1, 2018, by and between The Boeing Company, Kelly Merger Sub, Inc. and KLX Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2018).	Agreement and Plan of Merger, dated April 30, 2018, by and among KLX Inc., The Boeing Company and Kelly Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
	Exhibit 3(ii) – Bylaws
2.2	Distribution Agreement, dated as of July 13, 2018, by and among KLX Inc., KLX Energy Services Holdings, Inc. and KLX Energy Services LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 17, 2018).
	3.1	Amended and Restated Bylaws of KLX Inc., dated April 30, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
2.3	Employee Matters Agreement, dated as of July 13, 2018, by and among KLX Inc., KLX Energy Services Holdings, Inc. and KLX Energy Services LLC (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 17, 2018).
Exhibit 10 – Material Contracts
2.4	IP Matters Agreement, dated as of July 13, 2018, by and between KLX Inc. and KLX Energy Services Holdings, Inc. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 17, 2018).
	10.1	Transaction Bonus Agreement, dated as of April 30, 2018, by and between KLX Inc. and Amin J. Khoury, dated April 30, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
2.5	Transition Services Agreement, dated as of July 13, 2018, by and between KLX Inc. and KLX Energy Services Holdings, Inc. (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 17, 2018).
	10.2	Transaction Bonus Agreement, dated as of April 30, 2018, by and between KLX Inc. and Thomas P. McCaffrey, dated April 30, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
Exhibit 4 – Instruments defining the rights of security holders, including indentures
	10.3	Transaction Bonus Agreement, dated as of April 30, 2018, by and between KLX Inc. and Michael F. Senft, dated April 30, 2018 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
4.1	Third Supplemental Indenture, dated June 8, 2018, among KLX Inc., the guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 11, 2018).
	10.4	Transaction Bonus Agreement, dated as of April 30, 2018, by and between KLX Inc. and Roger M. Franks, dated April 30, 2018 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
Exhibit 10 – Material Contracts
	10.5	Amendment, dated as of April 30, 2018, to Amended and Restated Employment Agreement, dated as of May 25, 2017, by and between KLX Inc. and Amin J. Khoury (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2018).
10.1	Amendment to Credit Agreement, dated June 8, 2018, among KLX Inc., the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent thereto, and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 11, 2018).
	Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 31 – Rule 13a-14(a)/15d-14(a) Certifications
31.1	~~31.1~~Certification of Chief Executive Officer	~~Certification of Chief Executive Officer~~
31.2	~~31.2~~Certification of Chief Financial Officer	~~Certification of Chief Financial Officer~~
	Exhibit 32 - Section 1350 Certifications
Exhibit 32 – Section 1350 Certifications
32.1	32Certification of Chief Executive Officer pursuant to 18 U.1S.C. Section 1350	~~Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350~~
32.2	32Certification of Chief Financial Officer pursuant to 18 U.2S.C. Section 1350	~~Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350~~
Exhibit 101 – Interactive Data Files	~~Exhibit 101 – Interactive Data Files~~
101.INS	~~101.INS~~XBRL Instance Document	~~XBRL Instance Document~~
	101.SCH	XBRL Taxonomy Extension Schema Document

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	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH	XBRL Taxonomy Extension Schema Document
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation 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: May 23, 2018	By:	/s/ Amin J. Khoury
Date: August 28, 2018	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

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