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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K



(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2014oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period
from                                    to    
                                .


Commission File Number: 001-36610

KLX INC.(Exact name of registrant as specified in its charter)



Delaware(State of incorporation
or organization)

47-1639172(I.R.S. Employer Identification No.)


1300 Corporate Center Way,
Wellington, Florida(Address of principal executive offices)

(561) 383-5100(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 Par Value

The NASDAQ Global Select Market


Securities
registered pursuant to Section 12(g) of the Act:None.

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý.

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 ý    No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 ý    No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý.

As of June 30, 2014, the last business day of the registrant's most recently completed second quarter, the registrant's common stock was not publicly
traded. The registrant's common stock began trading on the NASDAQ Global Select Market on December 17, 2014. As of March 2, 2015, the aggregate market value of the registrant's voting
stock held by non-affiliates was approximately $2,125 million. Shares of common stock held by executive officers and directors have been excluded since such persons may be deemed affiliates.
This determination of affiliate status is not a determination for any other purpose. The number of shares of the registrant's common stock, $0.01 par value, outstanding as of March 2, 2015 was
52,464,489 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Certain
sections of the registrant's Proxy Statement to be filed with the Commission in connection with the 2015 Annual Meeting of Stockholders or Annual Report on Form 10-K/A,
to be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's fiscal year, are incorporated by reference in Part III of this
Form 10-K. With the exception of those sections that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statement shall not be deemed filed as part
of this Report or incorporated by reference herein.





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Table of Contents



TABLE OF CONTENTS



PagePART IITEM 1.

Business


3ITEM 1A.

Risk Factors


23ITEM 1B.

Unresolved Staff Comments


45ITEM 2.

Properties


46ITEM 3.

Legal Proceedings


46ITEM 4.

Mine Safety Disclosures


47PART IIITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


48ITEM 6.

Selected Financial Data


48ITEM 7.

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


51ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk


62ITEM 8.

Financial Statements and Supplementary Data


63ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


63ITEM 9A.

Controls and Procedures


63ITEM 9B.

Other Information


63PART IIIITEM 10.

Directors, Executive Officers and Corporate Governance


64ITEM 11.

Executive Compensation


70ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


70ITEM 13.

Certain Relationships and Related Transactions, and Director Independence


70ITEM 14.

Principal Accountant Fees and Services


70PART IVITEM 15.

Exhibits and Financial Statement Schedules


71Signatures


74Index to Consolidated and Combined Financial Statements and Schedule


F-1


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CAUTIONARY STATEMENT REGARDING 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 Annual Report on Form 10-K (this "Form 10-K") 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. These factors include the risks, uncertainties, assumptions and other factors discussed under the headings
"Item 1A. Risk Factors," as well as "Item 1. Business", "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Form 10-K, including the following factors:



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In
light of these risks and uncertainties, you are cautioned not to put undue reliance on any forward-looking statements in this Form 10-K. These statements should be considered
only after carefully reading this entire Form 10-K. 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-K not to occur.

Unless
otherwise indicated, the industry data included in this Form 10-K is from the January/February 2015 issue of the Airline Monitor, December 2014 report from the IATA, the
Current Boeing Market Outlook 2014, the December 2014 report from Spears & Associates, the Aircraft Analytical System ("ACAS") database, or the Airbus or Boeing corporate websites.

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PART I

ITEM 1.    BUSINESS

Except as otherwise indicated or unless the context otherwise requires, "KLX," "we," "us" and "our" refer to
KLX Inc. and its consolidated subsidiaries after giving effect to the internal reorganization and its spin-off from B/E Aerospace, and "B/E Aerospace" refers to B/E Aerospace, Inc., its
predecessors and its consolidated subsidiaries, other than, for all periods following the spin-off, KLX Inc. and its consolidated subsidiaries. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of OperationsOverviewThe Spin-off."

Our Company

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

In
the latter part of 2013, we initiated an expansion into the energy services sector. Since then, we have acquired seven companies dedicated to providing technical services and related
rental equipment to oil and gas exploration and production companies. As a result, we now provide a broad range of solutions and equipment which bring value-added resources to a new customer base,
often in remote locations on an episodic or urgent 24/7 basis. Our customers include independent and major oil and gas companies that are engaged in the exploration and production ("E&P") of oil and
gas properties in onshore North America, including in the Northeast (Marcellus and Utica Shale), Rocky Mountains (Williston and Piceance Basins), Southwest (Permian Basin and Eagle Ford) and
Mid-Continent. This business is operated within our Energy Services Group ("ESG") segment.

During
2014, ASG generated 77% of our consolidated revenues (74% on a pro forma basis as if all acquisitions had been completed as of the beginning of 2013).

Our
ASG segment has maintained strong, collaborative, long-standing relationships with its customers. As a result of our operational and information technology systems, we have
historically been able to ship approximately 60% of our orders within 24 hours of receipt of the order. Our seasoned purchasing and sales teams, coupled with state-of-the-art IT and automated
parts retrieval systems, help us to sustain our reputation for highly dependable, rapid, on-time delivery.

ASG
sells fasteners and other consumable products to over 6,000 customers throughout the world. Its top five customers in 2014 collectively accounted for approximately 33% of ASG's 2014
revenues.

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ESG
has over 200 master services agreements ("MSAs") with customers, including substantially all of the major, regional and independent E&P companies in North America. ESG's top five
customers collectively represented approximately 25% of ESG's 2014 revenues on a pro forma basis to account for acquisitions during 2014 (approximately 26% on an actual basis).

Our
management team has extensive industry experience and company tenure. Our executive officers have an average of more than 20 years in the aerospace consumables or energy
services industries.

Industry Overview

Aerospace Solutions Group

According to Stax, the global market for C-class aerospace parts, which includes hardware, bearings, electronic components and machined
parts for both commercial and military customers, was approximately $6.5 billion in 2010. This market is generally segmented by end customer or sales channel. Based on industry sources, we
estimate that during 2014 the market for the products and services provided by ASG, other than chemicals, adhesives and other related products, was approximately $4.7 billion; of this amount,
we estimate that approximately 34%, or $1.6 billion, is served by the manufacturers of these products directly to the end customers and approximately 66%, or $3.1 billion, is served by
stocking distributors such as ASG.

We
believe that there is a direct relationship between demand for fasteners and other consumable products and airliner fleet size, aircraft utilization and aircraft age, as well as new
aircraft production
rates. All aircraft must be serviced at regular intervals, which drives aftermarket demand for aerospace fasteners and consumable products. ASG generated approximately 38% of its 2014 revenues from
aftermarket sales to support the in-service fleet of commercial aircraft, business jet manufacturers and the global fleet of military aircraft. Historically, aerospace fastener and consumable products
revenues have been derived from the following sources:



In
addition, suppliers in the aerospace, defense and related industries increasingly rely on companies such as ASG to provide a customized single point of contact for inventory
management, customized invoicing, automated forecasting and usage monitoring, centralized communications and tracking across their broad and varied supply base.

Since
2010, as the global economy began to recover from recession, increased passenger traffic volumes and the return to profitability of the global airline industry have created
significant demand for commercial aircraft. The Airline Monitor forecasts a 2014 global passenger traffic increase of approximately 5.5% and projects long-term growth at an approximate compounded
annual growth rate ("CAGR") of 5.3% during the 2014-2029 period. The International Air Transport Association ("IATA") expects global airline profits to improve to $19.9 billion in 2014, or 88%
higher than 2013, marking the global airline industry's fifth consecutive year of profitability.

Many
airlines deferred the replacement of a large number of aging aircraft over the 2000-2009 period. This, combined with recent more efficient new aircraft introductions, the growing
requirements for more aircraft to support the projected long-term traffic growth, record capacity utilization rates,

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high
fuel costs and the low cost of financing new aircraft drove the global airline industry to place record orders for new aircraft. Backlogs at Airbus S.A.S. ("Airbus") and The Boeing Company
("Boeing") stood at record levels of approximately 6,386 and 5,789, respectively, at December 31, 2014. They have reported that they each have an approximate eight-year backlog. As a result,
most industry analysts believe the outlook for new aircraft deliveries will be strong for the foreseeable future.

The
strong new aircraft delivery cycle has resulted in an increase in ASG's revenues to support the global aerospace manufacturing base, including several new long-term contract awards.
However, unlike any prior new aircraft delivery cycle, approximately 45% of the record number of new aircraft deliveries were to replace and retire older, less fuel efficient aircraft. These
retirements negatively impacted our 2014 recurring aftermarket revenues and the higher margins related thereto. We expect this trend to begin to reverse as the approximately 7,700 new aircraft
delivered over the 2009-2014 period increasingly roll off their warranty periods and begin to require periodic heavy maintenance checks. The outlook for defense sales will remain tied to the
procurement budgets approved by Congress, in response to the ongoing need for a strong U.S. military presence to counter global challenges.

Through
2011, approximately 16% of our revenues were derived from support for military aircraft. Defense spending has historically been driven by the timing of military aircraft orders
and evolving government strategies and policies. We also support military aircraft MRO providers. Defense spending began to decline in 2012 as the U.S. government implemented its sequestration
program. As a result, we have seen demand from our military and defense customers decline from peak levels experienced prior to 2012 of approximately 16% of total ASG revenues to approximately 12% of
2014 revenues. Similarly, since 2007, business jet manufacturing has declined approximately 50% due to the economic downturn in 2008, and demand from our business jet customers followed a similar
trend such that they now account for approximately 5% of 2014 ASG revenues. We also expect an increase in the rate of business jet production in 2015, which would also be a positive addition to our
results going forward.

Other
factors expected to affect the industries served by ASG include long-term growth in worldwide fleet of passenger aircraft, an increase in the size of the existing installed base,
aging of existing fleet and an expected improvement in the business jet market.

Energy Services Group

We serve energy industry customers who focus on developing and producing oil and gas onshore in North America. We have integrated the
operations of the seven acquisitions that comprise our current business and manage them by both service and product line offerings and by geographic markets. We offer a variety of services, both
individually and on a bundled basis, as requested by our customers. The services and equipment we provide to our ESG customers in the energy sector include wireline services, fishing (retrieval)
services and equipment, pressure control, logging, pipe recovery and rental equipment to support these services. According to Spears & Associates, the market for providers of the technical
services and related rental equipment and other similar products and services we provide to the oil and gas industry in North America is valued at approximately $25 billion, and has grown at a
compound annual rate of 11% for the past 5 years through December 31, 2014.

The
oil and gas industry has historically been both cyclical and seasonal. Activity levels are driven primarily by drilling rig counts, well completions and workover activity, the
geological characteristics of the producing wells and their effect on the services required to commence and maintain production levels, and our customers' capital and operating budgets. All of these
indicators are driven by commodity prices, which are affected by both domestic and global supply and demand factors. In particular, while U.S. natural gas prices are correlated with global oil price
movements, they are also affected by local weather and consumption patterns.

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However,
we believe future secular growth in the markets for our services and products is supported by the following factors:



We
believe that ESG offers services and products which create value for our customers by reducing their exposure to non-productive time ("NPT") during the drilling and production phases.
We provide services and equipment that assist our customers with maintaining and increasing the permeability of the reservoir. We provide specialized experts and equipment to locate and remove
blockages or lost equipment from the reservoir that impede drilling or production operations and a broad range of rental equipment to support the operations of our service personnel and our customers.

Other
factors expected to affect the industry served by our ESG segment include:

Higher Demand for Natural Gas in the United States.We believe that natural gas will be in increasingly high demand in the United States
over the
next several years because of its growing popularity as a cleaner burning fuel. Additionally, according to the International Energy Agency's 2014 World Energy Outlook, North America has been at the
center of the surge in global investment in recent years and will remain the region with the largest oil and gas investment requirement until 2035.

Continued Outsourcing of Ancillary Services.Some of the services we provide have been historically handled by drilling contractors
themselves. In
many instances, these services are only ancillary to the primary activity of drilling and completing wells and represent only a minor portion of the total well drilling cost. Many drilling contractors
are increasingly electing to outsource these services to suppliers who have the expertise to be able to provide increasingly more complex, high-quality and reliable services on a 24/7 basis.

Despite
the outstanding long-term secular industry growth characteristics, the recent precipitous drop in oil and gas commodity prices during the second half of 2014 is likely to have a
material

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negative
impact on our business in 2015. Cutbacks to the capital expenditure budgets of many of our oil and gas customers has led to a rapid reduction in the active drilling rig count in the onshore
North American market. This reduction in current and planned drilling activity has resulted in both cost and capacity utilization pressures on companies within the oilfield service industry.
Significant layoffs at many of the major companies within the industry have already been announced. Our business has begun to experience some of these pressures, particularly in the form of price
reduction requests from our customers, with some of our geographic regions experiencing more pressure than others. In response to these evolving industry conditions, our approach is to first ensure
that we manage our ESG business prudently by closely monitoring costs while positioning our resources in those activities and regions which we believe will maximize our revenue opportunities.
Secondly, our strategy is to maintain sufficient liquidity to take advantage of opportunities that will present themselves. We will also focus on operational excellence and continuous improvement
initiatives. Finally, we will work hard to uncover high return acquisition opportunities over the next 18-24 months. However, there can be no assurance such measures will prevent our ESG
business from suffering an operating loss from reduction in the volume and/or pricing of its services.

Products and Services

We conduct our business through two operating segments: ASG and ESG. Information about each of our operating segments is included
below.

Aerospace Solutions Group

We believe, based on our experience in the industry, that we are the world's 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. We achieved this industry leading
position through both organic growth and the strategic acquisitions of Honeywell's Consumables Solution business in 2008, Satair's aerospace fastener distribution business in 2010 and UFC and
Interturbine in 2012. We have historically shipped approximately 60% of our orders within 24 hours of receipt of the order. With a large and diverse global customer base, including virtually
all of the world's commercial airlines, business jet and defense OEMs, OEM subcontractors, major airlines and major MRO operators across five continents, we provide access to over one million SKUs.
Our service offerings include inventory management and replenishment, creative and differential supply chain solutions such as third-party logistics programs, special packaging and bar-coding,
sophisticated parts kitting, quality assurance testing and a wide variety of purchasing assistance programs, plus the latest in electronic data interchange capability. Our seasoned purchasing and
sales teams, coupled with state-of-the-art IT and automated parts retrieval systems, help us to sustain our reputation for high-quality products and rapid, on-time delivery.

We
believe we are the leading provider of aerospace fasteners and consumables, including chemicals, and of logistics services, to every major aerospace OEM, airline and MRO business
globally, with over 400 sales, marketing and customer service specialists worldwide. Approximately 38% of our 2014 ASG segment revenues are derived from aftermarket customers and approximately 62%
from sales to OEMs and their suppliers. We stock over one million SKUs, are the authorized distributor for more than 200 manufacturers and distribute products for over 3,000 manufacturers.
Based on industry sources, we estimate that during 2014, the market for the products and services provided by ASG, other than chemicals, adhesives, and other related products, was approximately
$4.7 billion; of this amount, we estimate that approximately 34%, or $1.6 billion, is served by the manufacturers of consumable products directly to the end customers and approximately
66%, or $3.1 billion, is served by stocking distributors such as ASG.

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We
offer an extensive range of products, which we believe serves as a key competitive advantage for our business. Our all-inclusive portfolio consists of:



Our
product lines, which are deep and diverse, have an inventory valuation of approximately $1.3 billion with over one million SKUs.

We
offer best-in-class customer service, with over 60% of all orders shipped within 24 hours of order receipt. Among the core services we offer are:



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Energy Services Group

We serve energy industry customers who focus on developing and producing oil and gas onshore in North America. We have integrated the
operations of the seven acquisitions that comprise our current business and manage them both by service and product line offerings and by geographic markets. We offer a variety of services both
individually and on a bundled basis as requested by our customers. Our E&P customers require numerous technical services and products on an "as needed" basis, including wireline services, fishing
(retrieval) services and equipment, pressure control, logging, pipe recovery and rental equipment to support these services. Much like the need for just-in-time delivery of consumables by ASG, ESG
often is faced with just-in-time support requirements for our E&P customers that may be experiencing critical operating issues such as servicing an operating well under high pressures, or removing
blockages during well drilling or production. As a result, our industry specialists (many with over 40 years of experience) are on-call (on a rotational basis) 24 hours a day,
7 days a week to meet our customers' needs. Providing this level of customer support, together with a well-rounded service and associated product offerings, has been well received in this
rapidly growing market segment. According to Spears & Associates, the market for providers of the technical services and related rental equipment and other similar products and services we
provide to the oil and gas industry in North America is valued at approximately $25 billion, and has historically grown at approximately 11% annually. This growth is due primarily to
technological advancements that allow for oil and gas recovery from previously unrecoverable shale formations.

The
oil and gas industry has historically been both cyclical and seasonal. Activity levels are driven primarily by drilling rig counts, well completions and workover activity, the
geological characteristics of the producing wells and their effect on the services required to commence and maintain production levels, and our customers' capital and operating budgets. All of these
indicators are driven by commodity prices, which are affected by both domestic and global supply and demand factors. In particular, while U.S. natural gas prices are correlated with global oil price
movements, they are also affected by local weather and consumption patterns. We initiated our expansion in this sector in August 2013 when we acquired the assets of Blue Dot Energy Services, LLC, a
provider of on-site services and rental equipment to exploration and production companies in the oil and gas industry with operations primarily in the Marcellus/Utica Shales. In December 2013, we
acquired the assets of Bulldog Frac Rentals, LLC, an Eagle Ford Shale-based provider of high-quality pressure control valves and related rental equipment, operating primarily in the Eagle Ford and the
Marcellus/Utica Shales. In January 2014, we acquired the assets of the LT Energy Services group of companies, an Eagle Ford Shale-based provider of accommodation and related surface equipment. In
February 2014, we acquired the assets of Wildcat Wireline LLC, a provider of wireline services primarily in the Eagle Ford and Marcellus/Utica Shales. In April 2014, we acquired the assets of Vision
Oil Tools, LLC, an established provider of services and rental equipment to oil and gas E&P companies with operations located in the Bakken Shale formation in North Dakota (Williston Basin),
the Piceance and DJ Basins in Colorado, the
Permian Basin in Texas and in Wyoming. In April 2014, we acquired the assets of the Marcellus Gasfield Services group of companies, an oilfield support services and associated rental equipment
business based in the northeast U.S. In June 2014, we acquired the assets of the Cornell Solutions group of companies, an oilfield support services and associated rental equipment business based in
the southwest U.S. As a result of these acquisitions, we have established a solid presence in the Northeast (Marcellus and Utica Shales), Rocky Mountains (Williston, DJ and Piceance Basins), Southwest
(Permian Basin and Eagle Ford) and Mid-Continent regions in North America. We provide high-quality services and products (new and remanufactured after use and American Petroleum Institute ("API")
certified) to remote drilling sites using our manufacturing, certification, logistics and IT capabilities to properly prepare for deployment, store, locate and deliver, as needed, while continually
providing services to support our customers' drilling operations.

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Our
key service and product offerings include:



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Customers, Competition and Marketing

Aerospace Solutions Group

We market our aerospace fasteners and other consumables directly to the airlines, aircraft leasing companies, MRO providers, general
aviation, first-tier suppliers to the commercial, military and defense airframe manufacturers, the airframe manufacturers and other distributors. We believe that our key competitive advantages are the
breadth of our product offerings and our ability to deliver our products on a timely basis, combined with our core competencies in information management, purchasing and logistics management.
Customers for our ASG segment include all major commercial aircraft, business jet and military OEMs, aftermarket MRO providers and airlines. Sales to ASG's top five customers in 2014 accounted for
approximately 33% of ASG's revenues. See "Risk FactorsGeneralIf we lose significant customers, significant customers materially reduce their purchase orders or significant
programs on which we rely are delayed, scaled back or eliminated, our business, financial condition and results of operations may be adversely affected." Approximately 55% of our ASG revenues in 2014
were to customers in the U.S. with 29% to customers in Europe and the balance to customers in Asia, the Pacific and the Middle East.

We
believe the principal competitive factors in our industry include the ability to provide superior customer service and support, on-time delivery, sufficient inventory availability,
competitive pricing and an effective quality assurance program. Our competitors include both U.S. and foreign companies. Our largest competitors include Wesco Aircraft, Pattonair, Align, AAA, Adept,
Herndon, Boeing, Airbus, PCC, Alcoa, Wencor, Champion, Heico, Jamaica Bearings, Avnet and Avio.

As
of December 31, 2014, we employed over 200 sales personnel with an average of over nine years of experience at our ASG segment. Our sales professionals as of that date were
located mostly in the United States and in Europe.

At
our ASG segment, we maintain both inside and outside sales representatives who have superior knowledge of the technical details of our products. As of December 31, 2014, we had
200 inside sales representatives who both sell our products and provide technical expertise regarding those products.

Energy Services Group

ESG provides services and products and competes in a variety of distinct sub-segments with a number of competitors. Substantially all
of our ESG customers are engaged in the energy industry. Most of our sales are to regional or independent oil companies and these sales have resulted in a diversified and geographically balanced
portfolio of more than 200 customers within North America. On a pro forma basis, for the year ended December 31, 2014, to give effect to the acquisitions completed through June 30, 2014,
revenues from ESG's five largest customers collectively represented approximately 25% of ESG's pro forma revenues (26% on an actual basis). No single customer accounted for more than 10% of
ESG's pro forma 2014 revenues.

Our
primary competitors are regional, which provide a more limited range of services and rental equipment. With respect to certain of our services, we also compete with Weatherford,
Schlumberger, Halliburton, Baker Hughes, Superior Energy Services, Stallion Oilfield Services and HB Rentals. Competition is based on a number of factors, including performance, safety, quality,
reliability, service, price, response time and, increasingly, breadth of services and products.

ESG
maintains both regional and product/services specialist sales teams. Although sales employees tend to be based locally in regions and field locations, we have established a corporate
sales team based in Houston, Texas and Denver, Colorado to coordinate sales and marketing efforts with our key accounts. As of December 31, 2014, we had 13 corporate sales representatives and
59 regional sales representatives with an average of over 15 years of experience.

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Suppliers and Procurement

Aerospace Solutions Group

We do not believe we are dependent on any single supplier or assembler for our raw materials or specified and designed component parts
and, based upon the existing arrangements with vendors, our current and anticipated requirements, we believe that we have made adequate provisions for acquiring raw materials.

We
have assembled a number of focused procurement teams which effectively source our broad range of products.



Energy Services Group

We purchase a wide variety of materials, components and partially completed and finished products from manufacturers and suppliers for
our use. We are not dependent on any single source of supply for those parts, supplies, materials or equipment.

Customer Service

Aerospace Solutions Group

We believe that our customers place a very high value on customer service, on-time delivery and product support, and that the level of
customer service we provide is a critical differentiating factor in our industry. In our ASG segment, we bring the resources of an integrated global network, real-time inventory systems and one-on-one
personal attention to our customer relationships everywhere in the world. The key elements of such service include:



Customer
service is particularly important to the airlines due to the high costs associated with incorrect or late deliveries.

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Energy Services Group

We are highly differentiated in each of the geographic markets that we serve with our services and associated product offerings. This
is achieved by being responsive to our customers with both quality and on-time delivery. The key elements include:



Warranty Product Liability, Insurance

Aerospace Solutions Group

We warrant our ASG products, or specific components thereof, for periods ranging from one to three years, depending on product and
component type. We receive appropriate product warranties and certifications from the manufacturer, and in the event of a defective part, we look to the manufacturer for reimbursement. Historically,
warranty costs have not been material at ASG.

Energy Services Group

The use of certain of our ESG rental equipment or the provision of technical services in connection therewith could involve operational
risk and thereby expose us to liabilities. An accident involving our services or equipment, or the failure of a product, could result in personal injury, loss of life and damage to property, equipment
or the environment. Damages from a catastrophic occurrence, such as a fire or explosion, could result in substantial claims for damages. We generally attempt to negotiate the terms of our MSAs
consistent with industry practice. In general, we attempt to take responsibility for our own personnel and property, while our customers, such as the E&P companies and well operators, take
responsibility for their own personnel, property and all liabilities arising from well and subsurface operations. Given the nature of the services and equipment we provide to our customers, none of
our businesses have incurred any significant losses as a result of a claim for damages arising from the use of our services or products, either individually or in the aggregate.

We
maintain a risk management program that covers operating hazards, including product liability, property damage and personal injury claims as well as certain limited environmental
claims. Our risk management program includes primary and excess umbrella liability policies of $75 million per occurrence, including sudden and accidental pollution claims. We believe that our
insurance is sufficient to cover product liability claims.

Information Technology

Aerospace Solutions Group

We have invested over $100 million in proprietary IT systems to create an unparalleled IT platform for ASG. Our IT systems
provide a powerful, highly distributed computing environment that enables us to quickly scale on demand as business dictates. Some of the benefits of our IT platform to our customers include services
such as:



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Our
information technology infrastructure is based on a proprietary enterprise resource planning ("ERP") application that has been highly customized for the aerospace consumables
management business over the last 20 years. Our IT systems support our order-to-cash, procure-to-pay, warehouse management and accounting processes on a global basis. Our ERP application
interfaces with leading specialty software packages such as JDA (Demand Planning), Sterling (EDI) and Oracle (Business Intelligence, Financial Consolidations and Financial Reporting).

We
also employ virtualization technology to increase system availability, reduce hardware and maintenance costs and respond efficiently to market dynamics. Our entire data services
infrastructure runs 24/7 and is protected by network security technologies, an uninterrupted power supply and a backup generator. Remote access to our systems is provided via separate, high speed
connections.

Energy Services Group

We have been and will continue to invest in integrating our acquisitions onto a single platform using an industry leading rental asset
management software "TrakQuip" along with financial software "Microsoft Dynamics". Our integrated TrakQuip/Microsoft Dynamics application will provide us with a scalable integrated platform that
facilitates highly efficient operations, consolidated invoicing and optimal equipment utilization at a site and segment basis. Based on our current expectations, the ESG IT integration effort with
respect to our ESG acquisitions to date is expected to be completed by early 2016 at a cost of approximately $20 million.

Government Regulation

Aerospace Solutions Group

Governmental agencies throughout the world, including the Federal Aviation Administration (the "FAA"), prescribe standards for aircraft
components, including virtually all commercial airline and general aviation products, as well as regulations regarding the repair and overhaul of airframes, equipment and engines. Specific regulations
vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. In addition, the products we distribute must also be certified
by aircraft and engine OEMs. If any of the material authorizations or approvals that allow us to supply products are revoked or suspended, then the sale of the related products would be
prohibited by law, which would have an adverse effect on our business, financial condition and results of operations.

From
time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing
regulations. If these proposed regulations are adopted and enacted, we could incur significant additional costs to achieve compliance, which could have a material adverse effect on our business,
financial condition and results of operations.

We
are also subject to other government rules and regulations that include the Foreign Corrupt Practices Act of 1977, as amended, International Traffic in Arms Regulations and the False
Claims Act.

Energy Services Group

Our ESG operations are subject to extensive and changing federal, state and local laws and regulations establishing health, safety and
environmental quality standards, including those governing discharges of pollutants into the air and water and the management and disposal of hazardous

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substances
and wastes. We may be subject to liabilities or penalties for violations of those regulations. We are also subject to laws and regulations, such as the Federal Superfund Law and similar
state statutes, governing remediation of contamination which could occur or might have occurred at facilities that we own or operate, or which we formerly owned or operated, or to which we send or
have sent hazardous substances or wastes for treatment, recycling or disposal. We believe that we are currently compliant, in all material respects, with applicable environmental laws and regulations.
However, we could become subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or
obligations in the future if we discover any environmental contamination or liability relating to our facilities or operations.

Employees

As of December 31, 2014, we had approximately 3,500 employees. As of December 31, 2014, our ASG segment had
approximately 2,000 employees. Approximately 61% of ASG's employees are engaged in distribution operations, quality and purchasing, 28% in sales, marketing and product support and 11% in
finance, human resources, IT and general administration. As of December 31, 2014, our ESG segment had approximately 1,500 employees. Approximately 82% of ESG's employees are engaged in
operations, quality and purchasing, 5% in sales, marketing and product support and 13% in finance, human resources, IT and general administration. Our employees are not unionized, and we consider our
employee relations to be good.

Environmental Matters

Our operations are subject to extensive and changing federal, state, local and foreign laws and regulations establishing health, safety
and environmental quality standards, including those governing discharges of pollutants into the air and water and the management and disposal of hazardous substances and wastes. We may be subject to
liabilities or penalties for violations of those laws and regulations. We are also subject to laws and regulations, such as the Federal Superfund Law and similar state statutes, governing remediation
of contamination at facilities that we currently or formerly owned or operated or to which we send or have sent hazardous substances or wastes for treatment, recycling or disposal. We believe that we
are currently compliant, in all material respects, with applicable environmental laws and regulations. However, we could become subject to future liabilities or obligations as a result of new or more
stringent interpretations of existing laws and
regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability relating to our facilities or operations. Clean-up costs and
other damages resulting from any contamination-related liabilities and costs associated with changes in and compliance with environmental laws and regulations could result in the reduction or
discontinuation of our or our customers' operations and in a material adverse effect on our financial condition and results of operations.

Due
to ASG's European operations, we are subject to, among other environmental, health and safety regulations, the Registration, Evaluation, Authorisation and Restriction of Chemicals
regulation ("REACH") in the European Union, which regulates the production and use of chemical substances. In July 2014, one of our German businesses, Interturbine Aviation Logistics GmbH
("ITL"), which was acquired by KLX Aerospace Solutions DE Holding GmbH (formerly B/E Aerospace Systems Holding GmbH) in July 2012, was informed by the German State Agency
for Agriculture, Environment and Rural Areas (Landesamt für Landwirtschaft, Umwelt and ländliche Räume, or the "LLUR") that it had allegedly violated
certain provisions of REACH related to the import and sale of certain chemical products for the period of 2009 through 2013. We are cooperating with the LLUR and currently investigating the amounts of
chemical products that were allegedly imported and sold in violation of REACH. These violations could result in an administrative monetary penalty and a disgorgement of

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profits
from the sale of products allegedly sold in violation of REACH, which could be material. We are not currently able to determine the amount of liability, if any, that we may ultimately be found
to be responsible for that is not covered by any indemnity claims against the seller of ITL.

Our Competitive Strengths

Aerospace Solutions Group

With a deep understanding of our customers' needs and goals, we believe that we have a strong competitive position attributable to a
number of factors, including the following:

Unmatched Depth and Breadth of Products and Services.We provide a comprehensive line of products and services to a broad global
customer base. We
offer the broadest and deepest product portfolio in the world with over one million SKUs valued at over $1 billion. We are an authorized distributor for more than 200 manufacturers, including
every major aerospace fastener manufacturer, and offer products from more than 3,000 other manufacturers. Through the combination of our value-added services and unmatched depth and breadth of our
inventory, we offer our aerospace customers a compelling value proposition. Our services can significantly improve on-time delivery performance, enabling our customers to reduce their inventory and
total acquisition cost, while at the same time decreasing the frequency of production interruptions caused by part shortages. Due to the high levels of precision and engineering standards in the
aerospace industry, our customers must ensure the highest levels of quality assurance, which is provided by our rigorous quality control processes. We track quality in a number of ways via quality
process review, quality objectives review, process performance and product conformity, and internal and external audits, and we report on our results and necessary corrective actions in regular
meetings with our dedicated quality control staff. We have been granted Quality Assurance Inspection Authority by our customers and are authorized by the FAA and Honeywell International Inc.
("Honeywell") to ship our products directly where they are needed for efficiency and accuracy. We meet certain ISO and FAA standards in order to fulfill customer and contractual obligations; no
product is sold by us without a certificate of compliance. While our wide array of value-added services aids in developing and maintaining strong customer relationships, we believe our broad product
and services offering and large customer base make us less vulnerable to the loss of any one customer or program.

Premier Technology and Logistics Platform.We believe we have unrivaled management information systems for optimal execution of
customer orders. We
have invested over $100 million in our proprietary IT systems to create a superior technology platform. We book approximately 16,000 orders daily and manage 750,000 customer bins with greater
than 99% on-time delivery. Our information technology systems and highly refined automated parts retrieval systems allow us to ship approximately 60% of orders placed within 24 hours of
receipt.

Industry Leading Customer Satisfaction.We believe we provide outstanding customer service as demonstrated by our recent customer
recognition awards,
including, among others: Supplier of the Year at Honeywell, Supplier of the Year at Aviation Partners Boeing (2014 was the third consecutive year we
received this award), Elite Supplier Award at Korean Aviation Industry, Silver Supplier Award at Erickson, Best Supplier Award at ANA, Supplier Responsiveness Award at Nordam Group and Platinum
Supplier Award at SIA Engineering Company.

Long-standing Customer Partnerships.Through the unmatched depth and breadth of our products and services offering, consistent on-time
delivery and
focus on operational excellence and customer service, we have successfully developed long-standing partnerships with several of our top ASG customers. The average length of our partnership with our
top ten customers, based on expected revenues for 2014, is approximately ten years. Additionally, during the year ended December 31, 2014, we renewed or extended over 80 existing long term
agreements ("LTAs") with our customers.

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Exposure to International Markets with a Balanced, Global Footprint.We are a leading global provider of aerospace fasteners and other
consumables
and of logistics services to the airline and aerospace industries, serving a diverse worldwide customer base of over 6,000 customers that includes all major commercial, business jet and military OEMs,
aftermarket MRO providers and airlines. In 2014, 55% of ASG's revenue was derived from North America, 29% from Europe and 16% in the rest of the world, which is primarily comprised of Asia, the
Pacific Rim and the Middle East. We serve our ASG customers with sales, marketing, customer service and program management specialists in 60 countries globally. We believe that our geographic
diversification makes us less susceptible to a downturn in a specific geographic region and allows us to take advantage of regional growth trends.

Energy Services Group

Solid Footprint in Key Energy Producing Geographies.Following a series of acquisitions completed in 2013 and 2014, we now provide a
comprehensive
range of services and products to North American E&P businesses that operate in geographies with strong drilling and production economics. We have established business presence in the Bakken formation
of North Dakota, Permian Basin, Eagle Ford,
Haynesville, Marcellus and Utica Shales, Piceance Basin, Mid-Continent, Oklahoma, and other key energy-producing geographies. Our operations service Arkansas, Colorado, Louisiana, New Mexico, North
Dakota, Ohio, Oklahoma, Montana, Pennsylvania, Texas, Utah, West Virginia and Wyoming. According to the U.S. Energy Information Administration, these states account for approximately 78% of U.S.
onshore oil production and 84% of U.S. onshore natural gas production. We believe ESG will best serve its customers, and therefore our stockholders, by maintaining a focus on domestic oil and natural
gas production areas that include both the highest concentrations of existing hydrocarbons and the largest prospective acreage for new drilling activity. We believe our well-developed geographic
presence, together with our mission of being a best-in-class leading provider of our specialized services and products on a 24/7 basis, provides ESG with a competitive advantage. Further, we believe
our geographic presence, the targeted range of services and products we are able to provide, and the ability to reposition our resources to those geographic regions providing the best economic
opportunity at any given time positions our business to generate superior returns on assets deployed.

24/7 Availability of Just-in-Time Services.Our experienced industry professionals are available 24 hours a day, seven days a week
to respond
to customer needs, which has helped to differentiate us from many of our competitors. We specialize in just-in-time support for customers facing critical and time-sensitive operating issues in well
drilling, completion or production, leveraging our technical expertise to resolve issues encountered by our E&P customers. As an example, we are often called to wellsites in order to remove
obstructions from the wellbore that impede drilling, completion and production activities or reduce the flow of fluids and gases, often in remote locations and under harsh conditions. These
obstructions could be as far as two miles or more from the wellsite. These services require specialized technicians and the use of various tools or equipment from our large and growing portfolio of
specialized rental equipment.

Vast Range of High Quality Equipment.We supply a vast range of services and equipment for a variety of onshore oilfield services,
wireline, fishing
intervention at the wellsite and pressure control equipment. We routinely refurbish and recertify our equipment to maintain the quality of our service and to provide a safe working environment for our
personnel. For this purpose, we maintain dedicated on-site remanufacturing shops in several of our regional facilities.

Experienced Management Team with Proven Track Records.Our ESG management team has an average of more than 20 years of industry
experience,
having served as key managers in various energy service companies, including some of the largest energy service companies in the world. Through their collective expertise, we have developed a Houston,
Texas-based group of industry experts responsible for maintaining a unified infrastructure to support our operations through standardized safety,

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environmental,
maintenance processes and controls, IT systems and financial and accounting policies and procedures.

Extensive Local Market Knowledge.We operate on a geographic basis with technical sales and product line management personnel to
support the
geographic leaders. As a result, our regional managers are responsible for operational execution, including cost control, policy compliance and training and other aspects of quality control. With the
majority of our regional managers having over 15 years of industry experience, each regional manager has extensive knowledge of the customer base, job requirements and working conditions in
each local market. Our service line managers are directly responsible for customer relationships, execution of the services provided, asset and personnel management, technology, accident prevention
and equipment maintenance, all of which are key drivers of our operating profitability. This matrix management structure allows us to monitor operating performance on a daily basis, maintain
financial, accounting and asset management controls, prepare timely financial reports and manage contractual risk.

Standardized, Young Fleets of Specialized and Certified Equipment Create Competitive Advantages.Through the use of newly-acquired
specialized and
certified equipment, we believe we are able to create a number of competitive advantages, including:



We
believe having newer, well maintained equipment provides us with an advantage in employee development and retention.

Strong Safety Culture Creates Competitive Advantages and Barriers to Entry.Safety in our ESG segment is driven top-down. All
safety-related
incidents are reviewed by senior management and appropriate corrective actions are taken as necessary. We conduct standardized safety and orientation training for new employees, monthly safety
meetings and annual safety trainings, which are tailored to address any unique requirements of our various product and service offerings. Safety requirements for MSAs with our customers must be
reviewed and verified annually. Compliance with the safety requirements set forth by the major oil companies typically requires suppliers to maintain an effective, dedicated health, safety and
environmental ("HSE") function. Complying with these requirements is expensive to establish, implement and maintain. Our Vice PresidentHSE has more than 20 years of industry
experience and acts as our in-house expert on applicable HSE requirements, developing and maintaining segment-wide policies and procedures at the recently acquired companies and monitoring compliance
with our MSAs. We are aligning our policies and procedures and adopting best practices as recommended by our advisor, an independent HSE consulting firm, and representatives from our insurance
carrier. Our HSE compliance is also monitored by a third party (ISN), an independent, for-profit provider of an online contractor management database. ISN collects health and safety, procurement,
quality and regulatory information such as HSE policies and procedures, incident logs, safety meetings, and training information. Maintaining an adequate rating with ISN is a key requirement in order
to work for many of our customers. We believe some of the companies we compete against lack the infrastructure and financial resources to provide an effective safety program, thereby providing ESG
with a competitive advantage and a further barrier to entry.

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Our Business Strategy

Aerospace Solutions Group

Our business strategy is to maintain a leadership position and to best serve our customers by:

Continued Focus on Operational Excellence and Maintenance of Market Leadership.We have built strong relationships with our existing
ASG customers
and suppliers through a relentless focus on operational excellence. We intend to continue providing our customers with best-in-class on-time delivery performance and quality assurance. We also intend
to continue investing in our integrated, highly customized IT systems and process automation technologies. We believe that by focusing on operational excellence, we will be able to further improve our
already high customer satisfaction, our industry-leading operating metrics and our global market leading position in this industry.

Winning New Business from Existing Aerospace Consumables Customers.We will continue our strategy of expanding our relationships with
existing ASG
customers by transitioning them to our JIT and kitting supply chain management services as well as expanding our programs to include additional customer sites and SKUs. We are a key partner supplying
fasteners and consumables to support the launch of new aircraft programs. We will continue to support our customers in the launch of new aircraft programs by introducing new supply chain solutions
that minimize costs, improve productivity, lower inventory investment and ensure a seamless supply of parts for production and aftermarket support. In addition, we have expanded, and expect to
continue to expand, our product offerings with existing customers. We believe we create value for our customers through our industry leading on-time delivery capabilities, our continuous focus on
quality, our global sourcing capabilities and our ability to get the parts where they need to be when the customer needs them. In doing so, we offer a competitive value proposition by reducing our
customers' investments in working capital and ensuring that our customers' state-of-the art production systems are properly supported throughout their production processes. We believe we will be
rewarded by our customers with incremental business as a result of delivering our high quality services, as promised, where they want it, when they want it and for a lower total acquisition cost.

As
an example, we first began supplying consumables and other products for a portion of one division of United Technologies Corporation ("UTC") in 2004. Over time, we have substantially
expanded our relationship with UTC and, as a result, we have been awarded significantly larger portions of UTC's consumables spending. While we have served certain business units of UTC over the past
ten years, we did not operate under a corporate-wide LTA. In December 2013, we expanded the scope and length of our LTA, valued at approximately $950 million, to support a number of UTC's
aerospace and defense operations, including UTC Aerospace Systems, Sikorsky and Pratt & Whitney through 2022.

Expanding our Customer Base.We believe that our services and capabilities are attractive to potential new ASG customers and we plan to
expand our
customer base. For example, we have succeeded in winning business after competitors were unable to meet customer service level requirements and after customers outsourced work that was previously
performed internally. Historically, we have focused our activities on the major OEMs and their subcontractors, but we believe there is a significant opportunity to expand our commercial MRO
presence and that we can have a greater overall presence in the commercial airline maintenance market.

Further Expansion into International Markets.We have established a presence in international locations such as the United Arab Emirates,
 Australia,
China, Singapore, India, Germany, Mexico and Italy to support new and existing ASG customers. We will continue our international expansion efforts to more effectively serve our existing customer base
and to reach new customers, as the manufacture of aircraft and aircraft structures continues to become more global and interconnected. We believe that we mitigate many of the risks associated with
international expansion by entering into customer contracts

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before
we establish a new stocking facility. We believe the depth and breadth of product offerings and our logistics capabilities allow us to initially serve customers from our central warehouses,
without providing on site inventories and personnel. This allows us to explore new business opportunities with minimum initial investments, allowing us to demonstrate our capabilities and the value of
our services over time, prior to making significant site-specific investments. Smaller competitors without resources similar to ours are unable to do so and either must pass on these opportunities or
make substantial upfront investments to try to win the business, thereby increasing the amount of risk prior to winning an LTA.

Selectively Pursuing Strategic Acquisitions.Our industry is fragmented and we believe that there are opportunities for continued
consolidation. In
January 2012, we acquired UFC Aerospace Corp. ("UFC"), a leading provider of complex supply chain management and inventory logistics solutions. In July 2012, we acquired Interturbine Projekt
Management GmbH ("Interturbine"), a provider of material management logistical services to global airlines and MRO providers. We believe that we are well positioned to expand our product
offering and geographical footprint through strategic acquisitions. Consistent with this strategy, we continue to evaluate potential acquisition opportunities for ASG. We seek to manage liability,
integration and other risks associated with acquisitions through due diligence, favorable acquisition contracts and careful planning and execution of the integration of the acquired businesses.

Energy Services Group

Our business strategy is to develop a leadership position in a niche of the oil and gas services industry, which supports the North
American onshore exploration and production sector and to best serve our customers by:

Extending our Services and Product Line Offerings in Each Geographical Area.We believe we have built strong relationships with our
existing ESG
customers by offering a broad range of quality services and products in a safe, competent and consistent manner on a 24 hours a day, seven days a week availability basis. Through the seven
acquisitions completed since August 2013, we have assembled an impressive portfolio of people, products, services and capabilities covering the key oil and gas geographies. Following each acquisition,
we have increased capital spending to address unmet customer demand while focusing on customer service, quality of service and safety.

Pursuing Acquisition Opportunities that Meet Our Disciplined Acquisition Criteria.We expect to leverage our existing position in the
energy services
industry by strategically deploying capital to accelerate our revenue and earnings growth rates through acquisitions. We intend to pursue strategic opportunities in the highly fragmented market for
high quality providers of technical services and associated rental equipment. We believe that we are well positioned to expand our geographical footprint in North America as well as to expand our
services and product offerings through both capital investment and strategic acquisitions to address our customers' needs, enhance the breadth and quality of our services and assets and to help to
further improve stockholder value.

Develop Market Leadership in Niche Sectors Through Operational Excellence.Our customers are increasingly sophisticated consumers of
the services we
seek to provide. They require, among other things, standardized procedures and equipment, as well as health and safety practices that can be counted upon on a just-in-time basis. The provision of
services and equipment that deliver consistent performance minimize NPT, a critical measure of efficiency and cost to our customer. We compete against a large number of smaller, regional businesses
who often have neither the capital investment capacity to offer the range of up-to-date services and equipment that we do across multiple wells and multiple geographies, nor the database and operating
practices to meet the current HSE requirements. We compete based upon being a best-in-class leading provider of specialized services delivered on a consistent basis for both local customers and
larger, multi-region oil & gas companies.

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Growth Opportunities

Aerospace Solutions Group

We believe that our ASG segment will benefit from the following industry trends:

Growing Worldwide Fleet Creates Demand for Aftermarket Services and Products.The worldwide fleet of commercial airliners is expected
to continue to
grow over the long-term, reflecting the expected growth in passenger travel over the 2014 through 2029 period. The size of the worldwide fleet is important to us since the proper maintenance of the
fleet generates ongoing demand for spare parts, including fasteners and other consumables products, to support the active fleets of commercial aircraft, business jets and military aircraft. For the
years ended December 31, 2014 and 2013, approximately 38% and 39%, respectively, of ASG's revenues were derived from the aftermarket. In addition, aftermarket revenues are generally
driven by aircraft usage, and as such, have historically tended to recover more quickly than revenues from OEM production.

The
increase in new aircraft deliveries over the past three years has resulted in a reduction of older aircraft in active service; as a result, while ASG's revenues have grown, our mix
of OEM and aftermarket revenues has shifted modestly, with the contribution of OEM revenues increasing from 61% of sales in 2013 to 62% of sales in 2014. At the same time, the increase in the
installed base of aircraft in service resulting from these new deliveries should provide a growing market for aftermarket sales later in the decade. We believe ASG's unparalleled breadth of inventory,
proprietary IT systems and strong customer relationships position ASG to take full advantage of this shift in opportunity.

Opportunity to Substantially Expand our Addressable Aerospace Consumables Markets.Our ASG segment leverages our key strengths,
including marketing
and service relationships with most of the world's airlines, commercial aircraft OEMs and their suppliers, business jet OEMs and their suppliers, MRO providers and the military. Nearly
40% of ASG's demand is generated by the aftermarket. As a result, demand for aerospace hardware, fasteners, bearings, seals, gaskets, lighting products, electrical components and other consumables is
expected to increase over time as the fleet expands and ages. The aerospace and military OEMs are increasingly outsourcing to subcontract manufacturers, which benefits distributors such as ASG,
as many of these subcontractors tend to purchase through distributors. In addition, aerospace manufacturers, airlines, MRO providers and suppliers are increasingly seeking companies such as ASG to
provide a customized single point of contact for inventory management, automated forecasting and usage monitoring, centralized communications and tracking across their supply base.

Energy Services Group

We believe that our ESG segment will benefit from the following industry trends:

Large, Highly Fragmented Energy Services Market.Recent shale gas and oil discoveries and new methods of extraction have uncovered vast
untapped oil
and gas reserves in North America and contributed to the drilling boom over the past 5 years, which has helped to drive demand for products and services to support advanced drilling activities,
most of which are in remote areas with harsh environments. Currently, there are 24 states with land based drilling activity and, according to Spears & Associates, the market for providers of
the technical services and related rental equipment and other similar products and services we provide to the oil and gas industry in North America is valued at approximately $25 billion, which
has grown at a compound annual rate of 11% for the five year period ended December 31, 2014. This market segment is served by both large oilfield services companies, which provide a breadth of
products and services, predominantly on a packaged basis, and hundreds of small companies providing technical services and related rental equipment to E&P companies. With our entry into this market
through several strategic acquisitions, we are providing a targeted range of high quality services and products to remote drilling sites using our manufacturing, certification, IT and

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logistics
capabilities to prepare for deployment and store, locate and deliver equipment and services as needed by our customers. The oil and gas industry has historically been both cyclical and
seasonal. Activity levels are driven primarily by drilling rig counts, well completions and workover activity, the geological characteristics of the producing wells and their effect on the services
required to commence and maintain production levels, and our customers' capital and operating budgets. All of these indicators are driven by commodity prices, which are affected by both domestic and
global supply and demand factors. In particular, while U.S. natural gas prices are correlated with global oil price movements, they are also affected by local market weather and consumption patterns.

Generally,
the services we offer provide our customers with best-in-class execution of mission critical activities which, while they represent a small portion of the total value of the
cost of drilling, completing and operating the well, can be costly to our customers if done incorrectly or inefficiently. ESG offers its customers the benefits of dealing with a large, well
capitalized company with standardized operating procedures and best practices, while receiving the personalized service, local market identity and experience, and leading field technicians in the
specific services and products they seek.

Despite
the outstanding long-term secular industry growth characteristics, the recent precipitous drop in oil and gas commodity prices during the second half of 2014 is likely to have a
material negative impact on our business in 2015. Cutbacks to the capital expenditure budgets of many of our oil and gas customers has led to a rapid reduction in the active drilling rig count in the
onshore North American market. This reduction in current and planned drilling activity has resulted in both cost and capacity utilization pressures on companies within the oilfield service industry.
Significant layoffs at many of the major companies within the industry have already been announced. Our business has begun to experience some of these pressures, particularly in the form of price
reduction requests from our customers, with some of our geographic regions experiencing more pressure than others. In response to these evolving industry conditions, our approach is to first ensure
that we manage our ESG business prudently by closely monitoring costs while positioning our resources in those activities and regions which we believe will maximize our revenue opportunities.
Secondly, our strategy is to maintain sufficient liquidity to take advantage of opportunities that will present themselves. We will also focus on operational excellence and continuous improvement
initiatives. Finally, we will work hard to uncover high return acquisition opportunities over the next 18-24 months. However, there can be no assurance such measures will prevent our ESG
business from suffering an operating loss from reduction in the volume and/or pricing of its services.

Acquisition Opportunities.The highly fragmented and growing oilfield services, equipment rental, and logistics and services industry
offers numerous
acquisition opportunities to expand our existing product and service offerings in the various geographies in which we currently operate. In addition, we believe we can grow organically both through
service line expansions in each of the key geographies in which we are currently operating and through geographic expansions into other emerging markets within North America.

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ITEM 1A.    RISK FACTORS

You should carefully consider each of the following risks and uncertainties, which we believe are the principal
risks that we face and of which we are currently aware, and all of the other information in this Form 10-K. Some of the risks and uncertainties described below relate to our business, while
others relate to the spin-off. Other risks relate principally to the securities markets and ownership of our common stock.

If any of the following events actually occur, our business, financial condition or financial results could be materially adversely affected, the trading price of
our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties that we do not presently know about or currently believe are not material may also
adversely affect our business and operations.

Risks Relating to Our Business

Risks Relating to the Aerospace Solutions Business

We sell products to the airline industry, which is a heavily regulated industry, and the ASG
business may be adversely affected if our suppliers or customers lose government approvals, if more stringent government regulations are enacted or if industry oversight is increased.

The FAA prescribes standards and licensing requirements for aircraft components, including virtually all commercial airline and general
aviation cabin interior products, and licenses component repair stations within the United States. Comparable agencies, such as the European Aviation Safety Agency, the Civil Aviation Administration
of China and the Japanese Civil Aviation Board, regulate these matters in other countries. Our suppliers and customers must generally be certified by such governmental agencies. If any of our
suppliers' government certifications are revoked, we would be less likely to buy such supplier's products and, as a result, would need to locate a suitable alternate supply of such products, which we
may be unable to accomplish on commercially reasonable terms or at all. If any of our customers' government certifications are revoked, their demand for the products we sell would decline. In each
case, ASG's results of operations and financial condition may be adversely affected.

From
time to time, these regulatory agencies propose new regulations or heighten industry oversight. These new regulations generally cause an increase in costs of our suppliers and
customers to comply with these regulations. In the case of our suppliers, these expenses may be passed on to us in the form of price increases, which we may be unable to pass along to our customers.
In the case of our customers, these expenses may limit their ability to purchase products from us. In each case, ASG's results of operations and financial condition may be adversely affected.

We are directly dependent upon the conditions in the airline, business jet and defense industries
and an economic downturn could negatively impact our results of operations and financial condition.

Demand for the products and services we offer are directly tied to the delivery of new aircraft, aircraft utilization and repair of
existing aircraft, which, in turn, are impacted by global economic conditions. Although the economy has exhibited signs of recovery, global financial markets have experienced extreme volatility and
disruption, which, at times, reached unprecedented levels as a result of the financial crisis affecting the banking system and participants in the global financial markets. Concerns over the
tightening of the corporate credit markets, inflation, energy costs and the dislocation of the residential real estate and mortgage markets have contributed to the volatility in the global financial
markets and, together with the global financial crisis, have created uncertainties for global economic conditions in the future. The airline and business jet industries are sensitive to changes in
economic conditions. In 2008 and 2009, as a result of the global economic downturn, the airline industry parked aircraft, delayed new aircraft purchases and deliveries of new aircraft, deferred
retrofit

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programs
and depleted existing inventories. The business jet industry was also severely impacted by both the recession and by declining corporate profits during that period.

Unfavorable
economic conditions have also caused reduced spending for both leisure and business travel, which has negatively affected the airline and business jet industries. According
to IATA, the economic downturn, combined with the high fuel prices experienced during most of 2009, contributed to the worldwide airline industry's operating loss of approximately $4.6 billion
in 2009. In addition, as a result of the decline in both traffic and airfares following the September 11, 2001 terrorist attacks and threats of future terrorist attacks, the SARS and H1N1
outbreaks, the conflicts in Iraq and Afghanistan, as well as other factors, such as increases in fuel costs and heightened competition from low-cost carriers, the world airline industry generated
total operating losses of approximately $52.8 billion during the period from 2001 to 2009, which caused a significant number of airlines worldwide to declare bankruptcy or cease operations.

The
commercial airline and business jet industries could experience a difficult operating environment due to a number of factors beyond our control. As an example, the operating
environment would be negatively impacted by increasing fuel prices, consolidation in the industry, changes in regulation, terrorism, safety, environmental and health concerns and labor issues. Many of
these factors could have a negative impact on air travel, which could materially adversely affect ASG's operating results.

We may be materially adversely affected by high fuel prices.

Fluctuations in the global supply of crude oil and the possibility of changes in government policy on jet fuel production,
transportation and marketing make it difficult to predict the future availability and price of jet fuel. In the event there is an outbreak or escalation of hostilities or other conflicts or
significant disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the production or importation of crude oil and significant increases in the cost
of jet fuel. If there was a major reduction in the availability of jet fuel or significant increases in its cost, commercial airlines will face increased operating costs. Due to the competitive nature
of the airline industry, airlines are often unable to pass on future increases in fuel prices directly to customers by increasing fares. As a result, an increase in the price of jet fuel could result
in a decrease in net income from either lower margins or, if airlines increase ticket fares, lower revenue resulting from reduced airline travel. Decreases in airline profitability could decrease the
demand for new commercial aircraft, resulting in delays to or reductions in deliveries of commercial aircraft that utilize the products we sell, and, as a result, although rising oil and gas prices
may benefit our ESG segment, ASG's financial condition, results of operations and cash flows could be materially adversely affected.

We and our ASG customers are subject to federal, state, local and foreign laws and regulations
regarding issues of health, safety, climate change and the protection of the environment, under which we or our ASG customers may become liable for penalties, damages or costs of remediation or other
corrective measures. Changes in such laws or regulations could increase our or our ASG customers' costs of doing business and adversely impact our business.

Our operations and our ASG customers' operations are subject to stringent federal, state, local and foreign laws and regulations,
including those relating to, among other things, natural resources, wetlands, endangered species, the environment, health and safety, waste management, waste disposal and the transportation of waste
and other materials. Some environmental laws and regulations may impose strict liability, joint and several liability or both. Increased costs of regulatory compliance, claims for liability or
sanctions for noncompliance and related costs could cause us or our ASG customers to incur substantial costs or losses. Clean-up costs and other damages resulting from any contamination-related
liabilities and costs associated with changes in and compliance with environmental laws and regulations could result in the reduction or discontinuation of our or our ASG

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customers'
operations and in a material adverse effect on our financial condition and results of operations.

For
example, ASG's European operations are subject to the REACH regulation in the European Union, which regulates the production and use of chemical substances. In July 2014, one of our
German businesses, ITL, which was acquired by KLX Aerospace Solutions DE Holding GmbH (B/E Aerospace Systems Holding GmbH) in July 2012, was informed by the LLUR that it had
allegedly violated certain provisions of REACH related to the import and sale of certain chemical products for the period of 2009 through 2013. We are cooperating with the LLUR and currently
investigating the amounts of chemical products that were allegedly imported and sold in violation of REACH. These violations could result in an administrative monetary penalty and a disgorgement of
profits from the sale of products allegedly sold in violation of REACH, which could be material. We are not currently able to determine the amount of liability, if any, that we may ultimately be found
to be responsible for that is not covered by any indemnity claims against the seller of ITL.

Laws
protecting the environment generally have become more stringent over time and we expect them to continue to do so, which could lead to material increases in our and our ASG
customers' costs for future environmental compliance and remediation.

Demand for ASG's products and services is closely tied to the aerospace industry, which may exhibit
pronounced cyclicality.

Demand for the products and services ASG offers is tied to the cyclical nature of the aerospace industry. During periods of economic
expansion, when capital spending normally increases, we generally benefit from greater demand for our products. During periods of economic contraction, when capital spending normally decreases, we
generally are adversely affected by declining demand for our products and services. Aerospace industry conditions are impacted by numerous factors over which we have no control, including political,
regulatory, economic and military conditions, environmental concerns, weather conditions and fuel pricing. Any prolonged cyclical downturn could have an adverse impact on ASG's operating results.

There are risks inherent in international operations that could have a material adverse effect on
ASG's business operations.

While the majority of ASG's operations are based domestically, we have significant operations based internationally with distribution
facilities in the United Kingdom, Germany and France. In addition, we sell our products to airlines all over the world. Our customers are located primarily in North America, Europe, Asia, the Pacific
Rim, South America and the Middle East. As a result, 45% of ASG's revenues for the year ended December 31, 2014 were to customers located outside the United States. Volatile international
economic, political and market conditions may have a negative impact on our operating results and our ability to achieve our goals.

In
addition, we have several subsidiaries in foreign countries (primarily in Europe), which have sales outside the United States. As a result, we are exposed to currency exchange rate
fluctuations as a portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. Approximately 13% of ASG's revenues during the year ended December 31, 2014 came
from our foreign operations. Fluctuations in the value of foreign currencies affect the dollar value of our net investment in foreign subsidiaries, with these fluctuations being included in a separate
component of stockholders' equity. At December 31, 2014, we reported a cumulative foreign currency translation adjustment of approximately ($28.5) million in stockholders' equity as a result of
foreign currency adjustments, and we may incur additional adjustments in future periods. In addition, operating results of foreign subsidiaries are translated into U.S. dollars for purposes of our
statement of earnings and comprehensive income at average monthly exchange rates. Moreover, to the extent that our revenues

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are
not denominated in the same currency as our expenses, our net earnings could be materially adversely affected. For example, a portion of labor, material and overhead costs for our distribution
facilities in the United Kingdom and Germany are incurred in British pounds or Euros but the related sales revenues may be denominated in U.S. dollars. Changes in the value of the U.S. dollar or other
currencies could result in material fluctuations in foreign currency translation amounts or the U.S. dollar value of transactions and, as a result, our net earnings could be materially adversely
affected.

Historically,
we have not engaged in hedging transactions. However, we may engage in hedging transactions in the future to manage or reduce our foreign exchange risk. Our attempts to
manage our foreign currency exchange risk may not be successful and, as a result, our results of operations and financial condition could be materially adversely affected.

Our
foreign operations could also be subject to unexpected changes in regulatory requirements, tariffs and other market barriers and political, economic and social instability in the
countries where we operate or sell our products and offer our services. The impact of any such events that may occur in the future could subject us to additional costs or loss of sales, which could
materially adversely affect our operating results.

We are subject to a variety of risks associated with the sale of our products and services to the
U.S. government directly and indirectly through our defense customers, which could negatively affect our revenues and results of operations.

As a supplier directly to the defense industry and as a subcontractor to suppliers of the U.S. government, we face risks that are
specific to doing business with the U.S. government. The U.S. government has the ability to unilaterally suspend the award of new contracts to us in the event of any violations of procurement laws, or
reviews of the same. It could also reduce the value of our existing contracts as well as audit our costs and fees. Many of our U.S. government contracts, or our customers' contracts with the United
States government may be terminated for convenience by the government. Termination-for-convenience provisions typically provide that we would recover only our incurred or committed costs, settlement
expenses and profit on the work that we completed prior to termination. In such an event, we would not earn the revenue that we would have originally anticipated from such a terminated contract.

Government
reviews can be costly and time consuming, and could divert our management resources away from running our business. As a result of such reviews, we could be required to
provide a refund to the U.S. government or we could be asked to enter into an arrangement whereby our prices would be based on cost, or the U.S. government could seek to pursue alternative sources of
supply for our products. These actions could have a negative effect on our management efficiency and could reduce our revenues and results of operations. Additionally, as a U.S. government contractor
or subcontractor, we are subject to federal laws governing suppliers to the U.S. government, including potential application of the False Claims Act.

Military spending, including spending on the products we sell, is dependent upon national defense
budgets, and a reduction in military spending could have a material adverse effect on our business, financial condition and results of operations.

During the year ended December 30, 2014, approximately 12% of ASG's revenues were related to supporting the military markets, as
compared with approximately 16% of ASG's revenues in 2011. The military market is highly dependent upon government budgetary trends, particularly the U.S. Department of Defense ("DoD") budget. Future
DoD budgets could be negatively impacted by several factors, including, but not limited to, a change in defense spending policy by the current and future presidential administrations and Congress,
including pursuant to mandated spending
reductions under the so-called "sequestration" process, the U.S. government's budget deficits, spending priorities, the

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cost
of sustaining the U.S. military presence in overseas operations and possible political pressure to reduce U.S. government military spending, each of which could cause the DoD budget to decline.

A
decline in U.S. military expenditures could result in a reduction in military aircraft production, which could have a material adverse effect on our results of operations and financial
condition.

We do not have guaranteed future sales of the products we sell and we generally take the risk of
cost overruns when we enter into JIT contracts and LTAs with our customers, and our business, financial condition, results of operations and operating margins may be negatively affected if we purchase
more products than our customers require, product costs increase unexpectedly, we experience high start-up costs on new contracts or our contracts are terminated.

Our JIT contracts and LTAs are long-term, generally fixed-price agreements with no guarantee of future customer purchase requirements,
and may be terminated for convenience on short notice by our customers, often without meaningful penalties, provided that we are reimbursed for the cost of any inventory specifically procured for the
customer. In addition, we purchase inventory based on our forecasts of anticipated future customer demand. As a result, we may take the risk of having excess inventory in the event that our customers
do not place orders consistent with our forecasts. We also run the risk of not being able to pass along or otherwise recover unexpected increases in our product costs, including as a result of
commodity price increases, which may increase above our established prices at the time we entered into the customer contract and established prices for parts we provide. When we are awarded new
contracts, particularly JIT contracts, we may incur high costs, including salary and overtime costs to hire and train on-site personnel, in the start-up phase of our performance. In the event that we
purchase more products than our customers require, product costs increase unexpectedly, we experience high start-up costs on new contracts or our contracts are terminated, our results of operations
and financial condition could be negatively affected.

Our international operations require us to comply with anti-corruption laws and regulations of the
U.S. government and various international jurisdictions, and our failure to comply with these laws and regulations could adversely affect our reputation, business, financial condition and results of
operations.

Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and
various international jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual
directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to
U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (the "FCPA"). The FCPA prohibits us from providing anything of value to foreign officials for the
purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal
accounting practices to accurately reflect the transactions of the company. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be
considered foreign officials for purposes of the FCPA. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. As a
result of the above activities, we are exposed to the risk of violating anti-corruption laws.

We
are also subject to International Traffic in Arms Regulation ("ITAR"). ITAR requires export licenses from the U.S. Department of State for products shipped outside the United States
that have military or strategic applications. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment
from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel to comply with applicable U.S. and international laws
and regulations.

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However,
there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could
adversely affect our reputation, business, financial condition and results of operations.

We are dependent on access to and the performance of third-party package delivery companies.

Our ability to provide efficient distribution of the products we sell to our customers is an integral component of our overall business
strategy. We do not maintain our own delivery networks, and instead rely on third-party package delivery companies. We cannot assure you that we will always be able to ensure access to preferred
delivery companies or that these companies will continue to meet our needs or provide reasonable pricing terms. In addition, if the package delivery companies on which we rely on experience delays
resulting from inclement weather or other disruptions, we may be unable to maintain products in inventory and deliver products to our customers on a timely basis, which may adversely affect our
results of operations and financial condition.

Risks Relating to the Energy Services Business

We serve customers who are involved in drilling for and production of oil and natural gas. Demand
for services in the oil and natural gas industry is cyclical and any adverse developments affecting this industry could have a material adverse effect on our financial condition and results of
operations.

Our revenues in the ESG segment are primarily generated from customers who are engaged in drilling for and production of oil and
natural gas. Demand for services in the oil and natural gas industry is cyclical, and we depend on our customers' willingness to make capital and operating expenditures to explore for, develop and
produce oil and natural gas in the United States. Additionally, developments that adversely affect oil and natural gas drilling and production services could reduce our customers' willingness to make
such expenditures and materially reduce our customers' demand for our services and associated product offerings, resulting in a material adverse effect on our results of operations and financial
condition.

The
predominant factor that would reduce demand for ESG services and associated product offerings would be a reduction in land-based drilling activity in the continental United States.
Commodity prices, and market expectations of potential changes in these prices, may significantly affect this level of activity, as well as the rates paid for our services. Worldwide political,
economic and military events as well as natural disasters and other factors beyond our control contribute to oil and natural gas price levels and volatility and are likely to continue to do so in the
future. Current levels in the price of natural gas, oil or natural gas liquids, as well as ongoing volatility, have begun to have an adverse impact on the level of drilling, exploration and production
activity, which could materially and adversely
affect the demand for our services and the rates we are able to charge for our services in our ESG segment, although declines in the price of jet fuel may benefit our ASG segment. We negotiate the
rates payable under our contracts based on prevailing market rates and rate books which are periodically updated and, as such, the rates we are able to charge will fluctuate with market conditions.
However, higher commodity prices do not necessarily translate into increased drilling activity because our customers' expectations of future prices also influence their activity. Additionally, in
response to low natural gas prices, a number of third-party E&P companies have reduced dry natural gas drilling and production and redirected their activities and capital toward liquids-rich plays
that are currently more economical. Overall reductions in the demand for oilfield services could occur, which would adversely affect the rates that we are able to charge, and the demand for our
services. Additionally, we may incur costs and have downtime any time our customers' activities are refocused towards different drilling regions.

Despite
the outstanding long-term secular industry growth characteristics, the recent precipitous drop in oil and gas commodity prices during the second half of 2014 is likely to have a
material

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negative
impact on our business in 2015. Cutbacks to the capital expenditure budgets of many of our oil and gas customers has led to a rapid reduction in the active drilling rig count in the onshore
North American market. This reduction in current and planned drilling activity has resulted in both cost and capacity utilization pressures on companies within the oilfield service industry.
Significant layoffs at many of the major companies within the industry have already been announced. Our business has begun to experience some of these pressures, particularly in the form of price
reduction requests from our customers, with some of our geographic regions experiencing more pressure than others. In response to these evolving industry conditions, our approach is to first ensure
that we manage our ESG business prudently by closely monitoring costs while positioning our resources in those activities and regions which we believe will maximize our revenue opportunities.
Secondly, our strategy is to maintain sufficient liquidity to take advantage of opportunities that will present themselves. We will also focus on operational excellence and continuous improvement
initiatives. Finally, we will work hard to uncover high return acquisition opportunities over the next 18-24 months. However, there can be no assurance such measures will prevent our ESG
business from suffering an operating loss from reduction in the volume and/or pricing of its services.

Another
factor that would reduce the level of drilling and production activity is increased government regulation of that activity. Our customers' drilling and production operations are
subject to extensive federal, state, local and foreign laws and government regulations concerning: emissions of pollutants and greenhouse gases; hydraulic fracturing; the handling of oil and natural
gas and byproducts thereof and other materials and substances used in connection with oil and natural gas operations, including drilling fluids and wastewater; well spacing; production limitations;
plugging and abandonment of wells; unitization and pooling of properties; and taxation. More stringent legislation or regulation (including public pressure on governmental bodies and regulatory
agencies to regulate the oil and natural gas industry), a moratorium on drilling or hydraulic fracturing, or increased taxation of oil and natural gas drilling activity could directly curtail such
activity or increase the cost of drilling, resulting in reduced
levels of drilling activity and therefore reduced demand for our ESG services and associated product offerings.

Spending
by E&P companies can also be impacted by conditions in the capital markets. Limitations on the availability of capital, or higher costs of capital, for financing expenditures
may cause E&P companies to make additional reductions to capital budgets in the future even if oil prices remain at current levels or natural gas prices increase from current levels. Any such cuts in
spending would likely curtail drilling and completion programs as well as discretionary spending on wellsite services, which may result in a reduction in the demand for our services, the rates we can
charge and the utilization of our services. Moreover, reduced discovery rates of new oil and natural gas reserves, or a decrease in the development rate of reserves in our market areas, whether due to
increased governmental regulation, including with respect to environmental matters, limitations on exploration and drilling activity or other factors, could also have an impact on our business, even
in a stronger oil and natural gas price environment. An adverse development in any of these areas could have an adverse impact on our customers' operations or financial condition, which could in turn
result in reduced demand for our services and associated product offerings.

Other
factors over which we have no control that could affect our customers' willingness to undertake drilling and completion spending activities
include:



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Any future decreases in the rate at which oil or natural gas reserves are discovered or developed
could decrease the demand for our energy services.

Reduced discovery rates of new oil and natural gas reserves, or a decrease in the development rate of reserves, in our market areas,
whether due to increased governmental regulation, limitations on exploration and drilling activity or other factors, could have a material adverse impact on our financial condition and results of
operations even in a stronger oil and natural gas price environment.

Conservation measures and technological advances could reduce demand for oil and natural gas.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas,
technological advances in fuel economy and energy generation devices could reduce demand for oil and natural gas. We cannot predict the impact of the changing demand for oil and natural gas services,
and any major changes may have a material adverse effect on ESG's results of operations and financial condition.

Delays by us or our ESG customers in obtaining permits or the inability by us or our ESG customers
to obtain or renew permits could impair our business.

We and our ESG customers are required to obtain permits from one or more governmental agencies in order to perform certain activities.
Such permits are typically required by state agencies but can also be required by federal and local governmental agencies. The requirements for such permits vary depending on the type of operations,
including the location where our ESG customers' drilling and completion activities will be conducted. As with all governmental permitting processes, there is a degree of uncertainty as to whether a
permit will be granted, the time it will take for a permit to be issued and the conditions which may be imposed in connection with the granting of the permit. Certain regulatory authorities have
delayed or suspended the issuance of permits while the potential environmental impacts associated with issuing such permits can be studied and appropriate mitigation measures evaluated. Permitting
delays, an inability to obtain or renew permits or revocation of our or our ESG customers' current permits could cause a loss of revenue and could materially and adversely affect our results of
operations and financial condition.

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Our ESG business involves many hazards and operational risks, and we are not insured against all the
risks we face.

ESG's operations are subject to many hazards and risks, including the following:



If
any of these hazards materialize, they could result in suspension of operations, termination of contracts without compensation, damage to or destruction of our equipment and the
property of others, or injury or death to our personnel or third parties and could expose us to substantial liability or losses.
The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators. In addition, these risks may be greater for us upon
the acquisition of another company that has not allocated significant resources and management focus to safety and has a poor safety record.

We
are not fully insured against all risks inherent in our business. For example, although we are insured for environmental pollution resulting from certain environmental accidents that
occur on a sudden and accidental basis, we may not be insured against all environmental accidents or events that might occur, some of which may result in toxic tort claims. If a significant accident
or event occurs for which we are not adequately insured, it could adversely affect our financial condition and results of operations. Furthermore, we may not be able to maintain or obtain insurance of
the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies may substantially increase. In some instances,
certain insurance could become unavailable or available only for reduced amounts of coverage.

Our ESG business may be adversely affected by a deterioration in general economic conditions or a
weakening of the broader energy industry.

The oil and gas industry has historically been both cyclical and seasonal. Activity levels are driven primarily by drilling rig counts,
well completions and workover activity, the geological characteristics of the producing wells and their effect on the services required to commence and maintain production levels, and our customers'
capital and operating budgets. All of these indicators are driven by commodity prices, which are affected by both domestic and global supply and demand factors. In particular, while U.S. natural gas
prices are correlated with global oil price movements, they are also affected by local market weather and consumption patterns. A prolonged economic slowdown, another recession in the United States,
adverse events relating to the energy industry and local, regional and national economic conditions and factors, particularly a slowdown in the E&P industry, would negatively impact our ESG operations
and therefore adversely affect our results. The risks associated with our business are more acute during periods of economic slowdown or recession because such periods may be accompanied by decreased
spending by our customers.

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We participate in a capital-intensive industry, and may need to obtain additional capital or
financing to fund expansion of our asset base, which could increase our financial leverage, or we may not be able to finance our capital needs.

In order to expand our ESG asset base, we may need to make significant capital expenditures. If we do not make sufficient or effective
capital expenditures, we will be unable to organically expand our business operations. These expenditures may be significant because assets in our industry require significant capital to purchase and
modify.

We
intend to rely primarily on cash flows from operating activities and borrowings under our $500 million secured revolving credit facility, and existing cash balances to fund our
capital expenditures. If our cash, cash flows from operating activities and borrowings under the secured revolving credit facility are not sufficient to fund our capital expenditures, we would be
required to fund these expenditures through the issuance of additional debt or equity or pursue alternative financing plans, such as refinancing or restructuring our debt, selling assets or reducing
or delaying acquisitions or capital investments, such as planned upgrades or acquisitions of equipment and refurbishments of equipment, even if previously publicly announced.

The
terms of the debt we incurred in connection with the spin-off and any future debt instruments may restrict us from adopting some of these alternatives. If debt and equity capital or
alternative financing plans are not available on favorable terms or at all, we would be required to curtail our capital spending, and our ability to sustain or improve our profits may be adversely
affected. Our ability to refinance or restructure our debt will depend on the condition of the capital markets and our financial condition at such time, among other things. Any refinancing of our debt
could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, incurring additional debt may
significantly increase our interest expense and financial leverage, and issuing common stock may result in significant dilution to our current stockholders.

Shortages or increases in the costs of the equipment we use in our operations could adversely affect
our operations in the future.

We generally do not have specialized tools, trucks or long-term contracts in place that provide for the delivery of equipment,
including, but not limited to, replacement parts and other equipment. We could experience delays in the delivery of the equipment that we have ordered and its placement into service due to factors
that are beyond our control. New federal regulations regarding diesel engines, demand by other oilfield services companies and numerous other factors beyond our control could adversely affect our
ability to procure equipment that we have not yet ordered or cause the prices of such equipment to increase. Price increases, delays in delivery and interruptions in supply may require us to increase
capital and repair expenditures and incur higher operating costs. Each of these could have a material adverse effect on our financial condition and results of operations.

We are dependent on a small number of suppliers for key goods and services that we use in our
operations.

We do not have long term contracts with third party suppliers of many of the goods and services that we use in large volumes in our ESG
operations, including manufacturers of accommodations units, rental and fishing tools, chargers and other tools and equipment used in our operations. Especially during periods in which oilfield
services are in high demand, the availability of certain goods and services used in our industry decreases and the price of such goods and services increases. We are dependent on a small number of
suppliers for key goods and services. During the twelve months ended December 31, 2014, based on total purchase cost, our ten largest suppliers of goods and services represented approximately
36% of all such purchases. Our reliance on such suppliers could increase the difficulty of obtaining such goods and services in the event of a shortage in our industry or cause us to

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pay
higher prices. Price increases, delays in delivery and interruptions in supply may require us to incur higher operating costs. Each of these could have a material adverse effect on our results of
operations and financial condition.

Our inability to develop, obtain or implement new technology may cause us to become less
competitive.

The energy services industry is subject to the introduction of new drilling and completion techniques and services using new
technologies, some of which may be subject to patent protection or costly to obtain. As competitors and others use or develop new technologies in the future, we may be placed at a competitive
disadvantage if we fail to keep pace with technological advancements within our industry. Furthermore, we may face competitive pressure to implement or acquire certain new technologies at a
substantial cost. Some of our competitors have greater financial, technical and personnel resources that may allow them to enjoy technological advantages and implement new technologies before we can.
We cannot be certain that we will be able to implement new technologies or products on a timely basis or at an acceptable cost. Thus, limits on our ability to effectively use and implement new and
emerging technologies may have a material adverse effect on our results of operations and financial condition.

Oilfield anti-indemnity provisions enacted by many states may restrict or prohibit a party's
indemnification of us.

We typically enter into agreements with our ESG customers governing the provision of our services, which usually include certain
indemnification provisions for losses resulting from operations. These agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of
the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its own negligence.
Furthermore, certain states, including Louisiana, New Mexico, Texas and Wyoming, have enacted statutes generally referred to as "oilfield anti-indemnity acts" expressly prohibiting certain indemnity
agreements contained in or related to oilfield services agreements. Such oilfield anti-indemnity acts may restrict or void a party's indemnification of us, which could have a material adverse effect
on our results of operations and financial condition.

Changes in trucking regulations may increase our transportation costs and negatively impact our
results of operations.

For the transportation and relocation of our oilfield services equipment, we operate trucks and other heavy equipment. Therefore, we
are subject to regulation as a motor carrier by the U.S. Department of Transportation and by various state agencies, whose regulations include certain permit requirements of highway and safety
authorities. These regulatory authorities exercise broad powers over our trucking operations, generally governing such matters as the authorization to engage in motor carrier operations, safety,
equipment testing and specifications and insurance requirements. The trucking industry is subject to possible regulatory and legislative changes that may impact our operations, such as changes in fuel
emissions limits, the hours of service regulations that govern the amount of time a driver may drive or work in any specific period, limits on vehicle weight and size and other matters. On
May 21, 2010, President Obama signed an executive memorandum directing the National Highway Traffic Safety Administration (the "NHTSA") and the U.S. Environmental Protection Agency (the "EPA")
to develop new, stricter fuel efficiency standards for medium- and heavy-duty trucks. On September 15, 2011, the NHTSA and the EPA published regulations, further amended on August 16,
2013 that regulate fuel efficiency and greenhouse gas emissions from medium- and heavy-duty trucks, beginning with vehicles built for model year 2014. As a result of these regulations, we may
experience an increase in costs related to truck purchases or rentals and maintenance, an impairment of equipment productivity, a decrease in the residual value of these vehicles and an

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increase
in operating expenses. Proposals to increase federal, state or local taxes, including taxes on motor fuels, are also made from time to time, and any such increase would increase our operating
costs. We cannot predict whether, or in what form, any legislative or regulatory changes applicable to our trucking operations will be enacted and to what extent any such legislation or regulations
could increase our costs or otherwise adversely affect our results of operations and financial condition.

Changes in laws or government regulations regarding hydraulic fracturing could increase our
customers' costs of doing business, limit the areas in which our customers can operate and reduce oil and natural gas production by our customers, which could adversely impact our business.

The adoption of any future federal, state or local laws or implementing regulations imposing reporting obligations on, or limiting or
banning, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could have a material adverse impact on ESG's results of operations and financial
condition. Presently, hydraulic fracturing is regulated primarily at the state level, typically by state oil and natural gas commissions and similar
agencies. Several states have either adopted or proposed laws and/or regulations to require oil and natural gas operators to disclose chemical ingredients and water volumes used to hydraulically
fracture wells, in addition to more stringent well construction and monitoring requirements. The EPA is conducting a study of the potential impacts of hydraulic fracturing activities on drinking
water. This study or other studies that may be undertaken by the EPA or other governmental authorities, depending on their results, could spur initiatives to regulate hydraulic fracturing. If new
federal, state or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling activities and make
it more difficult or costly for our customers to perform fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas exploration and production
activities by our customers and, therefore, adversely affect our business. Such laws or regulations could also materially increase our costs of compliance and doing business by more strictly
regulating how hydraulic fracturing wastes are handled or disposed.

We and our ESG customers are subject to federal, state and local laws and regulations regarding
issues of health, safety, climate change and the protection of the environment, under which we or our customers may become liable for penalties, damages or costs of remediation or other corrective
measures. Changes in such laws or regulations could increase our or our customers' costs of doing business and adversely impact our business.

Our operations and our ESG customers' operations are subject to stringent federal, state and local laws and regulations, including
those relating to, among other things, protection of natural resources, wetlands, endangered species, the environment, health and safety, waste management, waste disposal and the transportation of
waste and other materials. Many of the facilities that are used for our ESG operations are leased, and such leases include varying levels of indemnity obligations to the landlord for environmental
matters related to our use and occupation of such facilities. Our ongoing operations and our ESG customers' operations pose risks of environmental liability, including leakage from operations to
surface or subsurface soils, surface water or groundwater. Some environmental laws and regulations may impose strict liability, joint and several liability, or both. Additionally, an increase in
regulatory requirements on oil and gas exploration and completion activities could significantly delay or interrupt our ESG customers' operations. Increased costs of regulatory compliance, claims for
liability or sanctions for noncompliance and related costs could cause us or our ESG customers to incur substantial costs or losses. Clean-up costs and other damages resulting from any
contamination-related liabilities and costs associated with changes in and compliance with environmental laws and regulations could result in the reduction or discontinuation of our or our ESG
customers' operations, and in a material adverse effect on our financial condition and results of operations.

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The
U.S. Congress has considered adopting legislation to reduce emissions of greenhouse gases ("GHGs") and almost one-half of the states have already taken legal measures to reduce
emissions of
GHGs. The EPA has begun adopting and implementing regulations to restrict emissions of GHGs under existing provisions of the Clean Air Act. Although it is not possible at this time to estimate how
potential future laws or regulations addressing GHG emissions could impact our business, any future federal, state or local laws or regulations that may be adopted to address GHG emissions in areas
where our customers operate could require our customers to incur increased compliance and operating costs. Regulation of GHGs could also result in a reduction in demand for and production of oil and
natural gas, which would result in a decrease in demand for our services. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for oil and natural gas.

Laws
protecting the environment generally have become more stringent over time and we expect them to continue to do so, which could lead to material increases in our and our ESG
customers' costs for future environmental compliance and remediation.

We may be required to assume responsibility for environmental and other liabilities of companies we
have acquired or will acquire.

We may incur liabilities in connection with environmental conditions currently unknown to us relating to our existing, prior or future
operations or those of predecessor companies whose liabilities we may have assumed or acquired. We also could be subject to third-party and governmental claims with respect to environmental matters,
including claims under the Comprehensive Environmental Response, Compensation and Liability Act in instances where we are identified as a potentially responsible party. We believe that indemnities
provided to us in certain of our pre-existing acquisition agreements may cover certain environmental conditions existing at the time of the acquisition, subject to certain terms, limitations and
conditions. However, if these indemnification provisions terminate or if the indemnifying parties do not fulfill their indemnification obligations, we may be subject to liability with respect to the
environmental matters that those indemnification provisions address.

Increased labor costs or the unavailability of skilled workers could hurt our operations.

We are dependent upon a pool of available skilled employees to operate and maintain our business. We compete with other oilfield
services businesses and other similar employers to attract and retain qualified personnel with the technical skills and experience required to provide the highest quality service. The demand for
skilled workers is high and the supply is limited, and a shortage in the labor pool of skilled workers or other general inflationary pressures or changes in applicable laws and regulations could make
it more difficult for us to attract and retain personnel and could require us to enhance our wage and benefits packages thereby increasing our operating costs.

Although
our employees are not covered by a collective bargaining agreement, union organizational efforts could occur and, if successful, could increase our labor costs. A significant
increase in the wages paid by competing employers or the unionization of groups of our employees could result in increases in the wage rates that we must pay. Likewise, laws and regulations to which
we are subject, such as the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions, can increase our labor costs or subject us to liabilities to
our employees. We cannot assure you that labor costs will not increase. Increases in our labor costs or unavailability of skilled workers could impair our capacity and diminish our profitability,
having a material adverse effect on our business, financial condition and results of operations.

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General

We operate in highly competitive markets and our failure to compete effectively may negatively
impact our results of operations.

The markets in which we operate are highly competitive. Since we sell our ASG segment products around the world, we face competition in
the aerospace solutions market from both U.S. and non-U.S. companies. We believe that the principal competitive factors in this industry include the ability to provide superior customer service and
support, on-time delivery, sufficient inventory availability, competitive pricing and an effective quality assurance program.

In
terms of the energy services market, price competition, equipment availability, location and suitability, experience of the workforce, safety records, reputation, operating integrity
and condition of the equipment are all factors used by customers in awarding contracts. Our competitors are numerous, and many have more financial and technological resources. Contracts are
traditionally awarded on the basis of competitive bids or direct negotiations with customers. The competitive environment has intensified as recent mergers among E&P companies have reduced the number
of available ESG customers. The fact that certain oilfield services equipment is mobile and can be moved from one market to another in response to market conditions heightens the competition in the
industry. In addition, any increase in the supply of hydraulic fracturing fleets could have a material adverse impact on market prices. This increased supply could also require higher capital
investment to keep our services competitive.

Some
of our competitors may have greater financial, technical, marketing and personnel resources than we do. Our future success and profitability will partly depend upon our ability to
keep pace with our customers' demands for awarding contracts.

If we lose significant customers, significant customers materially reduce their purchase orders or
significant programs on which we rely are delayed, scaled back or eliminated, our business, financial condition and results of operations may be adversely affected.

Our significant customers change from year to year, in the case of ASG, depending on the level of overhaul, maintenance, repair and
refurbishment activity and the level of new aircraft purchases, and in the case of ESG, depending on the level of E&P activity and the use of our services. During 2014, no single customer accounted
for more than 10% of our consolidated revenues. During 2013 and 2012, Boeing, a customer in our ASG segment, accounted for 10% and 12%, respectively, of our combined revenues. During 2013, another
customer accounted for 10% of our combined revenues. During 2012, a third customer accounted for 10% of our combined revenues. No other individual customers accounted for more than 10% of our combined
revenues during 2013 or 2012. ASG's top five customers for 2014 together accounted for approximately 33% of its revenues. ESG's top five customers for 2014 together accounted for approximately 26% of
ESG's 2014 revenues.

A
reduction in purchasing our products or services by or loss of one of our larger customers for any reason, such as changes in manufacturing or drilling practices, loss of a customer as
a result of the acquisition of such customer by a purchaser who, in the case of ASG, does not fully utilize a distribution model, or who uses a competitor, in-sourcing by customers, a transfer of
business to a competitor, an economic downturn, insolvency of a customer, failure to adequately service our clients, decreased production or a strike, could have a material adverse effect on our
financial condition and results of operations.

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We may be unable to effectively and efficiently manage our inventories and/or our equipment fleet as
we expand our business, which could have an adverse effect on our financial condition.

We have substantially expanded the size, scope and nature of our business through acquisitions and organic means, resulting in an
increase in the breadth of our product offerings and an expansion of our business geographically. Business expansion places increasing demands on us to increase the inventories that we carry and/or
our equipment fleet. We must anticipate demand well out into the future in order to service our extensive customer base. The inability to effectively and efficiently manage our inventories to meet
current and future needs of our customers, which may vary widely from what is originally forecast due to a number of factors beyond our control, could have an adverse effect on our results of
operations and financial condition.

If suppliers are unable to supply us with the products we sell in a timely manner, in adequate
quantities and/or at a reasonable cost, we may be unable to meet the demands of our customers, which could have a material adverse effect on our business, financial condition and results of
operations.

We depend on manufacturing firms to support our operations through the timely supply of products. Our suppliers may experience capacity
constraints that may result in their inability to supply us with products in a timely fashion, with adequate quantities or at a desired price. Factors affecting the manufacturing sector can include
labor disputes, general economic issues, and changes in raw material and energy costs. Natural disasters such as earthquakes or hurricanes, as well as political instability and terrorist activities,
may negatively impact the production or delivery capabilities of our suppliers as well. These factors could lead to increased prices for our inventory, curtailment of supplies and the unfavorable
allocation of product by our suppliers, which could reduce our revenues and profit margins and harm our customer relations. Significant disruptions in our supply chain could negatively impact our
results of operations and financial condition.

Increased leverage could adversely impact our business and results of operations.

We may incur additional debt under our $500 million secured revolving credit facility or otherwise to finance our operations or
for future growth, including funding acquisitions. A high degree of leverage could have important consequences to us. For example, it could:



We cannot ensure that any future acquisitions will be successful in delivering expected performance
post-acquisition, which could have a material adverse effect on our financial condition.

Our business was created largely through a series of acquisitions. We may consider future acquisitions, some of which could be material
to us. We explore and conduct discussions with many third parties regarding possible acquisitions. Our ability to continue to achieve our goals may depend upon our ability to effectively identify
attractive businesses, access financing sources on acceptable terms, negotiate favorable transaction terms and successfully consummate and integrate any businesses we acquire, achieve cost
efficiencies and to manage these businesses as part of our company.

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Our
acquisition activities may involve unanticipated delays, costs and other problems. If we encounter unanticipated problems with one of our acquisitions, our senior management may be
required to divert attention away from other aspects of our business. Additionally, we may fail to consummate proposed acquisitions or divestitures, after incurring expenses and devoting substantial
resources, including management time, to such transactions. Acquisitions also pose the risk that we may be exposed to successor liability relating to actions by an acquired company and its management
before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of acquired companies, may not be
sufficient to protect us from, or compensate us for, actual liabilities. Additionally, depending upon the acquisition opportunities available, we also may need to raise additional funds through the
capital markets or arrange for additional bank financing in order to consummate such acquisitions or to fund capital expenditures necessary to integrate the acquired business. We also may not be able
to raise the substantial capital required for acquisitions and integrations on satisfactory terms, if at all.

Our total assets include substantial intangible assets. The write-off of a significant portion of
intangible assets would negatively affect our reported financial results.

Our total assets reflect substantial intangible assets. At December 31, 2014, goodwill and identified intangibles, net,
represented approximately 41% of our total assets. Intangible assets consist principally of goodwill and other identified intangible assets associated with our acquisitions. On at least an annual
basis, we will assess whether there has been an impairment in the value of goodwill and other intangible assets with indefinite lives. If the carrying value of the tested asset exceeds its estimated
fair value, impairment is deemed to have occurred. In this event, the amount is written down to fair value. Under generally accepted accounting principles in the United States, this would result in a
charge to operating earnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized identified intangible assets would negatively affect our results of
operations and total capitalization, which could be material. There was no impairment recorded in 2014, 2013 or 2012. As of December 31, 2014, the remaining balances of goodwill and intangible
assets were $1,328.7 million and $442.3 million, respectively.

Our debt instruments have significant financial and operating restrictions that may have an adverse
effect on our operations.

We entered into certain financing arrangements in connection with the spin-off. The debt instruments governing such arrangements
contain numerous financial, operating and/or negative covenants that limit our ability to incur additional or repay existing indebtedness, to create liens or other encumbrances, to make certain
payments and investments, including dividend payments, to engage in transactions with affiliates, to engage in sale/leaseback transactions, to guarantee indebtedness and to sell or otherwise dispose
of assets and merge or consolidate with other entities. Agreements governing future indebtedness could also contain significant financial and operating restrictions. A failure to comply with the
obligations contained in any such agreement governing our indebtedness could result in an event of default under such agreement, which could permit acceleration of the related debt and acceleration of
debt under other instruments that may contain cross acceleration or cross default provisions. We may not have, or may not be able to obtain, sufficient funds to make any required accelerated payments.

Our operations rely on an extensive network of information technology resources and a failure to
maintain, upgrade and protect such systems could adversely impact our business, financial condition and results of operations.

Information technology plays a crucial role in all of our operations. To remain competitive, our hardware, software and related
services must interact with our suppliers and customers efficiently, record and process our financial transactions accurately, and obtain the data and information to enable the analysis of trends and
plans and the execution of our strategies.

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The failure or unavailability of our information technology systems could directly impact our ability to interact with our customers and provide them with
products and services when needed. Such failure to properly supply or service our customers could have an adverse effect on our business, financial condition and results of operations. Moreover, our
customer relationships could be damaged well beyond the period of the downtime of our information technology systems.

We may be unable to retain personnel who are key to our operations.

Our success, among other things, is dependent on our ability to attract, develop and retain highly qualified senior management and
other key personnel. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and
compensation packages offered by companies competing for the same talent. The inability to hire, develop and retain these key employees may adversely affect our operations.

We have been expanding our available products and services, and our business may continue to grow at
a rapid pace. Our inability to properly manage or support the growth may have a material adverse effect on our business, financial condition, and results of operations and could cause the market value
of our common stock to decline.

We have been expanding our available products and services in recent periods and intend to continue to grow our business both through
acquisitions and internal expansion of products and services. Our growth could place significant demands on our management team and our operational, administrative and financial resources. We may not
be able to grow effectively or manage our growth successfully, and the failure to do so could have a material adverse effect on our business, financial condition and results of operations and could
cause the market value of our common stock to decline.

Severe weather conditions, including hurricanes and tropical storms, could have a material adverse
effect on our business.

Adverse weather can directly impede our operations. Repercussions of severe weather conditions may include: curtailment of services;
weather-related damage to facilities and equipment, resulting in suspension of operations; in the case of our ESG segment, inability to deliver equipment and personnel to job sites in accordance with
customer requirements; in the case of our ASG segment, inability to deliver products to customers in accordance with contract schedules or critical next-day customer requirements and loss of
productivity. These constraints could delay our operations and materially increase our operating and capital costs. The operations of our ESG customers could also be adversely affected by severe
weather, such as unusually warm winters or cool summers decreasing demand for natural gas or droughts in semi-arid regions impacting hydraulic fracturing operations, which could affect the demand for
services of our ESG segment.

Additionally,
our operations are particularly susceptible to the impact of hurricanes and tropical storms, as our corporate headquarters and certain of our principal facilities are
located in Florida and Texas. A hurricane or tropical storm could result in major damage to our properties, inventory and equipment and the properties of our customers located in such areas.
Additionally, a hurricane or tropical storm could delay or disrupt the delivery of supplies to our facilities, which could lead to delays in delivering our products to our customers. Related storm
damage could also affect telecommunications capability, causing interruptions to our operations. These and other possible effects of hurricanes or tropical storms could have a material adverse effect
on our business.

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Risks Relating to the Spin-Off

We may not achieve some or all of the expected benefits of the spin-off, and the spin-off may
adversely affect our business.

We may not be able to achieve the full strategic and financial benefits expected to result from the spin-off, or such benefits may be
delayed or not occur at all. Some of these expected benefits include having a simplified, more focused business better able to dedicate resources to pursue unique growth/opportunities and greater
flexibility to invest capital in our business, increased strategic flexibility to make acquisitions and form partnerships and alliances in target markets. We may not achieve these and other
anticipated benefits for a variety of reasons. There also can be no assurance that the spin-off will not adversely affect our business.

We will incur greater costs as an independent company than we did when we were a part of B/E
Aerospace, which will decrease our profitability.

As a segment of B/E Aerospace, we were able to take advantage of B/E Aerospace's size and purchasing power in procuring certain goods
and services such as insurance, professional fees, healthcare benefits and technology such as computer software licenses. As a separate, independent entity, we may be unable to obtain these goods,
services and technologies at prices or on terms as favorable to us as those we obtained prior to the spin-off. We also relied on B/E Aerospace to provide various financial, administrative and other
corporate services. B/E Aerospace will continue to provide certain of these services on a short-term transitional basis. However, we will be required to establish the necessary infrastructure and
systems to supply these services on an ongoing basis. We may not be able to replace the services provided by B/E Aerospace in a timely manner or on terms and conditions as favorable as those we
receive from B/E Aerospace. If functions previously performed by B/E Aerospace cost us more than the amounts reflected in our historical financial statements, our profitability could decrease.

Our ability to meet our capital needs may be harmed by the loss of financial support from B/E
Aerospace.

The loss of financial support from B/E Aerospace could harm our ability to meet our capital needs. Prior to the spin-off, B/E Aerospace
could provide certain capital that may be needed in excess of the amounts generated by our operating activities. Following the spin-off, we expect to obtain any funds needed in excess of the amounts
generated by our operating activities through accessing the capital markets or bank financing, and not from B/E Aerospace. Further, we cannot guarantee you that we will be able to obtain capital
market financing or credit on favorable terms, or at all, in the future. We cannot assure you that our ability to meet our capital needs will not be harmed by the loss of financial support from B/E
Aerospace.

We incurred new indebtedness in connection with the spin-off, and our leverage may have a material
adverse effect on our financial position, results of operations and cash flows.

We entered into certain financing arrangements concurrently with the spin-off. Additionally, we expect to continue to pursue a
high-growth model through strategic acquisitions, which may require us to incur even more debt.

Our
ability to make payments on and refinance our indebtedness, including the debt incurred in connection with the spin-off as well as any future debt that we may incur, will depend on
our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and
other factors that we cannot control. If we cannot service our debt or repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including
(1) reducing financing in the future for working capital, capital expenditures and general corporate purposes or (2) dedicating an

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unsustainable
level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes
in the aerospace consumables and oilfield services industries could be impaired. The lenders or other investors who hold debt that we fail to service or on which we otherwise default could also
accelerate amounts due, which could potentially trigger a default or acceleration of our other debt.

If the distribution, together with certain related transactions, were to fail to qualify as a
reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, then we and/or B/E Aerospace and our stockholders could be subject to significant tax
liabilities.

B/E Aerospace has not requested a private letter ruling from the IRS in respect of the distribution because in 2013 the IRS announced
in public guidance that it generally will no longer issue private letter rulings to the effect that, for U.S. federal income tax purposes, a spin-off transaction (similar to the distribution together
with certain related transactions) will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code. The distribution was, however, conditioned upon, among other matters, B/E
Aerospace's receipt of an opinion of Shearman & Sterling LLP, which remained in full force and effect at the time of distribution, to the effect that the distribution, together with
certain related transactions, qualified as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Shearman & Sterling LLP's
opinion, which B/E Aerospace has received, relies on certain representations, assumptions, undertakings and covenants, and the conclusions set forth in the opinion may be adversely affected if one or
more of the representations and assumptions is incorrect or one or more of the undertakings and covenants is not complied with. These representations, assumptions, undertakings and covenants relate
to, among other things, B/E Aerospace's business reasons for proceeding with the distribution, the past and future conduct of our businesses and those of B/E Aerospace, the historical ownership and
capital structures of B/E Aerospace and our and B/E Aerospace's current plans and intentions to not materially modify our or B/E Aerospace's respective ownership and capital structures following the
distribution. Notwithstanding the opinion, the IRS could determine that the distribution should be treated as a taxable transaction if it determines that any of the representations, assumptions,
undertakings or covenants upon which the opinion relied is incorrect or has not been completed or complied with or if it disagrees with the conclusions in the tax opinion. For more information
regarding the tax opinion, see the section entitled "The Spin-OffMaterial U.S. Federal Income Tax Consequences of the Distribution" included elsewhere in this annual report.

If
the distribution fails to qualify for tax-free treatment, B/E Aerospace would be subject to tax on gain, if any, as if it had sold our common stock in a taxable sale for its fair
market value at the time of the distribution. In addition, if the distribution fails to qualify for tax-free treatment, each of our initial public stockholders would be treated as if the stockholder
had received a distribution from B/E Aerospace in an amount equal to the fair market value of our common stock that was distributed to the stockholder, which generally would be taxed as a dividend to
the extent of the stockholder's pro rata share of B/E Aerospace's current and accumulated earnings and profits and then treated as a non-taxable return of capital to the extent of the stockolder's
basis in the B/E Aerospace common stock and finally as capital gain from the sale or exchange of B/E Aerospace common stock. Furthermore, even if the distribution were otherwise to qualify under
Sections 355 and 368(a)(1)(D) of the Code, it may be taxable to B/E Aerospace (but not to B/E Aerospace's stockholders) under Section 355(e) of the Code, if the distribution were later
deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest in B/E Aerospace or
us. For this purpose, any acquisitions of B/E Aerospace stock or of our common stock within the period beginning two years before the distribution and ending two years after the distribution
are presumed to be part of such a plan, although we or B/E Aerospace may be able to rebut that presumption, including through the use of certain safe harbors contained in U.S. Treasury Regulations
under Section 355(e) of the Code.

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Under
the Tax Sharing and Indemnification Agreement between B/E Aerospace and us, we would generally be required to indemnify B/E Aerospace against any tax resulting from the
distribution to the extent that such tax resulted from any of the following events (among others): (1) an acquisition of all or a portion of our stock or assets, whether by merger or otherwise,
(2) any negotiations, understandings, agreements or arrangements with respect to transactions or events that cause the distribution to be treated as part of a plan pursuant to which one or more
persons acquire, directly or indirectly, stock representing a 50% or greater interest in us, (3) certain other actions or failures to act by us, or (4) any breach by us of certain of our
representations or covenants. Our indemnification obligations to B/E Aerospace and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify B/E
Aerospace or such other persons under the circumstances set forth in the Tax Sharing and Indemnification Agreement, we could be subject to substantial liabilities.

We are subject to additional costs and demands on management as an independent, publicly-owned
company.

As a public entity, we are subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act of 2002
(the "Sarbanes-Oxley Act"). These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports about our business and
financial condition. Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and
management oversight. We have implemented additional procedures and processes to address the standards and requirements applicable to public companies. These activities may divert management's
attention from other business concerns, which could have a material adverse effect on our financial position, results of operations or cash flows.

We do not have an operating history as an independent company and our historical financial
information may not be a reliable indicator of our future results.

The historical financial information we have included in this annual report has been derived from B/E Aerospace's consolidated
financial statements and accounting records and does not necessarily reflect what our financial position, results of operations and cash flows would have been had we been a separate, stand-alone
entity during the periods presented. B/E Aerospace did not account for us, and we were not operated, as a single stand-alone entity for the periods presented. Actual costs that may have been incurred
if we had been a stand-alone company would depend on a
number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and
infrastructure. In addition, the historical information may not be indicative of what our results of operations, financial position and cash flows will be in the future. For example, following the
spin-off, changes have occurred in our cost structure, funding and operations, including changes in our tax structure and increased costs associated with becoming a public, stand-alone company.

The spin-off may expose us to potential liabilities arising out of state and federal fraudulent
conveyance laws and legal dividend requirements.

The spin-off is subject to review under various state and federal fraudulent conveyance laws. Fraudulent conveyance laws generally
provide that an entity engages in a constructive fraudulent conveyance when (1) the entity transfers assets and does not receive fair consideration or reasonably equivalent value in return and
(2) the entity (a) is insolvent at the time of the transfer or is rendered insolvent by the transfer, (b) has unreasonably small capital with which to carry on its business or
(c) intends to incur or believes it will incur debts beyond its ability to repay its debts as they mature. An unpaid creditor or an entity acting on behalf of a creditor (including, without
limitation, a trustee or debtor-in-possession in a bankruptcy by us or B/E Aerospace or any of our respective subsidiaries)

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may
bring a lawsuit alleging that the spin-off or any of the related transactions constituted a constructive fraudulent conveyance. If a court accepts these allegations, it could impose a number of
remedies, including, without limitation, voiding our claims against B/E Aerospace, requiring our stockholders to return to B/E Aerospace some or all of the shares of our common stock issued in the
spin-off or providing B/E Aerospace with a claim for money damages against us in an amount equal to the difference between the consideration received by B/E Aerospace and the fair market value of our
company at the time of the spin-off.

The
measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction's law is applied. Generally, an entity would be considered insolvent if
(1) the present fair saleable value of its assets is less than the amount of its liabilities (including contingent liabilities); (2) the present fair saleable value of its assets is less
than its probable liabilities on its debts as such debts become absolute and matured; (3) it cannot pay its debts and other liabilities (including contingent liabilities and other commitments)
as they mature; or (4) it has unreasonably small capital for the business in which it is engaged. We cannot assure you what standard a court would apply to determine insolvency or that a court
would determine that we, B/E Aerospace or any of our respective subsidiaries were solvent at the time of or after giving effect to the spin-off.

The
distribution of our common stock is also subject to review under state corporate distribution statutes. Under the General Corporation Law of the State of Delaware (the
"DGCL"), a corporation may only pay dividends to its stockholders either (1) out of its surplus (net assets minus capital) or (2) if there is no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although B/E Aerospace intends to make the distribution of our common stock entirely from surplus,
we cannot assure you that a court will not later determine that some or all of the distribution to B/E Aerospace stockholders was unlawful.

Although
we believe that B/E Aerospace and KLX were each solvent at the time of the spin-off (including immediately after the distribution of shares of KLX common stock), that we are
able to repay our debts as they mature following the spin-off and have sufficient capital to carry on our businesses and the spin-off and the distribution was made entirely out of surplus in
accordance with Section 170 of the DGCL, we cannot assure you that a court would reach the same conclusions in determining whether B/E Aerospace or we were insolvent at the time of, or after
giving effect to, the spin-off, or whether lawful funds were available for the separation and the distribution to B/E Aerospace's stockholders.

A court could require that we assume responsibility for obligations allocated to B/E Aerospace under
the Separation and Distribution Agreement.

Under the Separation and Distribution Agreement, from and after the spin-off, each of B/E Aerospace and we are responsible for the
debts, liabilities and other obligations related to the business or businesses which it owns and operates following the consummation of the spin-off. Although we do not expect to be liable for any
obligations that are not allocated to us under the Separation and Distribution Agreement, a court could disregard the allocation agreed to between the parties, and require that we assume
responsibility for obligations allocated to B/E Aerospace (including, for example, environmental liabilities), particularly if B/E Aerospace were to refuse or were unable to pay or perform the
allocated obligations.

We might have been able to receive better terms from unaffiliated third parties than the terms we
receive in our agreements with B/E Aerospace.

The agreements related to the spin-off, including the Separation and Distribution Agreement, the Employee Matters Agreement, the Tax
Sharing and Indemnification Agreement, the Transition Services Agreement, the IT Services Agreement and any other agreements, were negotiated in the context of

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our
separation from B/E Aerospace while we were still part of B/E Aerospace. Although these agreements are intended to be on an arm's-length basis, they may not reflect terms that would have resulted
from arm's-length negotiations among unaffiliated third parties. The terms of the agreements negotiated in the context of our separation concern, among other things, allocations of assets,
liabilities, rights, indemnifications and other obligations among B/E Aerospace and us.

Certain of our executive officers and directors may have actual or potential conflicts of interest
because of their current or former positions in B/E Aerospace or their ownership of B/E Aerospace equity.

Certain of the persons who are our executive officers and directors are former directors, officers or employees of B/E Aerospace and
thus have professional relationships with B/E Aerospace's executive officers and directors. Three of our directors, including our Chairman and Chief Executive Officer, continue to serve on the board
of directors of B/E Aerospace following the spin-off. Our Chairman and Chief Executive Officer continues to chair the board of directors of B/E Aerospace and serves as its Executive Chairman. In
addition, several of our executive officers and directors have a financial interest in B/E Aerospace as a result of their ownership of B/E Aerospace stock and restricted stock. These relationships and
financial interests may create, or may create the appearance of, conflicts of interest when these directors and officers face decisions that could have different implications for B/E Aerospace than
for us.

Risks Relating to Our Common Stock

We cannot assure you that we will pay dividends on our common stock, and our indebtedness could
limit our ability to pay dividends on our common stock.

We do not currently intend to pay dividends. Our dividend policy will be established by our Board based on our financial condition,
results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board considers relevant. In addition,
the terms of the agreements governing
debt that we incurred in connection with the spin-off or in the future may limit or prohibit the payments of dividends. We cannot assure you that we will pay dividends in the future or continue to pay
any dividends if we do commence the payment of dividends.

Additionally,
our indebtedness could have important consequences for holders of our common stock. If we cannot generate sufficient cash flow from operations to meet our debt-payment
obligations, then our Board's ability to declare dividends on our common stock will be impaired and we may be required to attempt to restructure or refinance our debt, raise additional capital or take
other actions such as selling assets, reducing or delaying capital expenditures or reducing any proposed dividends. We cannot assure you that we will be able to effect any such actions or do so on
satisfactory terms, if at all, or that such actions would be permitted by the terms of our debt or our other credit and contractual arrangements.

Certain provisions that our amended and restated certificate of incorporation and amended and
restated bylaws contain, certain provisions of Delaware law and our agreements with B/E Aerospace may prevent or delay an acquisition of our Company or other strategic transactions, which could
decrease the trading price of our common stock.

Prior to the distribution date, our Board and B/E Aerospace, as our sole stockholder, approved and adopted amended and restated
versions of our certificate of incorporation and bylaws. Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contains, provisions that are
intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage

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prospective
acquirers to negotiate with our Board rather than to attempt a hostile takeover. These provisions include, among others:



In
addition, because we have not chosen to be exempt from Section 203 of the DGCL, this provision could also delay or prevent a change of control that some stockholders may favor.
Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15 percent of the outstanding voting stock of a
Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the
date on which that person or its affiliates becomes the holder of more than 15 percent of the corporation's outstanding voting stock.

We
believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board and by providing
our Board with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be
considered beneficial by some stockholders and could delay or prevent an acquisition that our Board determines is not in the
best interests of our Company and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Provisions
in our agreements with B/E Aerospace may also delay or prevent a merger or acquisition that some stockholders may consider favorable. To preserve the tax free treatment to B/E
Aerospace of the distribution and certain related transactions, under the Tax Sharing and Indemnification Agreement that we have entered into with B/E Aerospace, we will be prohibited from taking or
failing to take any action that results in the distribution and certain related transactions being deemed to not be tax-free. Further, for the two-year period following the distribution, we may be
prohibited, except in specified circumstances, from: (1) entering into any transaction resulting in an acquisition of our stock or our assets beyond certain thresholds, whether by merger or
otherwise; (2) merging, consolidating or liquidating; (3) issuing equity securities beyond certain thresholds; (4) repurchasing our common stock; and (5) ceasing to
actively conduct our aerospace consumables and energy services businesses. These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions
that may maximize the value of our business.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.    PROPERTIES

As of December 31, 2014, we had 32 principal operating facilities, which comprise an aggregate of approximately
1.5 million square feet of space. The following table describes the principal facilities and indicates the location, function, approximate size and ownership type of each location.

City

Segment

Sq. Feet

OwnershipDoral, FL

ASG


506,600

LeaseKaltenkirchen, Germany

ASG


90,500

LeaseWichita, KS

ASG


80,000

LeaseHamburg, Germany

ASG


80,000

LeaseBridgeport, WV

ESG


70,800

LeaseEvans City, PA

ESG


68,300

OwnStratford, CT

ASG


67,000

LeaseBurgess Hill, UK

ASG


60,000

LeaseCarson, CA

ASG


56,500

LeaseEarth City, MO

ASG


48,600

LeaseChandler, AZ

ASG


47,400

LeaseGrand Prairie, TX

ASG


38,800

LeaseSenlis, France

ASG


32,900

LeaseSimpson District, WV

ESG


27,300

LeaseBoothwyn, PA

ASG


25,000

LeaseCharleroi, PA

ESG


20,000

LeaseBanyo QLD, Australia

ASG


19,400

LeaseKenedy, TX

ESG


17,800

LeaseCotulla, TX

ESG


17,800

OwnSan Angelo, TX

ESG


16,800

LeaseSingapore

ASG


16,700

LeaseWilliston, ND

ESG


16,500

OwnParamus, NJ

ASG


15,500

LeaseSouth Marshall, TX

ESG


13,500

LeaseGreensboro, NC

ASG


12,000

LeaseDickinson, ND

ESG


11,600

LeaseRzeszow, Poland

ASG


11,520

LeaseCambridge, OH

ESG


10,800

LeaseLondon-Heathrow, UK

ASG


10,520

LeaseSingapore

ASG


10,400

LeaseWaco, TX

ASG


10,000

LeaseWellington, FL

Corporate Administrative Headquarters


9,100

Lease


We
believe that our facilities are suitable for their present intended purposes and are adequate for our present and anticipated level of operations.

ITEM 3.    LEGAL PROCEEDINGS

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 business, results of operations or financial condition.

Except
as mentioned below, there are no material pending legal proceedings, other than the ordinary routine litigation incidental to the business discussed above, to which we, or any of
our subsidiaries, are a party or of which any of our property is the subject.

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We
are currently cooperating with the authorities in investigating an alleged violation of regulations governing the production and use of chemical substances in our German operations
that could result in an administrative monetary penalty and a disgorgement of profits from the sale of products allegedly sold in violation of the regulations, which could be material. For a more
detailed description of this matter, see "Item 1. BusinessEnvironmental Matters."

ITEM 4.    MINE SAFETY DISCLOSURES

Not Applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock began trading on the NASDAQ Global Select Market under the symbol "KLXI" on December 17, 2014. Before then,
there was no public market for our common stock. The following table sets forth, for the periods indicated, the range of high and low per share sales prices for the common stock as reported by NASDAQ.

Year Ended
December 31,
(Amounts
in Dollars)2014High

LowFourth Quarter

$
43.84

$
38.95


On
March 2, 2015, the last reported sale price of our common stock as reported by NASDAQ was $40.50 per share. As of such date, based on information provided to us by
Computershare, our transfer agent, we had approximately 1,204 registered holders, and because many of these shares are held by brokers and other institutions on behalf of the beneficial holders, we
are unable to estimate the number of beneficial stockholders represented by these holders of record.

Given
the limited trading information, we have not provided a line graph comparing the cumulative total stockholder return on our common stock between December 17, 2014 (our first
trading day on the NASDAQ) and December 31, 2014 to the cumulative total returns of the S&P 500 Index, the NASDAQ Composite Index, the Dow Jones US Aerospace & Defense Index and
the S&P 500 Oil and Gas Equipment and Services Index due to the limited trading period of our common stock.

We
do not currently intend to pay dividends. Our Board will establish our dividend policy based on our financial condition, results of operations and capital requirements, as well as
applicable law, regulatory constraints, industry practice and other business considerations that our Board considers relevant. The terms of our debt agreements contain restrictions on our ability to
pay dividends. The terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. Accordingly, we cannot assure you that we will either pay dividends
in the future or continue to pay any dividend that we may commence in the future.

ITEM 6.    SELECTED FINANCIAL DATA

In this section, dollar amounts are shown in millions, except for per share data or as otherwise
specified.

The
following tables present a summary of selected historical consolidated and combined financial data for the periods indicated below. We derived the selected historical condensed
consolidated and combined statements of earnings data for the years ended December 31, 2014, 2013 and 2012 and the balance sheet data as of December 31, 2014 and 2013 from our audited
consolidated and combined financial statements included elsewhere in this Form 10-K. We derived the selected historical financial data as of December 31, 2012, 2011 and 2010, and for the
fiscal years ended December 31, 2011 and 2010, from B/E Aerospace's accounting records. In our management's opinion, the financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of ordinary recurring adjustments, necessary for a fair presentation of the information for the periods presented.

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The
historical statements of earnings and comprehensive income reflect allocations of general corporate expenses from B/E Aerospace including, but not limited to, executive management,
finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services. The allocations were made on a direct usage
basis when identifiable, with the remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures. Our management considers these allocations to be a reasonable
reflection of the utilization of services by, or the benefits provided to, KLX. The allocations may not, however, reflect the expense we would have incurred as a stand-alone company for the periods
presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were
outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

The
financial statements included in this Form 10-K may not necessarily reflect our financial position, results of operations and cash flows as if we had operated as a stand-alone
public company during all periods presented. Accordingly, our historical results should not be relied upon as an indicator of our future performance.

In
presenting the financial data in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported. See "Management's Discussion and Analysis of
Financial Condition and Results of OperationsCritical Accounting Policies," included elsewhere in this Form 10-K for a detailed discussion of the accounting policies that we
believe require subjective and complex judgments that could potentially affect reported results.

The
following selected historical financial and other data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and
our audited consolidated and combined financial statements and related notes included elsewhere in this Form 10-K.

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Year Ended December 31,2014

2013

2012

2011

2010Statements of Earnings Data:Revenues

$
1,695.7

$
1,291.6

$
1,180.7

$
947.3

$
778.4Cost of sales(1)


1,194.9


872.8


803.5


635.9


510.4Selling, general and administrative(1)


254.0


180.3


159.3


129.4


114.8​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Operating earnings


246.8


238.5


217.9


182.0


153.2Interest expense (income), net


3.0


(1.0
)

0.2


(3.8
)

2.1​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Earnings before income taxes


243.8


239.5


217.7


185.8


151.1Income taxes


155.7


89.1


80.8


69.3


55.6​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net earnings

$
88.1

$
150.4

$
136.9

$
116.5

$
95.5​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Basic net earnings per share(2):Net earnings

$
1.69

$
2.88

$
2.62

$
2.23

$
1.83​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average common shares


52.2


52.2


52.2


52.2


52.2Diluted net earnings per share(2):Net earnings

$
1.68

$
2.88

$
2.62

$
2.23

$
1.83​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average common shares


52.3


52.3


52.3


52.3


52.3Balance Sheet Data (end of period):Working capital

$
1,825.9

$
1,366.1

$
1,300.3

$
1,080.5

$
1,056.7Goodwill, intangible and other assets, net


1,815.3


1,417.6


1,349.4


768.4


763.5Total assets


4,303.6


3,064.0


2,845.9


2,017.5


1,976.2Stockholders' equity


2,620.3


2,798.7


2,635.5


1,878.0


1,864.8Other Data:Depreciation and amortization

$
68.0

$
27.8

$
22.8

$
16.9

$
14.7


(1)Cost
of sales and SG&A include $3.5 and $53.4, respectively, of business separation and acquisition-related costs in 2014 (SG&A includes $24.2 of
acquisition related costs in 2013).(2)On
December 16, 2014, B/E Aerospace, Inc. distributed to its stockholders of record as of the close of business on December 5, 2014 one
share of KLX common stock for every two shares of B/E's common stock held as of the record date. Basic and diluted earnings per common share and the average number of common shares outstanding were
calculated using the number of KLX common shares outstanding immediately following the distribution. See Note 12. Stockholders' Equity of the notes to the Consolidated and Combined Financial
Statements for information regarding earnings per common share.


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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this section, dollar amounts are shown in millions, except for per share data or as otherwise
specified.

Overview

The Spin-off

On December 16, 2014, B/E Aerospace distributed 100% of the outstanding shares of common stock of KLX to the B/E stockholders of
record in a transaction intended to be tax-free to B/E Aerospace, KLX and our initial stockholders for U.S. federal income tax purposes (other than with respect to any cash received in lieu of
fractional shares).

We
currently estimate expenses that we will incur during our transition to being a stand-alone public company to be approximately $25. We anticipate that substantially all of these
expenses will be incurred within 18 months of the distribution. These expenses primarily relate to accounting, tax and professional costs, costs related to hiring new executives, branding for
the new company and costs related to the development of information technology and systems. We recorded costs and expenses related to acquisitions, business repositioning and business separation costs
during 2014 of approximately $57. In addition, we incurred $67 of exit taxes related to a major international tax planning initiative.

Selling,
general and administrative ("SG&A") expense includes allocations of general corporate expenses from B/E Aerospace. The consolidated and combined statements of earnings and
comprehensive income reflect allocations of general corporate expenses from B/E Aerospace ("Former Parent") including, but not limited to, executive management, finance, legal, information technology,
human resources, employee benefits administration, treasury, risk management, procurement and other shared services. The allocations were made on a direct usage basis when identifiable, with the
remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures. Our management considers these allocations to be a reasonable reflection of the utilization of
services
by, or the benefits provided, to KLX. The allocations may not, however, reflect the expense we would have incurred as a stand-alone company for the periods presented. Actual costs that may have been
incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic
decisions made in areas such as information technology and infrastructure. See Note 1 of the Consolidated and Combined Financial Statements, "Description of Business and Summary of Significant
Accounting PoliciesBasis of Presentation," for a description of the costs allocated, the methods of allocation, the reasons for the allocations and how future actual costs may differ from
the amounts allocated under the ownership of our Former Parent.

As
a stand-alone public company, we expect to incur additional recurring costs. Our preliminary estimates of the recurring costs expected to be incurred annually are approximately $25
higher than the expenses historically allocated to us from B/E Aerospace. Additionally, we expect to incur approximately $25 of one-time costs related to branding, new IT system alignments and other
related start-up expenses. In connection with the spin-off, we are bringing some of the functions that were previously provided to us through corporate allocations from B/E Aerospace in-house. In
addition, we entered into certain agreements with B/E Aerospace relating to transition services and IT services for a transitional period of approximately 24 months following the distribution.
We currently estimate that the annual charges we will incur under those agreements for services provided to us by B/E Aerospace will be approximately $10. In addition, we entered into an Employee
Matters Agreement and a tax sharing and indemnification agreement with B/E Aerospace in connection with the spin-off. This transitional support will enable us to establish our stand-alone processes
for various activities that were

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previously
provided by B/E Aerospace and does not constitute significant continuing support of our operations. We do not expect those agreements to have a material effect on our financial statements.
We also entered into new financing arrangements in connection with the spin-off. See "Liquidity and Capital ResourcesNew Financing Arrangements."

Company Overview

We believe, based on our experience in the industry, that we are the world's leading distributor and value-added service provider of
aerospace fasteners and consumables, and that we offer one of the broadest ranges of aerospace hardware and consumables and inventory management services worldwide. Through organic growth and a number
of strategic acquisitions beginning in 2001, we believe we have become our industry's leading provider of aerospace fasteners, consumable products and supply chain management services. Through our
global facilities network and advanced information technology systems, we offer unparalleled service to commercial airlines, business
jet and defense OEMs, MRO operators and FBOs. With a large and diverse global customer base, including virtually all of the world's commercial airlines, business jet and defense OEMs, OEM
subcontractors and major MRO operators across five continents, we provide access to over one million 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 JIT deliveries and kitting solutions, which we believe are unmatched by any competitor. This business is operated within our ASG
segment.

In
2013, we initiated an expansion into the energy services sector. Over the past two years, we have acquired seven companies in the business of providing technical services and related
rental equipment to oil and gas exploration and production companies. As a result, we now provide a broad range of solutions and equipment which bring value-added resources to a new customer base,
often in remote locations. Our customers include independent and major oil and gas companies that are engaged in the exploration and production of oil and gas properties in North America, including in
the Northeast (Marcellus and Utica Shale), Rocky Mountains (Williston and Piceance Basins), Southwest (Permian Basin and Eagle Ford) and Mid-Continent. This business is operated within our ESG
segment.

Within
our ASG segment, we generally derive our revenues from aerospace products and consumable products for both the new build market and the aftermarket. For the years ended
December 31, 2014, 2013 and 2012, approximately 38%, 39%, and 35% of our revenues, respectively, were derived from the aftermarket. While military customers, specifically defense OEMs, have
made up a significant share of ASG revenues historically, this share began to decline from approximately 16% in 2012 to approximately 12% in 2014 as a result of reductions in defense spending,
including under the sequestration program. Similarly, since 2007, business jet manufacturing has declined approximately 50% due to the economic downturn in 2008, and demand from our business jet
customers followed a similar trend such that they now account for approximately 5% of 2014 ASG revenues. Revenues associated with supporting aerospace manufacturing customers increased by 5.3%.
However, defense sales were down and aftermarket sales were flat, as compared to the prior year. The strong new aircraft delivery cycle resulted in an increase in ASG's revenues to support the global
aerospace manufacturing base, including several new long-term contract awards. Initial margins associated with these contracts did not contribute meaningfully in 2014; however, they are expected to
become consistent contributors to profitability in the coming years. However, unlike any prior new aircraft delivery cycle, approximately 45% of the record number of new aircraft deliveries were to
replace and retire older, less fuel efficient aircraft. These retirements negatively impacted recurring aftermarket revenues and the higher margins related thereto. We expect this trend to begin to
reverse as the approximately 7,700 new aircraft delivered over the 2009-2014 period increasingly roll off their warranty periods and begin to require

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periodic
heavy maintenance checks. We also expect an increase in the rate of business jet production in 2015, which would also be a positive addition to our results going forward. The outlook for
defense sales will remain tied to the procurement budgets approved by Congress, in response to the ongoing need for a strong U.S. military presence to counter global challenges.

Current Industry Conditions

Despite the outstanding long-term secular industry growth characteristics, the recent precipitous drop in oil and gas commodity prices
during the second half of 2014 is likely to have a material negative impact on our ESG business in 2015. Cutbacks to the capital expenditure budgets of many of our oil and gas customers has led to a
rapid reduction in the active drilling rig count in the onshore North American market. This reduction in current and planned drilling activity has resulted in both cost and capacity utilization
pressures on companies within the oilfield service industry. Significant layoffs at many of the major companies within the industry have already been announced. Our business has begun to experience
some of these pressures, particularly in the form of price reduction requests from our customers, with some of our geographic regions experiencing more pressure than others. In response to these
evolving industry conditions, our approach is to first ensure that we manage our ESG business prudently by closely monitoring costs while positioning our resources in those activities and regions
which we believe will maximize our revenue opportunities. Secondly, our strategy is to maintain sufficient liquidity to take advantage of opportunities that will present themselves. We will also focus
on operational excellence and continuous improvement initiatives. Finally, we will work hard to uncover high return acquisition opportunities over the next 18-24 months. However, there can be
no assurance such measures will prevent our ESG business from suffering an operating loss from reduction in the volume and/or pricing of its services.

Revenues
by reportable segment for the years ended December 31, 2014, 2013 and 2012 were as follows:

Year Ended December 31,2014

2013

2012Revenues

% of
Revenues

Revenues

% of
Revenues

Revenues

% of
RevenuesAerospace Solutions Group

$
1,310.2


77.3
%
$
1,268.1


98.2
%
$
1,180.7


100.0
%Energy Services Group


385.5


22.7
%

23.5


1.8
%




0.0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total revenues

$
1,695.7


100.0
%
$
1,291.6


100.0
%
$
1,180.7


100.0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


Substantially
all of our sales and purchases are denominated in U.S. dollars. Revenues by domestic and foreign operations for the years ended December 31, 2014, 2013 and 2012 were
as follows:

Year Ended December 31,2014

2013

2012Domestic

$
1,505.3

$
1,116.6

$
1,044.4Foreign


190.4


175.0


136.3​
​
​
​
​
​
​
​
​
​
​Total revenues

$
1,695.7

$
1,291.6

$
1,180.7​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


53

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Revenues
by geographic region (based on destination) for each of the years in the three-year period ended December 31, 2014 were as follows:

Year Ended December 31,2014

2013

2012Revenues

% of
Revenues

Revenues

% of
Revenues

Revenues

% of
RevenuesU.S.

$
1,111.5


65.5
%
$
749.1


58.0
%
$
733.2


62.1
%Europe


374.2


22.1
%

350.6


27.1
%

294.2


24.9
%Asia, Pacific Rim, Middle East and other


210.0


12.4
%

191.9


14.9
%

153.3


13.0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total revenues

$
1,695.7


100.0
%
$
1,291.6


100.0
%
$
1,180.7


100.0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


Founded
in 1974 as M&M Aerospace Hardware, KLX, formerly the consumables management segment of B/E Aerospace, Inc. (our Former Parent), has evolved into an industry leader through
multiple acquisitions and strong organic growth. As of December 31, 2014, ASG's global presence consists of more than 1.2 million square feet in 20 principal facilities with
approximately 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 2011, we completed 4 acquisitions, for an aggregate purchase price of approximately $1.2 billion. We believe our organic growth together with these acquisitions enabled us to position
ourselves as a preferred global supplier to our customers.

In
January 2012, we acquired UFC, a leading provider of complex supply chain management and inventory logistics solutions, for a net purchase price of approximately $405. In July 2012,
we acquired Interturbine for a net purchase price of approximately $245. Interturbine's product range includes chemicals, lubricants, hydraulic fluids, adhesives, coatings and composites. Interturbine
also supplies fasteners, cables and wires, electronic components, electrical and electromechanical materials, tools, hot bonding equipment and ground equipment to its primary customer base of airlines
and MROs globally.

The
Company initiated an expansion into the oilfield support services and associated rental equipment business during the second half of 2013. During the third and fourth quarters of
2013, we acquired the
assets of Blue Dot Energy Services, LLC ("Blue Dot") and Bulldog Frac Rentals, LLC ("Bulldog"), providers of on-site services, parts distribution and rental equipment to the oil and gas
industry, for a net purchase price of $114.0. As a result of these transactions, we established our oilfield support services and associated rental equipment businesses in both the northeast and
southwest regions of the United States.

In
January 2014, we acquired the assets of the LT Energy Services group of companies, an Eagle Ford Shale-based provider of accommodation units and services, for a net purchase price of
approximately $102.5. In February 2014, we acquired the assets of Wildcat Wireline LLC ("Wildcat Wireline"), a provider of wireline services primarily in the Eagle Ford Shale, and also in the
Marcellus/Utica Shales, for a net purchase price of approximately $153.4.

In
April 2014, we acquired the assets of Vision Oil Tools, LLC ("Vision"), a provider of oilfield support services and associated rental equipment. Vision established a new
geographical base of operations for us in the North Dakota (Williston/Bakken) and Rocky Mountain regions. The purchase price was approximately $140.7, with an additional payment of $35.0 in 2015 based
on the achievement of 2014 financial results. In April 2014, we acquired the assets of the Marcellus Gasfield Services group of companies ("MGS"), an oilfield support services and associated rental
equipment business based in the northeast U.S. In June 2014, we acquired the assets of the Cornell Solutions group of companies ("Cornell"), an oilfield support services and associated rental
equipment business based in the southwest U.S. The combined net purchase price of acquiring MGS and Cornell is approximately

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$117.2,
with an additional payment of $57.2 to be made in 2015 based on the achievement of 2014 financial results.

Through
these energy services acquisitions, we have established a base of North American operations from which we are able to offer our oilfield support services and associated rental
equipment in the major oil and gas regions of the U.S., including Northeastern U.S., Southwestern U.S., North Dakota, Rocky Mountains and the Mid-Continent.

The
Company is organized based on the products and services it offers. As a result of the recent acquisitions, we determined that ASG and ESG met the requirements of a reportable segment
and that ESG's operations in 2013 were immaterial. 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.

Year Ended December 31, 2014, as Compared to Year Ended December 31, 2013

The following is a summary of revenues by segment:

Revenues

Pro Forma Revenues(1)Segment

2014

2013

%
Change

PF 2014

PF 2013

%
ChangeAerospace Solutions Group

$
1,310.2

$
1,268.1


3.3
%
$
1,310.2

$
1,268.1


3.3
%Energy Services Group


385.5


23.5


1540.4
%

453.0


319.2


41.9
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
1,695.7

$
1,291.6


31.3
%
$
1,763.2

$
1,587.3


11.1
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Pro
Forma ("PF") results are presented to reflect all acquisitions as if completed on January 1, 2013.


Revenues
for the year ended December 31, 2014 were $1,695.7, an increase of 31.3% as compared with the same period of the prior year, primarily as a result of our expansion into
the oilfield support services and associated rental equipment business.

Cost
of sales for the year ended December 31, 2014 was $1,194.9 (70.5% of revenues) and increased by $322.1, or 36.9%, on the 31.3% increase in revenues. The lower gross margin is
primarily the result of a shift in revenue mix at ASG, as more fully described below, and start-up costs associated with a number of ASG's recently awarded long-term customer contracts, as well as
$3.5 of acquisition, integration and business separation costs. Revenues associated with supporting aerospace manufacturing customers increased by 5.3%. However, defense sales were down and
aftermarket sales were flat, as compared to the prior year. The strong new aircraft delivery cycle resulted in an increase in ASG's revenues to support the global aerospace manufacturing base,
including several new long-term contract awards. Initial margins associated with these contracts did not contribute meaningfully in 2014; however, they are expected to become consistent contributors
to profitability in the coming years. However, unlike any prior new aircraft delivery cycle, approximately 45% of the record number of new aircraft deliveries were to replace and retire older, less
fuel efficient aircraft. These retirements negatively impacted recurring aftermarket revenues and the higher margins related thereto. We expect this trend to begin to reverse as the approximately
7,700 new aircraft delivered over the 2009-2014 period increasingly roll off their warranty periods and begin to require periodic heavy maintenance checks. We also expect an increase in the rate of
business jet production in 2015, which would also be a positive addition to our results going forward. The outlook for defense sales will remain tied to the procurement budgets approved by Congress,
in response to the ongoing need for a strong U.S. military presence to counter global challenges. In addition, depreciation expense related to our ESG business increased by $27.4 to $29.1 in 2014 as
we expanded our product offerings through business acquisitions and capital investments in this new business.

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SG&A expense includes allocations of general corporate expenses from B/E Aerospace. SG&A expenses for the year ended December 31, 2014 were $254.0, or
15.0% of revenues, as compared with $180.3, or 14.0% of revenues, in the prior year period. The higher level of SG&A expense in the current year is primarily due to costs and expenses associated with
the 31.3% increase in revenues and business repositioning, acquisition, integration and business separation costs of approximately $53.4 ($24.2 in the prior year).

Operating
earnings for the year ended December 31, 2014 were $246.8, an increase of 3.5%, and operating margin of 14.6% decreased by 390 basis points as compared with the prior
year period primarily due to the 31.3% increase in revenues offset by acquisition, integration and business separation costs of $56.9 and the aforementioned phase-in activities from newly awarded
long-term agreements at our ASG segment.

Interest
expense for the year ended December 31, 2014 was $3.0, compared to interest income in the prior year period of $1.0. The increase in interest expense is a result of
interest incurred on the $1,200 of 5.875% senior unsecured notes issued in connection with the spin-off.

Income
tax expense for the year ended December 31, 2014 of $155.7 includes $67.3 of exit taxes and $88.4 of recurring tax expense (36.3% effective tax rate), which decreased by
$0.7 as compared with
prior year period income tax expense of $89.1 (37.2% effective tax rate) due to the favorable mix of foreign versus U.S. earnings. Net earnings for the year ended December 31, 2014 were $88.1,
a decrease of 41.4% as compared with the prior year period for the reasons set forth above.

Segment Results

The following is a summary of operating earnings by segment:

Operating Earnings(1)

PF Operating Earnings(1)Segment

2014

2013

%
Change

2014

2013

%
ChangeAerospace Solutions Group

$
192.0

$
240.2


(20.1
)%
$
192.0

$
240.2


(20.1
)%Energy Services Group


54.8


(1.7
)

N/A


76.9


44.7


72.0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
246.8

$
238.5


3.5
%
$
268.9

$
284.9


(5.6
)%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Includes
$56.9 ($45.9 at ASG, $11.0 at ESG) and $24.2 ($18.8 at ASG, $5.4 at ESG) of spin-off, acquisition and business repositioning costs for the years
ended December 31, 2014 and 2013, respectively. Pro Forma results are presented to reflect all acquisitions as if completed on January 1, 2013.


For
the year ended December 31, 2014, ASG revenues increased 3.3% and operating earnings of $192.0 decreased 20.1% reflecting business separation costs of $45.9, the
aforementioned new long-term customer contracts, which initially carry lower margins, and the shift in revenues discussed above. ASG operating earnings exclusive of such costs were $237.9, or
18.2%, of revenues.

ESG's
operating earnings for the year ended December 31, 2014 of $54.8 include $11.0 of acquisition, integration and business separation costs. ESG operating earnings exclusive of
such costs were $65.8, or 17.1% of revenues. Year-over-year comparisons of ESG results are not meaningful on a historical basis due to the timing of ESG acquisitions (the first of which closed in
August 2013). On a pro forma basis giving effect to all ESG acquisitions as though all transactions were completed on January 1, 2013, ESG revenues of $453.0 increased by 41.9% as compared with
the 2013 period, 2014 operating earnings of $76.9 increased by 72.0% and 2014 operating margin of 17.0% expanded by 300 basis points. ESG pro forma operating margin, exclusive of acquisition and
separation costs, was 19.4%

56

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and
expanded by 370 basis points, reflecting both the mix of revenues from our E&P customers and operating leverage at the higher revenue level.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Revenues for the year ended December 31, 2013 were $1,291.6, an increase of 9.4% as compared to 2012, as a result of an increase
in aftermarket revenues in the second half of 2013 and higher production levels of new aircraft.

Cost
of sales for 2013 was $872.8, which increased by $69.3, as compared with the prior year, primarily due to the higher level of revenues. Cost of sales as a percentage of revenues was
67.6% in 2013 and decreased by 50 basis points as compared with 2012, primarily due to a higher level of aftermarket revenues in 2013.

Selling,
general and administrative expenses for 2013 were $180.3, or 14.0% of revenues, as compared with $159.3, or 13.5% of revenues in 2012. The higher level of SG&A expense in 2013
is primarily due to costs and expenses associated with the 9.4% increase in revenues and a $7.0 increase in 2013 of acquisition, integration and transition ("AIT") costs associated with the
acquisitions of the Satair Group ("Satair"), UFC, Interturbine, Blue Dot and Bulldog.

For
the year ended December 31, 2013, operating earnings of $238.5 increased 9.5% and operating margin of 18.5% was unchanged compared to the prior year.

2013
income tax expense of $89.1 (37.2% effective tax rate) increased by $8.3 as compared with 2012 income tax expense of $80.8 (37.2% effective tax rate) due to the higher level of
earnings before income taxes.

Net
earnings for the year ended December 31, 2013 of $150.4 increased by $13.5 or 9.9% for the reasons set forth above.

Liquidity and Capital Resources

Current Financial Condition

Cash on hand at December 31, 2014 increased by $392.2 as compared with cash on hand at December 31, 2013 primarily as a
result of cash flows from operating activities of $107.5 and $1,172.1 of net proceeds from the issuance of $1,200.0 of our 5.875% senior unsecured notes, less capital expenditures of $136.8 and a
distribution to B/E Aerospace of $750.0. Acquisitions during the period totaled $513.8 and were funded by transfers from B/E Aerospace. 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 have historically been from cash on
hand, advances from our Former Parent and cash flow from operations. At December 31, 2014, we had approximately $470.8 of cash and cash equivalents. The substantial majority of our cash is held
within the United States, and we believe substantially all of our foreign cash may be brought back into the United States in a tax efficient manner.

Our
Board has authorized a stock repurchase program in which we may purchase up to an aggregate of $250.0 of our common stock. All decisions regarding future stock repurchases will be at
our sole discretion and will be evaluated from time to time in light of many factors, including our financial condition, earnings, capital requirements and debt covenants, if any, other contractual
restrictions, as well as legal requirements (including compliance with published IRS guidelines for tax-free spin-offs), regulatory constraints, industry practice and other factors that we may deem
relevant. The stock repurchase program may be modified, extended, suspended or discontinued by us at any time and we cannot provide any assurances that any shares will be repurchased.

57

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Working Capital

Working capital as of December 31, 2014 was $1,825.9, an increase of $459.8 as compared with working capital at
December 31, 2013. As of December 31, 2014, total current assets increased by $602.0 and total current liabilities increased by $142.2. The increase in current assets is primarily
related to the $392.2 increase in cash as described above, plus a $107.1 increase in accounts receivable, reflecting the strong revenue growth and recent ESG acquisitions, and an increase in
inventories of $62.5 to support future revenue growth. The increase in total current liabilities was due to an increase in accounts payable of $42.7 and accrued liabilities of $99.5, which is
primarily
related to the acquisitions completed in 2014 and includes the $92.2 deferred payments associated with acquisitions we made in 2014.

Cash Flows

As of December 31, 2014, cash and cash equivalents were $470.8 as compared to $78.6 at December 31, 2013. Cash provided
by operating activities was $107.5 for the year ended December 31, 2014 as compared to $185.6 in the same period in the prior year. The primary sources of cash provided by operating activities
during the year ended December 31, 2014 were net earnings of $88.1, adjusted by depreciation and amortization of $68.0 and deferred income taxes of $42.8, as well as an increase in accounts
payable and accrued liabilities of $36.7 and other non-current liabilities of $22.5. The primary uses of cash in operating activities during the year ended December 31, 2014 were related to a
$83.6 increase in accounts receivable, $67.2 increase in inventories and a $21.9 increase in other current and non-current assets. The primary uses of cash in investing activities during the year
ended December 31, 2014 were related to capital expenditures of $136.8 and acquisitions of $513.8, primarily funded by our Former Parent.

Capital Spending

Our capital expenditures were $136.8, $29.4 and $16.6 during the years ended December 31, 2014, 2013 and 2012, respectively. We
expect to incur approximately $100 in capital expenditures for the year ended December 31, 2015 to support selective investments to expand our product offerings in key geographies at ESG.
Because of the addition of the ESG business, we expect capital expenditures for rental equipment to be higher than the historical periods. We have no material commitments for capital expenditures. We
have, in the past, generally funded our capital expenditures from cash from operations and funds available to us from B/E Aerospace, our Former Parent. We expect to fund future capital expenditures
from cash on hand, cash flow from operations and from funds available from our $500 secured revolving credit facility.

New Financing Arrangements

In connection with the spin-off, we issued $1,200.0 of 5.875% senior unsecured notes due 2022. The net proceeds from the notes issuance
was approximately $1,172.1, of
which $750.0 was distributed to B/E Aerospace, leaving us with net proceeds of approximately $422 of which approximately $92.2 will be used to settle deferred payments associated with acquisitions we
made in 2014. We also entered into a $500 secured revolving credit facility, secured by substantially all of our assets and guaranteed by our subsidiaries, which bears interest at the London interbank
offered rate ("LIBOR") plus the applicable margin (as defined), and expires in December 2019. No amounts were outstanding under this credit facility as of December 31, 2014. We believe that our
cash flows, together with cash on hand and funds available under our $500 secured revolving credit facility will provide us with the ability to fund our operations, make planned capital expenditures
payments, make deferred payments associated with acquisitions we made in 2014 and meet our debt service obligations for debt incurred in connection with the spin-off for at least the next twelve
months.

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Table of Contents

Contractual Obligations

The following chart reflects our contractual obligations and commercial commitments as of December 31, 2014. 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

2015

2016

2017

2018

2019

Thereafter

TotalLong-term debt and other non-current liabilities(1)

$


$
2.0

$
1.8

$
0.9

$
0.6

$
1,213.3

$
1,218.6Operating leases


18.9


17.4


13.8


10.8


9.0


26.4


96.3Future interest payments on outstanding debt(2)


72.1


72.1


72.1


72.1


72.1


213.3


573.8​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
91.0

$
91.5

$
87.7

$
83.8

$
81.7

$
1,453.0

$
1,888.7​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Commercial CommitmentsLetters of Credit

$
0.4

$
0.4

$


$


$


$


$
0.8​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Our
liability for unrecognized tax benefits of $10.1 and related interest and penalties of $0.9 at December 31, 2014 has been omitted from the above
table because we cannot determine with certainty when this liability will be settled. It is reasonably possible that the amount of liability for unrecognized tax benefits will change in the next
twelve months; however, we do not expect the change to have a material impact on our combined financial statements.(2)Interest
payments include interest payments due on the 5.875% Notes based on the stated rate of 5.875%. To the extent we incur interest on our revolving
credit facility, interest payments would fluctuate based on LIBOR or prime rate pursuant to the terms of our revolving credit facility.


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 combined balance sheet. Future minimum
lease payments under these arrangements aggregated approximately $96.3 at December 31, 2014.

Indemnities, Commitments and Guarantees

During the normal course of business, we made certain indemnities, commitments and guarantees under which we may be required to make
payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property indemnities to our customers in connection with the delivery, design,
manufacture and sale 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 that are not reasonably determinable. We believe that any liability for these indemnities,
commitments and guarantees would not be material to our combined financial statements.

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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 MSAs
with our E&P customers, which set forth the terms and conditions for the provision of services and the rental of equipment. Rental tool and service contracts are typically based on a day rate
with rates based on the type of equipment and competitive conditions. As a result, we do not record backlog.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our combined financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual
results may differ from these estimates under different assumptions or conditions.

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 below. For a detailed discussion on the application of these and other accounting policies,
see Note 1 to our consolidated and combined financial statements.

Revenue Recognition

Sales of products and services are recorded when the earnings process is complete. This generally occurs when the products are shipped
to the customer in accordance with the contract or purchase order, risk of loss and title has passed to the customer, collectability is reasonably assured and pricing is fixed and determinable. In
instances where title does not pass to the customer upon shipment, we recognize revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

In
connection with the sales of our products, we also provide certain supply chain management services to certain of our 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 us contemporaneously with the delivery of the product, and as such, once the
product is delivered, we do not have a post-delivery obligation to provide services to the customer. The price of such services is generally included in the price of the products delivered to the
customer, and revenue is recognized upon delivery of the product, at which point, we have satisfied our 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.

Service
revenues from oilfield technical services and related rental equipment are recorded when services are performed and/or equipment is rented pursuant to a completed purchase order
or MSA that sets forth firm pricing and payment terms.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current
creditworthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain an allowance for estimated credit
losses based upon our historical experience and any specific customer collection issues that we have identified. If the actual uncollected amounts significantly exceed

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the
estimated allowance, our operating results would be significantly adversely affected. While such credit losses have historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

Inventories

Inventories, made up of finished goods, primarily consist of aerospace fasteners and consumables. We value inventories at the lower of
cost or market, using "first-in, first-out" (FIFO) or weighted average cost method. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based
primarily on historical demand, estimated product demand to support contractual supply agreements with our customers and the age of the inventory among other factors. Demand for our products can
fluctuate from period to period depending on customer activity. Our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision
required for excess, obsolete and unmarketable inventories. In the future, if our inventories are determined to be overvalued, we would
be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if our inventories are determined to be undervalued, we may have over-reported our costs of
goods sold in previous periods and would be required to recognize such additional operating income at the time of sale. Inventory reserves were approximately $33.0 and $30.3 as of December 31,
2014 and December 31, 2013, respectively.

Substantially
all of our inventory is comprised of aerospace grade fasteners which support OEM production and the aftermarket over the life of the airframe. Inventory with a
limited shelf life is continually monitored and reserved for in advance of expiration. The provision for inventory with limited shelf life is relatively insignificant and has not exceeded $0.5 during
the past three years.

Long-Lived Assets and Goodwill

To conduct our global business operations and execute our strategy, we acquire tangible and intangible assets, which affect the amount
of future period amortization expense and possible impairment expense that we may incur. The determination of the value of such intangible assets requires management to make estimates and assumptions
that affect our consolidated and combined financial statements. In accordance with ASC 350, IntangiblesGoodwill and Other ("ASC 350"), we assess potential impairment to goodwill of a
reporting unit and to indefinite-lived intangible assets on an annual basis, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of
a reporting unit or indefinite-lived intangible asset below its carrying amount. In accordance with ASC 360,Property, Plant, and Equipment, we assess
potential impairment to long-lived assets (property and equipment and amortized intangible assets) when there is evidence that events or changes in circumstances indicate that the carrying amount of
an asset may not be recovered. Our judgment regarding the existence of impairment indicators and future cash flows related to intangible assets is based on operational performance of our acquired
businesses, expected changes in the global economy, aerospace industry projections, discount rates and other judgmental factors. Future events could cause us to conclude that impairment indicators
exist and that goodwill or other acquired tangible or intangible assets associated with our acquired businesses are impaired. Any resulting impairment loss could have an adverse impact on our results
of operations. As of December 31, 2014 and 2013, our management believes the estimated fair value of each of our reporting units with goodwill balances, our indefinite-lived intangible assets
and each of our long-lived assets were in excess of their carrying values. There were no indicators of goodwill or intangible asset impairment at December 31, 2014 or 2013.

The
fair value of the ESG reporting unit exceeds the carrying value by approximately 28% as of December 31, 2014, and approximately $342.4 million of goodwill has been
allocated to the ESG reporting unit. The recent precipitous drop in oil and gas commodity prices during the second half of

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2014
is likely to have a negative impact on ESG's business in 2015. Cutbacks to the capital expenditure budgets of ESG's oil and gas customers has led to a rapid reduction in the active drilling rig
count in the onshore North American market. This reduction in current and planned drilling activity has resulted in both cost and capacity utilization pressures on companies within the oilfield
service industry. Our ESG business has begun to experience some of these pressures, particularly in the form of price reduction requests from our customers. In response to these evolving industry
conditions, our approach is to first ensure that we manage our ESG business prudently by closely monitoring costs while positioning our resources in those activities and regions which we believe will
maximize our revenue opportunities. Secondly, our strategy is to maintain sufficient liquidity to take advantage of opportunities that will present themselves. We will also focus on operational
excellence and continuous improvement initiatives. Finally, we will work hard to uncover high return acquisition opportunities over the next 18-24 months. However, there can be no assurance
such measures will prevent our ESG business from suffering an operating loss from reduction in the volume and/or pricing of its services. ESG's cash flow projections are a significant input into the
December 31, 2014 fair value. If the ESG business is unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the ESG
reporting unit.

Accounting for Income Taxes

Significant management judgment is required in evaluating our tax positions and in determining our provision for income taxes, our
deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $24.8 as of December 31, 2014, due to
uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of our foreign net operating losses. The valuation allowance is based on our estimates of taxable income
by jurisdiction in the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or we
revise these estimates in future periods, we may need to adjust the valuation allowance which could materially impact our financial position and results of operations. We have not provided for any
residual U.S. income taxes on approximately $21.7 of earnings from our foreign subsidiaries because such earnings are intended to be indefinitely reinvested. It is not practicable to determine the
amount of U.S. income and foreign withholding tax payable in the event all such foreign earnings are repatriated.

Effect of Inflation

Inflation has not had and is not expected to have a significant effect on our operations.

ITEM 7A.    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 secured revolving credit facility.

Foreign currencyWe have direct operations in Europe that receive revenues from customers primarily in U.S. dollars and we purchase raw materials and
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.

In
the future, we and our foreign subsidiaries may enter into foreign currency exchange contracts to manage risk on transactions conducted in foreign currencies. At December 31,
2014, we had no outstanding foreign currency exchange contracts. In addition, we have not entered into any other derivative financial instruments.

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Interest RatesAs of December 31, 2014, 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 December 31, 2014, we maintained a portfolio of cash 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 less than $0.1.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this section is set forth beginning on page F-1 of this Form 10-K.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of 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 December 31, 2014, 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
December 31, 2014.

Management's Annual Report on Internal Control over Financial Reporting and Attestation Report
of the Registered Public Accounting Firm

This Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an
attestation report of our registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2014 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our Executive Officers

The following table sets forth information regarding our executive officers as of March 6, 2015.

Name and Title

Business ExperienceAmin J. Khoury
Chief Executive Officer

Amin J. Khoury co-founded B/E Aerospace in July 1987 and has served as its Chairman of the Board since that time. Mr. Khoury served as Chief Executive Officer of B/E Aerospace from December 31, 2005 through
December 31, 2013. Mr. Khoury also served as the Co-Chief Executive Officer of B/E Aerospace from January 1, 2014 to December 16, 2014. Following the spin-off, Mr. Khoury has served as the Executive Chairman of B/E Aerospace.
Mr. Khoury was a Trustee of the Scripps Research Institute from May 2008 until his retirement in July 2014 and was a director of Synthes Incorporated until its acquisition by Johnson & Johnson in 2012. Mr. Khoury holds an Executive
Masters Professional Director Certification, the highest level, from the American College of Corporate Directors.Thomas P. McCaffrey
President and Chief Operating Officer

Thomas P. McCaffrey served as Senior Vice President and Chief Financial Officer of B/E Aerospace from May 1993 until December 16, 2014.
Prior to joining B/E Aerospace, Mr. McCaffrey was an Audit Director with Deloitte & Touche LLP from August 1989 through May 1993, and from 1976 through 1989 served in several capacities, including Audit Partner, with
Coleman & Grant LLP. Mr. McCaffrey is a Certified Public Accountant licensed to practice in the states of Florida, California and Colorado.Michael F. Senft
Vice PresidentChief Financial Officer and Treasurer

Michael F. Senft served on the Board of Directors of B/E Aerospace from February 2012 until September 2014. Mr. Senft most recently was
a Managing Director of Moelis & Company. For more than 20 years, he has advised on B/E Aerospace's long-term capital transactions and strategic acquisitions. Mr. Senft has also served on the Board of Directors of Moly
Mines Ltd. and Del Monte Foods. Mr. Senft's prior positions include Global Head of Leveraged Finance at CIBC and Global Co-Head of Leveraged Finance at Merrill Lynch.John Cuomo
Vice President and General Manager, Aerospace Solutions Group

John Cuomo has been Vice President and General Manager, Consumables Management business since July 2014. He has over 14 years of
experience in the aerospace consumables distribution market and served in multiple roles and functions at B/E Aerospace Consumables Management from April 2000 to February 2014, with the most recent being Senior Vice President, Sales, Marketing and
Business Development. Prior to joining B/E Aerospace, Mr. Cuomo served as an Associate Attorney to a large multi-national law firm practicing commercial law, mergers and acquisitions and litigation. He has a Bachelor of Science in International
Business, a Juris Doctorate from the University of Miami and a Master of Business Administration from the University of Florida.


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Name and Title

Business ExperienceGary Roberts
Vice President and General Manager, Energy Services Group

Gary J. Roberts served as Vice President and General Manager, Energy Services Group at B/E Aerospace since April 2014 until December 16, 2014. Prior to
joining B/E Aerospace, Mr. Roberts was the Chief Executive Officer of Vision Oil Tools, LLC, a private energy services company, from 2010 until its acquisition by B/E Aerospace. Before that, Mr. Roberts was General Manager for Complete
Production Services, Inc. and worked for Weatherford International from 1991 to 2008, holding management positions with increasing levels of responsibility in Singapore, China, Indonesia and Qatar. Mr. Roberts brings to KLX over
30 years of oilfield experience.Roger Franks
General Counsel, Vice PresidentLaw and Human Resources

Roger Franks served as Associate General Counsel of B/E Aerospace until December 16, 2014 when he joined the Company as General Counsel,
 Vice PresidentLaw and Human Resources. Mr. Franks joined the B/E Aerospace Legal Department in January 2010, where he oversaw employee matters, commercial disputes, compliance and general corporate law. Prior to joining B/E Aerospace, he
was on the Board of Directors of a mid-size California law firm where he focused on commercial matters including employment law and litigation.Heather Floyd
Vice PresidentFinance and Corporate Controller

Heather Floyd served as Vice PresidentInternal Audit of B/E Aerospace until December 16, 2014 when she joined the Company as Vice
PresidentFinance and Corporate Controller. Ms. Floyd has over 12 years of combined accounting, auditing, financial reporting and Sarbanes-Oxley compliance experience. Ms. Floyd joined B/E Aerospace in November 2010 as Director of
Financial Reporting and Internal Controls. Prior to joining B/E Aerospace, Ms. Floyd served as an Audit Manager with Ernst & Young and in various accounting roles at Corporate Express, now a subsidiary of Staples.


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Our Board of Directors

The following table sets forth information regarding our directors as of March 6, 2015. The table contains each person's
biography as well as the qualifications and experience each person would bring to our Board. Our Board consists of eight members, seven of whom will meet applicable regulatory and exchange listing
independence requirements.

Name and Title

Age

Business Experience and Director QualificationsAmin J. Khoury
Chairman


75

Amin J. Khoury, our Chief Executive Officer, co-founded B/E Aerospace in July 1987 and has served as its Chairman of the Board since that time. Mr. Khoury served as Chief Executive Officer of B/E Aerospace from
December 31, 2005 through December 31, 2013. Mr. Khoury also served as the Co-Chief Executive Officer of B/E Aerospace from January 1, 2014 to December 16, 2014. Following the spin-off, Mr. Khoury has served as the
Executive Chairman of B/E Aerospace. Mr. Khoury was a Trustee of the Scripps Research Institute from May 2008 until his retirement in July 2014. Mr. Khoury holds an Executive Masters Professional Director Certification, the highest level,
from the American College of Corporate Directors. During his time at B/E Aerospace, Mr. Khoury was primarily responsible for the development and execution of B/E Aerospace's business strategies that resulted in its growth from a single product
line business with $3.0 million in annual sales, to the leading global manufacturer of commercial aircraft and business jet cabin interior products and the world's leading distributor of aerospace consumable products, with annual revenues in
2013 of $3.5 billion. Mr. Khoury led the strategic planning and acquisition strategy of B/E Aerospace as well as its operational integration and execution strategies. He is a highly effective leader in organizational design and development
matters and has been instrumental in identifying and attracting both our managerial talent and Board members. He has an intimate knowledge of the Company, its industry and its competitors which he has gained over the last 27 years at B/E
Aerospace. All of the above experience and leadership roles uniquely qualify him to serve as our Company's Chairman of the Board.John T. Collins
Director


67

John T. Collins has been Chairman and Chief Executive Officer of The Collins Group, Inc., a manager of a private securities portfolio
and minority interest holder in several privately held companies, since 1992. From 1986 to 1992, Mr. Collins served as the President and Chief Executive Officer of Quebecor Printing (USA) Inc., which was formed in 1986 by a merger with
Semline Inc., where he had served in various positions since 1968, including since 1973 as President. During his term, Mr. Collins guided Quebecor Printing (USA) Inc. through several large acquisitions and situated the company to
become one of the leaders in the industry. Mr. Collins previously served on the Board of Directors for several public companies including Federated Investors, Inc., Bank of America, and FleetBoston Financial. In addition, Mr. Collins
has served on the Board of Trustees of his alma mater, Bentley College. We expect our Board to benefit from Mr. Collins's many years of experience in the management, acquisition, and development of several companies.


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Name and Title

Age

Business Experience and Director QualificationsPeter V. Del Presto
Director


64

Peter V. Del Presto is an adjunct professor of finance at the University of Pittsburgh, where he teaches courses covering capital markets, advanced
valuation methods and private equity. From 1985 until his retirement in 2010, Mr. Del Presto was a partner with PNC Equity Partners, a private equity firm and an affiliate of PNC Bank targeting middle-market companies for acquisition and
investment. During his 25 years at PNC Equity Partners, Mr. Del Presto led the firm's investment in 35 companies and participated as a member of the firm's Investment Committee in over 275 investments. Mr. Del Presto was PNC Equity
Partner's representative on the boards of 24 companies where he was responsible for the development of value creation strategies in each. Mr. Del Presto is also a licensed private pilot. We expect that our Board will benefit from Mr. Del
Presto's background in engineering and business administration, his expertise in the field of finance, and 25 years of experience in the acquisition, investment and development of numerous companies.Richard G. Hamermesh
Director


66

Richard G. Hamermesh has served on the Board of Directors of B/E Aerospace since July 1987. Dr. Hamermesh has been a Professor of
Management Practice at Harvard Business School since July 1, 2002, where he was also a member of the faculty from 1976 to 1987. From 1987 to 2001, he was a co-founder and a Managing Partner of The Center for Executive Development, an executive
education and development consulting firm. He is also an active investor and entrepreneur, having participated as a principal, director and investor in the founding and early stages of more than 15 organizations. Dr. Hamermesh is a member of the
Board of Directors of b.good and SmartCloud. We expect our Board to benefit from Dr. Hamermesh's education and business experience, as well as his intimate knowledge of our business and industry gained from serving over 27 years on the
Board of B/E Aerospace.


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Name and Title

Age

Business Experience and Director QualificationsBenjamin A. Hardesty
Director


64

Benjamin A. Hardesty has been the owner of Alta Energy LLC, a consulting business focused on oil and natural gas in the Appalachian Basin and onshore
United States since 2010. In May 2010, Mr. Hardesty retired as president of Dominion E&P, Inc., a subsidiary of Dominion Resources Inc. engaged in the exploration and production of oil and natural gas in North America, a position
he had held since September 2007. After joining Dominion Resources in 1995, Mr. Hardesty had previously also served in other executive positions, including president of Dominion Appalachian Development, Inc. and general manager and vice
president Northeast Gas Basin. Mr. Hardesty has served on the Board of Directors of Antero Resources Corporation since its initial public offering in October 2013. He previously was a member of the Board of Directors of Blue Dot Energy Services,
 LLC from 2011 until its sale to B/E Aerospace in 2013. From 1982 to 1995, Mr. Hardesty served as an officer and director of Stonewall Gas Company, and from 1978 to 1982 as vice president of operations of Development Drilling Corporation.
Mr. Hardesty is director emeritus and past president of the West Virginia Oil & Natural Gas Association and past president of the Independent Oil & Gas Association of West Virginia. Mr. Hardesty serves on the Visiting
Committee of the Petroleum Natural Gas Engineering Department of the College of Engineering and Mineral Resources at West Virginia University. We believe his significant experience in the oil and natural gas industry, including in our areas of
operation, make Mr. Hardesty well suited to serve as a member of our Board.Stephen M. Ward, Jr.
Director


57

Stephen M. Ward, Jr., has been a director of Carpenter Technology Corporation since 2001, where he is Chair of the Corporate Governance
Committee and a member of the Human Resources and Science and Technology Committees. Mr. Ward previously served as President and Chief Executive Officer of Lenovo Corporation, which was formed by the acquisition of IBM Corporation's personal
computer business by Lenovo of China. Mr. Ward had spent 26 years at IBM Corporation holding various management positions, including Chief Information Officer and Senior Vice President and General Manager, Personal Systems Group.
Mr. Ward is also a co-founder and Board member of E2open, a maker of enterprise software, and C3, a company that develops and sells software to monitor, mitigate and monetize greenhouse gases. The Board believes Mr. Ward's broad executive
experience and focus on innovation enables him to share with our Board valuable perspectives on a variety of issues relating to management, strategic planning, tactical capital investments, and international growth.


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Name and Title

Age

Business Experience and Director QualificationsTheodore L. Weise
Director


70

Theodore L. Weise is currently a business consultant and serves on the Board of Directors of Hawthorne Global Aviation Services. Mr. Weise joined
Federal Express Corporation in 1972 during its formative years and retired in 2000 as its President and Chief Executive Officer. He held many officer positions including Executive Vice President of World Wide Operations and led the following
divisions as its Senior Vice President: Air Operations, Domestic Ground Operations, Central Support Services, Business Service Centers, and Operations Planning. Prior to joining Federal Express Corporation, Mr. Weise flew on the US Air Force
F-111 as a Flight Test Engineer for General Dynamics Corp. He has previously served on the boards of Federal Express Corporation, Computer Management Sciences, Inc., ResortQuest International, Inc. and Pogo Jet, Inc. Mr. Weise is
a member of the Missouri University of Science and Technology Board of Trustees, of which he was a past President. Mr. Weise is a jet rated Airline Transport Pilot with over 5,700 flight hours. He holds a Masters Professional Director
Certification from the American College of Corporate Directors. We expect that our Board will benefit from Mr. Weise's extensive leadership experience.John T. Whates, Esq.
Director


67

John T. Whates has served on the Board of Directors of B/E Aerospace since February 2012. Mr. Whates has been an independent tax
advisor and involved in venture capital and private investing since 2005. He is Chairman of the Board of Dynamic Healthcare Systems, Inc., a company that provides enterprise technology software solutions to healthcare organizations. From 1994 to
2011, Mr. Whates was a tax and financial advisor to B/E Aerospace, providing business and tax advice on essentially all of its significant strategic acquisitions. Previously, Mr. Whates was a tax partner in several of the largest public
accounting firms, most recently leading the High Technology Group Tax Practice of Deloitte LLP in Orange County, California. He has extensive experience working with aerospace and other public companies in the fields of tax, equity financing and
mergers and acquisitions. Mr. Whates will bring to our Board his extensive experience, multi-dimensional educational background, and thorough knowledge of our business and industry.


Structure of the Board of Directors

Our Board is divided into three classes of directors. Directors of each class will be chosen for three-year terms upon the expiration
of their current terms, and each year our stockholders will elect one class of our directors. The directors designated as Class I directors will have terms expiring at the first annual meeting
of stockholders following the effectiveness of our amended and restated certificate of incorporation, the directors designated as Class II directors will have terms expiring at the second
annual meeting of stockholders following the effectiveness of our amended and restated certificate of incorporation, and the directors designated as Class III directors will have terms expiring
at the third annual meeting of stockholders following the effectiveness of our amended and restated certificate of incorporation.

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Audit Committee

We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.
Messrs. Del Presto, Hamermesh and Collins currently serve as members of the Audit Committee. Under the current SEC rules and the rules of NASDAQ, all of the members are independent. Our Board
has determined that Mr. Del Presto is an "audit committee financial expert" in accordance with current SEC rules. All members of the Audit Committee are independent, as that term is used in
Item 407 of Regulation S-K of the federal securities laws.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a
registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common
stock and other equity securities. Officer, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

Code of Business Conduct

Our Board has adopted a code of business conduct that applies to all our directors, officers and employees worldwide, including our
principal executive officer, principal financial officer, controller, treasurer and all other employees performing a similar function. We maintain a copy of our code of business conduct, including any
amendments thereto and any waivers applicable to any of our directors and officers, on our website at www.klx.com.

ITEM 11.    EXECUTIVE COMPENSATION

Information set forth under the captions "Compensation of Directors and "Compensation Discussion and Analysis" in the Proxy Statement
or Annual Report on Form 10-K/A is incorporated by reference herein.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement or
Annual Report on Form 10-K/A is incorporated by reference herein.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information set forth under the captions "Certain Relationships and Related Party Transactions" in the Proxy Statement or Annual Report
on Form 10-K/A is incorporated by reference herein.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information set forth under the caption "Principal Accountant Fees and Services" in the Proxy Statement or Annual Report on
Form 10K/A is incorporated by reference herein.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The
information required by this item is contained under the section "Index to Combined Financial Statements" beginning on page F-1 of this Form 10-K.

We
are filing the following documents as exhibits to this Form 10-K:

Exhibit No.

Description2.1

Separation and Distribution Agreement, dated as of December 15, 2014, between B/E Aerospace, 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 December 19, 2014).3.1

Amended and Restated Certificate of Incorporation of KLX Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on December 19,
2014).3.2

Amended and Restated By-Laws of KLX Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on December 19, 2014).4.1

Indenture (including form of notes), dated December 8, 2014, between KLX Inc., as the issuer, 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 December 12, 2014).10.1

Tax Sharing and Indemnification Agreement, dated as of December 15, 2014, between B/E Aerospace, Inc. and KLX Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on December 19, 2014).10.2

Employee Matters Agreement, dated as of December 15, 2014, between B/E Aerospace, Inc. and KLX Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed
with the SEC on December 19, 2014).10.3

Transition Services Agreement, dated December 16, 2014, between B/E Aerospace, Inc. and KLX Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed
with the SEC on December 19, 2014).10.4

IT Services Agreement, dated as of December 16, 2014, by and between B/E Aerospace, Inc. and KLX Inc. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on
Form 8-K filed with the SEC on December 19, 2014).10.5

Stock and Asset Purchase Agreement, dated June 9, 2008, between B/E Aerospace, Inc. and Honeywell International Inc. (incorporated by reference to Exhibit 2.1 to B/E Aerospace,
 Inc.'s Current Report on Form 8-K dated June 9, 2008, filed with the SEC on June 11, 2008 (File No. 000-18348)).10.6

Supply Agreement, dated as of July 28, 2008, between B/E Aerospace, Inc. and Honeywell International Inc. (incorporated by reference to Exhibit 10.5 to the Company's Amendment No. 2 to
Form 10 filed with the SEC on November 13, 2014).10.7

License Agreement, dated as of July 28, 2008, between B/E Aerospace, Inc. and Honeywell International Inc. (incorporated by reference to Exhibit 10.6 to the Company's Amendment No. 2 to
Form 10 filed with the SEC on November 13, 2014).


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Exhibit No.

Description10.8

Stockholders Agreement, dated as of July 28, 2008, among B/E Aerospace, Inc. and Honeywell International Inc., Honeywell UK Limited, Honeywell Holding France SAS and Honeywell Deutschland GmbH
(incorporated by reference to Exhibit 10.3 to B/E Aerospace, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed with the SEC on November 7, 2008 (File No. 000-18348)).10.9

Employment Agreement between KLX Inc. and Amin J. Khoury, dated as of September 15, 2014 (incorporated by reference to Exhibit 10.8 to the Company's Amendment No. 1 to Form 10 filed with the
SEC on October 10, 2014).*10.10

Employment Agreement between KLX Inc. and Thomas P. McCaffrey, dated as of September 15, 2014 (incorporated by reference to Exhibit 10.9 to the Company's Amendment No. 1 to Form 10 filed with
the SEC on October 10, 2014).*10.11

Employment Agreement between KLX Inc. and Michael F. Senft, dated as of September 30, 2014 (incorporated by reference to Exhibit 10.10 to the Company's Amendment No. 1 to Form 10 filed with
the SEC on October 10, 2014).*10.12

Employment Agreement between KLX Inc. and Roger M. Franks, dated as of October 7, 2014 (incorporated by reference to Exhibit 10.11 to the Company's Amendment No. 2 to Form 10 filed with the
SEC on November 13, 2014).*10.13

KLX Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (File No. 333-200923) filed with the SEC on December 12,
2014).*10.14

KLX Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File No. 333-200923) filed with the SEC on December 12,
2014).*10.15

KLX Inc. Non-Employee Directors Stock and Deferred Compensation Plan (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 (File No. 333-200923) filed with
the SEC on December 12, 2014).*10.16

KLX Inc. 2014 Deferred Compensation Plan (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (File No. 333-200919) filed with the SEC on December 12,
2014).*10.17

Credit Agreement, dated as of December 16, 2014, by and between KLX Inc., the several Lenders, JPMorgan Chase Bank, N.A. (as Administrative Agent), Citigroup Global Markets Inc. and Goldman Sachs Bank
USA (as Syndication Agents) and Suntrust Bank, TD Bank, N.A., Royal Bank of Canada, Barclays Bank PLC, Deutsche Bank Securities Inc., MUFG Union Bank, N.A., PNC Bank, National Association and Santander Bank, N.A (as Documentation
Agents) (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed with the SEC on December 19, 2014).10.18

Form of Restricted Stock Award Agreement (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on March 2, 2015).*10.19

Form of Restricted Stock Unit Award Agreement (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on March 2, 2015).*10.20

Form of Stock Option Award Agreement (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on March 2, 2015).*21.1

List of subsidiaries of KLX Inc.


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Exhibit No.

Description23.1

Consent of Independent Registered Public Accounting FirmDeloitte & Touche LLP31.1

Certification of Chief Executive Officer31.2

Certification of Chief Financial Officer32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 135032.2

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


*Management
contract or compensatory plan.Portions
of the exhibit were omitted and filed separately pursuant to a request for confidential treatment.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.By:

/s/ AMIN J. KHOURY Amin J. Khoury Chairman and Chief Executive Officer


Date:
March 6, 2015

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

/s/ AMIN J. KHOURY Amin J. Khoury

Chairman and Chief Executive Officer (Principle Executive Officer)

March 6, 2015/s/ MICHAEL F. SENFT Michael F. Senft

Vice PresidentChief Financial Officer and Treasurer (Principal Financial Officer)

March 6, 2015/s/ HEATHER M. FLOYD Heather M. Floyd

Vice PresidentFinance and Corporate Controller (Principal Accounting Officer)

March 6, 2015/s/ JOHN T. COLLINS John T. Collins

Director

March 6, 2015/s/ PETER V. DEL PRESTO Peter V. Del Presto

Director

March 6, 2015/s/ RICHARD G. HAMERMESH Richard G. Hamermesh

Director

March 6, 2015/s/ BENJAMIN A. HARDESTY Benjamin A. Hardesty

Director

March 6, 2015


74

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Table of Contents

/s/ STEPHEN M. WARD, JR. Stephen M. Ward, Jr.

Director

March 6, 2015/s/ THEODORE L. WEISE Theodore L. Weise

Director

March 6, 2015/s/ JOHN T. WHATES John T. Whates

Director

March 6, 2015


75

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Table of Contents

INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AND SCHEDULE



PageReport of Independent Registered Public Accounting Firm


F-2Consolidated and Combined Financial Statements:Consolidated and Combined Balance Sheets as of December 31, 2014 and 2013


F-3Consolidated and Combined Statements of Earnings and Comprehensive Income for the Years Ended December 31,
 2014, 2013 and 2012


F-4Consolidated and Combined Statements of Stockholders' Equity for the Years Ended December 31, 2014, 2013
and 2012


F-5Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012


F-6Notes to Consolidated and Combined Financial Statements for the Years Ended December 31, 2014, 2013 and
2012


F-7Consolidated and Combined Financial Statement Schedule:Schedule IIValuation and Qualifying Accounts for the Years Ended December 31, 2014, 2013 and
2012


F-32


F-1

---





Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
KLX Inc.
Wellington, Florida

We
have audited the accompanying consolidated and combined balance sheets of KLX Inc. and subsidiaries (previously the Aerospace Solutions Group and Energy Services Group of
B/E Aerospace, Inc.) (the "Company") as of December 31, 2014 and 2013, and the related consolidated and combined statements of earnings and comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also include the financial statement schedule listed in the Index at Item 15. These
financial statements and financial
statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such financial statements present fairly, in all material respects, the consolidated and combined financial position of the Company as of December 31, 2014, and the consolidated
and combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated and combined financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.

As
discussed in Note 1 to the consolidated and combined financial statements, prior to the separation of the Company from B/E Aerospace, Inc. ("B/E"), the Company was comprised of the
assets and liabilities used in managing and operating the Aerospace Solutions Group and Energy Services Group of B/E Aerospace, Inc. For periods prior to the separation of the Company from B/E,
the consolidated and combined financial statements also include allocations from B/E. These allocations may not be reflective of the actual level of assets, liabilities, or costs which would have been
incurred had the Company operated as a separate entity apart from B/E. Included in Note 5 to the consolidated and combined financial statements is a summary of transactions with related
parties.

/s/
Deloitte & Touche LLP
Certified Public Accountants

Boca
Raton, Florida
March 6, 2015

F-2

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Table of Contents



KLX INC.        CONSOLIDATED AND COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013        (In millions)

December 31,2014

2013ASSETSCurrent assets:Cash and cash equivalents

$
470.8

$
78.6Accounts receivable, net


308.0


200.9Inventories


1,289.2


1,226.7Deferred income taxes


37.5


22.8Other current assets


50.6


25.1​
​
​
​
​
​
​
​Total current assets


2,156.1


1,554.1​
​
​
​
​
​
​
​Property and equipment, net


332.2


92.3Goodwill


1,328.7


1,069.8Identifiable intangible assets, net


442.3


345.0Other assets


44.3


2.8​
​
​
​
​
​
​
​$
4,303.6

$
3,064.0​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
149.9

$
107.2Deferred acquisition payments


92.2


Accrued liabilities


88.1


80.8​
​
​
​
​
​
​
​Total current liabilities


330.2


188.0​
​
​
​
​
​
​
​Long-term debt


1,200.0


Deferred income taxes


123.5


66.1Other non-current liabilities


29.6


11.2Commitments, contingencies and off-balance sheet arrangements (Note 9)Stockholders' equity:Common stock, $0.01 par value, 250.0 shares authorized; 52.5 shares issued as of December 31, 2014, and 0 shares issued as of December 31,
2013


0.5Additional paid-in capital


2,644.1


Retained earnings


4.2


Former Parent company investment





2,750.5Accumulated other comprehensive (loss) income


(28.5
)

48.2​
​
​
​
​
​
​
​Total stockholders' equity


2,620.3


2,798.7​
​
​
​
​
​
​
​$
4,303.6

$
3,064.0​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​




See accompanying notes to consolidated and combined financial statements.

F-3

---





Table of Contents



KLX INC.        CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS AND  COMPREHENSIVE INCOME        FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012        (In millions)

Years Ended December 31,2014

2013

2012Product revenues

$
1,310.2

$
1,268.1

$
1,180.7Service revenues


385.5


23.5


​
​
​
​
​
​
​
​
​
​
​Total revenues


1,695.7


1,291.6


1,180.7Cost of salesproducts


921.7


855.0


803.5Cost of salesservices


273.2


17.8


​
​
​
​
​
​
​
​
​
​
​Total cost of sales


1,194.9


872.8


803.5Selling, general and administrative


254.0


180.3


159.3​
​
​
​
​
​
​
​
​
​
​Operating earnings


246.8


238.5


217.9Interest expense (income)


3.0


(1.0
)

0.2​
​
​
​
​
​
​
​
​
​
​Earnings before income taxes


243.8


239.5


217.7Income taxes


155.7


89.1


80.8​
​
​
​
​
​
​
​
​
​
​Net earnings

$
88.1

$
150.4

$
136.9​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Other comprehensive income:Foreign currency translation adjustment


(76.7
)

18.7


25.4​
​
​
​
​
​
​
​
​
​
​Comprehensive income

$
11.4

$
169.1

$
162.3​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Net earnings per sharebasic

$
1.69

$
2.88

$
2.62​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Net earnings per sharediluted

$
1.68

$
2.88

$
2.62​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Weighted average common sharesbasic


52.2


52.2


52.2​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Weighted average common sharesdiluted


52.3


52.3


52.3​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​




See accompanying notes to consolidated and combined financial statements.

F-4

---





Table of Contents



KLX INC.        CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY        FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012        (In
millions)

Common Stock



Former
Parent
Company
Investment



Accumulated
Other
Comprehensive
Income (Loss)Additional
Paid-in
Capital

Retained
Earnings

Total
Stockholders'
EquityShares

AmountBalance, December 31, 2011




$


$


$
1,839.6

$


$
4.1

$
1,843.7Net transfers to Former Parent











629.5








629.5Net earnings











136.9








136.9Net foreign currency translation adjustments

















25.4


25.4​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance, December 31, 2012











2,606.0





29.5


2,635.5Net transfers from Former Parent











(5.9
)







(5.9
)Net earnings











150.4








150.4Net foreign currency translation adjustments

















18.7


18.7​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance, December 31, 2013











2,750.5





48.2


2,798.7Net transfers from Former Parent











(189.8
)







(189.8
)Net earnings before spin-off











83.9








83.9Net earnings after spin-off














4.2





4.2Consummation of spin-off transaction on December 16, 2014


52.5


0.5


2,644.1


(2,644.6
)







Net foreign currency translation adjustments

















(76.7
)

(76.7
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance, December 31, 2014


52.5

$
0.5

$
2,644.1

$


$
4.2

$
(28.5
)
$
2,620.3​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​




See accompanying notes to consolidated and combined financial statements.

F-5

---





Table of Contents



KLX INC.        CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012        (In millions)

Years Ended December 31,2014

2013

2012CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings

$
88.1

$
150.4

$
136.9Adjustments to reconcile net earnings to net cash flows provided by operating activities:Depreciation and amortization


68.0


27.8


22.8Deferred income taxes


42.8


32.0


19.5Non-cash compensation


3.7


3.7


3.3Excess tax benefits


(0.6
)

(1.2
)

(0.6
)Provision for doubtful accounts


12.4


1.4


3.2Loss on disposal of property and equipment


6.6


0.5


0.8Changes in operating assets and liabilities, net of effects from acquisitions:Accounts receivable


(83.6
)

(4.7
)

(11.9
)Inventories


(67.2
)

(18.9
)

(87.9
)Other current and non-current assets


(21.9
)

(6.7
)

(8.1
)Accounts payable and accrued liabilities


36.7


(12.8
)

(1.8
)Other non-current liabilities


22.5


14.1


(10.1
)​
​
​
​
​
​
​
​
​
​
​Net cash flows provided by operating activities


107.5


185.6


66.1​
​
​
​
​
​
​
​
​
​
​CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures


(136.8
)

(29.4
)

(16.6
)Acquisitions, net of cash acquired


(513.8
)

(117.5
)

(649.7
)Other








2.3​
​
​
​
​
​
​
​
​
​
​Net cash flows used in investing activities


(650.6
)

(146.9
)

(664.0
)​
​
​
​
​
​
​
​
​
​
​CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term debt


1,200.0





Debt origination costs


(27.9
)




Excess tax benefits


0.6


1.2


0.6Net transfers (to) from B/E Aerospace


(233.3
)

(0.5
)

597.1​
​
​
​
​
​
​
​
​
​
​Net cash flows provided by financing activities


939.4


0.7


597.7​
​
​
​
​
​
​
​
​
​
​Effect of foreign exchange rate changes on cash and cash equivalents


(4.1
)

2.9


0.9​
​
​
​
​
​
​
​
​
​
​Net increase in cash and cash equivalents


392.2


42.3


0.7Cash and cash equivalents, beginning of year


78.6


36.3


35.6​
​
​
​
​
​
​
​
​
​
​Cash and cash equivalents, end of year

$
470.8

$
78.6

$
36.3​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Supplemental disclosures of cash flow information:Cash paid during period for:Income taxes

$
21.1

$
12.2

$
9.6Supplemental schedule of non-cash activities:Contingent consideration

$
92.2

$


$





See accompanying notes to consolidated and combined financial statements.

F-6

---





Table of Contents



KLX INC.        NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS        FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012        (In
millions, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



On December 17, 2014, B/E Aerospace, Inc. ("Former Parent") created an independent public company through a spin-off of
its Aerospace Solutions Group ("ASG") and Energy Services Group ("ESG") businesses to Former Parent's stockholders ("Spin-Off"). To effect the Spin-Off, B/E Aerospace distributed 52.5 million
shares of KLX Inc. ("KLX" or the "Company") common stock to Former Parent's stockholders on December 17, 2014. Holders of Former Parent's common stock received one share of KLX common
stock for every two shares of Former Parent common stock held on December 5, 2014. Former Parent structured the distribution to be tax free to its U.S. stockholders for U.S. federal income tax
purposes. As a result of the Spin-Off, KLX now operates as an independent, publicly traded company. Basic and diluted earnings per common share and the average number of common shares outstanding were
retrospectively restated for the years ended December 31, 2013 and December 31, 2012 for the number of KLX shares outstanding immediately following the transaction.

We
believe, based on our experience in the industry, that we are the world's leading distributor and value-added service provider of aerospace fasteners and other consumables, offering
one of the broadest ranges of aerospace hardware and consumables and inventory management services, selling to essentially every major airline in the world as well as leading maintenance, repair and
overhaul ("MRO") providers, the leading airframe manufacturers and their first and second tier suppliers. The Company also provides technical services and associated rental equipment to land-based oil
and gas exploration and drilling companies often in remote locations.



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

The
consolidated and combined statements of earnings and comprehensive income reflect allocations of general corporate expenses from B/E Aerospace, including, but not limited to,
executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement and other shared services. The allocations were
made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues generated, costs incurred, headcount or other measures. Management of the Company considers these
allocations to be a reasonable reflection of the utilization of services by, or the benefits provided, to the Company. The allocations may not, however, reflect the expense the Company would have
incurred as a stand-alone company for the periods presented. Actual costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including the
chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

F-7

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of EstimatesThe preparation of the consolidated and combined 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.

Revenue RecognitionSales of products and services are recorded when the earnings process is complete. This generally occurs when the products are
shipped to the customer in accordance with the contract or purchase order, risk of loss and title has passed to the customer, collectability is reasonably assured and pricing is fixed and
determinable. In instances where title does not pass to the customer upon shipment, the Company recognizes revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

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

Service
revenues from oilfield technical services and related rental equipment are recorded when services are performed and/or equipment is rented pursuant to a completed purchase order
or master services agreement ("MSA") that sets forth firm pricing and payment terms.

Income TaxesThe Company provides deferred income taxes for temporary differences between the amounts of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for income tax purposes. Deferred income taxes are computed using enacted tax rates that are expected to be in effect when the temporary
differences reverse. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or the entire deferred tax asset will not be realized. The
Company records uncertain tax positions within income tax expense and classifies interest and penalties related to income taxes as income tax expense.

Cash EquivalentsThe Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash
equivalents.

Accounts Receivable, NetThe Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the
customer's current creditworthiness, as determined by review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a
provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. The allowance for doubtful accounts at December 31,
2014 and 2013 was $8.1 and $6.0, respectively.

F-8

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

InventoriesInventories, made up of finished goods, primarily consist of aerospace fasteners and consumables. The Company values inventories at the
lower of cost or market, using first-in, first-out or weighted average cost method. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory
based primarily on historical demand, estimated product demand to support contractual supply agreements with its customers and the age of the inventory among other factors. Demand for the Company's
products can fluctuate from period to period depending on customer activity. Inventory reserves were approximately $33.0 and $30.3 as of December 31, 2014 and December 31, 2013,
respectively.

Substantially
all of our inventory is comprised of aerospace grade fasteners which support OEM production and the aftermarket over the life of the airframe. Inventory with a limited
shelf life is continually monitored and reserved for in advance of expiration. The provision for inventory with limited shelf life is relatively insignificant and has not exceeded $0.5 during the past
three years.

Property and Equipment, NetProperty and equipment are stated at cost and depreciated generally under the straight-line method over their estimated
useful lives of one to fifty years (or the lesser of the term of the lease for leasehold improvements, as appropriate).

Goodwill and Intangible Assets, NetUnder Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, IntangiblesGoodwill and Other("ASC 350"), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.
Acquired intangible assets with definite lives are amortized over their individual useful lives. Patents and other intangible assets are amortized using the straight-line method over periods ranging
from four to thirty years.

As
of December 31, 2014, the Company had two reporting units, which were determined based on the guidelines contained in FASB ASC Topic 350, Subtopic 20, Section 35. Each
reporting unit constitutes a business, for which there is discrete financial information available that is regularly reviewed by the management of the Company.

On
at least an annual basis, management assesses whether there has been any impairment in the value of goodwill by first comparing the fair value to the net carrying value of the
reporting units. If the carrying value exceeds its estimated fair value, a second step is performed to compute the amount of the impairment. An impairment loss is recognized if the implied fair value
of the asset being tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of the reporting units for goodwill impairment testing is determined
using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.

The
indefinite-lived intangible asset is tested at least annually for impairment. Impairment for the intangible asset with an indefinite life exists if the carrying value of the
intangible asset exceeds its fair value. The fair value of the indefinite-lived intangible asset is determined using valuation techniques based on estimates, judgments and assumptions management
believes are appropriate in the circumstances. For the years ended December 31, 2014, 2013 and 2012, the Company's annual impairment testing yielded no impairments of goodwill or the
indefinite-lived intangible asset.

F-9

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Long-Lived AssetsThe Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances
indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less
than its carrying amount. Any required impairment loss is measured as the amount by which the asset's carrying value exceeds its fair value and is recorded as a reduction in the carrying value of the
related asset and a charge to operating results. There were no impairments of long-lived assets in 2014, 2013 and 2012.

Common Stock equivalentsThe Company has potential common stock equivalents related to its outstanding restricted stock awards, restricted stock units
and employee stock purchase plan. These potential common stock equivalents are not included in diluted loss per share for any period presented in which there is a net loss because the effect would
have been anti-dilutive.

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

Compensation
cost recognized during the three years ended December 31, 2014 related to grants of restricted stock and restricted stock units granted by our Former Parent. No
compensation cost related to stock options was recognized during those periods as no options were granted during the three year period ended December 31, 2014 and all options were vested. All
unvested shares of restricted stock were converted into unvested shares of KLX on the distribution date at a ratio equal to 1.8139.

The
Company has established a qualified Employee Stock Purchase Plan similar to the Company's Former Parent's plan. The KLX Plan allows 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 for each semi-annual stock purchase period. The fair value of employee purchase
rights represents the difference between the closing price of KLX's shares on the date of purchase and the purchase price of the shares. The value of the rights under the Former Parent's plan granted
during the years ended December 31, 2014, 2013 and 2012 was $0.2, $0.2 and $0.2, respectively.

Foreign Currency TranslationThe assets and liabilities of subsidiaries located outside the United States are translated into U.S. dollars at the
rates of exchange in effect at the balance sheet dates. Revenue and expense items are translated at the average exchange rates prevailing during the period. Gains and losses resulting from foreign
currency transactions are recognized currently in income, and those resulting from translation of financial statements are accumulated as a separate component of Former Parent company equity and
accumulated other comprehensive income (loss). The Company's European subsidiaries primarily utilize the British pound or the Euro as their local functional currency.

Concentration of RiskThe Company's products and services are primarily concentrated within the aerospace industry with customers consisting primarily
of commercial airlines, a wide variety of business jet customers and commercial aircraft manufacturers. The Company's management performs ongoing

F-10

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

credit
evaluations on the financial condition of all of its customers and maintains allowances for uncollectible accounts receivable based on expected collectability. Credit losses have historically
been within management's expectations and the provisions established.

Significant
customers change from year to year, in the case of ASG, depending on the level of refurbishment activity and/or the level of new aircraft purchases by such customers, and in
the case of ESG, depending on the level of E&P activity and the use of our services. During the year ended December 31, 2014, no single customer accounted for more than 10% of the Company's
consolidated revenues. During the years ended December 31, 2013 and 2012, one customer accounted for 10% and 12%, respectively, of the Company's combined revenues. During the year ended
December 31, 2013, a second customer accounted for 10% of the Company's combined revenues. During the year ended December 31, 2012, a third customer accounted for 10% of the Company's
combined revenues. No other individual customers accounted for more than 10% of the Company's combined revenues during the years ended December 31, 2013 and 2012.

Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update ("ASU") 2014-15,Presentation of Financial
StatementsGoing Concern,which updated the guidance in ASC Topic 205-40,Presentation of Financial StatementsGoing
Concern. The update is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Earlier adoption is permitted. The
amendments provide guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote
disclosures. The adoption of ASU 2014-12 is not expected to have a material impact on the Company's combined financial statements.

In
June 2014, FASB issued ASU 2014-12,CompensationStock Compensation,which updated the guidance in ASC Topic 718, CompensationStock Compensation. The update is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015. Earlier adoption is permitted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated
as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such,
the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the
performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target
becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service
period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect
those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As
indicated in the definition of vest, the stated vesting period (which includes the

F-11

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

period
in which the performance target could be achieved) may differ from the requisite service period. The adoption of ASU 2014-12 is not expected to have a material impact on the Company's combined
financial statements.

In
May 2014, FASB issued ASU 2014-09,Revenue from Contracts with Customers,which updated the guidance in ASCTopic 606,Revenue
Recognition. The amendments in this update are effective for annual reporting
periods beginning after December 15, 2016. Early application is not permitted. 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. The Company is currently evaluating the impact this guidance will have on its combined
financial condition, results of operations, cash flows and disclosures and is currently unable to estimate the impact of adopting this guidance.

In
April 2014, FASB issued ASU 2014-08,Presentation of Financial Statements(Topic 205) andProperty, Plant and
Equipment,which updated the guidance inASCTopic 360,Property, Plant and
Equipment.The updated guidance is effective prospectively for years beginning on or after December 15, 2014, with early application permitted. The amendments in this
update change the requirements for reporting discontinued operations in Subtopic 205-20. Under this updated guidance, a discontinued operation will include a disposal of a major part of an entity's
operations and financial results such as a separate major line of business or a separate major geographical area of operations. The guidance raises the threshold to be a major operation but no longer
precludes discontinued operations presentation where there is significant continuing involvement or cash flows with a disposed component of an entity. The guidance expands disclosures to include cash
flows where there is significant continuing involvement with a discontinued operation and the pre-tax profit or loss of disposal transactions not reported as discontinued operations. The adoption of
ASU 2014-08 is not expected to have a material impact on the Company's combined financial statements.

2. BUSINESS COMBINATIONS

During 2012, the Company completed two acquisitions for a net aggregate purchase price of approximately $649.7 (the "2012 Acquisitions"). The excess of the purchase price over the fair
value of the identifiable assets acquired approximated $577.2 of which $114.3 was allocated to identified intangible assets, consisting of customer contracts and relationships, trade names and
covenants not to compete, and $462.9 is included in goodwill. The useful life assigned to the customer contracts and relationships is 15 years. The trade names were determined to have an
indefinite useful life, and the covenants not to compete are being amortized over their contractual periods, ranging from 4 to 5 years.

On
January 30, 2012, the Company acquired 100% of the outstanding stock of UFC Aerospace Corp. ("UFC"), a provider of complex supply chain management and inventory logistics
solutions, for a

F-12

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

2. BUSINESS COMBINATIONS (Continued)

net
purchase price of approximately $404.7. The excess of the purchase price over the fair value of the identifiable assets acquired approximated $347.3 of which $55.1 was allocated to identified
intangible assets and $292.2 is included in goodwill.

On
July 26, 2012, the Company acquired 100% of the outstanding shares of Interturbine Projekt Management GmbH ("Interturbine"), a provider of material management logistical
services to global airlines and MRO providers, for a net purchase price of approximately $245.0. Interturbine's product range includes chemicals, lubricants, hydraulic fluids, adhesives, coatings and
composites. Interturbine also supplies fasteners, cables and wires, electronic components, electrical and electromechanical materials, tools, hot bonding equipment and ground equipment to its primary
customer base of airlines and MRO providers globally. The excess of the purchase price over the fair value of the identifiable
assets acquired approximated $229.9, of which $59.2 was allocated to identified intangible assets and $170.7 is included in goodwill.

During
2013, the Company acquired the assets of Blue Dot Energy Services, LLC ("Blue Dot") and Bulldog Frac Rentals, LLC ("Bulldog") (the "2013 Acquisitions"), providers of
parts distribution, rental equipment and on-site services to the oil and gas industry, for a net purchase price of $114.0. The excess of the purchase price over the fair value of the identifiable
assets acquired approximated $70.6, of which $33.2 was allocated to identified intangible assets, consisting of customer contracts and relationships and covenants not to compete, and $37.4 is included
in goodwill. The useful life assigned to the customer contracts and relationships is 20 years, and the covenants not to compete are being amortized over their contractual periods of five years.

In
April 2014, the Company acquired the assets of the Vision Oil Tools, LLC group of companies ("Vision"), a provider of technical services and associated rental equipment to the
energy sector. Vision established a new geographical base of operations for the Company in the North Dakota (Williston/Bakken) and Rocky Mountain regions. The purchase price was initially $140.0 with
an additional $35.0 to be paid in 2015 based on the achievement of 2014 financial results. The Company has not yet completed its evaluation and allocation of the purchase price for Vision, although a
customary post-closing adjustment to working capital resulted in a $0.7 increase to the purchase price. During June 2014, the Company also acquired the assets of the Cornell Solutions group of
companies ("Cornell"), which provides technical services and rental equipment to the energy sector in the Eagle Ford Shale and Permian Basin. The purchase price was $70.7 with an additional $57.2 to
be paid in 2015 based on the achievement of 2014 financial results. The Company has not yet completed its evaluation and allocation of the purchase price for Cornell, although a customary post-closing
adjustment to working capital resulted in a $1.5 increase to the purchase price. In April 2014, the Company acquired the assets of the Marcellus Gasfield Services group of companies ("MGS") engaged in
manufacturing and rental of equipment in the Marcellus/Utica Shales for approximately $45.0. In January 2014, the Company acquired the assets of the LT Energy Services group of companies ("LT"), an
Eagle Ford Shale provider of rental equipment, for a net purchase price of approximately $102.5. In February 2014, the Company acquired the assets of Wildcat Wireline LLC ("Wildcat"), a
provider of wireline services primarily in the Eagle Ford Shale and also in the Marcellus/Utica Shales, for a net purchase price of approximately $153.4. These acquisitions are referred to
collectively as the "2014 Acquisitions."

F-13

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

2. BUSINESS COMBINATIONS (Continued)

For
the 2014 Acquisitions, based on our preliminary purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated
$432.5, of which $131.2 was allocated to identified intangible assets, consisting of customer contracts and relationships and covenants not to compete, and $301.3 is included in goodwill. The useful
life assigned to the customer contracts and relationships is between 11-20 years, and the covenants not to compete are being amortized over their contractual periods of five years.

The
2014, 2013 and 2012 Acquisitions were accounted for as purchases under FASB ASC 805,Business Combinations("ASC 805"). The assets
purchased and liabilities assumed for the 2014, 2013 and 2012 Acquisitions have been reflected in the accompanying consolidated balance sheets as of December 31, 2014 and the results of
operations for the 2014, 2013 and 2012 Acquisitions are included in the accompanying consolidated and combined statements of earnings from the respective dates of acquisition.

The
Company completed its evaluation and allocation of the purchase price for the Blue Dot, Bulldog, LT and Wildcat acquisitions. The Company has not yet finalized its allocation of the
purchase price for the remaining 2014 Acquisitions as the valuation of certain assets, principally intangible assets, is not yet complete.

The
following table summarizes the current estimates of fair values of assets acquired and liabilities assumed in the 2014, 2013 and 2012 Acquisitions in accordance with ASC 805, which
are currently recorded based on management's estimates as follows:

Wildcat

Vision

Cornell

Other 2014
acquisitions

2014

2013

2012Accounts receivable-trade

$
0.4

$
10.8

$
10.5

$
15.1

$
36.8

$
14.8

$
44.1Inventories


1.3








0.4


1.7


3.9


95.6Other current and non-current assets





2.4





0.1


2.5


0.2


16.7Property and equipment


30.3


44.1


28.5


40.3


143.2


35.5


4.4Goodwill


83.7


89.9


66.6


61.1


301.3


37.4


462.9Identified intangibles


37.7


30.0


24.5


39.0


131.2


33.2


114.3Accounts payable





(1.5
)

(0.7
)

(4.3
)

(6.5
)

(10.0
)

(20.4
)Other current and non-current liabilities





(35.0
)

(57.2
)

(4.2
)

(96.4
)

(1.0
)

(67.9
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total consideration paid

$
153.4

$
140.7

$
72.2

$
147.5

$
513.8

$
114.0

$
649.7​
​
​
​
​
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​​
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The
majority of the goodwill and other intangible assets related to the UFC and the 2014 and 2013 Acquisitions is expected to be deductible for tax purposes. None of the goodwill and
other intangible assets related to the Interturbine acquisition is expected to be deductible for tax purposes.

The
amount of 2013 Acquisitions and 2014 Acquisitions revenues and net earnings included in the Company's results for the years ended December 31, 2014 and 2013 were $385.5 and
$34.9, and $23.5 and $(1.1), respectively.

F-14

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

2. BUSINESS COMBINATIONS (Continued)

On
a pro forma basis to give effect to the 2013 and 2014 Acquisitions as if they occurred on January 1, 2013, revenues and net earnings for the years ended December 31,
2014 and 2013 would have been as follows:

UNAUDITED
YEAR ENDED
DECEMBER 31,2014
Pro forma

2013
Pro formaRevenues

$
1,763.2

$
1,587.3Net earnings(1)


100.5


178.8Earnings per diluted share(1)


1.92


3.42


(1)2014
includes $56.9 of non-recurring costs and $67.3 of exit taxes related to a major international tax planning initiative and 2013 includes $24.2 of
non-recurring costs.


3. PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

Useful
Life (Years)

December 31,
2014

December 31,
2013Buildings and improvements


2 - 50

$
30.1

$
12.7Machinery


1 - 20


190.0


47.9Computer equipment and software


1 - 15


67.2


51.5Furniture and equipment


1 - 13


108.0


8.7​
​
​
​
​
​
​
​
​
​
​395.3


120.8Less accumulated depreciation





(63.1
)

(28.5
)​
​
​
​
​
​
​
​
​
​
​$
332.2

$
92.3​
​
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​
​​
​
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​
​
​
​
​
​​
​
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​
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​


Depreciation
expense was $37.4, $7.9 and $5.2 for the years ended December 31, 2014, 2013 and 2012, respectively.

F-15

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

4. GOODWILL AND INTANGIBLE ASSETS, NET

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

December 31, 2014

December 31, 2013Useful Life
(Years)

Original
Cost

Accumulated
Amortization

Net Book
Value

Original
Cost

Accumulated
Amortization

Net Book
ValueCustomer contracts and relationships

8 - 30

$
510.9

$
100.5

$
410.4

$
394.0

$
75.5

$
318.5Covenants not to compete

4 - 5


18.9


6.0


12.9


6.8


1.7


5.1Trade names

Indefinite


19.0





19.0


21.4





21.4​
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​
​
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​
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​
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​
​
​$
548.8

$
106.5

$
442.3

$
422.2

$
77.2

$
345.0​
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Amortization
expense of intangible assets was $30.5, 19.9 and $17.6 for the years ended December 31, 2014, 2013 and 2012, respectively. Taking into consideration the acquisitions
described in Note 2, "Business Combinations", amortization expense is expected to be approximately $35.0 in each of the next five years.

In
accordance with ASC 350, goodwill is not amortized but is subject to an annual impairment test. As of December 31, 2014, 2013 and 2012, the Company completed step one of the
impairment test and fair value analysis for goodwill, and no impairment loss was recorded during the years ended December 31, 2014, 2013 or 2012. The accumulated goodwill impairment loss
(incurred in 2008) was $290.7 as of December 31, 2014.

The
changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows:

Balance as of December 31, 2012

$
1,005.8Acquisitions


42.1Effect of foreign currency translation


21.9​
​
​
​
​Balance as of December 31, 2013


1,069.8Acquisitions


296.6Effect of foreign currency translation


(37.7
)​
​
​
​
​Balance as of December 31, 2014

$
1,328.7​
​
​
​
​​
​
​
​
​​
​
​
​
​


The
fair value of the ESG reporting unit exceeds the carrying value by approximately 28% as of December 31, 2014, and approximately $342.4 million of goodwill has been
allocated to the ESG reporting unit. The recent precipitous drop in oil and gas commodity prices during the second half of 2014 is likely to have a negative impact on ESG's business in 2015. Cutbacks
to the capital expenditure budgets of ESG's oil and gas customers has led to a rapid reduction in the active drilling rig count in the onshore North American market. This reduction in current and
planned drilling activity has resulted in both cost and capacity utilization pressures on companies within the oilfield service industry. Our ESG business has begun to experience some of these
pressures, particularly in the form of price reduction requests from our customers. In response to these evolving industry conditions, our approach

F-16

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

4. GOODWILL AND INTANGIBLE ASSETS, NET (Continued)

is
to first ensure that we manage our ESG business prudently by closely monitoring costs while positioning our resources in those activities and regions which we believe will maximize our revenue
opportunities. Secondly, our strategy is to maintain sufficient liquidity to take advantage of opportunities that will present themselves. We will also focus on operational excellence and continuous
improvement initiatives. Finally, we will work hard to uncover high return acquisition opportunities over the next 18-24 months. However, there can be no assurance such measures will prevent
our ESG business from suffering an operating loss from reduction in the volume and/or pricing of its services. ESG's cash flow projections are a significant input into the December 31, 2014
fair value. If the ESG business is unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the ESG reporting unit.

5. OTHER ASSETS

Other assets consist of the following:

December 31,2014

2013Deferred financing costs

$
28.5

$
Other assets


15.8


2.8​
​
​
​
​
​
​
​$
44.3

$
80.8​
​
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​​
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​​
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​


6. RELATED PARTY TRANSACTIONS

The consolidated and combined statements of earnings and comprehensive income include an allocation of general corporate expenses from Former Parent. These costs are allocated to the
Company on a systematic and reasonable basis utilizing a direct usage basis when identifiable, with the remainder allocated on the basis of costs incurred, headcount or other measures.

Allocations
for general corporate expenses, including management costs and corporate support services provided to the Company, totaled $31.7, $33.6 and $36.2 for 2014, 2013 and 2012,
respectively. These amounts include costs for functions including executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk
management, procurement and other shared services.

In
connection with the Spin-off, we have created some of the functions that were previously provided to us through corporate allocations from B/E Aerospace in-house. In addition, we have
entered into certain agreements with B/E Aerospace relating to transition services and IT services for a transitional period of approximately 24 months following the distribution. In addition,
we entered into an employee matters agreement and a tax sharing and indemnification agreement with B/E Aerospace in connection with the Spin-off. This transitional support will enable KLX Inc.
to establish its stand-alone processes for various activities that were previously provided by B/E Aerospace and does not constitute significant continuing support of KLX Inc.'s operations. We
do not expect those agreements to have a material effect on our financial statements.

F-17

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

6. RELATED PARTY TRANSACTIONS (Continued)

Sales
and cost of sales to affiliates for the years ended December 31, 2014, 2013 and 2012 were $16.2 and $13.6, $14.4 and $7.3, and $10.5 and $6.9, respectively.

7. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

December 31,2014

2013Accrued salaries, vacation and related benefits

$
13.2

$
16.8Income tax payable


19.7


24.5Accrued VAT


5.6


11.3Accrued acquisition reserves


2.7


7.1Accrued interest


3.1


Other accrued liabilities


43.8


21.1​
​
​
​
​
​
​
​$
88.1

$
80.8​
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8. LONG-TERM DEBT

In December 2014, in connection with the Spin-off, the Company issued $1,200.0 aggregate principal amount of 5.875% senior unsecured notes due 2022 (the "5.875% Notes"), in an offering
pursuant to the Securities Act of 1933, as amended. The net proceeds from the issuance of the 5.875% Notes were approximately $1,172.1, of which $750.0 was distributed to Former Parent, leaving KLX
with net proceeds of approximately $422.1. The 5.875% Notes are senior unsecured debt obligations of the Company. We also entered into a $500 secured revolving credit facility (the "Revolving Credit
Facility"), secured by substantially all of our assets and guaranteed by our subsidiaries, which bears interest at an annual rate equal to the London interbank offered rate ("LIBOR") plus the
applicable margin (as defined), and expires in December 2019. No amounts were outstanding under the Revolving Credit Facility as of December 31, 2014. As of December 31, 2014, long-term
debt consisted of $1,200.0 of our 5.875% Notes. There was no long-term debt outstanding at December 31, 2013.

Letters
of credit outstanding under the Revolving Credit Facility aggregated $0.4 at December 31, 2014.

The
Revolving Credit Facility contains an interest coverage ratio financial covenant (as defined therein) that must be maintained at a level greater than 3.0 to 1 and a total leverage
ratio covenant (as defined therein) which limits net debt to a 4.5 to 1 multiple of EBITDA (as defined therein). The Revolving Credit Facility is collateralized by substantially all of the Company's
assets and contains customary affirmative covenants, negative covenants and conditions precedent for borrowings, all of which were met as of December 31, 2014.

F-18

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

8. LONG-TERM DEBT (Continued)

Maturities
of long-term debt are as follows:

Year Ending December 31,2015

$
2016


2017


2018


2019


Thereafter


1,200.0​
​
​
​
​Total

$
1,200.0​
​
​
​
​​
​
​
​
​​
​
​
​
​


Interest
expense amounted to $3.3, $0.0 and $0.0 for the years ended December 31, 2014, 2013 and 2012, respectively.

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 combined
balance sheets. At December 31, 2014, future minimum lease payments under these arrangements approximated $96.3, of which $91.6 is related to long-term real estate leases.

Rent
expense for the years ended December 31, 2014, 2013 and 2012 was $26.4, $20.6 and $13.9, respectively. Future payments under operating leases with terms greater than one year
as of December 31, 2014 are as follows:

Year Ending December 31,2015

$
18.92016


17.42017


13.82018


10.82019


9.0Thereafter


26.4​
​
​
​
​Total

$
96.3​
​
​
​
​​
​
​
​
​​
​
​
​
​


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

Indemnities, Commitments and GuaranteesDuring its normal course of business, the Company has made certain indemnities, commitments and guarantees
under which it may be required to make

F-19

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

9. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS (Continued)

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

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

Environmental MattersIn July 2014, one of the Company's German businesses, Interturbine Aviation Logistics GmbH (ITL), which was acquired by
B/E Aerospace Systems Holding GmbH (now known as KLX Aerospace Solutions DE Holding GmbH) in July 2012, was informed by German authorities that it had allegedly violated certain provisions of
environmental and health and safety regulations related to the import and sale of certain chemical products for the period of 2009 through 2013. The Company is cooperating with German authorities and
currently investigating the amounts of chemical products that were imported and allegedly sold in violation of the applicable laws. The ITL executive pre-acquisition continued to operate the business
through July 2014, at which
time he was removed. These violations could result in an administrative monetary penalty and a disgorgement of profits from the sale of products sold in violation of the applicable laws, which could
be material. The Company is not currently able to determine the probability or estimable range of liability, if any, which it may ultimately be found to be responsible for that is not covered by any
indemnity claims against the seller of ITL.

10. INCOME TAXES

Income taxes as presented are calculated on a separate tax return basis. The Company's U.S. operations have historically been included in the Former Parent's U.S. federal and state
returns.

The
Company's U.S. operations were structured as a division of the U.S. based Former Parent up until December 16, 2014, after which it became a separate U.S. legal entity.

With
the exception of its foreign entities, the Company did not maintain taxes payable to/from the Former Parent and was deemed to settle the annual current tax balances immediately with
the Former

F-20

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

10. INCOME TAXES (Continued)

Parent.
These settlements are reflected as changes in net parent company investment. Subsequent to December 16, 2014, the Company maintains its own tax payable account.

The
Company determined the provision for income taxes using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of
temporary differences between the carrying amounts and tax basis of assets and liabilities.

Valuation
allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In assessing the need for a valuation allowance, the Company
looked to the future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income and
determined a valuation allowance is not needed. The need for a valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to futures taxable income
estimates.

The
Company recognizes tax benefits from uncertain tax positions 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. The tax benefits recognized in the combined financial statements from such positions are measured based on the largest benefit that has a greater than
50% likelihood of being realized upon ultimate settlement.

As
of December 31, 2014, the Company has recorded a tax indemnity payable to its Former Parent totaling $6.5, of which $1.9 is classified in other current liabilities and $4.6 is
classified in other long-term liabilities.

The
components of earnings before incomes taxes were:

Year Ended December 31,2014

2013

2012Earnings before income taxesUnited States

$
210.9

$
197.5

$
177.5Foreign


32.9


42.0


40.2​
​
​
​
​
​
​
​
​
​
​Earnings before income taxes

$
243.8

$
239.5

$
217.7​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


F-21

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

10. INCOME TAXES (Continued)

Income
tax expense consists of the following:

Year Ended December 31,2014

2013

2012Current:Federal

$
75.4

$
41.1

$
44.8State


8.5


5.8


6.5Foreign


29.0


10.3


10.1​
​
​
​
​
​
​
​
​
​
​112.9


57.2


61.4​
​
​
​
​
​
​
​
​
​
​Deferred:Federal


42.8


28.9


18.0State


3.5


2.4


1.4Foreign


(3.5
)

0.6


​
​
​
​
​
​
​
​
​
​
​42.8


31.9


19.4​
​
​
​
​
​
​
​
​
​
​Total income tax expense

$
155.7

$
89.1

$
80.8​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


The
difference between income tax expense and the amount computed by applying the statutory U.S. federal income tax rate (35%) to the pre-tax earnings consists of the following:

Year Ended December 31,2014

2013

2012Statutory federal income tax expense

$
85.3

$
83.7

$
76.2U.S. state income taxes


6.0


5.9


5.3Foreign tax rate differential


(3.7
)

(4.7
)

(3.5
)Non-deductible charges/losses and other


0.8


4.2


2.8Exit taxes


67.3





​
​
​
​
​
​
​
​
​
​
​$
155.7

$
89.1

$
80.8​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


Income
tax expense for the year ended December 31, 2014 of $155.7 includes $67.3 of exit taxes related to a major international tax planning initiative.

F-22

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

10. INCOME TAXES (Continued)

The
tax effects of temporary differences and carryforwards that give rise to deferred income tax assets and liabilities consist of the following:

December 31,2014

2013Deferred tax assets:Inventory reserves

$
12.8

$
11.5Accrued liabilities


11.7


7.6Net operating loss carryforward


24.8


12.9Other


20.9


7.1​
​
​
​
​
​
​
​$
70.2

$
39.1​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Deferred tax liabilities:Intangible assets


(74.2
)

(44.4
)Depreciation


(57.2
)

(25.2
)​
​
​
​
​
​
​
​(131.4
)

(69.6
)​
​
​
​
​
​
​
​Net deferred tax asset (liability) before valuation allowance


(61.2
)

(30.5
)Valuation allowance


(24.8
)

(12.8
)​
​
​
​
​
​
​
​Net deferred tax liability

$
(86.0
)
$
(43.3
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


A
reconciliation of the beginning and ending amounts of gross uncertain tax positions is presented below:

2014

2013

2012Unrecognized tax benefit at beginning of year

$
1.7

$
1.6

$
Additions for current year tax positions


8.6





1.6Currency fluctuations


(0.2
)

0.1


​
​
​
​
​
​
​
​
​
​
​Unrecognized tax benefit at end of year

$
10.1

$
1.7

$
1.6​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


The
Company does not anticipate that the total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within
twelve months of this reporting date. The Company classifies interest and penalties related to income tax as income tax expense. The amount included in the Company's liability for unrecognized tax
benefits for interest and penalties was immaterial as of December 31, 2014, 2013 and 2012.

The
Company is subject to taxation in the United States, various states and foreign jurisdictions. The Company has significant operations in the United States, the United Kingdom, France
and Germany. Tax years that remain subject to examinations by major tax jurisdictions vary by legal entity but are generally open outside the U.S. for the tax years ending after 2009.

The
Company has no U.S. net operating loss carryforwards as of December 31, 2014. The Company has $83 of German net operating loss carryforwards as of December 31, 2014 for
which a full

F-23

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

10. INCOME TAXES (Continued)

valuation
allowance has been recognized. The Company's future tax provision will reflect any favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The Company is unable
to predict the outcome of these matters. However, the Company believes that none of these matters will have a material effect on the results of operations or financial condition of the Company.

Undistributed
earnings of certain of the Company's foreign subsidiaries amounted to $21.7 at December 31, 2014. Those earnings are considered to be permanently reinvested and no
provision for U.S. federal and state income taxes has been made. Distribution of these earnings in the form of dividends or otherwise could result in U.S. federal taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable in various foreign countries. It is not currently practical to determine the amount of U.S. income and foreign withholding tax payable in the event
all such foreign earnings are repatriated.

The
Company's effective tax rate can fluctuate as operations and the local country tax rates fluctuate due to the number of tax jurisdictions in which the Company operates.

Under
the tax sharing and indemnity agreement between the Company and the Former Parent, the Former Parent generally assumes liability for all federal and state income taxes for all tax
periods ending on or prior to December 31, 2014. The Former Parent assumes the liability for all federal and state income taxes of KLX's U.S. operations through the distribution date. KLX
assumes all other federal taxes, foreign income tax/non-income taxes and state/local non-income taxes related to its business for all periods and the Former Parent assumes all other federal taxes,
foreign income tax/non-income taxes and state/local non-income taxes related to their business for all periods. Additional taxes incurred related to the internal restructuring to separate the
businesses to complete the spin-off shall be shared equally between the Former Parent and KLX. Taxes incurred related to certain international tax initiatives for the KLX business shall be assumed by
KLX subject to the calculation provisions of the tax sharing and indemnity agreement. In addition, the Former Parent transferred to KLX all the deferred tax assets and liabilities related to the KLX
business as of December 16, 2014.

11. EMPLOYEE RETIREMENT PLANS

The Former Parent sponsored and contributes to a qualified, defined contribution savings and investment plan, covering substantially all U.S. employees, including current KLX employees
that
transferred to KLX from B/E Aerospace. Balances related to the Company employees' participation in Former Parent's plans were determined by specifically identifying the balances for the Company's
participants. The B/E Aerospace, Inc. Savings Plan was established pursuant to Section 401(k) of the Internal Revenue Code. Under the terms of this plan, covered employees could
contribute up to 100% of their pay, limited to certain statutory maximum contributions for 2014 and 2013. Participants are vested in matching contributions immediately and the matching percentage is
100% of the first 3% of employee contributions and 50% on the next 2% of employee contributions. Total expense for the plan was $2.8, $1.6 and $1.6 for the years ended December 31, 2014, 2013
and 2012. The Former Parent also sponsored and contributed to a supplemental executive retirement plan ("SERP"), which was established pursuant to Section 409A of the Internal Revenue Code, for
certain B/E Aerospace and Company employees. The SERP is an unfunded plan maintained for the purpose of providing deferred

F-24

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

11. EMPLOYEE RETIREMENT PLANS (Continued)

compensation
for certain employees. This plan allows certain employees to annually elect to defer a portion of their compensation, on a pre-tax basis, until their retirement. The retirement benefit to
be provided is based on the amount of compensation deferred. The Former Parent made cash matching contributions and earnings on deferrals at various levels, which varies by position. Compensation
expense under this program was $0.1, $0.2 and $0.2 in 2014, 2013 and 2012, respectively. The Company and its subsidiaries participate in government-sponsored programs in certain foreign countries. The
Company funds these plans based on legal requirements, tax considerations, local practices and investment opportunities. Upon the Spin-off, the Company adopted employee retirement plans substantially
similar to those of the Former Parent.

12. STOCKHOLDERS' EQUITY

Earnings Per ShareBasic net earnings per common share is computed using the weighted average of common shares outstanding during the year. Diluted
net earnings per common share reflects the potential dilution from assumed conversion of all dilutive securities such as stock options and unvested restricted stock using the treasury stock method.
When the effects of the outstanding stock options, restricted stock awards or restricted stock units are anti-dilutive, they are not included in the calculation of diluted earnings per common share.
For the years ended December 31, 2014, 2013 and 2012, securities totaling approximately 0.1, 0.1 and 0.1 million shares, respectively, were excluded from the determination of diluted
earnings per common share because the effect would have been anti-dilutive.

The
following table sets forth the computation of basic and diluted net earnings per share for the years ended December 31, 2014, 2013 and 2012:

Year Ended December 31,2014

2013

2012Numerator: net earnings

$
88.1

$
150.4

$
136.9​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Denominator:Denominator for basic earnings per shareWeighted average shares (in millions)


52.2


52.2


52.2Effect of dilutive securitiesDilutive securities (in millions)


0.1


0.1


0.1​
​
​
​
​
​
​
​
​
​
​Denominator for diluted earnings per shareAdjusted weighted average shares (in millions)


52.3


52.3


52.3​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Basic net earnings per share(1)

$
1.69

$
2.88

$
2.62​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Diluted net earnings per share(1)

$
1.68

$
2.88

$
2.62​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


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


F-25

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

12. STOCKHOLDERS' EQUITY (Continued)

Long-Term Incentive PlanThe Former Parent has a Long-Term Incentive Plan ("LTIP") under which the Former Parent's Compensation Committee may grant
stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity based or equity related awards.

During
2014, 2013 and 2012, the Former Parent granted restricted stock under the LTIP to certain members of the Company's management. Restricted stock grants vest over four years and are
granted at the discretion of the Compensation Committee of the Former Parent's Board of Directors. Certain awards also vest upon attainment of performance goals. Compensation cost is recorded on a
straight-line basis over the vesting term of the shares based on the grant date value using the closing trading price. Share based compensation of $3.5, $3.5 and $3.1 was recorded during 2014, 2013
and 2012, respectively. Unrecognized compensation cost related to these grants was $8.8 at December 31, 2014.

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

December 31, 2014

December 31, 2013Shares
(in thousands)

Weighted
Average
Grant Date
Fair Value

Weighted
Average
Remaining
Vesting Period
(in years)

Shares
(in thousands)

Weighted
Average
Grant Date
Fair Value

Weighted
Average
Remaining
Vesting Period
(in years)Outstanding, beginning of period


129

$
54.36


2.36


177

$
40.27


2.56Transfers in


15


37.40











Shares granted


65


80.74





34


81.58


Shares vested


(36
)

41.01





(61
)

34.57


Shares forfeited


(23
)

46.71





(21
)

37.09


Make-whole shares granted upon spin-off


126











37.09


​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Outstanding, end of period


276

$
37.21


2.49


129

$
54.36


2.36​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


No
stock options were granted during the three years ended December 31, 2014, and no related stock compensation was recognized as all options were fully vested as of
December 31, 2006. No stock options were outstanding at December 31, 2014. Outstanding stock options at December 31, 2013 and 2012 totaled approximately 6,200 and 6,750, all of
which were exercisable. During the years ended December 31, 2014, 2013 and 2012, 6,200, 550 and 3,150 stock options were exercised with an aggregate intrinsic value of $0.4, $0.0 and $0.1,
respectively, determined as of the date of option exercise.

KLX
adopted an LTIP similar to the Former Parent's upon the Spin-off, and unvested shares in the Former Parent were transferred with the employees to KLX on the same terms and conditions
on an exchange ratio of 1.8139 such that the impact was neutral to employees at the date of the Spin-off.

F-26

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

13. EMPLOYEE STOCK PURCHASE PLAN

The Former Parent has established a qualified Employee Stock Purchase Plan, the terms of which allow for qualified employees (as defined in the Plan) to participate in the purchase of
designated shares of the Former Parent'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 Former Parent issued
approximately 19,000, 16,000 and 23,000 shares of common stock to employees of the Company during the years ended December 31, 2014, 2013 and 2012, respectively, pursuant to this plan at a
weighted average price per share of $71.40, 61.60 and $39.51, respectively. KLX adopted a similar plan on the date of the Spin-off whereby employees may purchase discounted shares of KLX Inc.
common stock.

14. SEGMENT REPORTING

The Company is organized based on the products and services it offers. As a result of the ESG acquisitions, the Company determined that ESG met the requirements of a reportable segment,
and its operations during 2013 were not significant. The Company's AGS reportable segment, which is also its operating segment, is comprised of consumables management and is in a single line of
business. The segment regularly reports its results of operations and makes requests for capital expenditures and
acquisition funding to the Company's chief operational decision-making group. This group is comprised of the Chairman and Chief Executive Officer, the President and Chief Operating Officer and the
Vice PresidentChief Financial Officer and Treasurer.

The
following table presents revenues and other financial information by business segment:

Year Ended December 31, 2014Aerospace Solutions Group

Energy Services Group

ConsolidatedRevenues

$
1,310.2

$
385.5

$
1,695.7Operating earnings(1)


192.0


54.8


246.8Total assets(2)


3,316.1


987.5


4,303.6Goodwill


986.3


342.4


1,328.7Capital expenditures(3)


17.7


119.1


136.8Depreciation and amortization


28.0


40.0


68.0




Year Ended December 31, 2013Aerospace Solutions Group

Energy Services Group

ConsolidatedRevenues

$
1,268.1

$
23.5

$
1,291.6Operating earnings(1)


240.2


(1.7
)

238.5Total assets(2)


2,937.3


126.7


3,064.0Goodwill


1,027.7


42.1


1,069.8Capital expenditures(3)


25.3


4.1


29.4Depreciation and amortization


25.8


2.0


27.8


F-27

---



Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

14. SEGMENT REPORTING (Continued)



Year Ended December 31, 2012Aerospace Solutions Group

Energy Services Group

ConsolidatedRevenues

$
1,180.7

$


$
1,180.7Operating earnings(1)


217.9





217.9Total assets(2)


2,845.9





2,845.9Goodwill


1,005.8





1,005.8Capital expenditures(3)


16.6





16.6Depreciation and amortization


22.8





22.8


(1)Operating
earnings includes an allocation of corporate IT costs, employee benefits and general and administrative costs. Refer to Note 1 for further
information regarding the allocation methodology.(2)Corporate
assets (including cash and cash equivalents) of $531.4, $0 and $0 at December 31, 2014, 2013 and 2012, respectively, have been allocated to
the above segments based on each segment's percentage of total assets.(3)Corporate
capital expenditures have been allocated to the above segments based on each segment's percentage of total capital expenditures.


Geographic Information

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. There were no significant transfers among geographic areas during these periods.

F-28

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

14. SEGMENT REPORTING (Continued)

The following table presents revenues and operating earnings based on the originating location for the years ended December 31, 2014, 2013 and 2012. Additionally, it presents all
identifiable assets related to the operations in each geographic area as of December 31, 2014 and 2013:

Year Ended December 31,2014

2013

2012Revenues:Domestic

$
1,505.3

$
1,116.6

$
1,044.4Foreign


190.4


175.0


136.3​
​
​
​
​
​
​
​
​
​
​$
1,695.7

$
1,291.6

$
1,180.7​
​
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​​
​
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​
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​​
​
​
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​
​
​
​
​
​
​Operating earnings:Domestic

$
195.5

$
170.9

$
142.5Foreign


51.3


67.6


75.4​
​
​
​
​
​
​
​
​
​
​$
246.8

$
238.5

$
217.9​
​
​
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​​
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​


December 31,2014

2013Identifiable assets:Domestic

$
3,769.4

$
2,440.0Foreign


534.2


624.0​
​
​
​
​
​
​
​$
4,303.6

$
3,064.0​
​
​
​
​
​
​
​​
​
​
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​
​
​
​​
​
​
​
​
​
​
​


Revenues
by geographic area, based on destination, for the years ended December 31, 2014, 2013 and 2012 were as follows:

Year Ended December 31,2014

2013

2012Revenues

% of
Revenues

Revenues

% of
Revenues

Revenues

% of
RevenuesU.S.

$
1,111.5


65.5
%
$
749.1


58.0
%
$
733.2


62.1
%Europe


374.2


22.1
%

350.6


27.1
%

294.2


24.9
%Asia, Pacific Rim, Middle East and other


210.0


12.4
%

191.9


14.9
%

153.3


13.0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​$
1,695.7


100.0
%
$
1,291.6


100.0
%
$
1,180.7


100.0
%​
​
​
​
​
​
​
​
​
​
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​​
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​


Export
revenues from the United States to customers in foreign countries amounted to $414.3, $361.4 and $310.2 in the years ended December 31, 2014, 2013 and 2012, respectively.

15. FAIR VALUE INFORMATION

All financial instruments are 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

F-29

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

15. FAIR VALUE INFORMATION (Continued)

knowledgeable,
willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations.



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 December 31, 2014 and 2013. 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 $1,206.0 and $0.0 as of December 31, 2014 and December 31, 2013, respectively.

The
fair value information presented herein is based on pertinent information available to management at December 31, 2014 and 2013, respectively. Although management is not aware
of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these combined financial statements since those
dates, and current estimates of fair value may differ significantly from the amounts presented herein.

16. SELECTED QUARTERLY DATA(Unaudited)

Summarized quarterly financial data for the years ended December 31, 2014 and December 31, 2013 are as follows:

Year Ended December 31, 2014First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter(3)Revenues

$
370.9

$
430.9

$
453.2

$
440.7Cost of sales


255.8


299.9


316.9


322.3Net earnings (loss)


44.0


45.4


31.3


(32.6
)Basic net earnings per share(1)


0.84


0.87


0.60


(0.62
)Diluted net earnings per share(1)(2)


0.84


0.87


0.60


(0.62
)


(1)Net
earnings per share are computed individually for each quarter presented. Therefore, the sum of the quarterly net earnings per share may not necessarily
equal the total for the year.(2)The
Company has potential common stock equivalents related to its outstanding restricted stock awards, restricted stock units and employee stock purchase
plan. These potential common stock equivalents were not included in diluted loss per share for the three months ended December 31, 2014 because the effect would have been anti-dilutive.
Accordingly, basic and diluted loss per common share and the weighted average number of shares used in the computation are the same


F-30

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Table of Contents

KLX INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In millions, except share and per share data)

16. SELECTED QUARTERLY DATA(Unaudited) (Continued)

for
the three months ended December 31, 2014. For each of the other periods presented, the Company had potential common stock equivalents related to its outstanding restricted stock awards,
restricted stock units and employee stock purchase plan as of December 31, 2014 that were considered in the Company's diluted earnings per share calculation. (3)Net
loss in the fourth quarter includes non-recurring costs, including acquisition and integration costs, severance, other Spin-off related costs and exit
taxes related to a major international tax planning initiative aggregating approximately $98.0 ($26.2 in the third quarter).


Year Ended December 31, 2013First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterRevenues

$
329.8

$
316.5

$
320.9

$
324.4Cost of sales


222.5


211.2


217.1


222.0Net earnings


41.2


38.3


37.2


33.7Basic net earnings per share(1)


0.79


0.73


0.71


0.64Diluted net earnings per share(1)


0.79


0.73


0.71


0.64


(1)Net
earnings per share are computed individually for each quarter presented. Therefore, the sum of the quarterly net earnings per share may not necessarily
equal the total for the year.


F-31

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Table of Contents

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS    FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012  (In millions)

Balance At
Beginning
Of Period

Expenses

Other

Write-Offs/
Disposals

Balance At
End
Of PeriodDeducted From Assets:Allowance for doubtful accounts:Year ended December 31, 2014

$
6.0

$
12.4

$
0.2

$
10.5

$
8.1Year ended December 31, 2013


7.5


1.4


0.3


3.2


6.0Year ended December 31, 2012


3.8


3.2


2.5


2.0


7.5Reserve for obsolete inventories:Year ended December 31, 2014

$
30.3

$
4.6

$


$
1.9

$
33.0Year ended December 31, 2013


30.6


2.9





3.2


30.3Year ended December 31, 2012


24.2


6.7





0.3


30.6Deferred tax asset valuation allowance:Year ended December 31, 2014

$
12.8

$


$
12.0

$


$
24.8Year ended December 31, 2013


11.4





1.4





12.8Year ended December 31, 2012


9.5





1.9





11.4


F-32

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